Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CRAY INC (949158) 10-K published on Feb 12, 2019 at 4:13 pm
Reporting Period: Dec 30, 2018
Workloads today are rapidly evolving, making it difficult to choose the optimal architecture. Shasta is expected to meet the rising demand for single systems to handle converged modeling, simulation, AI, and analytics workloads with a data-centric design that allows it to run diverse workloads and workflows, all at the same time. It will eliminate the distinction between clusters and supercomputers with a single supercomputing system architecture that offers significant flexibility.
Any processor choice—or heterogeneous mix—will be able to be incorporated with a single management and application development infrastructure. Customers will be able to flex from single to multi-socket processor nodes, GPUs, FPGAs, and other processing options that will emerge, such as AI-specialized accelerators, in the same system. Shasta will also allow for interconnect choices with those from Cray (Slingshot), Intel (Omni-Path), or Mellanox (InfiniBand). The Shasta systems’ hardware and software innovations tackle bottlenecks, manageability, and job completion issues that emerge or are magnified as core counts grow, compute node architectures proliferate, and workflows expand to incorporate AI at scale.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may harm our business. The U.S. government has adopted a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain components and products sourced or manufactured outside of the United States, most notably China, including, but not limited to, printed circuit board and related components, certain storage devices, and potentially certain microprocessors that are used in Cray systems. These measures may materially increase costs for goods imported into the United States, requiring us to materially increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold. In addition, certain foreign governments have imposed tariffs, taxes, and other limitations on products and services that are manufactured or designed in the United States in response to these new policies. These changes and related trade disputes could make it more difficult or costly for us to compete with our competitors outside the United States.
During the year ended December 31, 2017, we recorded a reduction, in the amount of $28.9 million, in the carrying value of our U.S. deferred tax assets as a result of a reduction in the U.S. federal corporate income tax rate to 21% and provisional tax expense, in the amount of $0.3 million, attributable to the Repatriation Transition Tax and provisional tax expense, in the amount of $0.3 million, as a result of our decision to no longer consider the undistributed earnings of our foreign subsidiaries to be permanently reinvested outside of the United States. Given the significance of the Tax Cuts and Jobs Act, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 that recognized that a company’s review of the income tax effects attributable to the enactment of the Tax Cuts and Jobs Act may have been incomplete at the time financial statements were issued for the reporting period that included the date of enactment and allowed a company to record provisional amounts during a one year measurement period. During the measurement period, income tax effects attributable to the enactment of the Tax Cuts and Jobs Act could be adjusted and recognized, as a discreet item in the applicable reporting period, as information became available, prepared or analyzed. The measurement period was deemed to have ended when the company had obtained, prepared and analyzed the information necessary to finalize its accounting. During the third quarter of 2018, we finalized our accounting with respect to the items for which provisional tax expense was recorded. No significant adjustments were made to the provisional amounts we recorded.
The Tax Cuts and Jobs Act subjects a U.S. corporation to tax on its global intangible low taxed income (GILTI). Under GAAP, the Company is required to make an accounting policy election to either treat taxes due on its future GILTI inclusions as either a current period expense or to account for such taxes in the measurement of its deferred tax assets. The Company has elected to account for any tax due on its GILTI as a current period expense. As a result of changes made by the Tax Cuts and Jobs Act the Company no longer considers the earnings of its foreign subsidiaries to be permanently reinvested outside of the United States.
The Company expects that this standard will have a material impact on its consolidated financial statements. While the Company continues to assess all of the impacts of adoption, it currently believes the most significant impact relates to the recognition of new ROU assets and lease liabilities on its consolidated balance sheet for its real estate and its computer equipment operating leases. On adoption, the Company currently expects to recognize lease liabilities of approximately $45 million, with corresponding ROU assets of approximately $35 million. The approximately $45 million of lease liabilities includes approximately $10 million that is currently included in other liabilities on the Company’s consolidated balance sheet as of December 31, 2018, primarily related to lease incentives, that will be reclassified at the time of adoption.