<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1993
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 No.)
2011 N. SHORELINE BOULEVARD, MOUNTAIN VIEW, CALIFORNIA 94043-1389
(Address of principal executive offices) (Zip Code)
(415) 960-1980
(Registrant's telephone number, including area code)
__________________
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
----- -----
As of January 31, 1994 there were 135,782,283 shares of Common Stock
outstanding.
<PAGE>
SILICON GRAPHICS, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheet at
December 31, 1993 and June 30, 1993. . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income for the
Three Months Ended and Six Months Ended
December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows for the
Six Months Ended December 31, 1993 and 1992. . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2: Management's Discussion and Analysis of
Results of Operations and Financial Condition. . . . . . . . . . .8-11
PART II - OTHER INFORMATION
Items 4 and 6: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Index of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON GRAPHICS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1993 1993
- ------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . $146,735 $142,668
Short-term investments . . . . . . . . . . . . 59,135 12,142
Accounts receivable, net . . . . . . . . . . . 363,383 317,470
Inventories, net . . . . . . . . . . . . . . . 197,349 156,165
Prepaid expenses and other current assets. . . 74,242 70,359
---------- ----------
Total current assets. . . . . . . . . . . . 840,844 698,804
Long-term financial instruments. . . . . . . . . 194,583 42,670
Property and equipment:
Land and building. . . . . . . . . . . . . . . 27,214 26,742
Machinery and equipment. . . . . . . . . . . . 204,968 175,978
Furniture and fixtures . . . . . . . . . . . . 48,079 44,230
Leasehold improvements . . . . . . . . . . . . 46,261 41,573
---------- ----------
326,522 288,523
Accumulated depreciation and amortization (161,388) (136,783)
---------- ----------
Net property and equipment. . . . . . . . . 165,134 151,740
Other assets . . . . . . . . . . . . . . . . . . 123,977 119,813
---------- ----------
$1,324,538 $1,013,027
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . 90,904 92,020
Accrued compensation . . . . . . . . . . . . . 31,373 33,543
Income taxes payable . . . . . . . . . . . . . 51,201 39,215
Other accrued liabilities. . . . . . . . . . . 58,552 46,026
Long-term debt due within one year . . . . . . 10,112 7,048
Accrued merger expenses. . . . . . . . . . . . 12,235 12,140
Deferred revenue . . . . . . . . . . . . . . . 52,922 50,446
---------- ----------
Total current liabilities . . . . . . . . . 307,299 280,438
Deferred revenue and other accrued expenses,
long-term. . . . . . . . . . . . . . . . . . . 3,890 5,102
Long-term debt due after one year. . . . . . . . 231,085 25,989
Accrued merger expenses, long-term . . . . . . . 10,389 13,802
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . 33,996 33,996
Common stock . . . . . . . . . . . . . . . . . 135 132
Additional paid-in capital.. . . . . . . . . . 624,887 601,994
Retained earnings. . . . . . . . . . . . . . . 117,901 56,348
Accumulated translation adjustment . . . . . . (5,044) (4,774)
---------- ----------
Total stockholders' equity. . . . . . . . . 771,875 687,696
---------- ----------
$1,324,538 $1,013,027
---------- ----------
---------- ----------
</TABLE>
Prior periods have been restated to reflect the adoption of FASB Statement
No. 109, "Accounting for Income Taxes". The effect at June 30, 1993 is to
increase current assets by $22.5 million, increase other assets by $44.4
million, increase current liabilities by $12.9 million and increase
stockholders' equity by $54.0 million.
SEE ACCOMPANYING NOTES
----------------------
3
<PAGE>
SILICON GRAPHICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product and other revenues . . . . . . . . . . $330,923 $240,570 $595,923 $443,344
Service revenues . . . . . . . . . . . . . . . 39,473 29,600 76,109 57,921
-------- --------- --------- ---------
Total revenues . . . . . . . . . . . . . . . 370,396 270,170 672,032 501,265
Costs and expenses:
Cost of product and other revenues . . . . . 160,223 108,920 286,689 199,570
Cost of service revenues . . . . . . . . . . 21,184 19,314 40,856 37,709
Research and development . . . . . . . . . . 42,560 33,440 81,585 63,422
Selling, general and administrative. . . . . 96,131 79,110 179,630 150,040
-------- --------- --------- ---------
Total costs and expenses. . . . . . . . . . 320,098 240,784 588,760 450,741
-------- --------- --------- ---------
Operating income . . . . . . . . . . . . . . . 50,298 29,386 83,272 50,524
Interest income (expense) and other, net . . . 1,616 2,014 2,128 (445)
-------- --------- --------- ---------
Income before taxes. . . . . . . . . . . . . . 51,914 31,400 85,400 50,079
Provision for income taxes . . . . . . . . . . 15,574 9,420 23,320 15,024
-------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . $ 36,340 $21,980 $62,080 $35,055
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income per common share. . . . . . . . . . $ 0.24 $ 0.15 $ 0.41 $ 0.25
-------- --------- --------- ---------
-------- --------- --------- ---------
Common shares and common share equivalents
used in the calculation of net income per
common share . . . . . . . . . . . . . . . . . 154,046 143,804 152,698 142,574
-------- --------- --------- ---------
-------- --------- --------- ---------
</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 $1.9 million and $0.01 for the three months ended December
31, 1992 and $3.0 million and $0.02 for the six months ended December 31, 1992
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.
SEE ACCOMPANYING NOTES
----------------------
4
<PAGE>
SILICON GRAPHICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------
1993 1992
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 62,080 $ 35,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 38,456 31,823
Accrued interest on convertible
subordinated debenture. . . . . . . . . . . . . . 1,382 --
Other . . . . . . . . . . . . . . . . . . . . . . . (246) (2,157)
(Increase) decrease in assets:
Accounts receivable. . . . . . . . . . . . . . . . (45,913) (11,094)
Inventories. . . . . . . . . . . . . . . . . . . . (41,184) 705
Prepaid expenses and other current assets. . . . . (3,883) 631
Increase (decrease) in liabilities:
Accounts payable . . . . . . . . . . . . . . . . . (1,338) 939
Accrued compensation . . . . . . . . . . . . . . . (2,170) (3,673)
Income taxes payable . . . . . . . . . . . . . . . 11,986 10,563
Other accrued liabilities. . . . . . . . . . . . . 12,526 3,706
Deferred revenue . . . . . . . . . . . . . . . . . (1,212) 3,347
Deferred revenue and other accrued expenses,
long-term . . . . . . . . . . . . . . . . . . . . (3,125) 189
Accrued merger expenses. . . . . . . . . . . . . . 2,476 (28,600)
--------- ---------
Total adjustments . . . . . . . . . . . . . . . . (32,245) 6,379
--------- ---------
Net cash provided by operating activities. . . . . 29,835 41,434
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . (38,574) (34,271)
Increase in other assets . . . . . . . . . . . . . . (11,015) (19,268)
Investments in short-term financial instruments. . . (55,987) (52,893)
Principal proceeds from matured short-term
investments . . . . . . . . . . . . . . . . . . . . 16,506 41,187
Investments in long-term financial instruments . . . (169,471) (10,199)
Principal proceeds from redemption of
long-term investments . . . . . . . . . . . . . . . 10,046 --
--------- ---------
Net cash used in investing activities. . . . . . . (248,495) (75,444)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock . . . . . . . . . . . . . . . . 22,569 20,652
Issuance of debt . . . . . . . . . . . . . . . . . . 202,161 932
Payments of debt principal . . . . . . . . . . . . . (1,478) (2,786)
Cash dividends - preferred stock . . . . . . . . . . (525) (525)
--------- ---------
Net cash provided by financing activities. . . . . 222,727 18,273
--------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . 4,067 (15,737)
Cash and cash equivalents at beginning of period . . 142,668 154,485
--------- ---------
Cash and cash equivalents at end of period . . . . . $146,735 $138,748
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES
</TABLE>
5
<PAGE>
SILICON GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The results of operations for the interim periods shown herein are not
necessarily indicative of operating results for the entire fiscal year. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for all periods presented have been made. The
unaudited Consolidated Financial Statements included in this Form 10-Q should be
read in conjunction with the audited consolidated financial statements for the
fiscal year ended June 30, 1993.
2. CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM
FINANCIAL INSTRUMENTS
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.
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.
Long-term financial instruments consist of high quality financial securities
with maturities greater than one year.
3. INVENTORIES
Inventories stated at the lower of cost (first-in, first-out) or market
consist of (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1993 1993
---- ----
(Unaudited)
<S> <C> <C>
Raw material $ 34,245 $ 26,016
Work in process 60,114 44,958
Finished goods 18,344 16,616
Service & marketing 84,646 68,575
--------- ---------
Total inventories, net $197,349 $156,165
--------- ---------
--------- ---------
</TABLE>
4. CONVERTIBLE DEBT
During the second quarter of fiscal 1994, the Company completed a private
placement of zero coupon convertible subordinated debentures due in 2013, which
generated proceeds to the Company of approximately $200 million in additional
cash. The face amount of the debentures at maturity is $455 million. The initial
price to the public for the debentures was $439.77 per $1,000 of face amount at
maturity, which equates to a yield to maturity over the term of the bonds of
4.15% (on a semi-annual bond equivalent basis). The bonds are convertible into
common stock at the rate of 16.269 shares per $1,000 of face amount at maturity,
which equates to an initial conversion price of $27.03 per share.
5. INCOME TAXES
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which supersedes
SFAS 96 and APB 11 and establishes a new method of accounting for income taxes.
The Company adopted SFAS 109 in its first quarter of fiscal 1994 and applied its
provisions retroactively to fiscal 1989. The effect of adopting SFAS 109 was 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 ($0.71 per share) and decreased net income for fiscal 1993 by
$7.5 million ($0.10 per share).
6
<PAGE>
6. PER SHARE DATA
Net income per share is computed using the weighted average number of
common shares and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents for the six month period ended
December 31, 1993 consist of stock options (using the modified treasury stock
method) and convertible preferred stock. The Company's Series A convertible
preferred stock is included on an as-if-converted basis. The Company's twenty
year zero-coupon convertible subordinated debenture issued in November 1993 is
not a common stock equivalent and therefore not included in the equivalent
shares.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
-----------------------------------------------
OF OPERATIONS AND FINANCIAL CONDITION
-------------------------------------
The following table sets forth, for the periods indicated, certain income and
expense items as a percentage of net revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec 31, Dec 31, Dec 31, Dec 31,
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product and other revenues . . . . . . . . 89.3% 89.0% 88.7% 88.4%
Service revenues . . . . . . . . . . . . . 10.7 11.0 11.3 11.6
----- ----- ----- -----
Total revenues . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of product and other revenues . . . . 43.3 40.3 42.7 39.8
Cost of service revenues . . . . . . . . . 5.7 7.2 6.1 7.5
----- ----- ----- -----
Gross margin . . . . . . . . . . . . . . . 51.0 52.5 51.3 52.7
Research and development expense . . . . . 11.5 12.4 12.1 12.7
Selling, general and administrative
expenses . . . . . . . . . . . . . . . 26.0 29.3 26.7 29.9
----- ----- ----- -----
Operating income . . . . . . . . . . . . . 13.6 10.9 12.4 10.1
Interest income (expense) and other, net . 0.4 0.8 0.3 (0.1)
----- ----- ----- -----
Income before taxes. . . . . . . . . . . . 14.0 11.6 12.7 10.0
Provision for income taxes . . . . . . . . 4.2 3.5 3.5 3.0
----- ----- ----- -----
Net Income . . . . . . . . . . . . . . . . 9.8% 8.1% 9.2% 7.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Percentages may not add due to rounding.
The following table sets forth, for the periods indicated, growth rates for
certain income and expense items:
<TABLE>
<CAPTION>
Increase/(Decrease)for the
----------------------------------------------------------------
Three Months Ended Dec 31, 1993 Six Months Ended Dec 31, 1993
------------------------------- -----------------------------
vs Prior Qtr vs Year Ago Qtr vs Year Ago Period
------------ --------------- ------------------
<S> <C> <C> <C>
Product and other revenues . . . . . . . . 25% 38% 34%
Service revenues . . . . . . . . . . . . . 8% 33% 31%
Total revenues . . . . . . . . . . . . . . 23% 37% 34%
Gross Profit . . . . . . . . . . . . . . . 22% 33% 30%
Research and development. . . . . . . . . 9% 27% 29%
Selling, general and administrative. . . . 15% 22% 20%
Net Income . . . . . . . . . . . . . . . . 41% 65% 77%
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
TOTAL REVENUES:
Revenue growth resulted principally from increased unit shipments of the
Company's products as the Company introduced new, higher performance models
which provided graphics or computing performance enhancements, or both. Total
revenues increased 23% over the first quarter of fiscal 1994 due primarily to
the rebound in European business from the seasonally slow summer quarter.
REVENUE BY GEOGRAPHY
(as a percentage of total revenue)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
Dec 31, Dec 31, Dec 31, Dec 31,
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 54% 47% 56% 50%
Europe/Pacific 46% 53% 44% 50%
</TABLE>
Revenue from Japan represented approximately 12% of total revenues for the
quarter and approximately 13% for the six months ended December 31, 1993,
compared to approximately 12% and approximately 14%, respectively, in the prior
year's comparable periods. The change in geographical mix is largely due to the
current relative strength of the U.S. economy versus those of Europe and Japan,
and the change in currency exchange rates from one year ago. The change in
geographical mix is believed to be contrary to the long-term trend in mix.
PRODUCT AND OTHER REVENUES: The Company's product and other revenues result
primarily from shipment of workstation and server products, with subsystem and
software revenues, license fees, and non-recurring engineering (NRE) contract
payments comprising the remainder. NRE contract payments are generally
recognized upon the completion of contract requirements or milestones, and the
expenses related to these efforts are included in research and development
expense.
<TABLE>
<CAPTION>
SHIPMENT REVENUES BY PRODUCT LINE
---------------------------------
(as a percent of shipment revenue,
excluding service and other revenue)
Three Months Ended Six Months Ended
------------------ ----------------
Dec 31, Dec 31, Dec 31, Dec 31,
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
High-end (Challenge, Onyx,
IRIS CRIMSON, Millennium,
Power Series and R6000 ECL) 37% 36% 40% 39%
Low-end (Indy, IRIS Indigo,
Indigo2 and Magnum) 63% 64% 60% 61%
</TABLE>
Product mix has remained relatively constant as the Company continues to
develop and deliver a wide range of products to a broadening marketplace.
To date, the Company has derived a substantial portion of its revenues in
any fiscal period from its most recently introduced product series. Over the
last twelve months the Company has introduced new products at both the low-end
and high-end of its product line, most of which have shipped in volume. In order
for the Company to increase its total revenues it must continue to develop and
introduce new products. As the technology for computer systems, including
microprocessors, hardware, software and networking, included in the Company's
products becomes more complex, the potential for delay or difficulty in new
product introduction increases. In addition, as the Company's product lines
become increasingly varied and complex, the process of planning production and
inventory levels also becomes more complex. Any delay in the process of new
product development and introduction, deferral of purchases by customers in
anticipation of such new products, difficulties encountered by the Company in
introducing new products or failure of these products to compete successfully
with alternatives offered by other vendors could adversely affect the Company's
revenues
9
<PAGE>
and profitability. The current economic conditions being experienced in Europe
and a number of other countries had direct and indirect negative effects on
revenues and income during the first half of fiscal 1994, and could continue to
do so in the future.
SERVICE REVENUES: Service revenues, which are comprised of hardware and software
support and maintenance, grew as a result of the continuing increase in the
installed base of the Company's products. For fiscal 1994, the Company expects
service revenues to increase at about the same rate as product and other
revenues.
COST OF GOODS SOLD/GROSS MARGIN:
The decrease in gross margin for the three month and six month periods is a
result of the changes in the mix of products within product lines, the
geographical mix, and negative impact on revenues due to a stronger dollar
versus European currencies. The overall gross margin achieved during the second
quarter of fiscal 1994 and the six month period of fiscal 1994 are in the range
that management believes to be normal or sustainable. The level of gross margin
for the Company may be affected from period to period by fluctuations in the
proportion of other revenues, such as license and NRE fees, which generally have
higher margins than product revenues, and by changes in the Company's mix of
products and channels of distribution.
The increase in gross margin on service revenue was primarily a result of
efficiencies related to the increase in the installed base of the Company's
products.
RESEARCH AND DEVELOPMENT EXPENSE:
Research and development expense as a percentage of total revenues declined
slightly due to the large increase in total revenue. While the Company will
continue to increase the amount of research and development expense in absolute
dollars, it believes that as a percentage of revenue research and development
expense is currently in the Company's normal range.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
The year-over-year decrease in selling, general and administrative expense
as a percent of revenue is a result of managing expense growth relative to
revenue growth. Selling, general, and administrative expense as a percentage of
revenue is currently at the low-end of the Company's normal range.
INTEREST INCOME (EXPENSE) AND OTHER, NET:
Interest and other, net for the quarter ended December 31, 1993 was an
income of $1.6 million compared to $2.0 million of income for the same quarter
in the prior year. The decrease was primarily due to abnormally high foreign
exchange gains experienced in the prior year quarter, largely offset by lower
hedging costs, higher net interest income and gains on sales of securities in
the current quarter. Interest and other, net for the six month period was income
of $2.1 million, compared with an expense of $.4 million for the six months
ended December 31, 1992. The change was primarily due to lower foreign exchange
hedging costs and losses, and an increase in interest income as a result of
higher invested cash balances and higher interest earnings on investments, and
gains on sales of securities.
PROVISION FOR INCOME TAXES:
The Company's combined federal, state and foreign effective income tax
rates for the three and six month periods ended December 31, 1993 were 30% and
27% respectively, compared to 30% for the same periods of the prior fiscal year.
The combined effective income tax rate for the six month period was comprised of
an estimated annual 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 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.
10
<PAGE>
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which supersedes
SFAS 96 and APB 11 and establishes a new method of 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 ($0.71 per share) and decreased net income for fiscal 1993 by
$7.5 million ($0.10 per share). Net income for the three and six months ended
December 31, 1992 decreased by $1.9 and $3 million, respectively ($0.01 and
$0.02 per share).
The Company believes that current levels of taxable income, adjusted for
non-recurring items, will be sufficient to realize the deferred tax assets.
Accordingly, the Company has determined that no valuation allowance for deferred
tax assets is required to reduce such assets to an amount which is more likely
than not to be realized through carrybacks, offsetting deferred tax liabilities
and future taxable income.
NET INCOME:
As a result of the above factors, net income increased significantly for
the three and six month periods compared to the prior year, 65% and 77%,
respectively.
It is important to recognize the ongoing risks related to the Company's
business. In any given period net income could be negatively affected by such
factors as increased competition, reductions in average selling prices, changes
in product and geographical mix, the effect of changes in currency exchange
rates, the costs of introducing new products or difficulties in developing,
introducing and manufacturing these products, increased product costs (including
the availability and cost of components and trade protection measures) and
adverse changes in general economic conditions and in U.S. Government spending.
Revenues and net income could also be adversely affected by reduced demand for
software and subsystem products, for product support and maintenance and by
fluctuations in licensing and NRE contract fees. The Company does not typically
have a significant backlog of orders at the beginning of each period. The
Company generally books and ships a majority of its business within the same
quarter, with a substantial portion being shipped in the third month of the
quarter. Additionally, the timing of expenditures for research and development
and sales and marketing programs and the timing of orders by major customers may
cause operating income to fluctuate between periods.
The Company's future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenue or
earnings from levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the Company's common stock in
any given period. Additionally, the Company may not learn of such shortfalls
until late in or shortly after the end of the fiscal period, which could result
in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which in and of itself often results in significant volatility of the
Company's common stock price.
FINANCIAL CONDITION
During the six months ended December 31, 1993, the Company's cash and cash
equivalents, short term investments and long-term financial instruments
increased by $203 million. This increase was primarily due to proceeds of $200
million generated from the sale of twenty-year zero coupon convertible
subordinated debentures. Positive cash flow from operating activities of $30
million and from sales of stock through employee benefit programs of $23 million
was offset by capital expenditures of $39 million and increases in other assets
of $11 million.
As of December 31, 1993, the Company's principal sources of liquidity
included cash and cash equivalents, short-term investments and long-term
financial instruments of $400 million and up to $15 million available under a
committed line of credit. These resources should be adequate to fund the
Company's projected cash needs beyond fiscal 1994. The Company believes that the
level of financial resources is an important competitive factor in the computer
industry, and accordingly, elected to raise additional capital in anticipation
of future needs. It might do so again in the future.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
For information regarding the Company's Annual Meeting of Stockholders held on
October 21, 1993, see Item 4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement of Computation of Common Shares and Common Share
Equivalents
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
December 31, 1993.
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: February 9, 1994 By /s/ Stanley J. Meresman
------------------------------
Stanley J. Meresman
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
By /s/ Dennis P. McBride
------------------------------
Dennis P. McBride
Vice President, Controller
(Principal Accounting Officer)
By /s/ Tom Oswold
------------------------------
Tom Oswold
Vice President, Finance
13
<PAGE>
SILICON GRAPHICS, INC.
INDEX OF EXHIBITS
Exhibit No. Page No.
11 Statement of Computation of Common Shares
and Common Share Equivalent. . . . . . . . . 15
14
<PAGE>
EXHIBIT 11
STATEMENT OF COMPUTATION OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS
WEIGHTED AVERAGE SHARES OUTSTANDING:
(THOUSANDS OF SHARES)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, December 31,
------------ ------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common shares 134,583 126,462 133,417 125,216
Convertible preferred shares 1,753 3,274 1,963 4,038
Stock options 17,710 14,068 17,318 13,320
------- ------- ------- -------
Total weighted average
shares outstanding 154,046 143,804 152,698 142,574
------- ------- ------- -------
------- ------- ------- -------
Net income available to
common stockholders 36,340 21,980 62,080 35,055
------- ------- ------- -------
------- ------- ------- -------
Income Per Share:
Net income per share 0.24 0.15 0.41 0.25
------- ------- ------- -------
------- ------- ------- -------
</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 $1.9 million and $0.01, respectively, for the three months
ended December 31, 1992 and $3.0 million and $0.02, respectively, for the six
months ended December 31, 1992, 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.
