<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 MARCH 31, 1994
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 April 30, 1994 there were 138,839,823 shares of Common Stock outstanding.
<PAGE>
SILICON GRAPHICS, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheet at
March 31, 1994 and June 30, 1993 . . . . . . . . . . . . 3
Consolidated Statement of Income for the
Three Months Ended and Nine Months Ended
March 31, 1994 and 1993. . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows for the
Nine Months Ended March 31, 1994 and 1993. . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2: Management's Discussion and Analysis of
Results of Operations and Financial Condition. . . . . . 7-10
PART II - OTHER INFORMATION
Items 1 and 6: . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Index of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON GRAPHICS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
- - ------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 201,622 $ 142,668
Short-term investments . . . . . . . . . . . . . . . . . . . . 38,224 12,142
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 363,542 317,470
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . 186,368 156,165
Prepaid expenses and other current assets. . . . . . . . . . . 73,476 70,359
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . 863,232 698,804
Long-term financial instruments. . . . . . . . . . . . . . . . . 218,988 42,670
Property and equipment:
Land and building. . . . . . . . . . . . . . . . . . . . . . . 27,710 26,742
Machinery and equipment. . . . . . . . . . . . . . . . . . . . 213,651 175,978
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . 49,343 44,230
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 50,628 41,573
--------- ---------
341,332 288,523
Accumulated depreciation and amortization. . . . . . . . . . (168,953) (136,783)
--------- ---------
Net property and equipment . . . . . . . . . . . . . . . . . 172,379 151,740
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 121,824 119,813
--------- ---------
$1,376,423 $1,013,027
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 64,517 $ 92,020
Accrued compensation . . . . . . . . . . . . . . . . . . . . . 41,859 33,543
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 61,385 39,215
Other accrued liabilities. . . . . . . . . . . . . . . . . . . 63,843 46,026
Long-term debt due within one year . . . . . . . . . . . . . . 9,853 7,048
Accrued merger expenses. . . . . . . . . . . . . . . . . . . . 10,449 12,140
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 61,227 50,446
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . . 313,133 280,438
Deferred revenue and other accrued expenses, long-term . . . . . 2,578 5,102
Long-term debt due after one year. . . . . . . . . . . . . . . . 226,787 25,989
Accrued merger expenses, long-term . . . . . . . . . . . . . . . 9,891 13,802
Stockholders' equity:
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . 33,996 33,996
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 137 132
Additional paid-in capital.. . . . . . . . . . . . . . . . . . 635,882 601,994
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 152,736 56,348
Accumulated translation adjustment . . . . . . . . . . . . . . 1,283 (4,774)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . 824,034 687,696
--------- ---------
$1,376,423 $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 March 31, 1993 is to
increase current assets by $36.9 million, increase other assets by $50.3
million, increase current liabilities by $26.5 million and increase
stockholders' equity by $60.7 million. 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 Nine Months Ended
March 31, March 31,
-------- --------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product and other revenues . . . . . . . . . . . . . . $334,898 $239,429 $930,821 $682,773
Service revenues . . . . . . . . . . . . . . . . . . . 41,395 31,237 117,504 89,158
------- ------- --------- -------
Total revenues . . . . . . . . . . . . . . . . . . . 376,293 270,666 1,048,325 771,931
Costs and expenses:
Cost of product and other revenues.. . . . . . . . . 160,775 111,082 447,464 310,652
Cost of service revenues . . . . . . . . . . . . . . 22,615 18,794 63,471 56,503
Research and development . . . . . . . . . . . . . . 44,568 34,931 126,153 98,353
Selling, general and administrative. . . . . . . . . 99,394 76,456 279,024 226,496
------- ------- ------- -------
Total costs and expenses . . . . . . . . . . . . . 327,352 241,263 916,112 692,004
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . . . . . 48,941 29,403 132,213 79,927
Interest income (expense) and other, net . . . . . . . 1,197 (484) 3,325 (929)
------- ------- ------- -------
Income before taxes . . . . . . . . . . . . . . . . . 50,138 28,919 135,538 78,998
Provision for income taxes . . . . . . . . . . . . . . 15,041 8,676 38,361 23,700
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 35,097 $ 20,243 $ 97,177 $ 55,298
------- ------- ------- -------
------- ------- ------- -------
Net income per common share. . . . . . . . . . . . . . $ 0.23 $ 0.14 $ 0.63 $ 0.38
---- ---- ---- ----
---- ---- ---- ----
Common shares and common share equivalents
used in the calculation of net income per
common share . . . . . . . . . . . . . . . . . . . . . 155,523 146,714 153,782 144,432
------- ------- ------- -------
------- ------- ------- -------
</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 $1.7 million and $0.01 for the three months ended March
31, 1993 and $4.7 million and $0.03 for the nine months ended March 31, 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.
SEE ACCOMPANYING NOTES
4
<PAGE>
SILICON GRAPHICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,177 $ 55,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 60,319 47,688
Accrued interest on convertible subordinated debenture . . . . 3,460 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,242 (3,601)
(Increase) decrease in assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . (46,072) (24,246)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . (30,203) (15,679)
Prepaid expenses and other current assets. . . . . . . . . . (3,117) 139
Increase (decrease) in liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (27,725) 5,835
Accrued compensation . . . . . . . . . . . . . . . . . . . . 8,316 5,291
Income taxes payable . . . . . . . . . . . . . . . . . . . . 22,170 15,085
Other accrued liabilities. . . . . . . . . . . . . . . . . . 17,555 5,018
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 10,157 5,618
Deferred revenue and other accrued expenses, long-term . . . (1,900) (168)
Accrued merger expenses. . . . . . . . . . . . . . . . . . . (5,409) (33,357)
------- -------
Total adjustments. . . . . . . . . . . . . . . . . . . . . 13,793 7,623
------- -------
Net cash provided by operating activities. . . . . . . . . . 110,970 62,921
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (62,573) (53,524)
Increase in other assets . . . . . . . . . . . . . . . . . . . . (13,908) (21,243)
Investments in short-term financial instruments. . . . . . . . . (73,696) (109,643)
Principal proceeds from matured short-term investments . . . . . 56,326 64,022
Investments in long-term financial instruments . . . . . . . . (252,361) (10,199)
Principal proceeds from redemption of long-term investments. . . 67,331 --
------- -------
Net cash used in investing activities. . . . . . . . . . . . (278,881) (130,587)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . 33,405 27,151
Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . 203,345 931
Payments of debt principal . . . . . . . . . . . . . . . . . . (9,360) (9,012)
Cash dividends - preferred stock . . . . . . . . . . . . . . . . (525) (525)
------- -------
Net cash provided by financing activities. . . . . . . . . . 226,865 18,545
------- -------
Net increase (decrease) in cash and cash equivalents . . . . . . 58,954 (49,121)
Cash and cash equivalents at beginning of period . . . . . . . . 142,668 154,485
------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . $201,622 $105,364
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES
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>
March 31, June 30,
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Raw material $ 29,682 $ 26,016
Work in process 45,804 44,958
Finished goods 14,562 16,616
Service & marketing 96,320 68,575
------- -------
Total inventories, net $186,368 $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 supercedes
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. 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 three month and nine month
periods ended March 31, 1994 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.
6
<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 Nine Months Ended
March 31, March 31, March 31, March 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product and other revenues . . . . . . . . . . . . . 89.0% 88.5% 88.8% 88.5%
Service revenues . . . . . . . . . . . . . . . . . . 11.0 11.5 11.2 11.5
----- ----- ----- -----
Total revenues . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of product and other revenues . . . . . . . . . 42.7 41.1 42.7 40.2
Cost of service revenues . . . . . . . . . . . . . . 6.0 6.9 6.0 7.3
----- ----- ----- -----
Gross margin . . . . . . . . . . . . . . . . . . . . 51.3 52.0 51.3 52.4
Research and development expenses. . . . . . . . . . 11.8 12.9 12.0 12.7
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . 26.4 28.3 26.6 29.3
----- ----- ----- -----
Operating income . . . . . . . . . . . . . . . . . . 13.0 10.9 12.6 10.4
Interest income (expense) and other, net . . . . . . 0.3 (0.2) 0.3 (0.1)
----- ----- ----- -----
Income before taxes . . . . . . . . . . . . . . . . 13.3 10.7 12.9 10.2
Provision for income taxes . . . . . . . . . . . . . 4.0 3.2 3.7 3.1
----- ----- ----- -----
Net Income . . . . . . . . . . . . . . . . . . . . . 9.3% 7.5% 9.3% 7.2%
----- ----- ----- -----
----- ----- ----- -----
</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 March 31, 1994 Nine Months Ended March 31, 1994
------------------ --------------- --------------------------------
vs Prior Qtr vs Year Ago Qtr vs Year Ago Period
------------ --------------- ------------------
<S> <C> <C> <C>
Product and other revenues . . . . . . . . . . . . . 1% 40% 36%
Service revenues . . . . . . . . . . . . . . . . . . 5% 33% 32%
Total revenues . . . . . . . . . . . . . . . . . . . 2% 39% 36%
Gross Profit . . . . . . . . . . . . . . . . . . . . 2% 37% 33%
Research and development. . . . . . . . . . . . . . 5% 28% 28%
Selling, general and administrative. . . . . . . . . 3% 30% 23%
Net Income . . . . . . . . . . . . . . . . . . . . . (3)% 73% 76%
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
- - ----------------------
TOTAL REVENUES:
Revenue growth over the prior year for both the three and nine month
periods 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 for the
third quarter of fiscal 1994 were essentially flat over the second quarter of
fiscal 1994, consistent with third quarter revenue patterns over the last few
years.
REVENUE BY GEOGRAPHY
(as a percentage of total revenue)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31, March 31, March 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 49% 48% 53% 49%
Europe/Pacific 51% 52% 47% 51%
</TABLE>
The nine month change in geographical mix is largely due to the relative
strength of the U.S. economy versus those of Europe and Japan. The change in
geographical mix is believed to be contrary to the long-term trend in mix.
Revenue from Japan represented approximately 16% of total revenues for the
quarter and approximately 13% for the nine months ended March 31, 1994, compared
to approximately 16% and approximately 14%, respectively, in the prior year's
comparable periods. The increase reflects higher spending by the Japanese
Government.
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.
SHIPMENT REVENUES BY PRODUCT LINE
(as a percent of shipment revenue, excluding service and other revenue)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31, March 31, March 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
High-end 37% 37% 39% 38%
Low-end 63% 63% 61% 62%
</TABLE>
High-end and low-end 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
8
<PAGE>
and profitability. The Company experienced some strength in certain countries
during the quarter; however, periods of general economic weakness have had
direct and indirect negative effects on revenues and income in the past 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. The Company expects service
revenues to increase at about the same rate of growth as fiscal year 1994 to
date.
COST OF GOODS SOLD/GROSS MARGIN:
The decrease in gross margin for the three month period compared to the
prior year was the result of several factors including lower pricing on desktop
products, which was partially offset by an increase in service margins. The
decrease in gross margin for the nine month period was primarily the result of
lower pricing on desktop products and a change in the geographical mix,
partially offset by increased service margins. The overall gross margin
achieved during the third quarter of fiscal 1994 and the nine month period of
fiscal 1994 are in the range that management believes to be normal. 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 from in the continuing 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. 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 and nine month period ended March
31, 1994 improved compared to the prior year due to decreased cost of hedging
foreign currencies, and increased interest income as a result of higher invested
cash balances and higher interest earned on investments.
PROVISION FOR INCOME TAXES:
The Company's combined federal, state and foreign effective income tax rate
for the three and nine month periods ended March 31, 1994 was 30% and 28%
respectively, compared to 30% for the same periods of the prior fiscal year.
The combined effective income tax rate for the nine 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.
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which supercedes
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
9
<PAGE>
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 nine months ended March
31, 1993 decreased by $1.7 and $4.7 million respectively ($0.01 and $0.03 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 either through carrybacks, or by offsetting deferred tax
liabilities or future taxable income.
NET INCOME:
As a result of the above factors, net income increased 73% and 76%,
respectively, for the three and the nine month periods.
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 domestic and international 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
- - -------------------
For the three months ended March 31, 1994, the Company's cash and cash
equivalents, short term investments and long-term financial instruments
increased by $58 million. This increase was primarily due to positive cash flow
from operating activities of $81 million, as well as $11 million generated from
sales of stock through employee benefit programs, which was partially offset by
$24 million of capital expenditures and $8 million of debt payment. For the
nine months ended March 31, 1994, the Company's cash and cash equivalents, short
term investments and long-term financial instruments increased by $261 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 $111 million and sale of stock through
employee benefit programs of $33 million was partially offset by capital
expenditures of $63 million, increase in other assets of $14 million, and $6
million net reduction in debt excluding the convertible debenture.
As of March 31, 1994, the Company's principal sources of liquidity included
cash and cash equivalents, short-term investments and long-term financial
instruments of $459 million and up to $20 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.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The Company's motion for summary judgment is currently pending.
A trial date has been set for June 27, 1994. The Company believes that it has
meritorious defenses to the claims alleged in this lawsuit and intends to defend
the action vigorously.
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 March 31,
1994.
11
<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.
Dated: May 13, 1994 SILICON GRAPHICS, INC.
a Delaware Corporation
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 and Treasurer
12
<PAGE>
SILICON GRAPHICS, INC.
INDEX TO EXHIBITS
Exhibit Description Page
- - ------- ----------- ----
11 Statement of Computation of Common
Shares, Common Share Equivalents and
Earnings Per Share 14
13
<PAGE>
EXHIBIT 11
STATEMENT OF COMPUTATION OF COMMON SHARES, COMMON
SHARE EQUIVALENTS AND EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------- --------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common shares 136,128 128,582 134,321 126,338
Convertible preferred shares 1,536 2,606 1,963 4,038
Stock options 17,859 15,526 17,498 14,056
------- ------- ------- -------
Total weighted average
shares outstanding 155,523 146,714 153,782 144,432
------- ------- ------- -------
------- ------- ------- -------
Net income available to
common stockholders $35,097 $20,243 $97,177 $55,298
------- ------- ------- -------
------- ------- ------- -------
Income Per Share:
Net income per share $ 0.23 $ 0.14 $ 0.63 $ 0.38
------ ------ ------ ------
------ ------ ------ ------
</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 $1.7 million and $0.01 for the three months ended March
31, 1993 and $4.7 million and $0.03 for the nine months ended
March 31, 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.
14
