GOVERNMENT

Also in the fourth quarter of 2008, the company determined that due to the fourth quarter decline in Cray's common stock price, the market capitalization has been below the "net assets" (approximate to shareholders' equity) of the company. As a consequence and with further analysis, it was determined that Cray's Goodwill was fully impaired, resulting in a non-cash write-down of the November 30, 2008 Goodwill balance of approximately $55.4 million. The non-cash Goodwill write-down will have a negative financial impact that will result in a net loss rather than achieving the expected profit in both the fourth quarter and full year 2008. The Goodwill write-down will have no effect on Cray's cash balances or cash flow from operating activities, nor any effect on ongoing operations.

On December 24, 2008, the company repurchased a further $6,000,000 in principal amount of its 3.0% Convertible Senior Subordinated Notes due 2024 ("Notes"), expected to be put to the company in December 2009, for 89.0% of par value plus accrued interest. After beginning the fourth quarter of 2008 with $80,000,000 in Notes, this latest purchase reduced the total outstanding Notes to $27,727,000.