ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Washington
|
|
93-0962605
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(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)
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Large accelerated filer
|
ý
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Accelerated filer
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¨
|
|
|
|
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Non-accelerated filer
|
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
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|
Emerging growth company
|
¨
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Page No.
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
|
|
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and March 31, 2016
|
|
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and March 31, 2016
|
|
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and March 31, 2016
|
|
|
March 31,
2017 |
|
December 31,
2016 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
198,320
|
|
|
$
|
222,962
|
|
Restricted cash
|
402
|
|
|
—
|
|
||
Short-term investments
|
84,813
|
|
|
—
|
|
||
Accounts and other receivables, net
|
54,787
|
|
|
197,941
|
|
||
Inventory
|
113,615
|
|
|
88,254
|
|
||
Prepaid expenses and other current assets
|
16,438
|
|
|
20,006
|
|
||
Total current assets
|
468,375
|
|
|
529,163
|
|
||
|
|
|
|
||||
Long-term restricted cash
|
1,655
|
|
|
1,655
|
|
||
Long-term investment in sales-type lease, net
|
29,525
|
|
|
31,050
|
|
||
Property and equipment, net
|
38,233
|
|
|
30,620
|
|
||
Service spares, net
|
2,911
|
|
|
3,023
|
|
||
Goodwill
|
14,182
|
|
|
14,182
|
|
||
Intangible assets other than goodwill, net
|
1,448
|
|
|
1,637
|
|
||
Deferred tax assets
|
96,947
|
|
|
85,613
|
|
||
Other non-current assets
|
15,408
|
|
|
17,629
|
|
||
TOTAL ASSETS
|
$
|
668,684
|
|
|
$
|
714,572
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
31,186
|
|
|
$
|
45,504
|
|
Accrued payroll and related expenses
|
10,105
|
|
|
17,199
|
|
||
Other accrued liabilities
|
4,296
|
|
|
10,303
|
|
||
Deferred revenue
|
73,074
|
|
|
83,129
|
|
||
Total current liabilities
|
118,661
|
|
|
156,135
|
|
||
|
|
|
|
||||
Long-term deferred revenue
|
27,639
|
|
|
27,258
|
|
||
Other non-current liabilities
|
13,211
|
|
|
5,703
|
|
||
TOTAL LIABILITIES
|
159,511
|
|
|
189,096
|
|
||
|
|
|
|
||||
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 40,300,399 and 40,757,458 shares, respectively
|
625,513
|
|
|
622,604
|
|
||
Accumulated other comprehensive income
|
2,850
|
|
|
2,782
|
|
||
Accumulated deficit
|
(119,190
|
)
|
|
(99,910
|
)
|
||
TOTAL SHAREHOLDERS’ EQUITY
|
509,173
|
|
|
525,476
|
|
||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
668,684
|
|
|
$
|
714,572
|
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Revenue:
|
|
|
|
|
||||
Product
|
|
$
|
21,128
|
|
|
$
|
71,410
|
|
Service
|
|
37,903
|
|
|
34,139
|
|
||
Total revenue
|
|
59,031
|
|
|
105,549
|
|
||
Cost of revenue:
|
|
|
|
|
||||
Cost of product revenue
|
|
14,751
|
|
|
46,178
|
|
||
Cost of service revenue
|
|
20,471
|
|
|
19,409
|
|
||
Total cost of revenue
|
|
35,222
|
|
|
65,587
|
|
||
Gross profit
|
|
23,809
|
|
|
39,962
|
|
||
Operating expenses:
|
|
|
|
|
||||
Research and development, net
|
|
32,640
|
|
|
25,840
|
|
||
Sales and marketing
|
|
14,653
|
|
|
16,001
|
|
||
General and administrative
|
|
8,797
|
|
|
7,338
|
|
||
Total operating expenses
|
|
56,090
|
|
|
49,179
|
|
||
Loss from operations
|
|
(32,281
|
)
|
|
(9,217
|
)
|
||
|
|
|
|
|
||||
Other income (expense), net
|
|
1,042
|
|
|
(436
|
)
|
||
Interest income, net
|
|
878
|
|
|
584
|
|
||
Loss before income taxes
|
|
(30,361
|
)
|
|
(9,069
|
)
|
||
Income tax benefit
|
|
11,146
|
|
|
4,056
|
|
||
Net loss
|
|
$
|
(19,215
|
)
|
|
$
|
(5,013
|
)
|
|
|
|
|
|
||||
Basic net loss per common share
|
|
$
|
(0.48
|
)
|
|
$
|
(0.13
|
)
|
Diluted net loss per common share
|
|
$
|
(0.48
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
||||
Basic weighted average shares outstanding
|
|
39,994
|
|
|
39,651
|
|
||
Diluted weighted average shares outstanding
|
|
39,994
|
|
|
39,651
|
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Net loss
|
|
$
|
(19,215
|
)
|
|
$
|
(5,013
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
||||
Unrealized gain on available-for-sale investments
|
|
17
|
|
|
9
|
|
||
Foreign currency translation adjustments
|
|
610
|
|
|
240
|
|
||
Unrealized gain (loss) on cash flow hedges
|
|
(559
|
)
|
|
588
|
|
||
Reclassification adjustments on cash flow hedges included in net loss
|
|
—
|
|
|
(975
|
)
|
||
Other comprehensive income (loss)
|
|
68
|
|
|
(138
|
)
|
||
Comprehensive loss
|
|
$
|
(19,147
|
)
|
|
$
|
(5,151
|
)
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Operating activities:
|
|
|
|
||||
Net loss
|
$
|
(19,215
|
)
|
|
$
|
(5,013
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
3,780
|
|
|
4,112
|
|
||
Share-based compensation expense
|
2,751
|
|
|
2,852
|
|
||
Deferred income taxes
|
(11,099
|
)
|
|
(4,440
|
)
|
||
Other
|
8
|
|
|
931
|
|
||
Cash provided (used) due to changes in operating assets and liabilities:
|
|
|
|
||||
Accounts and other receivables
|
143,992
|
|
|
63,411
|
|
||
Long-term investment in sales-type lease, net
|
2,043
|
|
|
2,461
|
|
||
Inventory
|
(25,844
|
)
|
|
(10,944
|
)
|
||
Prepaid expenses and other assets
|
4,093
|
|
|
1,878
|
|
||
Accounts payable
|
(14,525
|
)
|
|
17,762
|
|
||
Accrued payroll and related expenses and other liabilities
|
(6,057
|
)
|
|
(30,542
|
)
|
||
Deferred revenue
|
(10,005
|
)
|
|
(8,869
|
)
|
||
Net cash provided by operating activities
|
69,922
|
|
|
33,599
|
|
||
Investing activities:
|
|
|
|
||||
Sales/maturities of available-for-sale investments
|
—
|
|
|
5,020
|
|
||
Purchases of available-for-sale investments
|
(84,878
|
)
|
|
(14,962
|
)
|
||
Change in restricted cash
|
(402
|
)
|
|
1,616
|
|
||
Purchases of property and equipment
|
(10,289
|
)
|
|
(951
|
)
|
||
Net cash used in investing activities
|
(95,569
|
)
|
|
(9,277
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock through employee stock purchase plan
|
181
|
|
|
191
|
|
||
Purchase of employee restricted shares to fund related statutory tax withholding
|
(162
|
)
|
|
(80
|
)
|
||
Proceeds from exercises of stock options
|
76
|
|
|
1,491
|
|
||
Net cash provided by financing activities
|
95
|
|
|
1,602
|
|
||
Effect of foreign exchange rate changes on cash and cash equivalents
|
910
|
|
|
1,446
|
|
||
Net increase (decrease) in cash and cash equivalents
|
(24,642
|
)
|
|
27,370
|
|
||
Cash and cash equivalents:
|
|
|
|
||||
Beginning of period
|
222,962
|
|
|
266,660
|
|
||
End of period
|
$
|
198,320
|
|
|
$
|
294,030
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid for income taxes
|
$
|
629
|
|
|
$
|
835
|
|
Non-cash investing and financing activities:
|
|
|
|
||||
Inventory transfers to fixed assets and service spares
|
$
|
491
|
|
|
$
|
2,339
|
|
•
|
The delivered item(s) has value to the customer on a standalone basis; and
|
•
|
If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.
|
•
|
It is commensurate with either of the following:
|
•
|
The Company’s performance to achieve the milestone; or
|
•
|
The enhancement of value of the delivered item or items as a result of a specific outcome resulting from the Company’s performance to achieve the milestone.
|
•
|
It relates solely to past performance.
|
•
|
It is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.
|
Description
|
|
Fair Value
as of March 31, 2017 |
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
||||||
Assets:
|
|
|
|
|
|
|
||||||
Cash and cash equivalents and restricted cash
|
|
$
|
200,377
|
|
|
$
|
200,377
|
|
|
$
|
—
|
|
Available-for-sale investments (1)
|
|
84,813
|
|
|
84,813
|
|
|
—
|
|
|||
Foreign currency exchange contracts (2)
|
|
6,723
|
|
|
—
|
|
|
6,723
|
|
|||
Assets measured at fair value at March 31, 2017
|
|
$
|
291,913
|
|
|
$
|
285,190
|
|
|
$
|
6,723
|
|
Liabilities:
|
|
|
|
|
|
|
||||||
Foreign currency exchange contracts (3)
|
|
594
|
|
|
—
|
|
|
594
|
|
|||
Liabilities measured at fair value at March 31, 2017
|
|
$
|
594
|
|
|
$
|
—
|
|
|
$
|
594
|
|
(1)
|
Included in “Short-term investments” on the Company’s Condensed Consolidated Balance Sheets.
|
(2)
|
Included in “Prepaid expenses and other current assets” and “Other non-current assets” on the Company’s Condensed Consolidated Balance Sheets.
|
(3)
|
Included in “Other accrued liabilities” and “Other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheets.
|
|
|
March 31,
2017 |
|
December 31, 2016
|
||
Euros (EUR)
|
|
1.5
|
|
|
1.5
|
|
Swiss Francs (CHF)
|
|
3.6
|
|
|
3.6
|
|
Japanese Yen (JPY)
|
|
3,377.6
|
|
|
—
|
|
Canadian Dollars (CAD)
|
|
54.4
|
|
|
54.4
|
|
Hedge Classification
|
Balance Sheet Location
|
|
Fair Value
as of March 31, 2017 |
|
Fair Value
as of December 31, 2016 |
||||
Foreign currency exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
57
|
|
|
$
|
71
|
|
Foreign currency exchange contracts
|
Other non-current assets
|
|
—
|
|
|
367
|
|
||
Foreign currency exchange contracts
|
Other accrued liabilities
|
|
(47
|
)
|
|
(9
|
)
|
||
Foreign currency exchange contracts
|
Other non-current liabilities
|
|
(419
|
)
|
|
(5
|
)
|
||
Total fair value of derivative instruments designated as cash flow hedges
|
|
|
$
|
(409
|
)
|
|
$
|
424
|
|
Hedge Classification
|
Balance Sheet Location
|
|
Fair Value
as of March 31, 2017 |
|
Fair Value
as of December 31, 2016 |
||||
Foreign currency exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
2,163
|
|
|
$
|
5,344
|
|
Foreign currency exchange contracts
|
Other non-current assets
|
|
4,503
|
|
|
5,468
|
|
||
Foreign currency exchange contracts
|
Other accrued liabilities
|
|
(128
|
)
|
|
(27
|
)
|
||
Total fair value of derivative instruments not designated as cash flow hedges
|
|
|
$
|
6,538
|
|
|
$
|
10,785
|
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
|
|
|
|
|
||||
Gross of tax reclassifications
|
|
$
|
—
|
|
|
$
|
1,626
|
|
Net of tax reclassifications
|
|
$
|
—
|
|
|
$
|
975
|
|
Three Months Ended March 31, 2017
|
||||||||||||||||
|
|
Unrealized Gain on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
—
|
|
|
$
|
2,101
|
|
|
$
|
681
|
|
|
$
|
2,782
|
|
Current-period change, net of tax
|
|
17
|
|
|
610
|
|
|
(559
|
)
|
|
68
|
|
||||
Ending balance
|
|
$
|
17
|
|
|
$
|
2,711
|
|
|
$
|
122
|
|
|
$
|
2,850
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
11
|
|
|
$
|
175
|
|
|
$
|
(373
|
)
|
|
$
|
(187
|
)
|
Three Months Ended March 31, 2016
|
||||||||||||||||
|
|
Unrealized Gain (Loss) on Investments
|
|
Foreign Currency Translation Adjustments
|
|
Unrealized Gain on Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
||||||||
Beginning balance
|
|
$
|
(8
|
)
|
|
$
|
1,675
|
|
|
$
|
5,975
|
|
|
$
|
7,642
|
|
Current-period change, net of tax
|
|
9
|
|
|
240
|
|
|
(387
|
)
|
|
(138
|
)
|
||||
Ending balance
|
|
$
|
1
|
|
|
$
|
1,915
|
|
|
$
|
5,588
|
|
|
$
|
7,504
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense (benefit) associated with current-period change
|
|
$
|
6
|
|
|
$
|
(7
|
)
|
|
$
|
(251
|
)
|
|
$
|
(252
|
)
|
|
|
|
|
Unrealized
|
|
|
||||||
|
|
Cost
|
|
Gains
|
|
Fair Value
|
||||||
Short-term available-for-sale securities
|
|
$
|
84,785
|
|
|
$
|
28
|
|
|
$
|
84,813
|
|
|
|
March 31,
2017 |
|
December 31, 2016
|
||||
Trade accounts receivable
|
|
$
|
28,850
|
|
|
$
|
156,705
|
|
Unbilled receivables
|
|
6,422
|
|
|
17,264
|
|
||
Advance billings
|
|
596
|
|
|
1,915
|
|
||
Short-term investment in sales-type lease
|
|
8,904
|
|
|
8,683
|
|
||
Other receivables
|
|
10,269
|
|
|
13,395
|
|
||
|
|
55,041
|
|
|
197,962
|
|
||
Allowance for doubtful accounts
|
|
(254
|
)
|
|
(21
|
)
|
||
Accounts and other receivables, net
|
|
$
|
54,787
|
|
|
$
|
197,941
|
|
|
|
March 31,
2017 |
|
December 31, 2016
|
||||
Total minimum lease payments to be received
|
|
$
|
49,828
|
|
|
$
|
52,224
|
|
Less: executory costs
|
|
(9,315
|
)
|
|
(10,139
|
)
|
||
Net minimum lease payments receivable
|
|
40,513
|
|
|
42,085
|
|
||
Less: unearned income
|
|
(2,084
|
)
|
|
(2,352
|
)
|
||
Net investment in sales-type lease
|
|
38,429
|
|
|
39,733
|
|
||
Less: long-term investment in sales-type lease
|
|
(29,525
|
)
|
|
(31,050
|
)
|
||
Investment in sales-type lease included in accounts and other receivables
|
|
$
|
8,904
|
|
|
$
|
8,683
|
|
2017 (less than 1 year)
|
|
$
|
10,638
|
|
2018
|
|
14,090
|
|
|
2019
|
|
14,351
|
|
|
2020
|
|
10,749
|
|
|
Total minimum lease payments to be received
|
|
$
|
49,828
|
|
|
|
March 31,
2017 |
|
December 31, 2016
|
||||
Components and subassemblies
|
|
$
|
28,494
|
|
|
$
|
31,695
|
|
Work in process
|
|
44,651
|
|
|
39,894
|
|
||
Finished goods
|
|
40,470
|
|
|
16,665
|
|
||
Total
|
|
$
|
113,615
|
|
|
$
|
88,254
|
|
|
|
March 31,
2017 |
|
December 31, 2016
|
||||
Deferred product revenue
|
|
$
|
18,974
|
|
|
$
|
14,274
|
|
Deferred service revenue
|
|
81,739
|
|
|
96,113
|
|
||
Total deferred revenue
|
|
100,713
|
|
|
110,387
|
|
||
Less: long-term deferred revenue
|
|
(27,639
|
)
|
|
(27,258
|
)
|
||
Deferred revenue in current liabilities
|
|
$
|
73,074
|
|
|
$
|
83,129
|
|
|
|
Three Months Ended
March 31, |
||
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
1.64%
|
|
1.06%
|
Expected dividend yield
|
|
—%
|
|
—%
|
Volatility
|
|
54.39%
|
|
51.62%
|
Expected life
|
|
4.0 years
|
|
4.0 years
|
Weighted average Black-Scholes value of options granted
|
|
$7.51
|
|
$16.90
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|||
Outstanding at December 31, 2016
|
|
1,989,137
|
|
|
$
|
16.99
|
|
|
|
Grants
|
|
10,000
|
|
|
$
|
17.35
|
|
|
|
Exercises
|
|
(10,147
|
)
|
|
$
|
7.16
|
|
|
|
Canceled and forfeited
|
|
(4,129
|
)
|
|
$
|
29.81
|
|
|
|
Outstanding at March 31, 2017
|
|
1,984,861
|
|
|
$
|
17.01
|
|
|
5.5
|
Exercisable at March 31, 2017
|
|
1,527,184
|
|
|
$
|
13.46
|
|
|
4.7
|
Available for grant at March 31, 2017
|
|
4,038,811
|
|
|
|
|
|
|
|
Service Vesting Restricted Shares
|
|
Performance Vesting Restricted Shares
|
|
Total Restricted Shares
|
|||||||||||||||
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted
Average Grant Date Fair Value |
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|||||||||
Outstanding at December 31, 2016
|
|
256,802
|
|
|
$
|
26.43
|
|
|
513,500
|
|
|
$
|
15.00
|
|
|
770,302
|
|
|
$
|
18.81
|
|
Granted
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
(2,040
|
)
|
|
$
|
31.47
|
|
|
(476,000
|
)
|
|
$
|
14.88
|
|
|
(478,040
|
)
|
|
$
|
14.95
|
|
Vested
|
|
(3,073
|
)
|
|
$
|
30.39
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,073
|
)
|
|
$
|
30.39
|
|
Outstanding at March 31, 2017
|
|
251,689
|
|
|
$
|
26.34
|
|
|
37,500
|
|
|
$
|
16.52
|
|
|
289,189
|
|
|
$
|
25.06
|
|
|
|
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, 2016
|
|
425,721
|
|
|
$
|
30.89
|
|
|
656,285
|
|
|
$
|
30.49
|
|
|
1,082,006
|
|
|
$
|
30.65
|
|
Granted
|
|
47,000
|
|
|
$
|
19.69
|
|
|
26,000
|
|
|
$
|
20.25
|
|
|
73,000
|
|
|
$
|
19.89
|
|
Forfeited
|
|
(3,175
|
)
|
|
$
|
28.50
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,175
|
)
|
|
$
|
28.50
|
|
Vested
|
|
(4,625
|
)
|
|
$
|
39.96
|
|
|
—
|
|
|
$
|
—
|
|
|
(4,625
|
)
|
|
$
|
39.96
|
|
Outstanding at March 31, 2017
|
|
464,921
|
|
|
$
|
29.69
|
|
|
682,285
|
|
|
$
|
30.10
|
|
|
1,147,206
|
|
|
$
|
29.93
|
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Cost of product revenue
|
|
$
|
40
|
|
|
$
|
82
|
|
Cost of service revenue
|
|
66
|
|
|
68
|
|
||
Research and development, net
|
|
891
|
|
|
949
|
|
||
Sales and marketing
|
|
885
|
|
|
835
|
|
||
General and administrative
|
|
869
|
|
|
918
|
|
||
Total
|
|
$
|
2,751
|
|
|
$
|
2,852
|
|
|
|
Three Months Ended
March 31, |
||
|
|
2017
|
|
2016
|
Effective tax rates
|
|
37%
|
|
45%
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Revenue:
|
|
|
|
|
||||
Supercomputing
|
|
$
|
30,243
|
|
|
$
|
84,728
|
|
Storage and Data Management
|
|
15,545
|
|
|
13,467
|
|
||
Maintenance and Support
|
|
29,737
|
|
|
26,803
|
|
||
Engineering Services and Other
|
|
13,243
|
|
|
7,354
|
|
||
Elimination of inter-segment revenue
|
|
(29,737
|
)
|
|
(26,803
|
)
|
||
Total revenue
|
|
$
|
59,031
|
|
|
$
|
105,549
|
|
|
|
|
|
|
||||
Gross Profit:
|
|
|
|
|
||||
Supercomputing
|
|
$
|
11,659
|
|
|
$
|
32,039
|
|
Storage and Data Management
|
|
6,491
|
|
|
4,846
|
|
||
Maintenance and Support
|
|
13,818
|
|
|
11,654
|
|
||
Engineering Services and Other
|
|
5,659
|
|
|
3,077
|
|
||
Elimination of inter-segment gross profit
|
|
(13,818
|
)
|
|
(11,654
|
)
|
||
Total gross profit
|
|
$
|
23,809
|
|
|
$
|
39,962
|
|
|
|
United States
|
|
Other Countries
|
|
Total
|
||||||||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||||
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product revenue
|
|
$
|
13,315
|
|
|
$
|
33,878
|
|
|
$
|
7,813
|
|
|
$
|
37,532
|
|
|
$
|
21,128
|
|
|
$
|
71,410
|
|
Service revenue
|
|
26,561
|
|
|
24,270
|
|
|
11,342
|
|
|
9,869
|
|
|
37,903
|
|
|
34,139
|
|
||||||
Total revenue
|
|
$
|
39,876
|
|
|
$
|
58,148
|
|
|
$
|
19,155
|
|
|
$
|
47,401
|
|
|
$
|
59,031
|
|
|
$
|
105,549
|
|
•
|
supercomputing with many-core commodity processors driving increasing scalability requirements;
|
•
|
increased micro-architectural diversity, including increased usage of many-core processors and accelerators, as the rate of increases in per-core performance slows;
|
•
|
data I/O and capacity needs growing much faster than computational needs;
|
•
|
technology innovations in memory and storage allowing for faster data access such as NVRAM, SSDs and flash devices;
|
•
|
the commoditization of HPC hardware, particularly processors and system interconnects;
|
•
|
the growing concentration of very large suppliers of key computing and storage components in the industry;
|
•
|
the growing commoditization of software, including plentiful building blocks and more capable open source software;
|
•
|
electrical power requirements becoming a design constraint and driver in total cost of ownership determinations;
|
•
|
increasing use of analytics technologies (Hadoop, Spark, NoSQL and Graph) in both the HPC and big data markets;
|
•
|
the rise of artificial intelligence along with machine learning and deep learning technologies which utilize HPC technologies for performance and scale;
|
•
|
cloud computing as a solution for loosely-coupled HPC applications; and
|
•
|
significant variability in market demand from quarter-to-quarter and year-to-year.
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Product revenue
|
|
$
|
21,128
|
|
|
$
|
71,410
|
|
Less: Cost of product revenue
|
|
14,751
|
|
|
46,178
|
|
||
Product gross profit
|
|
$
|
6,377
|
|
|
$
|
25,232
|
|
Product gross profit margin
|
|
30
|
%
|
|
35
|
%
|
||
Service revenue
|
|
$
|
37,903
|
|
|
$
|
34,139
|
|
Less: Cost of service revenue
|
|
20,471
|
|
|
19,409
|
|
||
Service gross profit
|
|
$
|
17,432
|
|
|
$
|
14,730
|
|
Service gross profit margin
|
|
46
|
%
|
|
43
|
%
|
||
Total revenue
|
|
$
|
59,031
|
|
|
$
|
105,549
|
|
Less: Total cost of revenue
|
|
35,222
|
|
|
65,587
|
|
||
Total gross profit
|
|
$
|
23,809
|
|
|
$
|
39,962
|
|
Total gross profit margin
|
|
40
|
%
|
|
38
|
%
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Gross research and development expenses
|
|
$
|
38,011
|
|
|
$
|
31,474
|
|
Less: Amounts included in cost of revenue
|
|
(4,560
|
)
|
|
(4,250
|
)
|
||
Less: Reimbursed research and development (excludes amounts in cost of revenue)
|
|
(811
|
)
|
|
(1,384
|
)
|
||
Net research and development expenses
|
|
$
|
32,640
|
|
|
$
|
25,840
|
|
Percentage of total revenue
|
|
55
|
%
|
|
24
|
%
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Sales and marketing
|
|
$
|
14,653
|
|
|
$
|
16,001
|
|
Percentage of total revenue
|
|
25
|
%
|
|
15
|
%
|
||
General and administrative
|
|
$
|
8,797
|
|
|
$
|
7,338
|
|
Percentage of total revenue
|
|
15
|
%
|
|
7
|
%
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Interest income
|
|
$
|
886
|
|
|
$
|
585
|
|
Interest expense
|
|
(8
|
)
|
|
(1
|
)
|
||
Interest income, net
|
|
$
|
878
|
|
|
$
|
584
|
|
|
|
Three Months Ended
March 31, |
||||||
|
|
2017
|
|
2016
|
||||
Cash provided by (used in):
|
|
|
|
|
||||
Operating Activities
|
|
$
|
69,922
|
|
|
$
|
33,599
|
|
Investing Activities
|
|
$
|
(95,569
|
)
|
|
$
|
(9,277
|
)
|
Financing Activities
|
|
$
|
95
|
|
|
$
|
1,602
|
|
|
Amounts Committed by Year
|
||||||||||||||||||
Contractual Obligations
|
Total
|
|
2017
(Less than
1 Year)
|
|
2018-2019
|
|
2020-2021
|
|
Thereafter
|
||||||||||
Development agreements
|
$
|
17,728
|
|
|
$
|
12,750
|
|
|
$
|
4,963
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Operating leases
|
57,180
|
|
|
5,274
|
|
|
13,417
|
|
|
11,769
|
|
|
26,720
|
|
|||||
Total contractual cash obligations
|
$
|
74,908
|
|
|
$
|
18,024
|
|
|
$
|
18,380
|
|
|
$
|
11,784
|
|
|
$
|
26,720
|
|
•
|
The delivered item(s) has value to the customer on a standalone basis; and
|
•
|
If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control.
|
•
|
It is commensurate with either of the following:
|
•
|
Our performance to achieve the milestone; or
|
•
|
The enhancement of value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone.
|
•
|
It relates solely to past performance.
|
•
|
It is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.
|
Item 1A. Risk Factors
|
•
|
our ability to secure sufficient orders 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 our Cray XC and Cray CS systems, including attached Sonexion storage systems;
|
•
|
our ability to successfully generate revenue and profitability from sales of our analytics and storage and data management products, as well as upgrades and successor systems;
|
•
|
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;
|
•
|
our expense levels, including research and development expense net of government funding;
|
•
|
delays in delivery of upgraded or new systems, longer than expected customer acceptance cycles or penalties resulting from system acceptance issues;
|
•
|
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
|
•
|
our ability to continue to broaden our customer base beyond our traditional customers;
|
•
|
revenue delays or losses due to customers postponing purchases as a result of delays in available budgets or waiting times related to the availability of future upgraded or new systems, including those containing new processors;
|
•
|
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;
|
•
|
our ability to secure additional government funding for future development projects;
|
•
|
maintaining and successfully completing our product development projects on schedule and within budgetary limitations;
|
•
|
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 or intellectual property rights;
|
•
|
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 the segments of the high-end of the supercomputing market that we target, which is currently experiencing a slow-down, rebounds and resumes growing;
|
•
|
the timely availability of acceptable components, including, but not limited to, processors, in sufficient quantities to meet customer delivery schedules and other customer commitments at a competitive cost;
|
•
|
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;
|
•
|
currency fluctuations, international conflicts or economic crises, including the ongoing economic challenges in the United States, Japan and Europe, and fluctuations in oil prices that can affect the resources available to potential customers to purchase products;
|
•
|
new tariffs or taxes imposed on components and products sourced or manufactured outside of the United States;
|
•
|
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 once 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 at the time of revenue recognition 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, such as has been required with our Cray XC systems and our Sonexion storage systems, and will be frequently required for subsequent systems, such as our next generation Shasta system;
|
•
|
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 on acceptable 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 our or their specifications in sufficient quantities and with acceptable performance 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 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 our relationship with a key supplier, such as Intel, is adversely affected, for example, due to competitive pressures, 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 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 the future processors from our competitors who are willing to take greater risk on delivery;
|
•
|
if Cray systems at customer sites develop significant issues with third-party components, as has occurred, 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, our ability to obtain necessary components could be adversely affected or our cost to obtain such components could increase significantly;
|
•
|
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;
|
•
|
if a supplier provides us with hardware or software that contains bugs or other errors or defects, 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, 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 result in penalties;
|
•
|
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; and
|
•
|
if a key supplier is acquired or has a significant business change, as has occurred in the past with the acquisition of the third-party original equipment manufacturer that supplies complete storage systems for our Sonexion product, 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.
|
•
|
uncertainties relating to priorities of the new administration or adverse decisions by the new administration to reduce or eliminate budgets for governmental agencies or departments that purchase or fund the purchase of our products and services;
|
•
|
Congressional decisions in addressing budget concerns and current economic uncertainty;
|
•
|
disruptions in the operations of the U.S. government, including impacts of the new administration;
|
•
|
“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 affect 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 and which is the case right now as Congress is operating under a Continuing Resolution at fiscal year 2016 levels until May 5, 2017;
|
•
|
domestic crises;
|
•
|
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; and
|
•
|
international political developments, such as the downgrading of European debt or the United Kingdom's departure from the European Union.
|
•
|
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 the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all.
|
•
|
difficulties in successfully integrating the operations, systems, technologies, products, offerings and personnel of the acquired company or companies;
|
•
|
insufficient revenue to offset increased expenses associated with acquisitions;
|
•
|
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;
|
•
|
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; and
|
•
|
the potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.
|
•
|
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 liabilities, including potentially unknown 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;
|
•
|
complying with governmental regulations, including obtaining required import or export approval for our products;
|
•
|
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;
|
•
|
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;
|
•
|
additional taxes and penalties;
|
•
|
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
|
|
3.1
|
|
|
Amended and Restated Bylaws
|
|
|
|
|
|
|
|
|
|
X
|
10.1
|
|
|
2017 Executive Bonus Plan
|
|
|
|
|
|
|
|
|
|
X
|
10.2
|
|
|
Offer Letter between the Company and Charles A. Morreale, dated March 14, 2004
|
|
|
|
|
|
|
|
|
|
X
|
10.3
|
|
|
Offer Letter between the Company and Michael C. Piraino, dated August 31, 2009
|
|
10-Q
|
|
000-26820
|
|
04/29/14
|
|
10.2
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
31.2
|
|
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
32.1*
|
|
|
Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
CRAY INC.
|
|
|
|
Date:
|
May 2, 2017
|
/
S
/ P
ETER
J. U
NGARO
|
|
|
Peter J. Ungaro
|
|
|
President and Chief Executive Officer
|
|
|
|
Date:
|
May 2, 2017
|
/
S
/ B
RIAN
C. H
ENRY
|
|
|
Brian C. Henry
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
Date:
|
May 2, 2017
|
/
S
/ C
HARLES
D. F
AIRCHILD
|
|
|
Charles D. Fairchild
|
|
|
Vice President, Corporate Controller and Chief Accounting Officer
|
By:
|
|
/s/ Michael C. Piraino
|
|
|
Michael C. Piraino
|
|
|
Secretary
|
I.
|
Purpose
|
II.
|
Definitions
|
III.
|
Eligibility
|
IV.
|
Administration
|
1.
|
Administrator
- This Plan shall be administered by the Committee in accordance with Plan provisions.
|
2.
|
Authority
- The Committee shall have all powers and discretion necessary or appropriate to interpret and administer the Plan and to control its operation. Such authority includes selecting Participants in the Plan, determining Bonus Targets for each Participant, determining Performance Measures and Bonus Formulas to score performance, determining which Participants shall be granted Bonus Awards, and determining the form and manner in which Bonus Awards will be made (which may include elective or mandatory deferral alternatives).
|
3.
|
Decisions Binding
- All determinations and decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, and shall be given the maximum deference permitted by law.
|
4.
|
Delegation by Committee
- The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however, that the Committee shall review and approve all recommendations for any payments pursuant to the Plan prior to such payments being made.
|
5.
|
Term of Plan
- Once approved by the Committee, this Plan shall be effective at the start of the Performance Period. Once approved, this Plan shall continue until the earlier of: 1) the end of the Performance Period, 2) termination of the Plan as described in the “Amendment and Termination Provisions” section below, or 3) termination of Participant from the Company’s employ, with respect to that Participant.
|
V.
|
Bonus Provisions
|
1.
|
Performance Period
|
2.
|
Executives who will be Participants for the Performance Period
|
3.
|
Bonus Target for each Participant
|
4.
|
Performance Targets for each Participant
|
5.
|
Bonus Formulas for each Participant
|
VI.
|
Bonus Award Determination
|
1.
|
The effects of currency fluctuation
|
2.
|
Any or all items excluded, or that could be excluded, from the calculation of non-GAAP earnings as reflected in any Company press release or 8-K filing relating to an earnings announcement
|
3.
|
Asset write-downs
|
4.
|
Litigation or claim judgments or settlements
|
5.
|
The effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results
|
6.
|
Accruals for reorganization and restructuring programs
|
7.
|
Any other extraordinary or non-operational items
|
8.
|
Acquisition or disposition costs
|
9.
|
The gain or losses as a result of a Board approved acquisition or disposition, including current year impact on bonus year targets planned without consideration of the transaction.
|
VII.
|
Right to Receive Payment
|
1.
|
Plan Unfunded and Unsecured --
Each Bonus Award under this Plan shall be paid solely from the general assets of the Company. This Plan is unfunded and unsecured; nothing in this Plan shall be construed to create a trust or to establish or evidence any Participant’s claim of any right to, or form of, payment of a Bonus other than as an unsecured general creditor with respect to any payment to which he/she may be entitled.
|
2.
|
Termination of Employment
- Except as may otherwise be provided for in the “Bonus Award Payments” section below, in the event a Participant terminates employment with the Company prior to the end of a Performance Period, he/she shall not be entitled to payment of a Bonus Award for the applicable Performance Period pursuant to this Plan; provided that this provision shall not affect any amounts that may be due Participant under the Company’s Executive Severance Policy or other applicable policy or agreement).
|
VIII.
|
Bonus Award Payments
|
1.
|
Timing
-The Company shall distribute Bonus Awards to Participants as soon as is administratively practicable following the determination and written certification of the Committee for a Performance Period, but in no event later than March 15 of the year following the end of the fiscal year for which the Committee determines the Bonus Award.
|
2.
|
Active Employment
- Payment of a Bonus Award requires that Participant be an active employee on the Company’s payroll no later than September 30, 2017 and remain active until the last day of the Performance Period, subject to subsection 4 below. The Committee may make exceptions to the active employment requirement in the case of retirement, death or disability, or in the case of a corporate change in control, in each case determined on its own merits by the Committee.
|
3.
|
Manner of Payment
- Bonus Awards will be payable in cash as a single lump sum, subject to all applicable taxes and contributions required by law to be withheld in accordance with procedures established by the Company. Bonus Awards for Participants who become eligible after the first day of the Performance Period will be prorated accordingly.
|
4.
|
Change in Status
- A Participant whose change in status or move to part time results in he/she being ineligible to participate in this Plan in a Performance Period may receive a prorated Bonus Award, at the sole discretion of the Committee. A Participant whose change in reporting responsibilities results in he/she being ineligible to participate in this Plan in a Performance Period may receive a modified Bonus Award, at the sole discretion of the Committee. No Participant shall have any right to a prorated or modified Bonus Award, and the method in which a Bonus Award may be prorated or modified shall be determined by the Committee in its sole discretion.
|
5.
|
Recoupment of Bonus Award -
If the Company’s
reported financial or operating results become subject to a material restatement, the Committee may require Participant to pay to the Company an amount corresponding to the Bonus Award that Participant received under this Plan, or a portion of such award, that the Committee determines would not have been paid if Company results as originally published had been equal to Company results as subsequently restated. Any requirement or claim to recoup a Bonus Award must be made, if at all, within five (5) years after the date the amount claimed was originally paid by the Company.
|
6.
|
Code Section 409A
- It is intended that this Plan comply with the requirements of Code Section 409A so that none of the Bonus Award payments to be provided under this Plan will be subject to the additional tax imposed under Code Section 409A. Any ambiguities will be interpreted to so comply.
|
IX.
|
Amendment and Termination Provisions
|
1.
|
Amendment, Modification, Suspension, Termination, or Reinstatement of Plan
- The Board of Directors or the Committee may amend, modify, suspend, terminate or reinstate this Plan, in whole or in part, at any time, including adopting amendments deemed necessary or desirable to correct any defect or to supply omitted data, to reconcile any inconsistency in this Plan or in any Bonus Award granted hereunder or to adapt the Plan, including, but not limited to, Performance Measures under this Plan, to material changed circumstances (as determined by the Committee in its sole discretion).
|
2.
|
Plan Variations for non-U.S. Participants
- For Participants employed outside the United States, the Company may vary the provisions of this Plan as deemed appropriate to conform with, as required by or made desirable by, local laws, practices and procedures.
|
X.
|
General Provisions
|
1.
|
Non-transferability of Awards
- No Bonus Award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution, or to the limited extent provided in the prior subsection. All rights with respect to a Bonus Award granted to a Participant shall be available during his or her lifetime only to the Participant.
|
2.
|
No Additional Participant Rights
- Employees selected to participate in this Plan shall not have any right to be retained in the Company’s employ, and the right of the Company to dismiss such Participant or to terminate any arrangement pursuant to which any such Participant provides services to the Company, with or without cause, is specifically reserved. No person shall have claim to a Bonus Award under this Plan, except as otherwise provided for herein, or to continued participation under this Plan. There is no obligation for uniformity of treatment of Participants under this Plan. The benefits provided for Participants under this Plan shall be in addition to and shall in no way preclude other forms of compensation to or in respect of such Participants.
|
3.
|
Successors -
All
obligations of the Company under this Plan with respect to Bonus Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
|
4.
|
Indemnification
- Each member of the Company’s Board of Directors and each Committee member shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him/her in connection with or resulting from any claim, action, suit, or proceeding to which he/she may be a party or in which he/she may be involved by reason of any action taken or failure to act under the Plan or any award, and (ii) from any and all amounts paid by him/her in settlement thereof, with the Company's approval, or paid by him/her in satisfaction of any judgment in any such claim, action, suit or proceeding against him/her, provided he/she shall give the Company an opportunity, at its own expense, to handle and defend the same before he/she undertakes to handle and defend it on his/her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
|
5.
|
Severability -
The provisions of this Plan are severable. If a court of competent jurisdiction rules that any provision of this Agreement is invalid or unenforceable, the court’s ruling will not affect the validity and enforceability of the other provisions of this Plan.
|
6.
|
Requirements of Law -
Bonus awards granted under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
|
7.
|
Governing Law -
The validity, interpretation, construction and performance of the Plan and awards under it shall be governed and interpreted in accordance with the laws of the State of Washington.
|
XI.
|
Certification
|
/s/ Michael C. Piraino
____________________
|
02/22/2017
|
Michael C. Piraino
|
Date
|
Senior Vice President Administration,
|
|
General Counsel & Corporate Secretary
|
|
•
|
Medical, Dental, Vision, Short and Long Term Disability, Life, Flexible Spending and Employee Assistance Plan
|
•
|
A 401k Plan with matching 25% of the employee’s contribution up to the yearly maximum
|
•
|
120 hours of vacation accrued per year during the first five years of service, increasing thereafter
|
•
|
Paid sick leave
|
•
|
Education/ tuition reimbursement program
|
Accepted By:
|
/s/ Charles Morreale
|
|
Charles Morreale
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 2, 2017
|
/s/ PETER J. UNGARO
|
|
|
Peter J. Ungaro
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 2, 2017
|
/s/ BRIAN C. HENRY
|
|
|
Brian C. Henry
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
Date:
|
May 2, 2017
|
/s/ PETER J. UNGARO
|
|
|
Peter J. Ungaro
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
Date:
|
May 2, 2017
|
/s/ BRIAN C. HENRY
|
|
|
Brian C. Henry
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|