Cray Reports 2004 Financial Results; Company Receives Large Order from Oak Ridge National Laboratory.SEATTLE Seattle (sēăt`əl), city (1990 pop. 516,259), seat of King co., W Wash., built on seven hills, between Elliott Bay of Puget Sound and Lake Washington; inc. 1869. -- Global supercomputer supercomputer, a state-of-the-art, extremely powerful computer capable of manipulating massive amounts of data in a relatively short time. Supercomputers are very expensive and are employed for specialized scientific and engineering applications that must handle very leader Cray (Cray, Inc., Seattle, WA, www.cray.com) A supercomputer manufacturer founded in 1972 as Cray Research, Inc., by Seymour Cray, a leading designer of large-scale computers at Control Data. In 1976, it shipped its first computer to Los Alamos National Laboratory. Inc. (Nasdaq:CRAY) today reported financial results for the quarter and year ended December December: see month. 31, 2004. Revenue for the full-year 2004 was $148.9 million, compared to $237.0 million for 2003. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the year was ($144.3) million, compared to operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $19.1 million for the prior year. GAAP operating loss for 2004 includes $27.0 million of unusual items associated primarily with restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of excess inventory, and adjustments recognized on a fixed-price contract. Non-GAAP(1) operating loss, which includes unusual items but excludes OctigaBay acquisition-related charges of $55.6 million, was ($88.8) million for the year. GAAP net loss for the year was ($206.3) million, compared to net income of $63.2 million for the prior year. Results for both years were significantly affected by changes in the treatment of a federal income tax net operating loss carry forward. Product gross margins for the year were significantly lower than 2003 due primarily to limited Cray X1 system sales System sales is a business term used in the franchising industry. Franchisors provide supplies, marketing and administration services to franchisees in return for a part of the franchisees' revenues. Some franchisors also operate some outlets directly. , low margin engineering contract revenue, adjustments recognized on a fixed-price contract, and charges related to excess inventory and unabsorbed overhead. As planned, service revenue for the year was $49.7 million -- compared to $62.0 million in 2003 -- while service gross margins increased year-over-year to 38.9%, up from 34.2%. The Company reported operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. of $93.1 million for the year, compared to $75.7 million in the prior year. Operating expenses were higher than planned, particularly in the second half of the year, due to the cost of developing new products, the cost of implementing Sarbanes-Oxley compliance initiatives, and sales and marketing expenses associated with the ramp of three new products. The Company reported revenue for the fourth quarter of $39.2 million. GAAP net loss for the period, including unusual items, was ($36.9) million, or ($.42) per share. Non-GAAP net loss for the period, which also includes unusual items, but excludes charges related to the acquisition of OctigaBay, was ($29.7) million, or ($.34) per share. Unusual items in the quarter consisted of $4.2 million of additional adjustments to a fixed-price contract and $1.0 million of restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. . In December, the Company announced the successful completion of an $80 million Rule 144A Rule 144A A Securities & Exchange Commission rule modifying a two-year holding period requirement on privately placed securities to permit qualified institutional buyers to trade these positions among themselves. offering of 3% convertible senior subordinated notes -- net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). were approximately $76.6 million. The Company ended the year with $87.4 million in cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments. "Given limited Cray X1 system business, coupled with delays in new product introductions, 2004 was clearly a difficult year financially," said Jim Rottsolk, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Cray Inc. "Nevertheless, we achieved a number of important milestones critical to positioning Cray for long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. success. We introduced three new products, diversifying our product portfolio and significantly increasing our addressable Reachable. When something is addressable, it can be identified and manipulated independently of its surroundings. For example, screen pixels and RAM memory are addressable. Each of the screen's picture elements can be individually turned on and off, and each of the memory's bytes can be market. We made major changes in the Company from top to bottom, with four new directors, important changes in senior management and a restructuring of our work force. We look to the challenges ahead with confidence." Outlook "We enter 2005 with the strongest High Performance Computing computing - computer (HPC (Handheld PC) A palmtop computer that weighs less than one pound and runs specialized versions of popular applications. Microsoft coined the term for its Windows CE operating system, which is an abbreviated version of Windows. See Pocket PC. ) portfolio in the industry. We have a real opportunity to grow the business and further demonstrate with customers the value of systems purpose-built purpose-built Adjective made to serve a specific purpose Adj. 1. purpose-built - designed and constructed to serve a particular purpose purpose-made for HPC," said Rottsolk. "We have set very aggressive targets for ourselves in 2005. While it is clear we will grow product revenue substantially over 2004, with several large opportunities currently in play, it is premature to provide specific guidance at this time. For example, today we received an order valued at over $30 million to continue building the Department of Energy's National Leadership Computing Facility The National Leadership Computing Facility, or NLCF for short, is a designated user facility operated by Oak Ridge National Laboratory and the Department of Energy. It contains several supercomputers, the largest of which is a 119TF Cray XT4 system named Jaguar, which is at Oak Ridge National Laboratory Oak Ridge National Laboratory (ORNL) is a multiprogram science and technology national laboratory managed for the United States Department of Energy by UT-Battelle, LLC. ORNL is located in Oak Ridge, Tennessee, near Knoxville. . We are presently in the midst Adv. 1. in the midst - the middle or central part or point; "in the midst of the forest"; "could he walk out in the midst of his piece?" midmost of a production ramp and are focused on getting our new products into and accepted by the market. Given the timing of deliveries and acceptances of large systems, we expect 2005 quarterly results to be uneven." Rottsolk continued, "Our near-term near-term adj. Of, for, or involving a short period of time in the near future. goal in 2005 is to drive top-line growth with our three new products and to execute operationally. We are working hard to improve product stability, increase margins, and keep operating expenses as low as possible." "We our confident we will achieve our long-term goal of top-line growth and sustained profitability. Critical to this strategy is continued progress on key new product development coupled with execution on the operating and sales fronts," added Rottsolk. Recent Highlights --Shipped the first Cray X1E supercomputer on schedule to ICM ICM Intercom ICM Integrated Crop Management ICM International Congress of Mathematicians ICM Information Classification and Management ICM Intelligent Contact Management (Cisco) ICM International Creative Management Poland Poland, Pol. Polska, officially Republic of Poland, republic (2005 est. pop. 38,635,000), 120,725 sq mi (312,677 sq km), central Europe. It borders on Germany in the west, on the Baltic Sea and the Kaliningrad region of Russia in the north, on Lithuania, in December and announced several Cray X1E system orders from undisclosed customers around the world. --Launched the Cray XT3 supercomputer -- early customers include Oak Ridge National Laboratory, Pittsburgh Pittsburgh (pĭts`bərg), city (1990 pop. 369,879), seat of Allegheny co., SW Pa., at the confluence of the Allegheny and the Monongahela rivers, which there form the Ohio River; inc. 1816. Supercomputer Center and a number of undisclosed customers. --Announced new Cray XT3 system orders from U.S. Army Corps of Engineers and Japan Science and Technology Agency. --Increased success with the Cray XD1 system -- recently announced customer wins include FZJ's Central Institute for Applied Mathematics in Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). , the Zuse 1. (language) ZUSE - An LL(1) parser generator by Arthur Pyster of the University of California at Santa Barbara. ZUSE requires Pascal. 2. (language) Zuse Institute Berlin (ZIB), and the National Institute of Nuclear Physics (INFN INFN - Istituto Nazionale di Fisica Nucleare: an Italian State research organisation. ) in Italy Italy (ĭt`əlē), Ital. Italia, officially Italian Republic, republic (2005 est. pop. 58,103,000), 116,303 sq mi (301,225 sq km), S Europe. . --Cray continued to build its network of channel partners by adding new partners in the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. market. --Appointed industry veteran Mamoru Nakano as President of Cray Japan. --Completed $80 million rule 144A offering of 3% convertible senior subordinated notes. --Added John B. Jones, Jr. to the Cray Board of Directors, following other key recent appointments to the Board. Investor Conference Call Management will discuss results and the Company's outlook followed by a question and answer session for investors today, February 3, 2005, at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). The call in number is 800-218-0713. International callers should dial 303-262-2141. If you are unable to participate, a replay will be available from 5:00 p.m. Pacific time February 3, 2005, for 48 hours. To access, dial 800-405-2236, or 303-590-3000 (international) -- enter access code 11021071#. The conference call will be webcast live and archived for 360 days. To access the webcast go to the Investors section of the Cray website at http://investors.cray.com. About Cray Inc. As the global leader in high performance computing (HPC), Cray provides innovative supercomputing systems that enable scientists and engineers in government, industry and academia to meet both existing and future computational Having to do with calculations. Something that is "highly computational" requires a large number of calculations. challenges. Building on years of experience in designing, developing, marketing and servicing the world's most advanced supercomputers, Cray offers a comprehensive portfolio of HPC systems that deliver unrivaled sustained performance on a wide range of applications. Go to www.cray.com for more information. (1) All non-GAAP numbers have been adjusted to exclude certain items. Reconciliations of adjustments to GAAP results are included in the table below "Non-GAAP Consolidated Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Statements of Operations." Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . There are certain factors that could cause Cray's execution plans to differ materially from those anticipated by the statements above. These include the technical challenges of developing high performance computing systems, fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. quarterly operating results, lower margins and earnings due to significant pricing pressure and new product introduction expenses, government support and timing of supercomputer system purchases, the successful porting of application programs to Cray computer The Colorado Springs-based supercomputer company founded in 1989 by Seymour Cray after he left Cray Research. Cray developed the Cray-3, an incredibly fast gallium arsenide-based computer that ran at a 1 GHz clock rate. systems, reliance on third-party suppliers, Cray's ability to keep up with rapid technological change, Cray's ability to compete against larger, more established companies and innovative competitors, and general economic and market conditions. For a discussion of these and other risks, see "Factors That Could Affect Future Results" in Cray's most recent Quarterly Report on Form 10-Q Form 10-Q See 10-Q. filed with the SEC. Cray is a registered trademark, and Cray X1, Cray X1E, Cray XT3 and Cray XD1 are trademarks, of Cray Inc. All other trademarks are the property of their respective owners.
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited
Three Months Ended Year Ended
December 31, December 31,
2003 2004 2003 2004
--------- --------- --------- ----------
REVENUE:
Product $ 52,754 $ 26,523 $175,004 $ 99,236
Service 14,474 12,636 61,958 49,692
--------- --------- --------- ----------
Total revenue 67,228 39,159 236,962 148,928
--------- --------- --------- ----------
OPERATING EXPENSES:
Cost of product revenue 29,647 31,994 97,354 107,083
Cost of service revenue 10,005 7,071 40,780 30,345
Research and development 9,391 12,322 37,762 44,875
Marketing and sales 8,605 8,100 27,038 32,176
General and administrative 3,206 4,834 10,908 16,054
Acquisition-related deferred
compensation - 6,900 - 11,134
In-process research and
development charge - - - 43,400
Restructuring costs 4,019 1,047 4,019 8,176
--------- --------- --------- ----------
Total operating expenses 64,873 72,268 217,861 293,243
--------- --------- --------- ----------
Income (loss) from
operations 2,355 (33,109) 19,101 (144,315)
OTHER INCOME (EXPENSE), NET 465 (319) 1,496 (430)
INTEREST INCOME, NET 175 89 444 428
--------- --------- --------- ----------
Income (loss) before
income taxes 2,995 (33,339) 21,041 (144,317)
PROVISION (BENEFIT) FOR INCOME
TAXES (42,735) 3,582 (42,207) 61,950
-------- --------- --------- ----------
Net income (loss) $ 45,730 $(36,921) $ 63,248 $(206,267)
========= ========= ========= ==========
Net income (loss) per
common share:
Basic $ 0.63 $ (0.42) $ 0.94 $ (2.47)
========= ========= ========= ==========
Diluted $ 0.56 $ (0.42) $ 0.81 $ (2.47)
========= ========= ========= ==========
Weighted average shares
outstanding:
Basic 72,098 87,316 67,098 83,387
========= ========= ========= ==========
Diluted 81,754 87,316 77,861 83,387
========= ========= ========= ==========
CRAY INC. AND SUBSIDIARIES
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding adjustments itemized below
(in thousands, except per share data)
Unaudited
Three Months Ended Year Ended
December 31, December 31,
2003 2004 2003 2004
--------- --------- --------- ----------
REVENUE:
Product $ 52,754 $ 26,523 $175,004 $ 99,236
Service 14,474 12,636 61,958 49,692
--------- --------- --------- ----------
Total revenue 67,228 39,159 236,962 148,928
--------- --------- --------- ----------
OPERATING EXPENSES:
Cost of product revenue 29,647 31,635 97,354 106,066
Cost of service revenue 10,005 7,071 40,780 30,345
Research and development 9,391 12,322 37,762 44,875
Marketing and sales 8,605 8,100 27,038 32,176
General and administrative 3,206 4,834 10,908 16,054
Restructuring costs 4,019 1,047 4,019 8,176
--------- --------- --------- ----------
Total operating expenses 64,873 65,009 217,861 237,692
--------- --------- --------- ----------
Non-GAAP income (loss) from
operations 2,355 (25,850) 19,101 (88,764)
OTHER INCOME (EXPENSE), NET 465 (319) 1,496 (430)
INTEREST INCOME, NET 175 89 444 428
--------- --------- --------- ----------
Non-GAAP income (loss)
before income taxes 2,995 (26,080) 21,041 (88,766)
PROVISION (BENEFIT) FOR INCOME
TAXES (42,735) 3,582 (42,207) 64,901
-------- --------- --------- ----------
Non-GAAP Net income (loss) $ 45,730 $(29,662) $ 63,248 $(153,667)
========= ========= ========= ==========
Non-GAAP Net income (loss)
per
common share:
Basic $ 0.63 $ (0.34) $ 0.94 $ (1.84)
========= ========= ========= ==========
Diluted $ 0.56 $ (0.34) $ 0.81 $ (1.84)
========= ========= ========= ==========
Weighted average shares
outstanding:
Basic 72,098 87,316 67,098 83,387
========= ========= ========= ==========
Diluted 81,754 87,316 77,861 83,387
========= ========= ========= ==========
An itemized reconciliation between net income (loss) on a GAAP basis
and non-GAAP basis is as follows:
GAAP net income (loss) $ 45,730 (36,921) 63,248 $(206,267)
Other costs and expenses:
Amortization of
purchased intangibles - 359 - 1,017
Acquisition-related
deferred compensation - 6,900 - 11,134
In-process research and
development charge - - - 43,400
-------- --------- --------- ----------
Total non-GAAP adjustments
to net income (loss) - 7,259 - 55,551
Income tax effect - - - (2,951)
Non-GAAP net income (loss) $ 45,730 $(29,662) $ 63,248 $(153,667)
========= ========= ========= ==========
CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Unaudited
December 31, December 31,
2003 2004
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $ 39,773 $ 46,692
Short term investments, available for sale 34,570 40,730
Accounts receivable, net of allowance of
$1,125 in 2003 and $1,439 in 2004 48,474 31,452
Inventory 43,022 71,374
Prepaid expenses and other assets 18,932 7,267
---------- ----------
Total current assets 184,771 197,515
Property and equipment, net 26,157 36,679
Service spares, net 4,925 3,590
Goodwill 13,344 55,536
Intangible assets - 6,197
Deferred tax asset 58,595 -
Other assets 3,797 7,915
---------- ----------
TOTAL $ 291,589 $ 307,432
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,553 $ 23,565
Accrued payroll and related expenses 19,035 15,045
Other accrued liabilities 3,480 8,090
Deferred revenue 33,233 54,514
Warranty reserves 655 -
---------- ----------
Total current liabilities 68,956 101,214
Deferred tax liability 1,647
Notes payable 80,000
Shareholders' equity:
Common stock, par $.01 - Authorized,
150,000,000 shares; issued and
outstanding, 72,601,016 and
87,348,641 shares, respectively 312,646 415,395
Exchangeable shares, no par value,
unlimited shares authorized,
570,963 shares outstanding - 4,173
Deferred compensation (105) (4,220)
Accumulated other comprehensive income
(loss) (807) 4,591
Accumulated deficit (89,101) (295,368)
---------- ----------
222,633 124,571
---------- ----------
TOTAL $ 291,589 $ 307,432
========== ==========
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