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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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,
    2009o

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

98164Seattle, Washington(Address of Principal Executive
    Offices)

(Zip Code)   Registrants telephone number, including area code:
 (206) 701-2000
 Securities Registered Pursuant to Section 12(b) of the
    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
    Act: NONE
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K þ
  Rule 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, 2009
    INDEX
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


23Item 3.


Legal Proceedings


24Item 4.


Reserved


24PART 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


40Item 8.


Financial Statements and Supplementary Data


42Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


43Item 9A.


Controls and Procedures


43Item 9A(T).


Controls and Procedures


45Item 9B.


Other Information


45PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


45Item 11.


Executive Compensation


45Item 12.


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


45Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


45Item 14.


Principal Accountant Fees and Services


45PART IVItem 15.


Exhibits and Financial Statement Schedules


45EX-10.44EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1              Form 10-K, one-for-four




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




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(206) 701-2000 Form 10-K
  Note 16  Research and
    Development
  Industry
    Background
    The
    HPC Market
    
    supercomputers that sell for $500,000 and up;
    divisional servers that sell for $250,000 to $499,999;
    departmental servers that sell for $100,000 to $249,999; and
    workgroup servers that sell for under $100,000.  high-performance 2009-2013 2009-2013
   2




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Increasing
    Demand for Supercomputing Power
      time-to-market,
      Limitations
    of Existing and Emerging Solutions
   3




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Our
    Solutions
     4




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
    upgrade paths that allow customers to leverage their investments
    over longer periods of time and thereby reduce 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 discussed
    below; 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.      
    custom hardware and packaging designs;
    custom software design in operating systems, programming
    environments, libraries, and applications;
    custom and commodity approaches to solve application or
    infrastructure specific problems;
    acceleration technologies such as field programmable gate
    arrays, graphics processing units, or hybrid offerings; and
    data storage hardware and software technologies.  Our
    Current Products and Products in Development
  and/or
  Current
    Products
  Cray XT5 System.
 5




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and/or compute-to-communication and/or
  Cray XT5m System.
  Cray CX1 System.
  Cray XMT System.
  Products
    in Development
  Cray XT6 and XT6m Systems. and/or
 6




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Baker.
  Multithreaded Architectures.
  Our
    Adaptive Supercomputing Vision and Cascade Program
         7




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Services
    Customer
    Support
    two-hour
  Custom
    Engineering
  on-site
  Special Purpose Devices Practice.
  Knowledge Management Practice.
  Data Management Practice. and/or
 8




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Our
    Markets
    Scientific Research.
  National Security.
  Earth Sciences.
  Computer-Aided Engineering. time-to-market
      off-the-shelf
       9




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Note 15  Segment Information
  Our
    Technology
    Architecture
        Hardware
    
    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 than standard packaging. We
    use specialized cooling techniques to address this issue,
    including liquid cooling and high volume air cooling.
    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 highly available memory bandwidth efficiently.   10




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System
    Software
        Sales and
    Marketing
    request-for-proposal
      Manufacturing
    and Procurement
   11




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build-to-order and/or
    Competition
         12




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13




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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.
 14




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
    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;
    completing development of our Baker system,
    including its new interconnect chipset, known as
    Gemini, and associated system software, targeted for
    completion in the third quarter of 2010, manufacturing such
    systems in sufficient quantities and in a timely fashion and
    achieving acceptances of Baker system deliveries in 2010;
    completing development of our Cray XT6 system, targeted for
    completion in the first half of 2010, and achieving acceptances
    of Cray XT6 system deliveries in 2010;
    successfully selling and delivering our Cray XT5, Cray XT6, Cray
    XT5m and Cray XT6m systems and upgrade and successor systems;
    the successful expansion of our Custom Engineering strategic
    initiative;
    our expense levels, including research and development expense
    net of government funding, which are affected by the amount and
    timing of such funding and the meeting of contractual
    development milestones, including the milestones under our DARPA
    HPCS program;
    our ability to successfully and timely design, integrate and
    secure competitive processors into and for our systems,
    including for successors to our Cray XT5 and Cray XT6 systems;
    the competitiveness of our products;
    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, currency fluctuations and component costs;
    the level and timing of maintenance contract renewals with
    existing customers;
    the level and timing of our engineering services contract
    closures, including the amount of non-billable time incurred;
    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;
    the building of a reseller network for our Cray CX products and
    achieving significant sales of Cray CX systems; and
    the terms and conditions of sale or lease for our products and
    services.    
    the timely availability of acceptable components in sufficient
    quantities to meet customer delivery schedules;
    the timing and level of government funding for research and
    development contracts and product acquisitions, which may be
    adversely affected by the current economic and fiscal situation
    and governmental budgetary limitations; 15




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
    price fluctuations in the commodity electronics, processor and
    memory markets;
    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;
    the availability of adequate customer facilities to install and
    operate new Cray systems; and
    the receipt and timing of necessary export licenses.    If the Defense Advanced Research Projects Agency
    (DARPA) terminates our DARPA High Productivity
    Computing Systems (HPCS) program in whole or in part
    or if we are unable to achieve and obtain acceptance of key
    DARPA milestones when or as expected or at all, our desired
    strategy would be adversely affected, our net research and
    development expenditures and capital requirements would increase
    significantly and our ability to conduct research and
    development would decrease. and/or
  If our strategic initiatives targeting markets outside of the
    high end of the high performance computer (HPC)
    market are not successful, our ability to grow our revenues and
    achieve and sustain profitability will be adversely
    affected.
 16




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If we are unable to successfully sell and deliver our Cray
    XT5 and Cray XT6 systems and develop, sell and deliver successor
    systems, such as our Baker system, our operating
    results will be adversely affected.
    
    The level of product differentiation in our Cray XT5 and Cray
    XT6 and successor systems. We need to compete successfully
    against HPC systems from large established companies and lower
    bandwidth, commodity cluster systems from both large
    established companies and smaller firms and demonstrate the
    value of our balanced high bandwidth systems.
    Our ability to meet all customer requirements for acceptance.
    Even once a system has been delivered, 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
    2008 and 2007, and we incurred 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, such as successors to
    the Cray XT5 system.
    Our ability to source competitive, key components in appropriate
    quantities, in a timely fashion and on acceptable terms and
    conditions. For example, in March 2008, we placed a last-time
    buy for a key component for our Cray XT4, Cray XT5, Cray XT6 and
    Cray XMT systems prior to it becoming unavailable, which had to
    be placed before we could know all the possible sales prospects
    for these products or when the key component could be made
    obsolete by a successor component. If we underestimated our
    needs, we could limit the number of possible sales of these
    products and reduce potential revenue, or if we overestimated,
    we could incur inventory obsolescence charges and reduce our
    gross profit. In the third quarter of 2009, we wrote off
    approximately $4.5 million of estimated excess inventory
    primarily related to this key component, and we may be required
    to write off some of the $3.9 million remaining inventory
    in the future. 17




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The continuing commoditization of HPC hardware and software
    have resulted in pricing pressure and may adversely affect our
    operating results.
  Failure to overcome the technical challenges of developing
    competitive supercomputer systems years before they can be sold
    would adversely affect our revenue and operating results in
    subsequent years. and/or and/or
  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.
    If an interruption of supply of our components, services or
    capabilities occurs because a supplier changes its technology
    roadmap, decides to no longer provide those products or
    services, increases the price of those products or services
    significantly or imposes allocations on its customers, it could
    take us a considerable 18




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period of time to identify and qualify alternative suppliers, to
    redesign our products as necessary and to begin to manufacture
    the redesigned components or otherwise obtain those services or
    capabilities. 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 timeframe.  
    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 impossible to complete.
    If a supplier cannot provide a competitive key component or
    eliminates key features from components, such as processors, our
    systems may be less competitive than systems using components
    with greater capabilities.
    If a supplier provides us with hardware or software 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, expensive field
    component replacements;
    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, which increases the risk that they will be unable to
    deliver products as needed.
    If a key supplier is acquired or has a significant business
    change, such as the acquisition of our file system software
    provider by our competitor Sun Microsystems and the subsequent
    acquisition of Sun by Oracle, the production and sales of our
    systems and services may be delayed or adversely affected, or
    our development programs may be delayed or may be impossible to
    complete.    If the U.S. government purchases fewer supercomputers,
    our revenue would be reduced and our operating results would be
    adversely affected.
  If we are unable to compete successfully in the highly
    competitive HPC market, our business will not be
    successful.
 19




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We may fail in our efforts to keep up with rapid
    technological changes in the HPC industry.
  We are subject to increasing government regulations and other
    requirements due to the nature of our business, which may
    adversely affect our business operations.
  The funding of U.S. government programs is subject to
    congressional appropriations.
  The U.S. government may modify, curtail or terminate its
    contracts with us.
  Our U.S. government contract costs are subject to audits
    by U.S. government
    agencies.
 20




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Our business is subject to potential U.S. government
    inquiries and investigations.
  Our U.S. government business is also subject to specific
    procurement regulations and other
    requirements.
  U.S. export controls could hinder our ability to make
    sales to foreign customers and our future
    prospects.
  If we cannot retain, attract and motivate key personnel, we
    may be unable to effectively implement our business
    plan.
  Our stock price is volatile.
  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.
 21




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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
  We may not be able to protect our proprietary information and
    rights adequately.
  A significant 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.
    
    35,181,407 shares of common stock; and
    3,116,522 shares of common stock issuable upon exercise of
    options, of which options to purchase 1,241,969 shares of
    common stock were then exercisable.   22




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Provisions of our Restated Articles of Incorporation and
    Bylaws could make a proposed acquisition of Cray 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    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


54,000St. Paul, MN

Software development, sales and marketing


56,000  23




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Item 3.
    Legal
    Proceedings    Item 4.
    Reserved 24




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##### Table of Contents



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


LowYear Ended December 31, 2009:First Quarter

$
3.55


$
1.83Second Quarter

$
8.10


$
3.34Third Quarter

$
9.49


$
6.55Fourth Quarter

$
8.55


$
5.65Year 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)


2,367,012


$
6.49



4,152,181Equity compensation plans not approved by shareholders(2)


749,510


$
6.23



3,933Total


3,116,522


$
6.43



4,156,114     (1)
    
    The shareholders approved our 1995, 1999 and 2003 stock option
    plans, our 2004, 2006 and 2009 long-term equity compensation
    plans 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, 2006 and 2009 long-term equity
    compensation plans, the Board may grant restricted and
    performance stock grants in addition to incentive and
    nonqualified stock options. As of December 31, 2009, under
    the option and equity compensation plans approved by
    shareholders under which we may grant stock options, an
    aggregate of 25




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4,152,181 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 2,583,424 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,
    2009, we had issued a total of 811,630 shares under the
    2001 plan and had a total of 188,370 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, 2009 and
    will end on March 15, 2010, 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, 2009, under the 2000 non-executive employee
    stock plan we had options for 719,170 shares outstanding
    and options for 3,933 shares available for future grant.On April 1, 2004, in connection with the acquisition of
    OctigaBay Systems Corporation, 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
    30,340 options outstanding as of December 31, 2009.From time to time we have issued warrants as compensation to
    consultants and others for services without shareholder
    approval. As of December 31, 2009, 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,
    2009
  
  12/31/04


12/31/05


12/30/06


12/29/07


12/31/08


12/31/09Cray Inc.



100.0




28.5




63.7




32.1




11.2




34.4Nasdaq Stock Market (U.S.)



100.0




102.1




112.2




121.7




58.6




84.3Nasdaq Computer Manufacturer Stocks



100.0




102.3




104.5




152.9




64.2




141.0  27




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##### Table of Contents



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


2007


2006


20052009


(As Adjusted)


(As Adjusted)


(As Adjusted)


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

$
199,114


$
218,970


$
133,455


$
162,795


$
152,098Service revenue


84,933



63,883



52,698



58,222



48,953Total revenue


284,047



282,853



186,153



221,017



201,051Cost of product revenue


130,444



133,715



89,475



124,728



139,518Cost of service revenue


47,719



38,062



31,247



32,466



29,032Total cost of revenue


178,163



171,777



120,722



157,194



168,550Gross profit


105,884



111,076



65,431



63,823



32,501Research and development, net


62,947



51,775



37,883



29,042



41,711Sales and marketing


26,601



24,988



22,137



21,977



25,808General and administrative


16,579



16,742



14,956



18,785



16,145Restructuring, severance and impairment






54,450



(48
)


1,251



9,750Operating expenses


106,127



147,955



74,928



71,055



93,414Loss from operations


(243
)


(36,879
)


(9,497
)


(7,232
)


(60,913
)Other income (expense), net


(430
)


588



1,112



(2,141
)


(1,421
)Interest expense, net


(805
)


(4,068
)


(1,076
)


(6,402
)


(7,232
)Loss before income taxes


(1,478
)


(40,359
)


(9,461
)


(15,775
)


(69,566
)(Provision) benefit for income taxes


874



(387
)


(1,174
)


(602
)


1,488Net loss

$
(604
)

$
(40,746
)

$
(10,635
)

$
(16,377
)

$
(68,078
)Net loss per common share:Basic

$
(0.02
)

$
(1.25
)

$
(0.33
)

$
(0.72
)

$
(3.08
)Diluted

$
(0.02
)

$
(1.25
)

$
(0.33
)

$
(0.72
)

$
(3.08
)Weighted average outstanding shares:Basic


33,559



32,573



31,892



22,849



22,125Diluted


33,559



32,573



31,892



22,849



22,125Cash Flow Data:Cash provided by (used in):Operating activities

$
66,684


$
(45,507
)

$
38,650


$
12,608


$
(36,705
)Investing activities


(7,682
)


46,207



(35,426
)


(27,372
)


41,731Financing activities


(27,209
)


(47,196
)


1,695



83,909



(137
)Depreciation and amortization


8,454



10,232



13,359



16,181



19,578Purchases of property and equipment


7,581



4,430



2,768



2,611



3,982Balance Sheet Data:Cash, cash equivalents, restricted cash and short-term
    investments

$
113,178


$
80,414


$
179,121


$
140,328


$
46,026Working capital


98,759



114,179



150,839



136,324



52,204Total assets


223,660



313,861



355,648



337,020



272,240Obligations under capital leases














31



154Convertible notes, net of discount, current






25,681











Convertible notes, net of discount, non-current










68,330



63,186



58,597Shareholders equity


124,163



120,205



159,618



157,706



86,585  28




---



##### Table of Contents



470-20 470-20), Debt with Conversion and Other Options Note 12  Convertible Notes and
    Line of Credit
  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements
  Form 10-K,
  Adjustment
    of Consolidated Financial Statements
  470-20 470-20), Debt with Conversion and Other Options Note 12 
    Convertible Notes and Line of Credit
  Overview
    and Executive Summary
      Summary
    of 2009 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,
    Supercomputing with many-core commodity processors causing
    increasing scalability requirements,
    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 margin.
  Operating expenses.
  Liquidity and cash flows. quarter-to-quarter
  Critical
    Accounting Policies and Estimates
  Form 10-K Note 2  Summary of Significant Accounting
    Policies
 31




---



##### Table of Contents



Revenue
    Recognition
    Multiple-Element Arrangements.
  
    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.
 32




---



##### Table of Contents



Services.
  Inventory
    Valuation
      Accounting
    for Income Taxes
     33




---



##### Table of Contents



Research
    and Development Expenses
          Share-Based
    Compensation
    Recent
    Accounting Pronouncements
  Investments  Debt and Equity
    Securities other-than-temporarily
  Subsequent Events,
 34




---



##### Table of Contents



Generally Accepted Accounting Principles
  No. 2009-13, Multiple-Deliverable Revenue Arrangements 2009-13 2009-13 2009-13
  No. 2009-14, Certain Revenue Arrangements that Include Software
    Elements 2009-14 2009-14 2009-14
  Results
    of Operations
  Revenue
    and Gross Profit
    Year Ended December 31,2009


2008


2007Product revenue

$
199,114


$
218,970


$
133,455Less: Cost of product revenue


130,444



133,715



89,475Product gross profit

$
68,670


$
85,255


$
43,980Product gross profit percentage


34%



39%



33%Service revenue

$
84,933


$
63,883


$
52,698Less: Cost of service revenue


47,719



38,062



31,247Service gross profit

$
37,214


$
25,821


$
21,451Service gross profit percentage


44%



40%



41%Total revenue

$
284,047


$
282,853


$
186,153Less: Total cost of revenue


178,163



171,777



120,722Total gross profit

$
105,884


$
111,076


$
65,431Total gross profit percentage


37%



39%



35%  35




---



##### Table of Contents



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




---



##### Table of Contents



Operating
    Expenses
  Research
    and Development
    December 31,2009


2008


2007Gross research and development expenses

$
91,874


$
95,757


$
90,090Less: Amounts included in cost of revenue


(1,789
)


(378
)


(793
)Less: Reimbursed research and development (excludes amounts in
    revenue)


(27,138
)


(43,604
)


(51,414
)Net research and development expenses

$
62,947


$
51,775


$
37,883Percentage of total revenue


22%



18%



20%     recently-amended
  h h
  Other
    Operating Expenses
    Year Ended December 31,2009

2008

2007Sales and marketing

$26,601

$24,988

$22,137Percentage of total revenue

9%

9%

12%General and administrative

$16,579

$16,742

$14,956Percentage of total revenue

6%

6%

8%Restructuring, severance and impairment

$

$54,450

$(48)Percentage of total revenue



19%

<1%  37




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##### Table of Contents



Sales and Marketing.
    General and Administrative.
    Restructuring, Severance and
    Impairment.
  Other
    Income (Expense), Net
  470-20. Note 12  Convertible Notes and Line of Credit
  Interest
    Income (Expense), Net
    Year Ended December 31,2008


20072009


(As Adjusted)


(As Adjusted)Interest income

$
477


$
3,551


$
7,046Interest expense


(1,282
)


(7,619
)


(8,122
)Net interest expense

$
(805
)

$
(4,068
)

$
(1,076
)    38




---



##### Table of Contents



Year Ended December 31,2008


20072009


(As Adjusted)


(As Adjusted)Stated interest on Notes and other debt

$
399


$
2,089


$
2,413Amortization of debt discount on Notes


834



4,981



5,144Amortization of loan fees on Notes and line of credit


11



455



460Other interest expense


38



94



105Total interest expense

$
1,282


$
7,619


$
8,122     Taxes
        Liquidity
    and Capital Resources
       39




---



##### Table of Contents



Amounts Committed by YearContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


ThereafterDevelopment agreements

$
15,229


$
12,640


$
2,464


$
125


$
Operating leases


29,960



3,851



6,678



6,519



12,912Unrecognized income tax benefits


488



265



223







Total contractual cash obligations

$
45,677


$
16,756


$
9,365


$
6,644


$
12,912       quarter-to-quarter
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk:
 40




---



##### Table of Contents



A-1+.
  WeightedAveragedInterestFair Value

Maturities

RateTreasury bills

$
2,999



2010



0.4
%   Foreign Currency Risk:
 41




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS*
  Consolidated Balance Sheets at December 31,
    2009 and December 31, 2008


F-1Consolidated Statements of Operations for the
    years ended December 31, 2009, 2008 and 2007


F-2Consolidated Statements of Shareholders
    Equity and Comprehensive Loss for the years ended
    December 31, 2009, 2008 and 2007


F-3Consolidated Statements of Cash Flows for the
    years ended December 31, 2009, 2008 and 2007


F-4Notes to Consolidated Financial Statements


F-5Report of Independent Registered Public
    Accounting Firm


F-31     *
    
    The Financial Statements are located following page 52   42




---



##### 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
   43




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated Framework
        Internal Control  Integrated Framework
        44




---



##### 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   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
         45




---



##### Table of Contents



Financial Statement Schedules
  Form 10-K.
    Exhibits
  Form 10-K.
 46




---



##### Table of Contents



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

DirectorBy /s/  Sally
    G. NarodickSally
    G. Narodick

Director 47




---



##### Table of Contents



Signature

TitleBy /s/  Daniel
    C. RegisDaniel
    C. Regis

DirectorBy /s/  Stephen
    C. RichardsStephen
    C. Richards

Director  48




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Restated Articles of Incorporation(1)3
.2

Amended and Restated Bylaws(7)4
.1

Form of Common Stock Purchase Warrants due June 21, 2009(13)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)(11)10
.0*

1999 Stock Option Plan(29)10
.1*

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

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

2003 Stock Option Plan(2)10
.4*

2004 Long-Term Equity Compensation Plan(12)10
.5*

2005 Executive Bonus Plan(16)10
.6*

Cray Canada Inc. Amended and Restated Key Employee Stock Option
    Plan(17)10
.7*

2006 Long-Term Equity Compensation Plan(28)10
.8*

2009 Long-Term Equity Compensation Plan(35)10
.9*

Form of Officer Non-Qualified Stock Option Agreement(18)10
.19*

Form of Officer Incentive Stock Option Agreement(18)10
.11*

Form of Director Stock Option Agreement(18)10
.12*

Form of Director Stock Option Agreement, immediate vesting(18)10
.13*

Form of Employee Restricted Stock Agreement, current form(32)10
.14*

Form of Director Restricted Stock Agreement(1)10
.15*

2007 Cash Incentive Plan(7)10
.16*

Senior Officer Cash Incentive Plan for annual cash incentive
    awards(8)10
.17*

Letter Agreement between the Company and Peter J. Ungaro,
    effective March 7, 2005(15)10
.18*

Offer Letter between the Company and Margaret A. Williams, dated
    April 14, 2005(21)10
.19*

Offer Letter between the Company and Brian C. Henry, dated
    May 16, 2005(22)10
.20*

Form of Management Continuation Agreement between the Company
    and its Executive Officers and certain other Employees, as in
    effect prior to December 19, 2008(9)10
.21*

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(26)10
.22*

Executive Severance Policy, as in effect prior to
    December 19, 2008(20)10
.23*

Executive Severance Policy, as in effect on December 19,
    2008(26)10
.24*

Retention Agreement between the Company and Peter J. Ungaro,
    dated December 20, 2005(24)10
.25*

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

Retention Agreement between the Company and Margaret A.
    Williams, dated December 20, 2005(24)10
.27*

Summary sheet setting forth amended compensation arrangements
    for non-employee Directors(25)10
.28

Lease Agreement, dated as of August 11, 2008, between 900
    Fourth Avenue Property LLC and the Company(19)10
.29

FAB I Building Lease Agreement between Union Semiconductor
    Technology Corporation and the Company, dated June 30,
    2000(6)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)10
.31

Conference Center Lease Agreement between Union Semiconductor
    Technology Corporation and the Company, dated June 30,
    2000(6) 49




---



##### Table of Contents



ExhibitNumber

Description10
.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(30)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(6)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

Lease, dated as of July 2, 2009, between NEA Galtier, LLC
    and the Company(34)10
.37

Technology Agreement between Silicon Graphics, Inc. and the
    Company, effective as of March 31, 2000(4)10
.38

Amendment No. 2 to the Technology Agreement, dated as of
    March 30, 2007, between Silicon Graphics, Inc. and the
    Company(31)10
.39

Amendment No. 3 to the Technology Agreement, dated as of
    March, 28, 2008, between Silicon Graphics, Inc. and the
    Company(14)10
.40

Credit Agreement, dated December 29, 2006, between Wells
    Fargo Bank, National Association and the Company(27)10
.41

First Amendment to Credit Agreement, dated January 31,
    2007, between Wells Fargo Bank, National Association and the
    Company(32)10
.42

Second Amendment to Credit Agreement, effective as of
    December 31, 2007, between Wells Fargo Bank, National
    Association and the Company(23)10
.43

Third Amendment to Credit Agreement, dated August 22, 2008,
    between Wells Fargo Bank, National Association and the
    Company(18)10
.44

Fourth Amendment to Credit Agreement, dated April 20, 2009,
    between Wells Fargo Bank, National Association and the Company10
.45

Fifth Amendment to Credit Agreement, dated June 1, 2009,
    between Wells Fargo Bank, National Association and the
    Company(33)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, 2000. 50




---



##### Table of Contents



(7)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 12, 2007.(8)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on May 14, 2008.(9)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on May 17, 1999.(10)
    
    Incorporated by reference to the Companys Registration
    Statement on
    Form S-8
    (SEC
    No. 333-70238),
    filed on September 26, 2001.(11)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 7, 2004.(12)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2004 Annual Meeting, as filed with the
    Commission on March 24, 2004.(13)
    
    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.(14)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on April 8, 2008.(15)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on March 8, 2005.(16)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on March 25, 2005.(17)
    
    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.(18)
    
    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.(19)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on August 29, 2008.(20)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on August 10, 2005.(21)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on May 9, 2005.(22)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on November 9, 2005.(23)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on January 4, 2008.(24)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 22, 2005.(25)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 21, 2006.(26)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on December 22, 2008.(27)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on January 4, 2007.(28)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2006 Annual Meeting, as filed with the
    Commission on April 28, 2006.(29)
    
    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. 51




---



##### Table of Contents



(30)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the Commission on February 1, 2008.(31)
    
    Incorporated by reference to the Companys Quarterly Report
    on
    Form 10-Q,
    as filed with the Commission on August 7, 2007.(32)
    
    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.(33)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the SEC on July 13, 2009.(34)
    
    Incorporated by reference to the Companys Current Report
    on
    Form 8-K,
    as filed with the SEC on July 16, 2009.(35)
    
    Incorporated by reference to the Companys definitive Proxy
    Statement for the 2009 Annual Meeting, as filed with the
    Commission on March 31, 2009. *
    
    Management contract or compensatory plan or arrangement.  Regulation S-K,
 52




---



##### Table of Contents



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


20082009


(As Adjusted)ASSETSCurrent assets:Cash and cash equivalents

$
105,018


$
72,373Restricted cash


5,161



2,691Short-term investments, available for sale


2,999



5,350Accounts and other receivables, net


38,207



95,667Inventory


29,011



80,437Prepaid expenses and other current assets


5,514



29,993Total current assets


185,910



286,511Property and equipment, net


19,809



18,396Service inventory, net


1,719



1,917Deferred tax asset


2,661



1,200Other non-current assets


13,561



5,837TOTAL ASSETS

$
223,660


$
313,861LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
18,783


$
16,730Accrued payroll and related expenses


16,219



23,672Other accrued liabilities


9,735



24,670Advance research and development payments






13,887Convertible notes, net of discount






25,681Deferred revenue


42,414



67,692Total current liabilities


87,151



172,332Long-term deferred revenue


9,627



18,154Other non-current liabilities


2,719



3,170TOTAL LIABILITIES


99,497



193,656Commitments and Contingencies (Note 10)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 35,181,407 and 33,506,573 shares, respectively


551,220



543,442Accumulated other comprehensive income


6,148



9,364Accumulated deficit


(433,205
)


(432,601
)TOTAL SHAREHOLDERS EQUITY


124,163



120,205TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
223,660


$
313,861   See accompanying notes
 F-1




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##### Table of Contents



CRAY INC.
    AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share
    data)
  Years Ended December 31,2008


20072009


(As Adjusted)


(As Adjusted)Revenue:Product

$
199,114


$
218,970


$
133,455Service


84,933



63,883



52,698Total revenue


284,047



282,853



186,153Cost of revenue:Cost of product revenue


130,444



133,715



89,475Cost of service revenue


47,719



38,062



31,247Total cost of revenue


178,163



171,777



120,722Gross profit


105,884



111,076



65,431Operating expenses:Research and development, net


62,947



51,775



37,883Sales and marketing


26,601



24,988



22,137General and administrative


16,579



16,742



14,956Restructuring, severance and impairment






54,450



(48
)Total operating expenses


106,127



147,955



74,928Loss from operations


(243
)


(36,879
)


(9,497
)Other income (expense), net


(430
)


588



1,112Interest expense, net


(805
)


(4,068
)


(1,076
)Loss before income taxes


(1,478
)


(40,359
)


(9,461
)Income tax benefit (expense)


874



(387
)


(1,174
)Net loss

$
(604
)

$
(40,746
)

$
(10,635
)Basic and diluted net loss per common share

$
(0.02
)

$
(1.25
)

$
(0.33
)Basic and diluted weighted average shares outstanding


33,559



32,573



31,892   See accompanying notes
 F-2




---



##### Table of Contents



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


AccumulatedPaid In Capital


OtherNumber





Comprehensive


Accumulated





Comprehensiveof Shares


Amount


Income


Deficit


Total


LossBALANCE, December 31, 2006 (as reported)


32,237


$
507,356


$
6,855


$
(372,837
)

$
141,374Cumulative impact of adoption of new accounting guidance
    (Note 12)






24,715







(8,383
)


16,332BALANCE, December 31, 2006 ( as adjusted)


32,237


$
532,071


$
6,855


$
(381,220
)

$
157,706Issuance 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














(10,635
)


(10,635
)


(10,635
)BALANCE, December 31, 2007 ( as adjusted)


32,638



537,911



13,562



(391,855
)


159,618


$
(3,928
)Issuance 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














(40,746
)


(40,746
)


(40,746
)BALANCE, December 31, 2008 ( as adjusted)


33,507


$
543,442


$
9,364


$
(432,601
)

$
120,205


$
(44,944
)Issuance of shares under Employee Stock Purchase Plan


108



510











510



Exercise of stock options


43



264











264



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


671



1,780











1,780



Restricted shares issued for compensation, net of forfeitures


852



















Share-based compensation






5,811











5,811



Stock option repurchase






(587
)










(587
)


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










4







4



4Currency translation adjustment










(882
)






(882
)


(882
)Unrealized loss on cash flow hedges, net of reclassification
    adjustments










(2,338
)






(2,338
)


(2,338
)Net loss














(604
)


(604
)


(604
)BALANCE, December 31, 2009


35,181


$
551,220


$
6,148


$
(433,205
)

$
124,163


$
(3,820
)   See accompanying notes
 F-3




---



##### Table of Contents



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


20072009


(As adjusted)


(As Adjusted)Operating activities:Net loss

$
(604
)

$
(40,746
)

$
(10,635
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Depreciation and amortization


8,454



10,232



13,359Share-based compensation expense


5,811



3,374



3,189Inventory write-down


5,431



1,006



727Impairment of goodwill






54,450



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


11



455



460Deferred income taxes


(1,411
)


(688
)


210Amortization of convertible notes debt discount


834



4,981



5,144Loss on repurchase of Notes


910



505



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


56,735



(71,326
)


19,725Inventory


44,119



(31,686
)


(2,221
)Prepaid expenses and other assets


16,078



(19,784
)


(2,697
)Accounts payable


2,028



2,613



(8,531
)Accrued payroll and related expenses, other accrued liabilities
    and advance research and development payments


(37,033
)


16,143



6,642Other non-current liabilities


(456
)


(1,126
)


(665
)Deferred revenue


(34,223
)


26,090



13,943Net cash provided by (used in) operating activities


66,684



(45,507
)


38,650Investing activities:Sales/maturities of short-term investments


7,850



45,001



27,894Purchases of short-term investments


(5,481
)


(1,673
)


(75,552
)(Increase) decrease in restricted cash


(2,470
)


7,309



15,000Purchases of property and equipment


(7,581
)


(4,430
)


(2,768
)Net cash provided by (used in) investing activities


(7,682
)


46,207



(35,426
)Financing activities:Proceeds from issuance of common stock through employee stock
    purchase plan


510



453



453Proceeds from exercise of options


264



51



1,273Stock option repurchase


(669
)






Repayment of convertible notes


(27,314
)


(47,700
)


Principal payments on capital leases










(31
)Net cash provided by (used in) financing activities


(27,209
)


(47,196
)


1,695Effect of foreign exchange rate changes on cash and cash
    equivalents


852



(1,670
)


292Net (decrease) increase in cash and cash equivalents


32,645



(48,166
)


5,211Cash and cash equivalents:Beginning of period


72,373



120,539



115,328End of period

$
105,018


$
72,373


$
120,539Supplemental disclosure of cash flow information:Cash paid for interest

$
469


$
2,223


$
2,414Cash paid for income taxes


1,262



206



964Non-cash investing and financing activities:Inventory transfers to fixed assets and service inventory

$
1,876


$
5,851


$
4,684Shares issued for 401(k) match


1,780



1,653



925   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
    Accounting
    Change
  470-20 470-20), Debt with Conversion and Other Options Note 12  Convertible Notes and
    Line of Credit
  Reclassifications
    Use of
    Estimates
   F-5




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash,
    Cash Equivalents and Restricted Cash
    Short-term
    investments
  available-for-sale
  Foreign
    Currency Derivatives
    Concentration
    of Credit Risk
  Note 15  Segment Information
  Accounts
    Receivable
    Fair
    Values of Financial Instruments
   F-6




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  available-for-sale
  Inventories
  first-in,
    Property
    and Equipment, net
      Service
    Inventory
    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
    Revenue
    Recognition
    Multiple-Element Arrangements.
  
    The element could be sold separately;
    The fair value of the undelivered element is
    established; and
    In cases with any general right of return, the Companys
    performance with respect to any undelivered element is within
    its control and probable.    Products.
  Project Revenue.
 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
      Share-Based
    Compensation
    2009

2008

2007Risk-free interest rate

1.6%

2.8%

4.4%Expected dividend yield

0%

0%

0%Volatility

79%

69%

72%Expected life

4.0 years

4.0 years

4.0 yearsWeighted average Black-Scholes value of options granted

$2.41

$3.50

$5.09      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
    2009


2008


2007Accumulated unrealized net gain (loss) on
    available-for-sale
    investments

$
3


$
(1
)

$
54Accumulated unrealized net gain (loss) on cash flow hedges


2,936



5,274



(1,299
)Accumulated currency translation adjustment


3,209



4,091



14,807Accumulated other comprehensive income

$
6,148


$
9,364


$
13,562   Recent
    Accounting Pronouncements
  Investments  Debt and Equity
    Securities
 F-11




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  other-than-temporarily
  Subsequent Events,
  Generally Accepted Accounting Principles
  No. 2009-13, Multiple-Deliverable Revenue Arrangements 2009-13 2009-13 2009-13
  No. 2009-14, Certain Revenue Arrangements that Include Software
    Elements 2009-14 2009-14 2009-13
  NOTE 3
    FAIR
    VALUE MEASUREMENTS  Fair Value Measurements and
    Disclosures
 F-12




---



##### Table of Contents



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


SignificantPrices in


OtherFair Value


Active


Observableat December 31,


Markets


InputsDescription

2009


(Level 1)


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

$
110,179


$
110,179


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


2,999



2,999



Foreign exchange forward contracts(1)


51







51Assets measured at fair value at December 31, 2009

$
113,229


$
113,178


$
51Liabilities:Foreign exchange forward contracts(2)


(1,659
)






(1,659
)Liabilities measured at fair value at December 31, 2009

$
(1,659
)

$



$
(1,659
)   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.(2)
    
    Included in Other accrued liabilities 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
  available-for-sale
  Amortized


Gross


GrossCost


Unrealized


UnrealizedBasis


Gains


Losses


Fair Value2009Treasury bills

$
2,996


$
3


$



$
2,999Total short-term investments

$
2,996


$
3


$



$
2,9992008Corporate notes and bonds

$
5,351


$
2


$
(3
)

$
5,350Total short-term investments

$
5,351


$
2


$
(3
)

$
5,350       Foreign
    Currency Derivatives
   F-14




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 4
    ACCOUNTS
    AND OTHER RECEIVABLES, NET    December 31,2009


2008Trade accounts receivable

$
26,375


$
74,217Unbilled receivables


5,791



6,703Advance billings


2,968



13,439Other receivables


3,245



1,40738,379



95,766Allowance for doubtful accounts


(172
)


(99
)Accounts and other receivables, net

$
38,207


$
95,667     non-U.S. government non-U.S. government
  NOTE 5
    INVENTORY    December 31,2009


2008Components and subassemblies

$
10,687


$
16,805Work in process


14,383



6,284Finished goods


3,941



57,348$
29,011


$
80,437      F-15




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 6
    PROPERTY
    AND EQUIPMENT, NET    December 31,2009


2008Land

$
131


$
131Buildings


10,798



11,001Furniture and equipment


15,589



13,254Computer equipment


89,951



84,276Leasehold improvements


352



2,968116,821



111,630Accumulated depreciation and amortization


(97,012
)


(93,234
)Property and equipment, net

$
19,809


$
18,396     NOTE 7
    SERVICE
    INVENTORY, NET    December 31,2009


2008Service inventory

$
29,772


$
28,172Accumulated depreciation


(28,053
)


(26,255
)Service inventory, net

$
1,719


$
1,917   NOTE 8
    GOODWILL
    AND INTANGIBLE ASSETS    2008Goodwill, at January 1

$
65,411Goodwill impairment


(54,450
)Foreign currency translation adjustments


(10,961
)Goodwill, at December 31

$
    F-16




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 9
    DEFERRED
    REVENUE    December 31,2009


2008Deferred product revenue

$
18,305


$
43,295Deferred service revenue


33,736



42,551Total deferred revenue


52,041



85,846Less long-term deferred revenue


(9,627
)


(18,154
)Deferred revenue in current liabilities

$
42,414


$
67,692     NOTE 10
    COMMITMENTS
    AND CONTINGENCIES      Operating


DevelopmentLeases


Agreements2010

$
3,851


$
12,6402011


3,513



2,3012012


3,165



1632013


3,222



1252014


3,297



Thereafter


12,912



Minimum contractual commitments

$
29,960


$
15,229     Litigation
    Other
   F-17




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 11
    INCOME
    TAXES      Year Ended December 31,2008


20072009


(As Adjusted)


(As Adjusted)United States

$
(3,233
)

$
937


$
(12,574
)International


1,755



(41,296
)


3,113Total

$
(1,478
)

$
(40,359
)

$
(9,461
)     Year Ended December 31,2009


2008


2007Current benefit (provision):Federal

$
783


$
55


$
State


(6
)


(34
)


(35
)Foreign


(1,314
)


(1,096
)


(929
)Total current provision


(537
)


(1,075
)


(964
)Deferred benefit (provision):Federal










State










Foreign


1,411



688



(210
)Total deferred benefit (provision)


1,411



688



(210
)Total benefit (provision) for income taxes

$
874


$
(387
)

$
(1,174
)  F-18




---



##### Table of Contents



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


20072009


(As Adjusted)


(As Adjusted)Federal statutory income tax rate


(35.0
)%


(35.0
)%


(35.0
)%State taxes, net of federal benefit


(5.3
)


0.7



(3.0
)Foreign income taxes


10.3



3.8



(0.2
)Deemed dividends for U.S. income tax purposes


45.8



0.5



11.4Meals and entertainment expense


7.0



0.3



1.1Nondeductible expenses


2.3



0.3



1.5Nondeductible goodwill


1.1



39.2



Disallowed compensation






1.5



Research and development tax credit


(148.8
)


(2.9
)


(8.4
)Other










0.2Effect of change in valuation allowance on deferred tax assets


63.5



(7.4
)


44.8Effective income tax rate


(59.1
)%


1.0
%


12.4
%  F-19




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,20082009


(As Adjusted)Current:Deferred Income Tax AssetsInventory

$
2,624


$
3,493Accrued compensation


1,728



2,013Deferred service revenue


3,118



1,483Other


318



474Gross current deferred tax assets


7,788



7,463Valuation allowance


(7,788
)


(6,694
)Current deferred tax assets






769Deferred Income Tax LiabilitiesDebt discount on Notes






(769
)Current deferred tax liabilities






(769
)Net current deferred tax asset

$



$
Long-Term:Deferred Income Tax AssetsProperty and equipment

$
3,630


$
2,190Research and experimentation credit carryforwards


14,976



13,440Net operating loss carryforwards


105,409



107,989Goodwill


1,504



1,838Other


4,053



2,895Gross long-term deferred tax assets


129,572



128,352Valuation allowance


(126,013
)


(126,165
)Long-term deferred tax assets


3,559



2,187Deferred Income Tax LiabilitiesOther


(898
)


(987
)Long-term deferred tax liabilities


(898
)


(987
)Net long-term deferred tax asset

$
2,661


$
1,200      F-20




---



##### Table of Contents



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

$
480Increase related to prior 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

$
646Increase related to prior year income tax positions


35Decrease related to prior year income tax positions


(50
)Lapse of statute of limitations


(143
)Balance at December 31, 2009

$
488     NOTE 12
    CONVERTIBLE
    NOTES AND LINE OF CREDIT  Convertible
    Notes
    470-20. 470-20
  470-20 470-20
 F-21




---



##### Table of Contents



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


Effect ofReported


Change


As AdjustedIncome Statement for the year ended December 31,
    2007:Interest income (expense), net

$
3,840


$
(4,916
)

$
(1,076
)Loss before income taxes


(4,545
)


(4,916
)


(9,461
)Net loss


(5,719
)


(4,916
)


(10,635
)Basic and diluted net loss per common share

$
(0.18
)

$
(0.15
)

$
(0.33
)Income Statement for the year ended December 31,
    2008:Other income (expense), net

$
5,133


$
(4,545
)

$
588Interest income (expense), net


787



(4,855
)


(4,068
)Loss before income taxes


(30,959
)


(9,400
)


(40,359
)Net loss


(31,346
)


(9,400
)


(40,746
)Basic and diluted net loss per common share

$
(0.96
)

$
(0.29
)

$
(1.25
)Cash Flow Statement for the year ended December 31,
    2007:Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Net loss

$
(5,719
)

$
(4,916
)

$
(10,635
)Amortization of issuance costs, convertible notes payable and
    line of credit


688



(228
)


460Amortization of convertible notes debt discount

$



$
5,144


$
5,144Cash Flow Statement for the year ended December 31,
    2008:Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:Net loss

$
(31,346
)

$
(9,400
)

$
(40,746
)(Gain) loss on repurchase of Notes


(4,040
)


4,545



505Amortization of issuance costs, convertible notes payable and
    line of credit


581



(126
)


455Amortization of convertible notes debt discount

$



$
4,981


$
4,981Balance Sheet as of December 31, 2008:Prepaid expenses and other current assets

$
30,023


$
(30
)

$
29,993Total Assets

$
313,891


$
(30
)

$
313,861Convertible notes, net of discount

$
27,727



(2,046
)


25,681Total Liabilities


195,702



(2,046
)


193,656Common stock and additional paid-in capital


518,727



24,715



543,442Accumulated deficit


(409,902
)


(22,699
)


(432,601
)Total Shareholders Equity


118,189



2,016



120,205Total Liabilities and Shareholders Equity

$
313,891


$
(30
)

$
313,861  F-22




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lines of
    Credit
    NOTE 13
    SHAREHOLDERS
    EQUITY  Preferred Stock:
  Common Stock:
  Warrants:
    Restricted Stock and Restricted Stock
    Units:
    Stock Option Plans:
 F-23




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##### Table of Contents



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


RemainingExercise


ContractualOptions


Price


TermOutstanding at January 1, 2007


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



12.30Granted


1,320,200



4.12Exercised


(43,535
)


6.07Canceled


(1,916,037
)


16.35Outstanding at December 31, 2009


3,116,522



6.43



7.6 yearsExercisable at December 31, 2009


1,241,969



8.75



5.3 yearsAvailable for grant at December 31, 2009


4,156,114   in-the-money
 F-24




---



##### Table of Contents



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


Fair ValueOutstanding at January 1, 2007


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



7.36Granted during 2009


877,170



3.87Forfeited during 2009






Vested during 2009


(69,159
)


7.36Outstanding at December 31, 2009


1,431,885



5.22         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


1,272,412



9.1


$
3.73



84,669


$
3.77$ 4.01  $ 8.00


1,399,241



6.8


$
6.32



841,649


$
6.23$ 8.01  $10.00


140,653



7.9


$
8.43



35,517


$
8.75$10.01  $12.00


135,398



5.5


$
10.50



111,316


$
10.48$12.01  $54.57


168,818



3.3


$
22.67



168,818


$
22.67$ 0.00  $54.57


3,116,522



7.6


$
6.43



1,241,969


$
8.75  F-25




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008


2007Cost of product revenue

$
222


$
100


$
86Cost of service revenue


502



199



143Research and development


2,022



1,268



1,085Sales and marketing


880



524



422General and administrative


2,185



1,283



1,453Total share-based compensation expense

$
5,811


$
3,374


$
3,189     Employee Stock Purchase Plan:
  NOTE 14
    BENEFIT
    PLANS  401(k)
    Plan
  and/or
  Pension
    Plan
   F-26




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##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 15
    SEGMENT
    INFORMATION      AllUnited


OtherStates


Countries


TotalFor the year ended December 31, 2009:Product revenue

$
151,733


$
47,381


$
199,114Service revenue

$
64,840


$
20,093


$
84,933Long-lived assets

$
30,934


$
4,155


$
35,089For 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


$
92,906     Note 2  Summary of
    Significant Accounting Policies
 F-27




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##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 16
    RESEARCH
    AND DEVELOPMENT    December 31,2009


2008


2007Gross research and development expenses

$
91,874


$
95,757


$
90,090Less: Amounts included in cost of revenue


(1,789
)


(378
)


(793
)Less: Reimbursed research and development (excludes amounts in
    revenue)


(27,138
)


(43,604
)


(51,414
)Net research and development expenses

$
62,947


$
51,775


$
37,883   NOTE 17
    INTEREST
    INCOME (EXPENSE)    2008


20072009


(As Adjusted)


(As Adjusted)Interest income

$
477


$
3,551


$
7,046Interest expense


(1,282
)


(7,619
)


(8,122
)Net interest income (expense)

$
(805
)

$
(4,068
)

$
(1,076
)       Year Ended December 31,2008


20072009


(As Adjusted)


(As Adjusted)Stated interest on Notes and other debt

$
399


$
2,089


$
2,413Amortization of debt discount on Notes


834



4,981



5,144Amortization of loan fees on Notes and line of credit


11



455



460Other interest expense


38



94



105Interest expense

$
1,282


$
7,619


$
8,122   NOTE 18
    RELATED
    PARTY TRANSACTION   F-28




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##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 19
    QUARTERLY
    DATA (UNAUDITED)    Quarter-to-quarter
  470-20
    2009


2008 (As Adjusted)For the Quarter Ended

3/31


6/30


9/30


12/31


3/31


6/30


9/30


12/31Revenue

$
74,481


$
62,744


$
58,575


$
88,247


$
26,128


$
46,733


$
54,593


$
155,399Cost of revenue


56,610



34,215



35,651



51,687



14,771



31,244



26,628



99,134Gross profit


17,871



28,529



22,924



36,560



11,357



15,489



27,965



56,265Research and development, net


11,215



13,710



17,321



20,701



13,719



11,890



12,364



13,802Sales and marketing


6,063



6,341



6,279



7,918



5,382



5,848



6,135



7,623General and administrative


4,146



3,901



3,476



5,056



3,696



3,465



3,775



5,806Restructuring, severance and impairment






























54,450Net income (loss)


(4,888
)


3,420



(2,107
)


2,971



(11,965
)


(6,404
)


3,583



(25,960
)Net income (loss) per common share, basic

$
(0.15
)

$
0.10


$
(0.06
)

$
0.09


$
(0.37
)

$
(0.20
)

$
0.11


$
(0.79
)Net income (loss) per common share, diluted

$
(0.15
)

$
0.10


$
(0.06
)

$
0.08


$
(0.37
)

$
(0.20
)

$
0.11


$
(0.79
)       NOTE 20
    SUBSEQUENT
    EVENT   F-29




---



##### Table of Contents



CRAY INC.
    AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   F-30




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Subtopic 470-20, Debt with Conversion and Other Options
    Internal Control  Integrated Framework
  Peterson
    Sullivan LLP
    F-31




---



##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts (1)
    December 31, 2009
    (In Thousands)
  Balance at








Balance atBeginning


Charge/(Benefit)





End ofDescription

of Period


to Expense


Deductions


PeriodYear ended December 31, 2007:Allowance for doubtful accounts

$
99


$
327


$
(327
)(2)

$
99Year ended December 31, 2008:Allowance for doubtful accounts

$
99


$



$



$
99Year ended December 31, 2009:Allowance for doubtful accounts

$
99


$
213


$
(140
)(2)

$
172     (1)
    
    The Company does not have any warranty liabilities.(2)
    
    Represents uncollectible accounts written off, net of recoveries. F-32