UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
June 30, 2002
OR
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to __________
Commission file number 0-26820
Washington (State or other jurisdiction of incorporation or organization) |
93-0962605 (I.R.S. Employer Identification No.) |
411 First Avenue South, Suite 600
Seattle, WA 98104-2860
(206) 701 — 2000
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
As of August 12, 2002, 48,337,120 shares of the Company’s Common Stock, par value $0.01 per share, were outstanding.
CRAY INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page No. | ||||||
| PART I | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements: | |||||
| Condensed Consolidated Balance Sheets as of December 31, 2001 And June 30, 2002 | 3 | |||||
| Condensed Consolidated Statements of Operations for the Three And Six Months Ended June 30, 2001 and 2002 | 4 | |||||
| Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2002 | 5 | |||||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002 | 6 | |||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 | ||||
| PART II | OTHER INFORMATION | |||||
| Item 2. | Changes in Securities and Use of Proceeds | 29 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 30 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 30 | ||||
2
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
| December 31, | June 30, | ||||||||||
| 2001 | 2002 | ||||||||||
| (unaudited) | |||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 12,377 | $ | 16,593 | |||||||
Restricted cash |
353 | 134 | |||||||||
Accounts receivable, net of allowance of $936 in 2001 and 2002 |
24,764 | 30,174 | |||||||||
Inventory, net |
18,950 | 20,894 | |||||||||
Prepaid expenses and other assets |
3,954 | 4,143 | |||||||||
Total current assets |
60,398 | 71,938 | |||||||||
Property and equipment, net |
27,668 | 26,819 | |||||||||
Service spares, net |
12,267 | 10,212 | |||||||||
Goodwill, net |
22,680 | 22,680 | |||||||||
Long-term receivable |
550 | 550 | |||||||||
Deferred tax asset |
743 | 998 | |||||||||
Other assets |
2,781 | 3,255 | |||||||||
TOTAL |
$ | 127,087 | $ | 136,452 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 11,295 | $ | 9,593 | |||||||
Accrued payroll and related expenses |
12,063 | 15,081 | |||||||||
Accrued loss on purchase commitment |
4,602 | ||||||||||
Other accrued liabilities |
5,850 | 5,785 | |||||||||
Deferred revenue |
22,762 | 23,968 | |||||||||
Current portion of warranty reserves |
6,574 | 5,191 | |||||||||
Current portion of obligations under capital leases |
347 | 300 | |||||||||
Current portion of term loan |
2,143 | 2,143 | |||||||||
Current portion of notes payable |
486 | 328 | |||||||||
Total current liabilities |
66,122 | 62,389 | |||||||||
Warranty reserves |
8,479 | 3,708 | |||||||||
Obligations under capital leases |
421 | 291 | |||||||||
Term loan payable |
3,928 | 2,857 | |||||||||
Notes payable |
8,387 | 8,461 | |||||||||
Shareholders’ equity: |
|||||||||||
Series A Convertible Preferred Stock, par $.01 - Authorized,
issued and outstanding, 3,125 shares |
24,946 | 24,946 | |||||||||
Common Stock, par $.01 - Authorized, 100,000 shares;
issued and outstanding, 42,187 and 48,332 shares |
173,318 | 190,086 | |||||||||
Accumulated other comprehensive loss |
(762 | ) | (470 | ) | |||||||
Accumulated deficit |
(157,752 | ) | (155,816 | ) | |||||||
| 39,750 | 58,746 | ||||||||||
TOTAL |
$ | 127,087 | $ | 136,452 | |||||||
See accompanying notes
3
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
Product |
$ | 8,612 | $ | 19,098 | $ | 36,209 | $ | 34,169 | ||||||||||||
Service |
20,811 | 19,539 | 41,961 | 39,668 | ||||||||||||||||
Total revenue |
29,423 | 38,637 | 78,170 | 73,837 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Cost of product revenue |
4,386 | 12,247 | 18,781 | 16,875 | ||||||||||||||||
Cost of service revenue |
10,604 | 9,767 | 18,664 | 20,692 | ||||||||||||||||
Research and development |
14,148 | 8,588 | 27,187 | 19,139 | ||||||||||||||||
Marketing and sales |
4,882 | 4,920 | 9,583 | 9,777 | ||||||||||||||||
General and administrative |
2,244 | 1,893 | 4,383 | 3,933 | ||||||||||||||||
Restructuring charge |
1,878 | |||||||||||||||||||
Amortization of goodwill |
1,774 | 3,546 | ||||||||||||||||||
Total operating expenses |
38,038 | 37,415 | 82,144 | 72,294 | ||||||||||||||||
Income (loss) from operations |
(8,615 | ) | 1,222 | (3,974 | ) | 1,543 | ||||||||||||||
Other income (expense), net |
(936 | ) | 1,018 | (1,360 | ) | 2,402 | ||||||||||||||
Interest income (expense), net |
(138 | ) | (463 | ) | (1,281 | ) | (1,034 | ) | ||||||||||||
Income (loss) before income taxes |
(9,689 | ) | 1,777 | (6,615 | ) | 2,911 | ||||||||||||||
Provision for income taxes |
197 | 590 | 482 | 975 | ||||||||||||||||
Net income (loss) |
$ | (9,886 | ) | $ | 1,187 | $ | (7,097 | ) | $ | 1,936 | ||||||||||
Net income (loss) per common share: |
||||||||||||||||||||
Basic |
$ | (0.24 | ) | $ | 0.03 | $ | (0.18 | ) | $ | 0.04 | ||||||||||
Diluted |
$ | (0.24 | ) | $ | 0.02 | $ | (0.18 | ) | $ | 0.04 | ||||||||||
Weighted average shares outstanding: |
||||||||||||||||||||
Basic |
41,385 | 45,765 | 39,416 | 44,696 | ||||||||||||||||
Diluted |
41,385 | 51,562 | 39,416 | 48,903 | ||||||||||||||||
See accompanying notes
4
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
(in thousands)
| Series A | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||
| Currency | ||||||||||||||||||||||||||||||
| Number of | Number of | Accumulated | Translation | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Adjustment | Total | ||||||||||||||||||||||||
BALANCE, January 1, 2002 |
3,125 | $ | 24,946 | 42,187 | $ | 173,318 | $ | (157,752 | ) | $ | (762 | ) | $ | 39,750 | ||||||||||||||||
Common stock issued, less issuance costs
of $273 |
1,950 | 3,627 | 3,627 | |||||||||||||||||||||||||||
Exercise of warrants, less issuance costs
of $116 |
970 | 1,823 | 1,823 | |||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||
Cumulative currency translation adjustment |
(502 | ) | (502 | ) | ||||||||||||||||||||||||||
Net income |
749 | 749 | ||||||||||||||||||||||||||||
BALANCE, March 31, 2002 |
3,125 | $ | 24,946 | 45,107 | $ | 178,768 | $ | (157,003 | ) | $ | (1,264 | ) | $ | 45,447 | ||||||||||||||||
Issuance of shares under Employee
Stock Purchase Plan |
222 | 679 | 679 | |||||||||||||||||||||||||||
Issuance of shares under Company 401(k) Plan |
257 | 568 | 568 | |||||||||||||||||||||||||||
Common stock issued for accrued interest
on notes payable |
96 | 224 | 224 | |||||||||||||||||||||||||||
Exercise of stock options |
260 | 677 | 677 | |||||||||||||||||||||||||||
Exercise of warrants, less issuance costs
of $429 |
2,390 | 8,940 | 8,940 | |||||||||||||||||||||||||||
Warrants issued for consulting services |
230 | 230 | ||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||
Cumulative currency translation adjustment |
794 | 794 | ||||||||||||||||||||||||||||
Net income |
1,187 | 1,187 | ||||||||||||||||||||||||||||
BALANCE, June 30, 2002 |
3,125 | $ | 24,946 | 48,332 | $ | 190,086 | $ | (155,816 | ) | $ | (470 | ) | $ | 58,746 | ||||||||||||||||
See accompanying notes
5
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| For the Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2001 | 2002 | |||||||||
Operating activities |
||||||||||
Net income (loss) |
$ | (7,097 | ) | $ | 1,936 | |||||
Adjustments to reconcile net income (loss) to
net cash used by operating activities: |
||||||||||