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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT: MARCH 31, 2000
(Date of earliest event reported)
SILICON GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10441 94-2789662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Commission File Number) Identification No.)
1600 AMPHITHEATRE PKWY., MOUNTAIN VIEW, CALIFORNIA 94043-1351
(Address of principal executive offices) (Zip Code)
(650) 960-1980
(Registrant's telephone number, including area code)
-------------------------------------------------------------
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 2000, Silicon Graphics, Inc. ("SGI" or the "Company") completed
the sale of its Cray-Registered Trademark- vector product line to Tera
Computer Company ("Tera"). SGI received approximately $15 million in cash, a
$36 million promissory note, due in three equal quarterly installments
beginning June 30, 2000, and 1 million shares of unregistered Tera common
stock, valued at approximately $6.5 million at March 31, 2000. In the event
the promissory note is not paid in full by December 31, 2000, an additional
$5 million in cash will be payable to SGI. Based upon the March 31, 2000
anticipated carrying value of the Cray vector product line and estimated
costs and expenses expected to be incurred in connection with the
transaction, the Company anticipates that it will record an overall gain of
approximately $15 million from the transaction. However, because SGI will
account for the promissory note proceeds as the cash is received under the
scheduled note payment, the Company anticipates that it will record a pre-tax
loss on the sale of the Cray vector product line of approximately $21 million
in its third quarter ended March 31, 2000. Both the anticipated overall gain
and third quarter loss are subject to adjustment (if any) based on the final
determination of the net asset value of the assets sold and the liabilities
assumed at March 31, 2000. The transferred assets primarily consist of
product inventory, spares inventory and certain property and equipment. Tera
assumed all product liability and warranty obligations and obligations for
product service and support, as well as certain employee benefit obligations.
Beginning April 1, 2000, SGI and Tera will work together in accordance with a
transition service agreement to ensure a smooth transition of the operations
to Tera. SGI will provide certain accounting services, logistics fulfillment,
and other operational and support activities until such time as Tera takes
over these activities, expected to be no later than September 30, 2000.
In addition, pursuant to a Services Contract Agreement, SGI will contract
with Tera to provide the services under the existing service contracts
pertaining to the Cray product line sold to Tera, generally until such
contracts expire or are renewed. This arrangement is expected to continue
through March 31, 2001.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information
On March 31, 2000, SGI completed the sale of its Cray vector product line to
Tera. SGI received approximately $15 million in cash, a $36 million
promissory note, due in three equal quarterly installments beginning June 30,
2000, and 1 million shares of unregistered Tera common stock, valued at
approximately $6.5 million at March 31, 2000. In the event the promissory
note is not paid in full by December 31, 2000, an additional $5 million in
cash will be payable to SGI. Based upon the March 31, 2000 anticipated
carrying value of the Cray vector product line and estimated costs and
expenses expected to be incurred in connection with the transaction, the
Company anticipates that it will record an overall gain of approximately $15
million from the transaction. However, because SGI will account for the
promissory note proceeds as the cash is received under the scheduled note
payment, the Company anticipates that it will record a pre-tax loss on the
sale of the Cray vector product line of approximately $21 million in its
third quarter ended March 31, 2000. Both the anticipated overall gain and
third quarter loss are subject to adjustment (if any) based on the final
determination of the net asset value of the assets sold and the liabilities
assumed at March 31, 2000. The transferred assets primarily consist of
product inventory, spares inventory and certain property and equipment. Tera
assumed all product liability and warranty obligations and obligations for
product service and support, as well as certain employee benefit obligations.
The unaudited pro forma condensed consolidated balance sheet as of December 31,
1999 is presented as if the transaction had occurred as of that date. The
unaudited pro forma condensed consolidated statements of operations for the six
months ended December 31, 1999 and the year ended June 30, 1999 are presented as
if the transaction had occurred July 1, 1999 and July 1, 1998, respectively.
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The pro forma adjustments represent, in the opinion of management, all
adjustments necessary to present the SGI's pro forma results of operations
and financial position in accordance with Article 11 of SEC Regulation S-X and
are based upon available information and certain assumptions considered
reasonable under the circumstances.
The Cray vector product line was not a reportable segment of SGI. The pro
forma statements of operations include only the Cray vector product line
revenue, cost of revenue and direct expenses. While SGI maintained separate
accounts to capture direct research and development and direct product
specific marketing activities of the Cray vector product line, SGI did not
allocate corporate services, information services, selling, other marketing,
or general and administrative expenses to the Cray vector product line. The
expenses charged to the Cray vector product line are not necessarily
indicative of the expenses that would have been incurred had the Cray vector
product line operated as a stand-alone business.
The pro forma condensed consolidated financial statements should be read in
conjunction with SGI's unaudited condensed consolidated financial statements and
notes thereto included in the Company's quarterly report on Form 10-Q for the
period ended December 31, 1999 and the audited and consolidated financial
statements and notes thereto incorporated by reference in the Company's annual
report on Form 10-K for the year ended June 30, 1999. The pro forma information
many not necessarily be indicative of what the Company's results of operations
or financial position would have been had the transaction been in effect as of
and for the periods presented, nor is such information necessarily indicative of
the Company's results of operations or financial position for any future period
or date.
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SILICON GRAPHICS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Thousands)
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------
Business to be Pro forma
ASSETS Historical disposed adjustment Pro forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 357,037 $ -- $ 15,000 A $ 372,037
Short-term marketable investments 126,126 -- -- 126,126
Accounts receivable, net 420,387 -- -- 420,387
Inventories 210,001 (32,697) -- 177,304
Prepaid expenses and other current assets 370,667 (6,203) -- 364,464
------------ ------------ ------------ ------------
Total current assets 1,484,218 (38,900) 15,000 1,460,318
Restricted investments 125,302 -- -- 125,302
Property and equipment, net 474,412 (13,783) -- 460,629
Other assets 820,470 (36,302) 17,570 A B 801,738
------------ ------------ ------------ ------------
$ 2,904,402 $ (88,985) $ 32,570 $2,847,987
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 176,794 $ -- $ -- $ 176,794
Other current liabilities 845,923 (40,815) 3,248 A 808,356
------------ ------------ ------------ ------------
Total current liabilities 1,022,717 (40,815) 3,248 985,150
Long-term debt and other 381,164 -- -- 381,164
Stockholders' equity
Preferred stock 16,998 -- -- 16,998
Common stock and additional paid-in-capital 1,433,569 -- -- 1,433,569
Accumulated deficit (127,907) -- (18,848) A (146,755)
Treasury stock (86,363) -- -- (86,363)
Accumulated other comprehensive income 264,224 -- -- 264,224
------------ ------------ ------------ ------------
Total stockholders' equity 1,500,521 (18,848) 1,481,673
------------ ------------ ------------ ------------
$ 2,904,402 $ (40,815) $ (15,600) $2,847,987
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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SILICON GRAPHICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Six months ended December 31, 1999
---------------------------------------------
Business to be
Historical disposed Pro forma
----------- ----------- -----------
<S> <C> <C> <C>
Product and other revenue $ 903,247 $ (62,400) $ 840,847
Service revenue 330,149 (53,100) 277,049
----------- ----------- -----------
Total revenue 1,233,396 (115,500) 1,117,896
Costs and expenses:
Costs of product and other revenue 579,339 (38,900) 540,439
Costs of service revenue 251,595 (33,000) 218,595
Research and development 163,957 (13,600) 150,357
Selling, general and administrative 411,847 (6,100) 405,747
Other operating expense 128,538 -- 128,538
----------- ----------- -----------
Total costs and expenses 1,535,276 (91,600) 1,443,676
Operating loss (301,880) (23,900) (325,780)
Interest and other expense, net 1,854 -- 1,854
----------- ----------- -----------
Loss before income taxes (303,734) (23,900) (327,634)
Income tax benefit (99,914) (8,843) (108,757)
----------- ----------- -----------
Net loss (203,820) (15,057) (218,877)
Preferred stock dividend requirement (262) -- (262)
----------- ----------- -----------
Net loss available to common stockholders $ (204,082) $ (15,057) $ (219,139)
----------- ----------- -----------
----------- ----------- -----------
Net loss per common share - basic and diluted $ (1.12) $ (1.20)
Common shares outstanding - basic 182,357 182,357
Common shares outstanding - diluted 182,357 182,357
</TABLE>
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SILICON GRAPHICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30, 1999
----------------------------------------------
Business to be
Historical disposed Pro forma
----------- ----------- -----------
<S> <C> <C> <C>
Product and other revenue $ 2,090,194 $ (197,400) $ 1,892,794
Service revenue 658,763 (135,400) 523,363
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Total revenue 2,748,957 (332,800) 2,416,157
Costs and expenses:
Costs of product and other revenue 1,202,562 (140,900) 1,061,662
Costs of service revenue 400,688 (78,400) 322,288
Research and development 380,346 (19,800) 360,546
Selling, general and administrative 907,612 (11,300) 896,312
Other operating expense (15,107) -- (15,107)
----------- ----------- -----------
Total costs and expenses 2,876,101 (250,400) 2,625,701
Operating loss (127,144) (82,400) (209,544)
Gain on sale of a portion of SGI interest in MIPS 272,503 -- 272,503
Interest and other expense, net 19,638 -- 19,638
----------- ----------- -----------
Income before income taxes 125,721 (84,200) 43,321
Income tax provision 71,892 (30,488) 41,404
----------- ----------- -----------
Net income 53,829 (51,912) 1,917
Preferred stock dividend requirement (525) -- (525)
----------- ----------- -----------
Net income available for common stockholders $ 53,304 $ (51,912) $ 1,392
----------- ----------- -----------
----------- ----------- -----------
Net income per common share - basic $ .29 $ .01
Net income per common share - diluted $ .28 $ .01
Common shares outstanding - basic 186,374 186,374
Common shares outstanding - diluted 189,427 189,427
</TABLE>
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Notes to Pro Forma Condensed Consolidated Financial Statements
Basis of Presentation
The following unaudited pro forma condensed consolidated financial statements
present financial information for the Company giving effect to the sale of
Cray, which was effective as of March 31, 2000. The unaudited pro forma
condensed consolidated balance sheet as of December 31, 1999 is presented as
if the transaction occurred on that date. The unaudited pro forma condensed
consolidated statements of operations for the six months ended December 31,
1999 and for the year ended June 30, 1999 are presented as if the transaction
had occurred July 1, 1999 and July 1, 1998, respectively.
Unaudited Pro Forma Consolidated Financial Adjustments
(A) Reflects the sale of the Cray vector product line to Tera for total cash
proceeds of $15 million and 1 million shares of Tera stock, valued at
approximately $6.5 million (in other assets) at March 31, 2000. Does not
include $36 million promissory note. SGI will recognize gains on this
transaction in the future as cash is received under the scheduled note
payments. Other current liabilities pro forma adjustment reflects the
estimated liability for costs and expenses related to this transaction.
Included in pro forma accumulated deficit at December 31, 1999 is the
resulting estimated $29.9 million loss to be recognized on the sale, net of
applicable income taxes and as if the sale occurred on December 31, 1999
(B) Includes a pro forma adjustment to deferred income taxes based on the
Company's actual incremental tax rate of 37%
(c) Exhibits
Exhibit 99 Press release dated April 4, 2000
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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 on the date indicated.
Dated: April 17, 2000
SILICON GRAPHICS, INC.
(Registrant)
By: /s/ Betsy Rafael
--------------------------------
Betsy Rafael
Senior Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
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Exhibit 99
SGI COMPLETES SALE OF CRAY VECTOR BUSINESS TO TERA COMPUTER COMPANY
Sale Allows SGI to Increase Focus on High Performance Server Market,
Represents Key Milestone in Corporate Execution
April 4, 2000
MOUNTAIN VIEW, Calif. (April 4, 2000)--SGI (NYSE: SGI) today announced that
it has completed the sale of its Cray-Registered Trademark- vector
business, a portion of its overall high performance server business, to
Tera Computer Company (NASDAQ:TERA). The announcement makes good on the
definitive agreement previously announced by the two companies on March 2,
2000.
"SGI strongly believes that the scalable NUMA architecture, rather than
vectors, provides the most compelling price/performance model for the
technical compute market of today and tomorrow," said Ken Coleman, senior
vice president, Global Sales, Service and Marketing, SGI. "Today's
announcement should be viewed in that context. We are positioning SGI for
aggressive growth in the technical compute market with high performance,
scalable servers. Our efforts are focused on systems incorporating a
next-generation, highly scalable NUMA architecture and advanced clustering
technology, together with a broad array of technical applications and
solutions."
Through a licensing agreement, SGI has retained substantial intellectual
property, including certain patents, arising from the Cray business both
before and after SGI's acquisition of Cray Research, Inc. in 1996. SGI
retains exclusive rights to its modular, scalable NUMA technology,
including current and future products, and supporting software, system and
service engineers, as well as non-vector operations in Chippewa Falls, Wis.
and Eagan, Minn. Also unaffected by the sale are SGI's current NUMA
products, the SGITM OriginTM server and Silicon
Graphics-Registered Trademark- Onyx2-Registered Trademark- visual
workstation lines.
Under the terms of the sale, Tera has assumed ownership of the Cray product
line, including the Cray SV1TM, Cray T3ETM and Cray T90TM systems; existing
service contracts; future Cray vector products, including the Cray SV2TM
system; and three facilities in Chippewa Falls. Tera has extended
employment offers to the approximately 800 Cray vector business employees.
The sale price of $58 million was comprised of approximately $51 million in
cash and notes, which will be paid in installments through December 31,
2000, and one million shares of Tera common stock.
The discussion in this news release of the sale of the Cray vector
supercomputer business contains forward-looking statements that involve
risks and uncertainties and other risks detailed from time to time in the
company's SEC reports, including the report on Form 10-Q for the quarter
ended December 31, 1999 and Form 10-K for the fiscal year ended June 30,
1999. Actual results may vary materially.
SGI provides a broad range of high-performance computing and advanced
graphics solutions that enable customers to understand and conquer their
toughest computing problems. Headquartered in Mountain View, Calif., with
offices worldwide, the company is located on the Web at www.sgi.com.
