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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, 1999.
[___] 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)
1600 Amphitheatre Parkway, Mountain View, California 94043-1351
(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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- 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, 1999 on the New York Stock Exchange as reported
in The Wall Street Journal, was approximately $1,605 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, 1999, THE REGISTRANT HAD OUTSTANDING 182,872,109 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, 1999 are incorporated by reference into
Part III, and parts of the registrant's annual report to stockholders for the
fiscal year ended June 30, 1999 are incorporated by reference into Parts I,
II and IV of this Report on Form 10-K.
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.
SGI-TM- servers and 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-Registered Trademark- operating system, which is the Company's enhanced
version of the UNIX-Registered Trademark- operating system. Over the next
several years, the Company plans to introduce new generations of its products
based on the Intel-Registered Trademark- microprocessor architecture and the
Linux-TM- and Windows NT-Registered Trademark- operating systems.
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.
DESKTOP SYSTEMS The Company offers the 02-Registered Trademark- and
Octane-Registered Trademark- families of desktop workstations based on the
MIPS microprocessor architecture and the IRIX operating system, and in the
second half of fiscal 1999, introduced the Visual Workstation family of
desktop workstations based on the Intel microprocessor architecture and the
Windows NT operating system. The O2 family of entry-level desktop
workstations features 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 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. The Visual Workstation family is designed to provide key
functionality for the digital content creation and graphics enthusiast
markets.
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-Registered
Trademark- 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.
ALIAS/WAVEFRONT The Company's Alias/Wavefront subsidiary 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-Registered Trademark- 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, Ontario with sales offices across North America, Europe
and Asia and worldwide distribution.
SERVERS AND SUPERCOMPUTERS
ORIGIN200 The Origin-TM-200 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 Origin-TM-2000 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 Origin2000 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.
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SGI1000 FAMILY In August 1999, the Company introduced a new family of
server products, the SGI-TM-1000 server family. This server family utilizes
32-bit Intel microprocessors and will include projects ranging from a
two-microprocessor rack-optimized server, to a four-microprocessor workgroup
and applications server, to powerful eight-microprocessor database servers.
SGI1400 The SGI-TM-1400M and the SGI-TM-1400L are the first products in
the new SGI1000 server family. These servers use four microprocessors and
ship with either Microsoft-Registered Trademark- Windows NT or Linux as their
operating system.
The CRAY T3E-TM- high 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. In August 1999, the Company
announced its intention to establish arrangements to transition its
Cray-branded line of supercomputers to a strategic partner that will assume
the further development and distribution of this product line.
MIPS RISC MICROPROCESSORS
Many of the Company's system products are based on the MIPS 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 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, and a secondary offering in May 1999, Silicon
Graphics now owns about 65% of MTI. Silicon Graphics continues to develop
MIPS RISC microprocessors for its own computer systems as part of its
computer systems organization.
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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 1999 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 16 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 1999, 1998 or 1997, 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
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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 1999, 1998 and 1997, the Company spent approximately $380
million, $459 million, and $479 million, respectively, on research and
development. Those amounts represented 13.8%, 14.8%, and 13.1%, 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.
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
facilities in Chippewa Falls, Wisconsin and near Neuchatel, Switzerland. Both
of these facilities 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.
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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 is actively outsourcing significant manufacturing
activities to companies that are able to manufacture at a lower cost.
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. The Company's present strategy is to
move toward components that are readily available from a greater number of
sources; however, such a transition may take a period of time to complete.
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 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.
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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. One of the principal market sectors in which the
Company competes -- supercomputers -- has declined over the past few
years, and the Company believes that this decline represents a long-term
trend. The Company's goal is to generate an increasing proportion of its
revenue from growing markets, including Intel-based servers and UNIX-based
scalable servers such as its Origin server product family. The Company has
announced a product roadmap that will, over the next five years, shift its
products to the Intel microprocessor architecture. To further accelerate this
transition, the Company announced in August 1999 its intention to establish
arrangements to transition its Visual Workstation line of Windows NT-based
workstations and its Cray-branded line of supercomputers to strategic
partners who will assume the further development and distribution of these
product lines. The result of these alliances and planned restructured
operations will be a smaller revenue base and workforce in fiscal 2000, with
the goal of returning to sustainable profitability. This is a long-term
transition, and although some benefits are currently being realized, it could
take until well into fiscal 2000 or beyond before the Company has achieved
its desired business model. The Company's ability to achieve its revenue
objectives in fiscal 2000 will largely depend on the successful
implementation of these alliances and related restructuring activities in
early fiscal 2000 with minimal disruption, and on growth in the server
business. There is no assurance that the Company will successfully complete
the strategic alliances and related restructuring activities required to
achieve its fiscal 2000 objectives.
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
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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 1999, the Company reduced its
operating expenses by about $240 million from the level of fiscal 1998
operating expenses. In August 1999, the Company announced and began to
implement a restructuring program aimed at bringing its expenses more in line
with expected revenue levels resulting from its refocused business operations
and restoring long-term profitability. As part of this effort, the Company
expects, through the anticipated transfer of businesses to partners, the
elimination of positions and managed hiring, to end fiscal 2000 with about
1/3 fewer employees than was the case at the end of fiscal 1999. These steps,
and generally tighter operating expense controls, are part of an overall
program to reduce the Company's expense structure by approximately $300
million in fiscal 2000. While the objective is to reduce the Company's costs
in ways that will not have a material impact on revenue levels, there is 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
longer-term transition to the Intel architecture and additional outsourcing
of manufacturing, will increase the Company's dependence on 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
fails to meet product release schedules, or if unanticipated quality issues
arise with products from 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.
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 has undertaken 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. In the past year the Company
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has seen the number of turns of inventory increase significantly and obtained
improved efficiencies which have decreased the costs of goods sold. Continued
implemention of 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 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
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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.
Certain of the costs associated with our internal Year 2000 compliance
effort (exclusive of any potential costs related to any customer or other
claim) cannot effectively be isolated from other operating expenses, since
investing in new systems is both an ordinary cost of doing business and a
means to ensure year 2000 compliance. The Company's current estimates
indicate the total costs to insure year 2000 compliance will not be material.
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. The information regarding year 2000 issues provided
herein is based on the Company's current assessment of ongoing activities and
is subject to change as the Company monitors these activities. The Company is
currently developing appropriate contingency plans for potential year 2000
problems.
The Year 2000 disclosure set forth above is "year 2000 readiness
disclosure" as defined in the Year 2000 Information and Readiness Disclosure
Act of 1998.
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. A portion of the Company's business requires security
clearances from the United States government. The Company is presently
discussing appropriate measures to maintain its clearances in light of the
fact that Mr. Robert Bishop, who was appointed as Chief Executive Officer in
the fall of 1999, is not a United States citizen. Any disruption or
limitations in the Company's ability to do business with the United States
government could have an adverse impact on the Company.
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.
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
-10-
Company's evaluation, it may take no action or it may seek to obtain a
license. In any given case there is a risk that a license will not be
available on terms that the Company considers reasonable, or that litigation
will ensue. The Company expects that, as the number of hardware and software
patents issued continues to increase, and as 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.
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
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, 1999 and 1998. The market values for foreign exchange risk are computed
based on spot rates in effect at June 30, 1999 and 1998. The market values
that result from these computations are compared to the market values of
these financial instruments at
-11-
June 30, 1999 and 1998. 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 30,1999 and 1998 are as
follows:
Interest Rate Risk:. A percentage point decrease in the level of interest
rates with all other variables held constant would result in a decrease in
the aggregate fair value of our financial instruments by $14 million at both
June 30, 1999 and 1998. A percentage point increase in the level of interest
rates with all other variables held constant would result in an increase in
the aggregate fair value of our financial instruments by $13 million and $12
million, respectively.
Foreign Currency Exchange Rate Risk: A 10% decrease 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 an increase in the
fair values of our financial instruments by $8 million at June 30,1999, and a
decrease in the fair values of our financial instruments by $14 million at
June 30, 1998. A 10% increase in levels of foreign currency exchange rates,
20% for Asian currencies, would result in a decrease in the fair values of
our financial instruments by $3 million at June 30, 1999, and an increase in
the fair values of our financial instruments by $12 million at June 30, 1998.
The change in the relative sensitivity of the fair market value of foreign
currency exchange rates in fiscal 1999 compared with fiscal 1998 is primarily
driven by the volume of systems shipped and billed in U.S. dollars by our
Swiss manufacturing subsidiary which operates in local functional currency.
EMPLOYEES
As of June 30, 1999, the Company had approximately 9,191 full-time
employees, as compared to approximately 10,286 at June 30, 1998. During
fiscal 2000, the Company expects the number of employees to be reduced by
about 1/3 in order to bring the Company down to the appropriate size for the
forecasted revenue and income. 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 operations are located in Mountain View, California, where
the Company leases or owns a total of about 1,668,000 square feet. These
facilities include a ten-building campus facility of about 727,000 square
feet, leased by the Company through the years 2000 to 2005; a four-building,
518,000 square foot campus located on 22 acres of leased land in the same
area; and a sales headquarters building comprising approximately 126,000
square feet and located on 7.5 acres owned by the Company near its Mountain
View headquarters. The Company also leases six other buildings near its
-12-
Mountain View headquarters, comprising approximately 306,000 square feet. The
Company is currently developing a general purpose office facility of about
400,000 square feet on leased land in the same area; this new facility will
replace the ten-building campus facility as those buildings go off lease.
MINNESOTA AND WISCONSIN The Company also owns manufacturing, research and
development and service facilities of about 595,000 square feet in Chippewa
Falls, Wisconsin. In March of 1999, the Company sold its research and
development, sales and administrative facilities of about 495,000 square feet
in Eagan, Minnesota, to Wam!Net. The sale to Wam!Net included a lease-back of
325,796 square feet of the facility for a period of five years. The sale also
included an investment by the Company in Wam!Net and a preferred provider
agreement whereby Wam!Net and the Company agreed to purchase hardware,
software and service from each other over a four-year period beginning
January 1, 1999.
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. On July 2,
1999, the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal.
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. In April of 1999, the U.S. Court
of Appeals for the Second Circuit reversed the dismissal and remanded the
case to the U.S. District Court for the District of Connecticut. The U.S.
Court of Appeals denied defendants' petition for rehearing en banc.
The Company has settled 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,
alleged that MCSI and certain of its officers and directors made material
misrepresentations and omissions during the period from January to October of
1991. The parties to this case reached an agreement to settle the case in
December 1998, the terms of which were reflected in a Stipulation of
Settlement filed with the Court in January 1999. Under the settlement
agreement, the defendants have agreed to establish a $15 million escrow fund
that shall be administered to pay the representative plaintiffs' costs and
attorneys' fees, to notify and certify members of the class and to pay the
claims of the class members. The settlement amount was largely covered by
insurance. The settlement agreement
-13-
provides for release of all parties' claims in connection with the class
action and is subject to final approval of the Court.
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
1999 are as follows:
NAME EXECUTIVE
---- AGE POSITION AND PRINCIPAL OCCUPATION OFFICER
--- --------------------------------- SINCE
---------
Robert R. Bishop 56 Chairman, Chief Executive Officer and Director 1991
Kurt Akeley 41 Senior Vice President and Chief Technology Officer 1999
Kenneth L. Coleman 56 Senior Vice President, Global Sales, Service & Marketing 1987
Steven J. Gomo 47 Senior Vice President, Chief Financial Officer 1998
William M. Kelly 45 Senior Vice President, Corporate Operations and Secretary 1994
John R. Vrolyk 47 Senior Vice President, Computer Systems Business Unit 1998
Sandra M. Escher 39 Vice President and General Counsel 1999
Betsy Rafael 38 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. Bishop was appointed Chairman and Chief Executive Officer of
the Company in the fall of 1999. From July 1995 to February 1999, he was the
Chairman of the Board of Silicon Graphics World Trade Corporation. Prior to
July 1995, Mr. Bishop served as President of Silicon Graphics World Trade
Corporation, a position he had held since July 1986.
-14-
Mr. Akeley was appointed Senior Vice President, Chief Technology Officer
in September 1999. Mr. Akeley co-founded the Company in 1982 and has been
Vice President and Chief Engineer since 1990.
Mr. Coleman was appointed Senior Vice President, Global Sales, Service
and Marketing in June of 1999. Between 1997 and 1999, he was Senior Vice
President, Customer and Professional Services 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.
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.
Mr. Vrolyk was appointed Senior Vice President, Computer Systems Business
Unit in October 1998. He joined the Company in April 1997 as Vice
President/General Manager of the Light Client Division and in January 1998
became the Vice President/General Manager of the Server and Supercomputer
Business. Prior to joining the Company, he was Vice President/General Manager
of the DDS Workgroup and Impact Group at Xerox Corporation.
Ms. Escher was appointed Vice President and General Counsel in April
1999. She joined the Company in July 1993 as Securities Counsel and served as
the Director of Corporate Legal Services between September 1996 and April 1999.
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.
-15-
PART II
With the exception of the information specifically incorporated by
reference from the Company's 1999 Annual Report to Stockholders (the "1999
Annual Report") in Parts I, II and IV of this Form 10-K, the 1999 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 12 of the Company's
1999 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 10 of the
Company's 1999 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 13 through
22 of the Company's 1999 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 pages 21 and 22 of the Company's 1999 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 23 through 44 and 11 of the Company's 1999
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-16-
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 "1999 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 1999 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 pages 12 and 13 of the
1999 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 1999 Proxy Statement on pages 5 and 6 under the
headings "Proposal No. 1 - Election of Directors - Compensation Committee
Interlocks and Insider Participation" and "- Director Compensation"; on pages
11 and 12 under the headings "Executive Officer Compensation - Summary
Compensation Table", "- Option Grants in Fiscal 1999" and "Option Exercises
in Fiscal Year 1999 and Fiscal Year-End Option Values"; on pages 9 and 10
under the heading "Report of the Compensation and Human Resources Committee
of the Board of Directors"; and on page 14 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 1999 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 8
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 1999 Proxy Statement on page 13 under the
heading "Certain Transactions."
-17-
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 Ernst & Young LLP, Independent Auditors are incorporated by
reference to pages 11 and 23 through 45 of the Registrant's 1999 Annual
Report:
Consolidated Statements of Operations - Years Ended June 30, 19989
1998 and 1997
Consolidated Balance Sheets - June 30, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended June 30, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended June
30, 1999, 1998 and 1997
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.
-18-
4.2(10) First Amendment to Rights Agreement dated as of May 2, 1995
between the Company and The First National Bank of Boston.
4.3(16) Indenture dated February 1, 1986 between Cray Research,
Inc. and Manufacturers Hanover Trust Company, as Trustee.
4.4(16) First Supplemental Indenture dated June 30, 1996 between
the Company, Cray Research, Inc., and Chemical Bank
(formerly Manufacturers Hanover Trust Company).
4.5(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)
10.8(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(19)* 1984 Incentive Stock Option Plan, as amended, and amended
form of Incentive Stock Option Agreement.
10.11(9)* Directors' Stock Option Plan and form of Stock Option
Agreement as amended as of October 31, 1994.
10.12(6)* 1985 Stock Incentive Program.
10.13(6)* 1986 Incentive Stock Option Plan, as amended, and amended
forms of Incentive Stock Option Agreement and Nonstatutory
Stock Option Agreement.
10.16(7)* 1993 Long-Term Incentive Stock Plan and form of stock
option agreement.
-19-
10.17(14)* 1996 Supplemental Non-Executive Equity Incentive Plan and
form of stock option agreement, as amended
10.18(17)* Employee Stock Purchase Plan, as amended as of October 30,
1996.
10.19(23)* 1998 Employee Stock Purchase Plan
10.20(8)* Non-Qualified Deferred Compensation Plan dated as of
September 9, 1994.
10.21(19)* Addendum to the Non-Qualified Deferred Compensation Plan.
10.22(11)* Alias Research Inc.'s 1988 Employee Share Ownership Plan
Option Agreement.
10.23(11)* Alias Research Inc.'s 1989 Employee Share Ownership Plan
Option Agreement.
10.24(11)* Alias Research Inc.'s 1990 Employee Share Ownership Plan
and standard forms of Option Agreements.
10.25(11)* Alias Research Inc.'s 1994 Stock Plan and standard forms of
Option Agreements.
10.26(12)* Wavefront Technologies, Inc. 1990 Stock Option Plan with
standard form of Option Agreement.
10.27(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,
1999.
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.
-20-
(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.
(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, 1999.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed during the quarter ended
June 30, 1999.
-21-
TRADEMARKS USED IN THE FORM 10-K
Silicon Graphics, InfiniteReality, IRIX, O2, Octane and Onyx are
registered trademarks, Onyx2, Onyx2Reality, Origin, and SGI are trademarks,
of Silicon Graphics, Inc. MIPS is a registered trademark of MIPS
Technologies, Inc. used under license by Silicon Graphics, Inc. Cray is a
registered trademark and Cray T3E, Cray T90 and Cray SV1 are trademarks of
Cray Research, L.L.C. Alias is a registered trademark, and Alias/Wavefront,
Alias Studio, Alias StudioPaint 3D and Alias AutoStudio are trademarks, of
Alias/Wavefront, a division of Silicon Graphics Limited. Maya is a registered
trademark of Silicon Graphics, Inc., and exclusively used by Alias/Wavefront,
a division of Silicon Grpahics Limited.
UNIX is a registered trademark licensed exclusively through X/Open
Company Limited. Microsoft, Windows and Windows NT are registered trademarks
of Microsoft Corporation. Intel is a registered trademark of Intel Corp.
Linux is a trademark of Linus Torvalds in the U.S. and other countries.
-22-
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.
Dated: September 27, 1999 SILICON GRAPHICS, INC.
By: /S/ ROBERT R. BISHOP
------------------------------
Robert R. Bishop
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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/ ROBERT R. BISHOP Chairman, Chief Executive Officer and September 27, 1999
- --------------------------
Robert R. Bishop Director (Principal Executive Officer)
/S/ STEVEN J. GOMO Senior Vice President, Finance and Chief September 27, 1999
- -------------------------- Financial Officer (Principal Financial
Steven J. Gomo and Accounting Officer)
/S/ C. RICHARD KRAMLICH Director September 27, 1999
- --------------------------
C. Richard Kramlich
/S/ ROBERT A. LUTZ Director September 27, 1999
- --------------------------
Robert A. Lutz
/S/ JAMES A. MCDIVITT Director September 27, 1999
- --------------------------
James A. McDivitt
/S/ LUCILLE SHAPIRO, PH.D. Director September 27 1999
- --------------------------
Lucille Shapiro, Ph.D.
/S/ ROBERT B. SHAPIRO Director September 27, 1999
- --------------------------
Robert B. Shapiro
-23-
Schedule II
SILICON GRAPHICS, INC.
Valuation and Qualifying Accounts
(in thousands)
Additions Deductions
-------------------------- --------------
Balance at Charged to Balance at
Beginning Costs and Write-offs/ End of
DESCRIPTION of Period Expenses Other Other Period
------------- -------------- ----------- -------------- ------------
Year ended June 30, 1997
Accounts receivable allowance $ 23,767 $ 8,427 $ 0 $ (8,138) $ 24,056
Warranty reserve $ 18,946 $ 26,361 $ 0 $ (27,358) $ 17,949
Deferred tax asset allowance $ 60,819 $ 8,228 $ 0 $ 0 $ 69,047
Year ended June 30, 1998
Accounts receivable allowance $ 24,056 $ 622 $ 0 $ (7,215) $ 17,463
Warranty reserve $ 17,949 $ 42,110 $ 0 $ (27,327) $ 32,732
Deferred tax asset allowance $ 69,047 $ 62,528 $ 10,600(1) $ (51,470)(2) $ 90,705
Year ended June 30, 1999
Accounts receivable allowance $ 17,463 $ 351 $ 0 $ (2,407) $ 15,407
Warranty Reserve $ 32,732 $ 36,111 $ 9,945(3) $ (40,168) $ 38,620
Deferred tax asset allowance $ 90,705 $ 13,511 $ 11,439(1) $ (10,291) $105,364
(1) Reserve of paid-in capital benefits relate to stock option activity
(2) Reduction in valuation allowance resulting in an adjustment to purchased
intangibles from the Cray acquisition.
(3) Reclassification from other accrual accounts