2003 ANNUAL REPORT Cray designs, develops, markets and services high-performance computer systems, commonly known as supercomputers. These systems provide capability and capacity far beyond typical server computer systems and address the world’s most challenging scientific problems for government, industry and academia. C R AY ’ S P R O M I S E B E C A M E R E A L I T Y I N 2 0 0 3 X 1 I N 2 0 0 3 , W E B E G A N S H I P P I N G C R AY X 1™ S Y S T E M S T O C U S T O M E R S A R O U N D T H E W O R L D , I N E V E R Y M A J O R G E O G R A P H I C R E G I O N $ 2 3 7 M I L L I O N R E V E N U E G R E W T O $ 2 3 7 M I L L I O N I N 2 0 0 3 W I T H P R O D U C T R E V E N U E I N C R E A S I N G T W O F O L D 3 7 9 % S H A R E H O L D E R S ’ E Q U I T Y R E A C H E D $ 2 2 2 M I L L I O N I N 2 0 0 3 , A G A I N O F 3 7 9 % F R O M T H E P R E V I O U S Y E A R 2 X R E D S T O R M O P E N S N E W O P P O R T U N I T I E S A N D W I L L M O R E T H A N D O U B L E O U R A D D R E S S A B L E M A R K E T B Y 2 0 0 5 To Our Shareholders, The year 2003 was one of many successes. We brought to market our first new product since we started Cray Inc. in April 2000, called the Cray X1™ supercomputer; grew our talented workforce by over 60 people; and achieved the aggressive corporate goals we set for ourselves in 2003. With solid financial results, we are building the infrastructure for industry leadership. Product Performance In 2003 we began full production of the Cray X1 super- computer, making shipments to customers around the world and in a variety of market sectors. Our customers exploited the unrivaled capabilities of the Cray X1 system by making unprecedented technological advances, expanding the bound- aries of science and engineering: + Weather forecast improvements through the ability to run higher-resolution models (rather than the standard 10-kilometer) in practical timeframes. Using a Cray X1 supercomputer, a 5-kilometer resolution model can now be run for the entire continental United States in about one and one-half hours and a 2.5-kilometer resolution model in about three and one-half hours. + A popular fluid dynamics application used in govern- ment research as well as in the aerospace and automotive industries achieved sustained performance exceeding a teraflops (one trillion calculations per second). This represents a new capability milestone for scientific research and engineering design. Strategic Workforce Enhancement To exploit our rapid progress and growth potential, we also enhanced our workforce through strategic hires. In August, we announced the appointment of former IBM sales executive Peter J. Ungaro as Cray’s vice president heading our world- wide sales and marketing. We also expanded our applications and benchmarking organization in anticipation of further growth in our customer base. Financial Performance Through the dedicated efforts of everyone in our organization and with strong support from our customers, we achieved consistently strong financial results in 2003. Fourth-quarter 2003 marked our eighth successive profitable reporting period. Our year-over-year product revenue doubled, and total revenue grew to $237 million. We ended the year with over $24.1 million in net income (excluding non-recurring items that increased our reported net income) and significantly improved our working capital position. We also strengthened and simplified our balance sheet with a $49 million public offering, the conversion of all of our preferred shares and repayment of all of our bank debt. While our strong 2003 financial results position us well for the challenges of 2004, we remind everyone that our quarterly financial results are highly variable, and profitability in any quarter can hinge on one customer acceptance or a timely sales contract. in 2005. We plan on completing this acquisition by the end of April 2004. With this system in place we again will have doubled our addressable market. The year 2003 was one of tremendous accomplishments by our employees. While we face numerous challenges in 2004 with three major product introductions, we look forward to further accomplishments as we continue pursuing our mission to deliver high-performance computing systems that enable our customers to solve their most challenging technical problems. On behalf of our Board of Directors and management, I would like to thank our employees, customers, partners and shareholders for your continued confidence and support. Sincerely, James E. Rottsolk CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER The U.S. government historically has provided partial funding support for our research and development program, and 2003 was no exception. In July, we were selected by the Defense Advanced Research Projects Agency (DARPA) to participate in the second phase of its High Productivity Computing Systems program. Through this program, we and our univer- sity partners will receive a total of nearly $50 million over the next three years to support our “Cascade” advanced research program. This program aims to deliver by 2010 a supercom- puter able to perform at a sustained rate of a petaflops, or a thousand trillion calculations per second. Separately, the U.S. government also augmented an existing development contract by agreeing to contribute $17.5 million over the next two years toward the continued development of the Cray X1E™ system and its successor, our “Black Widow” program. Growth Opportunities In 2002 we were awarded a $93 million contract to provide a new supercomputer for delivery in 2004 to the U.S. Department of Energy’s Sandia National Laboratories, what we call our “Red Storm” system. With encouragement from this customer and strong interest from the marketplace, in October 2003 we announced that we would offer an additional product line based on the Red Storm system design, starting in the second half of 2004. When this product is ready, we will have doubled the size of our addressable market. In February 2004 we announced the signing of a defin- itive agreement to acquire OctigaBay Systems Corporation, a development-stage privately held company located in Vancouver, B.C. OctigaBay is developing a balanced high- bandwidth computing system targeted at the midrange market. OctigaBay’s current development schedule plans early production units in late 2004 with full production ramp Investor Information Board of Directors David N. Cutler Senior Distinguished Engineer Microsoft Corporation Daniel J. Evans Chairman Daniel J. Evans Associates Kenneth W. Kennedy, Jr. John & Ann Doerr Professor of Computational Engineering Rice University Stephen C. Kiely Executive Chairman Stratus Technologies Inc. William A. Owens Chairman and Chief Executive Officer Teledesic LLC Daniel C. Regis Managing Director Digital Partners James E. Rottsolk Chairman, President and Chief Executive Officer Cray Inc. Burton J. Smith Chief Scientist Cray Inc. Executive Officers James E. Rottsolk Chief Executive Officer and President Burton J. Smith Chief Scientist Christopher Jehn Vice President Government Programs Kenneth W. Johnson Vice President, General Counsel and Corporate Secretary Legal Affairs Lori C. Kaiser Vice President Marketing and Strategic Planning David R. Kiefer Vice President Engineering Gerald E. Loe Vice President Worldwide Services, Manufacturing and Information Services Scott J. Poteracki Vice President and Chief Financial Officer Finance Peter J. Ungaro Vice President Worldwide Sales and Marketing Officers Paul C. Ciernia Director Sales Operations Roger L. Dagitz Director Central Services Andreas Kerl Director Worldwide High Performance Computing Services Brian D. Koblenz Chief Technology Officer Wayne J. Kugel Vice President Project Management Joel E. Newsom Director Americas Field Services Steven S. Perry Vice President Americas Sales Ly-huong T. Pham Vice President Software Richard M. Russell Vice President Asia Pacific Sales Diane Seppa Vice President Employee Support Nancy L. Soderquist Vice President Engineering Planning Ulla Thiel Director EMEA Sales Robert J. Tillma Director Manufacturing Marlene Wedge Director Information Services Charles A. Weidenfeller, Jr. President, Cray Federal Inc. Corporate Scientists David Callahan Susan L. Coatney William T. Moore, Jr. Steven L. Scott Cray Annual Meeting May 12, 2004 2:00 pm 411 First Avenue South Seattle, WA 98104-2860 Transfer Agent & Registrar Mellon Investor Services LLC Shareholder Relations PO Box 3315 South Hackensack, NJ 07606 or 85 Challenger Road Ridgefield Park, NJ 07660 Telephone 800-522-6645 800-231-5469 TDD Foreign Shareholders 201-329-8660 201-329-8354 TDD Website www.melloninvestor.com Legal Counsel Stoel Rives LLP Seattle, WA Independent Public Accountants Deloitte & Touche LLP Seattle, WA Stock Market Information Cray Inc. Common Stock is traded on NASDAQ National Market System under the symbol CRAY. SEC Website Link www.sec.gov/cgi-bin/srch- edgar?CRAY+INC. Available Information Our Annual Report on Form 10-K, our other SEC reports and filings, our Code of Business Conduct, Corporate Governance Principles, the charters of our Board committees and other governance documents and information are available on our web site, www.cray.com, under “Investors.” You may also obtain a copy of our Form 10-K filed with the Securities & Exchange Commission and other company information, without charge, by writing or calling: Cray Inc. Investor Relations 411 First Avenue South Suite 600 Seattle, WA 98104-2860 Telephone 866-729-2729 Corporate Headquarters Cray Inc. 411 First Avenue South Suite 600 Seattle, WA 98104-2860 Telephone 206-701-2000 Fax 206-701-2500 Other Principal Offices Cray Inc. 1340 Mendota Heights Road Mendota Heights, MN 55120-1128 Cray Inc. 1050 Lowater Road Chippewa Falls, WI 54729-0080 Internet E-Mail info@cray.com Website www.cray.com Equal Opportunity Cray Inc. is an equal opportunity and affirmative action employer. Cray Inc. 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 t: 206-701-2000 f: 206-701-2500 www.cray.com