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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998.
[ ] 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: (650) 960-1980
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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
5 1/4% Senior Convertible Notes 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 1, 1998 on the New York Stock Exchange as reported in
The Wall Street Journal, was approximately $1,461 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 1, 1998, THE REGISTRANT HAD OUTSTANDING 186,062,597 SHARES OF
COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for registrant's Annual Meeting of Stockholders
to be held October 27, 1998 are incorporated by reference into Part III, and
parts of the registrant's annual report to stockholders for the fiscal year
ended June 30, 1998 are incorporated by reference into Parts I, II and IV of
this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Silicon Graphics is a leader in high-performance computing. The Company's
broad range of visual computing systems deliver advanced 3D graphics and
computing capabilities for engineering and creative professionals. Silicon
Graphics-Registered Trademark- servers and Cray-Registered Trademark- Research
supercomputers are the market leaders in technical computing applications, with
a growing presence in strategic business analysis, internet data center and
media serving applications.
The Company's Alias|Wavefront subsidiary markets applications software
targeted at engineering and creative professionals in the digital content
creation and manufacturing sectors. The Company's MIPS Technologies, Inc.
subsidiary designs and licenses RISC processor intellectual property and core
technology for the digital consumer and high-end control-oriented embedded
markets.
PRODUCTS
The Company's computer systems range from desktop workstations to servers
and supercomputers. Most of these systems are designed around MIPS-Registered
Trademark- RISC microprocessors developed by the Company and the IRIX-TM-
operating system, which is the Company's enhanced version of the UNIX operating
system.
VISUAL COMPUTING PRODUCTS
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.
IRIX-BASED DESKTOP SYSTEMS The O2-TM- family of entry-level desktop
workstations feature advanced 3D graphics and imaging, real-time video
capability and interactive and professional quality graphics, audio and imaging
capabilities. The O2 workstation has significant appeal in markets such as
mechanical CAD, chemistry, color publishing, film and video, software
development, education and media authoring. The Octane-TM- family of single and
dual processor 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.
ADVANCED GRAPHICS SYSTEMS The Onyx2-TM- family of graphics supercomputers
uses multiple microprocessors and sophisticated graphics subsystems to handle
the most demanding visual computing tasks. Graphics subsystems available with
these servers include the Onyx2Reality-TM- and InfiniteReality-TM- graphics
subsystems. The Onyx2 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.
WINDOWS NT-BASED DESKTOP SYSTEMS The Company has announced it will
introduce desktop visual computing workstations based on the
Microsoft-Registered Trademark- Windows-Registered Trademark- NT operating
system and Intel microprocessors in the first half of fiscal 1999. These
systems are not expected to provide significant revenue until the second half of
fiscal 1999.
ALIAS/WAVEFRONT 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 run on the Windows NT and IRIX operating systems
and include the Maya-TM- family of 3D entertainment products, StudioPaint
3D-TM-, and the Alias Studio-TM- and AutoStudio-TM- industrial design and
visualization products. Alias|Wavefront is based in Toronto, Canada with sales
offices across North America, Europe and Asia and worldwide distribution.
SERVERS AND SUPERCOMPUTERS
ORIGIN200 The Origin200-TM- is a deskside server employing from one to
four processors. The Origin200 server is designed for departmental and other
workgroup serving applications as well as Web serving.
ORIGIN2000 The Origin2000-TM- family of high-performance servers is based
on the Company's innovative cache coherent non-uniform memory access (ccNUMA)
architecture, which offers the ability to scale from as few as four to as many
as hundreds of processors while maintaining almost linear performance per
processor. This "pay as you go" flexibility is highly attractive to customers
because it allows them to buy what they need today, add as needed while
protecting their investment, and redeploy when conditions change. 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. The Origin 2000 line is also targeted at certain enterprise segments
that have bandwidth and computational requirements similar to those of the
technical market. These "technical enterprise" markets include strategic
business analysis (data mining to analyze and organize database information),
internet data centers and digital asset management.
The CRAY T3E-TM- highly scalable supercomputing systems employ a highly
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 engineering and defense applications.
VECTOR SYSTEMS The Cray T90-TM- series of supercomputers delivers 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 SV1-TM- series introduced in August 1998 uses CMOS technology to
deliver scalable supercomputing for vector applications, suitable for use by
customers in manufacturing, government, and science and research for new product
design, research, weather forecasting, national security and other critical
applications.
MIPS RISC MICROPROCESSORS
The Company's system products, except the Cray T3E and vector
supercomputers and the forthcoming Windows NT-based desktop systems, are based
on the MIPS-Registered Trademark- RISC microprocessor architecture designed by
the Company and its subsidiary MIPS Technologies, Inc. ("MTI"). The 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
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significant performance gains to be realized by optimizing the tradeoff
between compiler and microprocessor functions. The versatility of the MIPS
RISC architecture makes it suitable for computer applications from
entry-level desktop systems up to supercomputers. However, the Company's
computers represent only a small percentage of the worldwide consumption of
MIPS RISC microprocessors.
MIPS RISC microprocessors are also used in a wide variety of noncomputer
applications, including disk drives, printers and copiers and, increasingly, in
consumer electronics products such as video game systems, set-top boxes, digital
cameras, and handheld computing devices running the Microsoft Windows CE
operating system. In 1998, the Company organized MTI as an independent company
focused on technology development and licensing for the digital consumer and
embedded markets. As a result of the initial public offering of MTI shares in
July 1998, Silicon Graphics owns about 85% of MTI. Silicon Graphics continues
to develop MIPS microprocessors for its own computer systems as part of its
computer systems organization.
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 are currently over 2,600 registered application software
programs offered for use on its systems.
MARKETING, SALES AND DISTRIBUTION
The Company sells its system products through its own direct sales force
and through several indirect channels. In fiscal 1998 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.
- SYSTEMS INTEGRATORS include Silicon Graphics systems in much larger
systems customized for use by the federal government and large
commercial clients.
Many of the Company's resellers are served through Access Graphics, an
independent company that functions as a master reseller of the Company's system
products.
Information with respect to international operations and export sales
may be found in Note 15 to the Consolidated Financial Statements incorporated
by reference in Part II below. See also "Risks That Affect Our Business"
below. Although no customer accounted for 10% or more of the Company's total
revenues for fiscal 1998, 1997 or 1996, a significant reduction or delay in
sales to major customers
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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.
PROFESSIONAL SERVICES
The Company believes that its future success, particularly in the server
sector, will depend in part on its ability to offer a wider variety of
solutions-oriented services, including consulting, custom engineering and
systems integration services. The Company's efforts to date in this area have
been small in scale and have not materially contributed to revenues. However,
the Company expects over time to increase its investment in professional
services.
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, graphics subsystems, 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.
As the evolution to industry-standard instead of proprietary components
continues, the Company's ability to focus its research and development
investments in areas where it has specific competencies for innovation will
become increasingly important. There are no assurances that the Company will be
able to sufficiently focus its development efforts or that its investments will
yield sufficient differentiation to achieve and sustain a competitive advantage.
During fiscal 1998, 1997 and 1996, the Company spent approximately $459
million, $479 million, and $353 million, respectively, on research and
development. Those amounts represented 14.8%, 13.1%, and 12.1%, respectively,
of revenues. The Company is committed to continuing innovation and
differentiation and as a result will most likely continue to make research and
development investments that are above average for the computer industry as a
percentage 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.
-4-
The Company primarily manufactures and ships its products from its
facilities in Mountain View and Sunnyvale, California, Chippewa Falls, Wisconsin
and near Neuchatel, Switzerland. During the latter half of fiscal 1998, the
Company reviewed its manufacturing strategy for the next several years and
decided to consolidate its manufacturing operations in its existing facilities
in two locations: Wisconsin and Switzerland. During calendar 1999, both of
these facilities will transition to an exclusive focus on servers, advanced
graphics systems and supercomputers. The Company plans to transition the
manufacture of its desktop systems to contract manufacturing partners during
calendar 1999.
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.
Most of the Company's products incorporate components that are available
from only one or limited sources. Key components include application specific
integrated circuits ("ASICs"), storage products, especially RAID-based products,
and certain memory products.
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. Risks also include long lead times, reduced
control over delivery schedules, and the possibility of charges for excess and
obsolete inventory.
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.
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 Compaq, Dell Computer, 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
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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.
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. The Company has several intellectual property lawsuits pending
against it today. There can be no assurance that the Company will not be made a
party to significant litigation regarding intellectual property matters in the
future. See "Legal Proceedings."
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.
BUSINESS TRANSITION. Two of the principal market sectors in which the Company
competes -- UNIX workstations and vector supercomputers -- have declined over
the past year, and the Company believes that these declines represent long-term
trends. The Company's goal is to transition an increasing proportion of its
revenues to growing markets, including Intel-Registered Trademark--based Windows
NT workstations and UNIX based scalable servers such as the Company's Origin
server product family. The Company's ability to achieve its revenue objectives
over the next several quarters will largely depend on the extent to which growth
in the Origin family and (beginning in the second half of fiscal 1999) Windows
NT workstation products compensates for the expected decline in the other market
sectors.
In April 1998, the Company made a series of announcements concerning its
strategic plans for the next several years. Key elements of the strategy
include a continued focus on the technical and technical enterprise markets,
with a product roadmap that will, over the next several years, merge the
Company's vector supercomputer and scalable server families. The Company also
announced an alliance with Intel Corporation that will result in the Company's
transition to the Intel microprocessor architecture. While the Company believes
that its strategies will result in its return to growth and profitability, the
effects will not be reflected in any significant way in the Company's results
until the latter half of fiscal 1999, and may not be fully reflected until
fiscal 2000.
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DESKTOP SYSTEM STRATEGY. The Company has under development a family of desktop
systems that will be based upon Intel microprocessors and the Windows NT
operating system. There can be no assurance that these systems will be
introduced as scheduled in the first half of fiscal 1999, and in any event they
will not account for any significant revenue before the latter half of fiscal
1999. Success in this market segment will require that the Company adapt to
very different requirements: high volume, lower margins, low-cost manufacturing
and distribution, marketing to a broader audience, and new approaches to
customer interface and support. The Company will also be required to maintain
and extend its customer relationships through a complex product transition and
to support a product line which includes multiple operating systems. In
particular, although the Company plans to continue to invest in and support its
current line of UNIX/MIPS-based workstations, there is a risk that revenue from
this business will be materially reduced by the announcement of the new product
family. The Company believes that its future success will largely depend on its
making the right strategic choices in this market segment and on effective
execution.
SERVER STRATEGY. Sustaining growth in the Company's scalable server business is
an important element of its strategic plans for the next several years.
Sustained growth will require, among other things, adapting to a longer sales
cycle and the need to deliver more complete solutions, establishing a presence
in emerging enterprise markets in which the Company has not traditionally
participated, working effectively with independent software providers to ensure
that important applications for the market segments targeted by the Company are
available on the Company's platform, and ultimately, managing a successful and
timely transition to the Intel architecture.
EXPENSE REDUCTION PROGRAM. During fiscal 1998, the Company announced and began
to implement a restructuring program aimed at bringing its expenses more in line
with current revenue levels and restoring long-term profitability to the
Company. The Company is seeking to further reduce its fiscal 1999 operating
expenses significantly below the level of fiscal 1998 operating expenses. As
part of this effort, the Company expects, through the elimination of positions
and managed hiring, to end fiscal 1999 with approximately 1,000 fewer employees
than it had at the end of fiscal 1998. These steps, and generally tighter
operating expense controls, are part of an overall program to reduce the
Company's expense structure. While the Company's objective is to reduce its
costs in ways that will not have a material impact on revenue levels, there can
be no assurance that this will be achieved.
DEPENDENCE ON PARTNERS AND SUPPLIERS. The Company's business has always
involved close collaboration with partners and suppliers. However, many
elements of the Company's current business strategy, including the introduction
of Intel-based Windows NT workstations, the longer-term transition to the Intel
architecture, and additional outsourcing of manufacturing, will increase the
Company's dependence on Microsoft, Intel and other partners, and on its
manufacturing partners and other component suppliers. The Company's business
could be adversely affected, for example, if Intel or Microsoft fail to meet
product release schedules, or if unanticipated quality issues arise with
products from these suppliers.
PERIOD TO PERIOD FLUCTUATIONS. The Company's operating results may fluctuate
for a number of reasons. Delivery cycles are typically short, other than for
supercomputer and certain large-scale server products. Well over half of each
quarter's revenue results from orders booked and shipped during the third month,
and disproportionately in the latter half of that month. These factors make the
forecasting of revenue inherently uncertain. Because the Company plans its
operating expenses, many of which are relatively fixed in the short term, on
expected revenue, 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. Demand can also be adversely
affected by product and technology transition announcements by the Company or
its competitors. The timing of customer acceptance of certain large-scale
server products may also have a significant effect on periodic operating
results.
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Margins are heavily influenced by mix considerations, including geographic
concentrations, the mix of product and service revenue, and the mix of server
and desktop product revenue including the mix of configurations within these
product categories.
The Company's results have followed a seasonal pattern, with stronger sequential
growth in the second and fourth fiscal quarters, reflecting the buying patterns
of the Company's customers.
The Company's stock price, like that of other technology companies, is subject
to significant volatility. If 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.
PROCESS RE-ENGINEERING. The Company is undertaking a series of programs aimed
at redesigning some of its core business processes, including forecasting,
supply chain management, order fulfillment and collection of accounts
receivable. The goals of these programs include more predictable operational
performance, lower operating expenses, greater quality and customer
satisfaction, and improved asset management. The Company believes that the
success of these programs is critical to its long-term competitive position.
Implementing these changes will require, among other things, enhanced
information systems, substantial training and disciplined execution. There can
be no assurance that these programs will be implemented successfully, or that
disruptions to the Company's operations will not occur in the process.
PRODUCT DEVELOPMENT AND INTRODUCTION. The Company's continued success depends
on its ability to develop and rapidly bring to market highly differentiated,
technologically complex and innovative products. Product transitions are a
recurring part of the Company's business. A number of risks are inherent in
this process.
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 teams, internal and
external manufacturing teams, outside suppliers of key components such as
semiconductor and storage products and outsourced manufacturing partners. 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. There is no assurance that acceptance of the Company's new
systems will not be affected by delays in this process.
Short product life cycles place a premium on the Company's ability to manage the
transition to new products. 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 during the
same quarter. The Company's results could be adversely affected by such factors
as development delays, the release of products to manufacturing late in any
quarter, quality or yield problems experienced by suppliers, variations in
product costs and excess inventories of older products and components. In
addition, some customers may delay purchasing existing products in anticipation
of new product introductions.
YEAR 2000 COMPLIANCE Many computer systems and applications experience problems
handling dates beyond the year 1999 and will need to be modified before the year
2000 in order to remain functional As for many other companies, the year 2000
computer issue poses a potential risk for the Company both as a user of
information systems in the operation of its business and as a supplier of
computer systems and related software, including operating system software, to
customers.
The Company has completed an assessment of its core business information
systems, many of which are provided by outside suppliers, for year 2000
readiness and is extending that review to
-8-
include a wide variety of other information systems and related business
processes used in its operations. The Company plans to have changes to
critical systems implemented by the third quarter of calendar 1999 to allow
time for testing. Most of the Company's mission critical applications are
believed to be year 2000 compliant, including the Company's Oracle
information system which was recently upgraded to the most recent version.
Although its assessment is ongoing, the Company currently believes that
resolving these matters will not have a material adverse effect on its
financial condition or results of operations.
The Company is implementing a program to support customer efforts to achieve
year 2000 compliance. This program includes encouraging customers and
independent software vendors to adopt the Company's recently released IRIX 6.5
operating system, which the Company believes is year 2000 compliant, and
additional customer support procedures. The Company also has made available
software upgrades for some earlier releases of its IRIX operating system. The
Company believes that the hardware systems it expects to support beyond 1999,
when running on compliant operating systems, will be year 2000 compliant. The
Company's older products may require upgrade or replacement to become year 2000
compliant. The Company believes that it generally is not legally responsible
for costs incurred by customers to achieve their year 2000 compliance. However,
the Company may experience increasing customer satisfaction costs relating to
this issues over the next few years.
The Company is also assessing the possible effect on its operations of the year
2000 readiness of critical suppliers of products and services. The Company's
reliance on its key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address year 2000 issues could not have an
adverse effect on the Company.
The Company expects to complete a preliminary estimate of year 2000 project
costs during the first half of fiscal 1999. The Company believes that it is
unlikely to experience a material adverse impact on its financial condition
or results of operations due to year 2000 compliance issues. However, since
the assessment process is ongoing, year 2000 complications are not fully
known, and potential liability issues are not clear, the full potential
impact of the year 2000 on the Company is not known at this time.
COMPETITION. The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. Most 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 may result in
significant discounting and lower gross margins.
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. 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.
EXPORT REGULATION. The Company's sales to foreign customers are subject to
export regulations. Sales of many of the Company's high-end products require
clearance and export licenses from the U.S. Department of Commerce under these
regulations. The Department of Commerce is currently investigating the
Company's compliance with the export regulations in connection with the sale of
several computer systems to a customer in Russia during fiscal 1997. The
Company believes that this matter will be resolved without a significant adverse
effect on the Company's business. However, there is no assurance that this
matter will not have an unforeseen outcome that could impair the conduct of the
Company's business outside the United States.
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The Company's international sales would also 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.
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 competition in the markets
addressed by the Company intensifies, the volume of these intellectual property
claims will also increase.
EMPLOYEES. The Company's success depends on its ability to continue to attract,
retain and motivate highly qualified technical, marketing and management
personnel, who are in great demand. The current uncertainties surrounding the
Company have increased the challenges of retaining world-class talent.
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. A significant earthquake could materially affect operating
results. The Company is not insured for most losses and business interruptions
of this kind.
EURO CONVERSION. As with many multinational companies operating in Europe,
beginning in January 1999, Silicon Graphics will be affected by the conversion
of 11 European currencies into a common business currency, the euro. Based on
its preliminary assessment, the Company does not believe the conversion will
have a material impact on the competitiveness of its products in Europe, where
there already exists substantial price transparency, or increase the likelihood
of contract cancellations. The Company also believes its current accounting
systems will accommodate the euro conversion with minimal intervention and does
not expect to experience material adverse tax consequences as a result of the
conversion. The convergence of currencies into the euro is expected to reduce
the Company's overall currency risk and simplify the Company's currency risk
management process, including its use of derivatives to manage that risk. The
costs of addressing the euro conversion are not expected to be material and will
be charged to operations as incurred.
MARKET RISK. In the normal course of business, the financial position of the
Company is routinely subjected to a variety of risks, including market risk
associated with interest rate movements and currency rate movements on non-U.S.
dollar denominated assets and liabilities, as well as collectibility of accounts
receivable. The Company regularly assesses these risks and has established
policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, the Company does not anticipate
material losses in these areas.
For purposes of specific risk analysis, the Company uses sensitivity analysis to
determine the impacts that market risk exposures may have on the fair values of
the Company's debt and financial instruments. The financial instruments
included in the sensitivity analysis consist of all of the Company's cash and
cash equivalents, marketable investments, short-term and long-term debt and all
derivative financial instruments. Currency forward contracts and currency
options constitute the Company's portfolio of derivative financial instruments.
To perform sensitivity analysis, the Company assesses the risk of loss in fair
values from the impact of hypothetical changes in interest rates and foreign
currency exchange rates on market sensitive instruments. The market values for
interest risk are computed based on the present value of future
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cash flows as impacted by the changes in rates attributable to the market
risk being measured. The discount rates used for the present value
computations were selected based on market interest rates in effect at June
30, 1998 and 1997. The market values for foreign exchange risk are computed
based on spot rates in effect at June 30, 1998 and 1997. The market values
that result from these computations are compared to the market values of
these financial instruments at June 30, 1998 and 1997. The differences in
this comparison are the hypothetical gains or losses associated with each
type of risk.
The results of the sensitivity analysis at June 30, 1998 and 1997 are as
follows:
Interest Rate Risk: A 10% decrease in the levels of interest rates with all
other variables held constant would result in a decrease in the fair values of
the Company's financial instruments by $14 million and $3 million, respectively.
A 10% increase in the levels of interest rates with all other variables held
constant would result in an increase in the fair values of the Company's
financial instruments by $12 million and $3 million, respectively.
Foreign Currency Exchange Rate Risk: A 10% movement in levels of foreign
currency exchange rates, 20% for Asian currencies, against the U.S. dollar with
all other variables held constant would result in a decrease in the fair values
of the Company's financial instruments by $14 million and $44 million,
respectively, or an increase in the fair values of the Company's financial
instruments by $12 million and $34 million, respectively.
EMPLOYEES
As of June 30, 1998, the Company had approximately 10,286 full-time
employees, as compared to approximately 10,930 at June 30, 1997. 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 has workers'
councils where required by European Union or other applicable laws. 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.
ITEM 2. PROPERTIES
The Company believes that, while it currently has or is developing
sufficient facilities to conduct its operations during fiscal 1999, it will
continue to acquire both leased and owned facilities throughout the world as its
business requires. The Company leases sales, service and administrative offices
worldwide and has its principal corporate and manufacturing facilities in the
following locations:
CALIFORNIA The Company's corporate offices and its primary research and
development and manufacturing operations are located in Mountain View,
California, where the Company leases or owns a total of about 1,923,000 square
feet. These facilities include a ten-building campus facility of about 726,500
square feet, leased by the Company through the years 2000 to 2005; a
four-building, 500,000 square foot campus facility completed in fiscal 1997 on
22 acres of leased land in the same area; and a sales headquarters building
comprising approximately 112,000 square feet and located on 7.5 acres owned by
the Company near its Mountain View headquarters. The Company also leases eleven
other buildings near its Mountain View headquarters, comprising approximately
585,000 square feet. The Company is currently developing a general purpose
office facility of about
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400,000 square feet on leased land in the same area.
MINNESOTA AND WISCONSIN The Company also owns manufacturing, research and
development and service facilities of about 595,000 square feet in Chippewa
Falls, Wisconsin and research and development, sales and administrative
facilities of about 495,000 square feet in Eagan, Minnesota.
SWITZERLAND The Company's European manufacturing and support center near
Neuchatel, Switzerland is located in a facility owned by the Company, consisting
of about 170,000 square feet.
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 putative securities class action lawsuits filed in
the U.S. District Court for the Northern District of California (the "Northern
District") and in California Superior Court for the County of Santa Clara in
December 1997 and January 1998 alleging that the Company and certain of its
officers made material misrepresentations and omissions during the period from
July to October 1997.
The Company is also defending a securities class action lawsuit filed in
January 1996 in the Northern District of California alleging that the Company
and certain of its officers and directors made material misrepresentations and
omissions during the period from September to December 1995. The lawsuit was
dismissed with prejudice by the District Court in May 1996. The plaintiffs'
appeal to the U.S. Court of Appeals for the Ninth Circuit is pending.
The Company is also defending a securities class action lawsuit involving
MIPS Computer Systems, Inc., ("MCSI") which the Company acquired in June 1992.
The MCSI case, which was filed in 1992 in the Northern District of California,
alleges that MCSI and certain of its officers and directors made material
misrepresentations and omissions during the period from January to October of
1991. In September 1996, the U.S. Court of Appeals for the Ninth Circuit
reversed the summary judgment granted in defendants' favor in June 1994. In
October 1997, the defendants' petition for review by the U.S. Supreme Court was
denied. The case is presently pending before the District Court. A trial date
for the lawsuit is currently set for March 1999.
The Company also is defending a securities class action lawsuit involving
Alias Research Inc., which the Company acquired in June 1995. The Alias case,
which was filed in 1991 in the U.S. District Court for the District of
Connecticut, alleges that Alias and certain of its former officers and directors
made material misrepresentations and omissions during the period from May 1991
to April 1992. In October 1997, the defendants' motion to dismiss the amended
complaint was granted. The plaintiffs' appeal to the U.S. Court of Appeals for
the Second Circuit is pending.
The Company was also 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 had filed a counterclaim seeking to
invalidate the principal patent at issue in the lawsuit and the U.S. Patent and
Trademark Office is re-examining the patent at Martin Marietta's request. In
July 1998, the lawsuit was dismissed pursuant to a joint notice of settlement.
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.
-12-
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 July 1, 1998 are
as follows:
EXECUTIVE
OFFICER
NAME AGE POSITION AND PRINCIPAL OCCUPATION SINCE
---- --- --------------------------------- ---------
Richard E. Belluzzo 44 Chairman, Chief Executive Officer and Director 1998
Keith H. Watson 43 Executive Vice President, Worldwide Sales and 1998
Marketing
Kenneth L. Coleman 55 Senior Vice President, Customer and Professional 1987
Services
Steven J. Gomo 46 Senior Vice President, Chief Financial Officer 1998
William M. Kelly 44 Senior Vice President, Corporate Operations and 1994
Secretary
Betsy Rafael 37 Vice President, Corporate Controller 1998
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. Belluzzo was appointed Chairman and Chief Executive Officer of the
Company in January 1998. Prior to that, he was employed by the Hewlett-Packard
Company for twenty-two years, serving since 1995 as Executive Vice President and
General Manager of the computer organization. From 1993 to 1995, Mr. Belluzzo
was General Manager of the Computer Products Organization and he served as
General Manager of the InkJet Products Group from 1991 to 1993. He was elected
a Vice President in 1992 and a Senior Vice President in January 1995.
Mr. Watson joined the Company in April 1998 as Executive Vice President,
Worldwide Sales and Marketing. Prior to joining the Company, he was employed
for 19 years by the Hewlett-Packard Company where he served most recently as
Vice President and General Manager, Worldwide Commercial Channels Organization.
Prior to June 1996, he was General Manager of Asia Pacific in the Computer
Products Organization.
Mr. Coleman assumed his current responsibilities in 1997. From 1987 to
1997 he served as Senior Vice President, Administration of the Company.
Mr. Gomo joined the Company in February 1998 as Senior Vice President and
Chief Financial Officer. Prior to that, he was employed by the Hewlett-Packard
Company serving most recently as the General Manager of its InkJet Manufacturing
Operations.
-13-
Mr. Kelly assumed his current responsibilities in 1997 and served as acting
Chief Financial Officer from May 1997 to February 1998. He joined the Company
in 1994 as Vice President, Business Development, General Counsel and Secretary.
During 1996, Mr. Kelly also served as Senior Vice President, Silicon Interactive
Group. 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.
Ms. Rafael became Vice President, Corporate Controller in May 1998. She
joined the Company in November 1994 and served in a variety of capacities in the
North American field organization. Prior to joining the Company, Ms. Rafael was
employed by Sun Microsystems in the SunService Division.
-14-
PART II
With the exception of the information specifically incorporated by
reference from the Company's 1998 Annual Report to Stockholders (the "1998
Annual Report") in Parts I, II and IV of this Form 10-K, the 1998 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 24 of the Company's 1998
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 23 of the
Company's 1998 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 25 through 34
of the Company's 1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is incorporated by reference to
the section entitled "Management's Discussion and Analysis - Risks That
Affect Our Business - Market Risk" on page 34 of the Company's 1998 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporate by reference to the
consolidated financial statements and notes thereto and to the section entitled
"Quarterly Data" on pages 24 and 35 through 57 of the Company's 1998 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 "1998 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 the information set forth in the 1998 Proxy
Statement on pages 3 and 4 under the heading "Proposal No. 1 - Election of
Directors - Directors and Nominee 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 information set forth on page 15 of the 1998 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
information set forth in the 1998 Proxy Statement on page 5 under the headings
"Proposal No. 1 - Election of Directors - Compensation Committee Interlocks and
Insider Participation" and "- Director Compensation"; on pages 13 through 15
under the headings "Executive Officer Compensation - Summary Compensation
Table", "- Option Grants in Fiscal 1998" and "- Option Exercises in Fiscal Year
1998 and Fiscal Year-End Option Values"; on pages 10 through 12 under the
heading "Report of the Compensation and Human Resources Committee of the Board
of Directors"; and on page 18 under the heading "Company Stock Price Performance
Graph".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information set forth in the 1998 Proxy Statement on pages 1 and 2 under the
headings "Information Concerning Solicitation and Voting - Record Date and
Principal Share Ownership" and "- Voting and Solicitation" and on page 9 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 the
information set forth in the 1998 Proxy Statement on pages 15 through 17 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 24 and 35 through 58 of the
Registrant's 1998 Annual Report:
Consolidated Statements of Operations - Years Ended June 30, 1998, 1997
and 1996
Consolidated Balance Sheets - June 30, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended June 30, 1998, 1997
and 1996
Consolidated Statements of Stockholders' Equity - Years Ended June 30,
1998, 1997 and 1996
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.
3. EXHIBITS. The following Exhibits are filed as part of, or incorporated by
reference into, this Report:
3.1.1(9) Restated Certificate of Incorporation of the Company.
3.1.2(13) Certificate of Designation of the Series E Preferred Stock filed
June 13, 1995.
3.2(16) Bylaws of the Company, as amended.
4.1(5) 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.
4.4(10) First Amendment to Rights Agreement dated as of May 2, 1995
between the
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Company and The First National Bank of Boston.
4.3(9) Indenture dated November 1, 1993 between the Company and The
First National Bank of Boston, as Trustee.
4.4(16) Indenture dated February 1, 1986 between Cray Research, Inc. and
Manufacturers Hanover Trust Company, as Trustee.
4.5(16) First Supplemental Indenture dated June 30, 1996 between the
Company, Cray Research, Inc., and Chemical Bank (formerly
Manufacturers Hanover Trust Company).
4.6(20) Indenture dated as of September 1, 1997 between the Company and
State Street Bank and Trust Company of California, N.A., as
Trustee.
9.1(13) Voting and Exchange Trust Agreement between the Company and
Montreal Trust Company of Canada dated June 15, 1995.
10.1(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.
10.2(2) Software License Agreement dated January 24, 1986, between the
Company and AT&T Information Systems Inc.
10.3(3) Stock Purchase Agreement dated March 2, 1990 among the Company,
NKK Corporation and NKK U.S.A. Corporation.
10.4(6) Exchange Agreement dated August 14, 1992 among the Company, NKK
Corporation and NKK U.S.A. Corporation.
10.5(6) Form of Indemnification Agreement entered into between the
Company and its directors, executive officers and certain other
agents.
10.6(6) Form of Indemnification Agreement entered into between the
Company and its directors, executive officers and certain other
agents. (Revised)
10.7(22)* Form of Employment Continuation Agreement entered into between
the Company and its executive officers, as amended and restated
as of November 14, 1997.
10.8(22)* Form of Agreement entered into by the Company with its executive
officers, dated as of November 14, 1997.
10.9(21)* Promissory Note dated June 18, 1997 issued to the Company by
William M. Kelly.
10.10* Consulting Agreement dated June 30, 1998 between the Company
and Robert H. Ewald.
10.11(22)* Agreement dated as of December 31, 1997 between the Company and
Edward R. McCracken.
10.12(22)* Agreement dated as of January 22, 1998 between the Company and
Richard E. Belluzzo.
10.13(23)* Amendment and Waiver dated as of April 20, 1998 to Agreement
between the Company and Richard E. Belluzzo
10.14(19)* 1984 Incentive Stock Option Plan, as amended, and amended form
of Incentive Stock Option Agreement.
10.15(9)* Directors' Stock Option Plan and form of Stock Option Agreement
as amended
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as of October 31, 1994.
10.16(6)* 1985 Stock Incentive Program.
10.17(6)* 1986 Incentive Stock Option Plan, as amended, and amended forms
of Incentive Stock Option Agreement and Nonstatutory Stock
Option Agreement.
10.18(4)* 1987 Stock Option Plan and form of Stock Option Agreement.
10.19(15)* Amended and Restated 1989 Employee Benefit Stock Plan and form
of stock option agreement.
10.20(7)* 1993 Long-Term Incentive Stock Plan and form of stock option
agreement.
10.21(14)* 1996 Supplemental Non-Executive Equity Incentive Plan and form
of stock option agreement.
10.22(17)* Employee Stock Purchase Plan, as amended as of October 30, 1996.
10.23(8)* Non-Qualified Deferred Compensation Plan dated as of September 9,
1994.
10.24(19)* Addendum to the Non-Qualified Deferred Compensation Plan.
10.25(14) Credit Agreement dated as of April 12, 1996 between the Company
and Bank of America, National Trust and Savings Association.
10.26(13) Ground Lease between Silicon Graphics Real Estate Inc. and the
City of Mountain View dated March 7, 1995.
10.27(13) Agreement for Lease between the Company and Virtual Funding,
Limited Partnership dated November 18, 1993.
10.28(13) Amendment No. 1 to Agreement for Lease between the Company and
Virtual Funding, Limited Partnership dated March 15, 1995.
10.29(13) Lease Agreement between the Company and Virtual Funding, Limited
Partnership dated November 18, 1993.
10.30(13) Amendment No. 1 to Lease Agreement between the Company and
Virtual Funding, Limited Partnership dated March 15, 1995.
10.31(18) Guaranty from the Company to Virtual Funding Limited Partnership
dated as of November 18, 1993.
10.32(18) Amendment No. 1 to Guaranty from the Company to Virtual Funding,
Limited Partnership dated as of March 15, 1995.
10.33(18) Amendment No. 2 to Guaranty from the Company to Virtual Funding
Limited Partnership dated as of March 7, 1997.
10.34(11)* Alias Research Inc.'s 1988 Employee Share Ownership Plan Option
Agreement.
10.35(11)* Alias Research Inc.'s 1989 Employee Share Ownership Plan Option
Agreement.
10.36(11)* Alias Research Inc.'s 1990 Employee Share Ownership Plan and
standard forms of Option Agreements.
10.37(11)* Alias Research Inc.'s 1994 Stock Plan and standard forms of
Option Agreements.
10.38(12)* Wavefront Technologies, Inc. 1990 Stock Option Plan with standard
form of Option Agreement.
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10.39(15)* Cray Research, Inc. 1989 Non-Employee Directors' Stock Option
Plan and form of stock option agreement.
13.1 Excerpts from Annual Report for the year ended June 30, 1998.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
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 March 31, 1992.
(6) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1992.
(7) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1993.
(8) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1994.
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(9) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.
(10) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1995.
(11) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60215), which became effective June 14, 1995.
(12) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 33-60213), which became effective June 14, 1995.
(13) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995.
(14) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1996.
(15) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (No. 333-06403), which became effective June 20,
1996.
(16) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the period ended June 30, 1996, as amended.
(17) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
(18) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1997.
(19) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991.
(20) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-4 (No. 333-32379), which became effective August 7,
1997.
(21) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997.
(22) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1997.
(23) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1998.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed during the quarter ended June 30,
1998.
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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/ RICHARD E. BELLUZZO
----------------------------------------
Richard E. Belluzzo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: September 25, 1998
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SIGNATURES
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/ Richard E. Belluzzo Chairman, Chief Executive Officer September 25, 1998
and Director (Principal Executive
Officer)
/s/ Robert R. Bishop Chairman, Silicon Graphics World September 25, 1998
Trade Corporation, and Director
/s/ Steven J. Gomo Senior Vice President, Finance and September 25, 1998
Chief Financial Officer (Principal
Financial Officer)
/s/ Betsy Rafael Vice President, Corporate Controller September 25, 1998
(Principal Accounting Officer)
_______________________
Allen F. Jacobson Director September 25, 1998
/s/ C. Richard Kramlich Director September 25, 1998
/s/ Robert A. Lutz Director September 25, 1998
/s/ James A. McDivitt Director September 25, 1998
_______________________
Lucille Shapiro, Ph.D. Director September 25, 1998
/s/ Robert B. Shapiro Director September 25, 1998
/s/ James G. Treybig Director September 25, 1998
-23-
SCHEDULE II
SILICON GRAPHICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-----------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES OTHER WRITE-OFFS PERIOD
----------- ---------- ---------- ------- ---------- ---------
Year ended June 30, 1996
Accounts receivable
allowances $13,465 $ 4,292 $6,383* $ (373) $23,767
Year ended June 30, 1997
Accounts receivable
allowances $23,767 $ 8,427 $ 0 $ (8,138) $24,056
Year ended June 30, 1998
Accounts receivable
allowances $24,056 $ 622 $ 0 $ (7,215) $17,463
Restructuring--operating
asset reserves $ 0 $37,780 $ 0 $(33,560) $ 4,220
Charge for impairment of
long-lived assets $ 0 $46,640 $ 0 $(46,640) $ 0
* Acquired Cray Research valuation allowance.
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