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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended June 30, 1994.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 . For the transition period from to
.
Commission File Number 1-10441
SILICON GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2789662
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2011 North Shoreline Boulevard, Mountain View, California 94043-1389
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 960-1980
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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Common Stock, $0.001 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant, based upon the closing sale price of the Common
Stock on September 2, 1994 on the New York Stock Exchange as reported in The
Wall Street Journal, was approximately $3,098 million. Shares of voting stock
held by each executive officer and director and by each person who owns 5% or
more of any class of registrant's voting stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
AS OF SEPTEMBER 2, 1994, THE REGISTRANT HAD OUTSTANDING 141,104,197 SHARES OF
COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to this
Form 10-K Report: (1) Proxy Statement for registrant's Annual Meeting of
Stockholders to be held November 1, 1994 (Part III), and (2) registrant's
Annual Report to Stockholders for the fiscal year ended June 30, 1994
(Parts I, II and IV).
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PART I
ITEM 1. BUSINESS
GENERAL
Silicon Graphics, Inc. (the "Company") designs and supplies a family of
workstation, server and supercomputer systems, incorporating interactive three-
dimensional ("3D") graphics, digital media and multiprocessing supercomputing
technologies. The workstation products are available in desktop and deskside
configurations, and are used primarily by technical, scientific and creative
professionals to simulate, analyze, develop and display complex 3D objects and
phenomena. The Company has, over the last ten years, been a pioneer in the 3D
graphics field, and continues to be a leader in workstation graphics technology.
The Company's marketing and development efforts have, in the past, focused
largely on the technical computing community, including engineers, scientists,
designers, simulation specialists, animators and others who deal with complex
visualization problems. In the last several years, the Company has evolved its
product offering into a range of computer systems and associated software
products designed to meet the broad scope of computing, visualization,
networking and file management requirements of its targeted customers. In
fiscal 1993, the Company introduced a comprehensive family of deskside,
scalable, single and symmetric multi-processor network resource servers.
These server products are targeted at the technical and commercial markets, for
use as print and entry-level file servers in low-end configurations, and
workgroup and enterprise transaction processing and compute servers in mid-range
and high-end configurations. In July 1994, the Company introduced its
supercomputing servers, targeted at compute-intensive technical and scientific
applications. The Company's family of advanced graphics supercomputers,
introduced in fiscal 1993, was also enhanced in July 1994 by the introduction of
new high-end models. The Company also places considerable emphasis on
two-dimensional graphics performance and digital media in its product offerings,
including in its targeted markets the pre-press, publishing, documentation, and
telecommunications industries.
During fiscal 1994, the Company has sought to extend the reach of its core
technologies by forging alliances with entertainment industry leaders and other
companies at the forefront of the developing market for interactive computing.
Among the Company's partners in these alliances are Time Warner Cable, Nintendo
Co., Ltd., Walt Disney Company, AT&T Corp. and NTT Corporation.
MIPS Technologies, Inc. ("MTI"), a wholly-owned subsidiary of the Company,
designs, develops and licenses advanced reduced instruction set computing (RISC)
processors and microprocessors. MTI was established in June 1992, following the
merger into the Company of MIPS Computer Systems, Inc. The merger was the
culmination of a long technology relationship between the two companies dating
to 1986, when the Company selected the MIPS-R- RISC architecture and
microprocessor design to be the focus for its systems development effort. The
Company, through MTI, is a leading supplier of RISC microprocessor technology
for the computer system and embedded control markets. MTI has the dual
objectives of continuing the rapid development of innovative MIPS RISC-based
microprocessor technologies and the propagation of the MIPS RISC architecture as
an industry standard. The Company and MTI are working together to ensure that
the MIPS RISC architecture remains open, accessible and competitive, and are
exploring ways to combine the MIPS RISC architecture with the Company's digital
media technology in multimedia architectures suitable for consumer electronics
products.
PRINCIPAL PRODUCTS
The Company's graphics computer systems range from the Indigo-R- family of
desktop workstations, including the Indy-TM- and Indigo(2)-TM-, to the Onyx-TM-
and POWER Onyx-TM- systems, a family of advanced graphics supercomputers. In
addition, the Company's Challenge-TM- and POWER Challenge-TM- family ranges from
entry-level single processor servers to enterprise-wide symmetric
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multiprocessing supercomputers. The Company's products all use the MIPS RISC
microprocessors developed by MTI, and generally are binary-compatible, meaning
that software applications run without modification across the entire product
line. The Company's workstations include display, graphics and computational
capabilities. Server models are general purpose computers with the same
computational performance of their workstation counterparts, but without the
graphics capabilities. Depending upon their application, servers may also have
higher levels of data storage and/or communications capabilities than comparable
workstations. The high-end multiprocessor supercomputer systems are meant to
replace or augment aging mainframe computers in compute intensive engineering,
animation and scientific environments.
All the Company's workstations, servers and supercomputer systems use the
Company's IRIX-TM- operating system software. IRIX is the Company's enhanced
version of the System V Release 4 (SVR4) UNIX-R- operating system. The
Company's latest version, IRIX 5.2, includes the Indigo Magic-TM- user
environment, a complete family of tools including desktop utilities, digital
media applications and collaborative tools. Among the key benefits of Indigo
Magic are an intuitive iconic interface supporting "drag and drop" interaction,
a file manager that provides graphical navigation through the file system and
directories, on-line help, sophisticated digital media tools that can be
used to create anything from basic slides to interactive presentations with
integrated audio, video and 3D graphics, and support for InPerson-TM-, the
Company's low cost, desktop video conferencing software product.
The Company develops only a very limited set of applications software, and
obtains licenses to and markets certain utility software packages, including
database, computational, desktop publishing, modeling and rendering products.
For other requirements, customers using the Company's workstations must either
develop or license from a third party the software necessary to address their
needs. The Company believes that there currently are approximately 1,900
registered application software programs offered for use on its systems.
THE INDIGO SERIES
The Indigo family of desktop workstations, comprised of the Indy, IRIS
Indigo and Indigo(2) systems, combine key elements of workgroup collaboration,
interactive media and computing at a range of prices and performance. The
versatile desktop systems in this family can be used for tasks as diverse as
manipulating 3D models for computer-aided design (CAD), crunching numbers for
chemistry and geographic information systems applications, or functioning as a
tool for video editing, animation rendering, technical publishing and software
development.
THE INDY FAMILY The Indy desktop workstation, originally introduced in
July 1993, features advanced 3D graphics and imaging and the Indy Cam-TM-, its
own digital color video camera. The Indy was developed as a low-price, high-
performance workstation with real-time video capability, interactive and
professional quality graphics, audio and imaging capabilities. The Indy has
significant appeal in markets such as mechanical CAD, chemistry, color
publishing, film and video, software development, education and media
authoring. The Indy systems are available with either the R4600-TM- or 150mhz
R4400-TM- microprocessor and range in price from approximately $6,000 to
$28,500.(*)
THE IRIS INDIGO FAMILY The IRIS Indigo-R- workstation, originally
introduced in July 1991, was the first RISC PC with integrated digital media,
combining the power of workstations with the ease-of-use, standards and
affordability of personal computers. The IRIS Indigo workstations are
expandable and upgradable and were enhanced in January 1992 by the addition of
three models, including the high-end Indigo Elan-TM-, which provide higher
levels of graphics performance. Among the primary markets addressed by the IRIS
Indigo are the mechanical CAD and computer-aided engineering, electronic design
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* These and all other prices quoted are September 1994 list prices, which are
subject to discount based on volume and other factors.
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automation, computer-aided software engineering (CASE), geo-science, life
science, management support and publishing markets. The IRIS Indigo systems
incorporate either an R4000-R- or R4400 microprocessor at prices ranging from
approximately $14,500 to $40,000.
THE INDIGO(2) FAMILY The Indigo(2) family of high-performance desktop
workstations was originally introduced in January 1993 and is available with the
XL, XZ or Extreme graphics subsystems. The entry-level Indigo(2) XL system is
designed for use in a wide range of 2D graphics applications and supports 3D
graphics through a software Z buffer and host-based geometry calculations. The
mid-level Indigo(2) XZ system is designed for 3D solids modeling appropriate for
professional engineers and scientists. The flagship Indigo(2) Extreme-TM-
system is optimized for applications in solids modeling, mechanical CAD, 3D
visualization, animation and architectural design. The Indigo(2) XZ and
Indigo(2) Extreme systems feature two and eight Geometry Engine-R- graphics
coprocessors, respectively. In addition, the Galileo Video-TM- option board and
Cosmo Compress-TM- enhance the performance of the Indigo(2) for professional
audio and video production. Indigo(2) systems incorporate either an R4000 or
R4400 microprocessor and range in price from approximately $21,500 to $44,000.
THE ONYX SERIES
ONYX The Onyx family of graphics supercomputers, originally introduced in
January 1993, uses multiple microprocessors and sophisticated graphics
subsystems to handle the most demanding visual computing tasks. Graphics
subsystems available with the Onyx systems range from the Extreme through the
VTX-TM- to the Reality Engine(2)-TM- graphics subsystems. The Onyx and POWER
Onyx are well-suited for applications such as earth and environmental sciences,
visual simulation, medical imaging and chemistry, advanced design, interactive
entertainment, digital film and video production, scientific visualization,
computational chemistry, oil and gas, and other image processing applications.
The Onyx graphics supercomputers are based on the R4400 64-bit microprocessor
and range from the two-processor Onyx Extreme workstations, priced from
approximately $94,000, to the 24-processor Reality Engine(2) rack-mounted
systems, priced from approximately $644,000.
POWER ONYX The POWER Onyx, introduced in July 1994, provides researchers
and scientists with an affordable, integrated visual supercomputer. The POWER
Onyx combines supercomputing performance and high-end graphics capabilities
suited for customers in industries such as computational chemistry, oil & gas
research, molecular modeling, global weather modeling, structural dynamics,
fluid dynamics, image processing and animation. The POWER Onyx is based on the
64-bit MIPS R8000-TM- microprocessor, optimized for floating-point intensive
applications, and is available with the Company's Extreme or Reality Engine(2)
graphics subsystems. The POWER Onyx is available in configurations from one to
twelve processors, ranging in price from the uniprocessor POWER Onyx Extreme
deskside systems starting at approximately $89,000 to the twelve processor
Reality Engine(2) rack-mounted systems priced from approximately $704,000.
THE CHALLENGE SERIES
CHALLENGE The Challenge series of network resource servers originally was
introduced in January 1993 and was enhanced by the introduction of two new
systems in July 1994. The Challenge product family currently includes four
models that span a range of capabilities, each of which is optimized for a
specific distributed computing environment. The entry-level Challenge S server
is a single-processor system designed for use in small to mid-size workgroups
and is ideal for CAD, storage management, digital distribution and backbone
serving applications. The Challenge S is available at prices ranging from
$12,250 to $16,600. The Challenge DM is focused on the needs of the database,
digital media, real time and file serving markets. Challenge DM systems are
scalable to up to four R4400 microprocessors at prices ranging from $45,000 to
$75,000. At the midpoint is the Challenge L, an expandable deskside
resource server designed to connect large departments of workstation users. The
Challenge L can be configured with two to twelve R4400 microprocessors at prices
ranging from
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$79,000 to $279,000. At the high end is the Challenge XL, designed to support
enterprise-wide distributed computing environments. The Challenge XL is
configurable with from two to thirty-six R4400 microprocessors and is available
at prices ranging from $129,000 to $809,000.
POWER CHALLENGE The POWER Challenge family of supercomputing servers,
introduced in July 1994, combines low-cost, high-performance CMOS RISC
technology, advanced parallel system architecture and a simple shared-memory
programming model. The POWER Challenge can be configured with one to eighteen
R8000 microprocessors. Depending on configuration and memory requirements,
prices range from approximately $69,000 for a single processor to $309,000 for
a six-processor POWER Challenge L deskside server and from approximately
$179,000 for a two-processor to $899,000 for an eighteen-processor POWER
Challenge XL rack-mounted system.
MICROPROCESSORS
All of the Company's system products incorporate the MIPS RISC
microprocessor architecture. The designs of the Company's MIPS RISC
microprocessors incorporate a general purpose architecture and instruction set
designed for high performance over a wide range of computer applications. The
MIPS RISC microprocessor designs make efficient use of instruction "pipelining"
techniques and proprietary compilers, allowing significant performance gains to
be realized by optimizing the tradeoff between compiler and microprocessor
functions.
The Company's MIPS RISC microprocessor family currently consists of several
independent but binary-compatible chipsets, including the R3000A complementary
metal oxide semiconductor ("CMOS") chipset, comprised of the R3000A central
processing unit ("CPU") and R3010A floating point unit ("FPU"); and the R4000
CMOS single chip microprocessor, which incorporates the CPU, FPU and primary
cache RAM into a single high-density chip. The R4400 microprocessor, introduced
in November 1992, is a 64-bit, single chip microprocessor that incorporates
enhancements to, and greater speed than, the R4000. The R4200 microprocessor,
designed for the portable computer and consumer markets, and the R8000
processor, designed for supercomputer applications, were introduced in mid-1994.
Although the Company develops RISC microprocessors and related devices of
its own design, it licenses the manufacture and sale of these chips to selected
semiconductor manufacturing companies (the "Semiconductor Partners"). The
Company does not itself manufacture microprocessors. The Company's current
Semiconductor Partners are Integrated Device Technology, Inc.; LSI Logic
Corporation; NEC Corporation; NKK Corporation; Siemens AG and Toshiba
Corporation. Each Semiconductor Partner paid an initial license fee at the
beginning of the license period and has committed to pay ongoing, per unit
royalties which are based upon microprocessor net sales. Sales by the
Semiconductor Partners are principally to the computer systems and embedded
control markets, for use in such products as disk drives, laser printers and X-
terminals. Computer systems companies that have adopted the MIPS architecture
include Acer Technologies, Deskstation Technology, Pyramid Technology, Siemens
Nixdorf AG, Sony Corporation, Tandem Computers Incorporated, NEC Technologies,
Inc., NeTpower Inc. and Tektronix, Inc. The Company and its Semiconductor
Partners generally have jointly funded the development of new MIPS RISC
microprocessors, including the R4000 and the R4400 introduced in fiscal 1993 and
the R4200 and R8000 processors introduced in fiscal 1994.
NEW VENTURES
The Company has extended its reach into the developing markets for interactive
computing through new ventures, including alliances with companies like Time
Warner Cable, Nintendo, Disney and AT&T Corp. None of these ventures accounted
for significant product revenues in fiscal 1994, and each is subject to a
number of risks and uncertainties. See "Factors That May Affect Future
Results" below.
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TIME WARNER CABLE'S ORLANDO PROJECT
The Company is developing the core software technologies, including
operating system software and key applications such as video-on-demand software,
for Time Warner Cable's interactive digital cable television trial in Orlando,
Florida. Scheduled to be deployed to 4,000 homes in the Orlando area, the
technology will provide consumers with access to such services as video-on-
demand, educational resources, interactive video games and home shopping. The
"media servers" (computers from which movies and other content may be retrieved)
for the trial will be provided by the Company, and the home communications
devices will incorporate MIPS microprocessors. This project, which is the most
ambitious interactive television trial announced to date, has helped to position
the Company as a technology leader in this emerging market.
NINTENDO'S ULTRA 64 VIDEO ENTERTAINMENT SYSTEM
The Company also is developing for Nintendo Co., Ltd. the core
technological components of Ultra 64-TM-, the next generation, 64-bit
Nintendo -R- video entertainment system. These components include the central
processing unit, a media co-processor, operating system software and multimedia
libraries. This arrangement, under which Nintendo is funding the Company's
development work and will pay the Company royalties, should enable the Company
to extend its core technologies to a high volume consumer electronics market.
By licensing these technologies to Nintendo, the Company hopes to address this
market in a way that benefits from Nintendo's strengths in low-cost, high-volume
manufacturing, and mass consumer distribution and marketing. If successfully
marketed by Nintendo, the Ultra 64 system also will create high volume markets
for the MIPS microprocessors on which it will be based, again helping to promote
the preservation and expansion of the MIPS RISC architecture on which the
Company's core computer system products are based.
WALT DISNEY IMAGINEERING LABS AT EPCOT CENTER
The Company's work with the Walt Disney Company provided the technology
behind the Walt Disney Imagineering Labs, which opened in July 1994 at Epcot
Center in Orlando, Florida. In a new exhibit combining the Company's visual
computing expertise with the creative talents of the Walt Disney Imagineering
team, visitors are able to view, interact with and actually "fly" through scenes
from Disney's animated film ALADDIN. This example illustrates the avenues the
Company is exploring to take its technology into the realm of location-based
entertainment.
INTERACTIVE DIGITAL SOLUTIONS, AN AT&T AND SILICON GRAPHICS COMPANY
In June 1994, the Company and AT&T agreed to form Interactive Digital
Solutions, a new venture created to develop and deliver complete interactive
video solutions, based on the Company's video and graphics technology and AT&T's
networking and integration expertise, to telephone company networks and cable TV
systems, and eventually to large private networks. The turnkey systems that IDS
intends to provide include media servers, network operating system software,
selected applications programs and integration services. The Company brings its
core competency in media servers and growing operating system and application
software expertise to the venture, and AT&T's contributions include its advanced
switching and networking expertise, strong relationships with the target public
network operator customer base (primarily the regional Bell operating companies
and cable television multiple service operators), and its system integration and
support capabilities.
NTT CORPORATION
In June 1994, the Company entered into a letter of intent with Nippon
Telegraph and Telephone Corporation (NTT) providing for the companies to
collaborate in testing interactive digital networks. The arrangement gives the
Company the opportunity to play a key role in helping to establish the
architecture for the information superhighway in Japan and to supply media
servers for an NTT trial.
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SILICON STUDIO, INC.
In July 1994, the Company announced the formation of Silicon Studio, Inc.,
a wholly-owned subsidiary created to enable applications development for
emerging interactive digital media markets. Focusing on the convergence of
computing and consumer technologies, Silicon Studio will work with third-party
developers, content creators and distributors to extend the Company's already
established role in media authoring markets, including film and video,
publishing and the expanding areas of interactive television, next-generation
video games and location-based entertainment.
MARKETING, SALES AND DISTRIBUTION
The Company sells its products principally to end users, value added
resellers ("VARs"), value added dealers ("VADs"), original equipment
manufacturers ("OEMs"), government customers, and systems integrators worldwide.
- The Company's end-user customers include large manufacturing companies
such as automotive, aerospace and pharmaceutical companies; government
contractors; consumer product companies; creative professionals in the
areas of animation, special effects, graphics arts, pre-press and
publishing; and universities and research laboratories.
- VARs are software companies that develop or customize their
proprietary software specifically for use with the special graphics
hardware of the Company's workstations. VARs purchase workstations
from the Company, incorporate their applications software and resell
the systems to end users.
- VADs are typically direct sales organizations that sell primarily into
a single vertical market and incorporate appropriate specialized
third-party software with the Company's hardware for sale to their
customers.
- OEM customers generally are computer systems vendors that customize
applications software for use on the Company's workstations and sell
turnkey systems under the OEM's product name. OEMs also provide
independent marketing, service and support programs to their
customers. The Company's principal OEMs include Tandem Computers
Incorporated and Siemens Nixdorf AG.
- Government customers use the Company's products in a variety of
application areas, including general scientific, research and visual
simulation.
- The Company also sells its products to systems integrators to be
included in systems customized for use by the federal government and
large commercial clients.
The Company sells and supports its products through its direct sales
organization in the United States and Canada, and through its direct sales force
and distributors in Europe and the Middle East, Latin America, the South Pacific
and the Far East. As of September 1994, the Company had 25 direct sales
subsidiaries, primarily serving major, more established international markets in
29 countries, and 31 distributors, primarily serving smaller or less established
international markets.
Information with respect to international operations and export sales may
be found on page 44 of the 1994 Annual Report to Stockholders, which is
incorporated herein by reference. See also "Factors That May Affect Future
Results" below. Although no customer accounted for 10% of more of the Company's
total revenues for fiscal 1994, 1993 or 1992, a significant reduction or delay
in sales to major customers could adversely affect the Company's operating
results.
CUSTOMER SERVICE AND SUPPORT
The Company believes that the quality and reliability of its system
products and the ongoing support of such products are important elements of its
competitive strategy. The Company's customer service organization includes
field service engineers, field product and applications specialists, product
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support engineers, training specialists and administrative support personnel.
In addition, the Company provides customer education through regularly scheduled
courses in system software administration, applications programming and hardware
maintenance. The Company provides local customer support from its regional
sales and service offices located in North America, Western Europe and the
Pacific Rim, with spare parts inventory stored at each location. Also, foreign
distributors provide training and support for products sold to local customers.
The Company typically provides a standard "return to factory" hardware
warranty against defects in materials and workmanship. The warranty period for
the Company's products generally is 90 days from the date of shipment, although
the Indy system has a one year warranty, and some international sales of other
products are made with warranties of up to one year.
RESEARCH AND DEVELOPMENT
The Company's research and development program is directed principally
toward maintaining and enhancing the Company's competitive position through
incorporating the latest advances in microprocessor, hardware, software and
networking technologies. This effort is focused specifically on developing and
enhancing its MIPS RISC microprocessors, graphics subsystems, VLSI technology,
compiler software, operating system hardware and software, and development
tools. Simultaneously, the Company seeks to develop new ways in which to
increase product reliability, reduce manufacturing costs and improve product
development lead times.
During fiscal 1994, 1993 and 1992, the Company spent approximately $177
million, $137 million and $128 million, respectively, on research and
development. Those amounts represented 12.0%, 12.5% and 14.8% , respectively,
of revenues.
MANUFACTURING
The Company's manufacturing operations primarily involve assembling high
level subassemblies and systems and testing major purchased subassemblies. All
products are subjected to substantial environmental stress and electronic
testing prior to shipment to customers. The Company primarily manufactures and
ships its products from its main facility in Mountain View, California. The
Company also has a European manufacturing and support center near Neuchatel,
Switzerland and a manufacturing facility in Kawasaki, Japan.
The Company continually evaluates the allocation of manufacturing
activities among the Company's own operations and those of suppliers and
subcontractors. Such allocation may be affected by fluctuations in the volume
of business, geopolitical, economic and technological developments and other
factors.
The Company attempts to utilize standard parts and components available
from multiple vendors rather than to integrate its manufacturing operations
vertically. The Company believes that there are a number of competent vendors
for most of the parts and components used in its system products. In certain
circumstances, despite the availability of multiple sources, the Company may
select a single source in order to maintain quality or price control or to
develop a more strategic relationship with the supplier.
Reliance on single source vendors involves several risks, including the
possibility of a shortage of certain key components that meet the Company's
product specifications and reduced control over delivery schedules,
manufacturing yields, quality and costs. Components for which the Company
currently does not have multiple sources include certain application-specific
integrated circuits ("ASICs"). These are currently obtained from LSI Logic
Corporation and VLSI Technology, Inc. The Company also has single sources for
certain peripherals, communications controllers and power supplies and the
plastic cabinets used across the Company's system products. The Company
believes that, in
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most of these cases, alternative sources of supply could be developed over a
period of time. However, a reduction or interruption in supply or a significant
increase in the price of one or more single or limited source components would,
at least in the short term, adversely affect the Company's operating results.
Certain components used in the Company's products, including the R4000,
R4400, R4600 and R8000 microprocessors, floating point coprocessors, and certain
memory circuits, are available only from limited sources. In particular, the
Company is dependent on a limited number of semiconductor manufacturers with
state of the art fabrication facilities. Additionally, the Company purchases
certain parts from foreign suppliers, principally Japanese. The prices of parts
have been and may be affected significantly by such factors as protectionist
measures and changes in currency exchange rates between the United States and
other countries. In addition, changes in the availability of certain integrated
circuit memory chips (DRAMs, SRAMs and VRAMs) have caused, and in the future may
cause, significant changes in their prices.
COMPETITION
The computer industry is highly competitive and is characterized by rapid
technological advances in both hardware and software development. These
advances result in frequent new product introductions, short product life cycles
and increased new product capabilities, typically representing significant
price/performance improvements. The principal competitive factors in the
Company's market are product features, price/performance, networking
capabilities, product quality and reliability, ease of use, capabilities of the
system software, availability of applications software, customer support,
product availability, corporate reputation and price. The strong competition
faced throughout the Company's product line can result in significant
discounting from list price.
The Company's principal competition is from other workstation and computer
system manufacturers and, to a lesser extent, from graphics subsystem and
terminal vendors and graphics integrated circuit manufacturers. The principal
workstation and computer manufacturers that compete in the Company's markets are
Digital Equipment Corporation ("DEC"), Hewlett Packard Company ("HP"), IBM and
Sun Microsystems, Inc. ("Sun"). In the supercomputer market, the Company faces
competition from these companies as well as Cray Research, Inc. and Convex
Computer Corporation.
The Company's MIPS RISC microprocessor architecture and technology compete
directly with microprocessor products offered by manufacturers of other
microprocessor designs, in particular those offered by IBM, DEC, HP, Intel
Corporation, Motorola, Inc. and Sun. Although the Company believes its RISC
architecture offers advantages over these other designs, many of these
architectures have a larger installed base and wider availability of application
software, which may adversely affect the adoption of the Company's RISC
architecture. In particular, DEC and a joint venture among IBM, Motorola and
Apple Computer, Inc. have in the past year devoted substantial resources to
promote the adoption of the Alpha AXP-TM- and Power PC-TM- microprocessors,
which are based on RISC architectures, and Intel continues to invest heavily in
its CISC-based X86 architecture, including the Pentium-TM- microprocessor.
FACTORS THAT MAY AFFECT FUTURE RESULTS
As is true for technology companies generally, Silicon Graphics operates in
a rapidly changing environment that involves a number of risks, some of which
are beyond the Company's control. The following discussion highlights some of
these risks.
PERIOD TO PERIOD FLUCTUATIONS
The Company has experienced substantial revenue growth in recent years, and
it plans its operating expenses, many of which are relatively fixed in the short
term, on the basis that its revenues will continue to grow. As a result it may
not be possible for management to quickly adjust expense levels
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in response to revenue shortfalls. Further, because of short delivery cycles
the Company generally does not have a large order backlog, which makes the
forecasting of revenue inherently less certain. This uncertainty is compounded
because each quarter's revenue results predominantly from orders received and
shipments made during the last month of the quarter, with a disproportionate
amount occurring in the latter half of that month. This pattern sharply limits
the Company's ability to react to revenue shortfalls within a particular
quarter. Accordingly, even relatively minor shipment disruptions, which could
result from factors such as supply constraints, delays in the availability of
new products, an unanticipated change in product mix, transit interruptions or
natural disasters, may cause a particular period's results to be substantially
below expectations.
The Company's results have followed a seasonal pattern, with relatively
strong second and fourth fiscal quarters and weaker first and third fiscal
quarters, reflecting the buying patterns of the Company's customers. A variety
of other factors may cause period-to-period fluctuations in revenues and
profitability, including changes in the mix of high-end and low-end products,
the mix of configurations within a product line, the geographic mix of sales,
and the percentage of revenues derived from service or non-recurring engineering
revenue (NRE) during any fiscal period.
Additionally, because nearly half of the Company's revenue is derived from
sales outside the United States, and many key components for its products are
produced outside the United States, the Company's results could be negatively
affected by such factors as changes in foreign currency exchange rates, trade
protection measures, generally longer accounts receivable collection patterns,
and changes in regional or worldwide economic or political conditions. The
Company's sales to foreign customers are subject to export regulations, with
sales of some of the Company's high-end products requiring clearance and export
licenses from the U.S. Department of Commerce. The Company's export sales would
be adversely affected if such regulations were tightened, or if they are not
modified over time to reflect the increasing performance of the Company's
products.
Sales in foreign countries are generally priced in local currencies and
therefore are subject to the effects of currency exchange fluctuations. Changes
in foreign currency exchange rates can have either a positive or negative effect
on revenue and/or income in any given period. The Company attempts to reduce
the impact of currency fluctuations on net income primarily through the use of
forward exchange contracts and foreign currency options that hedge foreign
currency denominated receivables between the parent and its international
subsidiaries. The Company has generally not hedged capital expenditures,
investments in subsidiaries, inventory purchases or the anticipated sales or net
income of its international subsidiaries.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet expectations of the investment community, there could be an immediate
impact on the Company's stock price. In addition, the Company's stock price may
be affected by broader market trends that may be unrelated to the Company's
performance.
PRODUCT DEVELOPMENT AND INTRODUCTION
The Company has achieved revenue growth and profitability that are well
above average within the computer industry because it has been able to develop
and rapidly bring to volume production highly differentiated, technologically
complex and innovative products. The Company's future results depend on its
ability to sustain this competitive advantage. As in prior years, the Company
plans to introduce a number of new products in fiscal 1995, including products
that will replace products in the Company's current product offering. A number
of risks are inherent in this process.
The process of developing new technology and incorporating it in the
Company's products is increasingly complex and uncertain, which raises the
potential for delays in new product introduction. The introduction of a new
computer system requires close collaboration and continued technological
advancement involving multiple hardware and software design and manufacturing
teams within the
-9-
<PAGE>
Company as well as teams at outside suppliers of key components such as
semiconductor and storage products. The failure of any one of these elements
could cause the Company's new products to fail to meet specifications or to miss
the aggressive timetables that the Company establishes. As the variety and
complexity of the Company's product offering increases, the process of planning
production and inventory levels also becomes more difficult.
The Company generally has derived a substantial portion of its revenues in
any fiscal period from its most recently introduced products. During fiscal
1994, the Company introduced new products at both the low-end and high-end of
its product line, most of which have shipped in volume. The Company's results
could be adversely affected by such factors as development or manufacturing
delays, variations in product costs, and delays in customer purchases of
existing products in anticipation of the introduction of new products.
The Company's customers require applications software that addresses their
needs. The Company develops very limited applications software, and thus relies
on the availability of key third-party applications software addressing a wide
range of customer requirements. The Company actively manages programs to
promote the development of such applications, but there can be no assurance that
all competitively important applications will be available for the Company's
systems.
DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE
All of the Company's system products incorporate microprocessors based upon
the Company's MIPS RISC microprocessor architecture. The Company licenses the
manufacturing and distribution rights to these microprocessors to selected
semiconductor manufacturing companies (the "Semiconductor Partners"). The
Company and its Semiconductor Partners generally have jointly funded the
development of new MIPS RISC microprocessors, including the R4200 and R8000
processors introduced in fiscal 1994. Changes in the timing, level or
availability of such funding could adversely affect the continued development of
the MIPS RISC architecture or increase the portion of the development budget
that is borne by the Company. The Company believes that the continued
development and broad acceptance of the MIPS architecture are critical to its
future success.
NEW VENTURES
During fiscal 1993 and 1994, the Company entered into several ventures with
other companies to address new and emerging markets, including ventures with
Time-Warner, Nintendo and AT&T. While the Company believes that these new
ventures are strategically important, there are substantial uncertainties
associated with the development of new products and technologies for evolving
markets. The success of these ventures will be determined not only by the
Company's efforts, but also by those of its venture partners. Initial
timetables for the development and introduction of new technologies, products or
services may not be achieved, and price/performance targets may not prove
feasible. External factors, such as the development of competitive alternatives
or government regulation, may cause new markets to evolve in an unanticipated
direction.
COMPETITION
The computer industry is highly competitive and is characterized by rapid
technological advances in both hardware and software development, which result
in steadily improving price/performance and shortening product life cycles. As
the segments in which the Company operates continue to grow faster than the
industry as a whole, the Company is experiencing an increase in competition, and
it expects this trend to continue. Many of the Company's competitors have
substantially greater technical, marketing and financial resources than the
Company, as well as a larger installed base of customers and a wider range of
general purpose applications software available for their platforms. The strong
competition faced throughout the Company's product line can result in
significant discounting of sales prices which would decrease the Company's gross
margins.
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<PAGE>
BUSINESS DISRUPTION
The Company's corporate headquarters, including its research and
development operations and most of its manufacturing facilities, are located in
the Silicon Valley area of Northern California, a region known for seismic
activity. Operating results could be materially affected by a significant
earthquake. The Company is predominantly self-insured for losses and business
interruptions of this kind.
PROPRIETARY RIGHTS AND LICENSES
The Company has been granted numerous patents, has a number of patent
applications pending, and will continue to seek patent coverage for its
inventions in both the United States and foreign countries. The Company also
has applied for and holds various trademark registrations in the United States
and in selected foreign countries. The Company will continue to seek protection
for its inventions, trademarks, maskworks and copyrights where appropriate.
As is customary in its industry, the Company licenses from third parties a
wide range of software for its internal use and for the use of its customers.
The Company licenses the UNIX operating system on a non-exclusive basis from
Novell, Inc., and sublicenses it to its customers.
The Company's ability to compete may be affected by its ability to protect
proprietary information and to obtain necessary licenses on commercially
reasonable terms. The extent to which U.S. and international intellectual
property laws protect the Company's products, and the enforceability of end-user
license agreements, have not been fully determined, and the computer industry
has seen a substantial increase in litigation with respect to intellectual
property matters. Such litigation or changes in the interpretation of
intellectual property laws could expand or reduce the extent to which the
Company or its competitors are able to protect their intellectual property or
require changes in the design of products which could have an adverse impact on
the Company. There can be no assurance that the Company will not be made a
party to litigation regarding intellectual property matters in the future. See
"Legal Proceedings."
EMPLOYEES
As of June 30, 1994, the Company had approximately 4,400 full-time
employees. The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate highly qualified technical, marketing
and management personnel, who are in great demand. The Company has never had a
work stoppage, and no employees are represented by a labor union. The Company
believes that its employee relations are good.
-11-
<PAGE>
ITEM 2. PROPERTIES
The Company conducts its worldwide operations using a combination of leased
and owned facilities. The Company believes that, while it currently has
sufficient facilities to conduct its operations during fiscal 1995, it will
continue to acquire both leased and owned facilities throughout the world as its
business requires. The Company's corporate offices and its primary research and
development and manufacturing operations are located in Mountain View,
California. The Company leases eleven adjacent buildings comprising a total of
approximately 702,000 square feet under written leases terminating during 2000
and 2001. The Company also leases eight other buildings near its Mountain View
headquarters, comprising approximately 304,000 square feet. The Company,
through a wholly-owned subsidiary, also owns 7.5 acres of undeveloped land near
its Mountain View headquarters, on which a general office facility of
approximately 112,000 square feet is being constructed to be leased to the
Company for occupancy in fiscal 1995.
The Company's European manufacturing and support center near Neuchatel,
Switzerland is located in a facility owned by the Company, consisting of
approximately 77,800 square feet. The Company's leased manufacturing facility
in Kawasaki, Japan consists of 9,500 square feet.
The Company also leases sales, service and administrative offices
worldwide.
ITEM 3. LEGAL PROCEEDINGS
On March 11, 1992, the Company entered into an agreement with MIPS,
pursuant to which the Company has acquired MIPS through the merger of a
subsidiary of the Company into MIPS. On March 17, 1992, a putative class action
lawsuit entitled DIANE PROVENZ AND AHIKIM EIZENBERG V. ROBERT C. MILLER, ET AL.
was filed in the United States District Court for the Northern District of
California. The plaintiffs purport to represent a class of all persons who
purchased MIPS' common stock between January 31, 1991 and October 9, 1991 (the
"Class Period"). Named as defendants are MIPS and certain executive officers of
MIPS. The Company is not a defendant, but is defending the case as a successor
in interest to MIPS. The complaint alleges that defendants violated various
federal securities laws and California statutes through material
misrepresentations and omissions during the Class Period. On June 27, 1994, the
Court granted defendant's motion for summary judgment as to all counts.
Plaintiffs' motion for reconsideration of the order granting summary judgment is
pending. The Company believes that it has meritorious defenses to the claims
alleged in this lawsuit and intends to continue its defense of the action
vigorously.
As is typical in the computer industry, the Company from time to time
receives communications from third parties asserting patent rights, trademarks,
copyrights or other rights covering the Company's products, designs or
processes. In some cases the Company seeks to obtain licenses from such third
parties. Although there can be no assurance that the Company will be able to
obtain these licenses or rights on commercially reasonable terms, management
believes that payment of royalties under any such license arrangements currently
under consideration would not have a material adverse effect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of September 2,
1994, are as follows:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION AND PRINCIPAL OCCUPATION SINCE
---- --- --------------------------------- -----
<S> <C> <C> <C>
Edward R. McCracken 50 Chairman, Chief Executive Officer and Director 1984
Thomas A. Jermoluk 38 President, Chief Operating Officer and Director 1988
Robert R. Bishop 51 President, Silicon Graphics World Trade 1991
Corporation and Director, Silicon Graphics, Inc.
Forest Baskett 51 Senior Vice President, Research and Development 1986
and Chief Technical Officer
Kenneth L. Coleman 51 Senior Vice President, Administration 1987
Stephen Goggiano 41 Senior Vice President, Integrated Manufacturing 1989
Solutions Division
Gary L. Lauer 41 Senior Vice President, North American Field 1988
Operations
Stanley J. Meresman 47 Senior Vice President, Finance and Chief 1989
Financial Officer
Michael Ramsay 44 President, Silicon Studio, Inc. and Senior Vice 1987
President, Silicon Graphics, Inc.
Wei Yen 39 Senior Vice President, Computer Systems Group 1990
William M. Kelly 41 Vice President, Business Development, General 1994
Counsel and Secretary
Dennis P. McBride 42 Vice President, Controller 1988
Thomas J. Oswold 42 Vice President, Finance and Treasurer 1988
Tom Whiteside 41 President, MIPS Technologies, Inc. and Vice 1993
President, Silicon Graphics, Inc.
</TABLE>
Executive officers of the Company are elected annually by the Board of
Directors and serve at the Board's discretion. Except as set forth below, all
of the officers have been associated with the Company in their present positions
for more than the past five years. There are no family relationships among any
directors or executive officers of the Company.
In 1988, Mr. Jermoluk became Vice President/General Manager, Advanced
Systems Division and, in 1991, he became Executive Vice President. He was named
Chief Operating Officer in 1992 and President in 1994.
Mr. Goggiano joined the Company in 1989 as Director of Operations, Advanced
Systems Division. In 1990, Mr. Goggiano was named Vice President/General
Manager, Operations and, in 1993 he was named Senior Vice President, Operations.
Prior to joining the Company, Mr. Goggiano was Vice President, Manufacturing for
Altos Computer Systems.
Mr. Kelly joined the Company in 1994 as Vice President, Business
Development, General Counsel and Secretary. Prior to joining the Company, Mr.
Kelly had practiced law since 1978 with the firm of Shearman & Sterling, most
recently as co-managing partner of that firm's San Francisco office.
Mr. Lauer joined the Company in 1988 as Vice President, North American
Marketing, became Vice President, North American Field Operations in 1989, and
was named Senior Vice President, North American Field Operations in 1991.
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<PAGE>
Mr. McCracken became Chairman of the Company in 1994.
Mr. Ramsay was named Vice President/General Manager, Entry Systems Division
in 1988, and became Senior Vice President/General Manager, Entry Systems
Division in 1991. In 1992, Mr. Ramsay was named Senior Vice President, Visual
Systems Group, and in 1994, became President of Silicon Studio, Inc.
Dr. Yen joined the Company in 1988 as Director of Engineering, Advanced
Systems Division. In 1990, Dr. Yen was named Vice President, Engineering,
Advanced Systems Division, and in 1992 he was named Senior Vice President,
Computer Systems Group.
Mr. Whiteside joined the Company in 1993 as the President of MIPS
Technologies, Inc. and as a Vice President of the Company. From 1988 to 1993,
Mr. Whiteside was responsible for the management of a variety of development
projects at International Business Machines Corporation, culminating in his
position as Director of RISC Microprocessor Development.
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<PAGE>
PART II
With the exception of the information specifically incorporated by
reference from the Company's 1994 Annual Report to Stockholders (the "1994
Annual Report") in Parts I, II and IV of this Form 10-K, the 1994 Annual Report
is not to be deemed filed as part of this Report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the
first three paragraphs in the section entitled "Price Range of Common Stock" on
page 46 of the Company's 1994 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
section entitled "Selected Consolidated Financial Data" on page 26 of the
Company's 1994 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis" on pages 20 through 25
of the Company's 1994 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
consolidated financial statements and notes thereto and to the section entitled
"Quarterly Data" on pages 27 through 45 of the Company's 1994 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
Certain information required by Part III is omitted from this Report in
that the Company has filed its definitive proxy statement pursuant to Regulation
14A (the "1994 Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to pages 3 and 4 of the 1994 Proxy Statement under
the heading "Proposal No. 1 -- Election of Directors-Directors and Nominees for
Director".
The information concerning executive officers required by this Item is
incorporated by reference to the section in Part I hereof entitled "Executive
Officers of the Registrant."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, required by this Item is incorporated by
reference to page 9 of the 1994 Proxy Statement under the heading "Executive
Officer Compensation - Compliance with Section 16(a) of the Exchange Act."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to pages
4 and 5 under the heading "Proposal No. 1 -- Election of Directors-Director
Compensation", pages 8 and 9 under the headings "Executive Officer
Compensation - Summary Compensation Table", " - Option Grants in Fiscal 1994"
and " - Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values", pages 11 and 12 under the heading "Report of the Compensation
and Human Resources Committee of the Board of Directors", and page 13 under the
heading "Company Stock Price Performance Graph" of the 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to page
1 of the 1994 Proxy Statement under the heading "Information Concerning
Solicitation and Voting - Record Date and Principal Share Ownership" and page 7
of the 1994 Proxy Statement under the heading "Other Information - Security
Ownership of Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to page
10 of the 1994 Proxy Statement under the heading "Certain Transactions".
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements and supplementary information of Silicon Graphics, Inc. and Report of
Independent Auditors are incorporated by reference to pages 27 through 45 and
page 48 of the Registrant's 1994 Annual Report:
Consolidated Statement of Operations - Years Ended June 30, 1994,
1993 and 1992
Consolidated Balance Sheet - June 30, 1994 and 1993
Consolidated Statement of Cash Flows - Years Ended June 30, 1994,
1993 and 1992
Consolidated Statement of Stockholders' Equity - Three Years
Ended June 30, 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
Supplementary Information
Quarterly Data (Unaudited)
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules of Silicon Graphics, Inc. are filed as part of this Report and should
be read in conjunction with the Consolidated Financial Statements of Silicon
Graphics, Inc.
SCHEDULE DESCRIPTION PAGE
-------- ----------- ----
I Marketable Securities S-1
II Amounts Receivable from Related Parties and Underwriters, S-2
Promoters and Employees Other Than Related Parties
VIII Valuation and Qualifying Accounts S-9
X Supplementary Income Statement Information S-10
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
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<PAGE>
3. EXHIBITS. The following Exhibits are filed as part of, or
incorporated by reference into, this Report:
3.1.11(9) Restated Certificate of Incorporation of the Company.
3.2.1 Bylaws of the Company, as amended.
4.4(5) Silicon Graphics, Inc. $25,000,000 8.98% Senior Notes Due
February 1, 1996, Note Agreement and Note, dated February
1, 1991.
4.5(7) Amended and Restated Preferred Shares Rights Agreement,
dated as of May 6, 1992 between the Company and The First
National Bank of Boston, including the Certificate of
Designation of Rights, Preferences and Privileges of
Series B Participating Preferred Stock, the form of
Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B, and C respectively.
4.6(11) Indenture dated November 1, 1993 between the Company and
The First National Bank of Boston, as Trustee.
10.2(6)* 1984 Incentive Stock Option Plan, as amended, and amended
form of Incentive Stock Option Agreement.
10.3(8)* 1986 Incentive Stock Option Plan, as amended, and amended
forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement.
10.17(1) Software Agreement dated as of January 4, 1986, as
supplemented June 6, 1986, and Sublicensing Agreement
dated as of June 9, 1986 between the Company and AT&T
Information Systems Inc.
10.33(4)* 1987 Stock Option Plan and form of Stock Option
Agreement.
10.35(2) Software License Agreement dated January 24, 1986,
between the Company and AT&T Information Systems Inc.
10.50(3) Stock Purchase Agreement dated March 2, 1990 among the
Company, NKK Corporation and NKK U.S.A. Corporation.
10.52(8)* Directors' Stock Option Plan and form of Stock Option
Agreement.
10.56(8) Form of Indemnification Agreement entered into between
the Company and its directors, executive officers and
certain other agents.
10.57(8) Form of Indemnification Agreement entered into between
the Company and its directors, executive officers and
certain other agents. (Revised)
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<PAGE>
10.58(8)* 1985 Stock Incentive Program.
10.59(8) Exchange Agreement dated August 14, 1992 among the
Company, NKK Corporation and NKK U.S.A. Corporation.
10.61(10) Credit Agreement dated June 15, 1993, among the Company,
Bank of America, National Trust and Savings Association,
and The First National Bank of Boston.
10.62(10) Purchase and Sale Agreement, as amended, between Richard
T. Peery, John Arrillaga and Silicon Graphics, Inc.
executed on April 30, 1993.
10.63(10) Waiver and Release Agreement between Richard T. Peery,
John Arrillaga and Silicon Graphics Real Estate, Inc.
dated May 7, 1993.
10.64(11)* 1993 Long-Term Incentive Stock Plan and form of stock
option agreement.
10.65(12)* Employee Stock Purchase Plan, as amended as of
October 21, 1993.
10.66(11)* Form of Employment Continuation Agreement entered into
between the Company and its executive officers, as
amended as of October 21, 1993.
10.67(11)* Consulting Agreement dated as of October 25, 1993 between
the Company and Mark W. Perry.
10.68* Non-Qualified Deferred Compensation Plan dated as of
September 9, 1994.
11.1 Statement of Computation of Common Shares and Common
Share Equivalents.
13.1 Excerpts from Annual Report for the year ended June 30,
1994.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors (see page 24).
27.1 Financial Data Schedule.
- - --------------------
* This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
(1) Incorporated by reference to similarly numbered exhibit to the Company's
Registration Statement on Form S-1 (No. 33-8892), which became effective
October 29, 1986.
(2) Incorporated by reference to similarly numbered exhibit to the Company's
Registration Statement on Form S-1 (No. 33-12863), which became effective
March 31, 1987.
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<PAGE>
(3) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated March 16, 1990.
(4) Incorporated by reference to exhibits to the Company's Post-Effective
Amendment to Registration Statement on Form S-8 (No. 33-16529), which
became effective June 18, 1990.
(5) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1990.
(6) Incorporated by reference to similarly numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended June 30, 1991.
(7) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992.
(8) Incorporated by reference to similarly numbered exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992.
(9) Incorporated by reference to similarly numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1992.
(10) Incorporated by reference to similarly numbered exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993.
(11) Incorporated by reference to similarly numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1993.
(12) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 033-50999), which became effective November 10,
1993.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed during the quarter ended June 30,
1994.
TRADEMARKS USED IN THIS FORM 10-K
Silicon Graphics, Indigo, IRIS Indigo, Geometry Engine and the Company's logo
are registered trademarks of Silicon Graphics, Inc. Challenge, Galileo Video,
Indigo Elan, Indigo Magic, Indigo(2), Indigo(2) Extreme, Indy, Indy Cam,
InPerson, IRIX, Onyx, POWER Challenge, POWER Onyx, Reality Engine(2) and VTX are
trademarks of Silicon Graphics, Inc. Extreme is a trademark used by Silicon
Graphics, Inc. under license. MIPS and R4000 are registered trademarks and
R3000A, R3010A, R4200, R4400 and R8000 are trademarks of MIPS Technologies, Inc.
IBM is a registered trademark of International Business Machines Corporation.
R4600 is a trademark of Integrated Device Technology, Inc. Nintendo is a
registered trademark and Ultra 64 is a trademark of Nintendo. UNIX is a
registered trademark of X Open Consortium. Alpha AXP is a trademark of Digital
Equipment Corporation. Pentium is a trademark of Intel Corporation.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SILICON GRAPHICS, INC.
By: /s/ Edward R. McCracken
-----------------------
Edward R. McCracken
Chairman of the Board and Chief
Executive Officer
Dated: September 27, 1994
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - -------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ Edward R. McCracken Chairman of the Board, Chief SEPTEMBER 27, 1994
- - -------------------------- Executive Officer and Director
Edward R. McCracken (Principal Executive Officer)
/s/ Thomas A. Jermoluk President, Chief Operating SEPTEMBER 27, 1994
- - -------------------------- Officer and Director
Thomas A. Jermoluk
/s/ Stanley J. Meresman Senior Vice President, SEPTEMBER 27, 1994
- - -------------------------- Finance and Chief Financial
Stanley J. Meresman Officer (Principal Financial
Officer)
/s/ Thomas J. Oswold Vice President, Finance SEPTEMBER 27, 1994
- - --------------------------
Thomas J. Oswold
/s/ Dennis P. McBride Vice President, Controller SEPTEMBER 27, 1994
- - -------------------------- (Principal Accounting Officer)
Dennis P. McBride
/s/ Robert R. Bishop Director and President, Silicon SEPTEMBER 27, 1994
- - -------------------------- Graphics World Trade
Robert R. Bishop Corporation
/s/ Mark W. Perry Director SEPTEMBER 27, 1994
- - --------------------------
Mark W. Perry
/s/ Allen F. Jacobson Director SEPTEMBER 27, 1994
- - --------------------------
Allen F. Jacobson
/s/ C. Richard Kramlich Director SEPTEMBER 27, 1994
- - --------------------------
C. Richard Kramlich
/s/ James A. McDivitt Director SEPTEMBER 27, 1994
- - --------------------------
James A. McDivitt
/s/ Robert C. Miller Director SEPTEMBER 27, 1994
- - --------------------------
Robert C. Miller
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<PAGE>
<S> <C> <C>
/s/ Joseph A. Mollica Director SEPTEMBER 27, 1994
- - --------------------------
Joseph A. Mollica
/s/ Lucille Shapiro Director SEPTEMBER 27, 1994
- - --------------------------
Lucille Shapiro
/s/ James G. Treybig Director SEPTEMBER 27, 1994
- - --------------------------
James G. Treybig
</TABLE>
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<PAGE>
Consent of Ernst & Young, LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Silicon Graphics, Inc. of our report dated July 18, 1994, included in the
1994 Annual Report to Stockholders of Silicon Graphics, Inc.
Our audits also included the financial statement schedules of Silicon Graphics,
Inc. listed in item 14(a)2. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to incorporation by reference in the Registration Statements
(Form S-8 File Nos. 33-11703, 33-16529, 33-18717, 33-26003, 33-34919, 33-38536,
33-40879, 33-44305, 33-44333, 33-48890, 33-59098, 33-65190, 033-50999 and 033-
51275) pertaining to the Employee Stock Purchase Plan, 1987 Stock Option Plan,
1986 Incentive Stock Option Plan, 1985 Stock Incentive Program, 1984 Incentive
Stock Option Plan, 1982 Stock Option Plan, Directors' Stock Option Plan and
Subsidiary Stock Agreement, and the 1993 Long-Term Incentive Stock Plan of
Silicon Graphics, Inc., of our report dated July 18, 1994 with respect to the
consolidated financial statement and schedules of Silicon Graphics, Inc.,
incorporated by reference and included in this Annual Report (Form 10-K) for the
year ended June 30, 1994.
Ernst & Young, LLP
Palo Alto, California
September 26, 1994
-24-
<PAGE>
Schedule I
SILICON GRAPHICS, INC.
MARKETABLE SECURITIES AND LONG-TERM FINANCIAL INSTRUMENTS
AS OF JUNE 30, 1994
(in thousands)
<TABLE>
<CAPTION>
Amount Carried
Par Value on Balance Sheet
--------- ----------------
<S> <C> <C>
Short-Term Investments (1):
Government
U.S. Treasury Notes $69,627 $68,831
U.S. Government Agency Obligations 10,235 10,117
Corporate Bonds/Notes
Floating Rate Notes 11,200 11,200
-------- --------
Total Short-Term Investments $91,062 $90,147
-------- --------
-------- --------
Long-Term Financial Instruments (1):
Government
U.S. Treasury Notes $128,500 $128,419
U.S. Government Agency Obligations 2,400 2,400
Corporate Bonds/Notes
AT&T 2,000 2,000
Ford Motor Company 4,800 4,815
Nations Bank 2,500 2,500
WMX 1,800 1,813
Merrill Lynch 5,000 4,999
Pepsico 1,000 1,003
Bankers Trust 2,500 2,498
International Lease Finance 5,000 4,988
Associates Corp 7,500 7,491
National Bank 6,000 5,994
Floating Rate Notes 17,900 17,916
-------- --------
Total Long-Term Financial Instruments $186,900 $186,836
-------- --------
-------- --------
<FN>
- - ---------------
(1) Stated at cost that approximates market value at June 30, 1994.
</TABLE>
S-1
<PAGE>
Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
(in thousands)
FOR THE YEAR ENDED JUNE 30, 1994:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts End of
Name of Debtor of Period Additions Collected Period
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Richard Bahr (1):
8.5% Note Receivable $118 $0 $0 $118
---------- --------- --------- ----------
---------- --------- --------- ----------
Jack Cuthbert (2):
8% Note Receivable $238 $0 $0 $238
6.73% Forgivable
Note Receivable $7 $0 $7 $0
Interest Free Note Receivable $156 $0 $156 $0
---------- --------- --------- ----------
$401 $0 $163 $238
---------- --------- --------- ----------
---------- --------- --------- ----------
Tom Furlong (3):
7.91% Note Receivable $129 $0 $63 $66
---------- --------- --------- ----------
---------- --------- --------- ----------
Mark Jacobson (4):
7.04% Note Receivable $175 $0 $0 $175
Interest Free Forgivable
Note Receivable $32 $0 $11 $21
---------- --------- --------- ----------
$207 $0 $11 $196
---------- --------- --------- ----------
---------- --------- --------- ----------
Peter Kenyon (5):
8.62% Note Receivable $75 $0 $75 $0
6.22% Note Receivable $200 $0 $171 $29
6.22% Note Receivable $100 $0 $100 $0
---------- --------- --------- ----------
$375 $0 $346 $29
---------- --------- --------- ----------
---------- --------- --------- ----------
Robert Mansfield (6):
Interest Free Forgivable
Note Receivable $0 $100 $0 $100
Interest Free Note Receivable $0 $134 $0 $134
---------- --------- --------- ----------
$0 $234 $0 $234
---------- --------- --------- ----------
---------- --------- --------- ----------
Michael Nielsen (7):
6.6% Forgivable
Note Receivable $112 $0 $50 $62
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts End of
Name of Debtor of Period Additions Collected Period
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Harry Pforzheimer (8):
8.48% Note Receivable $170 $0 $0 $170
Interest Free Forgivable
Note Receivable $16 $0 $12 $4
---------- --------- --------- ----------
$186 $0 $12 $174
---------- --------- --------- ----------
---------- --------- --------- ----------
Warren Pratt (9):
6.69% Note Receivable $150 $0 $0 $150
---------- --------- --------- ----------
---------- --------- --------- ----------
Tom Whiteside (10):
Interest Free Note Receivable $0 $125 $125 $0
Interest Free Forgivable
Note Receivable $0 $250 $38 $212
---------- --------- --------- ----------
$0 $375 $163 $212
---------- --------- --------- ----------
---------- --------- --------- ----------
Fred Welz (11):
8.56% Note Receivable $200 $0 $0 $200
---------- --------- --------- ----------
---------- --------- --------- ----------
<FN>
- - ---------------
(1) This Note is in connection with a relocation and is secured by a deed of
trust.
(2) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $1,000 per month;
no collections are made.
(3) This Note is in connection with a relocation and is to be repaid in four
annual installments.
(4) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $885 per month;
no collections are made.
(5) The 8.62% Note Receivable is to repay former employer relocation
obligations and is secured by a deed of trust. The 6.22% Note Receivable
in the principal amount of $200,000 is also secured by a deed of trust.
(6) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $1,000 per month,
no collections are made.
(7) This note is in connection with the employee's acceptance of employment
with the Company and is to be repaid in four annual installments.
(8) These notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $1,000 per month;
no collections are made.
(9) This Note is in connection with a relocation and is secured by a deed of
trust.
(10) These Notes are in connection with a relocation and are secured by a deed
of trust. The interest free note receivable was repaid in December 1993.
The forgivable loan is forgiven at the rate of $4,166.67 per month; no
collections are made.
(11) This Note is in connection with a relocation and is secured by a deed of
trust.
</TABLE>
S-3
<PAGE>
Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
(in thousands)
FOR THE YEAR ENDED JUNE 30, 1993:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts End of
Name of Debtor of Period Additions Collected Period
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Richard Bahr (1):
8.5% Note Receivable $118 $0 $0 $118
---------- --------- --------- ----------
---------- --------- --------- ----------
Jack Cuthbert (2):
8% Note Receivable $238 $0 $0 $238
6.73% Forgivable Note
Receivable $19 $0 $12 $7
Interest Free Note Receivable $462 $0 $306 $156
---------- --------- --------- ----------
$719 $0 $318 $401
---------- --------- --------- ----------
---------- --------- --------- ----------
Tom Furlong (3):
7.91% Note Receivable $250 $0 $121 $129
---------- --------- --------- ----------
---------- --------- --------- ----------
Mark Jacobson (4):
7.04% Note Receivable $175 $0 $0 $175
Interest Free Forgivable
Note Receivable $43 $0 $11 $32
Interest Free Note Receivable $68 $0 $68 $0
---------- --------- --------- ----------
$286 $0 $79 $207
---------- --------- --------- ----------
---------- --------- --------- ----------
Peter Kenyon (5):
8.62% Note Receivable $75 $0 $0 $75
6.22% Note Receivable $0 $200 $0 $200
6.22% Note Receivable $0 $100 $0 $100
---------- --------- --------- ----------
$75 $300 $0 $375
---------- --------- --------- ----------
---------- --------- --------- ----------
Michael Nielsen (6):
6.6% Forgivable Note
Receivable $200 $0 $88 $112
---------- --------- --------- ----------
---------- --------- --------- ----------
Harry Pforzheimer (7):
8.48% Note Receivable $170 $0 $0 $170
Interest Free Forgivable
Note Receivable $28 $0 $12 $16
---------- --------- --------- ----------
$198 $0 $12 $186
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts End of
Name of Debtor of Period Additions Collected Period
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Warren Pratt (8):
6.69% Note Receivable $150 $0 $0 $150
Interest Free Forgivable
Note Receivable $19 $0 $19 $0
---------- --------- --------- ----------
$169 $0 $19 $150
---------- --------- --------- ----------
---------- --------- --------- ----------
Chester Silvestri (9):
5.13% Note Receivable $120 $0 $120 $0
---------- --------- --------- ----------
---------- --------- --------- ----------
Fred Welz (10):
8.56% Note Receivable $200 $0 $0 $200
Interest Free Forgivable
Note Receivable $6 $0 $6 $0
---------- --------- --------- ----------
$206 $0 $6 $200
---------- --------- --------- ----------
---------- --------- --------- ----------
<FN>
- - ---------------
(1) This Note is in connection with a relocation and is secured by a deed of
trust.
(2) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $1,000 per month;
no collections are made.
(3) This Note is in connection with a relocation and is to be repaid in four
annual installments.
(4) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $885 per month;
no collections are made. The Interest Free Note Receivable was repaid in
August 1992.
(5) The 8.62% Note Receivable is to repay former employer relocation
obligations and is secured by a deed of trust. The 6.22% Note Receivable
in the principal amount of $200,000 is also secured by a deed of trust.
(6) This note is in connection with the employee's acceptance of employment
with the Company and is to be repaid in four annual installments.
(7) These notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $1,000 per month;
no collections are made.
(8) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan is forgiven at the rate of $2,000 per month;
no collections are made.
(9) This Note was repaid in March 1993.
(10) These Notes are in connection with a relocation and are secured by a deed
of trust. The forgivable loan was forgiven at the rate of $1,000 per
month; no collections were made.
</TABLE>
S-5
<PAGE>
Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
(in thousands)
FOR THE YEAR ENDED JUNE 30, 1992:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
Name of Debtor of Period Additions Collections Period
-------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Peter Kenyon (1):
8.62% Note Receivable $75 $0 $0 $75
Interest Free Forgivable Note
Receivable $14 $0 $14 $0
---------- --------- --------- ----------
$89 $0 $14 $75
---------- --------- --------- ----------
---------- --------- --------- ----------
Evan Ellis (2):
Interest Free Note Receivable $361 $0 $361 $0
Harry Pforzheimer (3):
8.48% Note Receivable $170 $0 $0 $170
Interest Free Forgivable Note
Receivable $40 $0 $12 $28
---------- --------- --------- ----------
$210 $0 $12 $198
---------- --------- --------- ----------
---------- --------- --------- ----------
Fred Welz (4):
8.56% Note Receivable $200 $0 $0 $200
Interest Free Forgivable Note
Receivable $18 $0 $12 $6
Interest Free Note Receivable $6 $0 $6 $0
---------- --------- --------- ----------
$224 $0 $18 $206
---------- --------- --------- ----------
---------- --------- --------- ----------
Richard Bahr (5):
8.5% Note Receivable $0 $118 $0 $118
---------- --------- --------- ----------
---------- --------- --------- ----------
David Orton (6):
Interest Free Note Receivable $0 $225 $225 $0
---------- --------- --------- ----------
---------- --------- --------- ----------
Jack Cuthbert (7):
8% Note Receivable $0 $238 $0 $238
6.73% Forgivable Note
Receivable $0 $25 $6 $19
Interest Free Note Receivable $0 $462 $0 $462
---------- --------- --------- ----------
$0 $725 $6 $719
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
Name of Debtor of Period Additions Collections Period
-------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Warren Pratt (8):
6.69% Note Receivable $0 $150 $0 $150
Interest Free Forgivable Note
Receivable $0 $25 $6 $19
Interest Free Note Receivable $0 $110 $110 $0
---------- --------- --------- ----------
$0 $285 $116 $169
---------- --------- --------- ----------
---------- --------- --------- ----------
Mark Jacobson (9):
7.04% Note Receivable $0 $175 $0 $175
Interest Free Forgivable Note
Receivable $0 $43 $0 $43
Interest Free Note Receivable $0 $68 $0 $68
---------- --------- --------- ----------
$0 $286 $0 $286
---------- --------- --------- ----------
---------- --------- --------- ----------
Robert Miller (10):
Interest Free Note Receivable $299 $0 $299 $0
---------- --------- --------- ----------
---------- --------- --------- ----------
Charles Boesenberg (11):
Interest Free Note Receivable $172 $0 $172 $0
---------- --------- --------- ----------
---------- --------- --------- ----------
Tom Furlong (12):
7.91% Note Receivable $250 $0 $0 $250
---------- --------- --------- ----------
---------- --------- --------- ----------
Michael Nielsen (13):
6.6% Forgivable Note
Receivable $0 $200 $0 $200
---------- --------- --------- ----------
---------- --------- --------- ----------
Chester Silvestri (14):
5.13% Note Receivable $0 $120 $0 $120
---------- --------- --------- ----------
---------- --------- --------- ----------
<FN>
- - ---------------
(1) These Notes are to repay former employer relocation obligations and are secured by a deed of trust. The loan is forgiven at
the rate of $1,250 per month; no collections are made.
(2) This Note is in connection with a relocation and is secured by a deed of trust.
(3) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the
rate of $1,000 per month; no collections are made.
(4) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the
rate of $1,000 per month; no collections are made. The interest free note receivable was repaid July 1991.
(5) This Note is in connection with a relocation and is secured by a deed of trust.
(6) This Note is in connection with a relocation and is secured by a deed of trust. The Note was repaid in October 1991.
(7) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the
rate of $1,000 per month; no collections are made.
S-7
<PAGE>
(8) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the
rate of $2,000 per month; no collections are made. The interest free note receivable was repaid in April 1992.
(9) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the
rate of $885 per month; no collections are made.
(10) This Note is in connection with a relocation and is forgiven at the rate of $20,833 per month for the first six months and
$14,520 per month for the last six months of fiscal 1992. In addition, pursuant to the loan agreement, the remaining balance
of $87,000 was forgiven at June 29, 1992 upon the completion of the merger between MIPS Computer Systems, Inc. and Silicon
Graphics, Inc.
(11) This Note is in connection with the employee's acceptance of employment with the Company and is secured by a deed of trust.
The interest free loan was repaid in full in February 1992 upon the employee's termination of employment with the Company.
This former MIPS executive officer resigned from MIPS in February 1992.
(12) This Note is in connection with a relocation and is to be repaid in four annual installments.
(13) This Note is in connection with the employee's acceptance of employment with the Company and is to be repaid in four annual
installments.
(14) This Note is to be repaid in April 1993, one year from the date of the Note. This former officer of MIPS resigned from the
Company in July 1992.
</TABLE>
S-8
<PAGE>
Schedule VIII
SILICON GRAPHICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses Write-offs Period
- - -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30, 1992:
Accounts receivable allowances $5,373 $1,447 $1,488 $5,332
Year Ended June 30, 1993:
Accounts receivable allowances $5,332 $3,618 $2,233 $6,717
Year Ended June 30, 1994:
Accounts receivable allowances $6,717 $3,095 $1,514 $8,298
</TABLE>
S-9
<PAGE>
Schedule X
SILICON GRAPHICS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Charged to Costs and Expenses in the Years Ended:
-------------------------------------------------
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
<S> <C> <C> <C>
Depreciation and Amortization
of Intangible Assets $18,200 $12,871 $13,518
Taxes other than payroll
or income taxes $10,790 $10,294 $9,273
</TABLE>
Amounts for royalties, repairs and maintenance and advertising costs are not
presented as such amounts are less than one percent of total revenues for each
of the years ended June 30, 1994, 1993 and 1992.
S-10
<PAGE>
EXHIBIT INDEX
3.2.1 Bylaws of the Company, as amended.
10.68* Non-Qualified Deferred Compensation Plan dated as of
September 9, 1994
11.1 Statement of Computation of Common Shares and Common
Share Equivalents.
13.1 Excerpts from Annual Report for the year ended June 30,
1994.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors (see page 24).
27.1 Financial Data Schedule.
<PAGE>
(3) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated March 16, 1990.
(4) Incorporated by reference to exhibits to the Company's Post-Effective
Amendment to Registration Statement on Form S-8 (No. 33-16529), which
became effective June 18, 1990.
(5) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1990.
(6) Incorporated by reference to similarly numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended June 30, 1991.
(7) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992.
(8) Incorporated by reference to similarly numbered exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992.
(9) Incorporated by reference to similarly numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1992.
(10) Incorporated by reference to similarly numbered exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993.
(11) Incorporated by reference to similarly numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1993.
<PAGE>
EXHIBIT 3.2.1
AMENDED AND RESTATED BYLAWS
OF
SILICON GRAPHICS, INC.
May 2, 1994
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES 1
1.1 Registered Office 1
1.2 Other Offices 1
ARTICLE II - STOCKHOLDERS 1
2.1 Place of Meetings 1
2.2 Annual Meeting 1
2.3 Special Meeting 2
2.4 Notice of Stockholders Meetings 2
2.5 Manner of Giving Notice; Affidavit of Notice 3
2.6 Quorum 3
2.7 Adjourned Meeting; Notice 3
2.8 Voting 3
2.9 Waiver of Notice 4
2.10 Stockholder Action by Written Consent Without
a Meeting 4
2.11 Record Date for Stockholder Notice; Voting;
Giving Consents 5
2.12 Proxies 6
2.13 List of Stockholders Entitled to Vote 7
2.14 Conduct of Business 7
2.15 Inspectors of Election 7
2.16 Inspectors of Election and Procedures for
Counting Written Consents 8
ARTICLE III - DIRECTORS 9
3.1 Powers 9
3.2 Number of Directors 9
3.3 Election, Qualification and Term of Office of Directors 9
3.4 Resignation and Vacancies 11
3.5 Place of Meetings; Meetings by Telephone 12
3.6 Regular Meetings 12
3.7 Special Meetings; Notice 12
3.8 Quorum 13
3.9 Waiver of Notice 13
3.10 Adjourned Meeting; Notice 13
3.11 Board Action by Written Consent Without a Meeting 13
3.12 Fees and Compensation of Directors 14
3.13 Approval of Loans to Officers 14
i
<PAGE>
3.14 Removal of Directors 14
3.15 Conduct of Business 14
ARTICLE IV - COMMITTEES 15
4.1 Committees of Directors 15
4.2 Committee Minutes 16
4.3 Meetings and Action of Committees 16
ARTICLE V - OFFICERS 16
5.1 Officers 16
5.2 Appointment of Officers 16
5.3 Subordinate Officers 17
5.4 Removal and Resignation of Officers 17
5.5 Vacancies in Offices 17
5.6 Chairman of the Board 17
5.7 Chief Executive Officer; President 17
5.8 Vice Presidents 18
5.9 Secretary 18
5.10 Chief Financial Officer 19
5.11 Treasurer 19
5.12 Assistant Secretary 19
5.13 Assistant Treasurer 20
5.14 Authority and Duties of Officers 20
5.15 Representation of Shares of Other Corporations 20
ARTICLE VI - INDEMNITY 20
6.1 Indemnification of Directors and Officers 20
6.2 Indemnification of Others 21
6.3 Insurance 21
ARTICLE VII - RECORDS AND REPORTS 21
7.1 Maintenance and Inspection of Records 21
7.2 Inspection by Directors 22
7.3 Annual Statement to Stockholders 22
ARTICLE VIII - GENERAL MATTERS 22
8.1 Checks 22
8.2 Execution of Corporate Contracts and Instruments 22
8.3 Stock Certificates; Partly Paid Shares 23
8.4 Special Designation on Certificates 23
8.5 Lost Certificates 24
ii
<PAGE>
8.6 Construction; Definitions 24
8.7 Dividends 24
8.8 Fiscal Year 24
8.9 Seal 25
8.10 Transfer of Stock 25
8.11 Stock Transfer Agreements 25
8.12 Registered Stockholders 25
8.13 Notices 25
ARTICLE IX - AMENDMENTS 26
ARTICLE X - DISSOLUTION 26
ARTICLE XI - CUSTODIAN 27
11.1 Appointment of a Custodian in Certain Cases 27
11.2 Duties of Custodian 27
iii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SILICON GRAPHICS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held, each year, on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Thursday of October in each year at 2:00 p.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
To be properly brought before an annual meeting business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before the meeting by a stockholder, the secretary of the
-1-
<PAGE>
corporation must have received notice in writing from the stockholder not less
than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that if less than thirty-five (35) days' notice of the
meeting is given to stockholders, such notice shall have been received by the
secretary not later than the close of business on the seventh (7th) day
following the day on which the notice of meeting was mailed. Such written
notice to the secretary shall set forth, as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the number of shares of stock
of the corporation beneficially owned by such stockholder, and (iv) any material
interest of such stockholder in such business. Notwithstanding any provision in
the bylaws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 2.2.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, by the chairman of the board, by the secretary or by any
executive officer of the corporation.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president,
chief executive officer or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 NOTICE OF STOCKHOLDERS MEETINGS
All notices of meetings of stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting, except as otherwise
-2-
<PAGE>
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the General Corporation Law of Delaware or the certificate
of incorporation of the corporation). The notice shall specify the place, date,
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
At any meeting of the stockholders, the holders of a majority, present in
person or by proxy, of all of the shares of the stock entitled to vote at the
meeting shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority, present in person
or by proxy, of the shares of such class or classes entitled to take action with
respect to that vote on that matter shall constitute a quorum. If a quorum
shall fail to attend any meeting, the chairman of the meeting may adjourn the
meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, those present at such adjourned meeting shall
constitute a quorum (but in no event shall a quorum consist of less than one-
third of the shares entitled to vote at the meeting), and all matters shall be
determined by a majority of the votes cast at such meeting, except as otherwise
required by law.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Each stockholder shall have one (1) vote for every share of stock entitled
to vote that is registered in his or her name on the record date for the meeting
(as determined in accordance with Section 2.11 of these bylaws), except as
otherwise provided herein or required by law.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting has given notice prior to
commencement of the voting of the stockholder's intention to cumulate votes. If
cumulative voting is properly requested, each holder of stock, or of any class
or classes or of a series or series thereof, who elects to cumulate votes shall
be entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them, as he may see fit.
Every stock vote shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. All elections shall
be determined by a plurality of the votes cast, and except as otherwise required
by law or provided herein, all other matters shall be determined by a majority
of the votes cast affirmatively or negatively.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
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purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or able to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice, and without a
vote if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation at its registered office in Delaware,
its principal place of business, or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery to the corporation's registered office shall be made by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days after the
date the earliest dated consent is delivered to the corporation, a written
consent or consents signed by holders of a sufficient number of votes to take
action are delivered to the corporation in the manner prescribed in the first
paragraph of this section.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall neither precede nor be more than
ten (10) days after the date upon which such resolution is adopted by the board
of directors. Any stockholder of record seeking to have the stockholders
authorize or take action by written consent shall, by written notice to the
secretary, request the board of directors to fix a record date. The board of
directors shall promptly, but in all events within ten (10) days after the date
on which such notice is received, adopt a resolution fixing the record date.
If the board of directors has not fixed a record date within such time, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in the manner prescribed in the first paragraph of Section 2.10 of
these bylaws. If the board of directors has not fixed a record date within such
time and prior action by the board of directors is required by law, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the
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date on which the board of directors adopts the resolution taking such prior
action.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, filed in
accordance with the procedure established for the meeting or taking of action in
writing, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this Section 2.12 may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. The revocability
of a proxy that states on its face that it is irrevocable shall be governed by
the provisions of Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list
shall presumptively determine the identity of the stockholders entitled to vote
at the meeting and the number of shares held by each of them.
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2.14 CONDUCT OF BUSINESS
Such person as the board of directors may have designated or, in the
absence of such a person, any executive officer of the corporation, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the secretary of the corporation, the secretary of the meeting
shall be such person as the chairman appoints. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
2.15 INSPECTORS OF ELECTION
The corporation may, and to the extent required by law, shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the chairman of the meeting.
2.16 INSPECTORS OF ELECTION AND PROCEDURES FOR COUNTING WRITTEN CONSENTS
Within three (3) business days after receipt of the earliest dated consent
delivered to the corporation in the manner provided in Section 228(c) of the
Delaware General Corporation Law or the determination by the board of directors
of the corporation that the corporation should seek corporate action by written
consent, as the case may be, the secretary may engage nationally recognized
independent inspectors of elections for the purpose of performing a ministerial
review of the validity of the consents and revocations. The cost of retaining
inspectors of election shall be borne by the corporation.
Consents and revocations shall be delivered to the inspectors upon receipt
by the corporation, the stockholder or stockholders soliciting consents or
soliciting revocations in opposition to action by consent proposed by the
corporation (the "Soliciting Stockholders") or their proxy solicitors or other
designated agents. As soon as consents and revocations are received, the
inspectors shall review the consents and revocations and shall maintain a
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count of the number of valid and unrevoked consents. The inspectors shall keep
such count confidential and shall not reveal the count to the corporation, the
Soliciting Stockholders or their representatives or any other person or entity.
As soon as practicable after the earlier of (i) sixty (60) days after the date
of the earliest dated consent delivered to the corporation in the manner
provided in Section 228(c) of the Delaware General Corporation Law or (ii) a
written request therefor by the corporation or the Soliciting Stockholders
(whichever is soliciting consents) (which request, except in the case of
corporate action by written consent taken pursuant to the solicitations of not
more than ten (10) persons, may be made no earlier than after such reasonable
amount of time after the commencement date of the applicable solicitation of
consents as is necessary to permit the inspectors to commence and organize their
count, but in no event less than five (5) days after such commencement date),
notice of which request shall be given to the party opposing the solicitation of
consents, if any, which request shall state that the corporation or Soliciting
Stockholders, as the case may be, have a good faith belief that the requisite
number of valid and unrevoked consents to authorize or take the action specified
in the consents has been received in accordance with these bylaws, the
inspectors shall issue a preliminary report to the corporation and the
Soliciting Stockholders stating: (i) the number of valid consents; (ii) the
number of valid revocations; (iii) the number of valid and unrevoked consents;
(iv) the number of invalid consents; (v) the number of invalid revocations; and
(vi) whether, based on their preliminary count, the requisite number of valid
and unrevoked consents has been obtained to authorize or take the action
specified in the consents.
Unless the corporation and the Soliciting Stockholders shall agree to a
shorter or longer period, the corporation and the Soliciting Stockholders shall
have 48 hours to review the consents and revocations and to advise the
inspectors and the opposing party in writing as to whether they intend to
challenge the preliminary report of the inspectors. If no written notice of an
intention to challenge the preliminary report is received within 48 hours after
the inspectors' issuance of the preliminary report, the inspectors shall issue
to the corporation and the Soliciting Stockholders their final report containing
the information from the inspectors' determination with respect to whether the
requisite number of valid and unrevoked consents was obtained to authorize and
take the action specified in the consents. If the corporation or the Soliciting
Stockholders issue written notice of an intention to challenge the inspectors'
preliminary report within 48 hours after the issuance of that report, a
challenge session shall be scheduled by the inspectors as promptly as
practicable. A transcript of the challenge session shall be recorded by a
certified court reporter. Following completion of the challenge session, the
inspectors shall as promptly as practicable issue their final report to the
corporation and the Soliciting Stockholders, which report shall contain the
information included in the preliminary report, plus all changes made to the
vote totals as a result of the challenge and a certification
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of whether the requisite number of valid and unrevoked consents was obtained to
authorize or take the action specified in the consents. A copy of the final
report of the inspectors shall be included in the book in which the proceedings
of meetings of stockholders are recorded.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be eleven (11) until
changed by a bylaw amending this Section 3.2, duly adopted by the board of
directors or by the stockholders.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, at each annual meeting
of stockholders, directors of the corporation shall be elected to hold office
until the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
The directors of the corporation shall be divided into three classes as
nearly equal in size as is practicable, which classes are hereby designated
Class I, Class II and Class III. The term of office of the initial Class I
directors shall expire at the next regularly-scheduled annual meeting of
stockholders after the date of this amendment; the term of office of the initial
Class II directors shall expire at the second succeeding annual meeting of
stockholders; and the term of office of the initial Class III directors shall
expire at the third succeeding annual meeting of the stockholders. For the
purposes hereof, the initial Class I, Class II and Class III directors shall be
those directors so
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designated and elected at the annual meeting of stockholders scheduled to be
held in October 1992.
At each annual meeting after the annual meeting of stockholders scheduled
to be held in October 1992, directors to replace those of the class whose terms
expire at such annual meeting shall be elected to hold office until the third
succeeding annual meeting and until their respective successors shall have been
duly elected and qualified.
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes so as to make all classes as nearly equal in number as is practicable.
Directors need not be stockholders unless so required by the certificate of
incorporation or these bylaws, wherein other qualifications for directors may be
prescribed.
Nominations for election to the board of directors of the corporation at an
annual meeting of stockholders may be made by the board or on behalf of the
board by a nominating committee appointed by the board, or by any stockholder of
the corporation entitled to vote for the election of directors at such meeting.
Such nominations, other than those made by or on behalf of the board, shall be
made by notice in writing received by the secretary of the corporation not less
than thirty (30) days nor more than sixty (60) days prior to the date of the
annual meeting; provided, however, that if less than thirty-five (35) days
notice of the meeting is given to stockholders, such nomination shall have been
received by the secretary not later than the close of business on the seventh
(7th) day following the day on which the notice was mailed. Such notice shall
set forth (i) the name and address of the stockholder who intends to make the
nomination; (ii) a representation that the nominating stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting and nominate the person or
persons specified in the notice; (iii) the number of shares of stock held
beneficially and of record by the nominating stockholder; (iv) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice; (v) the principal occupation or employment of such nominee; (vi)
the number of shares of stock of the corporation beneficially owned by each such
nominee; (vii) a description of all arrangements or understandings between the
nominating stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the nominating stockholder; (viii) any other information concerning
the nominee that must be disclosed of nominees in proxy solicitations pursuant
to Regulation 14A under the Securities Exchange Act of 1934; and (ix) the
consent of such nominee to serve as a director of the corporation if so elected.
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The chairman of the annual meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure. If such determination and declaration is made, the
defective nomination shall be disregarded.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resign and the resignation is effective at a
future date, only a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled only by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled only by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time
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outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the board of directors and publicized among all directors. A
notice of each regular meeting shall not be required.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the secretary or by any executive officer of the
corporation, or by one-third of the directors then in office (rounded up to the
nearest whole number) and shall be held at a place, on a date and at a time as
such officer or such directors shall fix. Notice of the place, date and time of
special meetings, unless waived, shall be given to each director by mailing
written notice not less than two (2) days before the meeting or by sending a
facsimile transmission of the same not less than two (2) hours before the time
of the holding of the meeting. If the circumstances warrant, notice may also be
given personally or by telephone not less than two (2) hours before the time of
the holding of the meeting. Oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
3.8 QUORUM
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At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
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3.12 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance of
each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.13 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.14 REMOVAL OF DIRECTORS
Any director may be removed from office by the stockholders of the
corporation only for cause.
For purposes of the foregoing paragraph, 'cause' shall mean (i) continued
willful failure to perform the obligations of a director, (ii) gross negligence
by the director, (iii) engaging in transactions that defraud the corporation,
(iv) fraud or intentional misrepresentation, including falsifying use of funds
and intentional misstatements made in financial statements, books, records or
reports to stockholders or governmental agencies, (v) material violation of any
agreement between the director and the corporation, (vi) knowingly causing the
corporation to commit violations of applicable law (including by failure to
act), (vii) acts of moral turpitude or (viii) conviction of a felony.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
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3.15 CONDUCT OF BUSINESS
At any meeting of the board of directors, business shall be transacted in
such order and manner as the board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designation and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Section 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, a supplemental resolution of the board of
directors, the bylaws or the certificate of
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incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment and notice of adjournment), and
Section 3.11 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolutions of the board of directors, and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief executive officer, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, a vice chairman
of the board, a president, one or more vice presidents, one or more assistant
secretaries, a controller, one or more assistant controllers, a treasurer, one
or more assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
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The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or 5.5 of these bylaws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief executive officer
to appoint, such other officers and agents as the business of the corporation
may require, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled in
the manner prescribed in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
chief executive officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws.
5.7 CHIEF EXECUTIVE OFFICER; PRESIDENT
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Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the chief
executive officer of the corporation shall , subject to the control of the board
of directors, have general supervision, direction, and control of the business
and the officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of the chief executive officer
of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws.
He shall also function as president of the corporation unless the board of
directors names another person as president, in which case, the president shall
have such powers and duties as may be prescribed by the board of directors.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
chief executive officer or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.
The duties of the chief financial officer may be allocated by the board of
directors among one or more persons, in its discretion.
5.11 TREASURER
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts or the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the chief executive
officer and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.
5.12 ASSISTANT SECRETARY
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The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers in the order determined by the stockholders or board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the treasurer or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
5.15 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president, any
vice president, the treasurer, the secretary or assistant secretary of this
corporation, or any other person authorized by the board of directors, the chief
executive officer, the president or a vice president, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its
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directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorney's fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
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The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
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signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
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8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of
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stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
8.13 NOTICES
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery, by mail, postage paid, or by facsimile transmission. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his last known address as it appears on the books of the corporation. The time
when such notice shall be deemed received, if hand delivered, or dispatched, if
sent by mail or facsimile, transmission, shall be the time of the giving of the
notice.
ARTICLE IX
AMENDMENTS
Any of these bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the board of directors or, with respect to bylaw
amendments placed before the stockholders for approval and except as otherwise
provided herein or required by law, by the affirmative vote of the holders of a
majority of the shares of the corporation's stock entitled to vote in the
election of directors, voting as one class.
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ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
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The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 10.68
SILICON GRAPHICS, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
(EFFECTIVE SEPTEMBER 9, 1994)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - PLAN ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - ELIGIBILITY, PARTICIPATION AND BENEFICIARY DESIGNATION. . . 3
ARTICLE III - PLAN CONTRIBUTIONS AND ALLOCATIONS . . . . . . . . . . . . 3
ARTICLE IV - VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V - GENERAL DUTIES . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI - PARTICIPANTS' ACCOUNTS. . . . . . . . . . . . . . . . . . . 6
ARTICLE VII - PAYMENTS TO A TRUST BENEFICIARY. . . . . . . . . . . . . . 6
ARTICLE VIII - IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . 8
ARTICLE IX - COMPANY INSOLVENCY. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE X - THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XI - PLAN AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
SILICON GRAPHICS, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
This Plan, effective as of September 9, 1994 (the "Effective Date"), is
adopted by Silicon Graphics, Inc. (the "Company"), acting on behalf of itself
and its designated subsidiaries. Throughout, the term "Company" shall include
wherever relevant any entity that is directly or indirectly controlled by the
Company or any entity in which the Company has a significant equity or
investment interest, as determined by the Company.
RECITALS:
1. The Company wishes to establish a supplemental retirement plan for the
benefit of a select group of management or highly compensated employees of the
Company, and for the benefit of non-employee members of the Company's Board of
Directors.
2. The Company wishes to provide that the plan to be established under
this plan or agreement shall be designated as the Silicon Graphics, Inc. Non-
Qualified Deferred Compensation Plan (the "Plan").
3. The Company wishes to provide under the Plan for the payment of vested
accrued benefits to Plan participants and their beneficiary or beneficiaries
("Trust Beneficiaries").
4. The Company wishes to provide under the Plan that the Company shall
pay all of the accrued benefits from its general assets.
5. The Company has entered into an agreement (the "Trust Agreement") with
Merrill Lynch Trust Company of California, a corporation (the "Trustee"),
establishing an irrevocable trust (the "Trust") in connection with the Plan.
6. The Company wishes to make contributions to the Trust and that such
contributions be held by the Trustee and invested, reinvested and distributed,
all in accordance with the provisions of this Plan and the Trust Agreement.
7. The Company intends that amounts allocated to the Trust and the
earnings thereon shall be used by the Trustee to satisfy the liabilities of the
Company under the Plan with respect to each Plan participant for whom an Account
has been established and such utilization shall be in accordance with the
procedures set forth herein.
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8. The Company intends that the Trust be a "grantor trust" with the
corpus and income of the Trust treated as assets and income of the Company for
federal and state income tax purposes.
9. The Company intends that the assets of the Trust shall at all times be
subject to the claims of the general creditors of the Company as provided in the
Trust Agreement.
10. The Company intends that the existence of the Trust shall not alter
the characterization of the Plan as "unfunded" for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and shall not be
construed to provide income to Plan participants under the Plan prior to actual
payment of the vested accrued benefits thereunder.
NOW THEREFORE, the Company does hereby establish the Plan as follows and
does also hereby agree that the Plan shall be structured, held and disposed of
as follows:
ARTICLE I
PLAN ADMINISTRATION
A. The Plan shall be administered by the Non-Qualified Deferred
Compensation Committee of the Company (the "Committee"). Subject to the
provisions in the Plan and to the specific duties delegated by the Board of
Directors (the "Board") to such Committee, the Committee shall be responsible
for the general administration and interpretation of the Plan and for carrying
out its provisions. The Committee shall have such powers as may be necessary to
discharge its duties hereunder, including, but not by way of limitation, the
following powers and duties:
(1) discretionary authority to construe and interpret the terms of
the Plan, and to determine eligibility and the amount, manner and time of
payment of any benefits hereunder;
(2) to prescribe forms and procedures for purposes of Plan
participation and distribution of benefits;
(3) to direct the Trustee as to the distribution of Plan assets;
B. The Committee may adopt such rules, regulations and bylaws and may
take such actions as it deems necessary or desirable for the proper
administration of the Plan. Any rule or decision that is not inconsistent with
the provisions of the Plan shall be conclusive and binding upon all persons
affected by it, and there shall be no appeal from any ruling by the Committee
that is within its authority, except as otherwise provided herein.
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C. The Committee shall have the power to (i) select investment funds for
the Trust Fund; and (ii) appoint or employ agents, recordkeepers and advisors to
assist the Committee in discharging its duties under the Plan.
ARTICLE II
ELIGIBILITY, PARTICIPATION AND BENEFICIARY DESIGNATION
A. ELIGIBLE PARTICIPANTS. The following categories of employees and
directors of the Company ("Eligible Participants") shall be eligible to
participate in the Plan: (i) employees who hold the position of vice-president
or above; (ii) non-employee members of the Board ("Directors"); and (iii) any
other employee or category of employee that is designated by the Committee as
eligible to participate in the Plan. The Committee reserves the right to modify
the definition of eligible participant at any time. Any Eligible Participant
who has commenced participation in the Plan shall be referred to in this Plan as
a "Participant."
B. PARTICIPATION. Each Participant may elect to commence participation
in the Plan by completing a Silicon Graphics, Inc. Non-Qualified Deferred
Compensation Plan Election Form ("Deferred Compensation Agreement") within 30
days following the Effective Date. Any individual who becomes an Eligible
Participant after the Effective Date may participate in the Plan by filing a
Deferred Compensation Agreement within 30 days following the date on which the
Committee gives such individual written notice that the individual is an
Eligible Participant. Any Eligible Participant who does not execute a Deferred
Compensation Agreement within the time periods described herein may nevertheless
participate in the Plan commencing with Compensation paid in the next succeeding
calendar year by filing an executed Deferred Compensation Agreement with the
Committee before the beginning of such calendar year.
C. BENEFICIARY DESIGNATION. Each Participant shall designate a
beneficiary or beneficiaries to receive the remainder of any interest of the
Participant under the Plan. A Participant may change his or her beneficiary
designation at any time on written notice to the Committee. Each beneficiary
designation shall be in a form prescribed by the Committee and will be effective
only when filed with the Committee during the Participant's lifetime. Each
beneficiary designation filed with the Committee will cancel all previously
filed beneficiary designations. In the absence of a valid designation, or if no
designated beneficiary survives the Participant, the Participant's interest
shall be distributed to the representative of the Participant's estate.
ARTICLE III
PLAN CONTRIBUTIONS AND ALLOCATIONS
A. PARTICIPANT DEFERRALS. Each Participant participating in the Plan
shall execute a Deferred Compensation Agreement authorizing the Company to
withhold a percentage or dollar amount of the Participant's Compensation that
would otherwise be paid to the Participant with
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respect to services rendered. Compensation under the Plan is defined (1) in the
case of a Participant who is an employee of the Company, as the annual base
salary and any cash bonuses payable to the Participant in connection with the
Participant's services to the Company, and (2) in the case of a Director, as the
cash compensation payable to the Participant in connection with the
Participant's services as a member of the Board, including in either case all
amounts that the Participant elects to have the Company contribute to the Plan
on his or her behalf as a deferral contribution ("Compensation"). The deferral
percentage is applied to Compensation after all other applicable payroll
deductions have been applied. The Committee may, in its discretion, establish
in the Deferred Compensation Agreement minimum and maximum levels of
Compensation that may be deferred pursuant to the Plan. Compensation deferrals
made by a Participant under this Plan shall be held as an asset of the Company
and the Company intends to deposit the amounts deferred into the Trust.
B. ELECTION CHANGES. A Participant may, in such form and at such time or
times as the Committee may prescribe, discontinue or modify deferral of future
Compensation at any time; however, unless otherwise authorized by the Committee,
no modifications to the Deferred Compensation Agreement may be made prior to the
commencement of the calendar year following written notification to the Company
of any desired modifications. The Committee has the power to establish uniform
and nondiscriminatory rules and from time to time to modify or change such rules
governing the manner and method by which Compensation deferral contributions
shall be made, as well as the manner and method by which Compensation deferral
contributions may be changed or discontinued temporarily or permanently. All
Compensation deferral contributions shall be authorized by the Participant in
writing, made by payroll deduction, deducted from the Participant's Compensation
without reduction for any taxes or withholding (except to the extent required by
law or the regulations) and paid over to the Trust by the Company.
Notwithstanding the foregoing, each Participant shall remain liable for any and
all employment taxes owing with respect to such Participant's Compensation
deferral contributions.
C. CESSATION OF ELIGIBLE STATUS. In the event a Participant ceases to be
an Eligible Participant while participating in the Plan, such individual may
continue to make Compensation deferral contributions under the Plan through the
end of the payroll period in which the individual ceases to be an Eligible
Participant. Thereafter, such individual shall not make any further
Compensation deferral contributions to the Plan unless or until he or she again
meets the eligibility requirements of Article II above.
D. COMPANY MATCHING CONTRIBUTIONS. As of the last day of each calendar
year or such earlier time or times as the Committee may determine, the Company
may make a matching contribution to the Trust in such amount as the Board may
specify.
E. COMPANY DISCRETIONARY CONTRIBUTIONS. The Company may, in its sole
discretion, make discretionary contributions to the Accounts of one or more
Participants at such times and in such amounts as the Board may determine.
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F. ALLOCATIONS. The Compensation deferral contributions and any Company
contributions made under the Plan on behalf of a Participant shall be credited
to the Participant's Account. The Committee shall establish and maintain
separate subaccounts as it determines to be necessary and appropriate for the
proper administration of the Plan. The Committee may cause the Trustee to
maintain and invest separate asset accounts corresponding to each Participant
Account. Each Participant Account consists of the aggregate interest of the
Participant under the Plan (and in the Trust Fund), as reflected in the records
maintained by the Company for such purposes.
ARTICLE IV
VESTING
A. COMPENSATION DEFERRAL CONTRIBUTIONS. The value of a Participant's
Account attributable to Participants' Compensation deferral contributions shall
always be fully vested and nonforfeitable.
B. COMPANY CONTRIBUTIONS. The value of a Participant's Account
attributable to any Company contributions pursuant to Article III.D and E shall
vest at such time or times as the Board shall specify in connection with any
such contributions. Unless otherwise specified by the Board, Participants shall
become fully vested in his or her Account immediately prior to a Change of
Control of the Company (as defined in Article VII.A). Upon termination of a
Participant's employment with the Company for any reason or, in the case of a
Participant who is a Director, upon cessation of the Director's services as a
member of the Board for any reason, any portion of the Participant's Account
that is not then vested (including allocable earnings, as determined by the
Committee), shall be forfeited. Unless otherwise determined by the Board or the
Committee, forfeitures shall be used to satisfy the Company's obligation to
remit contributions to the Trust under the Plan.
ARTICLE V
GENERAL DUTIES
A. TRUSTEE DUTIES. The Trustee shall manage, invest and reinvest the
Trust Fund as provided in the Trust Agreement. The Trustee shall collect the
income on the Trust Fund, and make distributions therefrom, all as provided in
this Plan and in the Trust Agreement.
B. COMPANY CONTRIBUTIONS. While the Plan remains in effect, and prior to
a Change of Control, as defined below, the Company shall make contributions to
the Trust Fund at least once each quarter. The amount of any quarterly
contributions shall be at the discretion the Company. At the close of each
calendar year, the Company shall make an additional contribution to the Trust
Fund to the extent that previous contributions to the Trust Fund for the current
calendar year are not equal to the total of the Compensation deferrals made by
each Participant plus Company matching contributions and discretionary
contributions, if any, accrued, as of the close of the current calendar
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year. The Trustee shall not be liable for any failure by the Company to provide
contributions sufficient to pay all accrued benefits under the Plan in full in
accordance with the terms of this Plan.
C. DEPARTMENT OF LABOR DETERMINATION. In the event that any Participants
are found to be ineligible, that is, not members of a select group of highly
compensated employees, according to a determination made by the Department of
Labor, the Committee will take whatever steps it deems necessary, in its sole
discretion to equitably protect the interests of the affected Participants.
ARTICLE VI
PARTICIPANTS' ACCOUNTS
A. SEPARATE ACCOUNTS. The Committee shall open and maintain a separate
Account for each Participant. Each Participant's Account shall reflect the
amounts allocated thereto and distributed therefrom and such other information
as affects the value of such Account pursuant to this Plan.
B. STATEMENT OF ACCOUNTS. Periodically at such times as the Committee
shall determine but no less frequently than yearly, the Committee shall furnish
to each Participant a statement of Account, determined as of the end of each
such period. Upon the discovery of any error or miscalculation in an Account,
the Committee shall correct it, to the extent correction is practically
feasible; provided, however, that any such statement of Account shall be
considered to reflect accurately the status of the Participant's Account for all
purposes under the Plan unless, subject to any longer period required by ERISA,
the Participant reports a discrepancy to the Committee within six (6) months
after receipt of the statement. The Committee shall have no obligation to make
adjustments to a Participant's Account for any discrepancy reported to the
Committee more than six (6) months after receipt of the statement, or for a
discrepancy caused by the Participant's error. Statements to Participants are
for reporting purposes only, and no allocation, valuation or statement shall
vest any right or title in any part of the Trust Fund, nor require any
segregation of Trust assets, except as is specifically provided in this Plan.
C. DISTRIBUTION OF ACCOUNTS. Payment to a Participant shall be based on
the value of the vested portion of the Participant's Account as of the Valuation
Date immediately preceding his the date of distribution plus any contribution
subsequently credited to such Account and less any distributions subsequently
made from the Account.
ARTICLE VII
PAYMENTS TO A TRUST BENEFICIARY
A. GENERAL. Payments of vested accrued benefits to Trust Beneficiaries
from the Trust shall be made in accordance with the Deferred Compensation
Agreement between the Company and the Participant; provided, however, the
Trustee shall make such payments, as directed by the
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Committee, to the extent the Company is not at such time Insolvent as defined in
Article IX. Except as otherwise expressly provided in the Participant's
Deferred Compensation Agreement, no distribution shall be made or commenced
prior to the Participant's termination of employment or death, or a "Change of
Control," whichever occurs earlier. A Participant who makes a Specified Date
Distribution Election (as defined in the Deferred Compensation Agreement) may,
at least one year prior to the distribution date specified in such Specified
Date Distribution Election, revoke such Election in favor of a subsequent
distribution date; provided that a Participant may revoke a Specified Date
Distribution election once only. For purposes of this Plan, a "Change of
Control" means: (1) the acquisition of any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934
Act")) as beneficial owner (as such term is used in Rule 13d-3 promulgated under
the 1934 Act), directly or indirectly, of fifty percent (50%) or more of the
combined voting power of the outstanding shares of capital stock of the
Company's then-outstanding securities with respect to the election of the Board,
or (2) during any period of three (3) consecutive years individuals who, at the
beginning of such period, constitute the Company's Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board, provided that any person becoming a director of the Board subsequent
to the Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of any individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act) shall be for these purposes, considered as
though such person were a member of the Incumbent Board." The Trustee shall
have no responsibility to determine whether a Change of Control has occurred and
shall be advised of such event by the Company.
B. CASH DISTRIBUTIONS. Where the distribution of all or any portion of a
Participant's Account is to be deferred in the form of cash, the Account shall
continue to be held and invested in the Trust.
C. IN KIND DISTRIBUTIONS. In kind distributions shall be (1) made only
in a form of investment that was held on behalf of the Participant as a
segregated investment pursuant to Article X.B in a separate investment fund
pursuant to Article X.D immediately preceding the date of distribution, (2)
limited to the amount of such investment so held, and (3) based on the fair
market value of the distributable property, as determined by the Trustee at the
time of distribution.
D. METHOD OF DISTRIBUTION. Payment to any Trust Beneficiary shall be
made pursuant to the Deferred Compensation Agreement executed by the
Participant, in whole or in part. A Trust Beneficiary may change a prior
distribution election or otherwise specify, at least one (1) year prior to the
commencement of any distribution, whether such distribution shall be made.
(1) In a lump sum, in cash and/or in kind, or
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(2) In annual installments equal to 1/n of the Participant's vested
accrued benefit where n is the number of installments remaining to be paid.
E. CERTAIN DISTRIBUTIONS. In case of any distribution to a minor or to a
legally incompetent person, the Committee may (1) direct the Trustee to make the
distribution to his or her legal representative, to a designated relative, or
directly to such person for his or her benefit, or (2) instruct the Trustee to
use the distribution directly for his or her support, maintenance, or education.
The Trustee shall not be required to oversee the application, by any third
party, of any distributions made pursuant to this Article VII.E.
F. IRS DETERMINATION. Notwithstanding any other provisions of this Plan,
if any amounts held in the Trust are found in a "determination" (within the
meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended (the
"Code")), to have been includible in the gross income of any Trust Beneficiary
prior to payment of such amounts from the Trust, the Trustee shall, as soon as
practicable pay such amounts to the Trust Beneficiary, as directed by the
Company. For purposes of this Section, the Trustee shall be entitled to written
notice from the Committee that a determination described in the preceding
sentence has occurred and to receive a copy of such notice. The Trustee shall
have no responsibility until so advised by the Committee.
ARTICLE VII
IN-SERVICE WITHDRAWALS
A. HARDSHIP WITHDRAWAL. If a Participant suffers an unforeseen
emergency, as defined herein, the Committee, in its sole discretion, may pay to
the Participant only that portion, if any, of the vested portion of his or her
Account which the Committee determines is necessary to satisfy the emergency
need, including any amounts necessary to pay any federal, state or local income
taxes reasonably anticipated to result from the distribution. A Participant
requesting an emergency payment shall apply for the payment in writing in a form
approved by the Committee and shall provide such additional information as the
Committee may require. For purposes of this Plan, the term "unforeseen
emergency" shall mean severe financial hardship to the Participant resulting
from a sudden and unexpected illness or accident of the Participant or of a
dependent of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant.
B. VOLUNTARY WITHDRAWAL. At the request of a Participant, the Committee
shall authorize a withdrawal of the Participant's vested accrued benefit
(including any earnings attributable thereto) provided that as the consequences
of making such a withdrawal, (1) the Participant shall forfeit an amount equal
to ten percent (10%) of the requested withdrawal amount; and (2) the Participant
shall be ineligible to participate in the Plan for a period of not less than
twelve (12) months following any such withdrawal. The Committee may establish
reasonable procedures and limitations concerning Participants' withdrawal rights
pursuant to this Article VIII.B as the Committee may, in its sole discretion,
deem necessary or appropriate or in furtherance of the
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purposes of the Plan. Distributions pursuant to Participant withdrawal
elections under this Article VII.B shall be made as soon as practicable
following the Committee's receipt of a Participant's written withdrawal
election, which election shall be in such form as the Committee shall prescribe.
ARTICLE IX
COMPANY INSOLVENCY
A Participant shall become fully vested in his or her Account immediately
prior to the Company becoming insolvent, in which case the Participant will have
the same rights as a general creditor of the Employer with respect to his or her
Account balance. For purposes of this Plan, the Company shall be considered
"Insolvent" and an "Insolvency" shall be deemed to exist for purposes of this
Plan under any of the following circumstances:
(1) The Company is unable to pay its debts as they mature, defined as
having a weighted average overdue payables balance in excess of 270
days.
(2) A receiver or trustee is appointed to take possession of all or
substantially all of the assets of the Company.
(3) There is a general assignment by the Company for the benefit of
creditors.
(4) An action or proceeding is commenced by or against the Company under
any insolvency or bankruptcy act, or any other statute or regulation
having as its purpose the protection of creditors, and the action or
proceeding is not discharged within 60 days after the date of
commencement.
ARTICLE X
THE TRUST
A. THE TRUST. Contributions made by the Company to the Plan and all
other assets of the Plan shall be held in Trust pursuant to the terms of the
Trust Agreement. Such Trust Agreement shall be attached hereto and is by
reference incorporated herein and made a part of this Plan.
B. INVESTMENTS. The Trustee shall have the power:
(1) To invest and reinvest the Trust Funds; provided, however, the
Trustee may delegate this investment authority, in whole or in
part, and subject to such terms and conditions and as the Trustee
shall require, to the Committee, and, in accordance with Sections
B through F below, Participants participating in the Plan (with
respect to their own account);
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(2) To collect and receive any and all money and other property due
to the Trust Fund and to give full discharge therefore;
(3) To settle, compromise or submit to arbitration any claims, debts
or damages due or owing to or from the Trust; to commence or
defend suits or legal proceedings to protect any interest of the
Trust; and to represent the Trust in all suits or legal
proceedings in any court or before any other body or tribunal;
(4) Generally to do all acts, whether or not expressly authorized,
which the Trustee may deem necessary or desirable for the
protection of the Trust Fund.
Persons dealing with the Trustee shall be under no obligation to see
to the proper application of any money paid or property delivered to the Trustee
or to inquire into the Trustee's authority as to any transaction.
C. SEGREGATED INVESTMENTS - PARTICIPANT DIRECTION PERMITTED. At the
discretion of the Committee, Participants may be permitted to direct the Trustee
in writing regarding the investment of funds in their Accounts, in a manner and
form prescribed by the Committee; provided that such right to direct shall apply
on a nondiscriminatory basis to all Participants who meet the requirements
established by the Committee. Such directed investment Accounts shall be
segregated and shall be valued separately by the Trustee. Valuations of such
Accounts shall be made at such times as the Committee may require, but no less
frequently than annually. In no event, for valuation purpose, shall the
property constituting such segregated Accounts, or the net income or loss
thereon, be commingled with other Participants' Accounts. Such segregated
Accounts may be charged with their proportionate share of any general expenses
charged to the Trust or with the full share of any expense incurred directly or
indirectly in connection with such Accounts.
D. PARTICIPANT DIRECTION SUBJECT TO COMMITTEE AND TRUSTEE APPROVAL.
Neither the Committee nor the Trustee shall be under any obligation to approve
or disapprove any specific investment medium. Neither the Company nor the
Trustee has any liability for any losses or damage that may occur or result from
(1) the approval of or failure to approve of any specific investment medium; (2)
the imposition of any administrative rules relating to the timing of investment
elections of any sort; or (3) any administrative delay in carrying out or
failure to carry out investment elections within a specified time. The
Committee or the Trustee may disapprove or refuse to carry out any investment
directions which in its opinion would subject the Company or the Trustee to
burdensome administrative responsibilities or which the Committee determines to
be inappropriate from a legal, financial or social perspective. Prior to
carrying out any investment direction of a Participant, the Trustee may require
releases or any other documents, agreements or indemnifications as it may
consider necessary. The Trustee, in approving any investment medium
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or in making investments under this Plan, shall not be restricted by statutes
governing the legal investment of trust funds.
E. SEPARATE INVESTMENT FUNDS - COMMITTEE MAY ESTABLISH SEPARATE FUNDS.
The Committee may, in its sole discretion, direct the Trustee to create one or
more separate investment funds, having such different specific investment
objectives as the Committee shall from time to time determine. The Committee
shall determine and may from time to time redetermine the number of investment
funds and the specific objectives of said funds and the investments or kinds of
investment which shall be authorized therefor.
Each Participant has the right to instruct the Committee to direct the
Trustee in writing to invest his or her Account in one or more separate
investment funds, or in a directed investment, provided, however, that if any
Participant fails to make a direction pursuant to this Article as to all or any
part of such Account, the undirected portion of a Participant's Account shall be
invested by the Trustee.
F. COMMITTEE TO ESTABLISH RULES. The Committee may at any time make such
uniform and nondiscriminatory rules as it determines necessary regarding the
administration of the directed investment option. The Committee may also
develop and maintain rules governing the rights of Participants to change their
investment directions and the frequency with which such changes can be made.
ARTICLE XI
PLAN AMENDMENT
PLAN AMENDMENT. This Plan may be amended, or the Plan terminated or
suspended, by an instrument in writing executed on behalf of the Company by the
President of the Company or the Committee, or a duly appointed representative of
the Board and delivered to the Trustee, provided, however, that (1) no amendment
will be made to this Plan which will cause this Plan, the Trust or the assets of
the Trust Fund to be governed by or subject to Part 2, 3 or 4 of Title I of
ERISA, (2) no such amendment shall adversely affect any Trust Beneficiary's
accrued benefit, (3) no such amendment shall increase the duties or
responsibilities of the Trustee unless the Trustee consents thereto in writing,
(4) no such amendment which would cause the Trust to be other than a "grantor
trust," or have contributions to the Trust by the Company, or income and gains
of the Trust Fund, constitute a taxable event to the Trust or to the
Participants, and (5) no such amendment shall cause the vested accrued benefit
paid to Trust Beneficiaries from the Trust Fund to become nondeductible to the
Company in the year of payment.
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ARTICLE XII
MISCELLANEOUS
A. CALIFORNIA LAW. This Plan shall be construed and regulated by the
laws of the State of California.
B. HEADINGS. The headings of sections in this Plan are used herein for
convenience of reference only and in case of any conflict the text of this Plan
shall control.
C. SUCCESSORSHIP. This Plan shall be binding upon and inure to the
benefit of any successor to the Company or its business as the result of merger,
consolidation, reorganization, transfer of assets or otherwise, and any
subsequent successor thereto; and any such successor shall be deemed to be the
"Company" under this Plan.
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EXHIBIT 11.1
STATEMENT OF COMPUTATION OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS
WEIGHTED AVERAGE SHARES OUTSTANDING:
(THOUSANDS OF SHARES)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
June 30, June 30,
-------- --------
1994 1993 1994 1993
---- ----- ---- ----
<S> <C> <C> <C> <C>
Common shares 138,705 130,880 135,417 127,474
Convertible preferred shares 1,402 2,382 1,963 4,038
Stock options 15,928 16,314 17,106 14,620
------- ------- ------- -------
Total weighted average
shares outstanding 156,035 149,576 154,486 146,132
------- ------- ------- -------
------- ------- ------- -------
Net income available to
common stockholders $ 43,497 $ 32,393 $140,674 $ 87,691
------- ------- ------- -------
------- ------- ------- -------
Income Per Share:
Net income per share $ 0.28 $ 0.22 $ 0.91 $ 0.60
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Prior periods have been restated to reflect the adoption of FASB Statement No.
109, "Accounting for Income Taxes". The effect is to reduce net income and
earnings per share by $2.8 million and $0.02 for the three months ended June 30,
1993 and $7.5 million and $0.05 for the year ended June 30, 1993 reflecting
elimination of the extraordinary item for the benefit of tax loss carryforwards.
All share and per share data have been restated for all periods presented to
reflect the two-for-one stock split payable in the form of a stock dividend
which was distributed on December 15, 1993 to holders of record on November 30,
1993.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS The following table sets forth, for the fiscal years
indicated, certain income and expense items as a percentage of total revenues
(percentages may not add due to rounding):
<TABLE>
<CAPTION>
1994 1993 1992(1)
<S> <C> <C> <C>
Product and other revenues 89.0% 88.7% 89.4%
Service revenue 11.0 11.3 10.6
------------------------------------------
Total revenues 100.0 100.0 100.0
Cost of product and other revenues 42.7 40.5 41.7
Cost of service revenue 5.9 7.1 7.4
------------------------------------------
Gross margin 51.4 52.5 50.9
Research and development expenses 12.0 12.5 14.8
Selling, general and administrative expenses 26.4 28.5 33.3
Merger-related expenses -- -- 12.7
Restructuring costs -- -- 2.7
------------------------------------------
Operating income (loss) 13.0 11.5 (12.5)
Interest expense (0.6) (0.3) (0.3)
Interest income and other, net 0.9 0.3 1.0
------------------------------------------
Income (loss) before income taxes 13.3 11.5 (11.8)
Provision for income taxes 3.8 3.4 2.8
------------------------------------------
Net income (loss) 9.5% 8.0% (9.0)%
<FN>
(1) The Company merged with MIPS Computer Systems, Inc. in June 1992. The
merger was accounted for on a pooling of interests basis, and accordingly
the results presented for fiscal 1992 have been restated to include those
of MIPS.
</TABLE>
Total revenues were $1.48 billion in 1994, $1.09 billion in 1993 and $867
million in 1992, reflecting growth of 36% from fiscal 1993 to 1994 and 26% from
fiscal 1992 to 1993. Revenue growth in fiscal 1994 and fiscal 1993 reflected
increased shipments across the entire product line, as well as increased service
revenue supporting a larger installed base. The effect of the 39% increase in
unit volumes in fiscal 1994 was partially offset by the continued shift toward
lower priced workstations. The Company expects this trend to continue in fiscal
1995.
PRODUCT AND OTHER REVENUES For fiscal 1994, the Company's low-end products
(Indy, IRIS Indigo-R-, and Indigo(2) workstations and servers) accounted for 62%
of shipment revenue while the high-end products (CHALLENGE and Onyx) comprised
38%. The weighting of product mix was essentially the same year-to-year. The
remainder of the product and other revenues are primarily attributable to
software and subsystem products, royalties, licensing fees and NRE contracts.
Revenue from outside of North America provided 47%, 49%, and 47% of total
revenues in fiscal 1994, 1993, and 1992, respectively. The geographic mix in
fiscal 1994 reflected a strong performance from the Company's North American
operations but lower growth in certain European markets which continue to be
affected by weak economic conditions. Japanese business grew 33% despite
continued economic weakness in that country.
20
<PAGE>
During fiscal 1994, the Company expanded its product line by introducing higher
performance models which provide graphics and/or computing performance
enhancements over the Company's earlier products. The Company also introduced
high performance, low cost products, in particular Indy, a digital media desktop
workstation with an entry price of $5,999. The introduction of Indy and upgrades
to existing products contributed substantially to the revenue growth of the
Company.
SERVICE REVENUE Service revenue, which is comprised of hardware and software
support and maintenance, accounted for 11.0%, 11.3%, and 10.6% of total revenues
in fiscal 1994, 1993, and 1992, respectively. The increases are a direct result
of the increases in the Company's shipment revenues, resulting in a larger
installed base. The Company expects the percentage of service revenue to total
revenue to continue at or near the current level.
COST OF GOODS SOLD AND GROSS MARGIN Cost of product and other revenues
include costs related to product shipments, including materials, labor, overhead
and other direct or allocated costs involved in their manufacture or delivery.
Costs associated with NRE revenue are recognized in research and development
expense. Cost of service revenue includes all costs incurred in the support and
maintenance of the Company's products.
In fiscal 1994, the overall gross margin decreased to 51.4% from 52.5% in fiscal
1993. The decrease was due to lower pricing on desktop products, which was
partially offset by increased service margins. The Company's gross margins are
affected by a number of factors and will fluctuate from period to period. See
"Factors That May Affect Future Results."
Service margins increased to 46% in fiscal 1994 from 38% in fiscal 1993. The
increase in gross margin on service revenue was primarily a result of
efficiencies from the continuing increase in the installed base of the Company's
products. Management believes that the service margins achieved in fiscal 1994
are at the high end of the sustainable range.
In fiscal 1993, the overall gross margin increased to 52.5% from 50.9% in fiscal
1992. This increase was primarily due to an increase in manufacturing
efficiencies and an increase in service margins from 30% in fiscal 1992 to 38%
in fiscal 1993, partially offset by less favorable product mix within the
high-end product line.
RESEARCH AND DEVELOPMENT Research and development expenses increased by 30% in
fiscal 1994 over fiscal 1993 and increased 7% in fiscal 1993 over fiscal 1992.
The increase in fiscal 1993 over fiscal 1992 of only 7% was a result of the
elimination of duplicate functions after the merger. Research and development
expense as a percentage of total revenues decreased to 12.0% in 1994 from 12.5%
in 1993, as result of the large increase in total revenue. The Company will
continue to increase the dollar amount of research and development spending in
fiscal 1995, and plans that the expense as a percentage of total revenues will
be at approximately the level reported in fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses decreased to 26.4% of total revenues in fiscal 1994 compared to 28.5%
in 1993 and 33.3% in 1992. The decrease is a result of rapid revenue growth,
expense management and economies of scale. The Company believes it received the
full benefit in fiscal 1993 of increased efficiencies associated with the 1992
merger. The Company does not expect that selling, general and administrative
expenses as a percent of total revenue will experience further significant
declines in fiscal 1995.
21
<PAGE>
MERGER-RELATED EXPENSES Merger-related expenses of $110 million were recorded
in the fourth quarter of fiscal 1992. The merger-related expenses were
associated with the closing of duplicate facilities, write-offs of inventory,
equipment and capitalized software related to duplicate product lines,
professional fees, employee severance packages, and the integration of the
companies' management information systems. No additional charges were recorded
during fiscal 1993 or fiscal 1994, and the Company believes that no further
charges will be required.
RESTRUCTURING COSTS Prior to its merger with Silicon Graphics, MIPS
implemented a corporate restructuring in September 1991. Employee severance
costs, together with write-downs of capitalized software, inventory and
equipment, and a provision for idle facility costs, resulted in a one-time
charge of $23.4 million during fiscal 1992.
INTEREST EXPENSE Interest expense increased in fiscal 1994, as a result of
both increased debt associated with the issuance of the zero coupon debentures
and higher interest rates.
Interest expense increased slightly in fiscal 1993, primarily as a result of the
increased debt incurred in constructing the Company's manufacturing facility in
Switzerland. This increase was in part offset by a reduction in interest
expense realized when the Company repaid a portion of the Company's Senior
Notes.
INTEREST INCOME AND OTHER, NET Interest income and other, net for fiscal 1994
increased 313% from fiscal 1993 primarily due to increased interest income as a
result of higher invested cash balances, higher interest earned on investments,
and lower foreign exchange hedging costs.
Interest income and other, net for fiscal 1993 decreased 64% from fiscal 1992
primarily due to lower average investment balances, lower interest rates on
investments and higher costs of foreign exchange hedging.
PROVISION FOR INCOME TAXES The Company's combined state, federal and foreign
tax rate was approximately 29% for fiscal year 1994 compared to 30% for the
prior fiscal year. The combined income tax rate for the fiscal 1994 was
comprised of an effective tax rate of 30% and a non-recurring benefit from the
Revenue Reconciliation Act of 1993 in the amount Of $2.3 million attributable to
the retroactive extension of the research and development credit to the
beginning of fiscal year 1993 and the effect of applying the increased corporate
tax rate to the Company's deferred tax asset. The combined tax rate differed
from the federal statutory rate primarily as a result of the imposition of state
taxes, the tax benefit derived from the Company's Foreign Sales Corporation, and
foreign earnings taxed at lower rates. The Company does not provide for U.S.
federal income taxes on undistributed earnings of foreign subsidiaries which it
intends to permanently reinvest in those operations.
In February 1992, the FASB issued Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes." The Company adopted SFAS
109 in its first quarter of fiscal 1994 and has applied its provisions
retroactively to fiscal 1989. The effect of adopting SFAS 109 is to increase
previously reported net income for years prior to fiscal 1994 by a cumulative
$39.7 million. The restatement decreased the net loss for fiscal 1992 by $40.4
million ($.36 per share) and decreased net income for fiscal 1993 by $7.5
million ($.05 per share).
NET INCOME As a result of the above factors, net income was $141 million for
fiscal 1994 compared to $88 million in fiscal 1993.
22
<PAGE>
FINANCIAL CONDITION Stockholders' equity increased by $234 million in fiscal
1994 and $143 million in fiscal 1993 primarily as a result of increased net
income, sales of common stock through employee benefits plans, and tax benefits.
During fiscal 1994 the Company's cash and cash equivalents, short-term
investments and long-term financial instruments increased by $390 million. This
increase was primarily due to positive cash flow from operating activities of
$260 million, net proceeds of $195 million from the sale of twenty-year zero
coupon convertible subordinated debentures, and $49 million from sales of stock
through employee benefit programs. This was partially offset by $89 million of
capital expenditures, increases in other assets of $22 million, and $3 million
of other items.
As of June 30, 1994, the Company's principal sources of liquidity included cash,
cash equivalents and short and long-term investments of $588 million, and up to
$20 million available under bank lines of credit. The Company believes that
these resources should be adequate to fund the Company's projected cash needs
through at least fiscal 1995. The Company believes that the level of financial
resources is an important competitive factor in the computer industry and,
accordingly, may elect to raise additional capital through debt or equity
financing in anticipation of future needs.
FACTORS THAT MAY AFFECT FUTURE RESULTS
As is true for technology companies generally, Silicon Graphics operates in a
rapidly changing environment that involves a number of risks, some of which are
beyond the Company's control. The following discussion highlights some of these
risks.
PERIOD-TO-PERIOD FLUCTUATIONS The Company has experienced substantial revenue
growth in recent years, and it plans its operating expenses, many of which are
relatively fixed in the short term, on the basis that its revenues will continue
to grow. As a result it may not be possible for management to quickly adjust
expense levels in response to revenue shortfalls. Further, because of short
delivery cycles the Company generally does not have a large order backlog, which
makes the forecasting of revenue inherently less certain. This uncertainty is
compounded because each quarter's revenue results predominantly from orders
received and shipments made during the last month of the quarter, with a
disproportionate amount occurring in the latter half of that month. This
pattern sharply limits the Company's ability to react to revenue shortfalls
within a particular quarter. Accordingly, even relatively minor shipment
disruptions, which could result from factors such as supply constraints, delays
in the availability of new products, an unanticipated change in product mix,
transit interruptions or natural disasters, may cause a particular period's
results to be substantially below expectations.
The Company's results have followed a seasonal pattern, with relatively strong
second and fourth fiscal quarters and weaker first and third fiscal quarters,
reflecting the buying patterns of the Company's customers. A variety of other
factors may cause period-to-period fluctuations in revenues and profitability,
including changes in the mix of high-end and desktop products, the mix of
configurations within a product line, the geographic mix of sales, and the
percentage of revenues derived from service or NRE during any fiscal period.
Nearly half of the Company's revenue is derived from sales outside the United
States and many key components for its products are produced outside the United
States. As a result, the Company's financial performance could be negatively
affected by such factors as changes in foreign currency exchange rates, trade
protection measures, generally longer accounts receivable collection patterns,
and changes in
23
<PAGE>
regional or worldwide economic or political conditions. The Company's sales to
foreign customers are subject to export regulations, with sales of some of the
Company's high-end products requiring clearance and export licenses from the
U.S. Department of Commerce. The Company's export sales would be adversely
affected if such regulations were tightened, or if they are not modified over
time to reflect the increasing performance of the Company's products.
Sales in foreign countries are generally priced in local currencies and
therefore are subject to the effects of currency exchange fluctuations. Changes
in foreign currency exchange rates can have either a positive or negative effect
on revenue and/or income in any given period. The Company attempts to reduce
the impact of currency fluctuations on net income primarily through the use of
forward exchange contracts and foreign currency options that hedge foreign
currency denominated receivables between the parent and its international
subsidiaries. The Company has generally not hedged capital expenditures,
investments in subsidiaries, inventory purchases or the anticipated sales or net
income of its international subsidiaries.
The Company's stock price, like that of other technology companies, is subject
to significant volatility. If revenues or earnings in any quarter fail to meet
expectations of the investment community, there could be an immediate impact on
the Company's stock price. In addition, the Company's stock price may be
affected by broader market trends that may be unrelated to the Company's
performance.
PRODUCT DEVELOPMENT AND INTRODUCTION The Company has achieved revenue growth
and profitability that are well above average within the computer industry
because it has been able to develop and rapidly bring to volume production
highly differentiated, technologically complex and innovative products. The
Company's future results depend on its ability to sustain this competitive
advantage. As in prior years, the Company plans to introduce a number of new
products in fiscal 1995, including products that will replace products in the
Company's current product offering. A number of risks are inherent in this
process.
The process of developing new technology and incorporating it in the Company's
products is increasingly complex and uncertain, which raises the potential for
delays in new product introduction. The introduction of a new computer system
requires close collaboration and continued technological advancement, involving
multiple hardware and software design and manufacturing teams within the Company
as well as teams at outside suppliers of key components such as semiconductor
and storage products. The failure of any one of these elements could cause the
Company's new products to fail to meet specifications or to miss the aggressive
timetables that the Company establishes. As the variety and complexity of the
Company's product offering increases, the process of planning production and
inventory levels also becomes more difficult.
The Company generally has derived a substantial portion of its revenues in any
fiscal period from its most recently introduced products. During fiscal 1994,
the Company introduced new products at both the desktop and high-end of its
product line, most of which have shipped in volume. The Company's results could
be adversely affected by such factors as development or manufacturing delays,
variations in product costs, and delays in customer purchases of existing
products in anticipation of the introduction of new products.
24
<PAGE>
The Company's customers require applications software that addresses their
needs. The Company develops very limited applications software, and thus relies
on the availability of key third-party applications software addressing a wide
range of customer requirements. The Company actively manages programs to
promote the development of such applications, but there can be no assurance that
all competitively important applications will be available for the Company's
systems.
DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE All of the Company's
system products incorporate microprocessors based upon the Company's MIPS RISC
microprocessor architecture. The Company licenses the manufacturing and
distribution rights to these microprocessors to selected semiconductor
manufacturing companies (the "Semiconductor Partners"). The Company and its
Semiconductor Partners generally have jointly funded the development of new MIPS
RISC microprocessors, including the R4200 and R8000 processors introduced in
fiscal 1994. Changes in the timing, level or availability of such funding could
adversely affect the continued development of the MIPS RISC architecture or
increase the portion of the development budget that is borne by the Company. The
Company believes that the continued development and broad acceptance of the MIPS
architecture are critical to its future success.
NEW VENTURES During fiscal 1993 and 1994, the Company entered into several
ventures with other companies to address new and emerging markets, including
ventures with Time Warner, Nintendo and AT&T. While the Company believes that
these new ventures are strategically important, there are substantial
uncertainties associated with the development of new products and technologies
for evolving markets. The success of these ventures will be determined not only
by the Company's efforts, but also by those of its venture partners. Initial
timetables for the development and introduction of new technologies, products or
services may not be achieved, and price/performance targets may not prove
feasible. External factors, such as the development of competitive alternatives
or government regulation, may cause new markets to evolve in an unanticipated
direction.
COMPETITION The computer industry is highly competitive and is characterized
by rapid technological advances in both hardware and software development, which
result in steadily improving price/performance and shortening product life
cycles. As the segments in which the Company operates continue to grow faster
than the industry as a whole, the Company is experiencing an increase in
competition, and it expects this trend to continue. Many of the Company's
competitors have substantially greater technical, marketing and financial
resources than the Company, as well as a larger installed base of customers and
a wider range of general purpose applications software available for their
platforms. The strong competition faced throughout the Company's product line
can result in significant discounting of sales prices which would decrease the
Company's gross margins.
BUSINESS DISRUPTION The Company's corporate headquarters, including its
research and development operations and most of its manufacturing facilities,
are located in the Silicon Valley area of Northern California, a region known
for seismic activity. Operating results could be materially affected by a
significant earthquake. The Company is predominantly self-insured for losses
and business interruptions of this kind.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30
(In thousands, except per share amounts) 1994 1993(1) 1992(1) 1991(1,2) 1990(1,2)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $1,481,602 $1,091,200 $ 866,593 $ 698,488 $ 520,531
Costs and expenses:
Cost of goods sold 719,660 518,712 425,540 319,316 229,941
Research and development 177,217 136,641 127,905 93,094 64,613
Selling, general and administrative 391,583 310,761 288,302 240,014 169,92O
Merger-related expenses -- -- 110,000 -- --
Restructuring costs -- -- 23,416 -- --
------------------------------------------------------------------------------
Operating income (loss) from
continuing operations 193,142 125,086 (108,570) 46,064 56,057
Interest and other, net 4,536 187 5,968 9,401 1,838
------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 197,678 125,273 (102,602) 55,465 57,895
Income (loss) from continuing operations 140,674 87,691 (78,063) 36,098 38,032
Net income (loss) 140,674 87,691 (78,063) 36,098 33,967
Income (loss) per common share(3):
Income (loss) from continuing operations:
Primary $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.39
Fully diluted $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.38
Net income (loss):
Primary $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.35
Fully diluted $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.34
Weighted average common shares and
common share equivalents outstanding(3):
Primary 154,486 146,132 112,944 118,598 99,760
Fully diluted 154,486 146,132 112,944 118,598 109,840
BALANCE SHEET DATA:
Cash and cash equivalents, short-term investments
and long-term financial instruments $ 587,750 $ 197,480 $ 183,165 $ 294,573 $ 177,792
Working capital 668,087 418,366 376,252 469,695 332,605
Total assets 1,518,783 1,013,027 845,320 839,293 538,510
Long-term debt 229,950 25,989 27,295 29,297 37,945
Stockholders' equity 921,261 687,696 544,960 651,219 379,894
STATISTICAL DATA:
Number of employees 4,357 3,743 3,575 3,345 2,702
Revenue/employee (average; in thousands) $ 359 $ 307 249 $ 225 $ 225
Long term debt/total capitalization 20% 4% 5% 4% 9%
<FN>
(1) These periods have been restated to reflect the adoption of FASB Statement
No. 109, "Accounting for Income Taxes."
(2) These periods have been restated to reflect the merger of Silicon Graphics,
Inc. and MIPS Computer Systems, Inc. in fiscal 1992, which has been
accounted for on a pooling of interests basis. The periods prior to fiscal
1992 combine the June 30 results of Silicon Graphics with the prior calendar
year of MIPS.
(3) All share and per share data above has been retroactively restated to
reflect a two-for-one stock split in the form of a stock dividend which was
distributed in December 1993. The Company has not paid dividends on its
common stock to date and does not anticipate paying cash dividends in the
foreseeable future.
</TABLE>
26
<PAGE>
QUARTERLY DATA
<TABLE>
<CAPTION>
Fiscal 1994 (unaudited)
(In thousands, except per share amounts) June 30 March 31 Dec. 31 Sept. 30
<S> <C> <C> <C> <C>
Total revenues $433,277 $376,293 $370,396 $30l,636
Cost and expenses:
Cost of goods sold 208,725 183,390 181,407 146,138
Research and development 51,064 44,568 42,560 39,025
Selling, general and administrative 112,559 99,394 96,131 83,499
Operating income 60,929 48,941 50,298 32,974
Interest income and other, net 1,211 1,197 1,616 512
Income before taxes 62,140 50,138 51,914 33,486
Net income 43,497 35,097 36,340 25,740
Net income per common share(2) $ 0.28 $ 0.23 $ 0.24 $ 0.17
Weighted average common shares and common
share equivalents outstanding(2) 156,035 155,523 154,046 151,140
Fiscal 1993 (unaudited)(1)
(In thousands, except per share amounts) June 30 March 31 Dec. 31 Sept. 30
Total revenues $319,269 $270,666 $270,170 $231,095
Cost and expenses:
Cost of goods sold 151,557 129,876 128,234 109,045
Research and development 38,288 34,931 33,440 29,982
Selling, general and administrative 84,265 76,456 79,110 70,930
Operating income 45,159 29,403 29,386 21,138
Interest income (expense) and other, net 1,116 (484) 2,014 (2,459)
Income before taxes 46,275 28,919 31,400 18,679
Net income 32,393 20,243 21,980 13,075
Net income per common share(2) $ 0.22 $ 0.14 $ 0.15 $ 0.09
Weighted average common shares and common
share equivalents outstanding(2) 149,576 146,714 143,804 140,580
<FN>
(1) These periods have been restated to reflect the adoption of FASB
Statement No. 109, "Accounting for Income Taxes."
(2) All share and per share data above has been retroactively restated to
reflect a two-for-one stock split in the form of a stock dividend which
was distributed in December 1993.
</TABLE>
27
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30
(In thousands, except per share amounts) 1994 1993(1) 1992(1)
<S> <C> <C> <C>
Product and other revenues $1,318,693 $ 967,710 $ 774,911
Service revenue 162,909 123,490 91,682
-------------------------------------------------------
Total revenues 1,481,602 1,091,200 866,593
Cost and expenses:
Cost of product and other revenues 632,440 441,540 361,157
Cost of service revenue 87,220 77,172 64,383
Research and development 177,217 136,641 127,905
Selling, general and administrative 391,583 310,761 288,302
Merger-related expenses -- -- 110,000
Restructuring costs -- -- 23,416
-------------------------------------------------------
Total costs and expenses 1,288,460 966,114 975,163
-------------------------------------------------------
Operating income (loss) 193,142 125,086 (108,570)
Interest expense (8,302) (2,924) (2,774)
Interest income and other, net 12,838 3,111 8,742
-------------------------------------------------------
Income (loss) before income taxes 197,678 125,273 (102,602)
Provision for income taxes 57,004 37,582 (24,539)
-------------------------------------------------------
Net income (loss) 140,674 87,691 (78,063)
Preferred stock dividend requirement -- -- 5,231
-------------------------------------------------------
Net income (loss) available to common stockholders $ 140,674 $ 87,691 $ (83,294)
-------------------------------------------------------
Net income (loss) per common share $ 0.91 $ 0.60 $ (0.74)
-------------------------------------------------------
Common shares and common share equivalents
used in the calculation of net income per common share 154,486 146,132 112,944
See accompanying notes.
<FN>
(1) These periods have been restated to reflect the adoption of FASB Statement
No. 109, "Accounting for Income Taxes."
</TABLE>
28
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30
(Dollars in thousands, except per share amounts) 1994 1993(1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 310,767 $ 142,668
Short-term investments 90,147 12,142
-----------------------------------
Total cash and short-term investments 400,914 154,810
Accounts receivable, net of allowance for doubtful
accounts of $8,298 in 1994, $6,717 in 1993 391,271 317,470
Inventories 164,319 156,165
Prepaid expenses and other current assets 67,862 70,359
-----------------------------------
Total current assets 1,024,366 698,804
Long-term financial instruments 186,836 42,670
Property and equipment, at cost, net of accumulated
depreciation and amortization 183,330 151,740
Other assets 124,251 119,813
-----------------------------------
$1,518,783 $1,013,027
-----------------------------------
LIABILITIES
AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 85,781 $ 92,020
Accrued compensation 46,216 33,543
Income taxes payable 50,390 39,215
Other accrued liabilities 80,457 46,026
Long-term debt due within one year 10,450 7,048
Accrued merger expenses 10,303 12,140
Deferred revenue 72,682 50,446
-----------------------------------
Total current liabilities 356,279 280,438
Deferred revenue and other accrued expenses, long-term 1,928 5,102
Long-term debt due after one year 229,950 25,989
Accrued merger expenses, long-term 9,365 13,802
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value: Issuable in series,
2,000,000 shares authorized; Series A: 35,000 convertible
preferred shares authorized, issued and outstanding 33,996 33,996
Common stock, $.001 par value; 200,000,000 shares
authorized; shares issued and outstanding:
139,212,257 in 1994; 131,574,612 in 1993. 139 132
Additional paid-in capital 678,211 601,981
Retained earnings 195,985 56,361
Accumulated translation adjustment 12,930 (4,774)
-----------------------------------
Total stockholders' equity 921,261 687,696
-----------------------------------
$1,518,783 $1,013,027
See accompanying notes.
<FN>
(1) This period has been restated to reflect the adoption of FASB Statement No.
109, "Accounting for Income Taxes."
</TABLE>
29
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Additional Earnings Accumulated Total
Three years ended June 30, 1994 Preferred Stock Common Stock Paid-In (Accumulated Translation Stockholders'
(In thousands) Shares Amount Shares Amount Capital Deficit) Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1991(1,2) 170 $ 166,686 106,476 $ 106 $ 417,855 $ 69,889 $ (3,317) $ 651,219
Common stock issued, net of
repurchases -- -- 15,486 16 96,894 -- -- 96,910
Recognition of compensation
expense in connection with
voluntary separation incentive
program -- -- -- -- 1,018 -- -- 1,018
Acquisition of minority interest
in subsidiary -- -- 280 -- 2,459 -- -- 2,459
Convertible preferred stock,
Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050)
Convertible preferred stock,
Series C preferred dividends -- -- -- -- -- (4,181) -- (4,181)
Repurchase of preferred stock,
Series C (135) (132,690) -- -- -- (17,310) -- (150,000)
Currency translation adjustment -- -- -- -- -- -- 2,536 2,536
Tax benefit from stock options -- -- -- -- 19,375 -- -- 19,375
Net loss -- -- -- -- -- (78,063) -- (78,063)
Net transactions of MIPS during
eliminated period from
January 1, 1991 to
June 30, 1991 -- -- 1,316 2 4,939 435 (639) 4,737
-------------------------------------------------------------------------------------------
Balance, June 30, 1992(1) 35 $ 33,996 123,558 $ 124 $ 542,540 $ (30,280) $ (1,420) $ 544,960
Common stock issued, net of
repurchases -- -- 8,016 8 42,884 -- -- 42,892
Convertible preferred stock,
Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050)
Currency translation adjustment -- -- -- -- -- -- (3,354) (3,354)
Tax benefit from stock options -- -- -- -- 16,557 -- -- 16,557
Net income -- -- -- -- -- 87,691 -- 87,691
-------------------------------------------------------------------------------------------
Balance, June 30, 1993 35 $ 33,996 131,574 $ 132 $ 601,981 $ 56,361 $ (4,774) $ 687,696
Common stock issued, net of
repurchases -- -- 7,638 7 49,380 -- -- 49,387
Convertible preferred stock,
Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050)
Currency translation adjustment -- -- -- -- -- -- 17,704 17,704
Tax benefit from stock options -- -- -- -- 26,850 -- -- 26,850
Net income -- -- -- -- -- 140,674 -- 140,674
-------------------------------------------------------------------------------------------
Balance, June 30, 1994 35 $ 33,996 139,212 $ 139 $ 678,211 $ 195,985 $ 12,930 $ 921,261
See accompanying notes.
<FN>
(1) These periods have been restated to reflect the adoption of FASB Statement
No. 109, "Accounting for Income Taxes."
(2) This period has been restated to reflect the merger of Silicon Graphics,
Inc. and MIPS Computer Systems, Inc. in fiscal 1992, which has been
accounted for on a pooling of interests basis.
</TABLE>
30/31
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30
(In thousands) 1994 1993(1) 1992(l)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $140,674 $87,691 $(78,063)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 84,200 64,297 63,399
Non-cash portion of merger expenses -- -- 37,017
Non-cash portion of restructuring charge -- -- 17,219
Accrued interest on convertible subordinated debenture 5,565 -- --
Other 18,051 (3,374) 2,795
(Increase) decrease in assets:
Accounts receivable (73,829) (77,575) (27,216)
Inventories (8,255) (32,333) (24,178)
Prepaid expenses and other current assets 2,497 (2,124) (37,224)
Increase (decrease) in liabilities:
Accounts payable (6,461) 35,728 7,229
Accrued compensation 12,673 6,623 4,635
Income taxes payable 38,025 28,668 43,362
Other accrued liabilities 34,432 4,425 5,846
Deferred revenue 21,612 10,805 7,061
Deferred revenue and other accrued
expenses, long-term (2,550) 2,944 (5,488)
Accrued merger expenses (6,412) (40,440) 67,012
---------------------------------------
Total adjustments 119,548 (2,356) 161,469
---------------------------------------
Net cash provided by operating activities 260,222 85,335 83,406
</TABLE>
32
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30
(In thousands) 1994 1993(1) 1992(l)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (89,350) (83,615) (66,972)
Increase in other assets (22,308) (20,366) (65,026)
Investments in short-term financial instruments (83,795) (109,643) (36,337)
Principal proceeds from matured short-term investments 59,703 136,380 126,247
Investments in long-term financial instruments (265,410) (52,869) (12,546)
Principal proceeds from redemption of
long-term investments 67,331 -- 19,012
Net decrease in cash and cash equivalents of MIPS
for the period January 1991 to June 1991. -- -- (10,556)
---------------------------------------
Net cash used in investing activities (333,829) (130,113) (46,178)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of preferred stock -- -- (150,000)
Sale of common stock 48,738 42,223 99,312
Issuance of debt 204,006 1,761 4,856
Payments of debt principal (9,988) (9,973) (8,303)
Cash dividends - preferred stock (1,050) (1,050) (5,925)
---------------------------------------
Net cash provided by (used in) financing activities 241,706 32,961 (60,060)
---------------------------------------
Net increase (decrease) in cash and cash equivalents 168,099 (11,817) (22,832)
Cash and cash equivalents at beginning of period 142,668 154,485 177,317
---------------------------------------
Cash and cash equivalents at end of period $ 310,767 $ 142,668 $ 154,485
See accompanying notes.
<FN>
(1) These periods have been restated to reflect the adoption of FASB Statement
No. 109, "Accounting for Income Taxes."
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION Silicon Graphics, Inc. ("Silicon
Graphics" or the "Company") is a leading manufacturer of high-performance visual
computing systems. The company delivers interactive three-dimensional graphics,
digital media and multiprocessing supercomputing technologies to technical,
scientific and creative professionals. Its subsidiary, wholly-owned MIPS
Technologies, Inc., designs and licenses the industry's leading RISC processor
technology for the computer systems and consumer electronics markets. The
Company distributes its products primarily through a direct sales force, but
also works with original equipment manufacturers, value-added resellers and
value-added dealers.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of significant intercompany
transactions and balances, including transactions between the Company and MIPS
Computer Systems, Inc. ("MIPS"), which was merged into the Company effective
June 29, 1992, for relevant periods prior to such merger date (See Note 2).
These periods have been restated to reflect the merger, which has been accounted
for as a pooling of interests. The consolidated financial statements for all
periods prior to fiscal 1992 have not been restated for the change in fiscal
year. Such periods include Silicon Graphics' results of operations and balance
sheet data on a June 30 fiscal year basis and MIPS' on a December 31 calendar
year basis. The financial statements of foreign subsidiaries have been converted
into U.S. dollars using applicable exchange rates.
CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents consist of
cash on deposit with banks and high quality money market instruments with
original maturities of 90 days or less, and are stated at cost, which
approximates fair value. Short-term investments consist of high quality money
market instruments with original maturities greater than 90 days, but less than
or equal to one year, and are stated at cost, which approximates fair value.
Long-term financial instruments consist of high quality financial securities
with maturities greater than one year, and are stated at cost, which
approximates fair value. The Company's long-term financial investments typically
have a maximum maturity of three years.
FAS 115 The Company will adopt Statement of Financial Accounting Standards No.
115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities," effective July 1, 1994. Had SFAS 115 been adopted for the June 30,
1994 balance sheet, the impact on the Company's financial position would be
immaterial.
FAS 109 The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes," in the first quarter of fiscal 1994
and has applied its provisions retroactively to fiscal 1989. The impact of
adopting SFAS 109 is to increase previously reported net income for years prior
to fiscal 1994 by a cumulative $39.7 million. The restatement decreased the net
loss for fiscal 1992 by $40.4 million ($0.36 per share) and decreased net income
for fiscal 1993 by $7.5 million ($0.05 per share).
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash
investments and trade receivables. The Company invests its excess cash in
deposits with major banks, in U.S. Treasury and U.S. Agency obligations and in
money market securities of companies with strong credit ratings and in a variety
of industries. These investments typically bear minimal risk. This
diversification of risk is consistent with the Company's policy to maintain high
liquidity and ensure safety of principal.
34
<PAGE>
The Company sells its products to a large number of customers in diversified
industries, primarily in the United States, Europe and the Pacific/Americas. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
The Company invests its excess cash in deposits with major banks, in U.S.
Treasury and U.S. Agency obligations and in money market securities of companies
with strong credit ratings and from a variety of industries. Those securities
classified as cash equivalents and short-term investments typically mature
within one year of their purchase date. The Company's long-term financial
investments typically have a maximum maturity of three years.
INVENTORIES Manufacturing inventories are stated at the lower of cost
(first-in, first-out) or market. Service and marketing inventories are stated at
cost less depreciation (typically based on a two- to five-year life).
The inventory detail at June 30, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Raw materials $ 9,602 $ 26,016
Work-in-process 48,680 44,958
Finished goods 17,829 16,616
Service and marketing 88,208 68,575
----------------------------
Total inventories $ 164,319 $ 156,165
</TABLE>
PROPERTY AND EQUIPMENT Property and equipment detail at June 30, 1994 and 1993
is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land and building $ 28,980 $ 26,742
Machinery and equipment 228,129 175,978
Furniture and fixtures 50,806 44,230
Leasehold improvements 58,066 41,573
----------------------------
365,981 288,523
Accumulated depreciation and amortization (182,651) (136,783)
----------------------------
Net property and equipment $ 183,330 $ 151,740
</TABLE>
Property and equipment are stated at cost and depreciation is computed using the
straight-line method. Useful lives of two-to-five years are used for machinery
and equipment and furniture and fixtures; leasehold improvements are amortized
over the shorter of their useful lives or the term of the lease. Property and
equipment includes $7,511,000 and $1,801,000 of equipment under capital leases
at June 30, 1994 and 1993. Accumulated depreciation for such equipment was
$2,281,000 and $951,000 at June 30, 1994 and 1993.
OTHER ASSETS Other assets are primarily composed of prepaid income taxes,
purchased technologies, capital investments, refundable deposits related to
facilities, purchased software costs, prepaid software license fees, capitalized
internally developed software costs and goodwill. Purchased technologies,
capitalized software and licenses and goodwill are generally amortized on a
straight-line basis, over the course of their respective useful lives.
35
<PAGE>
Internally developed software costs and purchased software costs are capitalized
at the point of technological feasibility, in accordance with Statement of
Financial Accounting Standards No. 86 ("SFAS 86") issued by the Financial
Accounting Standards Board ("FASB"). Such costs are amortized, commencing upon
first customer shipment of the derivative software products, over the greater of
either the straight-line basis with an estimated useful life of three years or
the ratio of current revenue to the total of current and anticipated future
revenue. Goodwill represents the excess cost over fair value of net assets
acquired primarily from Silicon Graphics World Trade Corporation in fiscal 1991,
and is amortized on a straight-line basis over a 20-year period.
REVENUE RECOGNITION Product and other revenues primarily include revenue from
system and software products shipments, revenue from the sale of software
distribution rights, revenue from technology licensing agreements and
non-recurring engineering ("NRE") contracts. Product revenues are recognized at
the time of shipment to the customers and the Company has no additional
performance obligations. Initial software fees are recognized when the product
has been delivered and provided that the Company has no additional performance
obligations. Revenue recognition under technology agreements is dependent on the
nature and level of efforts required to deliver and/or support the technology
transfer. Generally, technology revenue is recognized upon the completion of
contract requirements or milestones.
Service revenue results primarily from customer support and maintenance
contracts, and is recognized ratably over the related contractual period.
Deferred revenue includes prepaid royalty payments which are recognized on a
straight-line basis over the useful life of the technology licensed under the
agreements and revenue related to future commitments under service contracts.
PRODUCT WARRANTY The Company provides at the time of sale for the estimated
cost to warrant its products against defects in materials and workmanship.
Through fiscal 1994, this was generally for 90 days from the date of shipment
with some international sales having warranties of up to one year. At the
beginning of fiscal 1994, the Company introduced new low-end products with one
year worldwide warranties.
FOREIGN CURRENCY TRANSLATION The Company translates the assets and liabilities
of its foreign subsidiaries to U.S. dollars at the rates of exchange in effect
at the end of the period. Gains and losses from this translation are credited or
charged to the "accumulated translation adjustment" account included in
stockholders' equity. The effect of fluctuating foreign exchange rates on the
value of monetary assets and liabilities that are denominated in currencies
other than the relevant entity's functional currency is recognized in current
operations and has not been significant to the Company's operating results in
any period. Revenues and expenses are translated using rates in effect during
the period.
FOREIGN EXCHANGE CONTRACTS The Company enters into forward foreign exchange and
currency option contracts as a hedge against the effects of fluctuating currency
exchange rates on certain monetary assets and liabilities (primarily cash,
accounts receivable and payable) denominated in currencies other than the
functional currency of the relevant entity. Gains and losses on these contracts,
which equal the difference between the foreign exchange contract rate and the
prevailing market spot rate at the time of valuation, are recognized in the
consolidated statement of operations. At June 30, 1994, the Company had forward
contracts open in seventeen currencies with a face and fair market value of
$174,700,435 and maturities between July 1, 1994 and October 19, 1994
($148,997,000 at June 30, 1993 with maturities between July 15, 1993 and August
1, 1993). At June 30, 1994 and 1993, there were no currency option contracts
outstanding.
36
<PAGE>
STOCK SPLIT On November 11, 1993, the Company announced a two-for-one stock
split of its common stock payable in the form of a stock dividend which was
distributed on December 15, 1993 to holders of record on November 30, 1993. In
connection with the stock split the Company issued 67,549,236 shares of common
stock. All shares and per share data have been restated for all periods
presented to reflect the stock split.
PER SHARE DATA For years in which the Company had net income, primary earnings
per share are computed using the weighted average number of common shares and
dilutive common share equivalents outstanding during the period. Dilutive common
share equivalents include stock options and warrants using the treasury stock or
modified treasury stock method (whichever applies) and, if dilutive for the
relevant periods, convertible securities which are considered common stock
equivalents under relevant accounting rules, on an as-if-converted basis.
Interest expense related to convertible securities assumed to be converted is
added back into net income on a tax adjusted basis for purposes of the
calculations. Dividends associated with convertible preferred stock are deducted
from net income in calculating earnings per share unless the preferred stock is
treated on an as-if-converted basis. For the purpose of calculating earnings per
share, the Company's Series A and C convertible preferred stocks are considered
to be common stock equivalents.
For the year in which the Company's results were in a net loss position, loss
per share data was computed using only the weighted average number of common
shares outstanding during the period and preferred stock dividends were deducted
from the net loss. Fully diluted earnings per share are substantially the same
as reported earnings per share.
Fully diluted earnings per share are calculated using the same factors as
primary earnings per share with the exception that, if dilutive, convertible
securities not defined as common stock equivalents are included in the share
count on an as-if-converted basis for the period for which they were
outstanding. The related interest expense is added to the amount used for the
primary calculation if conversion is assumed. Fully diluted earnings per share
are substantially the same as reported earnings per share.
RELATED PARTY TRANSACTIONS The Company has from time to time engaged in
significant transactions with related parties in the ordinary course of
business. Significant related parties are: Tandem Computers, Incorporated as a
representative of Tandem is a member of the Company's board of directors;
Control Data Systems, Inc. ("CDSI") due to the Company's investment in common
stock of CDSI; and, NKK Corporation of Japan through its ownership of 100% of
Series A Convertible Preferred Stock (See Note 6).
Product and other revenues for the years ended June 30, 1994, 1993, and 1992
included, in aggregate, sales to related parties in the amount of $83,094,000;
$56,717,000; and $27,240,000, respectively. In addition, purchases from related
parties totaled in aggregate $1,880,000; $1,505,000; and $4,918,000 in the
years ended June 30, 1994, 1993, and 1992, respectively. Amounts receivable from
and payable to such related parties were immaterial at June 30, 1994 and 1993.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. MERGER WITH MIPS COMPUTER SYSTEMS, INC.
On June 29, 1992, the Company merged with MIPS Computer Systems, Inc. ("MIPS")
and acquired all of the common stock of MIPS for 26,774,580 shares of the
Company's common stock. MIPS was a designer, manufacturer and marketer of
products based on Reduced Instruction Set Computing technology.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements and notes to consolidated financial
statements have been restated to include the results of MIPS for all periods
presented. Included in total revenue for fiscal 1992 are revenues from
MIPS of $128,936,000. Included in net income (loss) for fiscal 1992 is income
(loss) from MIPS of $67,579,000. Adjustments to combine both entities,
consisting primarily of intercompany transactions, were not significant.
The Company incurred substantial costs in connection with the merger and
consolidation of operations. Included in the accompanying consolidated statement
of operations for the year ended June 30,1992 are merger-related expenses
totaling $110,000,000, consisting primarily of charges for elimination of
duplicate facilities, discontinuance of duplicate product lines and related
supporting assets, professional fees and personnel severance costs.
3. INCOME TAXES
As discussed in Note 1, the Company adopted SFAS 109 in the first quarter of
1994 and has applied the provisions of the SFAS retroactively to fiscal 1989.
The components of income before income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
United States $110,328 $ 65,296 $ (119,189)
International 87,350 59,977 16,587
----------------------------------------
$ 197,678 $ 125,273 $(102,602)
The provision for income taxes consists of the following (in thousands):
Year Ended June 30,
Federal State Foreign Total
1994
Current $ 31,180 $ 8,083 $ 19,518 $ 58,781
Deferred (9,303) 959 6,567 (1,777)
------------------------------------------------------
$ 57,004
1993
Current 16,639 3,372 13,724 33,735
Deferred 2,106 1,826 (85) 3,847
------------------------------------------------------
$ 37,582
1992
Current 41,291 3,056 12,182 56,529
Deferred (73,051) (5,837) (2,180) (81,068)
------------------------------------------------------
$ (24,539)
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes reconciles to the amounts computed by applying
the statutory federal rate to earnings before taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 69,187 $ 42,592 $ (34,885)
State taxes, net of federal tax benefit 5,877 3,431 (1,835)
Earnings subject to foreign
taxes at higher (lower) rates (11,302) (9,040) 7,320
Income of Foreign Sales Corporation
not subject to U.S. tax (4,660) (2,310) (2,153)
Research and experimentation credits (944) -- --
Nondeductible professional fees -- -- 3,524
Other (1,154) 2,909 3,490
---------------------------------------
Provision for income taxes $ 57,004 $ 37,582 $ (24,539)
</TABLE>
No provision for residual federal taxes has been made on approximately
$68,668,000 of accumulated undistributed earnings of the Company's foreign
subsidiaries since it is the Company's intention to permanently invest such
earnings in foreign operations. The Company has been granted an exemption from
tax on income from certain manufacturing operations located outside the U.S. for
years through 1999. The income tax benefits attributable to the tax status of
this subsidiary are estimated to be $24,000,000 at June 30, 1994.
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 12,972 $ 30,848 $ 29,297
Foreign taxes on unremitted foreign earnings
net of related U.S. tax liability 8,158 4,909 5,365
General business credit carryforwards 22,818 14,257 10,005
Foreign tax credit carryforwards 4,434 6,525 1,906
Depreciation 12,626 10,469 5,967
Inventory valuation 13,948 11,140 8,870
Nondeductible vacation pay accrual 8,409 4,807 3,138
Intercompany profit elimination 10,353 6,629 6,957
Merger expenses 6,022 8,310 30,076
Other 1,469 1,538 1,698
------------------------------------------
Total $ 101,209 $ 99,432 $ 103,279
</TABLE>
At June 30, 1994, Silicon Graphics had a federal net operating loss carryforward
of approximately $30,000,000 for United States federal tax return purposes which
will expire in the year 2006. At June 30, 1994, Silicon Graphics also had
general business credit carryovers of approximately $22,000,000 for United
States federal tax purposes, expiring in the years 1999 through 2009. In
addition, Silicon Graphics had foreign tax credit carryovers of approximately
$4,000,000 for United States federal tax purposes, expiring in the years 1995
through 1999.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the merger of MIPS into Silicon Graphics in fiscal year 1992,
MIPS experienced a "change of ownership" as defined under Section 382 of the
Internal Revenue Code and is subject to an annual limitation on the utilization
of its pre-merger net operating loss and tax credit carryovers. Consequently, a
substantial portion of Silicon Graphics' net operating loss, foreign tax credit,
and research and experimentation credit carryforwards are subject to this annual
limitation. The limitation is expected to defer complete utilization of these
net operating losses and credit carryforwards for approximately two years to
four years. No valuation ailowance was recorded for the years presented.
4. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1994 1993
<S> <C> <C>
Zero coupon convertible subordinated debentures, due 2013 $ 205,660 $ --
Senior Notes 12,500 18,750
Loan on Swiss Manufacturing Facility 14,698 13,267
Other (including local currency loans, capitalized leases and
loans secured by equipment payable in monthly installments) 7,542 1,020
------------------------
240,400 33,037
Less amounts due within one year 10,450 7,048
------------------------
Long-term debt due after one year $ 229,950 $ 25,989
</TABLE>
In November 1993, the Company completed a private placement of zero coupon
convertible subordinated debentures (the "Debentures"). The Debentures, due
November 2013, have an original principal amount at maturity Of $455,000,000.
The Debentures were issued at a price of $439.77 per $1,000 principal amount at
maturity, resulting in gross proceeds of $200,095,000 to the Company. The yield
to maturity is 4.15% per annum, compounded on a semi-annual basis, and the
Debentures have no periodic interest payments. No sinking fund is provided for
the Debentures. Effective November 2, 1998, the Debentures will be redeemable at
any time, at the option of the Company, at redemption prices equal to the issue
price plus accrued original issue discount to the date of redemption. At the
option of the holder, each Debenture is convertible into 16.269 shares of common
stock of the Company at any time. Also at the option of the holder, the
Debentures will be purchased by the Company on November 2, 1998, November 2,
2003 or November 2, 2008, at purchase prices equal to the issue price plus
accrued original issue discount to such purchase date. The Company, at its
option, may elect to pay any such purchase price in cash or shares of common
stock, or any combination thereof. At June 30, 1994, the fair value of the
outstanding Debentures was $199,063,000, based on current market yields. Related
to the Debentures, the Company has entered into an interest rate swap agreement
on a notional amount of $200,095,000 resulting in a variable interest rate of
LIBOR (the London Interbank Offered Rate) less 47 basis points. Interest related
to this swap agreement is recorded as net interest expense. As of June 30, 1994,
based upon current interest rates, the Company had an off-balance sheet exposure
of $10,025,000 relating to this interest rate swap agreement.
In February 1991, the Company issued $25,000,000 of 8.98% Senior Notes due 1996
(the "Senior Notes") to Prudential Insurance Company of America and Prudential
Property and Casualty Insurance Company. The Senior Notes are unsecured, pay
interest semi-annually and have mandatory annual payments of $6,250,000, which
began February 1, 1993. As of June 30, 1994, the fair value of the Senior Notes
out-
40
<PAGE>
standing was $12,668,000, based on quoted market prices for similar securities.
The Senior Notes may be prepaid at the option of the Company for 100% of the
principal plus interest accrued thereon and a yield maintenance premium, if
applicable.
The Company has a Swiss Loan for 19,500,000 Swiss Francs, equivalent to
$14,698,000 at June 30, 1994, which funded the construction of a manufacturing
facility in Cortaillod, Switzerland. As of June 30, 1994, the fair value
approximated cost since the interest rate resets quarterly. The effective
interest rate at June 30, 1994 was 3.77%. The Swiss Loan is secured by land and
real property.
The Company also has an unsecured line of credit totaling $20,000,000. No cash
borrowings were made on the line during any of the periods presented. Interest
on any borrowings would be based upon either the prime, Eurodollar, or
certificate of deposit rate, at the Company's option. As of June 30, 1994,
$20,000,000 was available for borrowing.
Principal maturities of capital leases and long-term debt, other than the
Debentures, at June 30, 1994, are as follows (in thousands): 1995 - $10,450;
1996 - $9,396; 1997 - $2,177; 1998 - $1,826; 1999 - $1,856; and $9,035
thereafter.
Covenants governing the Senior Notes and the unsecured line of credit require
the maintenance of certain financial ratios and prohibit the payment of
dividends except for dividends on currently outstanding preferred stock. At June
30, 1994, the Company was in compliance with these Covenants.
The capitalized lease portion of other debt is secured by equipment. The book
value of collateralized assets as of June 30, 1994 was $25,287,000.
5. COMMITMENTS
The Company leases its facilities and some of its equipment under non-cancelable
operating lease arrangements.
Future minimum annual lease payments under operating leases, net of subleases
and rental income, at June 30, 1994 were as follows (in thousands): 1995 -
$40,464; 1996 - $35,184; 1997 - $27,704; 1998 - $19,730; 1999 - $16,566; and
$19,423, thereafter.
Aggregate operating lease rent expense was (in thousands) $42,997, $35,594, and
$35,929, in 1994, 1993, and 1992, respectively.
6. STOCKHOLDERS' EQUITY
COMMON STOCK TRANSACTIONS On June 29, 1992,the Company sold a total of
4,300,000 shares of common stock in a public offering and 2,906,200 shares in a
private placement at a price of $8.56. Net proceeds to the Company for both
offerings were $59,627,000.
PREFERRED STOCK TRANSACTIONS In May 1991, the Company sold 135,000 shares of
Series C Convertible Preferred Stock to Compaq Computer Corporation for
$135,000,000. The Series C preferred stockholders received a 5% cumulative
annual dividend and had preference upon liquidation in the amount of the
purchase price. In February 1992, the Company repurchased all 135,000
outstanding shares of the Company's Series C Convertible Preferred Stock at an
aggregate repurchase price of $150,000,000 plus accrued dividends. In addition,
the Company and Compaq terminated a joint development and cross license
agreement, but have agreed to grant each other licenses to continue to use
technology exchanged under the original agreement.
41
<PAGE>
In April 1990, the Company sold 35,000 shares of Series A Convertible Preferred
Stock to a wholly-owned U.S. subsidiary of NKK Corporation of Japan for
$35,000,000. The Series A Preferred stockholders receive a 3% cumulative annual
dividend, have preference upon liquidation in the amount of the purchase price
and have aggregate voting rights equivalent to 2,800,000 shares of common stock.
The preferred stock will be convertible into the common stock of the Company at
certain times after November 30, 1994 at a conversion price based on the
then-current price of the common stock. The preferred is perpetual, but is
subject to redemption at the option of the Company at certain times after the
initial conversion date if the market price of the common stock is below $8.75
per share. In addition, NKK entered into a distribution agreement with the
Company's Japanese subsidiary under which NKK became a distributor and
value-added reseller of the Company's products in Japan.
The total amount of dividends accrued and paid on the Series A Preferred Stock
during fiscal 1994 was $1,050,000.
STOCK OPTION PLANS At June 30, 1994 the Company had two stock option plans
under which options to purchase shares of common stock may be granted to
employees. Under these plans, the Company may grant either nonstatutory or
incentive stock options. Under the 1993 plan, all stock options are granted at
not less than fair market value. Under the 1985 plan, nonstatutory stock options
can be granted at less than, equal to or greater than fair market value as
determined by the Board of Directors. At June 30, 1994, an aggregate of
2,661,508 shares were reserved for future option grants under the 1993 and 1985
plans.
Under the 1993 plan, options generally become exercisable at the rate of 2% per
month, although grants to new employees become exercisable 20% after ten months
with 2% per month vesting thereafter. Under the 1985 plan, options granted
generally become exercisable over a four year period, commencing one year from
the date of grant. In the event the employee is no longer employed by the
Company, the Company has the right to cancel any unexercised options. Canceled
options are returned to the option plans and are available for future grants.
At June 30, 1994, the Company had outstanding options to purchase 23,133,788
shares under three stock option plans that were terminated effective October 21,
1993 with respect to future grants. Under these plans, incentive stock options
were granted at not less than fair market value, and nonstatutory stock options
were granted at fair market value or no less than 85% of fair market value.
Shares forfeited under these three terminated plans become available for future
issuance under the 1993 Plan.
In addition, the Company has a Directors' Stock Option Plan which allows for
nonstatutory stock options to be issued to nonemployee directors at not less
than the fair market value at the date of grant. Each such director is granted
an option to purchase 30,000 shares of Common Stock upon the date on which each
person first becomes a director (on or after the effective date of this plan,
July 24, 1990). On November 1 of each year, starting November 1, 1991, each
eligible nonemployee director is granted an option to purchase an additional
10,000 shares of common stock. The directors' options generally vest in
installments cumulatively as to 34% of the shares on the first anniversary of
the date of grant and as to 33% of the remaining shares subject to the option
for each year thereafter that the optionee remains a director. At June 30, 1994,
283,200 shares were reserved for future option grants under the Directors' Stock
Option Plan.
42
<PAGE>
As of June 30, 1994, outstanding options to purchase 18,053,238 shares were
exercisable, at an average exercise price of $7.15 per share.
Activity under all of the plans was as follows:
<TABLE>
<CAPTION>
Shares Shares Under Outstanding Options
Available
For Grant Shares Price
<S> <C> <C> <C>
Balance at June 30, 1991 3,191,992 33,374,950 $ 0.18 - $ 23.68
Additional shares authorized for issuance 5,000,000 -- --
Options granted (9,672,204) 9,672,204 $ 0.96 - $ 14.79
Options exercised -- (6,252,422) $ 0.25 - $ 12.02
Options repurchased 4,478 -- --
Options cancelled 4,515,406 (4,515,406) $ 0.72 - $ 23.68
Net transactions of MIPS during the period from
January 1, 1991 to June 30, 1991 (see Note 2) (1,159,828) 170,088 $ 0.36 - $ 16.30
--------------------------------------------------
Balance at June 30, 1992 1,879,844 32,449,414 $ 0.18 - $ 19.47
Additional shares authorized for issuance 5,000,000 -- --
Options granted (5,340,578) 5,340,578 $ 9.07 - $ 17.25
Options exercised -- (6,080,084) $ 0.18 - $ 14.32
Options cancelled 1,785,194 (1,785,194) $ 0.84 - $ 19.47
Plan Shares Expired (11,908) -- --
--------------------------------------------------
Balance at June 30, 1993 3,312,552 29,924,714 $ 0.18 - $ 19.47
Additional shares authorized for issuance 4,605,110 -- --
Option granted (5,847,300) 5,847,300 $ 13.92 - $ 25.63
Options exercised -- (5,135,538) $ 0.25 - $ 22.88
Options cancelled 874,346 (874,346) $ 0.96 - $ 25.63
--------------------------------------------------
Balance at June 30, 1994 2,944,708 29,762,130 $ 0.18 - $ 25.63
</TABLE>
During fiscal year 1992, options to purchase 1,157,824 shares were reissued at
lower per-share prices under an option exchange program. This option reissuance
was done by MIPS prior to the merger and the Company's assumption of the option
plan. These reissuances are included above as cancellations (at the original
price) and grants (at the new price).
STOCK PURCHASE PLAN The Company has an employee stock purchase plan under which
eligible employees may purchase stock at 85% of the lower of the closing prices
for the stock at the beginning of a 24-month offering period or the end of each
six month purchase period. (Six month periods begin in May and November).
Purchases are limited to 10% of each employee's compensation. As of June 30,
1994, 9,131,805 shares had been issued under the plan and 3,828,195 shares were
reserved for future issuance.
STOCKHOLDER RIGHTS PLAN The Company has a stockholder rights plan (the "Rights
Plan") which provides existing stockholders with the right to purchase one
one-thousandth (0.001) preferred share for each share of common stock held in
the event of certain changes in the Company's ownership. The Rights Plan may
serve as a deterrent to certain abusive takeover tactics which are not in the
best interests of stockholders.
43
<PAGE>
7. EXPORT SALES AND DOMESTIC AND FOREIGN OPERATIONS
The Company's export sales (i.e., sales to unaffiliated customers outside of the
U.S. by the U.S. operation) were approximately $114,738,000, $77,383,000, and
$69,414,000 in 1994, 1993, and 1992, respectively. Transfers between geographic
areas are accounted for by using the transfer prices in effect for the
respective subsidiaries. Pacific/Americas is defined as: North and South
Pacific, Latin America, South America and Canada.
Information regarding operations in different geographic areas for the year
ended June 30, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
Geographic Area
United Pacific/
States Europe Americas Eliminations Total
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 871,631 $ 369,199 $ 240,772 $ -- $ 1,481,602
Intercompany transfers 289,776 -- -- (289,776) --
--------------------------------------------------------------------------
Net sales 1,161,407 369,199 240,772 (289,776) 1,481,602
--------------------------------------------------------------------------
Operating income 91,794 69,616 35,526 (3,794) 193,142
--------------------------------------------------------------------------
Income before income taxes 115,633 51,299 34,540 (3,794) 197,678
--------------------------------------------------------------------------
Identifiable assets 1,162,554 399,776 136,560 (180,107) 1,518,783
</TABLE>
Information regarding operations in different geographic areas for the year
ended June 30, 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Geographic Area
United Pacific/
States Europe Americas Eliminations Total
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 606,320 $ 292,878 $ 192,002 $ -- $ 1,091,200
Intercompany transfers 202,294 -- -- (202,294) --
--------------------------------------------------------------------------
Net sales 808,614 292,878 192,002 (202,294) 1,091,200
--------------------------------------------------------------------------
Operating income 40,763 62,516 18,721 3,086 125,086
--------------------------------------------------------------------------
Income before income taxes 62,694 41,579 17,914 3,086 125,273
--------------------------------------------------------------------------
Identifiable assets 834,286 261,409 98,327 (180,995) 1,013,027
</TABLE>
Information regarding operations in different geographic areas for the year
ended June 30, 1992 is as follows (in thousands):
<TABLE>
<CAPTION>
Geographic Area
United Pacific/
States Europe Americas Eliminations Total
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 494,587 $ 226,492 $ 145,514 $ -- $ 866,593
Intercompany transfers 195,277 -- -- (195,277) --
--------------------------------------------------------------------------
Net sales 689,864 226,492 145,514 (195,277) 866,593
--------------------------------------------------------------------------
Operating income (loss) (136,972) 23,676 14,611 (9,885) (108,570)
--------------------------------------------------------------------------
Income (loss) before income taxes (109,386) 3,683 12,904 (9,803) (102,602)
--------------------------------------------------------------------------
Identifiable assets 722,969 196,488 82,849 (156,986) 845,320
</TABLE>
44
<PAGE>
8. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 3,194 $ 2,954 $ 2,677
Income taxes, net of refunds 21,972 4,299 13,526
</TABLE>
Supplemental schedule of noncash investing and financing activities (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Acquisition of minority interest in subsidiary $ - $ - $ 2,459
Tax benefit from stock options 26,850 12,080 19,375
Property and equipment purchased
under construction financing - 4,736 6,039
Equipment purchased under capital leases 6,008 866 -
Recognition of compensation
expense in connection with voluntary
separation incentive program - - 1,018
</TABLE>
9. CONTINGENCIES
On March 11, 1992, the Company entered into an agreement with MIPS, pursuant
to which the Company acquired MIPS through the merger of a subsidiary of the
Company into MIPS. On March 17, 1992, a putative class action lawsuit entitled
DIANE PROVENZ AND AHIKIM EIZENBERG v. ROBERT C. MILLER, ET AL. was filed in
the United States District Court for the Northern District of California. The
plaintiffs purport to represent a class of all persons who purchased MIPS'
common stock between January 31, 1991 and October 9, 1991 (the "Class Period").
Named as defendants are MIPS and certain executive officers of MIPS. The
Company is not a defendant, but is defending the case as a successor in
interest to MIPS. The complaint alleges that the defendants violated various
federal securities laws and California statutes through material
misrepresentations and omissions during the Class Period. On June 27, 1994, the
Court granted the defendants' motion for summary judgment as to all counts. The
plaintiffs' motion for reconsideration of the order granting summary judgment is
pending. The Company believes that it has meritorious defenses to the claims
alleged in this lawsuit and intends to continue its defense of the action
vigorously.
As is typical in the computer industry, the Company from time to time receives
communications from third parties asserting patent rights, trademarks,
copyrights or other rights covering the Company's products, designs or
processes. In some cases, the Company seeks to obtain licenses from such third
parties. Although there can be no assurance that the Company will be able to
obtain these licenses or rights on commercially reasonable terms, management
believes that payment of royalties under any such license arrangements currently
under consideration would not have a material adverse effect on the Company's
financial condition.
10. CORPORATE RESTRUCTURING
In fiscal 1992 prior to its merger with Silicon Graphics, MIPS recorded a
$23,416,000 restructuring charge, included in operating expenses, as a result of
aligning programs and projects to focus on the Advanced Computing Environment
(ACE) initiative and as a result of lowering its cost structure. The
restructuring costs included severance costs for an approximate 10% reduction in
the employment levels, write-downs of capitalized software, inventory and
equipment, and a provision for idle facility costs.
45
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock was traded in the over-the-counter market under the
NASDAQ symbol SGIC from the Company's initial public offering in 1986 until
February 6, 1990, when the Company's Common Stock began trading on the New York
Stock Exchange under the NYSE symbol of SGI. The following table sets forth,
for the periods indicated, the high, low, and close prices for the Common Stock
as reported on the NYSE, giving effect to a two-for-one stock split effective
December 15, 1993.
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
Low High Close Low High Close
<S> <C> <C> <C> <C> <C> <C>
First Quarter $16.06 $22.50 $21.50 $ 8.19 $12.00 $ 9.38
Second Quarter 19.81 24.75 24.75 8.81 14.63 14.31
Third Quarter 21.50 26.88 23.88 13.56 16.50 14.25
Fourth Quarter 18.75 25.88 22.13 11.75 19.25 18.69
</TABLE>
The Company had approximately 4,747 stockholders of record as of June 30, 1994.
The Company has not paid any dividends on its common stock. Covenants governing
the Senior Notes and lines of credit restrict the payment of dividends, except
for dividends on currently outstanding preferred stock. The Company currently
intends to retain earnings for use in its business; therefore it does not
anticipate paying cash dividends in the foreseeable future to common
stockholders.
46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Silicon Graphics, Inc.
We have audited the accompanying consolidated balance sheets of Silicon
Graphics, Inc. as of June 30, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Silicon Graphics,
Inc. at June 30, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes.
/s/ ERNST & YOUNG LLP
Palo Alto, California
July 18, 1994
48
<PAGE>
Exhibit 21.1
SILICON GRAPHICS, INC. SUBSIDIARIES
Jurisdiction of
Name Incorporation
---- -------------
MIPS Technologies, Inc. Delaware
Silicon Graphics Real Estate, Inc. Delaware
Silicon Graphics World Trade Corporation Delaware
Silicon Studio, Inc. Delaware
Silicon Graphics Pty Limited Australia
Silicon Graphics Computer Systems Ges.m.b.H. Austria
Silicon Graphics International Inc. Barbados
Silicon Graphics S.A./N.V. Belgium
Silicon Graphics Comercio e Servicos Limitada Brazil
Silicon Graphics Canada, Inc. Canada
Silicon Graphics A/S Denmark
Silicon Graphics OY Finland
Silicon Graphics France
Silicon Graphics GmbH Germany
Silicon Graphics Limited Hong Kong
Silicon Graphics Kft. Hungary
Silicon Graphics Systems (India) Private Ltd India
Silicon Graphics Computer Systems Limited Israel
Silicon Graphics S.p.A. Italy
Nihon Silicon Graphics K.K. Japan
Korea Silicon Graphics Ltd. South Korea
Silicon Graphics S.A. de C.V. Mexico
Silicon Graphics B.V. Netherlands
Silicon Graphics Manufacturing European Finance B.V. Netherlands
Silicon Graphics A/S Norway
Silicon Graphics Pte. Limited Singapore
Silicon Graphics (Pty) Limited South Africa
Silicon Graphics, S.A. Spain
Silicon Graphics AB Sweden
Silicon Graphics S.A. Switzerland
Silicon Graphics Manufacturing S.A. Switzerland
Silicon Graphics Limited Taiwan
MIPS Computer Systems Limited United Kingdom
Silicon Graphics Application Systems Limited United Kingdom
Silicon Graphics Limited United Kingdom
Silicon Graphics Manufacturing Finance Limited Jersey Channel
Islands
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements incorporated in the Company's 1994
Annual Report to Stockholders filed as Exhibit 13.1 to this Form 10-K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<CASH> 310,767
<SECURITIES> 90,147
<RECEIVABLES> 399,569
<ALLOWANCES> 8,298
<INVENTORY> 164,319
<CURRENT-ASSETS> 1,024,366
<PP&E> 365,981
<DEPRECIATION> 182,651
<TOTAL-ASSETS> 1,518,783
<CURRENT-LIABILITIES> 356,279
<BONDS> 229,950
<COMMON> 139
0
33,996
<OTHER-SE> 877,126
<TOTAL-LIABILITY-AND-EQUITY> 1,518,783
<SALES> 1,318,693
<TOTAL-REVENUES> 1,481,602
<CGS> 632,440
<TOTAL-COSTS> 719,660
<OTHER-EXPENSES> 568,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,302
<INCOME-PRETAX> 197,678
<INCOME-TAX> 57,004
<INCOME-CONTINUING> 140,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,674
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
</TABLE>
