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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Cray Inc | NASDAQ:CRAY | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 35.01 | 34.98 | 35.68 | 0 | 01:00:00 |
ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Washington
|
|
93-0962605
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
901 Fifth Avenue, Suite 1000
Seattle, Washington
|
|
98164
|
(Address of Principal Executive Office)
|
|
(Zip Code)
|
Large accelerated filer
|
ý
|
Accelerated filer
|
¨
|
|
|
|
|
Non-accelerated filer
|
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
|
|
Emerging growth company
|
¨
|
|
Page No.
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017
|
|
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and June 30, 2017
|
|
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2018 and June 30, 2017
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and June 30, 2017
|
|
|
June 30,
2018 |
|
December 31,
2017 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
142,157
|
|
|
$
|
137,326
|
|
Restricted cash
|
1,300
|
|
|
1,964
|
|
||
Short-term investments
|
—
|
|
|
6,997
|
|
||
Accounts and other receivables, net
|
113,138
|
|
|
162,034
|
|
||
Inventory
|
148,153
|
|
|
186,307
|
|
||
Prepaid expenses and other current assets
|
23,134
|
|
|
25,015
|
|
||
Total current assets
|
427,882
|
|
|
519,643
|
|
||
|
|
|
|
||||
Long-term restricted cash
|
1,030
|
|
|
1,030
|
|
||
Long-term investment in sales-type lease, net
|
16,409
|
|
|
23,367
|
|
||
Property and equipment, net
|
37,880
|
|
|
36,623
|
|
||
Goodwill
|
14,182
|
|
|
14,182
|
|
||
Intangible assets other than goodwill, net
|
3,760
|
|
|
4,345
|
|
||
Other non-current assets
|
18,536
|
|
|
19,567
|
|
||
TOTAL ASSETS
|
$
|
519,679
|
|
|
$
|
618,757
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
16,758
|
|
|
$
|
57,207
|
|
Accrued payroll and related expenses
|
16,994
|
|
|
18,546
|
|
||
Other accrued liabilities
|
10,885
|
|
|
9,471
|
|
||
Customer contract liabilities
|
58,575
|
|
|
80,119
|
|
||
Total current liabilities
|
103,212
|
|
|
165,343
|
|
||
|
|
|
|
||||
Long-term customer contract liabilities
|
32,917
|
|
|
38,622
|
|
||
Other non-current liabilities
|
12,823
|
|
|
14,495
|
|
||
TOTAL LIABILITIES
|
148,952
|
|
|
218,460
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock — Authorized and undesignated, 5,000,000 shares; no shares issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock and additional paid-in capital, par value $.01 per share — Authorized, 75,000,000 shares; issued and outstanding 40,815,172 and 40,464,963 shares, respectively
|
639,782
|
|
|
633,408
|
|
||
Accumulated other comprehensive income
|
1,946
|
|
|
915
|
|
||
Accumulated deficit
|
(271,001
|
)
|
|
(234,026
|
)
|
||
TOTAL SHAREHOLDERS’ EQUITY
|
370,727
|
|
|
400,297
|
|
||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
519,679
|
|
|
$
|
618,757
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
|
||||||||
Product
|
|
$
|
83,379
|
|
|
$
|
51,531
|
|
|
$
|
127,833
|
|
|
$
|
72,659
|
|
Service
|
|
36,824
|
|
|
35,604
|
|
|
71,964
|
|
|
73,507
|
|
||||
Total revenue
|
|
120,203
|
|
|
87,135
|
|
|
199,797
|
|
|
146,166
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
||||||||
Cost of product revenue
|
|
65,274
|
|
|
39,515
|
|
|
99,319
|
|
|
54,266
|
|
||||
Cost of service revenue
|
|
17,122
|
|
|
19,277
|
|
|
35,719
|
|
|
39,748
|
|
||||
Total cost of revenue
|
|
82,396
|
|
|
58,792
|
|
|
135,038
|
|
|
94,014
|
|
||||
Gross profit
|
|
37,807
|
|
|
28,343
|
|
|
64,759
|
|
|
52,152
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||||
Research and development, net
|
|
29,382
|
|
|
17,325
|
|
|
59,274
|
|
|
49,965
|
|
||||
Sales and marketing
|
|
15,218
|
|
|
15,247
|
|
|
30,883
|
|
|
29,900
|
|
||||
General and administrative
|
|
5,624
|
|
|
7,205
|
|
|
11,403
|
|
|
16,002
|
|
||||
Restructuring
|
|
—
|
|
|
—
|
|
|
476
|
|
|
—
|
|
||||
Total operating expenses
|
|
50,224
|
|
|
39,777
|
|
|
102,036
|
|
|
95,867
|
|
||||
Loss from operations
|
|
(12,417
|
)
|
|
(11,434
|
)
|
|
(37,277
|
)
|
|
(43,715
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Other income, net
|
|
430
|
|
|
155
|
|
|
48
|
|
|
1,197
|
|
||||
Interest income, net
|
|
667
|
|
|
897
|
|
|
1,380
|
|
|
1,775
|
|
||||
Loss before income taxes
|
|
(11,320
|
)
|
|
(10,382
|
)
|
|
(35,849
|
)
|
|
(40,743
|
)
|
||||
Income tax benefit (expense)
|
|
370
|
|
|
3,542
|
|
|
(109
|
)
|
|
14,688
|
|
||||
Net loss
|
|
$
|
(10,950
|
)
|
|
$
|
(6,840
|
)
|
|
$
|
(35,958
|
)
|
|
$
|
(26,055
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Basic net loss per common share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.65
|
)
|
Diluted net loss per common share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Basic weighted average shares outstanding
|
|
40,616
|
|
|
40,051
|
|
|
40,527
|
|
|
40,022
|
|
||||
Diluted weighted average shares outstanding
|
|
40,616
|
|
|
40,051
|
|
|
40,527
|
|
|
40,022
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net loss
|
|
$
|
(10,950
|
)
|
|
$
|
(6,840
|
)
|
|
$
|
(35,958
|
)
|
|
$
|
(26,055
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
||||||||
Unrealized gain on available-for-sale investments
|
|
9
|
|
|
77
|
|
|
7
|
|
|
94
|
|
||||
Foreign currency translation adjustments
|
|
(1,185
|
)
|
|
(170
|
)
|
|
(1,159
|
)
|
|
440
|
|
||||
Unrealized gain (loss) on cash flow hedges
|
|
2,306
|
|
|
(615
|
)
|
|
1,074
|
|
|
(1,174
|
)
|
||||
Reclassification adjustments on cash flow hedges included in net loss
|
|
633
|
|
|
38
|
|
|
1,109
|
|
|
38
|
|
||||
Other comprehensive income (loss)
|
|
1,763
|
|
|
(670
|
)
|
|
1,031
|
|
|
(602
|
)
|
||||
Comprehensive loss
|
|
$
|
(9,187
|
)
|
|
$
|
(7,510
|
)
|
|
$
|
(34,927
|
)
|
|
$
|
(26,657
|
)
|
|
Six Months Ended
June 30, |
||||||
|
2018
|
|
2017
|
||||
Operating activities:
|
|
|
|
||||
Net loss
|
$
|
(35,958
|
)
|
|
$
|
(26,055
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
8,269
|
|
|
7,893
|
|
||
Share-based compensation expense
|
6,134
|
|
|
5,058
|
|
||
Deferred income taxes
|
(239
|
)
|
|
(14,811
|
)
|
||
Other
|
(145
|
)
|
|
637
|
|
||
Cash provided (used) due to changes in operating assets and liabilities:
|
|
|
|
||||
Accounts and other receivables
|
46,484
|
|
|
124,479
|
|
||
Long-term investment in sales-type lease, net
|
6,673
|
|
|
4,577
|
|
||
Inventory
|
32,755
|
|
|
(68,472
|
)
|
||
Prepaid expenses and other assets
|
(617
|
)
|
|
799
|
|
||
Accounts payable
|
(40,264
|
)
|
|
11,618
|
|
||
Accrued payroll and related expenses and other liabilities
|
3,777
|
|
|
(3,088
|
)
|
||
Customer contract liabilities
|
(27,049
|
)
|
|
(977
|
)
|
||
Net cash provided by (used in) operating activities
|
(180
|
)
|
|
41,658
|
|
||
Investing activities:
|
|
|
|
||||
Sales/maturities of available-for-sale investments
|
7,000
|
|
|
15,000
|
|
||
Purchases of available-for-sale investments
|
—
|
|
|
(94,902
|
)
|
||
Cash received in strategic transaction
|
1,584
|
|
|
—
|
|
||
Purchases of property and equipment
|
(3,275
|
)
|
|
(13,588
|
)
|
||
Net cash provided by (used in) investing activities
|
5,309
|
|
|
(93,490
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock through employee stock purchase plan
|
—
|
|
|
365
|
|
||
Purchase of employee restricted shares to fund related statutory tax withholding
|
(2,569
|
)
|
|
(1,514
|
)
|
||
Proceeds from exercises of stock options
|
1,792
|
|
|
90
|
|
||
Net cash used in financing activities
|
(777
|
)
|
|
(1,059
|
)
|
||
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
|
(185
|
)
|
|
1,281
|
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
4,167
|
|
|
(51,610
|
)
|
||
Cash, cash equivalents and restricted cash:
|
|
|
|
||||
Beginning of period
|
140,320
|
|
|
224,617
|
|
||
End of period
|
$
|
144,487
|
|
|
$
|
173,007
|
|
|
|
|
|
||||
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid for income taxes
|
$
|
401
|
|
|
$
|
990
|
|
Non-cash investing and financing activities:
|
|
|
|
||||
Inventory transfers to fixed assets and service spares
|
$
|
5,503
|
|
|
$
|
887
|
|
|
June 30,
2018 |
|
December 31,
2017 |
||||
Cash and cash equivalents
|
$
|
142,157
|
|
|
$
|
137,326
|
|
Restricted cash (1)
|
1,300
|
|
|
1,964
|
|
||
Long-term restricted cash (1)
|
1,030
|
|
|
1,030
|
|
||
Total cash, cash equivalents and restricted cash
|
$
|
144,487
|
|
|
$
|
140,320
|
|
(1)
|
Restricted cash primarily associated with certain letters of credit to secure customer prepayments and other customer related obligations.
|
|
|
June 30,
2018 |
|
December 31, 2017
|
|
Change
|
||||||
Contract receivables
|
|
$
|
111,300
|
|
|
$
|
167,346
|
|
|
$
|
(56,046
|
)
|
Contract assets
|
|
8,303
|
|
|
9,321
|
|
|
(1,018
|
)
|
|||
Contract liabilities
|
|
91,492
|
|
|
118,741
|
|
|
(27,249
|
)
|
|
|
Americas
|
|
EMEA
|
|
Asia Pacific & Japan
|
|
Total
|
||||||||
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
||||||||
Supercomputing
|
|
$
|
44,318
|
|
|
$
|
14,148
|
|
|
$
|
43,305
|
|
|
$
|
101,771
|
|
Storage and Data Management
|
|
6,876
|
|
|
3,268
|
|
|
2,817
|
|
|
12,961
|
|
||||
Maintenance and Support
|
|
21,117
|
|
|
7,752
|
|
|
5,425
|
|
|
34,294
|
|
||||
Engineering Services and Other
|
|
5,189
|
|
|
58
|
|
|
224
|
|
|
5,471
|
|
||||
Elimination of inter-segment revenue
|
|
(21,117
|
)
|
|
(7,752
|
)
|
|
(5,425
|
)
|
|
(34,294
|
)
|
||||
Total revenue
|
|
$
|
56,383
|
|
|
$
|
17,474
|
|
|
$
|
46,346
|
|
|
$
|
120,203
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Americas
|
|
EMEA
|
|
Asia Pacific & Japan
|
|
Total
|
||||||||
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
||||||||
Supercomputing
|
|
$
|
64,927
|
|
|
$
|
22,806
|
|
|
$
|
69,904
|
|
|
$
|
157,637
|
|
Storage and Data Management
|
|
14,914
|
|
|
7,444
|
|
|
11,356
|
|
|
33,714
|
|
||||
Maintenance and Support
|
|
41,663
|
|
|
15,241
|
|
|
10,224
|
|
|
67,128
|
|
||||
Engineering Services and Other
|
|
7,910
|
|
|
118
|
|
|
418
|
|
|
8,446
|
|
||||
Elimination of inter-segment revenue
|
|
(41,663
|
)
|
|
(15,241
|
)
|
|
(10,224
|
)
|
|
(67,128
|
)
|
||||
Total revenue
|
|
$
|
87,751
|
|
|
$
|
30,368
|
|
|
$
|
81,678
|
|
|
$
|
199,797
|
|
Description
|
|
Fair Value
as of June 30, 2018 |
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
||||||
Assets:
|
|
|
|
|
|
|
||||||
Cash, cash equivalents and restricted cash
|
|
$
|
144,487
|
|
|
$
|
144,487
|
|
|
$
|
—
|
|
Foreign currency exchange contracts (1)
|
|
3,522
|
|
|
—
|
|
|
3,522
|
|
|||
Assets measured at fair value at June 30, 2018
|
|
$
|
148,009
|
|
|
$
|
144,487
|
|
|
$
|
3,522
|
|
Liabilities:
|
|
|
|
|
|
|
||||||
Foreign currency exchange contracts (2)
|
|
197
|
|
|
—
|
|
|
197
|
|
|||
Liabilities measured at fair value at June 30, 2018
|
|
$
|
197
|
|
|
$
|
—
|
|
|
$
|
197
|
|
(1)
|
Included in “Prepaid expenses and other current assets” and “Other non-current assets” on the Company’s Condensed Consolidated Balance Sheets.
|
(2)
|
Included in “Other accrued liabilities” and “Other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheets.
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||
Euros (EUR)
|
|
0.8
|
|
|
2.1
|
|
Japanese Yen (JPY)
|
|
1,006.7
|
|
|
4,345.6
|
|
Canadian Dollars (CAD)
|
|
54.4
|
|
|
56.0
|
|
New Zealand Dollars (NZD)
|
|
—
|
|
|
16.2
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||
British Pounds (GBP)
|
22.2
|
|
|
26.1
|
|
Euros (EUR)
|
3.1
|
|
|
4.7
|
|
Swiss Francs (CHF)
|
—
|
|
|
2.6
|
|
Canadian Dollars (CAD)
|
0.2
|
|
|
0.3
|
|
Japanese Yen (JPY)
|
2,260.0
|
|
|
—
|
|
Balance Sheet Location
|
|
Fair Value
as of June 30, 2018 |
|
Fair Value
as of December 31, 2017 |
||||
Prepaid expenses and other current assets
|
|
$
|
488
|
|
|
$
|
546
|
|
Other accrued liabilities
|
|
—
|
|
|
(129
|
)
|
||
Other non-current liabilities
|
|
(126
|
)
|
|
(1,907
|
)
|
||
Total fair value of derivative instruments designated as cash flow hedges
|
|
$
|
362
|
|
|
$
|
(1,490
|
)
|
Balance Sheet Location
|
|
Fair Value
as of June 30, 2018 |
|
Fair Value
as of December 31, 2017 |
||||
Prepaid expenses and other current assets
|
|
$
|
1,625
|
|
|
$
|
1,252
|
|
Other non-current assets
|
|
1,409
|
|
|
1,453
|
|
||
Other accrued liabilities
|
|
(71
|
)
|
|
(395
|
)
|
||
Total fair value of derivative instruments not designated as cash flow hedges
|
|
$
|
2,963
|
|
|
$
|
2,310
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Gross of tax reclassifications
|
|
$
|
(633
|
)
|
|
$
|
(64
|
)
|
|
$
|
(1,109
|
)
|
|
$
|
(64
|
)
|
Net of tax reclassifications
|
|
$
|
(633
|
)
|
|
$
|
(38
|
)
|
|
$
|
(1,109
|
)
|
|
$
|
(38
|
)
|
Three Months Ended June 30, 2018
|
||||||||||||||||
|
|
Unrealized Loss on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
(9
|
)
|
|
$
|
1,637
|
|
|
$
|
(1,445
|
)
|
|
$
|
183
|
|
Current-period change, net of tax
|
|
9
|
|
|
(1,185
|
)
|
|
2,939
|
|
|
1,763
|
|
||||
Ending balance
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
1,494
|
|
|
$
|
1,946
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Three Months Ended June 30, 2017
|
||||||||||||||||
|
|
Unrealized Gain on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
17
|
|
|
$
|
2,711
|
|
|
$
|
122
|
|
|
$
|
2,850
|
|
Current-period change, net of tax
|
|
77
|
|
|
(170
|
)
|
|
(577
|
)
|
|
(670
|
)
|
||||
Ending balance
|
|
$
|
94
|
|
|
$
|
2,541
|
|
|
$
|
(455
|
)
|
|
$
|
2,180
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
51
|
|
|
$
|
20
|
|
|
$
|
(384
|
)
|
|
$
|
(313
|
)
|
Six Months Ended June 30, 2018
|
||||||||||||||||
|
|
Unrealized Loss on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
(7
|
)
|
|
$
|
1,611
|
|
|
$
|
(689
|
)
|
|
$
|
915
|
|
Current-period change, net of tax
|
|
7
|
|
|
(1,159
|
)
|
|
2,183
|
|
|
1,031
|
|
||||
Ending balance
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
1,494
|
|
|
$
|
1,946
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Six Months Ended June 30, 2017
|
||||||||||||||||
|
|
Unrealized Gain on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
—
|
|
|
$
|
2,101
|
|
|
$
|
681
|
|
|
$
|
2,782
|
|
Current-period change, net of tax
|
|
94
|
|
|
440
|
|
|
(1,136
|
)
|
|
(602
|
)
|
||||
Ending balance
|
|
$
|
94
|
|
|
$
|
2,541
|
|
|
$
|
(455
|
)
|
|
$
|
2,180
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
63
|
|
|
$
|
195
|
|
|
$
|
(757
|
)
|
|
$
|
(499
|
)
|
|
|
|
|
Unrealized Loss
|
|
|
||||||
|
|
Cost
|
|
|
Fair Value
|
|||||||
Short-term available-for-sale securities
|
|
$
|
7,007
|
|
|
$
|
(10
|
)
|
|
$
|
6,997
|
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||||
Trade accounts receivable
|
|
$
|
84,513
|
|
|
$
|
131,151
|
|
Current contract assets
|
|
6,067
|
|
|
9,321
|
|
||
Advance billings
|
|
1,865
|
|
|
3,569
|
|
||
Short-term investment in sales-type lease
|
|
12,082
|
|
|
10,684
|
|
||
Other receivables
|
|
8,638
|
|
|
7,337
|
|
||
|
|
113,165
|
|
|
162,062
|
|
||
Allowance for doubtful accounts
|
|
(27
|
)
|
|
(28
|
)
|
||
Accounts and other receivables, net
|
|
$
|
113,138
|
|
|
$
|
162,034
|
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||||
Total minimum lease payments to be received
|
|
$
|
33,971
|
|
|
$
|
42,268
|
|
Less: executory costs
|
|
(4,574
|
)
|
|
(6,831
|
)
|
||
Net minimum lease payments receivable
|
|
29,397
|
|
|
35,437
|
|
||
Less: unearned income
|
|
(906
|
)
|
|
(1,386
|
)
|
||
Net investment in sales-type lease
|
|
28,491
|
|
|
34,051
|
|
||
Less: long-term investment in sales-type lease
|
|
(16,409
|
)
|
|
(23,367
|
)
|
||
Investment in sales-type lease included in accounts and other receivables
|
|
$
|
12,082
|
|
|
$
|
10,684
|
|
2018 (less than 1 year)
|
|
$
|
7,553
|
|
2019
|
|
15,105
|
|
|
2020
|
|
11,313
|
|
|
Total minimum lease payments to be received
|
|
$
|
33,971
|
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||||
Components and subassemblies
|
|
$
|
34,263
|
|
|
$
|
37,219
|
|
Work in process
|
|
45,589
|
|
|
59,456
|
|
||
Finished goods
|
|
68,301
|
|
|
89,632
|
|
||
Total
|
|
$
|
148,153
|
|
|
$
|
186,307
|
|
|
|
June 30,
2018 |
|
December 31, 2017
|
||||
Contract liability - product
|
|
$
|
7,055
|
|
|
$
|
22,245
|
|
Contract liability - service
|
|
84,437
|
|
|
96,496
|
|
||
Total contract liabilities
|
|
91,492
|
|
|
118,741
|
|
||
Less: long-term contract liabilities
|
|
(32,917
|
)
|
|
(38,622
|
)
|
||
Current contract liabilities
|
|
$
|
58,575
|
|
|
$
|
80,119
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.85%
|
|
1.61%
|
|
2.85%
|
|
1.61%
|
Expected dividend yield
|
|
—%
|
|
—%
|
|
—%
|
|
—%
|
Volatility
|
|
48.93%
|
|
54.19%
|
|
48.93%
|
|
54.20%
|
Expected life
|
|
4.0 years
|
|
4.0 years
|
|
4.0 years
|
|
4.0 years
|
Weighted average Black-Scholes value of options granted
|
|
$11.13
|
|
$7.76
|
|
$11.13
|
|
$7.75
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|||
Outstanding at December 31, 2017
|
|
2,034,474
|
|
|
$
|
17.26
|
|
|
|
Grants
|
|
168,803
|
|
|
$
|
27.10
|
|
|
|
Exercises
|
|
(192,814
|
)
|
|
$
|
9.30
|
|
|
|
Canceled and forfeited
|
|
(64,527
|
)
|
|
$
|
26.75
|
|
|
|
Outstanding at June 30, 2018
|
|
1,945,936
|
|
|
$
|
18.59
|
|
|
5.7
|
Exercisable at June 30, 2018
|
|
1,430,360
|
|
|
$
|
16.57
|
|
|
4.6
|
Available for grant at June 30, 2018
|
|
2,618,570
|
|
|
|
|
|
|
|
Service Vesting Restricted Shares
|
|||||
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|||
Outstanding at December 31, 2017
|
|
112,325
|
|
|
$
|
24.09
|
|
Granted
|
|
28,469
|
|
|
$
|
27.10
|
|
Forfeited
|
|
(680
|
)
|
|
$
|
26.26
|
|
Vested
|
|
(85,595
|
)
|
|
$
|
23.05
|
|
Outstanding at June 30, 2018
|
|
54,519
|
|
|
$
|
27.02
|
|
|
|
Service Vesting Restricted Stock Units
|
|
Performance Vesting Restricted Stock Units
|
|
Total Restricted Stock Units
|
|||||||||||||||
|
|
Units
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Units
|
|
Weighted
Average Grant Date Fair Value |
|
Units
|
|
Weighted Average Grant Date Fair Value
|
|||||||||
Outstanding at December 31, 2017
|
|
988,023
|
|
|
$
|
21.29
|
|
|
482,485
|
|
|
$
|
30.13
|
|
|
1,470,508
|
|
|
$
|
24.19
|
|
Granted
|
|
294,203
|
|
|
$
|
26.61
|
|
|
—
|
|
|
$
|
—
|
|
|
294,203
|
|
|
$
|
26.61
|
|
Forfeited
|
|
(41,116
|
)
|
|
$
|
21.97
|
|
|
—
|
|
|
$
|
—
|
|
|
(41,116
|
)
|
|
$
|
21.97
|
|
Vested
|
|
(228,564
|
)
|
|
$
|
22.41
|
|
|
—
|
|
|
$
|
—
|
|
|
(228,564
|
)
|
|
$
|
22.41
|
|
Outstanding at June 30, 2018
|
|
1,012,546
|
|
|
$
|
22.55
|
|
|
482,485
|
|
|
$
|
30.13
|
|
|
1,495,031
|
|
|
$
|
25.00
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Cost of product revenue
|
|
$
|
110
|
|
|
$
|
76
|
|
|
$
|
216
|
|
|
$
|
116
|
|
Cost of service revenue
|
|
103
|
|
|
69
|
|
|
200
|
|
|
135
|
|
||||
Research and development, net
|
|
1,101
|
|
|
907
|
|
|
1,961
|
|
|
1,798
|
|
||||
Sales and marketing
|
|
744
|
|
|
315
|
|
|
1,478
|
|
|
1,200
|
|
||||
General and administrative
|
|
1,134
|
|
|
940
|
|
|
2,279
|
|
|
1,809
|
|
||||
Total
|
|
$
|
3,192
|
|
|
$
|
2,307
|
|
|
$
|
6,134
|
|
|
$
|
5,058
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Effective tax rates
|
|
3%
|
|
34%
|
|
—%
|
|
36%
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
|
||||||||
Supercomputing
|
|
$
|
101,771
|
|
|
$
|
64,772
|
|
|
$
|
157,637
|
|
|
$
|
95,015
|
|
Storage and Data Management
|
|
12,961
|
|
|
15,744
|
|
|
33,714
|
|
|
31,289
|
|
||||
Maintenance and Support
|
|
34,294
|
|
|
31,045
|
|
|
67,128
|
|
|
60,782
|
|
||||
Engineering Services and Other
|
|
5,471
|
|
|
6,619
|
|
|
8,446
|
|
|
19,862
|
|
||||
Elimination of inter-segment revenue
|
|
(34,294
|
)
|
|
(31,045
|
)
|
|
(67,128
|
)
|
|
(60,782
|
)
|
||||
Total revenue
|
|
$
|
120,203
|
|
|
$
|
87,135
|
|
|
$
|
199,797
|
|
|
$
|
146,166
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross Profit:
|
|
|
|
|
|
|
|
|
||||||||
Supercomputing
|
|
$
|
29,051
|
|
|
$
|
20,164
|
|
|
$
|
47,172
|
|
|
$
|
31,823
|
|
Storage and Data Management
|
|
5,316
|
|
|
5,728
|
|
|
12,349
|
|
|
12,219
|
|
||||
Maintenance and Support
|
|
17,871
|
|
|
14,759
|
|
|
32,946
|
|
|
28,577
|
|
||||
Engineering Services and Other
|
|
3,440
|
|
|
2,451
|
|
|
5,238
|
|
|
8,110
|
|
||||
Elimination of inter-segment gross profit
|
|
(17,871
|
)
|
|
(14,759
|
)
|
|
(32,946
|
)
|
|
(28,577
|
)
|
||||
Total gross profit
|
|
$
|
37,807
|
|
|
$
|
28,343
|
|
|
$
|
64,759
|
|
|
$
|
52,152
|
|
|
|
United States
|
|
Other Countries
|
|
Total
|
||||||||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product revenue
|
|
$
|
31,155
|
|
|
$
|
38,826
|
|
|
$
|
52,224
|
|
|
$
|
12,705
|
|
|
$
|
83,379
|
|
|
$
|
51,531
|
|
Service revenue
|
|
22,470
|
|
|
24,641
|
|
|
14,354
|
|
|
10,963
|
|
|
36,824
|
|
|
35,604
|
|
||||||
Total revenue
|
|
$
|
53,625
|
|
|
$
|
63,467
|
|
|
$
|
66,578
|
|
|
$
|
23,668
|
|
|
$
|
120,203
|
|
|
$
|
87,135
|
|
|
|
United States
|
|
Other Countries
|
|
Total
|
||||||||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product revenue
|
|
$
|
38,172
|
|
|
$
|
52,141
|
|
|
$
|
89,661
|
|
|
$
|
20,518
|
|
|
$
|
127,833
|
|
|
$
|
72,659
|
|
Service revenue
|
|
44,231
|
|
|
51,202
|
|
|
27,733
|
|
|
22,305
|
|
|
71,964
|
|
|
73,507
|
|
||||||
Total revenue
|
|
$
|
82,403
|
|
|
$
|
103,343
|
|
|
$
|
117,394
|
|
|
$
|
42,823
|
|
|
$
|
199,797
|
|
|
$
|
146,166
|
|
•
|
convergence of traditional supercomputing modeling simulation with big data analytics and AI;
|
•
|
supercomputing with many-core commodity processors driving increasing scalability requirements;
|
•
|
increased micro-architectural diversity, including increased usage of many-core processors and accelerators (such as graphics processors or GPU’s), as the rate of increases in per-core performance slows;
|
•
|
data I/O and storage capacity needs growing faster than computational needs;
|
•
|
the rise of AI along using machine learning and deep learning algorithms which utilize HPC technologies for performance and scale;
|
•
|
technology innovations in memory and storage allowing for faster data access such as high bandwidth memory, NVRAM, SSDs and flash devices;
|
•
|
the increasing commoditization of HPC hardware, particularly processors and system interconnects;
|
•
|
the growing concentration of very large suppliers of key computing, memory and storage components in the industry;
|
•
|
the growing commoditization of software, including more capable open source software;
|
•
|
electrical power and system cooling requirements becoming a design constraint and driver in total cost of ownership determinations;
|
•
|
increasing use of AI and analytics technologies (Hadoop, Spark, NoSQL and Graph) in both the HPC and big data markets;
|
•
|
increased adoption of cloud computing as a solution for loosely-coupled HPC applications;
|
•
|
much higher memory costs during the past year; and
|
•
|
significant variability in market demand for supercomputers from quarter-to-quarter and year-to-year.
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Product revenue
|
|
$
|
83,379
|
|
|
$
|
51,531
|
|
|
$
|
127,833
|
|
|
$
|
72,659
|
|
Less: Cost of product revenue
|
|
65,274
|
|
|
39,515
|
|
|
99,319
|
|
|
54,266
|
|
||||
Product gross profit
|
|
$
|
18,105
|
|
|
$
|
12,016
|
|
|
$
|
28,514
|
|
|
$
|
18,393
|
|
Product gross profit margin
|
|
22
|
%
|
|
23
|
%
|
|
22
|
%
|
|
25
|
%
|
||||
Service revenue
|
|
$
|
36,824
|
|
|
$
|
35,604
|
|
|
$
|
71,964
|
|
|
$
|
73,507
|
|
Less: Cost of service revenue
|
|
17,122
|
|
|
19,277
|
|
|
35,719
|
|
|
39,748
|
|
||||
Service gross profit
|
|
$
|
19,702
|
|
|
$
|
16,327
|
|
|
$
|
36,245
|
|
|
$
|
33,759
|
|
Service gross profit margin
|
|
54
|
%
|
|
46
|
%
|
|
50
|
%
|
|
46
|
%
|
||||
Total revenue
|
|
$
|
120,203
|
|
|
$
|
87,135
|
|
|
$
|
199,797
|
|
|
$
|
146,166
|
|
Less: Total cost of revenue
|
|
82,396
|
|
|
58,792
|
|
|
135,038
|
|
|
94,014
|
|
||||
Total gross profit
|
|
$
|
37,807
|
|
|
$
|
28,343
|
|
|
$
|
64,759
|
|
|
$
|
52,152
|
|
Total gross profit margin
|
|
31
|
%
|
|
33
|
%
|
|
32
|
%
|
|
36
|
%
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Gross research and development expenses
|
|
$
|
36,244
|
|
|
$
|
33,791
|
|
|
$
|
74,280
|
|
|
$
|
71,802
|
|
Less: Amounts included in cost of revenue
|
|
(708
|
)
|
|
(2,999
|
)
|
|
(1,555
|
)
|
|
(7,559
|
)
|
||||
Less: Reimbursed research and development (excludes amounts in cost of revenue)
|
|
(6,154
|
)
|
|
(13,467
|
)
|
|
(13,451
|
)
|
|
(14,278
|
)
|
||||
Net research and development expenses
|
|
$
|
29,382
|
|
|
$
|
17,325
|
|
|
$
|
59,274
|
|
|
$
|
49,965
|
|
Percentage of total revenue
|
|
24
|
%
|
|
20
|
%
|
|
30
|
%
|
|
34
|
%
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Sales and marketing
|
|
$
|
15,218
|
|
|
$
|
15,247
|
|
|
$
|
30,883
|
|
|
$
|
29,900
|
|
Percentage of total revenue
|
|
13
|
%
|
|
17
|
%
|
|
15
|
%
|
|
20
|
%
|
||||
General and administrative
|
|
$
|
5,624
|
|
|
$
|
7,205
|
|
|
$
|
11,403
|
|
|
$
|
16,002
|
|
Percentage of total revenue
|
|
5
|
%
|
|
8
|
%
|
|
6
|
%
|
|
11
|
%
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Interest income
|
|
$
|
669
|
|
|
$
|
906
|
|
|
$
|
1,369
|
|
|
$
|
1,792
|
|
Interest expense
|
|
(2
|
)
|
|
(9
|
)
|
|
11
|
|
|
(17
|
)
|
||||
Interest income, net
|
|
$
|
667
|
|
|
$
|
897
|
|
|
$
|
1,380
|
|
|
$
|
1,775
|
|
|
|
Six Months Ended
June 30, |
||||||
|
|
2018
|
|
2017
|
||||
Cash provided by (used in):
|
|
|
|
|
||||
Operating Activities
|
|
$
|
(180
|
)
|
|
$
|
41,658
|
|
Investing Activities
|
|
$
|
5,309
|
|
|
$
|
(93,490
|
)
|
Financing Activities
|
|
$
|
(777
|
)
|
|
$
|
(1,059
|
)
|
|
Amounts Committed by Year
|
||||||||||||||||||
Contractual Obligations
|
Total
|
|
2018
(Less than
1 Year)
|
|
2019-2020
|
|
2021-2022
|
|
Thereafter
|
||||||||||
Development agreements
|
$
|
18,764
|
|
|
$
|
13,429
|
|
|
$
|
5,335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating leases
|
50,167
|
|
|
3,676
|
|
|
13,174
|
|
|
12,608
|
|
|
20,709
|
|
|||||
Total contractual cash obligations
|
$
|
68,931
|
|
|
$
|
17,105
|
|
|
$
|
18,509
|
|
|
$
|
12,608
|
|
|
$
|
20,709
|
|
Item 1A. Risk Factors
|
•
|
our ability to secure sufficient orders at high enough gross margins for our Cray XC and Cray CS systems as well as upgrades and successor systems, such as our next generation “Shasta” system;
|
•
|
successfully delivering and obtaining sufficient customer acceptances of ordered systems, including attached storage systems;
|
•
|
delays in delivery of upgraded or new systems, such as our next generation “Shasta” system, longer than expected customer acceptance cycles or penalties resulting from system acceptance issues;
|
•
|
revenue delays or losses due to customers postponing purchases as a result of delays in available budgets or waiting for the availability of future processors or upgraded or new systems, such as our next generation Shasta systems;
|
•
|
our ability to successfully integrate the ClusterStor product line, business and associated sales channel and our ability to successfully generate revenue and profitability from sales of our storage, data analytics and AI solutions;
|
•
|
our ability to successfully and timely design for, procure and integrate competitive processors for our Cray XC and Cray CS systems and upgrades and successor systems, such as our next generation “Shasta” system;
|
•
|
our expense levels, including research and development expense;
|
•
|
our ability to secure additional government funding for future development projects;
|
•
|
our ability to resolve and the costs incurred in connection with any actual or alleged issues with our products, including third-party components of such products, such as those that relate to product defects, such as the current “Meltdown” and “Spectre” processor vulnerabilities or intellectual property rights;
|
•
|
our ability to efficiently scale our internal processes to meet necessary peak requirements and growth in our business;
|
•
|
the level of revenue recognized in any given period, which is affected by the very high average sales prices and limited number of significant system sales and resulting potential acceptances in any quarter, the timing of product orders and acceptances by customers and contractual provisions affecting the timing and amount of revenue recognition;
|
•
|
our ability to continue to broaden our customer base beyond our traditional customers;
|
•
|
the level of product gross profit contribution in any given period due to volume, competition or product mix, particularly with the introduction of flexible commodity-based supercomputers, competitive factors, strategic transactions, product life cycle, currency fluctuations, acceptance penalties and component costs;
|
•
|
the competitiveness of our products, services and prices;
|
•
|
maintaining and successfully completing our product development projects on schedule and within budgetary limitations;
|
•
|
the level and timing of maintenance contract renewals with existing customers; and
|
•
|
the terms and conditions of sale or lease for our products and services.
|
•
|
whether or when we will realize any significant benefit from a rebound in the segments of the high-end of the supercomputing market that we target or how strong or long-lived such a rebound will be;
|
•
|
the timely availability of acceptable components, including, but not limited to, processors and memory, in sufficient quantities to meet customer delivery schedules and other customer commitments at a competitive cost and the identification of issues with already-delivered components, including processors, that require remediation and/or impact the performance of our products;
|
•
|
the timing and level of government funding and resources available for product acquisitions and research and development contracts, which have been, and may continue to be, adversely affected by the current global economic and fiscal uncertainties, increased governmental budgetary limitations and disruptions in the operations of the United States and other governments;
|
•
|
competitor and supplier pricing strategies;
|
•
|
new tariffs or taxes imposed by the United States on components and products sourced or manufactured outside of the United States, or by foreign governments on U.S.-manufactured or U.S.-designed products and services, or related trade disputes;
|
•
|
declining U.S. relations with foreign entities, including between the U.S. government and foreign governments, may make it more difficult to sell U.S.-manufactured or U.S.-designed systems to those entities of governments, or in those countries;
|
•
|
currency fluctuations, international conflicts or economic crises, and fluctuations in oil prices that can affect the resources available to potential customers to purchase products;
|
•
|
the introduction or announcement of competitive or key industry supplier products;
|
•
|
price fluctuations or product shortages in the processors and other commodity electronics and memory markets;
|
•
|
the availability of adequate customer facilities to install and operate new Cray systems;
|
•
|
general economic trends, including changes in levels of customer capital spending; and
|
•
|
our customers’ ability to make future payments in accordance with contractual terms of their purchase or sales-type lease agreements.
|
•
|
the level of product differentiation in our Cray XC systems and successor systems, such as our next generation Shasta system. We need to compete successfully against HPC systems from both large, established companies and smaller companies and demonstrate the value of our balanced, tightly integrated systems to our customers in a variety of markets;
|
•
|
our ability to meet all customer requirements for acceptance. Even after a system has been delivered, we sometimes do not meet all of the contract requirements for customer acceptance and ongoing reliability of our systems within the provided-for acceptance period, which has resulted in contract penalties and delays in our ability to recognize revenue from system deliveries. Most often these penalties have adversely affected revenue and gross profit through the provision of additional equipment and services and/or service credits to satisfy delivery delays and performance shortfalls. The risk of contract penalties is increased when we bid for new business prior to us or our suppliers completing development of new products and when we must estimate future system performance and costs, such as has been and will be required with our Cray XC systems, ClusterStor storage systems and our next generation “Shasta” systems;
|
•
|
our ability to source competitive, key components in appropriate quantities (to have enough to sell without ending up with excess inventory that can lead to obsolescence charges), in a timely fashion and with reasonable costs and terms and conditions and that meet the performance criteria required; and
|
•
|
whether potential customers delay purchases of our products because they decide to wait for successor systems or upgrades that we or our suppliers have announced or they believe will be available in the future.
|
•
|
if a supplier does not provide components or systems that meet specifications in sufficient quantities and with acceptable performance, price or quality on time or deliver when required, or delays future components or systems beyond anticipated delivery dates, then sales, production, delivery, acceptance and revenue from our systems could be delayed and/or reduced and we could be subject to costly repair and/or delay costs and penalties even once delivered and accepted, which is currently happening and has happened multiple times in the past and has at times significantly lowered our revenue for a particular quarter or year;
|
•
|
if a supplier plans future processors that are made available in a way that encourages customers to delay purchases of our products because they decide to wait for successor systems or upgrades they believe will be available in the future or to purchase products with future processors from our competitors who are willing to take greater risk on delivery, our operating results will be adversely affected;
|
•
|
if a supplier provides us with hardware or software that contains bugs or other errors, defects or security vulnerabilities, such as the recent “Meltdown and “Spectre” processor vulnerabilities, or is different from what we expected, our development projects and production systems may be adversely affected through reduced performance or capabilities, additional design testing and verification efforts, including of required patches, re-spins of integrated circuits and/or development of replacement components, and the production and sales of our systems could be delayed and systems installed at customer sites could require significant, expensive field component replacements or other remediation and/or we might be required to pay penalties;
|
•
|
if our relationship with a key supplier, such as Intel, is adversely affected for any reason, such as due to competitive pressures or changes in company strategies and priorities, our ability to obtain components on competitive financial terms could be adversely affected;
|
•
|
if a supplier cannot provide a competitive key component, for example, due to inadequate performance or a prohibitive price, or eliminates key features from components, such as with the processors we design into our systems, our systems may be less competitive than systems using components with greater capabilities;
|
•
|
if an interruption of supply of our components, services or capabilities occurs because a supplier changes its technology roadmap, suffers damage to its manufacturing facilities, decides to no longer provide those products or services, increases the price of those products or services significantly or imposes reduced delivery allocations on its customers, it could take us a considerable period of time to identify and qualify alternative suppliers, to redesign our products as necessary and to begin to manufacture the redesigned components or otherwise obtain those services or capabilities. In some cases, such as with key integrated circuits and memory parts or processors, we may not be able to redesign such components or find alternate sources that we could use in any realistic timeframe, if at all;
|
•
|
if Cray systems at customer sites develop significant issues with third-party components, as has occurred in the past, the cost to Cray to repair or replace the components or otherwise address such issue may be material. If we are unable to effectively address such problem or a problem causes customer disruption, our relationship with our customers may also be harmed;
|
•
|
if a supplier of a component is subject to a claim that the component infringes a third-party’s intellectual property rights, as has happened with multiple suppliers, we may not be able to obtain necessary components or our cost to obtain such components could increase significantly;
|
•
|
if a key supplier is acquired or undergoes a significant business change, as has occurred in the past, the production and sales of our systems and services may be delayed or adversely affected, or our development programs may be delayed or may be impossible to complete;
|
•
|
if a supplier providing us with key research and development and design services or core technology components with respect to integrated circuit design, network communication capabilities or software is late, fails to provide us with effective functionality or loses key internal talent, our development programs may be delayed or prove to be impossible to complete; and
|
•
|
some of our key component and service suppliers are small companies with limited financial and other resources, and consequently may be more likely to experience financial and operational difficulties than larger, well-established companies, which increases the risk that they will be unable to deliver products as needed.
|
•
|
uncertainties relating to priorities of the current administration or adverse decisions by the current administration to reduce or eliminate budgets for governmental agencies or departments that purchase or fund the purchase of our products and services;
|
•
|
Congressional and executive branch decisions in addressing budget concerns and current policy;
|
•
|
disruptions in the operations of the U.S. Government, including impacts of the current administration and government “shutdowns” such as recently occurred;
|
•
|
“sequestration”;
|
•
|
the downgrading of U.S. Government debt or the possibility of such action;
|
•
|
the political climate in the United States focusing on cutting or limiting budgets and its effect on government budgets;
|
•
|
the limits on federal borrowing capacity;
|
•
|
changes in procurement policies;
|
•
|
budgetary considerations, including Congressional delays in completing appropriation bills as has occurred in the past;
|
•
|
domestic crises, such as costs of addressing the damage associated with natural disasters;
|
•
|
international political developments, such as the downgrading of European debt or the United Kingdom’s departure from the European Union; or
|
•
|
political efforts to limit the activities of U.S. intelligence community agencies, including proposed state legislation that would limit or even criminalize doing business with the U.S. National Security Agency for certain companies doing business with state governments.
|
•
|
pay third-party infringement claims;
|
•
|
discontinue manufacturing, using or selling particular products subject to infringement claims;
|
•
|
discontinue using the technology or processes subject to infringement claims;
|
•
|
develop other technology not subject to infringement claims, which could be time-consuming and costly or may not be possible; and/or
|
•
|
license technology from third-parties, which license may not be available on commercially reasonable terms, or at all.
|
•
|
difficulties in successfully integrating the operations, systems, technologies, products, sales channels, manufacturing processes, offerings and personnel of the acquired company or companies, assets and/or business;
|
•
|
insufficient revenue, margin or other benefits to offset increased expenses or other negative impacts associated with acquisitions or strategic transactions;
|
•
|
diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions or strategic transactions, including other customers of an acquired business;
|
•
|
potential difficulties in completing projects associated with in-process research and development intangibles;
|
•
|
difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
|
•
|
initial dependence on unfamiliar supply chains or relatively small supply partners;
|
•
|
the potential loss of key employees, customers, distributors, vendors and other business partners of the companies or businesses we acquire following and continuing after announcement of any transaction; and
|
•
|
the potential to invest significant time and resources into a potential acquisition or strategic transaction that does not ultimately complete or close.
|
•
|
use a substantial portion of our cash reserves or incur debt;
|
•
|
issue equity securities or grant equity incentives to acquired employees that would dilute our current shareholders’ percentage ownership;
|
•
|
assume or incur liabilities, including potentially unknown or underestimated liabilities;
|
•
|
record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;
|
•
|
incur amortization expenses related to certain intangible assets;
|
•
|
incur large and immediate write-offs and restructuring and other related expenses; or
|
•
|
become subject to intellectual property litigation or other litigation.
|
•
|
supporting multiple languages;
|
•
|
recruiting sales and technical support personnel internationally with the skills to sell and support our products and the potentially high cost related to employee separations;
|
•
|
complying with governmental regulations, including obtaining required import or export approval for our products;
|
•
|
additional tariffs, taxes and penalties;
|
•
|
increased complexity and costs of managing international operations;
|
•
|
increased exposure to foreign currency exchange rate fluctuations;
|
•
|
trade protection measures and business practices that favor local competition, including as a result of recent measures and threats by the United States to levy tariffs on certain products;
|
•
|
risks and costs associated with employee-favorable labor laws in many foreign jurisdictions;
|
•
|
longer sales cycles and manufacturing lead times;
|
•
|
financial risks such as longer payment cycles and difficulties in collecting accounts receivable;
|
•
|
difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner;
|
•
|
ineffective legal protection of intellectual property rights;
|
•
|
more complicated logistics and distribution arrangements;
|
•
|
inadequate local infrastructure that could result in business disruptions;
|
•
|
global political and economic instability; and
|
•
|
other factors beyond our control such as natural disasters, terrorism, civil unrest, war and infectious disease.
|
•
|
removal of a director only in limited circumstances and only upon the affirmative vote of not less than two-thirds of the shares entitled to vote to elect directors;
|
•
|
the ability of our Board of Directors to issue up to 5,000,000 shares of preferred stock, without shareholder approval, with rights senior to those of the common stock;
|
•
|
no cumulative voting of shares;
|
•
|
the right of shareholders to call a special meeting of the shareholders only upon demand by the holders of not less than 30% of the shares entitled to vote at such a meeting;
|
•
|
the affirmative vote of not less than two-thirds of the outstanding shares entitled to vote on an amendment, unless the amendment was approved by a majority of our continuing directors, who are defined as directors who have either served as a director since August 31, 1995, or were nominated to be a director by the continuing directors;
|
•
|
special voting requirements for mergers and other business combinations, unless the proposed transaction was approved by a majority of continuing directors;
|
•
|
special procedures to bring matters before our shareholders at our annual shareholders’ meeting; and
|
•
|
special procedures to nominate members for election to our Board of Directors.
|
Item 6. Exhibits
|
|
Exhibit
|
|
Exhibit Description
|
|
Incorporated by Reference
|
|
|
|||||||
|
|
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit/Annex
|
|
Filed Herewith
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
32.1*
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
CRAY INC.
|
|
|
|
Date:
|
July 31, 2018
|
/
S
/ P
ETER
J. U
NGARO
|
|
|
Peter J. Ungaro
|
|
|
President and Chief Executive Officer
|
|
|
|
Date:
|
July 31, 2018
|
/
S
/ B
RIAN
C. H
ENRY
|
|
|
Brian C. Henry
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
Date:
|
July 31, 2018
|
/
S
/ C
HARLES
D. F
AIRCHILD
|
|
|
Charles D. Fairchild
|
|
|
Vice President, Corporate Controller and Chief Accounting Officer
|
1 Year Cray Chart |
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