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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended June 30, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to .
Commission File Number 1-10441
SILICON GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2789662
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2011 North Shoreline Boulevard, Mountain View, California 94043-1389
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 960-1980
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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Common Stock, $0.001 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant, based upon the closing sale price of the Common
Stock on September 3, 1996 on the New York Stock Exchange as reported in The
Wall Street Journal, was approximately $3,726 million. Shares of voting stock
held by each executive officer and director and by each person who owns 5% or
more of any class of registrant's voting stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
AS OF SEPTEMBER 3, 1996, THE REGISTRANT HAD OUTSTANDING
173,158,255 SHARES OF COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to this Form
10-K Report: (1) Proxy Statement for registrant's Annual Meeting of Stockholders
to be held October 30, 1996 (Part III), and (2) registrant's Annual Report to
Stockholders for the fiscal year ended June 30, 1996 (Parts I, II and IV).
PART I
ITEM 1. BUSINESS
GENERAL
Silicon Graphics provides computing solutions that range from cost-
effective high performance desktop workstations to database and compute servers
to Cray Research supercomputers. The Company's systems enhance the productivity
of organizations engaged in technical, scientific, corporate and entertainment
applications across a wide range of industries.
Silicon Graphics' Cray Research subsidiary, acquired in fiscal 1996,
provides supercomputing tools and services to help solve customers' most
challenging problems. Another subsidiary, MIPS Technologies, designs the
industry-leading MIPS-Registered Trademark- RISC microprocessor. The Company
licenses its designs to semiconductor partners, who manufacture MIPS
microprocessors for use in the computer, embedded control and consumer
markets. The Company's Alias|Wavefront subsidiary provides innovative
animation and advanced modeling software for entertainment and industrial
applications.
CORE TECHNOLOGIES
The Company's strategy has been to identify and to invest heavily in the
key technologies that will enable it to set the pace of innovation. With
respect to these core elements, the Company's objective is to have the world's
leading technology and to be the first to deliver that technology in new
products. This approach has given Silicon Graphics a clear strategic focus and
has allowed it to obtain high productivity from its research and development
investment. With respect to the other, non-core elements required to develop
its products, the Company seeks to form strategic relationships with leading
suppliers worldwide.
The Company's core technologies are:
GRAPHICS Leading graphics performance has been a distinguishing
characteristic of Silicon Graphics' products since its inception. The
Company's systems use its proprietary dedicated graphics subsystems, which
not only provide strong graphics capability but also improve overall system
performance by freeing up the central microprocessor for other tasks. These
subsystems, such as the Onyx-TM- InfiniteReality-TM- and Indigo2 Impact-TM-
family of graphics subsystems, perform complex functions that allow the user
to render, display and manipulate realistic 3D objects and images in real
time. In addition, Silicon Graphics has developed the OpenGL-Registered
Trademark-, an application programming interface (API) that evolved from the
Company's IRIS GL-TM- API and has become an industry standard for developing
2D and 3D graphics applications. The OpenGL API is controlled by an
independent architecture review board that governs its direction and is
licensed to more than 30 leading companies, including all of the principal
UNIX-Registered Trademark- workstation manufacturers.
RISC MICROPROCESSORS The acquisition of MIPS Computer Systems in 1992 gave
the Company ownership of what it believes to be the industry's leading reduced
instruction set computing (RISC) technology, and the Company continues to devote
substantial resources to extending this technology. Since 1992, the Company and
its semiconductor partners have developed and introduced several new families of
MIPS RISC microprocessors optimized for use in products ranging from consumer
electronic products to high-performance supercomputers.
SCALABLE COMPUTING The ability to build computer systems that use more
than one processor without major changes in applications software has been an
important factor in the performance of the Company's systems, particularly for
the technical and scientific markets. This multiple CPU design optimizes the
performance of a single application or maximizes system throughput when handling
many applications or users at one time. Silicon Graphics' substantial
investments in symmetric multiprocessing since the late 1980s have enabled it to
become the leading supplier of low and midrange supercomputers. The acquisition
of Cray Research in 1996 has enhanced the Company's capability to deliver large
multiprocessing systems involving hundreds of processors.
DIGITAL MEDIA Digital media integrates 3D graphics, animation and text
with video, audio and video conferencing capabilities. The Company believes
that digital media technology delivers a fundamentally better way to work and
communicate, especially in a networked computing environment enabling
cooperative work in real-time. Examples include "collaborative engineering",
where engineers in different countries share visual information and work
concurrently on 3D models and designs.
COMPUTER SYSTEM PRODUCTS
The Company's computer systems range from desktop workstations to servers
and supercomputers. All of these systems (other than the current Cray Research
product families) are designed around MIPS RISC microprocessors developed by MTI
and the IRIX-TM- operating system, which is the Company's enhanced version of
the System V Release 4 (SVR4) UNIX operating system. The IRIX operating system
includes the Indigo Magic-TM- user environment, a complete family of tools
including desktop utilities, digital media applications and collaborative tools.
Because of their common microprocessor and operating system technology, the
Company's systems generally are binary-compatible, meaning that software
applications run without modification across the entire product line.
DESKTOP SYSTEMS
Silicon Graphics desktop workstations combine key elements of workgroup
collaboration, interactive media and computing at a range of prices and
performance. Systems in this family can be used for tasks as diverse as
manipulating 3D models for computer-aided design (CAD), crunching numbers for
chemistry and geographic information systems applications, or functioning as a
tool for video editing, animation rendering, technical publishing, World Wide
Web and intranet authoring and serving, and software development.
INDY The Indy-TM- family of entry-level desktop workstation features
advanced 3D graphics and imaging, real-time video capability and interactive and
professional quality graphics, audio and imaging capabilities. The Indy has
significant appeal in markets such as mechanical CAD, chemistry, color
publishing, film and video, software development, education and media authoring.
INDIGO(2) The Indigo(2)-TM- family of workstations is designed to
provide the strongest graphics and computational capability available in the
desktop category, for applications such as 3D solids modeling, mechanical
CAD, digital prototyping, 3D visualization, animation, architectural design
and professional audio and video production.
WEBFORCE The WebFORCE-TM- family of computer systems, one of the first
product lines for creating and serving content for the World Wide Web,
integrates hardware and software for professional Web content authoring and
commercial Web serving, and includes Indy and Indigo(2) Impact desktop systems
as well as Challenge-Registered Trademark- servers.
HIGH END SYSTEMS
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ONYX This family of graphics supercomputers uses multiple microprocessors
and sophisticated graphics subsystems to handle the most demanding visual
computing tasks. Graphics subsystems available with the Onyx systems
include the InfiniteReality and Reality Engine(2)-TM- graphics subsystems. The
Onyx family is well-suited for applications such as computational chemistry, oil
and gas research, molecular modeling, global weather modeling, structural
dynamics, fluid dynamics, image processing, visual simulation, medical imaging
and chemistry, interactive entertainment and digital film and video production.
CHALLENGE The Challenge family of network resource servers includes a
range of capabilities, from single processor deskside systems used by small to
mid-size workgroups up to systems employing dozens of processors and capable of
supporting enterprise-wide distributed computing environments. Challenge
servers efficiently store, manage and move large amounts of audio, video and
graphics data as well as traditional databases and textual data for a wide range
of commercial and other applications. Key uses include data mining (to analyze
and organize database information), product data management for manufacturing,
and commercial transaction processing. Challenge servers also are used as media
servers, World Wide Web site servers and file servers.
POWER CHALLENGE The POWER Challenge-TM- family of supercomputing servers
combines low-cost, high-performance CMOS RISC technology, advanced parallel
system architecture and a simple shared-memory programming model. Key
applications in the technical and scientific markets include finite element
analysis (to determine the impact of elements like stress and temperature),
quantum chemistry calculation, seismic analysis and computational fluid
dynamics.
CRAY RESEARCH PRODUCTS
Cray Research, founded in 1973 and acquired by the Company in 1996, is the
world's leading supplier of advanced supercomputers. Cray Research has
continued as a separate division of Silicon Graphics focused on the high end of
the supercomputing market. Cray Research is working closely with the Silicon
Graphics advanced systems division to develop and introduce over the next
several years an integrated family of highly scalable systems that will
eventually cover the full range from affordable deskside servers to the world's
most powerful supercomputers.
The CRAY T90-TM- family of supercomputers deliver maximum performance for
vectorized supercomputing applications. The large memory bandwidth of T90
systems make them ideal for problems involving huge amounts of data, such as
weather and climate modeling and large-scale auto engineering.
The CRAY J90-TM- family uses low-cost CMOS technology to deliver affordable
supercomputing for vectorized applications like molecular modeling, ecosystem
simulation, medical imaging and vehicle dynamics simulation.
The CRAY T3E-TM- highly scalable supercomputing systems employ a massively
parallel architecture ranging from 16 to as many as 2,048 processors for a
broad range of scientific and industrial applications as diverse as petroleum
exploration, aerospace enginering and traffic system simulation.
MIPS RISC MICROPROCESSORS
All of the Company's system products (other than the current Cray Research
families) incorporate the MIPS RISC microprocessor architecture. The Company's
MIPS RISC microprocessor designs incorporate a general purpose architecture and
instruction set designed for high performance over a wide range of applications.
The MIPS RISC microprocessor designs make efficient use of instruction
"pipelining" techniques and proprietary compilers, allowing significant
performance gains to be realized by optimizing the tradeoff between compiler and
microprocessor functions. The versatility of the MIPS
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RISC architecture makes it suitable for computer applications from entry-level
desktop systems up to supercomputers.
MIPS RISC microprocessors are also used in a wide variety of noncomputer
applications, including disk drives, printers and copiers and, increasingly,
consumer electronics products. Silicon Graphics computers represent only a
small percentage of the worldwide consumption of MIPS RISC microprocessors.
The Company does not manufacture or sell MIPS RISC microprocessors and
related devices. It licenses its designs to "semiconductor partners" who
manufacture and sell the parts. The Company's current licensees are:
Integrated Device Technology, Inc.; LSI Logic Corporation; NEC Corporation; NKK
Corporation; Philips Semiconductor; and Toshiba Corporation. Each semiconductor
partner paid an initial license fee at the beginning of the license period and
pays unit royalties based upon sales.
APPLICATIONS SOFTWARE
Because the Company has historically developed only a very limited set of
applications software, its customers must either develop or license from a third
party the software necessary to address their needs. The Company maintains
active programs to encourage independent software development for its systems,
including training, technology support and cooperative marketing. The Company
believes that there currently are over 2,000 registered application software
programs offered for use on its systems.
The Company's Alias|Wavefront division supplies modeling and animation
application software used by creative professionals in the entertainment,
industrial design and visualization and graphic design markets. Its industry-
leading products include Alias PowerAnimator-TM-, Alias Studio-TM-, and
Wavefront Composer-TM-. Alias|Wavefront has also announced the next generation
Maya-TM- product architecture, which will be incorporated in products beginning
in fiscal 1997. Alias|Wavefront is based in Toronto, Canada with sales offices
across North America, Europe and Asia and worldwide distribution.
In fiscal 1996 the Company introduced the Cosmo-TM- family of content
creation, browsing and management tools for the World Wide Web and intranet
markets. The Cosmo products are intended to facilitate the creation of media-
rich three dimensional environments and especially to take advantage of the
power of the industry standard Virtual Reality Modeling Language (VRML)
developed by Silicon Graphics.
MARKETING, SALES AND DISTRIBUTION
The Company sells its products through its own direct sales force and
through several indirect channels. In fiscal 1996 direct sales accounted for
approximately half of the Company's product revenues. The direct sales and
support organization operates throughout the United States and in all
significant international markets. The Company serves smaller international
markets through distributors.
The principal indirect channels through which the Company operates are the
following:
_ VARS, or value added resellers, are software companies that develop
or customize their proprietary software specifically for use with the
special graphics hardware of the Company's workstations. VARs
purchase workstations from the Company or its North American
distributor, incorporate their applications software and resell the
systems to end-users.
_ VADS, or value added dealers, are typically direct sales
organizations that sell primarily into a single vertical market and
incorporate appropriate specialized third-party software with the
Company's hardware for sale to their customers.
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_ OEM ("original equipment manufacturer") customers generally are
computer systems vendors that customize applications software for use
on the Company's workstations and sell turnkey systems under the OEM's
product name. OEMs also provide independent marketing, service and
support programs to their customers. The Company's principal OEMs
include Tandem Computers Incorporated and Siemens Nixdorf AG.
_ SYSTEMS INTEGRATORS include Silicon Graphics systems in much larger
systems customized for use by the federal government and large
commercial clients.
Information with respect to international operations and export sales may
be found on page 60 of the 1996 Annual Report to Stockholders, which is
incorporated herein by reference. See also "Risks That Affect Our Business"
below. Although no customer accounted for 10% or more of the Company's total
revenues for fiscal 1996, 1995 or 1994, a significant reduction or delay in
sales to major customers could adversely affect the Company's operating results.
CUSTOMER SERVICE AND SUPPORT
The Company believes that the quality and reliability of its system
products and the ongoing support of such products are important elements of its
competitive strategy. The Company's customer service organization includes
field service engineers, field product and applications specialists, product
support engineers, training specialists and administrative support personnel.
In addition, the Company provides customer education through regularly scheduled
courses in system software administration, applications programming and hardware
maintenance. The Company provides local customer support from its regional
sales and service offices located in North America, Western Europe and the
Pacific Rim, with spare parts inventory stored at each location. International
distributors provide training and support for products sold by them.
The Company typically provides a standard "return to factory" hardware
warranty against defects in materials and workmanship for periods of up to
one year.
RESEARCH AND DEVELOPMENT
The Company's research and development program is directed principally
toward maintaining and enhancing the Company's competitive position through
incorporating the latest advances in microprocessor, hardware, software and
networking technologies. This effort is focused specifically on developing and
enhancing its computing architectures, MIPS RISC microprocessors, graphics
subsystems, VLSI technology, compiler software, operating system, applications
software and development tools. Simultaneously, the Company seeks to develop
new ways in which to increase product reliability, reduce manufacturing costs
and improve product development lead times.
During fiscal 1996, 1995 and 1994, the Company spent approximately $353
million, $248 million and $191 million, respectively, on research and
development. Those amounts represented 12.1%, 11.1% and 12.4%, respectively, of
revenues.
MANUFACTURING
The Company's manufacturing operations primarily involve assembling high
level subassemblies and systems and testing major purchased subassemblies. All
products are subjected to substantial environmental stress and electronic
testing prior to shipment to customers. The Company primarily manufactures and
ships its products from its main facility in Mountain View, California and the
Cray
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Research facility in Chippewa Falls, Wisconsin. The Company also has a European
manufacturing and support center near Neuchatel, Switzerland.
The Company continually evaluates the allocation of manufacturing
activities among the Company's own operations and those of suppliers and
subcontractors. This allocation may be affected by fluctuations in the volume
of business, geopolitical, economic and technological developments and other
factors.
The Company attempts to utilize standard parts and components available
from multiple vendors rather than to integrate its manufacturing operations
vertically. The Company believes that there are a number of competent vendors
for most of the parts and components used in its system products. In certain
circumstances, despite the availability of multiple sources, the Company may
select a single source or a very limited number of sources in order to maintain
quality or price control or to develop a more strategic relationship with the
supplier.
Reliance on single or limited source vendors involves several risks,
including the possibility of a shortage of certain key components that meet the
Company's product specifications and reduced control over delivery schedules,
manufacturing yields, quality and costs. These issues tend to be especially
acute in the early or "ramp-up" stage as the Company attempts to reach volume
production of new products. In particular, the Company is dependent on a
limited number of semiconductor manufacturers with state of the art fabrication
facilities. During fiscal 1996, for example, the Company was dependent on a
single supplier, NEC, for the great majority of its requirements of MIPS R10000
microprocessors, a dependency that will continue through at least the first half
of fiscal 1997 until a second source begins volume production. Other components
for which the Company currently does not have multiple sources include certain
application-specific integrated circuits ("ASICs"). These are currently
obtained from IBM, LSI Logic, Motorola, VLSI Technology and Toshiba. Components
available from limited sources include floating point coprocessors and certain
memory circuits.
The Company also has single sources for certain peripherals, communications
controllers and power supplies, and the monitors and plastic cabinets used
across the Company's system products. The Company believes that, in most of
these cases, alternative sources of supply could be developed over a period of
time. However, a reduction or interruption in supply or a significant increase
in the price of one or more single or limited source components would, at least
in the short term, adversely affect the Company's operating results.
Many of the Company's suppliers are located outside the United States,
especially in Japan. The prices of parts from these suppliers have been and may
be affected significantly by such factors as protectionist measures and changes
in currency exchange rates between the United States and other countries. In
addition, changes in the availability of certain memory chips (DRAMs, SRAMs and
VRAMs) have caused, and in the future may cause, significant changes in their
prices.
COMPETITION
The computer industry is highly competitive and is characterized by rapid
technological advances in both hardware and software development. These
advances result in frequent new product introductions, short product life cycles
and increased new product capabilities, typically representing significant
price/performance improvements. The principal competitive factors in the
Company's market are product features, price/performance, networking
capabilities, product quality and reliability, ease of use, capabilities of the
system software, availability of applications software, customer support,
product availability, corporate reputation and price. The strong competition
faced throughout the Company's product line can result in significant
discounting from list price.
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The Company's principal competition has historically come from other
workstation and computer system manufacturers and, to a lesser extent, from
graphics subsystem and terminal vendors and graphics integrated circuit
manufacturers. The principal workstation and computer manufacturers that
compete in the Company's markets are Digital Equipment, Hewlett Packard, IBM and
Sun Microsystems. The Company is facing increasing competition at the lowest
end of the workstation market from systems based on personal computer
technologies such as the Windows NT operating system, Intel microprocessors and
graphics acceleration cards.
In the high end of the supercomputer market, the Company faces competition
from IBM as well as from NEC, Hitachi and Fujitsu. In the applications software
market and certain other emerging markets the Company's principal competitor is
Microsoft.
The Company's MIPS RISC microprocessor architecture and technology compete
directly with microprocessor products offered by manufacturers of other
microprocessor designs, in particular those offered by IBM, Digital, HP, Intel,
Motorola and Sun. Although the Company believes its RISC architecture offers
advantages over these other designs, some of these architectures have a larger
installed base and wider availability of application software, which may
adversely affect the adoption of the Company's RISC architecture.
RISKS THAT AFFECT OUR BUSINESS
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. Other than in the Cray Research business, the Company has
short delivery cycles and as a result generally 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 revenue 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. The timing of customer acceptance of large Cray systems may also
have a significant effect on periodic operating results. Margins are heavily
influenced by mix considerations, including geographical mix, the mix of service
and non-recurring engineering revenue, the mix of high-end and desktop products
and application software, as well as 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. Sales of Cray Research systems generally reflect
sequential growth from quarter-to-quarter through the calendar year.
The Company's stock price, like that of other technology companies, is subject
to significant volatility. If revenue 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.
PRODUCT DEVELOPMENT AND INTRODUCTION The Company's continued success depends on
its ability to develop and rapidly bring to volume production highly
differentiated, technologically complex and innovative products. The Company
plans to introduce several new product families in the first half of fiscal
1997, including products that will replace virtually the entire current product
line. A number of risks are inherent in this process.
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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 often 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. In the case of the Cray Research product line, new products
are generally announced well in advance of availability, due to the longer
sales cycle for these systems. The Company's results could be adversely
affected by such factors as development delays, quality or yield problems
experienced by suppliers, variations in product costs, and delays in customer
purchases of existing products in anticipation of the introduction of new
products. On September 25, 1996 the Company announced that its revenues for
the first quarter of fiscal 1997 would be only slightly higher than for the
same period in the prior year and that its net income for that period would
be materially below expectations. The results for the quarter are
attributable, at least in part, to customer anticipation of new high-end and
desktop products that the Company plans to introduce in October 1996.
COMPETITION The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. As most of
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 comes not only from the
Company's traditional UNIX workstation rivals and Cray's traditional
supercomputing competitors, but also from new sources including the personal
computer industry. In particular, during fiscal 1996 the Company experienced
increasing competition at the lowest end of its business from workstations based
upon the Intel Pentium microprocessor, Microsoft's Windows NT operating system,
and a variety of 3-D graphics acceleration cards. 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.
VOLUME STRATEGY The Company believes that its long-term success is dependent
on achieving substantial increases in unit volumes over the next several
years. The Company has created a new business unit, the Silicon Desktop
Group, with the charter of implementing a comprehensive strategy for
increasing volumes of desktop products, including new product development,
greater emphasis on lower-cost manufacturing and the strengthening of
indirect distribution channels. Risks associated with this strategy include:
- increased direct competition with the personal computer industry,
portions of which have been seeking to move upmarket to compete with
low-end workstations (see "Competition");
- the impact of lower gross margins, to the extent not mitigated by
savings in distribution costs and other operating expenses; and
- the extent to which the Company is able to adapt its manufacturing and
service philosophies to the demands of higher volumes and lower costs.
ACQUISITION OF CRAY RESEARCH The acquisition of Cray Research will require,
among other things, integration of the Cray Research organization, business
infrastructure and product offerings with those of the Company in a way that
enhances the performance of the combined business. The challenges posed by the
acquisition include the management of a business with a different approach to
product design, manufacturing and sales and service, the development of a
consolidated product road map from a number of incompatible products and the
integration of several geographically separated research and development
centers. The success of this process will be significantly influenced by the
Company's ability to retain key management, sales, and research and development
personnel. The integration process will
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also require the dedication of management resources, which may temporarily
distract attention from the day-to-day business of the Company.
There are several other aspects of Cray Research's business that are different
from the Company's current business and may affect the operations of the
combined business:
- Government agencies and research institutions represent a major
customer group for Cray Research products. As a result of the
acquisition, a greater percentage of the Company's revenue will be
derived from sales to such customers, whose purchasing decisions may
be adversely affected by reductions or changes in government spending.
- International sales of Cray Research's products are more likely to be
subject to export licensing constraints than international sales of
the Company's current products.
- Cray Research derives most of its revenue from the sale of a small
number of large systems, which generally have a longer sales cycle.
Revenue for these systems is recognized at customer acceptance rather
than upon shipment. Cray Research's results for any period are
significantly influenced by the number and mix of systems accepted and
whether a system is sold or leased. Changes affecting even a small
number of systems can have significant financial implications.
- At June 30, 1996, the combined Company's backlog was $572 million,
representing orders scheduled to ship during fiscal 1997. This
backlog primarily consists of orders for Cray Research T90 and T3E
systems, which only recently had their first commercial shipments.
IMPACT OF GOVERNMENT CUSTOMERS A significant portion of the Company's revenue
is derived from sales to the U.S. government, either directly by the Company or
through system integrators and other resellers. This proportion will increase
as the result of the Cray Research acquisition. Sales to the government present
risks in addition to those involved in sales to commercial customers, including
potential disruptions due to appropriation and spending patterns and the
government's reservation of the right to cancel contracts for its convenience.
In the second quarter of fiscal 1996, for example, the Company's results were
adversely affected by purchasing slowdowns related to the federal government
budget impasse.
GLOBAL FINANCIAL MARKET RISKS The Company's business and financial results are
affected by fluctuations in world financial markets, including foreign currency
exchange rates and interest rates. The Company's hedging policy attempts to
mitigate some of these risks, based on management's best judgment of the
appropriate tradeoffs among risk, opportunity and expense. The Company
regularly reviews its overall hedging policies, and it continually monitors its
hedging activities to ensure that they are consistent with policy and
appropriate and effective in light of changing market conditions. Management
may as part of this review determine at any time to change its hedging policies.
However, it is important to recognize that the Company's risk management
activities are not comprehensive, and that there can be no assurance that these
programs will offset more than a portion of the adverse financial impact
resulting from unfavorable movements in either foreign exchange or interest
rates.
Because more than 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 can be significantly affected by changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which the
Company distributes its products. The Company is primarily exposed to changes
in exchange rates on the Swiss franc, British pound, Japanese yen, German mark
and French franc. When the U.S. dollar strengthens against these currencies,
the value (as expressed in U.S. dollars) of non-U.S. dollar-based sales and
costs decrease. The opposite happens when the U.S. dollar weakens. Because
the Company is a net receiver of currencies other than the U.S. dollar, it
benefits from a weaker dollar and is adversely affected by a stronger dollar
relative to major currencies worldwide. Accordingly, a strengthening of the
U.S. dollar tends to affect negatively the Company's revenue and gross margins.
-9-
To mitigate the short-term impact of fluctuating currency exchange rates on the
Company's non-U.S. dollar-based sales and intercompany receivables, the Company
regularly hedges certain of these net exposures. Historically, the Company has
not sought to hedge future revenues. However, as a result of the Cray Research
acquisition, the Company is continuing Cray Research's policy of entering into
foreign exchange forward contracts that hedge firmly committed Cray Research
backlog. Currently, these hedges extend through December 1999. Beginning in
fiscal 1997, the Company also expects to hedge a portion of anticipated
quarterly revenues from international operations. The Company utilizes foreign
currency forward contracts to hedge non-U.S. dollar intercompany receivables.
The Company has generally not hedged capital expenditures, investments in
subsidiaries or inventory purchases. However, because the Company procures
inventory and its international operations incur expenses in local currencies,
the financial effects of fluctuations in the U.S. dollar values of non-U.S.
dollar-based transactions frequently mitigate or tend to offset each other on a
consolidated basis.
The Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash equivalents and
marketable investments as well as interest paid on its borrowings. To mitigate
the impact of fluctuations in U.S. interest rates, the Company has entered into
an interest rate swap transaction intended to better match the Company's fixed
rate interest expense on its zero coupon convertible subordinated debentures
with the floating-rate interest income on its cash equivalents and marketable
investments.
OTHER RISKS OF INTERNATIONAL OPERATIONS The Company's results could also be
negatively affected by such factors as changes in trade protection measures,
longer accounts receivable collection patterns, or natural disasters. 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.
MANAGEMENT INFORMATION SYSTEMS The Company replaced its United States
information management system in the third quarter of fiscal 1996 with a
comprehensive system used to manage the entire revenue cycle, including order
administration, billing and collection, as well as manufacturing and finance.
The Company expects that the system will provide operational efficiencies and
support future growth. However, as the system has been in operation for a
relatively short period, there remains a risk of functional or performance
difficulties, particularly if the system is extended to the Company's
international operations and to the Cray Research business.
DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE Most of the Company's
system products incorporate microprocessors based upon the Company's MIPS
RISC microprocessor architecture. The Company licenses the manufacturing and
distribution rights to these microprocessors to selected semiconductor
manufacturing companies. The Company believes that the continued development
and broad acceptance of the MIPS architecture are critical to its future
success.
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 currently has patent infringement lawsuits
pending against it. 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 intellectual property claims will also increase.
-10-
EMPLOYEES The Company's future success depends in part on its ability to
continue to attract, retain and motivate highly qualified technical, marketing
and management personnel, who are in great demand.
BUSINESS DISRUPTION The Company's corporate headquarters, including most of its
research and development operations and manufacturing facilities, are located in
the Silicon Valley area of Northern California, a region known for seismic
activity. Operating results could be materially affected by a significant
earthquake. The Company is predominantly self-insured for losses and business
interruptions of this kind.
PROPRIETARY RIGHTS AND LICENSES
The Company has been granted or has applications pending for a significant
number of U.S. patents, and will continue to seek patent coverage for its
inventions in both the United States and foreign countries. The Company also
has applied for and holds various trademark registrations in the United States
and in selected foreign countries. The Company will continue to seek protection
for its inventions, trademarks, maskworks and copyrights where appropriate.
As is customary in its industry, the Company licenses from third parties a
wide range of software for its internal use and for the use of its customers.
The Company licenses the UNIX operating system on a non-exclusive basis from
Novell, Inc., and sublicenses it to its customers.
The Company's ability to compete may be affected by its ability to protect
proprietary information and to obtain necessary licenses on commercially
reasonable terms. The extent to which U.S. and international intellectual
property laws protect the Company's products, and the enforceability of end-user
license agreements, have not been fully determined, and the computer industry
has seen a substantial increase in litigation with respect to intellectual
property matters. Such litigation or changes in the interpretation of
intellectual property laws could expand or reduce the extent to which the
Company or its competitors are able to protect their intellectual property or
require changes in the design of products which could have an adverse impact on
the Company. There can be no assurance that the Company will not be made a
party to litigation regarding intellectual property matters in the future. See
"Legal Proceedings."
EMPLOYEES
As of June 30, 1996, the Company had approximately 10,485 full-time
employees. The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate highly qualified technical, marketing
and management personnel, who are in great demand. The Company has never had a
work stoppage, and no employees are represented by a labor union. The Company
believes that its employee relations are good.
CORPORATE DATA
The Company was originally incorporated as a California corporation in
November 1981, and reincorporated as a Delaware corporation in January 1990.
The Company acquired MIPS Computer Systems, Inc. through a merger in June 1992,
and acquired Alias Research Inc. and Wavefront Technologies, Inc. through
mergers in June 1995. The Company recently acquired Cray Research, Inc.
through a merger effective June 30, 1996.
ITEM 2. PROPERTIES
The Company believes that, while it currently has or is developing
sufficient facilities to conduct its operations during fiscal 1997, it will
continue to acquire both leased and owned facilities throughout the world as its
business requires. The Company's corporate offices and its primary research and
-11-
development and manufacturing operations are located in Mountain View,
California. The Company leases twelve adjacent buildings comprising a total of
approximately 726,500 square feet under leases terminating during 2000 through
2005. The Company owns 7.5 acres near its Mountain View headquarters, on which
a 112,000 square foot headquarters building for its sales organization was
completed in fiscal 1995. The Company also leases sixteen other buildings near
its Mountain View headquarters, comprising approximately 736,000 square feet.
The Company also has leased 22 acres of land near its other facilities in
Mountain View on which a four-building, 500,000 square foot general office
complex is being constructed to be leased to the Company for occupancy in fiscal
1997.
As a result of the acquisition of Cray Research, the Company also owns
manufacturing, research and development and service facilities comprising
approximately 747,000 square feet in Chippewa Falls, Wisconsin and
manufacturing, research and development, sales and administrative facilities
comprising 479,300 square feet in Eagan, Minnesota. The Company has vacated
and intends to sell a general and administrative and sales office comprising
approximately 118,900 square feet in Mendota Heights, Minnesota. The
Company's computing services operation leases approximately 100,100 square
feet in Minneapolis.
The Company's European manufacturing and support center near Neuchatel,
Switzerland is located in a facility owned by the Company, consisting of
approximately 75,000 square feet An additional facility comprised of
approximately 60,000 square feet is under construction and due for occupancy in
January 1997.
The Company also leases sales, service and administrative offices
worldwide.
ITEM 3. LEGAL PROCEEDINGS
The Company is defending the lawsuits described below. The Company
believes that it has good defenses to the claims in each of these lawsuits and
is defending each of them vigorously.
The Company is defending a securities class action lawsuit and a derivative
suit filed in U.S. District Court for the Northern District of California in
January and March, 1996. These suits allege that the Company and certain of its
officers and directors made material misrepresentations and omissions during the
period from October to December 1995. On September 25, 1996, the District Court
dismissed the securities class action, while allowing plaintiffs one opportunity
to amend their complaint, and dismissed the derivative action with prejudice.
The Company also is defending securities class action lawsuits involving
MIPS Computers Systems, Inc., which the Company acquired in June 1992, and Alias
Research Inc., which the Company acquired in June 1995. The MIPS case, which
was filed in the U.S. District Court for the Northern District of California in
1992, alleges that MIPS and certain of its officers and directors made material
misrepresentations and omissions during the period from January to October of
1991. On September 11, 1996, the United States Court of Appeals for the Ninth
Circuit reversed the summary judgment granted in defendants' favor in June 1994.
The Company intends to seek rehearing of the Court of Appeals' decision. The
Alias case, which was filed in the U.S. District Court for the District of
Connecticut in 1991, alleges that Alias and certain of its officers and
directors made material misrepresentations and omissions during the period from
May 1991 to April 1992. Alias' motion to dismiss the amended complaint is
pending.
The Company also is defending a patent infringement lawsuit filed by Martin
Marietta Corp. in the U.S. District Court for the Middle District of Florida in
September 1995. The Company has filed a counterclaim seeking to invalidate the
principal patent at issue in the lawsuit, and Martin Marietta has requested the
U.S. Patent and Trademark Office to re-examine the patent. The District Court
has set a trial date for the lawsuit in February 1998.
-12-
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. There can be no assurance in any given case
that a license will be available on terms the Company considers reasonable,
or that litigation will not ensue. Management is not aware of any pending
disputes, including those described above, that would be likely to have a
material adverse effect on the Company's financial condition, results of
operations or liquidity. However, management's evaluation of the likely
impact of these pending disputes could change in the future.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of September 20,
1996, are as follows:
Executive
Officer
Name Age Position and Principal Occupation Since
---- --- --------------------------------- -----
Edward R. McCracken 52 Chairman, Chief Executive Officer and Director 1984
Robert R. Bishop 53 Chairman, Silicon Graphics World Trade Corporation 1991
and Director, Silicon Graphics, Inc.
Gary L. Lauer 43 Executive Vice President, Worldwide Sales and Marketing, 1988
Silicon Graphics, Inc. and President, Silicon Graphics
World Trade Corporation
Javaid Aziz 44 Senior Vice President, European Field Operations 1995
Forest Baskett 53 Senior Vice President, Research and Development and 1986
Chief Technology Officer
Ross A. Bott 45 Senior Vice President, Enterprise Technologies 1996
John E. Bourgoin 50 President, MIPS Technologies, Inc. and Senior Vice 1996
President, Silicon Graphics, Inc.
Kenneth L. Coleman 53 Senior Vice President, Administration 1987
Robert H. Ewald 48 President, Cray Research, Inc. and Senior Vice President, 1996
Silicon Graphics, Inc.
Stephen Goggiano 43 Senior Vice President, Manufacturing and Customer Service 1989
William M. Kelly 43 Senior Vice President, Silicon Interactive Group, General 1994
Counsel and Secretary
Stanley J. Meresman 49 Senior Vice President, Finance and Chief Financial Officer 1989
David E. Orton 40 Senior Vice President, Scalable Systems Group 1996
Michael Ramsay 46 Senior Vice President, Silicon Desktop Group 1987
Teruyasu Sekimoto 57 Senior Vice President, East Asian Field Operations 1995
Dennis P. McBride 44 Vice President, Controller 1988
Robert W. Saltmarsh 46 Vice President, Treasurer 1996
Executive officers of the Company are elected annually by the Board of
Directors and serve at the Board's discretion. There are no family
relationships among any directors, nominees for director or executive officers
of the Company.
Except as set forth below, all of the officers have been associated with
the Company in their present positions for more than five years.
Mr. McCracken became Chairman of the Company in 1994.
-13-
Mr. Bishop, who has been an officer of the Company since 1991 and President
of Silicon Graphics World Trade Corporation since 1986, was named Chairman of
the Board of Silicon Graphics World Trade Corporation in July of 1995.
Mr. Lauer joined the Company in 1988 as Vice President, North American
Marketing, became Vice President, North American Field Operations in 1989, was
named Senior Vice President, North American Field Operations in 1991 and became
Executive Vice President, Silicon Graphics, Inc. and President of Silicon
Graphics World Trade Corporation in 1995.
Mr. Aziz joined the Company in 1995 as Senior Vice President, Europe.
Prior to joining the Company, Mr. Aziz spent 20 years at IBM Corporation in
technical, marketing and management positions, most recently as chief executive
officer of the United Kingdom operations.
Mr. Bott joined the Company in 1993 as Vice President/General Manager of
the Company's Network Systems Division. In 1996, he was named Senior Vice
President, Enterprise Technologies. Prior to joining the Company, Mr. Bott was
Vice President of Advanced Development and chief technical officer at Pyramid
Technology.
John E. Bourgoin joined the Company in 1996 as President of MIPS
Technologies, Inc. and Senior Vice President of Silicon Graphics, Inc. Prior to
joining the Company, Mr. Bourgoin served as Vice President, Computation Products
Group at Advanced Micro Devices, Inc.
Robert H. Ewald joined the Company in 1996 as a result of the Company's
acquisition of Cray Research, Inc. and now serves as President of Cray Research
and Senior Vice President of Silicon Graphics, Inc. Prior to the acquisition,
Mr. Ewald had been President and Chief Operating Officer of Cray since late
1994. Prior to that, he was Chief Operating Officer of Cray's Supercomputer
Operations and in 1993 served as Executive Vice President and General Manager,
Supercomputer Operations. During 1991 through 1993, Mr. Ewald was Cray's
Executive Vice President, Development.
Mr. Goggiano joined the Company in 1989 as Director of Operations, Advanced
Systems Division. In 1990, Mr. Goggiano was named Vice President/General
Manager, Operations and, in 1993, he was named Senior Vice President. Prior to
joining the Company, Mr. Goggiano was Vice President, Manufacturing for Altos
Computer Systems.
Mr. Kelly joined the Company in 1994 as Vice President, Business
Development, General Counsel and Secretary. In 1996, Mr. Kelly was named
Senior Vice President, Silicon Interactive Group and remains General Counsel
and Secretary of the Company. Prior to joining the Company, Mr. Kelly had
practiced law since 1978 with the firm of Shearman & Sterling, most recently
as co-managing partner of that firm's San Francisco office.
In 1990, Mr. Orton became Vice President/General Manager of the Advanced
Systems Division and in 1996 was named Senior Vice President, Scalable Systems
Group.
Mr. Ramsay was named Vice President/General Manager, Entry Systems Division
in 1988, and became Senior Vice President/General Manager, Entry Systems
Division in 1991. In 1992, Mr. Ramsay was named Senior Vice President, Visual
Systems Group, in 1994, became President of Silicon Studio, Inc. and in 1996 was
named Senior Vice President, Silicon Desktop Group.
Mr. Saltmarsh joined the Company in 1996 as Vice President, Treasurer. In
1994 and 1995, Mr. Saltmarsh served as Chief Financial Officer at Radius, Inc.
and prior to that was Vice President of Finance at Apple Computer, Inc.
-14-
PART II
With the exception of the information specifically incorporated by
reference from the Company's 1996 Annual Report to Stockholders (the "1996
Annual Report") in Parts I, II and IV of this Form 10-K, the 1996 Annual Report
is not to be deemed filed as part of this Report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the
section entitled "Price Range of Common Stock" on page 35 of the Company's 1996
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
section entitled "Selected Consolidated Financial Data" on page 34 of the
Company's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis" on pages 36 through 43
of the Company's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
consolidated financial statements and notes thereto and to the section entitled
"Quarterly Data" on pages 35 and 44 through 61 of the Company's 1996 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-15-
PART III
Certain information required by Part III is omitted from this Report in
that the Company has filed its definitive proxy statement pursuant to Regulation
14A (the "1996 Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to pages 3 and 4 of the 1996 Proxy Statement under the
heading "Proposal No. 1 -- Election of Directors - Directors and Nominees for
Director."
The information concerning executive officers and family relationships
required by this Item is incorporated by reference to the section in Part I
hereof entitled "Executive Officers of the Registrant."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, required by this Item is incorporated by
reference to page 9 of the 1996 Proxy Statement under the heading "Executive
Officer Compensation - Compliance with Section 16(a) of the Exchange Act."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to page
5 under the headings "Proposal No. 1 - Election of Directors - Compensation
Committee Interlocks and Insider Participation" and " - Director Compensation",
pages 7 through 9 under the headings "Executive Officer Compensation - Summary
Compensation Table", " - Option Grants in Fiscal 1996" and " - Option Exercises
in Fiscal Year 1996 and Fiscal Year-End Option Values", pages 10 and 11 under
the heading "Report of the Compensation and Human Resources Committee of the
Board of Directors", and page 12 under the heading "Company Stock Price
Performance Graph" of the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to pages
1 and 2 of the 1996 Proxy Statement under the headings "Information Concerning
Solicitation and Voting - Record Date and Principal Share Ownership" and
" - Voting and Solicitation" and page 6 of the 1996 Proxy Statement under the
heading "Other Information - Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to pages
9 and 10 of the 1996 Proxy Statement under the heading "Certain Transactions."
-16-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements and supplementary information of Silicon Graphics, Inc. and Report of
Independent Auditors are incorporated by reference to pages 35 and 44 through 62
of the Registrant's 1996 Annual Report:
Consolidated Statements of Operations - Years Ended June 30, 1996,
1995 and 1994
Consolidated Balance Sheets - June 30, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended June 30, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity - Years Ended June 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
Supplementary Information
Quarterly Data (Unaudited)
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of Silicon Graphics, Inc. is filed as part of this Report and should be
read in conjunction with the Consolidated Financial Statements of Silicon
Graphics, Inc.
Schedule Description Page
- -------- ----------- ----
II Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
-17-
3. EXHIBITS. The following Exhibits are filed as part of, or
incorporated by reference into, this Report:
2.1(14) Agreement and Plan of Merger and Reorganization,
dated as of February 6, 1995, among Silicon
Graphics, Inc., S Acquisition Corporation and
Wavefront Technologies, Inc.
2.2(14) Agreement and Plan of Acquisition and Arrangement
dated as of February 6, 1995 by and among Silicon
Graphics, Inc., 1103707 Ontario Inc., Silicon
Graphics Manufacturing S.A. and Alias Research
Inc.
2.3(20) Agreement and Plan of Merger dated as of February
25, 1996 by and among Silicon Graphics, Inc.,
C. Acquisition Corporation and Cray Research, Inc.
3.1.1(12) Restated Certificate of Incorporation of the
Company.
3.1.2(18) Certificate of Designation of the Series E
Preferred Stock filed June 13, 1995.
3.2 Bylaws of the Company, as amended.
4.1(5) Silicon Graphics, Inc. $25,000,000 8.98% Senior
Notes Due February 1, 1996, Note Agreement and
Note, dated February 1, 1991.
4.2(7) Amended and Restated Preferred Shares Rights
Agreement, dated as of May 6, 1992 between the
Company and The First National Bank of Boston,
including the Certificate of Designation of
Rights, Preferences and Privileges of Series B
Participating Preferred Stock, the form of Rights
Certificate and the Summary of Rights attached
thereto as Exhibits A, B, and C respectively.
4.3(12) Indenture dated November 1, 1993 between the
Company and The First National Bank of Boston, as
Trustee.
4.4(15) First Amendment to Rights Agreement dated as of
May 2, 1995 between the Company and The First
National Bank of Boston.
9.1(18) Voting and Exchange Trust Agreement between the
Company and Montreal Trust Company of Canada dated
June 15, 1995.
10.1(6)* 1984 Incentive Stock Option Plan, as amended, and
amended form of Incentive Stock Option Agreement.
10.2(8)* 1986 Incentive Stock Option Plan, as amended, and
amended forms of Incentive Stock Option Agreement
and Nonstatutory Stock Option Agreement.
-18-
10.3(1) Software Agreement dated as of January 4, 1986, as
supplemented June 6, 1986, and Sublicensing
Agreement dated as of June 9, 1986 between the
Company and AT&T Information Systems Inc.
10.4(4)* 1987 Stock Option Plan and form of Stock Option
Agreement.
10.5(2) Software License Agreement dated January 24, 1986,
between the Company and AT&T Information Systems
Inc.
10.6(3) Stock Purchase Agreement dated March 2, 1990 among
the Company, NKK Corporation and NKK U.S.A.
Corporation.
10.7(12)* Directors' Stock Option Plan and form of Stock
Option Agreement as amended as of October 31,
1994.
10.8(8) Form of Indemnification Agreement entered into
between the Company and its directors, executive
officers and certain other agents.
10.9(8) Form of Indemnification Agreement entered into
between the Company and its directors, executive
officers and certain other agents. (Revised)
10.10(8)* 1985 Stock Incentive Program.
10.11(8) Exchange Agreement dated August 14, 1992 among the
Company, NKK Corporation and NKK U.S.A.
Corporation.
10.12(13) Credit Agreement dated December 31, 1994 between
the Company and Bank of America, National Trust
and Savings Association.
10.13(9) Purchase and Sale Agreement, as amended, between
Richard T. Peery, John Arrillaga and Silicon
Graphics, Inc. executed on April 30, 1993.
10.14(9) Waiver and Release Agreement between Richard T.
Peery, John Arrillaga and Silicon Graphics Real
Estate, Inc. dated May 7, 1993.
10.15(10)* 1993 Long-Term Incentive Stock Plan and form of
stock option agreement.
10.16(18)* Employee Stock Purchase Plan, as amended as of
June 12, 1995.
10.17(10)* Form of Employment Continuation Agreement entered
into between the Company and its executive
officers, as amended as of October 21, 1993.
10.18(10)* Consulting Agreement dated as of October 25, 1993
between the Company and Mark W. Perry.
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10.19(11)* Non-Qualified Deferred Compensation Plan dated as
of September 9, 1994.
10.20(13)* Employment Agreement dated February 1, 1995
between the Company and Thomas A. Jermoluk.
10.21(15)* Employment Agreement dated as of February 13, 1995
between the Company and Javaid Aziz.
10.22(18)* Letter agreement dated as of July 6, 1995 between
the Company and Robert K. Burgess.
10.23(18)* Convertible Debenture dated as of February 3, 1993
issued to Robert K. Burgess.
10.24(18) Ground Lease between Silicon Graphics Real Estate
Inc. and the City of Mountain View dated March 7,
1995.
10.25(18) Agreement for Lease between the Company and
Virtual Funding, Limited Partnership dated
November 18, 1993.
10.26(18) Amendment No. 1 to Agreement for Lease between the
Company and Virtual Funding, Limited Partnership
dated March 15, 1995.
10.27(18) Lease Agreement between the Company and Virtual
Funding, Limited Partnership dated November 18,
1993.
10.28(18) Amendment No. 1 to Lease Agreement between the
Company and Virtual Funding, Limited Partnership
dated March 15, 1995.
10.29(16)* Alias Research Inc.'s 1988 Employee Share
Ownership Plan Option Agreement.
10.30(16)* Alias Research Inc.'s 1989 Employee Share
Ownership Plan Option Agreement.
10.31(16)* Alias Research Inc.'s 1990 Employee Share
Ownership Plan and standard forms of Option
Agreements.
10.32(16)* Alias Research Inc.'s 1994 Stock Plan and standard
forms of Option Agreements.
10.33(17)* Wavefront Technologies, Inc. 1990 Stock Option
Plan with standard form of Option Agreement.
10.34(19)* Consulting Agreement dated as of December 21, 1995
between the Company and Tom Oswold.
10.35(19)* Addendum to the Non-Qualified Deferred
Compensation Plan (previously filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995).
-20-
10.36(21)* Consulting Agreement dated as of March 5, 1996
between the Company and Wei Yen.
10.37(21) Credit Agreement dated as of April 12, 1996.
10.38(21)* 1996 Supplemental Non-Executive Equity Incentive
Plan and form of stock option agreement.
10.39(22)* Cray Research, Inc. Amended and Restated 1989
Employee Benefit Stock Plan and form of stock
option agreement.
10.40(22)* Cray Research, Inc. 1989 Non-Employee Directors'
Stock Option Plan and form of stock option
agreement.
11.1 Statement of Computation of Per Share Earnings.
13.1 Excerpts from Annual Report for the year ended
June 30, 1996.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors (see page 27).
27.1 Financial Data Schedule.
- -------------------------
* This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (No. 33-8892), which became effective October 29,
1986.
(2) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (No. 33-12863), which became effective March 31,
1987.
(3) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated March 16, 1990.
(4) Incorporated by reference to exhibits to the Company's Post-Effective
Amendment to Registration Statement on Form S-8 (No. 33-16529), which
became effective June 18, 1990.
(5) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1990.
(6) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991.
(7) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992.
(8) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1992.
-21-
(9) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1993.
(10) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1993.
(11) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1994.
(12) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.
(13) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1994.
(14) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K dated February 13, 1995.
(15) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1995.
(16) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60215), which became effective June 14, 1995.
(17) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60213), which became effective June 14, 1995.
(18) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995.
(19) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1995.
(20) Incorporated by reference to exhibits to the Company's Schedule 14D-1,
Tender Offer Statement dated February 29, 1996.
(21) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1996.
(22) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 333-06403), which became effective June 20,
1996.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed during the quarter ended June 30,
1996.
-22-
TRADEMARKS USED IN THIS FORM 10-K
Silicon Graphics, CHALLENGE, Indigo, Onyx, OpenGL and the Silicon Graphics logo
are registered trademarks, and Cosmo, Indigo(2), Indigo(2) IMPACT, Indigo Magic,
InfiniteReality, IRIS GL, IRIX, Maya, POWER CHALLENGE, RealityEngine(2) and
WebFORCE are trademarks of Silicon Graphics, Inc. Indy is a registered
trademark used under license in the United States, and owned by Silicon
Graphics, Inc. in other countries worldwide. MIPS is a registered trademark and
R10000 are trademarks of MIPS Technologies, Inc. Cray is a registered trademark
and Cray J90, Cray T3E and Cray T90 are trademarks of Cray Research, Inc.
Alias|Wavefront, Alias Studio, Alias PowerAnimator, and Wavefront Composer are
trademarks of Alias|Wavefront, a division of Silicon Graphics Limited.
Pentium is a registed trademark of Intel Corporation. UNIX is a registered
trademark licensed exclusively through X/Open Company Limited. Windows NT is a
trademark of Microsoft Corporation.
-23-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SILICON GRAPHICS, INC.
By: /s/ Edward R. McCracken
------------------------------
Edward R. McCracken
Chairman and Chief Executive
Officer
Dated: September 27, 1996
-24-
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------------------------- ---------------------------------------- ------------------
/s/ Edward R. McCracken Chairman, Chief Executive Officer September 27, 1996
- ---------------------------------------- and Director (Principal Executive
Edward R. McCracken Officer)
Chairman, Silicon Graphics World
- ---------------------------------------- Trade Corporation, and Director
Robert R. Bishop
/s/ Stanley J. Meresman Senior Vice President, Finance September 27, 1996
- ---------------------------------------- and Chief Financial Officer
Stanley J. Meresman (Principal Financial Officer)
/s/ Dennis P. McBride Vice President, Controller September 27, 1996
- ---------------------------------------- (Principal Accounting Officer)
Dennis P. McBride
/s/ Allen F. Jacobson Director September 27, 1996
- ----------------------------------------
Allen F. Jacobson
/s/ C. Richard Kramlich Director September 27, 1996
- ----------------------------------------
C. Richard Kramlich
/s/Robert A. Lutz Director September 27, 1996
- ----------------------------------------
Robert A. Lutz
Director
- ----------------------------------------
James A. McDivitt
-25-
Signature Title Date
- ---------------------------------------- ---------------------------------------- ------------------
/s/ Lucille Shapiro Director September 27, 1996
- ----------------------------------------
Lucille Shapiro
/s/ Robert B. Shapiro Director September 27, 1996
- ----------------------------------------
Robert B. Shapiro
/s/ James G. Treybig Director September 27, 1996
- ----------------------------------------
James G. Treybig
-26-
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Silicon Graphics, Inc. of our report dated July 19, 1996, included in the
1996 Annual Report to Stockholders of Silicon Graphics, Inc.
Our audits also included the consolidated financial statement schedule of
Silicon Graphics, Inc. listed in item 14(a)2. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 File Nos. 33-11703, 33-16529, 33-18717, 33-26003,
33-34919, 33-38536, 33-40879, 33-44305, 33-44333, 33-48890, 33-59098,
33-65190, 033-50999, 033-51275, 33-58017, 33-60213, 33-60215, 333-01211,
333-06403 and 333-08651) pertaining to the Employee Stock Purchase Plan, 1987
Stock Option Plan, 1986 Incentive Stock Option Plan, 1985 Stock Incentive
Program, 1984 Incentive Stock Option Plan, 1982 Stock Option Plan, Directors'
Stock Option Plan and Subsidiary Stock Agreement, 1993 Long-Term Incentive
Stock Plan and the 1996 Supplemental Non-Executive Equity Incentive Plan of
Silicon Graphics, Inc.; the 1990 Stock Option Plan of Wavefront Technologies,
Inc.; and the 1988 Employee Share Ownership Plan, 1989 Employee Share
Ownership Plan, 1990 Employee Share Ownership Plan, and the 1994 Stock Plan
of Alias Research Inc. and the Amended and Restated 1989 Employee Benefit
Stock Plan and 1989 Non-Employee Directors' Stock Option Plan of Cray
Research, Inc. of our report dated July 19, 1996 with respect to the
consolidated financial statements of Silicon Graphics, Inc. incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report
(Form 10-K).
/s/ Ernst & Young LLP
Palo Alto, California
September 27, 1996
-27-
Schedule II
SILICON GRAPHICS, INC.
Valuation and Qualifying Accounts
(in thousands)
Additions
-----------------------------------
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses Other Write-offs Period
----------- --------- -------- ------ ---------- ------
Year ended June 30, 1994
Accounts receivable
allowances $10,875 $3,226 $0 $(4,609) $9,492
Year ended June 30, 1995
Accounts receivable
allowances $9,492 $11,534 $0 $(7,561) $13,465
Year ended June 30, 1996
Accounts receivable
allowances $13,465 $4,292 $6,383* $(373) $23,767
* Acquired Cray Research valuation allowance.
S-1