The fourth quarter of 2008 revenue included approximately $100 million from a single transaction, the Cray XT5 supercomputer at Oak Ridge National Laboratory, known as "Jaguar" - currently the fastest supercomputer in the world. The company reported net income for the fourth quarter of 2009 of $3.0 million, or $0.08 per share, compared to a net loss of ($26.0 million), or ($0.79) per share, in the fourth quarter 2008. A non-cash, goodwill impairment of $54.5 million was taken in the fourth quarter of 2008.

For 2009, Cray reported record revenue of $284.0 million and a net loss of ($0.6 million), or ($0.02) per share. For 2008, revenue was $282.9 million and net loss was ($40.7 million), or ($1.25) per share.

For the fourth quarter 2009, overall gross profit margin was 41 percent compared to 36 percent in the fourth quarter 2008. Product margin for the quarter was 43 percent compared to 36 percent in the prior year period, and fourth quarter 2009 service margin was 37 percent. Overall gross profit margin for 2009 was 37 percent compared to 39 percent in 2008. Product margin for 2009 was 34 percent compared to 39 percent in 2008 and service margin for 2009 was 44 percent compared to 40 percent for 2008.

Core operating expenses, consisting of research and development, sales and marketing, and general and administrative expenses, increased to $106.1 million in 2009 from $93.5 million in 2008. The increase in operating expenses in 2009 was primarily due to increased research and development ("R&D") expenses resulting from a delayed Defense Advanced Research Projects Agency ("DARPA") contract modification and related development milestones. Included in the 2009 results were $8.5 million for depreciation and amortization and $5.8 million related to stock compensation. Additionally, 2009 results were negatively impacted by $2.0 million of non-cash items related to recent changes in accounting guidelines applicable to our now retired convertible notes.

Core operating expenses in the fourth quarter 2009 were $33.7 million compared to $27.2 million in the prior year period. Included in the fourth quarter 2009 results were non-cash items of $2.1 million for depreciation and amortization and $1.2 million related to stock compensation.

As of December 31, 2009, cash and short-term investments totaled $113.2 million.

"I am very pleased that we were able to post another year of record revenues, including strong growth in our custom engineering initiative", stated Peter Ungaro, president and CEO of Cray. "While we didn't reach our goal of profitability, driven by a delay in our development contract modification and associated milestone with DARPA, we continued to improve our balance sheet by eliminating all of our debt and ended the year in a very solid net cash position - another record for us."

Peter Ungaro added: "For 2010, we have already finalized this DARPA contract modification and are on our way toward a strong year. Building on the broad strength of our XT supercomputer line and through our new initiatives, our business is stronger and more diversified than in the past. Our addressable market continues to expand with planned product introductions over the course of 2010 and we expect custom engineering to continue to grow at a very fast pace. With the recent announcement of our XT6 supercomputer and the planned release of our next-generation system we call 'Baker', which builds on the system architecture of the world's fastest supercomputer and improves it in every dimension, we are in an excellent position to have an outstanding 2010."

A wide range of results remains possible for 2010. Many variables may impact the results, but one significant item is the timing of the availability and release of the next generation supercomputer, code-named "Baker", including its new interconnect chipset, known as "Gemini", and associated system software.

Assuming a successful release of Baker in the third quarter of 2010 as currently planned, the company anticipates revenue in the range of $305 to $325 million for 2010. As a result of the timing of the Baker system release, Cray expects a significant majority of 2010 revenue to be recognized in the fourth quarter. Service revenue is expected to be in the range of $110 million for 2010, driven by strong growth in the custom engineering initiative. Gross margins for 2010 are expected to be in the mid-30 percent range. Operating expenses are expected to be lower in 2010 than in 2009, driven primarily by lower research and development expenses for the year. Based on this outlook, the company expects to be profitable for 2010.

Cray expects to use cash in 2010, with the majority of the decline coming in the third quarter as it builds inventory for product deliveries during the second half of 2010.

During the fourth quarter, Cray successfully installed and received acceptance for the upgrade to the Cray XT5 supercomputer named "Jaguar" at the Oak Ridge National Laboratory. With this system clocking in at over two petaflops of peak performance, several real-world applications were run at speeds well beyond anything previously achieved. An Oak Ridge research team recorded an unprecedented sustained performance of over one petaflops on an important quantum chemistry problem and another in material science research that may facilitate new storage mediums and the development of lighter, stronger motors for electric vehicles. Also, following the upgrade, the Jaguar system was recognized by the Top 500 list (www.top500.org) as the world's fastest supercomputer.

In November, Cray announced that Dell will be the exclusive reseller of its latest deskside supercomputer, the Cray CX1-iWS system. The Cray CX1-iWS combines a powerful Microsoft Windows 7 workstation with a fully integrated high-performance computing (HPC) cluster running Microsoft Windows HPC Server 2008. With a list price beginning at under $40,000, the Cray CX1-iWS is designed to address a market need for a new generation of workstations.

In early 2010, Cray's custom engineering group was awarded a contract with a large commercial customer to research and prototype a system infrastructure for future use in the customer's Cloud computing data centres. The one-year contract represents the custom engineering group's first breakthrough into the commercial market.

During the first quarter of 2010, an amendment to our development agreement with DARPA was finalized. Consistent with previous disclosure, the remaining amount of the contract was reduced by $60 million, to $92.5 million. The contract reduces the project's overall scope, and consequently we expect future R&D expenses related to this programme, net of reimbursement, to be lower than previously anticipated. As with the previous contract, the balance of the modified contract is expected to be received through achievement of a series of pre-defined milestones culminating in the delivery of a prototype system in 2012. The next payable milestone is expected to be completed later in the first quarter of 2010.