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SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
       FORM 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2008o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period From
    
    to
    .   Commission File
    Number: 0-26820
  CRAY INC.
 (Exact name of registrant as
    specified in its charter)
  Washington

93-0962605(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)901 Fifth Avenue, Suite 1000
    Seattle, Washington(Address of Principal Executive
    Office)

98164(Zip
    Code)    Registrants telephone number, including area code:
 (206) 701-2000
   Securities
    Registered Pursuant to Section 12(b) of the Exchange
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value

Nasdaq Stock Market LLC    Securities
    Registered Pursuant to Section 12(g) of the Exchange Act:
    NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K þ
  12b-2
  Large
    accelerated
    filer  o
    Accelerated
    filer  þ
    Non-accelerated
    filer  o
    Smaller
    reporting
    company  o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





CRAY
    INC.FORM 10-K
    For Fiscal Year Ended December 31, 2008
    INDEX
   
  PagePART IItem 1.

Business


1Item 1A.

Risk Factors


13Item 1B.

Unresolved Staff Comments


21Item 2.

Properties


22Item 3.

Legal Proceedings


22Item 4.

Submission of Matters to a Vote of Security
    Holders


22Item E.O.

Executive Officers of the Company


22PART IIItem 5.

Market for the Companys Common Equity,
    Related Shareholder Matters and Issuer Repurchases of Equity
    Securities


25Item 6.

Selected Financial Data


28Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


29Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


41Item 8.

Financial Statements and Supplementary Data


43Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


44Item 9A.

Controls and Procedures


44Item 9A(T).

Controls and Procedures


46Item 9B.

Other Information


46PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


46Item 11.

Executive Compensation


46Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


46Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


46Item 14.

Principal Accountant Fees and Services


46PART IVItem 15.

Exhibits and Financial Statement Schedules


47EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1      ®
    Form 10-K,




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Forward-Looking
    Statements
  Form 10-K
  Form 10-K,
   PART I  Item 1.
    Business  General
       1




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##### Table of Contents



(206) 701-2000 Form 10-K
  Our
    History
          Our Goals
    and Strategy
    Gain Share in Our Core HPC Market.
  Extend Technology Leadership.
  Expand Our Total Addressable Market.
 2




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Maintain Our Focus on Execution and
    Profitability.
    Industry
    Background
    The
    HPC Market
    
    supercomputers, which it defines as technical servers that sell
    from $500,000 and up;
    divisional servers, which it defines as technical servers that
    sell from $250,000 to $499,999;
    departmental servers, which it defines as technical servers that
    sell for $100,000 to $249,999; and
    workgroup servers, which it defines as technical servers that
    sell for under $100,000.  2008-2012
    Increasing
    Demand for Supercomputing Power
   3




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Limitations
    of Existing and Emerging Solutions
     4




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Our
    Solutions
        
    upgrade paths that allow customers to leverage their investments
    over longer periods of time and provide enhanced total costs of
    ownership;
    custom design of interconnect systems and, in certain systems,
    proprietary processors;
    flexibility of processor type, memory and network configuration
    and system software tools developed towards implementation of
    our Adaptive Supercomputing vision; and
    the Cray brand name, synonymous with supercomputing, that brings
    with it a proven research and development team and a global
    sales and service organization dedicated to the needs of HPC
    users.   5




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Our
    Current Products and Products in Development
  and/or
  Current
    Products
  Cray XT5 System. and/or and/or ®
  Cray XT4 System. tm
  Cray
    XT5h
    Hybrid Supercomputer. h h
 6




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##### Table of Contents



Cray CX1 System. tm ® tm
  Cray XT5m System.
  Products
    in Development
  Cray XMT System.
  Baker.
  Our
    Adaptive Supercomputing Vision and Cascade Program
     7




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Our
    Markets
    Scientific Research.
  National Security.
  Earth Sciences.
  Computer-Aided Engineering.
   8




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®
    Form 10-K.
  Our
    Technology
    Architecture
        h
   9




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##### Table of Contents



Hardware
    
    Integrated circuit design. We have experience in designing
    custom and standard cell integrated circuits, including vector
    and multithreaded processors. Our processors and other
    integrated circuits have special features that let them use high
    available memory bandwidth efficiently.
    High-speed interconnect systems. We design high speed and high
    bandwidth interconnect systems using a combination of custom I/O
    circuits, high-density connectors, carefully chosen transmission
    media and highly optimized logic.
    Packaging and cooling. We use very dense packaging in order to
    produce systems with high processing capabilities and
    complementary bandwidth. This packaging generates more heat per
    unit volume. We use specialized cooling techniques to address
    this issue, including liquid cooling and high volume air cooling.    System
    Software
        Services
    on-site
  two-hour
 10




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Sales and
    Marketing
          Manufacturing
    and Procurement
  and/or
   11




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Competition
             12




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Intellectual
    Property
          Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    Risk
    Factors    Our operating results may fluctuate significantly and we may
    not achieve profitability in any given
    period.
 13




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
    successfully completing development and selling of our Cray XT5
    system, including upgrades and successor systems;
    the level of revenue recognized in any given period, which is
    affected by the very high average sales prices and limited
    number of system sales in any quarter, the timing of product
    acceptances by customers and contractual provisions affecting
    the timing and amount of revenue recognition;
    the successful expansion of our Custom Engineering program,
    including winning new contracts in time for performance in 2009
    and subsequent years;
    the building of a reseller network for our Cray CX1 system and
    achieving significant sales of Cray CX1 systems;
    the competitiveness of our products, which may be affected by
    the competitiveness of key components from suppliers;
    our expense levels, including research and development net of
    government funding, which are affected by the level and timing
    of such funding and the meeting of developmental milestones;
    maintaining our product development projects on schedule and
    within budgetary limitations;
    the level of product gross profit contribution in any given
    period due to product mix, strategic transactions, product life
    cycle and component costs;
    the level and timing of maintenance contract renewals with
    existing customers;
    revenue delays or losses due to customers postponing purchases
    to wait for future upgraded or new systems, delays in delivery
    of upgraded or new systems and longer than expected customer
    acceptance cycles; and
    the terms and conditions of sale or lease for our
    products; and    
    the timely availability of acceptable components in sufficient
    quantities to meet customer delivery schedules;
    the timing and level of government funding for product
    acquisitions and research and development contracts, which may
    be adversely affected by the current economic and fiscal
    situation;
    price fluctuations in the 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;
    the introduction or announcement of competitive products;
    currency fluctuations, international conflicts or economic
    crises; and
    the receipt and timing of necessary export licenses.   14




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Our reliance on third-party suppliers poses significant risks
    to our operating results, business and
    prospects.
  
    if a supplier does not provide components that meet our
    specifications in sufficient quantities on time, then production
    and sales of our systems could be delayed, which would result in
    decreased revenue and gross profit and adversely affect cash
    flow  these risks are accentuated during steep
    production ramp periods as we introduce new or successor
    products;
    if an interruption of supply of our components occurs because a
    supplier changes its technology roadmap, decides to no longer
    provide those components, increases the price of those
    components significantly or imposes 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. In some cases, such as with key integrated circuits
    and memory parts, we may not be able to redesign such components
    or find alternate sources that we could use in any realistic
    time frame. Defective components may need to be replaced, which
    may result in increased costs and obsolete inventory;
    if a supplier cannot provide a competitive key component, such
    as processors, our systems may be less competitive than systems
    using components with greater capabilities;
    if a supplier provides us with hardware, software or other
    intellectual property that contains bugs or other errors or is
    different from what we expected, our development projects and
    production systems may be adversely affected through additional
    design testing and verification efforts, respins of integrated
    circuits
    and/or
    development of replacement components, the production and sales
    of our systems could be delayed and systems installed at
    customer sites could require significant field component
    replacements, resulting in decreased revenue and gross profit
    and adversely affecting cash flow;
    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 not possible to complete;
    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; and
    if a key supplier is acquired or has a significant business
    change, production and sales of our systems may be delayed or
    our development programs may be delayed or may not be possible
    to complete.  tm
 15




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The achievement of our business plan in 2009 and future
    periods is highly dependent on increased product revenue and
    gross profit from our Cray XT5 and successor
    systems.
    
    the level of product differentiation in our Cray XT5 and
    successor systems. We need to compete successfully against HPC
    systems from large established companies and lower bandwidth
    cluster systems. Our long-term success may be adversely affected
    if we are not successful in demonstrating the value of our
    balanced high bandwidth systems with the capability of solving
    challenging problems quickly to a market beyond our current core
    of customers, largely certain agencies of the U.S. and
    other governments, that require systems with the performance and
    features we offer;
    we sometimes do not meet all of the contract requirements for
    customer acceptance and ongoing reliability of our systems,
    which has resulted in contract penalties. Most often these
    penalties adversely affect the gross profit through the
    provision of additional equipment and services
    and/or
    service credits to satisfy delivery delays and performance
    shortfalls. Such penalties adversely impacted gross profits in
    2007 and 2008, and we will incur additional penalties in 2009.
    The risk of contract penalties is increased when we bid for new
    business prior to completing development of new products when we
    must estimate future system performance;
    in March 2008, we placed a last-time buy for a key component for
    our Cray XT4, Cray XT5 and Cray XMT systems, which had to be
    placed before we could know all the possible sales prospects for
    these products. If we estimated our needs too low, we could
    limit the number of possible sales of these products and reduce
    potential revenue, or if we estimated too high, we could incur
    inventory obsolescence charges and reduce our gross profit.
    Either way, our operating results could be adversely
    affected; and
    in the past, product gross profit has been adversely impacted by
    lower volumes than planned and higher than anticipated
    manufacturing variances, including scrap, rework and excess and
    obsolete inventory.    Failure to overcome the technical challenges of completing
    the development of our supercomputer systems on our product
    roadmap would adversely affect our revenue and operating results
    in subsequent years. and/or and/or
 16




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If the U.S. government purchases fewer supercomputers,
    our revenue would be reduced and our operating results would be
    adversely affected.
  If government support for development of our supercomputer
    systems is delayed, reduced or lost, our net research and
    development expenditures and capital requirements would increase
    significantly and our ability to conduct research and
    development would decrease.
   17




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If we are unable to compete successfully in the HPC market,
    our revenue will decline.
      If we do not meet our revenue goals for our new strategic
    initiatives, our revenue and operating results will be adversely
    affected.
  If we cannot retain, attract and motivate key personnel, we
    may be unable to effectively implement our business
    plan.
 18




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Our stock price is volatile.
  We will require a significant amount of cash to purchase the
    Notes and to fund planned capital expenditures, research and
    development efforts and other corporate expenses and we may have
    to seek additional financing. and/or
  We may infringe or be subject to claims that we infringe the
    intellectual property rights of others.
  We incorporate software licensed from third parties into the
    operating systems for our products and any significant
    interruption in the availability of these third-party software
    products or defects in these products could reduce the demand
    for our products.
 19




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and/or
  We are required to evaluate our internal control over
    financial reporting under Section 404 of the Sarbanes-Oxley
    Act of 2002 at the end of each fiscal year, and any adverse
    results from such future evaluations could result in a loss of
    investor confidence in our financial reports and have an adverse
    effect on our stock price. Form 10-K
  U.S. export controls could hinder our ability to make
    sales to foreign customers and our future
    prospects.
  We may not be able to protect our proprietary information and
    rights adequately.
  A substantial number of our shares are eligible for future
    sale and may depress the market price of our common stock and
    may hinder our ability to obtain additional
    financing.
  
    33,506,573 shares of common stock;
    1,284,852 shares of common stock issuable upon exercise of
    warrants;
    3,755,894 shares of common stock issuable upon exercise of
    options, of which options to purchase 2,549,394 shares of
    common stock were then exercisable; and 20




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
    Notes convertible into an aggregate of 1,436,260 shares of
    common stock at a current conversion price of approximately
    $19.31 per share, subject to adjustment, or, under certain
    circumstances specified in the indenture governing the Notes, a
    maximum of 1,974,857 shares of common stock.      Provisions of our Restated Articles of Incorporation and
    Bylaws could make a proposed acquisition that is not approved by
    our Board of Directors more difficult.
  
    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 1B.
    Unresolved
    Staff Comments   21




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##### Table of Contents



Item 2.
    Properties    ApproximateLocation of Property

Uses of Facility

Square FootageChippewa Falls, WI

Manufacturing, hardware development, central service and
    warehouse


227,800Seattle, WA

Executive offices, hardware and software development, sales and
    marketing


54,000Mendota Heights, MN

Software development, sales and marketing


55,300       Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   Item E.O.  Executive
    Officers of the Company    Name

Age

PositionPeter J. Ungaro


40


Chief Executive Officer and PresidentBrian C. Henry


52


Executive Vice President and Chief Financial OfficerKenneth W. Johnson


66


Senior Vice President, General Counsel and Corporate SecretaryWayne J. Kugel


40


Senior Vice PresidentIan W. Miller


51


Senior Vice PresidentCharles A. Morreale


47


Vice PresidentSteven L. Scott


42


Senior Vice President and Chief Technology OfficerMargaret A. Williams


50


Senior Vice President     Peter J. Ungaro
 22




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##### Table of Contents



Brian C. Henry e-markets
  Kenneth W. Johnson
  Wayne J. Kugel
  Ian W. Miller
  Charles A. Morreale
  Steven L. Scott
 23




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##### Table of Contents



Margaret A. Peg Williams
 24




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##### Table of Contents



PART II  Item 5.
    Market
    for the Companys Common Equity, Related Shareholder
    Matters and Issuer Repurchases of Equity
    Securities  Price
    Range of Common Stock and Dividend Policy
      High


LowYear Ended December 31, 2007:First Quarter

$
14.40


$
11.32Second Quarter

$
14.33


$
6.50Third Quarter

$
8.30


$
6.02Fourth Quarter

$
7.38


$
5.52Year Ended December 31, 2008:First Quarter

$
6.05


$
4.46Second Quarter

$
6.99


$
4.56Third Quarter

$
6.50


$
4.30Fourth Quarter

$
5.49


$
1.15     Equity
    Compensation Plan Information
    Number of Shares ofNumber of Shares of



Common Stock AvailableCommon Stock to be

Weighted-Average

for Future Issuance UnderIssued Upon Exercise of

Exercise Price of

Equity CompensationOutstanding Options,

Outstanding Options,

Plans (excluding sharesPlan Category

Warrants and Rights

Warrants and Rights

reflected in 1st column)Equity compensation plans approved by shareholders (1)


3,024,284


$
12.96



1,539,040Equity compensation plans not approved by shareholders (2)


731,610


$
9.57



48,326Total


3,755,894


$
12.30



1,587,366     (1)
    
    The shareholders approved our 1995, 1999 and 2003 stock option
    plans, our 2004 long-term equity compensation plan, our 2006
    long-term equity compensation plan and our 2001 employee
    stock purchase plan; the 1995 and 1999 stock option plans have
    terminated and no more options may be granted under those plans.
    Pursuant to these stock option plans, incentive options may be
    granted to employees (including officers) and nonqualified
    options may be granted to employees, officers, directors, agents
    and consultants with exercise prices at least equal to the fair
    market value of the underlying common stock at the time of
    grant. While the Board may grant options with varying vesting
    periods under these plans, most options granted to employees
    vest over four years, with 25% of the options vesting after one
    year and the remaining options vesting monthly over the next
    three years, and most option grants to non-employee directors
    vesting monthly over the twelve months after grant. Under the
    2004 and 2006 long-term equity compensation plans, the Board may
    grant restricted and performance stock grants in addition to
    incentive and nonqualified stock options. As of 25




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December 31, 2008, under the option and equity compensation
    plans approved by shareholders under which we may grant stock
    options, an aggregate of 1,539,040 shares remained
    available for grant as options and, under the option and equity
    compensation plans approved by shareholders under which we may
    grant restricted and bonus awards, an aggregate of
    1,221,364 shares were available for such awards.Under the 2001 employee stock purchase plan, all employees
    are eligible to participate and purchase shares of our common
    stock at a purchase price equal to 95% of the fair market value
    of our common stock on the fourth business day after the end of
    each offering period. The 2001 employee stock purchase plan
    covers a total of 1,000,000 shares; at December 31,
    2008, we had issued a total of 703,478 shares under the
    2001 plan and had a total of 296,522 shares available for
    future issuance. The first two columns do not include the shares
    to be issued under the 2001 employee stock purchase plan
    for the offering period that began on December 16, 2008 and
    will end on March 15, 2009, as neither the number of shares
    to be issued in that offering period nor the offering price is
    now determinable.(2)
    
    The shareholders did not approve the 2000 non-executive employee
    stock option plan. Under the 2000 non-executive employee stock
    option plan approved by the Board of Directors on March 30,
    2000, an aggregate of 1,500,000 shares pursuant to
    non-qualified options could be issued to employees, agents and
    consultants but not to officers or directors. Otherwise, the
    2000 non-executive employee stock option plan is similar to the
    stock option plans described in footnote (1) above. At
    December 31, 2008, under the 2000 non-executive employee
    stock plan we had options for 698,649 shares outstanding
    and options for 48,326 shares available for future grant.On April 1, 2004, in connection with the acquisition of
    OctigaBay, subsequently renamed Cray Canada Inc., we assumed
    that companys key employee stock option plan, including
    existing options. Options could be granted to Cray Canada
    employees, directors and consultants. Otherwise the Cray Canada
    key employee stock option plan is similar to the stock option
    plans described in footnote (1) above. On March 8,
    2006, the Cray Canada plan was terminated, which ended future
    grants but did not affect then outstanding options. Under the
    Cray Canada key employee stock option plan, we had 32,961
    options outstanding as of December 31, 2008.

From time to time we have issued warrants as compensation to
    consultants and others for services without shareholder
    approval. As of December 31, 2008, we had no such warrants
    outstanding.  Unregistered
    Sales of Securities
    Issuer
    Repurchases
   26




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STOCK
    PERFORMANCE GRAPH
      COMPARISON
    OF CUMULATIVE TOTAL RETURN AMONG OUR COMMON STOCK,
    THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX AND THE NASDAQ
    COMPUTER MANUFACTURER STOCKS INDEX THROUGH DECEMBER 31,
    2008
  
  12/31/03



12/31/04



12/30/05



12/29/06



12/31/07



12/31/08Cray Inc.



100.0




46.9




13.4




29.9




15.1




5.2Nasdaq Stock Market (U.S.)



100.0




108.8




111.2




122.1




132.4




63.8Nasdaq Computer Manufacturer Stocks



100.0




130.3




133.3




136.1




199.2




83.7  27




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Year Ended December 31,2008


2007


2006


2005


2004(In thousands, except for per share data)Operating Data:Product revenue

$
218,970


$
133,455


$
162,795


$
152,098


$
95,901Service revenue


63,883



52,698



58,222



48,953



49,948Total revenue


282,853



186,153



221,017



201,051



145,849Cost of product revenue


133,715



89,475



124,728



139,518



104,196Cost of service revenue


38,062



31,247



32,466



29,032



30,338Total cost of revenue


171,777



120,722



157,194



168,550



134,534Gross profit


111,076



65,431



63,823



32,501



11,315Research and development, net


51,775



37,883



29,042



41,711



53,266Sales and marketing


24,988



22,137



21,977



25,808



34,948General and administrative


16,742



14,956



18,785



16,145



19,451Restructuring, severance and impairment


54,450



(48
)


1,251



9,750



8,182In-process research and development charge


















43,400Operating expenses


147,955



74,928



71,055



93,414



159,247Loss from operations


(36,879
)


(9,497
)


(7,232
)


(60,913
)


(147,932
)Other income (expense), net


5,133



1,112



(2,141
)


(1,421
)


(699
)Interest income (expense), net


787



3,840



(2,095
)


(3,462
)


365Loss before income taxes


(30,959
)


(4,545
)


(11,468
)


(65,796
)


(148,266
)(Provision) benefit for income taxes


(387
)


(1,174
)


(602
)


1,488



(59,092
)Net loss

$
(31,346
)

$
(5,719
)

$
(12,070
)

$
(64,308
)

$
(207,358
)Net loss per common share:Basic

$
(0.96
)

$
(0.18
)

$
(0.53
)

$
(2.91
)

$
(9.95
)Diluted

$
(0.96
)

$
(0.18
)

$
(0.53
)

$
(2.91
)

$
(9.95
)Weighted average outstanding shares:Basic


32,573



31,892



22,849



22,125



20,847Diluted


32,573



31,892



22,849



22,125



20,847Cash Flow Data:Cash provided by (used in):Operating activities

$
(45,507
)

$
38,650


$
12,608


$
(36,705
)

$
(52,656
)Investing activities


46,207



(35,426
)


(27,372
)


41,731



(29,908
)Financing activities


(47,196
)


1,695



83,909



(137
)


84,153Depreciation and amortization


10,232



13,359



16,181



19,578



17,179Purchases of property and equipment


4,430



2,768



2,611



3,982



12,518 28




---



##### Table of Contents



Year Ended December 31,2008


2007


2006


2005


2004(In thousands, except for per share data)Balance Sheet Data:Cash, cash equivalents, restricted cash and short-term
    investments

$
80,414


$
179,121


$
140,328


$
46,026


$
87,422Working capital


112,163



150,839



136,324



52,204



93,616Total assets


313,891



355,902



337,503



273,005



310,504Obligations under capital leases










31



154



823Convertible notes payable, current


27,727















Convertible notes payable, non-current






80,000



80,000



80,000



80,000Shareholders equity


118,189



148,202



141,374



65,947



121,965   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements
    Overview
    and Executive Summary
        Summary
    of 2008 Results
   29




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##### Table of Contents



Market
    Overview and Challenges
    
    The commoditization of HPC hardware, particularly processors and
    interconnect systems,
    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,
    Increased micro-architectural diversity, including many-core
    processors with vector extensions and growing experimentation
    with accelerators, as the rate of per-core performance has
    decreased, and
    Data needs growing faster than computational needs.       30




---



##### Table of Contents



Key
    Performance Indicators
    Revenue. Form 10-K,
  Gross profit.
  Operating expenses.
  Liquidity and cash flows.
  Critical
    Accounting Policies and Estimates
  Form 10-K Note 2  Summary of Significant Accounting
    Policies
 31




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##### Table of Contents



Revenue
    Recognition
    Multiple-Element Arrangements. No. 00-21, Revenue Arrangements with Multiple Deliverables
  
    The element could be sold separately;
    The fair value of the undelivered element is
    established; and
    In cases with any general right of return, our performance with
    respect to any undelivered element is within our control and
    probable.    Products.
  Project Revenue. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts.
 32




---



##### Table of Contents



Services.
  Inventory
    Valuation
      Goodwill
    and Other Intangible Assets
    Accounting
    for Income Taxes
  Accounting for Income Taxes
    Research
    and Development Expenses
   33




---



##### Table of Contents



Share-Based
    Compensation
  Share-Based
    Payment
  Recent
    Accounting Pronouncements
  The Fair
    Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
  Fair Value Measurement FAS 157-2, Effective Date of FASB Statement No. 157
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133 Accounting for Derivative Instruments
    and Hedging Activities
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1),
 34




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##### Table of Contents



14-1
  14-1, 14-1 14-1
  FAS 157-3, Determining the Fair Value of a Financial Asset in a Market
    That Is Not Active FAS 157-3
  Employers Disclosures about Postretirement Benefit Plan
    Assets
  Results
    of Operations
  Revenue
    and Gross Profit
    Year Ended December 31,2008


2007


2006Product revenue

$
218,970


$
133,455


$
162,795Less: Cost of product revenue


133,715



89,475



124,728Product gross profit

$
85,255


$
43,980


$
38,067Product gross profit percentage


39%



33%



23%Service revenue

$
63,883


$
52,698


$
58,222Less: Cost of service revenue


38,062



31,247



32,466Service gross profit

$
25,821


$
21,451


$
25,756Service gross profit percentage


40%



41%



44%Total revenue

$
282,853


$
186,153


$
221,017Less: Total cost of revenue


171,777



120,722



157,194Total gross profit

$
111,076


$
65,431


$
63,823Total gross profit percentage


39%



35%



29%   Product
    Revenue
   35




---



##### Table of Contents



Service
    Revenue
        Cost
    of Product Revenue and Product Gross Profit
    and/or
      Cost
    of Service Revenue and Service Gross Profit
  ramp-up
   36




---



##### Table of Contents



Operating
    Expenses
  Research
    and Development
    December 31,2008


2007


2006Gross research and development expenses

$
95,757


$
90,090


$
99,061Less: Amounts included in cost of revenue


(378
)


(793
)


(17,012
)Less: Reimbursed research and development (excludes amounts in
    revenue)


(43,604
)


(51,414
)


(53,007
)Net research and development expenses

$
51,775


$
37,883


$
29,042Percentage of total revenue


18%



20%



13%     h h
  h h
   37




---



##### Table of Contents



Other
    Operating Expenses
    Year Ended December 31,2008

2007

2006Sales and marketing

$24,988

$22,137

$21,977Percentage of total revenue

9%

12%

10%General and administrative

$16,742

$14,956

$18,785Percentage of total revenue

6%

8%

8%Restructuring, severance and impairment

$54,450

$(48)

$1,251Percentage of total revenue

19%

<1%

<1%   Sales and Marketing.
      General and Administrative.
      Restructuring, Severance and
    Impairment.
  Other
    Income (Expense), Net
   38




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##### Table of Contents



Interest
    Income (Expense), Net
    Year Ended December 31,2008


2007


2006Interest income

$
3,551


$
7,046


$
2,525Interest expense


(2,764
)


(3,206
)


(4,620
)Net interest income (expense)

$
787


$
3,840


$
(2,095
)       Taxes
        Net
    Income (Loss)
             39




---



##### Table of Contents



Liquidity
    and Capital Resources
           40




---



##### Table of Contents



Amounts Committed by YearLess thanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


ThereafterDevelopment agreements

$
71,027


$
34,779


$
21,248


$
15,000


$
Operating leases


19,334



2,616



4,647



4,191



7,880Unrecognized income tax benefits


646







646







Total contractual cash obligations

$
91,007


$
37,395


$
26,541


$
19,191


$
7,880           Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk:
 41




---



##### Table of Contents



WeightedAveragedInterestFair Value


Maturities


RateCorporate notes and bonds

$
5,350



2009



4.8
%   Foreign Currency Risk:
 42




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS*
  Consolidated Balance Sheets at December 31,
    2008 and December 31, 2007


F-1Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


F-2Consolidated Statements of Shareholders
    Equity and Comprehensive Income (Loss) for the years ended
    December 31, 2008, 2007 and 2006


F-3Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-4Notes to Consolidated Financial Statements


F-5Report of Independent Registered Public
    Accounting Firm


F-29     *
    
    The Financial Statements are located following page 44   43




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
    Changes
    in Internal Control over Financial Reporting
    Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
      Internal Control  Integrated
    Framework
   44




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal Control  Integrated Framework
        Internal Control  Integrated Framework
    Peterson
    Sullivan LLP
    45




---



##### Table of Contents



Item 9A(T).
    Controls
    and Procedures    Item 9B.
    Other
    Information   PART III    Item 10.
    Directors,
    Executive Officers and Corporate Governance      Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters      Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   46




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
              Financial Statement Schedules
  Form 10-K.
    Exhibits
  Form 10-K.
 47




---



##### Table of Contents



SIGNATURES
      By
    /s/  Peter
    J. Ungaro   Chief Executive Officer and President
  Form 10-K attorneys-in-fact
    Signature

TitleBy /s/  Peter
    J. UngaroPeter
    J. Ungaro

Chief Executive Officer, President and DirectorBy /s/  Brian
    C. HenryBrian
    C. Henry

Principal Financial OfficerBy /s/  Kenneth
    D. RoselliKenneth
    D. Roselli

Principal Accounting OfficerBy /s/  William
    C. BlakeWilliam
    C. Blake

DirectorBy /s/  John
    B. Jones, Jr.John
    B. Jones, Jr.

DirectorBy /s/  Stephen
    C. KielyStephen
    C. Kiely

DirectorBy /s/  Frank
    L. LedermanFrank
    L. Lederman

Director 48




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##### Table of Contents



Signature

TitleBy /s/  Sally
    G. NarodickSally
    G. Narodick

DirectorBy /s/  Daniel
    C. RegisDaniel
    C. Regis

DirectorBy /s/  Stephen
    C. RichardsStephen
    C. Richards

Director  49




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Restated Articles of Incorporation (1)3
.2

Amended and Restated Bylaws (8)4
.1

Form of Common Stock Purchase Warrants due June 21, 2009
    (14)4
.2

Indenture dated as of December 6, 2004, by and between the
    Company and The Bank of New York Trust Company, N.A. as
    Trustee (and Form of 3.0% Convertible Senior Subordinated
    Note included as Exhibit A to the Indenture) (12)10
.0*

1999 Stock Option Plan (32)10
.1*

2000 Non-Executive Employee Stock Option Plan (5)10
.2*

2001 Employee Stock Purchase Plan (11)10
.3*

2003 Stock Option Plan (2)10
.4*

2004 Long-Term Equity Compensation Plan (13)10
.5*

Cray Canada Inc. Amended and Restated Key Employee Stock Option
    Plan (18)10
.6*

2006 Long-Term Equity Compensation Plan (30)10
.7*

Form of Officer Non-Qualified Stock Option Agreement (19)10
.8*

Form of Officer Incentive Stock Option Agreement (19)10
.9*

Form of Director Stock Option Agreement (19)10
.10*

Form of Director Stock Option Agreement, immediate vesting (19)10
.11*

Form of Employee Restricted Stock Agreement, current form (35)10
.12*

Form of Director Restricted Stock Agreement (1)10
.13*

2007 Cash Incentive Plan (8)10
.14*

Senior Officer Cash Incentive Plan for annual cash incentive
    awards (9)10
.15*

Letter Agreement between the Company and Peter J. Ungaro,
    effective March 7, 2005 (16)10
.16*

Offer Letter between the Company and Margaret A. Williams, dated
    April 14, 2005 (23)10
.17*

Offer Letter between the Company and Brian C. Henry, dated
    May 16, 2005 (24)10
.18*

Form of Management Continuation Agreement between the Company
    and its Executive Officers and certain other Employees, as in
    effect prior to December 19, 2008 (10)10
.19*

Form of Management Retention Agreement, dated as of
    December 19, 2008, including
    Annex A-1
    and
    Annex A-2
    applicable to Peter J. Ungaro and Brian C. Henry, respectively
    (28)10
.20*

Executive Severance Policy, as in effect prior to
    December 19, 2008 (21)10
.21*

Executive Severance Policy, as in effect on December 19,
    2008 (28)10
.22*

Retention Agreement between the Company and Peter J. Ungaro,
    dated December 20, 2005 (26)10
.23*

Retention Agreement between the Company and Brian C. Henry,
    dated December 20, 2005 (26)10
.24*

Retention Agreement between the Company and Margaret A.
    Williams, dated December 20, 2005 (26)10
.25*

Summary sheet setting forth amended compensation arrangements
    for non-employee Directors (27)10
.26

Lease Agreement between Merrill Place, LLC and the Company,
    dated November 21, 1997 (6)10
.27

Fourth Amendment to the Lease between Merrill Place LLC and the
    Company, dated as of October 31, 2005 (22)10
.28

Lease Agreement, dated as of August 11, 2008, between 900
    Fourth Avenue Property LLC and the Company (20)10
.29

FAB I Building Lease Agreement between Union Semiconductor
    Technology Corporation and the Company, dated June 30, 2000
    (7)10
.30

Amendment No. 1 to the FAB Building Lease Agreement between
    Union Semiconductor Technology Corporation and the Company,
    dated as of August 19, 2002 (3) 50




---



##### Table of Contents



ExhibitNumber

Description10
.31

Conference Center Lease Agreement between Union Semiconductor
    Technology Corporation and the Company, dated June 30, 2000
    (7)10
.32

Amendment No. 1 to the Conference Center Lease Agreement
    between Union Semiconductor Technology Corporation and the
    Company, dated as of August 19, 2002 (3)10
.33

Development Building and Conference Center Lease Agreement
    between Northern Lights Semiconductor Corporation and the
    Company, dated as of February 1, 2008 (33)10
.34

Mendota Heights Office Lease Agreement between the
    Teachers Retirement System of the State of Illinois and
    the Company, dated as of August 10, 2000 (7)10
.35

First Amendment to the Mendota Heights Office Lease Agreement
    between the Teachers Retirement System of the State of
    Illinois and the Company, dated as of January 17, 2003 (3)10
.36

Technology Agreement between Silicon Graphics, Inc. and the
    Company, effective as of March 31, 2000 (4)10
.37

Amendment No. 2, dated as of March 30, 2007, to the
    Technology Agreement between Silicon Graphics, Inc. and the
    Company (34)10
.38

Amendment No. 3, dated as of March, 28, 2008, to the
    Technology Agreement between Silicon Graphics, Inc. and the
    Company (15)10
.39

Credit Agreement, dated as of December 29, 2006, between
    Wells Fargo Bank, National Association and the Company (29)10
.40

First Amendment, dated January 31, 2007, to Credit
    Agreement between Wells Fargo Bank, National Association and the
    Company (35)10
.41

Second Amendment, effective December 31, 2007, to Credit
    Agreement between Wells Fargo Bank, National Association, and
    the Company (25)10
.42

Third Amendment, entered into as of August 22, 2008, to
    Credit Agreement between Wells Fargo Bank, National Association,
    and the Company (20)21
.1

Subsidiaries of the Company23
.1

Consent of Peterson Sullivan LLP, Independent Registered Public
    Accounting Firm24
.1

Power of Attorney for directors and officers (included on the
    signature page of this report)31
.1

Rule 13a-14(a)/15d-14(a)
    Certification of Mr. Ungaro, Chief Executive Officer31
.2

Rule 13a-14(a)/15d-14(a)
    Certification of Mr. Henry, Chief Financial Officer32
.1

Certification pursuant to 18 U.S.C. Section 1350 by
    the Chief Executive Officer and the Chief Financial Officer     (1)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on June 8, 2006.(2)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2003 Annual Meeting, as filed with the
    Commission on March 31, 2003.(3)
    
    Incorporated by reference to the Companys Annual Report on
    Form 10-K,
    as filed with the Commission for the fiscal year ended
    December 31, 2002.(4)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on May 15, 2000.(5)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-8
    (SEC
    No. 333-57970),
    as filed with the Commission on March 30, 2001.(6)
    
    Incorporated by reference to the Companys Annual Report on
    Form 10-K,
    as filed with the Commission for the fiscal year ended
    December 31, 1997.(7)
    
    Incorporated by reference to the Companys Annual Report on
    Form 10-K,
    as filed with the Commission for the fiscal year ended
    December 31, 2000.(8)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 12, 2007. 51




---



##### Table of Contents



(9)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on May 14, 2008.(10)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on May 17, 1999.(11)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-8
    (SEC
    No. 333-70238),
    filed on September 26, 2001.(12)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 7, 2004.(13)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2004 Annual Meeting, as filed with the
    Commission on March 24, 2004.(14)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-3
    (SEC
    No. 333-57972),
    as filed with the Commission on March 30, 2001.(15)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on April 8, 2008.(16)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on March 8, 2005.(17)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on March 25, 2005.(18)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-8
    (SEC
    No. 333-114243),
    as filed with the Commission on April 6, 2004.(19)
    
    Incorporated by reference to the Companys Annual Report on
    Form 10-K,
    as filed with the Commission for the fiscal year ended
    December 31, 2004.(20)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on August 29, 2008.(21)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on August 10, 2005.(22)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on November 15, 2005.(23)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on May 9, 2005.(24)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on November 9, 2005.(25)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on January 4, 2008.(26)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 22, 2005.(27)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 21, 2006.(28)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 22, 2008.(29)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on January 4, 2007.(30)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2006 Annual Meeting, as filed with the
    Commission on April 28, 2006.(31)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on August 9, 2006. 52




---



##### Table of Contents



(32)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-8,
    (SEC
    No. 333-57970),
    as filed with the Commission on March 30, 2001.(33)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 1, 2008.(34)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on August 7, 2007.(35)
    
    Incorporated by reference to the Companys Annual Report on
    Form 10-K,
    as filed with the Commission for the fiscal year ended
    December 31, 2006 on March 9, 2007.    *
    
    Management contract or compensatory plan or arrangement.  Regulation S-K,
 53




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 (In
    thousands, except share data)
  December 31,


December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
72,373


$
120,539Restricted cash


2,691



10,000Short-term investments, available for sale


5,350



48,582Accounts receivable, net


95,667



23,635Inventory


80,437



55,608Prepaid expenses and other current assets


13,565



4,120Prepaid engineering services


16,458



Total current assets


286,541



262,484Property and equipment, net


18,396



17,044Service inventory, net


1,917



2,986Goodwill






65,411Deferred tax asset


1,200



512Other non-current assets


5,837



7,465TOTAL ASSETS

$
313,891


$
355,902LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
16,730


$
14,148Accrued payroll and related expenses


23,672



12,023Other accrued liabilities


24,670



7,488Advance research and development payments


13,887



29,669Convertible notes payable, current


27,727



Deferred revenue


67,692



48,317Total current liabilities


174,378



111,645Long-term deferred revenue


18,154



11,745Other non-current liabilities


3,170



4,310Convertible notes payable, non-current






80,000TOTAL LIABILITIES


195,702



207,700Commitments and Contingencies (Note 11)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 33,506,573 and 32,638,415 shares, respectively


518,727



513,196Accumulated other comprehensive income


9,364



13,562Accumulated deficit


(409,902
)


(378,556
)TOTAL SHAREHOLDERS EQUITY


118,189



148,202TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
313,891


$
355,902   See accompanying notes
 F-1




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF OPERATIONS

(In
    thousands, except per share data)  Years Ended December 31,2008


2007


2006Revenue:Product

$
218,970


$
133,455


$
162,795Service


63,883



52,698



58,222Total revenue


282,853



186,153



221,017Cost of revenue:Cost of product revenue


133,715



89,475



124,728Cost of service revenue


38,062



31,247



32,466Total cost of revenue


171,777



120,722



157,194Gross profit


111,076



65,431



63,823Operating expenses:Research and development, net


51,775



37,883



29,042Sales and marketing


24,988



22,137



21,977General and administrative


16,742



14,956



18,785Restructuring, severance and impairment


54,450



(48
)


1,251Total operating expenses


147,955



74,928



71,055Loss from operations


(36,879
)


(9,497
)


(7,232
)Other income (expense), net


5,133



1,112



(2,141
)Interest income (expense), net


787



3,840



(2,095
)Loss before income taxes


(30,959
)


(4,545
)


(11,468
)Income tax expense


(387
)


(1,174
)


(602
)Net loss

$
(31,346
)

$
(5,719
)

$
(12,070
)Basic and diluted net loss per common share

$
(0.96
)

$
(0.18
)

$
(0.53
)Basic and diluted weighted average shares outstanding


32,573



31,892



22,849   See accompanying notes
 F-2




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##### Table of Contents





CRAY INC.
    AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
    AND COMPREHENSIVE INCOME (LOSS)
    (In thousands)
  Common Stockand Additional


Exchangeable





AccumulatedPaid In Capital


Shares





OtherNumber





Number





Deferred


Comprehensive


Accumulated





Comprehensiveof Shares


Amount


of Shares


Amount


Compensation


Income


Deficit


Total


Income (Loss)BALANCE, December 31, 2005


22,743


$
422,691



20


$
576


$
(2,811
)

$
6,258


$
(360,767
)

$
65,947Common stock offering, less issuance costs


8,625



81,250























81,250



Exchangeable shares converted into common shares


20



576



(20
)


(576
)


















Issuance of shares under Employee Stock Purchase Plan


64



532























532



Exercise of stock options


382



2,625























2,625



Issuance of shares under Company 401(k) Plan match


48



394























394



Restricted shares issued for compensation


355































Reclassification of deferred compensation to additional paid in
    capital upon adoption of FAS 123R






(2,811
)










2,811















Share-based compensation






2,099























2,099



Other comprehensive income:Currency translation adjustment






















597







597



597Net loss


























(12,070
)


(12,070
)


(12,070
)BALANCE, December 31, 2006


32,237



507,356















6,855



(372,837
)


141,374


$
(11,473
)Issuance of shares under Employee Stock Purchase Plan


60



453























453



Exercise of stock options


163



1,273























1,273



Issuance of shares under Company 401(k) Plan match


95



925























925



Restricted shares issued for compensation, net of forfeitures


58































Exercise of stock warrant


25































Share-based compensation






3,189























3,189



Other comprehensive income:Unrealized gain on available-for-sale securities






















54







54



54Currency translation adjustment






















7,952







7,952



7,952Unrealized loss on cash flow hedges, net of reclassification
    adjustment






















(1,299
)






(1,299
)


(1,299
)Net loss


























(5,719
)


(5,719
)


(5,719
)BALANCE, December 31, 2007


32,638



513,196















13,562



(378,556
)


148,202


$
988Issuance of shares under Employee Stock Purchase Plan


116



453























453



Exercise of stock options


9



51























51



Issuance of shares under Company 401(k) Plan match


311



1,653























1,653



Restricted shares issued for compensation, net of forfeitures


433































Share-based compensation






3,374























3,374



Other comprehensive income:Unrealized loss on available-for-sale securities






















(55
)






(55
)


(55
)Currency translation adjustment






















(10,716
)






(10,716
)


(10,716
)Unrealized gain on cash flow hedges, net of reclassification
    adjustments






















6,573







6,573



6,573Net loss


























(31,346
)


(31,346
)


(31,346
)BALANCE, December 31, 2008


33,507


$
518,727






$



$



$
9,364


$
(409,902
)

$
118,189


$
(35,544
)   See accompanying notes
 F-3




---



##### Table of Contents





CRAY INC.
    AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In
    thousands)
  Years Ended December 31,2008


2007


2006Operating activities:Net loss

$
(31,346
)

$
(5,719
)

$
(12,070
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Depreciation and amortization


10,232



13,359



16,181Share-based compensation expense


3,374



3,189



2,099Inventory write-down


1,006



727



1,644Impairment of goodwill


54,450







Amortization of issuance costs, convertible notes payable and
    line of credit


581



688



1,644Deferred income taxes


(688
)


210



(124
)Gain on extinguishment of debt


(4,040
)






Cash provided by (used in) due to changes in operating assets
    and liabilities:Accounts receivable


(71,326
)


19,725



10,305Inventory


(31,686
)


(2,221
)


2,410Prepaid expenses and other assets


(19,784
)


(2,697
)


337Accounts payable


2,613



(8,531
)


7,562Accrued payroll and related expenses, other accrued liabilities
    and advance research and development payments


16,143



6,642



23,720Other non-current liabilities


(1,126
)


(665
)


36Deferred revenue


26,090



13,943



(41,136
)Net cash provided by (used in) operating activities


(45,507
)


38,650



12,608Investing activities:Sales/maturities of short-term investments


45,001



27,894



Purchases of short-term investments


(1,673
)


(75,552
)


Proceeds from sale of investment










239(Increase) decrease in restricted cash


7,309



15,000



(25,000
)Purchases of property and equipment


(4,430
)


(2,768
)


(2,611
)Net cash provided by (used in) investing activities


46,207



(35,426
)


(27,372
)Financing activities:Sale of common stock, net of issuance costs










81,250Proceeds from issuance of common stock through employee stock
    purchase plan


453



453



532Proceeds from exercise of options


51



1,273



2,625Convertible notes payable and line of credit issuance costs










(375
)Repayment of convertible notes


(47,700
)






Principal payments on capital leases






(31
)


(123
)Net cash provided by (used in) financing activities


(47,196
)


1,695



83,909Effect of foreign exchange rate changes on cash and cash
    equivalents


(1,670
)


292



157Net (decrease) increase in cash and cash equivalents


(48,166
)


5,211



69,302Cash and cash equivalents:Beginning of period


120,539



115,328



46,026End of period

$
72,373


$
120,539


$
115,328Supplemental disclosure of cash flow information:Cash paid for interest

$
2,223


$
2,414


$
3,329Cash paid for income taxes


206



964



279Non-cash investing and financing activities:Inventory transfers to fixed assets and service inventory

$
5,851


$
4,684


$
4,860Shares issued for 401(k) match


1,653



925



394   See accompanying notes
 F-4




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1
    DESCRIPTION
    OF BUSINESS      NOTE 2
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Accounting
    Principles
    Principles
    of Consolidation
    Reclassifications
    Use of
    Estimates
    Cash,
    Cash Equivalents and Restricted Cash
   F-5




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Short-term
    investments
    Foreign
    Currency Derivatives
    Concentration
    of Credit Risk
  Note 16  Segment Information
  Accounts
    Receivable
    Fair
    Values of Financial Instruments
   F-6




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories
  first-in,
    Property
    and Equipment, net
    98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use
  Service
    Inventory
    Goodwill
    and Other Intangible Assets
  Goodwill and Other Intangible Assets
   F-7




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Impairment
    of Long-Lived Assets
  Accounting for the
    Impairment or Disposal of Long-Lived Assets
  Revenue
    Recognition
  Revenue Recognition in Financial
    Statements
  Multiple-Element Arrangements. No. 00-21, Revenue Arrangements with Multiple Deliverables
  
    The element could be sold separately;
    The fair value of the undelivered element is
    established; and
    In cases with any general right of return, performance with
    respect to any undelivered element is within the Companys
    control and probable.    Products.
  Project Revenue. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts
 F-8




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Services.
  Foreign
    Currency Translation
    Research
    and Development
       F-9




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Taxes
  Accounting for Income Taxes
  Accounting
    for Uncertainty in Income Taxes  an interpretation of
    FASB Statement 109
  Share-Based
    Compensation
  Share-Based Payment
      2008

2007

2006Risk-free interest rate

2.8%

4.4%

4.5%Expected dividend yield

0%

0%

0%Volatility

69%

72%

73%Expected life

4.0 years

4.0 years

4.0 yearsWeighted average Black-Scholes value of options granted

$3.50

$5.09

$6.00    F-10




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Shipping
    and Handling Costs
    Advertising
    Costs
    Earnings
    (Loss) Per Share (EPS)
    Accumulated
    Other Comprehensive Income
    2008


2007


2006Accumulated unrealized net (loss) gain on available-for-sale
    investments

$
(1
)

$
54


$
Accumulated unrealized net gain (loss) on cash flow hedges


5,274



(1,299
)


Accumulated currency translation adjustment


4,091



14,807



6,855Accumulated other comprehensive income

$
9,364


$
13,562


$
6,855  F-11




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent Accounting Pronouncements
  The Fair
    Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133 Accounting for Derivative Instruments
    and Hedging Activities
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1 ) 14-1
  14-1, 14-1 14-1
  FAS 157-3, Determining the Fair Value of a Financial Asset in a Market
    That Is Not Active FAS 157-3
  Employers Disclosures about Postretirement Benefit Plan
    Assets
 F-12




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 3
    FAIR
    VALUE MEASUREMENTS  Fair Value Measurements FAS 157-2, Effective Date of FASB Statement No. 157
    Quoted


SignificantPrices in


OtherFair Value


Active


Observableat December 31,


Markets


InputsDescription

2008


(Level 1)


(Level 2)Assets:Cash, cash equivalents and restricted cash

$
75,064


$
75,064


$
Short-term investments, available-for-sale


5,350



5,350



Foreign exchange forward contracts(1)


5,478







5,478Assets measured at fair value at December 31, 2008

$
85,892


$
80,414


$
5,478     (1)
    
    Included in Prepaid expenses and other current
    assets on the Companys Consolidated Balance Sheets.   F-13




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Short-term
    Investments
    Amortized


Gross


GrossCost


Unrealized


UnrealizedBasis


Gains


Losses


Fair Value2008Corporate notes and bonds

$
5,351


$
2


$
(3
)

$
5,350Total short-term investments

$
5,351


$
2


$
(3
)

$
5,3502007Corporate notes and bonds

$
43,364


$
46


$
(5
)

$
43,405Asset-backed securities

$
5,164


$
13


$



$
5,177Total short-term investments

$
48,528


$
59


$
(5
)

$
48,582       Foreign
    Currency Derivatives
   F-14




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 4
    ACCOUNTS
    RECEIVABLE, NET    2008


2007Trade accounts receivable

$
75,624


$
11,569Unbilled receivables


6,703



5,627Advance billings


13,439



6,53895,766



23,734Allowance for doubtful accounts


(99
)


(99
)Accounts receivable, net

$
95,667


$
23,635     non-U.S. government non-U.S. government
  NOTE 5
    INVENTORY    December 31,2008


2007Components and subassemblies

$
16,805


$
20,814Work in process


6,284



15,839Finished goods


57,348



18,955$
80,437


$
55,608      F-15




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 6
    PROPERTY
    AND EQUIPMENT, NET    December 31,2008


2007Land

$
131


$
131Buildings


11,001



10,022Furniture and equipment


13,254



12,232Computer equipment


84,276



76,634Leasehold improvements


2,968



2,959111,630



101,978Accumulated depreciation and amortization


(93,234
)


(84,934
)Property and equipment, net

$
18,396


$
17,044     NOTE 7
    SERVICE
    INVENTORY, NET    December 31,2008


2007Service inventory

$
28,172


$
28,890Accumulated depreciation


(26,255
)


(25,904
)Service inventory, net

$
1,917


$
2,986   NOTE 8
    GOODWILL
    AND INTANGIBLE ASSETS    2008


2007Goodwill, at January 1

$
65,411


$
57,138Goodwill impairment


(54,450
)


Foreign currency translation adjustments


(10,961
)


8,273Goodwill, at December 31

$



$
65,411    F-16




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 9
    DEFERRED
    REVENUE    December 31,2008


2007Deferred product revenue

$
43,295


$
28,592Deferred service revenue


42,551



31,470Total deferred revenue


85,846



60,062Less long-term deferred revenue


(18,154
)


(11,745
)Deferred revenue in current liabilities

$
67,692


$
48,317     NOTE 10
    RESTRUCTURING
    AND SEVERANCE CHARGES        2008


2007


2006Balance, January 1

$
361


$
1,063


$
3,582Additional restructuring charge










1,284Payments


(89
)


(665
)


(3,849
)Adjustments to previously accrued amounts






(48
)


(33
)Foreign currency translation adjustment


(7
)


11



79Total restructuring and severance liability, December 31


265



361



1,063Less long-term restructuring and severance liability


(115
)


(203
)


Current restructuring and severance liability

$
150


$
158


$
1,063    F-17




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 11
    COMMITMENTS
    AND CONTINGENCIES      Operating


DevelopmentLeases


Agreements2009

$
2,616


$
34,7792010


2,344



6,2482011


2,303



15,0002012


2,080



15,0002013


2,111



Thereafter


7,880



Minimum contractual commitments

$
19,334


$
71,027   Convertible Notes
    Payable and Lines of Credit
  Litigation
    Other
    NOTE 12
    INCOME
    TAXES   F-18




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2008


2007


2006United States

$
10,337


$
(7,658
)

$
(10,550
)International


(41,296
)


3,113



(918
)Total

$
(30,959
)

$
(4,545
)

$
(11,468
)     Year Ended December 31,2008


2007


2006Current provision (benefit):Federal

$
(55
)

$



$
State


34



35



109Foreign


1,096



929



617Total current provision


1,075



964



726Deferred provision (benefit):Federal










State










Foreign


(688
)


210



(124
)Total deferred provision (benefit)


(688
)


210



(124
)Total provision for income taxes

$
387


$
1,174


$
602     Year Ended December 31,2008


2007


2006Federal statutory income tax rate


(35.0
)%


(35.0
)%


(35.0
)%State taxes, net of federal benefit


0.9



(6.3
)


(3.6
)Foreign income taxes


5.0



(0.3
)


5.0Deemed dividends for U.S. income tax purposes


0.7



23.7



4.5Meals and entertainment expense


0.4



2.2



1.3Nondeductible expenses


0.4



3.1



2.4Nondeductible goodwill


51.2







Disallowed compensation


1.9







Research and development tax credit


(3.8
)


(17.5
)


(7.6
)Other






0.3



(4.5
)Effect of change in valuation allowance on deferred tax assets


(20.4
)


55.6



42.7Effective income tax rate


1.3
%


25.8
%


5.2
%  F-19




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2008


2007Current:Deferred Income Tax AssetsInventory

$
3,493


$
2,421Accrued compensation


2,013



2,741Deferred service revenue


1,483



1,369Other


474



Gross current deferred tax assets


7,463



6,531Valuation allowance


(7,463
)


(6,531
)Net current deferred tax assets

$
0


$
0Long-Term:Deferred Income Tax Assets:Property and equipment

$
2,190


$
2,625Research and experimentation credit carryforwards


13,440



13,209Net operating loss carryforwards


107,989



118,056Goodwill


1,838



Other


2,895



2,853Gross long-term deferred tax assets


128,352



136,743Valuation allowance


(126,165
)


(134,259
)Net long-term deferred tax assets


2,187



2,484Deferred Income Tax Liabilities:Other


987



1,972Net long-term deferred tax liabilities


987



1,972Net long-term deferred tax asset

$
1,200


$
512       Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109
 F-20




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance at January 1, 2007

$
480Increase related to current year income tax positions


510Balance at December 31, 2007

$
990Increase related to prior year income tax positions


166Decrease related to prior year income tax positions


(510
)Balance at December 31, 2008

$
646     NOTE 13
    CONVERTIBLE
    NOTES PAYABLE AND LINES OF CREDIT           F-21




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Lines of
    Credit
    NOTE 14
    SHAREHOLDERS
    EQUITY  Preferred Stock:
  Common Stock:
     F-22




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Exchangeable Shares:
  Warrants:
    Restricted Stock and Restricted Stock
    Units:
    Stock Option Plans:
    WeightedAverage


RemainingExercise


ContractualOptions


Price


TermOutstanding at January 1, 2006


4,500,145


$
16.56Granted


725,430



10.44Exercised


(381,890
)


6.87Canceled


(976,270
)


23.25Outstanding at December 31, 2006


3,867,415



14.68Granted


60,500



8.80Exercised


(163,189
)


7.80Canceled


(435,928
)


16.44Outstanding at December 31, 2007


3,328,798



14.68Granted


891,350



6.50Exercised


(8,697
)


5.82Canceled


(455,557
)


18.49Outstanding at December 31, 2008


3,755,894



12.30



6.4 yearsExercisable at December 31, 2008


2,549,394



14.54



5.1 yearsAvailable for grant at December 31, 2008


1,587,366  F-23




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       WeightedAverageGrant DateShares


Fair ValueOutstanding at January 1, 2006


491,250


$
5.96Granted during 2006


354,993



10.08Outstanding at December 31, 2006


846,243



7.69Granted during 2007


65,501



7.51Forfeited during 2007


(7,900
)


10.56Vested during 2007


(527,638
)


6.10Outstanding at December 31, 2007


376,206



9.82Granted during 2008


453,808



6.35Forfeited during 2008


(16,775
)


8.65Vested during 2008


(189,365
)


9.72Outstanding at December 31, 2008


623,874



7.36         Outstanding Options


Exercisable OptionsWeighted


Weighted





WeightedAverage


Average





AverageRange of Exercise

Number


Remaining


Exercise


Number


ExercisePrices per Share

Outstanding


Life (Years)


Price


Exercisable


Price$ 0.00  $ 4.00


93,778



6.9


$
3.71



83,778


$
3.80$ 4.01  $ 8.00


1,508,419



7.6


$
6.44



624,910


$
6.28$ 8.01  $10.00


209,622



5.1


$
9.32



205,851


$
9.33$10.01  $12.00


900,944



6.8


$
10.68



591,724


$
10.74$12.01  $14.00


169,540



5.6


$
13.66



169,540


$
13.66$14.01  $16.00


299,213



5.1


$
14.86



299,213


$
14.86$16.01  $52.40


574,378



3.9


$
30.96



574,378


$
30.96$ 0.00  $52.40


3,755,894



6.4


$
12.30



2,549,394


$
14.54  F-24




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007


2006Cost of product revenue

$
100


$
86


$
60Cost of service revenue


199



143



101Research and development


1,268



1,085



386Sales and marketing


524



422



334General and administrative


1,283



1,453



1,218Total share-based compensation expense

$
3,374


$
3,189


$
2,099   Employee Stock Purchase Plan:
  NOTE 15
    BENEFIT
    PLANS  401(k)
    Plan
  and/or
  Pension
    Plan
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans  an amendment of FASB
    Statements No. 87, 88, 106, and 132(R),
  NOTE 16
    SEGMENT
    INFORMATION  Disclosure about Segments of an
    Enterprise and Related Information
 F-25




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      AllUnited


OtherStates


Countries


TotalFor the year ended December 31, 2008:Product revenue

$
195,325


$
23,645


$
218,970Service revenue

$
41,187


$
22,696


$
63,883Long-lived assets

$
22,413


$
3,737


$
26,150For the year ended December 31, 2007:Product revenue

$
83,704


$
49,751


$
133,455Service revenue

$
31,724


$
20,974


$
52,698Long-lived assets

$
35,012


$
57,894


$
92,906For the year ended December 31, 2006:Product revenue

$
76,370


$
86,425


$
162,795Service revenue

$
37,979


$
20,243


$
58,222Long-lived assets

$
41,554


$
49,155


$
90,709     Note 2  Summary of
    Significant Accounting Policies
 F-26




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##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 17
    RESEARCH
    AND DEVELOPMENT    December 31,2008


2007


2006Gross research and development expenses

$
95,757


$
90,090


$
99,061Less: Amounts included in cost of revenue


(378
)


(793
)


(17,012
)Less: Reimbursed research and development (excludes amounts in
    revenue)


(43,604
)


(51,414
)


(53,007
)Net research and development expenses

$
51,775


$
37,883


$
29,042   NOTE 18
    INTEREST
    INCOME (EXPENSE)    2008


2007


2006Interest income

$
3,551


$
7,046


$
2,525Interest expense


(2,764
)


(3,206
)


(4,620
)Net interest income (expense)

$
787


$
3,840


$
(2,095
)       NOTE 19
    RELATED
    PARTY TRANSACTION    NOTE 20
    QUARTERLY
    DATA (UNAUDITED)     F-27




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007For the Quarter Ended

3/31


6/30


9/30


12/31


3/31


6/30


9/30


12/31Revenue

$
26,128


$
46,733


$
54,593


$
155,399


$
47,109


$
26,625


$
54,989


$
57,430Cost of revenue


14,771



31,244



26,628



99,134



31,575



15,887



32,840



40,420Gross profit


11,357



15,489



27,965



56,265



15,534



10,738



22,149



17,010Research and development, net


13,719



11,890



12,364



13,802



7,880



8,859



9,067



12,077Sales and marketing


5,382



5,848



6,135



7,623



5,268



5,123



5,423



6,323General and administrative


3,696



3,465



3,775



5,806



4,280



3,822



3,340



3,514Restructuring, severance and impairment














54,450



10











(58
)Net income (loss)


(10,632
)


(5,027
)


5,005



(20,692
)


(841
)


(6,384
)


5,101



(3,595
)Net income (loss) per common share, basic

$
(0.33
)

$
(0.15
)

$
0.15


$
(0.63
)

$
(0.03
)

$
(0.20
)

$
0.16


$
(0.11
)Net income (loss) per common share, diluted

$
(0.33
)

$
(0.15
)

$
0.15


$
(0.63
)

$
(0.03
)

$
(0.20
)

$
0.16


$
(0.11
)     NOTE 21
    SUBSEQUENT
    EVENT   F-28




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             Internal Control  Integrated Framework
   
    F-29




---



##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts
    December 31, 2008
    (In Thousands)
  Balance at








Balance atBeginning


Charge/(Benefit)





End ofDescription

of Period


to Expense


Deductions


PeriodYear ended December 31, 2006:Allowance for doubtful accounts

$
193


$
(17
)

$
(77
)(1)

$
99Warranty accrual

$



$



$



$
Year ended December 31, 2007:Allowance for doubtful accounts

$
99


$
327


$
(327
)(1)

$
99Warranty accrual

$



$



$



$
Year ended December 31, 2008:Allowance for doubtful accounts

$
99


$



$



$
99Warranty accrual

$



$



$



$
     (1)
    
    Represents uncollectible accounts written off, net of recoveries. F-30