<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934. For the quarterly period ended SEPTEMBER 30, 1995.
or
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 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 OCTOBER 31, 1995 THERE WERE 161,514,771 SHARES OF COMMON STOCK
OUTSTANDING.
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SILICON GRAPHICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at
September 30, 1995 and June 30, 1995......................... 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 1995 and 1994............... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1995 and 1994............... 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................ 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......... 14
Item 6. Exhibits and Reports on Form 8-K............................. 14
Signatures............................................................. 15
Index to Exhibits...................................................... 16
TRADEMARKS USED IN THIS FORM 10-Q: Challenge, Indigo and Silicon Graphics
are registered trademarks and Indigo(2), Indigo(2) Impact, Onyx and Power
Challenge are trademarks of Silicon Graphics, Inc. Indy is a trademark used
under license in the United States, and owned by Silicon Graphics, Inc. in
other countries worldwide. MIPS is a registered trademark of MIPS
Technologies, Inc. UNIX is a registered trademark of Novell, Inc. in the
United States and other countries, licensed exclusively through X/Open
Company Ltd.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1995(1)
- ------ ------------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $341,889 $307,875
Short-term marketable investments.............. 158,945 208,094
Accounts receivable, net....................... 593,657 627,738
Inventories.................................... 352,265 291,587
Prepaid expenses and other current assets...... 77,240 73,579
---------- ----------
Total current assets........................ 1,523,996 1,508,873
Other marketable investments..................... 246,128 264,043
Property and equipment, at cost.................. 564,920 515,470
Accumulated depreciation and amortization........ (284,705) (261,024)
---------- ----------
Net property and equipment.................. 280,215 254,446
Other assets..................................... 186,271 179,257
---------- ----------
$2,236,610 $2,206,619
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable............................... $144,822 $165,152
Other current liabilities...................... 408,759 408,030
---------- ----------
Total current liabilities................... 553,581 573,182
Long-term debt and other......................... 277,503 287,267
Stockholders' equity:
Preferred stock................................ 16,998 16,998
Common stock................................... 165 161
Additional paid-in capital..................... 915,689 903,139
Retained earnings.............................. 444,141 385,915
Accumulated translation adjustment and other... 28,533 39,957
---------- ----------
Total stockholders' equity.................. 1,405,526 1,346,170
---------- ----------
$2,236,610 $2,206,619
---------- ----------
---------- ----------
</TABLE>
(1) The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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SILICON GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994(1)
-------- --------
<S> <C> <C>
Product and other revenues........................... $524,729 $395,400
Service revenue...................................... 70,550 53,103
-------- --------
Total revenues..................................... 595,279 448,503
Costs and expenses:
Cost of product and other revenues................. 234,666 180,782
Cost of service revenue............................ 37,945 27,053
Research and development........................... 72,743 56,230
Selling, general and administrative................ 172,189 123,533
Merger-related expenses............................ 714 ---
-------- --------
Total costs and expenses........................ 518,257 387,598
-------- --------
Operating income..................................... 77,022 60,905
Interest income and other, net....................... 6,341 2,891
-------- --------
Income before income taxes........................... 83,363 63,796
Provision for income taxes........................... 25,006 18,695
-------- --------
Net income........................................... 58,357 45,101
Preferred stock dividend requirement................. --- 54
-------- --------
Net income available to common stockholders.......... $ 58,357 $ 45,047
-------- --------
-------- --------
Net income per common share.......................... $ 0.33 $ 0.26
-------- --------
-------- --------
Common shares and common share equivalents used
in the calculation of net income per common share.... 179,236 171,999
-------- --------
-------- --------
</TABLE>
(1) All balances reflect the mergers of Silicon Graphics, Inc, Alias Research
Inc. and Wavefront Technologies, Inc., which have been accounted for as
poolings of interests.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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SILICON GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994(1)
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $58,357 $45,101
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 31,665 24,109
Accrued interest on convertible subordinated debenture........ 2,208 2,119
Other......................................................... (8,932) 5,537
(Increase) decrease in assets:
Accounts receivable.......................................... 34,081 (3,496)
Inventories.................................................. (60,678) (12,546)
Prepaid expenses and other current assets.................... (3,565) (2,990)
Increase (decrease) in liabilities:
Accounts payable............................................. (20,330) 14,277
Other liabilities............................................ (9,264) 14,595
-------- --------
Total adjustments.......................................... (34,815) 41,605
-------- --------
Net cash provided by operating activities..................... 23,542 86,706
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (52,816) (30,840)
Increase in other assets........................................ (10,664) (5,503)
Available-for-sale investments:
Purchases..................................................... (299,230) (97,875)
Sales......................................................... 362,698 2,500
Maturities.................................................... 1,000 24,479
Net increase in cash and cash equivalents of Alias Research Inc.
for the six months ended July 31, 1994 and Wavefront
Technologies, Inc. for the six months ended June 30, 1994..... --- 44,479
-------- --------
Net cash provided by (used in) investing activities........... 988 (62,760)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt................................................ 918 214
Payments of debt principal...................................... (3,313) (4,738)
Sale of common stock............................................ 11,879 13,321
-------- --------
Net cash provided by financing activities..................... 9,484 8,797
-------- --------
Net increase in cash and cash equivalents....................... 34,014 32,743
Cash and cash equivalents at beginning of period................ 307,875 327,461
-------- --------
Cash and cash equivalents at end of period...................... $341,889 $360,204
-------- --------
-------- --------
</TABLE>
(1) All balances reflect the mergers of Silicon Graphics, Inc, Alias Research
Inc. and Wavefront Technologies, Inc., which have been accounted for as
poolings of interests.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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SILICON GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS.
The unaudited 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 accruals) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been
made. The unaudited condensed consolidated financial statements included in
this Form 10-Q should be read in conjunction with the audited consolidated
financial statements and notes thereto for the fiscal year ended June 30,
1995.
2. INVENTORIES.
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
<S> <C> <C>
Raw materials $78,768 $43,640
Work-in-process 87,561 84,049
Finished goods 43,352 31,887
Service & marketing 142,584 132,011
-------- --------
Total inventories $352,265 $291,587
-------- --------
-------- --------
</TABLE>
3. STOCK REPURCHASE PROGRAM.
On October 19, 1995, the Company announced that its board of directors had
authorized the repurchase of up to seven million shares of its common stock,
either in the open market or in private transactions. The Company purchased
one million shares in October at an average price of $33.15 per share and
intends to spread the balance of the repurchases over a two-year period. The
repurchased shares will be available for use under the Company's employee
stock plans and for other corporate purposes. The Company plans to use
existing cash to finance the repurchases.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Silicon Graphics uses a financial target model to develop its annual
operating plans and to evaluate investment alternatives, business proposals
and operations throughout the fiscal year. This model expresses the Company's
current objectives for gross margins, operating expenses, and operating
profit as a percentage of total revenues. The model also incorporates target
ranges for the allocation of spending between research and development, and
selling, general and administrative expenses.
The Company's current model includes the following financial targets (as a
percentage of total revenues):
<TABLE>
<S> <C>
Gross margin 50.5% - 52.5%
Research and development 11.0% - 13.0%
Selling, general and administrative 26.0% - 28.0%
-------------
Operating margin 11.5% - 13.5%
</TABLE>
The financial target model reflects a number of assumptions. The gross margin
target range reflects assumptions about the Company's pricing, manufacturing
costs and volumes, and the mix of products, distribution channels and
geographic distribution. The spending ranges were established based on the
Company's beliefs about the levels of research and development necessary to
develop leading-edge products for its markets, the levels of sales and
marketing expenses appropriate to support its channels of distribution and
the levels of general and administrative spending appropriate for the size
and nature of the business. Many other factors affect the Company's financial
performance and may cause the Company's future results to be markedly outside
of the ranges reflected in the target model.
The financial target model is one management tool that the Company uses to
run its business and measure its performance. IT IS NOT A PROJECTION OF
FUTURE RESULTS. The actual results for any particular period, including the
current quarter, may vary substantially from the model for numerous reasons
including but not limited to the Company's ability to attain planned revenue
growth. See "Factors That May Affect Future Results." Also, in certain
periods the Company may intentionally operate outside the model. In
addition, the financial target model itself is subject to revision from time
to time to reflect new strategies, competitive changes or other developments.
The financial target model is described above to provide a framework for the
Company's discussion and analysis of its results of operations. The Company
does not intend to provide updated information about its planning model or
its performance relative to the model in any period, other than in the
context of management's discussion and analysis in the Company's Quarterly
Reports on Form 10-Q.
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OPERATING ITEMS AS A PERCENTAGE OF TOTAL REVENUES
- -------------------------------------------------------------------------------
(PERCENTAGES MAY NOT ADD DUE TO ROUNDING)
<TABLE>
<CAPTION>
Three Months Ended Target
September 30, Model
------------------ ------
1995 1994
----- -----
<S> <C> <C> <C>
Product and other revenues..................... 88.1% 88.2%
Service revenue................................ 11.9 11.8
----- -----
Total revenues................................. 100.0% 100.0% 100.0%
Gross margin................................... 54.2 53.7 50.5 - 52.5
Research and development expenses............. 12.2 12.5 11.0 - 13.0
Selling, general and administrative expenses.. 28.9 27.5 26.0 - 28.0
Merger-related expenses....................... 0.1 --- ---
---- ---- -----------
Operating income.............................. 12.9 13.6 11.5 - 13.5
Interest income and other, net................ 1.1 0.6
---- ----
Income before income taxes.................... 14.0 14.2
Provision for income taxes.................... 4.2 4.2
---- ----
Net income.................................... 9.8% 10.1%
---- ----
---- ----
</TABLE>
GROWTH RATES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase/(Decrease) for the Quarter
Ended September 30, 1995
-----------------------------------------
vs. Prior Quarter vs. Prior Year Quarter
----------------- ----------------------
<S> <C> <C>
Product and other revenues.................... (11)% 33%
Service revenue............................... 7% 33%
Total revenues................................ (9)% 33%
Gross profit.................................. (7)% 34%
Research and development expenses............. 5% 29%
Selling, general and administrative expenses.. (9)% 39%
Net income.................................... 11% 29%
Net income per common share................... 10% 27%
</TABLE>
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<PAGE>
REVENUES BY GEOGRAPHY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------- Year/Year
1995 1994 Increase
---- ---- ---------
(in millions)
<S> <C> <C> <C>
North America (US and Canada) $316 $259 22%
Europe 157 105 49%
Pacific (including Latin America) 122 85 44%
---- ----
Total revenues $595 $449 33%
---- ----
---- ----
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
---- ----
(as a percentage of total revenues)
<S> <C> <C>
North America (US and Canada) 53% 58%
Europe 26% 23%
Pacific (including Latin America) 21% 19%
</TABLE>
REVENUES BY PRODUCT LINE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
---- ----
(as a percentage of product revenue, excluding other revenue)
<S> <C> <C>
High-end products (primarily the POWER
Challenge-Trademark-,
Challenge-Registered Trademark-
and Onyx-Trademark- families) 40% 43%
Desktop products (primarily from
the Indy-Trademark- and
Indigo(2)-Trademark- families) 60% 57%
</TABLE>
- -------------------------------------------------------------------------------
REVENUES. The Company's product and other revenues are derived primarily
from shipment of computer system products, with subsystem and software
revenues, license fees, and non-recurring engineering (NRE) contract payments
comprising the remainder. Service revenue is comprised of hardware and
software support and maintenance.
Revenue growth for the quarter resulted principally from increased unit
shipments in all major regions worldwide and increased service revenues from
a larger installed base of products under contract. The Company experienced
strong demand across its computer system product from the desktop to
supercomputing, including its Indigo(2) Impact-Trademark- systems which first
shipped in volume during the quarter, and for its Alias|Wavefront software
products. The Company's North American business revenue increased 22% over
the year ago quarter, which is a lower growth rate than the Company has
experienced in recent quarters. The Company believes that this lower growth
rate resulted primarily from lower productivity as the North American sales
organization assimilated a significant number of new employees and
reorganized to facilitate future growth. European revenue was up 49% from the
same quarter a year ago, with strength in all major countries with the
exception of France, where economic and government spending issues resulted
in slightly lower revenues. Pacific (including Latin America) revenues were
up 44% from the same quarter a year ago, with revenue from Japan remaining
constant as a percentage of total revenues at approximately 12% for the
quarter. Fluctuations in the value of the dollar versus most major currencies
had a slight favorable impact on revenues for the current quarter as
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compared to the same quarter in fiscal 1995, but had an unfavorable revenue
impact when compared against the fourth quarter of fiscal 1995, particularly
in Japan.
GROSS MARGIN. For the first quarter of fiscal 1996 and 1995, the Company
exceeded its gross margin model. The increase in gross margin for the first
quarter of fiscal 1996 compared to the prior year resulted mainly from a
higher percentage of international sales, offset somewhat by lower service
margins.
OPERATING MARGIN. The Company's operating margin for the first quarter of
fiscal 1996 was 12.9% of total revenues as compared to 13.6% for fiscal
1995. Operating expenses grew 37% for the first quarter of fiscal 1996 as
compared to the same quarter a year ago as the Company continued to implement
a variety of spending programs, including sales and marketing initiatives and
expanded research and development programs, designed to improve its long-term
growth prospects and market position. Because revenues grew at a lower rate
in the first quarter of fiscal 1996 than in recent quarters, the Company's
operating margin moved into its target model range of 11.5% -13.5%. The
Company expects operating expenses to continue to increase as it invests in
additional hiring and other programs to support future growth.
OTHER RESULTS. Interest income and other, net for the first quarter of
fiscal 1996 was $6.3 million, reflecting an increase compared to the prior
year due to larger invested cash balances net of borrowings and higher yields
and realized gains on the Company's cash portfolio, offset by the Company's
share of the quarterly loss realized by Interactive Digital Solutions
("IDS"), its joint venture with AT&T. The Company expects interest income
and other, net to be lower for the rest of fiscal 1996, due to prevailing
interest rates on the reinvestment of cash from the sale of investments in
the first quarter, the use of cash for the stock repurchase program, and
losses expected to be realized by IDS.
TAXES. The Company's combined federal, state and foreign effective income
tax rate for the first quarter of fiscal 1996 was 30% and was calculated
based on an estimated annual effective tax rate applied to income before
income taxes. The tax rate for the same period of fiscal 1995 was 29%. 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.
Based on the Company's plans, it believes that current levels of taxable
income, adjusted for non-recurring items, will be sufficient to realize its
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.
FINANCIAL CONDITION
During the first quarter of fiscal 1996, the Company's cash and cash
equivalents, short-term marketable investments and other marketable
investments decreased by $33 million, principally due to capital expenditures
of $53 million, as compared to $31 million in the prior year quarter, and
lower positive cash flows from operating activities. Cash flows from operating
activities declined to $24 million in the first quarter of fiscal 1996 from
$87 million in the prior year quarter, primarily reflecting an increase in
inventories. In addition, the Company generated $12 million from employee
stock option and purchase programs, as compared to $13 million in the prior
year quarter.
As of September 30, 1995, the Company's principal sources of liquidity
included cash and cash equivalents, short-term marketable investments and
other marketable investments of $747 million and up to $20 million available
under a committed line of credit. These resources, and others available to
the Company, should be adequate to fund the Company's projected cash needs,
including the stock repurchase program, beyond fiscal 1996. The Company
believes that the level of financial resources is
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an important competitive factor in the computer industry, and accordingly,
may elect to raise additional capital in anticipation of future needs.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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's operating results may fluctuate
for a number of reasons. The Company has short delivery cycles and as a
result does not have a large order backlog, which makes the forecasting of
revenue inherently uncertain. This uncertainty is compounded because each
quarter's revenue results predominantly from orders booked and shipped during
the third month, and disproportionately in the latter half of that month.
Because the Company plans its operating expenses, many of which are
relatively fixed in the short term, on the basis that its revenues will
continue to grow, even a relatively small revenue shortfall may cause a
period's results to be substantially below expectations. Such a revenue
shortfall could arise from any number of factors, including lower than
expected demand, supply constraints, delays in the availability of new
products, transit interruptions, overall economic conditions or natural
disasters. Margins are heavily influenced by mix considerations, including
geographical mix, the mix of service and non-recurring engineering revenues,
the mix of high-end and desktop products and application software and the mix
of configurations within these product categories.
The Company's results have followed a seasonal pattern, with stronger
sequential growth in the second and fourth fiscal quarters, reflecting the
buying patterns of the Company's customers.
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 the investment community's expectations, there could be an
immediate impact on the Company's stock price. The stock price may also be
affected by broader market trends unrelated to the Company's performance.
REVENUE GROWTH. The Company's annual revenue growth rate, which was 36%
in fiscal 1994, accelerated to 45% in fiscal 1995. In light of this
acceleration and management's views of the potential for future growth, the
Company adopted an aggressive growth plan that includes substantial
investments in its sales and marketing organizations, the creation of new
research and development programs and increased funding of existing programs,
and investments in corporate infrastructure that will be required to support
significant growth. This plan, which was implemented during the latter half
of fiscal 1995 and is planned to continue in fiscal 1996, carries with it a
number of risks, including a higher level of operating expenses, the
difficulty of attracting and assimilating a large number of new employees,
and the complexities associated with managing a larger and faster growing
organization.
In the first quarter of fiscal 1996, the Company's revenue growth rate
decreased to 33% over the prior year quarter, and operating margins moved
into the Company's target model at 12.9%. The Company is continuing to invest
in programs to support future growth, and is therefore subject to the risk
that operating expenses will increase at a faster rate than revenues.
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. The Company is planning significant new product introductions in
fiscal 1996, including products that will replace products in the Company's
current product offering. A number of risks are inherent in this process.
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<PAGE>
The development of new technology and products is increasingly complex and
uncertain, which increases the risk of delays. 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 families
increase, the process of planning production and inventory levels also
becomes more difficult.
Short product life cycles place a premium on the Company's ability to manage
the transition from current products to new products. In order to minimize
product transition issues, the Company generally announces new products in
the early part of a quarter, while the product is in the final stages of
development, and seeks to manufacture and ship the product in volume in the
same quarter. 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.
INTERNATIONAL OPERATIONS. Because approximately half of the Company's revenue
is from sales outside the United States, and many key components are produced
outside the United States, the Company's results could be negatively affected
by such factors as changes in foreign currency exchange rates (international
sales are generally denominated in foreign currencies, while the Company's
accounts are in U.S. dollars), trade protection measures, longer accounts
receivable collection patterns, changes in regional or worldwide economic or
political conditions, or natural disasters. For example, a marked short-term
appreciation in the value of the U.S. dollar relative to the Japanese yen or
German mark could adversely affect the Company's results. The Company's sales
to foreign customers also 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 are
thus subject to the effects of currency exchange fluctuations. The Company
attempts to reduce the impact (positive or negative) 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 of its international
subsidiaries, although it periodically evaluates its hedging practices.
DEVELOPMENT AND ACCEPTANCE OF MIPS-REGISTERED TRADEMARK- 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, which in turn have assisted in funding
the development of new MIPS RISC microprocessors. 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. The Company has entered into several ventures with other
companies to address new and emerging markets, including ventures with Time
Warner Cable, Nintendo, DreamWorks, AT&T and NTT. 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
partners. Initial timetables for the development and introduction of new
technologies, products
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<PAGE>
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.
MANAGEMENT INFORMATION SYSTEMS. The Company is planning to replace its
current information management system with a comprehensive system that will
be used to manage the entire revenue cycle, including order administration,
billing and collection, as well as manufacturing and financial planning and
reporting. The Company expects that this system will allow it to realize
significant operational efficiencies and facilitate future growth, and it is
devoting significant resources to system design and testing. The Company's
operations could be disrupted, however, if the transition to the new system
is not effected smoothly or if the system does not perform as expected.
Initial implementation is currently scheduled for the third quarter of fiscal
1996.
INTELLECTUAL PROPERTY. The Company routinely receives communications from
third parties asserting patent or other rights covering the Company's
products and technologies. Based upon the Company's evaluation, it may take
no action or it may seek to obtain a license. In any given case there is a
risk that a license will not be available on terms that the Company considers
reasonable, or that litigation will ensue. The Company expects that, as the
number of hardware and software patents issued continues to increase, and as
the Company's business grows, the volume of these third party communications
will also increase.
COMPETITION. The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. 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. This competition may in the future
come not only from the Company's traditional UNIX workstation rivals, but
also from new sources including the personal computer industry. Many of the
Company's competitors have substantially greater technical, marketing and
financial resources and, in some segments, a larger installed base of
customers and a wider range of available applications software. Competition
can result in significant discounting and lower 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.
-13-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on November 1, 1995.
Proxies for the meeting were solicited pursuant to Regulation 14A.
(b) The Company's Board of Directors is divided into three classes, with
directors in each class serving for three-year terms. Accordingly, not
all Directors are elected at each Annual Meeting of Stockholders.
Allen F. Jacobson, Thomas A. Jermoluk, and James G. Treybig were
re-elected as Directors at the meeting and Robert A. Lutz was elected to
his initial term as a Director. The Directors whose terms of office
continued after the meeting are Robert R. Bishop, C. Richard Kramlich,
Edward R. McCracken, James A. McDivitt and Lucille Shapiro.
(c) The matters described below were voted on at the Annual Meeting of
Stockholders, and the number of votes cast with respect to each matter
and, with respect to the election of directors, for each nominee, were
as indicated.
1. To elect three Class III Directors of the Company to serve for a
three-year term, and one Class II Director to serve for an initial term
of two years.
NOMINEES FOR CLASS III DIRECTOR
-------------------------------
ALLEN F. JACOBSON:
For: 140,923,670 Withheld: 1,724,780
THOMAS A. JERMOLUK:
For: 140,588,336 Withheld: 2,060,114
JAMES G. TREYBIG:
For: 133,579,960 Withheld: 9,068,490
NOMINEE FOR CLASS II DIRECTOR
-----------------------------
ROBERT A. LUTZ
For: 140,590,785 Withheld: 2,057,665
2. To ratify the appointment of Ernst & Young LLP, as independent
auditors of the Company for the fiscal year ending June 30, 1996.
For: 142,418,556 Against: 90,243 Abstain: 139,651
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Computation of Common Shares and Common Share Equivalents.
27.1 Financial Data Schedule.
-14-
<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: November 13, 1995 SILICON GRAPHICS, INC.
a Delaware corporation
By: Stanley J. Meresman
---------------------------------
Stanley J. Meresman
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
By: Dennis P. McBride
---------------------------------
Dennis P. McBride
Vice President, Controller
(Principal Accounting Officer)
By: Tom Oswold
---------------------------------
Tom Oswold
Vice President, Finance
and Treasurer
-15-
<PAGE>
SILICON GRAPHICS, INC.
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
11.1 Statement of Computation of Common Shares and Common Share
Equivalents
27.1 Financial Data Schedule
-16-
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
Weighted Average Shares Outstanding:
Common shares................................... 161,354 152,665
Convertible preferred shares.................... 442 2,514
Stock options................................... 17,440 16,820
-------- --------
Total weighted average shares outstanding....... 179,236 171,999
-------- --------
-------- --------
Net income available to common stockholders..... $ 58,357 $ 45,047
-------- --------
-------- --------
Income Per Share:
Net income per share............................ $ 0.33 $ 0.26
-------- --------
-------- --------
</TABLE>
All share and per share data have been restated for all periods presented to
reflect the mergers of Silicon Graphics, Inc., Alias Research Inc. and
Wavefront Technologies, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATON EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME & CONSOLIDATED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD
ENDING SEPTEMBER 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 341,889
<SECURITIES> 158,945
<RECEIVABLES> 607,582
<ALLOWANCES> 13,925
<INVENTORY> 352,265
<CURRENT-ASSETS> 1,523,996
<PP&E> 564,920
<DEPRECIATION> 284,705
<TOTAL-ASSETS> 2,236,610
<CURRENT-LIABILITIES> 553,581
<BONDS> 234,530
<COMMON> 165
0
16,998
<OTHER-SE> 1,388,363
<TOTAL-LIABILITY-AND-EQUITY> 2,236,610
<SALES> 524,729
<TOTAL-REVENUES> 595,279
<CGS> 234,666
<TOTAL-COSTS> 272,611
<OTHER-EXPENSES> 244,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,428
<INCOME-PRETAX> 83,363
<INCOME-TAX> 25,006
<INCOME-CONTINUING> 58,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,357
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
