-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, blGcv2u9kY1vEBgdWn586CIUEhYwnyNmJI/V+WLq75slQ8t/V3jphA+WdGcsKlAQ 9ndFT36lD/u+R/j3R9V+7g== 0000912057-94-003243.txt : 19941020 0000912057-94-003243.hdr.sgml : 19941020 ACCESSION NUMBER: 0000912057-94-003243 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940928 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON GRAPHICS INC /CA/ CENTRAL INDEX KEY: 0000802301 STANDARD INDUSTRIAL CLASSIFICATION: 3571 IRS NUMBER: 942789662 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10441 FILM NUMBER: 94550522 BUSINESS ADDRESS: STREET 1: 2011 N SHORELINE BLVD P O BOX 7311 STREET 2: MS 6U-710 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039-7311 BUSINESS PHONE: 4159601980 MAIL ADDRESS: STREET 1: 2011 N SHORELINE BLVD STREET 2: POST OFFICE BOX 7311 MS 6U-710 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039-7311 10-K 1 FORM 10-K, EXHIBIT INDEX SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-K (Mark One) [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended June 30, 1994. [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 . For the transition period from to . Commission File Number 1-10441 SILICON GRAPHICS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2789662 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2011 North Shoreline Boulevard, Mountain View, California 94043-1389 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 960-1980 ------------- Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED: ------------------- --------------------- Common Stock, $0.001 par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 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 2, 1994 on the New York Stock Exchange as reported in The Wall Street Journal, was approximately $3,098 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 2, 1994, THE REGISTRANT HAD OUTSTANDING 141,104,197 SHARES OF COMMON STOCK. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference to this Form 10-K Report: (1) Proxy Statement for registrant's Annual Meeting of Stockholders to be held November 1, 1994 (Part III), and (2) registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1994 (Parts I, II and IV). PART I ITEM 1. BUSINESS GENERAL Silicon Graphics, Inc. (the "Company") designs and supplies a family of workstation, server and supercomputer systems, incorporating interactive three- dimensional ("3D") graphics, digital media and multiprocessing supercomputing technologies. The workstation products are available in desktop and deskside configurations, and are used primarily by technical, scientific and creative professionals to simulate, analyze, develop and display complex 3D objects and phenomena. The Company has, over the last ten years, been a pioneer in the 3D graphics field, and continues to be a leader in workstation graphics technology. The Company's marketing and development efforts have, in the past, focused largely on the technical computing community, including engineers, scientists, designers, simulation specialists, animators and others who deal with complex visualization problems. In the last several years, the Company has evolved its product offering into a range of computer systems and associated software products designed to meet the broad scope of computing, visualization, networking and file management requirements of its targeted customers. In fiscal 1993, the Company introduced a comprehensive family of deskside, scalable, single and symmetric multi-processor network resource servers. These server products are targeted at the technical and commercial markets, for use as print and entry-level file servers in low-end configurations, and workgroup and enterprise transaction processing and compute servers in mid-range and high-end configurations. In July 1994, the Company introduced its supercomputing servers, targeted at compute-intensive technical and scientific applications. The Company's family of advanced graphics supercomputers, introduced in fiscal 1993, was also enhanced in July 1994 by the introduction of new high-end models. The Company also places considerable emphasis on two-dimensional graphics performance and digital media in its product offerings, including in its targeted markets the pre-press, publishing, documentation, and telecommunications industries. During fiscal 1994, the Company has sought to extend the reach of its core technologies by forging alliances with entertainment industry leaders and other companies at the forefront of the developing market for interactive computing. Among the Company's partners in these alliances are Time Warner Cable, Nintendo Co., Ltd., Walt Disney Company, AT&T Corp. and NTT Corporation. MIPS Technologies, Inc. ("MTI"), a wholly-owned subsidiary of the Company, designs, develops and licenses advanced reduced instruction set computing (RISC) processors and microprocessors. MTI was established in June 1992, following the merger into the Company of MIPS Computer Systems, Inc. The merger was the culmination of a long technology relationship between the two companies dating to 1986, when the Company selected the MIPS-R- RISC architecture and microprocessor design to be the focus for its systems development effort. The Company, through MTI, is a leading supplier of RISC microprocessor technology for the computer system and embedded control markets. MTI has the dual objectives of continuing the rapid development of innovative MIPS RISC-based microprocessor technologies and the propagation of the MIPS RISC architecture as an industry standard. The Company and MTI are working together to ensure that the MIPS RISC architecture remains open, accessible and competitive, and are exploring ways to combine the MIPS RISC architecture with the Company's digital media technology in multimedia architectures suitable for consumer electronics products. PRINCIPAL PRODUCTS The Company's graphics computer systems range from the Indigo-R- family of desktop workstations, including the Indy-TM- and Indigo(2)-TM-, to the Onyx-TM- and POWER Onyx-TM- systems, a family of advanced graphics supercomputers. In addition, the Company's Challenge-TM- and POWER Challenge-TM- family ranges from entry-level single processor servers to enterprise-wide symmetric multiprocessing supercomputers. The Company's products all use the MIPS RISC microprocessors developed by MTI, and generally are binary-compatible, meaning that software applications run without modification across the entire product line. The Company's workstations include display, graphics and computational capabilities. Server models are general purpose computers with the same computational performance of their workstation counterparts, but without the graphics capabilities. Depending upon their application, servers may also have higher levels of data storage and/or communications capabilities than comparable workstations. The high-end multiprocessor supercomputer systems are meant to replace or augment aging mainframe computers in compute intensive engineering, animation and scientific environments. All the Company's workstations, servers and supercomputer systems use the Company's IRIX-TM- operating system software. IRIX is the Company's enhanced version of the System V Release 4 (SVR4) UNIX-R- operating system. The Company's latest version, IRIX 5.2, includes the Indigo Magic-TM- user environment, a complete family of tools including desktop utilities, digital media applications and collaborative tools. Among the key benefits of Indigo Magic are an intuitive iconic interface supporting "drag and drop" interaction, a file manager that provides graphical navigation through the file system and directories, on-line help, sophisticated digital media tools that can be used to create anything from basic slides to interactive presentations with integrated audio, video and 3D graphics, and support for InPerson-TM-, the Company's low cost, desktop video conferencing software product. The Company develops only a very limited set of applications software, and obtains licenses to and markets certain utility software packages, including database, computational, desktop publishing, modeling and rendering products. For other requirements, customers using the Company's workstations must either develop or license from a third party the software necessary to address their needs. The Company believes that there currently are approximately 1,900 registered application software programs offered for use on its systems. THE INDIGO SERIES The Indigo family of desktop workstations, comprised of the Indy, IRIS Indigo and Indigo(2) systems, combine key elements of workgroup collaboration, interactive media and computing at a range of prices and performance. The versatile desktop 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 and software development. THE INDY FAMILY The Indy desktop workstation, originally introduced in July 1993, features advanced 3D graphics and imaging and the Indy Cam-TM-, its own digital color video camera. The Indy was developed as a low-price, high- performance workstation with real-time video capability, interactive and professional quality graphics, audio and imaging capabilities. The Indy has significant appeal in markets such as mechanical CAD, chemistry, color publishing, film and video, software development, education and media authoring. The Indy systems are available with either the R4600-TM- or 150mhz R4400-TM- microprocessor and range in price from approximately $6,000 to $28,500.(*) THE IRIS INDIGO FAMILY The IRIS Indigo-R- workstation, originally introduced in July 1991, was the first RISC PC with integrated digital media, combining the power of workstations with the ease-of-use, standards and affordability of personal computers. The IRIS Indigo workstations are expandable and upgradable and were enhanced in January 1992 by the addition of three models, including the high-end Indigo Elan-TM-, which provide higher levels of graphics performance. Among the primary markets addressed by the IRIS Indigo are the mechanical CAD and computer-aided engineering, electronic design - - ------------------------- * These and all other prices quoted are September 1994 list prices, which are subject to discount based on volume and other factors. -2- automation, computer-aided software engineering (CASE), geo-science, life science, management support and publishing markets. The IRIS Indigo systems incorporate either an R4000-R- or R4400 microprocessor at prices ranging from approximately $14,500 to $40,000. THE INDIGO(2) FAMILY The Indigo(2) family of high-performance desktop workstations was originally introduced in January 1993 and is available with the XL, XZ or Extreme graphics subsystems. The entry-level Indigo(2) XL system is designed for use in a wide range of 2D graphics applications and supports 3D graphics through a software Z buffer and host-based geometry calculations. The mid-level Indigo(2) XZ system is designed for 3D solids modeling appropriate for professional engineers and scientists. The flagship Indigo(2) Extreme-TM- system is optimized for applications in solids modeling, mechanical CAD, 3D visualization, animation and architectural design. The Indigo(2) XZ and Indigo(2) Extreme systems feature two and eight Geometry Engine-R- graphics coprocessors, respectively. In addition, the Galileo Video-TM- option board and Cosmo Compress-TM- enhance the performance of the Indigo(2) for professional audio and video production. Indigo(2) systems incorporate either an R4000 or R4400 microprocessor and range in price from approximately $21,500 to $44,000. THE ONYX SERIES ONYX The Onyx family of graphics supercomputers, originally introduced in January 1993, uses multiple microprocessors and sophisticated graphics subsystems to handle the most demanding visual computing tasks. Graphics subsystems available with the Onyx systems range from the Extreme through the VTX-TM- to the Reality Engine(2)-TM- graphics subsystems. The Onyx and POWER Onyx are well-suited for applications such as earth and environmental sciences, visual simulation, medical imaging and chemistry, advanced design, interactive entertainment, digital film and video production, scientific visualization, computational chemistry, oil and gas, and other image processing applications. The Onyx graphics supercomputers are based on the R4400 64-bit microprocessor and range from the two-processor Onyx Extreme workstations, priced from approximately $94,000, to the 24-processor Reality Engine(2) rack-mounted systems, priced from approximately $644,000. POWER ONYX The POWER Onyx, introduced in July 1994, provides researchers and scientists with an affordable, integrated visual supercomputer. The POWER Onyx combines supercomputing performance and high-end graphics capabilities suited for customers in industries such as computational chemistry, oil & gas research, molecular modeling, global weather modeling, structural dynamics, fluid dynamics, image processing and animation. The POWER Onyx is based on the 64-bit MIPS R8000-TM- microprocessor, optimized for floating-point intensive applications, and is available with the Company's Extreme or Reality Engine(2) graphics subsystems. The POWER Onyx is available in configurations from one to twelve processors, ranging in price from the uniprocessor POWER Onyx Extreme deskside systems starting at approximately $89,000 to the twelve processor Reality Engine(2) rack-mounted systems priced from approximately $704,000. THE CHALLENGE SERIES CHALLENGE The Challenge series of network resource servers originally was introduced in January 1993 and was enhanced by the introduction of two new systems in July 1994. The Challenge product family currently includes four models that span a range of capabilities, each of which is optimized for a specific distributed computing environment. The entry-level Challenge S server is a single-processor system designed for use in small to mid-size workgroups and is ideal for CAD, storage management, digital distribution and backbone serving applications. The Challenge S is available at prices ranging from $12,250 to $16,600. The Challenge DM is focused on the needs of the database, digital media, real time and file serving markets. Challenge DM systems are scalable to up to four R4400 microprocessors at prices ranging from $45,000 to $75,000. At the midpoint is the Challenge L, an expandable deskside resource server designed to connect large departments of workstation users. The Challenge L can be configured with two to twelve R4400 microprocessors at prices ranging from -3- $79,000 to $279,000. At the high end is the Challenge XL, designed to support enterprise-wide distributed computing environments. The Challenge XL is configurable with from two to thirty-six R4400 microprocessors and is available at prices ranging from $129,000 to $809,000. POWER CHALLENGE The POWER Challenge family of supercomputing servers, introduced in July 1994, combines low-cost, high-performance CMOS RISC technology, advanced parallel system architecture and a simple shared-memory programming model. The POWER Challenge can be configured with one to eighteen R8000 microprocessors. Depending on configuration and memory requirements, prices range from approximately $69,000 for a single processor to $309,000 for a six-processor POWER Challenge L deskside server and from approximately $179,000 for a two-processor to $899,000 for an eighteen-processor POWER Challenge XL rack-mounted system. MICROPROCESSORS All of the Company's system products incorporate the MIPS RISC microprocessor architecture. The designs of the Company's MIPS RISC microprocessors incorporate a general purpose architecture and instruction set designed for high performance over a wide range of computer 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 Company's MIPS RISC microprocessor family currently consists of several independent but binary-compatible chipsets, including the R3000A complementary metal oxide semiconductor ("CMOS") chipset, comprised of the R3000A central processing unit ("CPU") and R3010A floating point unit ("FPU"); and the R4000 CMOS single chip microprocessor, which incorporates the CPU, FPU and primary cache RAM into a single high-density chip. The R4400 microprocessor, introduced in November 1992, is a 64-bit, single chip microprocessor that incorporates enhancements to, and greater speed than, the R4000. The R4200 microprocessor, designed for the portable computer and consumer markets, and the R8000 processor, designed for supercomputer applications, were introduced in mid-1994. Although the Company develops RISC microprocessors and related devices of its own design, it licenses the manufacture and sale of these chips to selected semiconductor manufacturing companies (the "Semiconductor Partners"). The Company does not itself manufacture microprocessors. The Company's current Semiconductor Partners are Integrated Device Technology, Inc.; LSI Logic Corporation; NEC Corporation; NKK Corporation; Siemens AG and Toshiba Corporation. Each Semiconductor Partner paid an initial license fee at the beginning of the license period and has committed to pay ongoing, per unit royalties which are based upon microprocessor net sales. Sales by the Semiconductor Partners are principally to the computer systems and embedded control markets, for use in such products as disk drives, laser printers and X- terminals. Computer systems companies that have adopted the MIPS architecture include Acer Technologies, Deskstation Technology, Pyramid Technology, Siemens Nixdorf AG, Sony Corporation, Tandem Computers Incorporated, NEC Technologies, Inc., NeTpower Inc. and Tektronix, Inc. The Company and its Semiconductor Partners generally have jointly funded the development of new MIPS RISC microprocessors, including the R4000 and the R4400 introduced in fiscal 1993 and the R4200 and R8000 processors introduced in fiscal 1994. NEW VENTURES The Company has extended its reach into the developing markets for interactive computing through new ventures, including alliances with companies like Time Warner Cable, Nintendo, Disney and AT&T Corp. None of these ventures accounted for significant product revenues in fiscal 1994, and each is subject to a number of risks and uncertainties. See "Factors That May Affect Future Results" below. -4- TIME WARNER CABLE'S ORLANDO PROJECT The Company is developing the core software technologies, including operating system software and key applications such as video-on-demand software, for Time Warner Cable's interactive digital cable television trial in Orlando, Florida. Scheduled to be deployed to 4,000 homes in the Orlando area, the technology will provide consumers with access to such services as video-on- demand, educational resources, interactive video games and home shopping. The "media servers" (computers from which movies and other content may be retrieved) for the trial will be provided by the Company, and the home communications devices will incorporate MIPS microprocessors. This project, which is the most ambitious interactive television trial announced to date, has helped to position the Company as a technology leader in this emerging market. NINTENDO'S ULTRA 64 VIDEO ENTERTAINMENT SYSTEM The Company also is developing for Nintendo Co., Ltd. the core technological components of Ultra 64-TM-, the next generation, 64-bit Nintendo -R- video entertainment system. These components include the central processing unit, a media co-processor, operating system software and multimedia libraries. This arrangement, under which Nintendo is funding the Company's development work and will pay the Company royalties, should enable the Company to extend its core technologies to a high volume consumer electronics market. By licensing these technologies to Nintendo, the Company hopes to address this market in a way that benefits from Nintendo's strengths in low-cost, high-volume manufacturing, and mass consumer distribution and marketing. If successfully marketed by Nintendo, the Ultra 64 system also will create high volume markets for the MIPS microprocessors on which it will be based, again helping to promote the preservation and expansion of the MIPS RISC architecture on which the Company's core computer system products are based. WALT DISNEY IMAGINEERING LABS AT EPCOT CENTER The Company's work with the Walt Disney Company provided the technology behind the Walt Disney Imagineering Labs, which opened in July 1994 at Epcot Center in Orlando, Florida. In a new exhibit combining the Company's visual computing expertise with the creative talents of the Walt Disney Imagineering team, visitors are able to view, interact with and actually "fly" through scenes from Disney's animated film ALADDIN. This example illustrates the avenues the Company is exploring to take its technology into the realm of location-based entertainment. INTERACTIVE DIGITAL SOLUTIONS, AN AT&T AND SILICON GRAPHICS COMPANY In June 1994, the Company and AT&T agreed to form Interactive Digital Solutions, a new venture created to develop and deliver complete interactive video solutions, based on the Company's video and graphics technology and AT&T's networking and integration expertise, to telephone company networks and cable TV systems, and eventually to large private networks. The turnkey systems that IDS intends to provide include media servers, network operating system software, selected applications programs and integration services. The Company brings its core competency in media servers and growing operating system and application software expertise to the venture, and AT&T's contributions include its advanced switching and networking expertise, strong relationships with the target public network operator customer base (primarily the regional Bell operating companies and cable television multiple service operators), and its system integration and support capabilities. NTT CORPORATION In June 1994, the Company entered into a letter of intent with Nippon Telegraph and Telephone Corporation (NTT) providing for the companies to collaborate in testing interactive digital networks. The arrangement gives the Company the opportunity to play a key role in helping to establish the architecture for the information superhighway in Japan and to supply media servers for an NTT trial. -5- SILICON STUDIO, INC. In July 1994, the Company announced the formation of Silicon Studio, Inc., a wholly-owned subsidiary created to enable applications development for emerging interactive digital media markets. Focusing on the convergence of computing and consumer technologies, Silicon Studio will work with third-party developers, content creators and distributors to extend the Company's already established role in media authoring markets, including film and video, publishing and the expanding areas of interactive television, next-generation video games and location-based entertainment. MARKETING, SALES AND DISTRIBUTION The Company sells its products principally to end users, value added resellers ("VARs"), value added dealers ("VADs"), original equipment manufacturers ("OEMs"), government customers, and systems integrators worldwide. - The Company's end-user customers include large manufacturing companies such as automotive, aerospace and pharmaceutical companies; government contractors; consumer product companies; creative professionals in the areas of animation, special effects, graphics arts, pre-press and publishing; and universities and research laboratories. - VARs 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, incorporate their applications software and resell the systems to end users. - VADs 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. - OEM customers generally are computer systems vendors that customize applications software for use on the Company's workstations and sell turnkey systems under the OEM's product name. OEMs also provide independent marketing, service and support programs to their customers. The Company's principal OEMs include Tandem Computers Incorporated and Siemens Nixdorf AG. - Government customers use the Company's products in a variety of application areas, including general scientific, research and visual simulation. - The Company also sells its products to systems integrators to be included in systems customized for use by the federal government and large commercial clients. The Company sells and supports its products through its direct sales organization in the United States and Canada, and through its direct sales force and distributors in Europe and the Middle East, Latin America, the South Pacific and the Far East. As of September 1994, the Company had 25 direct sales subsidiaries, primarily serving major, more established international markets in 29 countries, and 31 distributors, primarily serving smaller or less established international markets. Information with respect to international operations and export sales may be found on page 44 of the 1994 Annual Report to Stockholders, which is incorporated herein by reference. See also "Factors That May Affect Future Results" below. Although no customer accounted for 10% of more of the Company's total revenues for fiscal 1994, 1993 or 1992, a significant reduction or delay in sales to major customers could adversely affect the Company's operating results. CUSTOMER SERVICE AND SUPPORT The Company believes that the quality and reliability of its system products and the ongoing support of such products are important elements of its competitive strategy. The Company's customer service organization includes field service engineers, field product and applications specialists, product -6- 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. Also, foreign distributors provide training and support for products sold to local customers. The Company typically provides a standard "return to factory" hardware warranty against defects in materials and workmanship. The warranty period for the Company's products generally is 90 days from the date of shipment, although the Indy system has a one year warranty, and some international sales of other products are made with warranties of up to one year. RESEARCH AND DEVELOPMENT The Company's research and development program is directed principally toward maintaining and enhancing the Company's competitive position through incorporating the latest advances in microprocessor, hardware, software and networking technologies. This effort is focused specifically on developing and enhancing its MIPS RISC microprocessors, graphics subsystems, VLSI technology, compiler software, operating system hardware and software, and development tools. Simultaneously, the Company seeks to develop new ways in which to increase product reliability, reduce manufacturing costs and improve product development lead times. During fiscal 1994, 1993 and 1992, the Company spent approximately $177 million, $137 million and $128 million, respectively, on research and development. Those amounts represented 12.0%, 12.5% and 14.8% , respectively, of revenues. MANUFACTURING The Company's manufacturing operations primarily involve assembling high level subassemblies and systems and testing major purchased subassemblies. All products are subjected to substantial environmental stress and electronic testing prior to shipment to customers. The Company primarily manufactures and ships its products from its main facility in Mountain View, California. The Company also has a European manufacturing and support center near Neuchatel, Switzerland and a manufacturing facility in Kawasaki, Japan. The Company continually evaluates the allocation of manufacturing activities among the Company's own operations and those of suppliers and subcontractors. Such allocation may be affected by fluctuations in the volume of business, geopolitical, economic and technological developments and other factors. The Company attempts to utilize standard parts and components available from multiple vendors rather than to integrate its manufacturing operations vertically. The Company believes that there are a number of competent vendors for most of the parts and components used in its system products. In certain circumstances, despite the availability of multiple sources, the Company may select a single source in order to maintain quality or price control or to develop a more strategic relationship with the supplier. Reliance on single source vendors involves several risks, including the possibility of a shortage of certain key components that meet the Company's product specifications and reduced control over delivery schedules, manufacturing yields, quality and costs. Components for which the Company currently does not have multiple sources include certain application-specific integrated circuits ("ASICs"). These are currently obtained from LSI Logic Corporation and VLSI Technology, Inc. The Company also has single sources for certain peripherals, communications controllers and power supplies and the plastic cabinets used across the Company's system products. The Company believes that, in -7- 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. Certain components used in the Company's products, including the R4000, R4400, R4600 and R8000 microprocessors, floating point coprocessors, and certain memory circuits, are available only from limited sources. In particular, the Company is dependent on a limited number of semiconductor manufacturers with state of the art fabrication facilities. Additionally, the Company purchases certain parts from foreign suppliers, principally Japanese. The prices of parts 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 integrated circuit 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 is from other workstation and computer system manufacturers and, to a lesser extent, from graphics subsystem and terminal vendors and graphics integrated circuit manufacturers. The principal workstation and computer manufacturers that compete in the Company's markets are Digital Equipment Corporation ("DEC"), Hewlett Packard Company ("HP"), IBM and Sun Microsystems, Inc. ("Sun"). In the supercomputer market, the Company faces competition from these companies as well as Cray Research, Inc. and Convex Computer Corporation. The Company's MIPS RISC microprocessor architecture and technology compete directly with microprocessor products offered by manufacturers of other microprocessor designs, in particular those offered by IBM, DEC, HP, Intel Corporation, Motorola, Inc. and Sun. Although the Company believes its RISC architecture offers advantages over these other designs, many of these architectures have a larger installed base and wider availability of application software, which may adversely affect the adoption of the Company's RISC architecture. In particular, DEC and a joint venture among IBM, Motorola and Apple Computer, Inc. have in the past year devoted substantial resources to promote the adoption of the Alpha AXP-TM- and Power PC-TM- microprocessors, which are based on RISC architectures, and Intel continues to invest heavily in its CISC-based X86 architecture, including the Pentium-TM- microprocessor. FACTORS THAT MAY AFFECT FUTURE RESULTS As is true for technology companies generally, Silicon Graphics operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risks. PERIOD TO PERIOD FLUCTUATIONS The Company has experienced substantial revenue growth in recent years, and it plans its operating expenses, many of which are relatively fixed in the short term, on the basis that its revenues will continue to grow. As a result it may not be possible for management to quickly adjust expense levels -8- in response to revenue shortfalls. Further, because of short delivery cycles the Company generally does not have a large order backlog, which makes the forecasting of revenue inherently less certain. This uncertainty is compounded because each quarter's revenue results predominantly from orders received and shipments made during the last month of the quarter, with a disproportionate amount occurring in the latter half of that month. This pattern sharply limits the Company's ability to react to revenue shortfalls within a particular quarter. Accordingly, even relatively minor shipment disruptions, which could result from factors such as supply constraints, delays in the availability of new products, an unanticipated change in product mix, transit interruptions or natural disasters, may cause a particular period's results to be substantially below expectations. The Company's results have followed a seasonal pattern, with relatively strong second and fourth fiscal quarters and weaker first and third fiscal quarters, reflecting the buying patterns of the Company's customers. A variety of other factors may cause period-to-period fluctuations in revenues and profitability, including changes in the mix of high-end and low-end products, the mix of configurations within a product line, the geographic mix of sales, and the percentage of revenues derived from service or non-recurring engineering revenue (NRE) during any fiscal period. Additionally, because nearly half of the Company's revenue is derived from sales outside the United States, and many key components for its products are produced outside the United States, the Company's results could be negatively affected by such factors as changes in foreign currency exchange rates, trade protection measures, generally longer accounts receivable collection patterns, and changes in regional or worldwide economic or political conditions. The Company's sales to foreign customers are subject to export regulations, with sales of some of the Company's high-end products requiring clearance and export licenses from the U.S. Department of Commerce. The Company's export sales would be adversely affected if such regulations were tightened, or if they are not modified over time to reflect the increasing performance of the Company's products. Sales in foreign countries are generally priced in local currencies and therefore are subject to the effects of currency exchange fluctuations. Changes in foreign currency exchange rates can have either a positive or negative effect on revenue and/or income in any given period. The Company attempts to reduce the impact of currency fluctuations on net income primarily through the use of forward exchange contracts and foreign currency options that hedge foreign currency denominated receivables between the parent and its international subsidiaries. The Company has generally not hedged capital expenditures, investments in subsidiaries, inventory purchases or the anticipated sales or net income of its international subsidiaries. The Company's stock price, like that of other technology companies, is subject to significant volatility. If revenues or earnings in any quarter fail to meet expectations of the investment community, there could be an immediate impact on the Company's stock price. In addition, the Company's stock price may be affected by broader market trends that may be unrelated to the Company's performance. PRODUCT DEVELOPMENT AND INTRODUCTION The Company has achieved revenue growth and profitability that are well above average within the computer industry because it has been able to develop and rapidly bring to volume production highly differentiated, technologically complex and innovative products. The Company's future results depend on its ability to sustain this competitive advantage. As in prior years, the Company plans to introduce a number of new products in fiscal 1995, including products that will replace products in the Company's current product offering. A number of risks are inherent in this process. The process of developing new technology and incorporating it in the Company's products is increasingly complex and uncertain, which raises the potential for delays in new product introduction. The introduction of a new computer system requires close collaboration and continued technological advancement involving multiple hardware and software design and manufacturing teams within the -9- Company as well as teams at outside suppliers of key components such as semiconductor and storage products. The failure of any one of these elements could cause the Company's new products to fail to meet specifications or to miss the aggressive timetables that the Company establishes. As the variety and complexity of the Company's product offering increases, the process of planning production and inventory levels also becomes more difficult. The Company generally has derived a substantial portion of its revenues in any fiscal period from its most recently introduced products. During fiscal 1994, the Company introduced new products at both the low-end and high-end of its product line, most of which have shipped in volume. The Company's results could be adversely affected by such factors as development or manufacturing delays, variations in product costs, and delays in customer purchases of existing products in anticipation of the introduction of new products. The Company's customers require applications software that addresses their needs. The Company develops very limited applications software, and thus relies on the availability of key third-party applications software addressing a wide range of customer requirements. The Company actively manages programs to promote the development of such applications, but there can be no assurance that all competitively important applications will be available for the Company's systems. DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE All of the Company's system products incorporate microprocessors based upon the Company's MIPS RISC microprocessor architecture. The Company licenses the manufacturing and distribution rights to these microprocessors to selected semiconductor manufacturing companies (the "Semiconductor Partners"). The Company and its Semiconductor Partners generally have jointly funded the development of new MIPS RISC microprocessors, including the R4200 and R8000 processors introduced in fiscal 1994. Changes in the timing, level or availability of such funding could adversely affect the continued development of the MIPS RISC architecture or increase the portion of the development budget that is borne by the Company. The Company believes that the continued development and broad acceptance of the MIPS architecture are critical to its future success. NEW VENTURES During fiscal 1993 and 1994, the Company entered into several ventures with other companies to address new and emerging markets, including ventures with Time-Warner, Nintendo and AT&T. While the Company believes that these new ventures are strategically important, there are substantial uncertainties associated with the development of new products and technologies for evolving markets. The success of these ventures will be determined not only by the Company's efforts, but also by those of its venture partners. Initial timetables for the development and introduction of new technologies, products or services may not be achieved, and price/performance targets may not prove feasible. External factors, such as the development of competitive alternatives or government regulation, may cause new markets to evolve in an unanticipated direction. COMPETITION The computer industry is highly competitive and is characterized by rapid technological advances in both hardware and software development, which result in steadily improving price/performance and shortening product life cycles. As the segments in which the Company operates continue to grow faster than the industry as a whole, the Company is experiencing an increase in competition, and it expects this trend to continue. Many of the Company's competitors have substantially greater technical, marketing and financial resources than the Company, as well as a larger installed base of customers and a wider range of general purpose applications software available for their platforms. The strong competition faced throughout the Company's product line can result in significant discounting of sales prices which would decrease the Company's gross margins. -10- BUSINESS DISRUPTION The Company's corporate headquarters, including its research and development operations and most of its manufacturing facilities, are located in the Silicon Valley area of Northern California, a region known for seismic activity. Operating results could be materially affected by a significant earthquake. The Company is predominantly self-insured for losses and business interruptions of this kind. PROPRIETARY RIGHTS AND LICENSES The Company has been granted numerous patents, has a number of patent applications pending, and will continue to seek patent coverage for its inventions in both the United States and foreign countries. The Company also has applied for and holds various trademark registrations in the United States and in selected foreign countries. The Company will continue to seek protection for its inventions, trademarks, maskworks and copyrights where appropriate. As is customary in its industry, the Company licenses from third parties a wide range of software for its internal use and for the use of its customers. The Company licenses the UNIX operating system on a non-exclusive basis from Novell, Inc., and sublicenses it to its customers. The Company's ability to compete may be affected by its ability to protect proprietary information and to obtain necessary licenses on commercially reasonable terms. The extent to which U.S. and international intellectual property laws protect the Company's products, and the enforceability of end-user license agreements, have not been fully determined, and the computer industry has seen a substantial increase in litigation with respect to intellectual property matters. Such litigation or changes in the interpretation of intellectual property laws could expand or reduce the extent to which the Company or its competitors are able to protect their intellectual property or require changes in the design of products which could have an adverse impact on the Company. There can be no assurance that the Company will not be made a party to litigation regarding intellectual property matters in the future. See "Legal Proceedings." EMPLOYEES As of June 30, 1994, the Company had approximately 4,400 full-time employees. The Company's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical, marketing and management personnel, who are in great demand. The Company has never had a work stoppage, and no employees are represented by a labor union. The Company believes that its employee relations are good. -11- ITEM 2. PROPERTIES The Company conducts its worldwide operations using a combination of leased and owned facilities. The Company believes that, while it currently has sufficient facilities to conduct its operations during fiscal 1995, it will continue to acquire both leased and owned facilities throughout the world as its business requires. The Company's corporate offices and its primary research and development and manufacturing operations are located in Mountain View, California. The Company leases eleven adjacent buildings comprising a total of approximately 702,000 square feet under written leases terminating during 2000 and 2001. The Company also leases eight other buildings near its Mountain View headquarters, comprising approximately 304,000 square feet. The Company, through a wholly-owned subsidiary, also owns 7.5 acres of undeveloped land near its Mountain View headquarters, on which a general office facility of approximately 112,000 square feet is being constructed to be leased to the Company for occupancy in fiscal 1995. The Company's European manufacturing and support center near Neuchatel, Switzerland is located in a facility owned by the Company, consisting of approximately 77,800 square feet. The Company's leased manufacturing facility in Kawasaki, Japan consists of 9,500 square feet. The Company also leases sales, service and administrative offices worldwide. ITEM 3. LEGAL PROCEEDINGS On March 11, 1992, the Company entered into an agreement with MIPS, pursuant to which the Company has acquired MIPS through the merger of a subsidiary of the Company into MIPS. On March 17, 1992, a putative class action lawsuit entitled DIANE PROVENZ AND AHIKIM EIZENBERG V. ROBERT C. MILLER, ET AL. was filed in the United States District Court for the Northern District of California. The plaintiffs purport to represent a class of all persons who purchased MIPS' common stock between January 31, 1991 and October 9, 1991 (the "Class Period"). Named as defendants are MIPS and certain executive officers of MIPS. The Company is not a defendant, but is defending the case as a successor in interest to MIPS. The complaint alleges that defendants violated various federal securities laws and California statutes through material misrepresentations and omissions during the Class Period. On June 27, 1994, the Court granted defendant's motion for summary judgment as to all counts. Plaintiffs' motion for reconsideration of the order granting summary judgment is pending. The Company believes that it has meritorious defenses to the claims alleged in this lawsuit and intends to continue its defense of the action vigorously. As is typical in the computer industry, the Company from time to time receives communications from third parties asserting patent rights, trademarks, copyrights or other rights covering the Company's products, designs or processes. In some cases the Company seeks to obtain licenses from such third parties. Although there can be no assurance that the Company will be able to obtain these licenses or rights on commercially reasonable terms, management believes that payment of royalties under any such license arrangements currently under consideration would not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. -12- EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages as of September 2, 1994, are as follows:
EXECUTIVE OFFICER NAME AGE POSITION AND PRINCIPAL OCCUPATION SINCE ---- --- --------------------------------- ----- Edward R. McCracken 50 Chairman, Chief Executive Officer and Director 1984 Thomas A. Jermoluk 38 President, Chief Operating Officer and Director 1988 Robert R. Bishop 51 President, Silicon Graphics World Trade 1991 Corporation and Director, Silicon Graphics, Inc. Forest Baskett 51 Senior Vice President, Research and Development 1986 and Chief Technical Officer Kenneth L. Coleman 51 Senior Vice President, Administration 1987 Stephen Goggiano 41 Senior Vice President, Integrated Manufacturing 1989 Solutions Division Gary L. Lauer 41 Senior Vice President, North American Field 1988 Operations Stanley J. Meresman 47 Senior Vice President, Finance and Chief 1989 Financial Officer Michael Ramsay 44 President, Silicon Studio, Inc. and Senior Vice 1987 President, Silicon Graphics, Inc. Wei Yen 39 Senior Vice President, Computer Systems Group 1990 William M. Kelly 41 Vice President, Business Development, General 1994 Counsel and Secretary Dennis P. McBride 42 Vice President, Controller 1988 Thomas J. Oswold 42 Vice President, Finance and Treasurer 1988 Tom Whiteside 41 President, MIPS Technologies, Inc. and Vice 1993 President, Silicon Graphics, Inc.
Executive officers of the Company are elected annually by the Board of Directors and serve at the Board's discretion. Except as set forth below, all of the officers have been associated with the Company in their present positions for more than the past five years. There are no family relationships among any directors or executive officers of the Company. In 1988, Mr. Jermoluk became Vice President/General Manager, Advanced Systems Division and, in 1991, he became Executive Vice President. He was named Chief Operating Officer in 1992 and President in 1994. Mr. Goggiano joined the Company in 1989 as Director of Operations, Advanced Systems Division. In 1990, Mr. Goggiano was named Vice President/General Manager, Operations and, in 1993 he was named Senior Vice President, Operations. Prior to joining the Company, Mr. Goggiano was Vice President, Manufacturing for Altos Computer Systems. Mr. Kelly joined the Company in 1994 as Vice President, Business Development, General Counsel and Secretary. 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. Lauer joined the Company in 1988 as Vice President, North American Marketing, became Vice President, North American Field Operations in 1989, and was named Senior Vice President, North American Field Operations in 1991. -13- Mr. McCracken became Chairman of the Company in 1994. Mr. Ramsay was named Vice President/General Manager, Entry Systems Division in 1988, and became Senior Vice President/General Manager, Entry Systems Division in 1991. In 1992, Mr. Ramsay was named Senior Vice President, Visual Systems Group, and in 1994, became President of Silicon Studio, Inc. Dr. Yen joined the Company in 1988 as Director of Engineering, Advanced Systems Division. In 1990, Dr. Yen was named Vice President, Engineering, Advanced Systems Division, and in 1992 he was named Senior Vice President, Computer Systems Group. Mr. Whiteside joined the Company in 1993 as the President of MIPS Technologies, Inc. and as a Vice President of the Company. From 1988 to 1993, Mr. Whiteside was responsible for the management of a variety of development projects at International Business Machines Corporation, culminating in his position as Director of RISC Microprocessor Development. -14- PART II With the exception of the information specifically incorporated by reference from the Company's 1994 Annual Report to Stockholders (the "1994 Annual Report") in Parts I, II and IV of this Form 10-K, the 1994 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 first three paragraphs in the section entitled "Price Range of Common Stock" on page 46 of the Company's 1994 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 26 of the Company's 1994 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 20 through 25 of the Company's 1994 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 27 through 45 of the Company's 1994 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 "1994 Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors required by this Item is incorporated by reference to pages 3 and 4 of the 1994 Proxy Statement under the heading "Proposal No. 1 -- Election of Directors-Directors and Nominees for Director". The information concerning executive officers required by this Item is incorporated by reference to the section in Part I hereof entitled "Executive Officers of the Registrant." The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, required by this Item is incorporated by reference to page 9 of the 1994 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 pages 4 and 5 under the heading "Proposal No. 1 -- Election of Directors-Director Compensation", pages 8 and 9 under the headings "Executive Officer Compensation - Summary Compensation Table", " - Option Grants in Fiscal 1994" and " - Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values", pages 11 and 12 under the heading "Report of the Compensation and Human Resources Committee of the Board of Directors", and page 13 under the heading "Company Stock Price Performance Graph" of the 1994 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to page 1 of the 1994 Proxy Statement under the heading "Information Concerning Solicitation and Voting - Record Date and Principal Share Ownership" and page 7 of the 1994 Proxy Statement under the heading "Other Information - Security Ownership of Management". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to page 10 of the 1994 Proxy Statement under the heading "Certain Transactions". -16- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS. The following consolidated financial statements and supplementary information of Silicon Graphics, Inc. and Report of Independent Auditors are incorporated by reference to pages 27 through 45 and page 48 of the Registrant's 1994 Annual Report: Consolidated Statement of Operations - Years Ended June 30, 1994, 1993 and 1992 Consolidated Balance Sheet - June 30, 1994 and 1993 Consolidated Statement of Cash Flows - Years Ended June 30, 1994, 1993 and 1992 Consolidated Statement of Stockholders' Equity - Three Years Ended June 30, 1994 Notes to Consolidated Financial Statements Report of Independent Auditors Supplementary Information Quarterly Data (Unaudited) 2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules of Silicon Graphics, Inc. are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Silicon Graphics, Inc. SCHEDULE DESCRIPTION PAGE -------- ----------- ---- I Marketable Securities S-1 II Amounts Receivable from Related Parties and Underwriters, S-2 Promoters and Employees Other Than Related Parties VIII Valuation and Qualifying Accounts S-9 X Supplementary Income Statement Information S-10 Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. -17- 3. EXHIBITS. The following Exhibits are filed as part of, or incorporated by reference into, this Report: 3.1.11(9) Restated Certificate of Incorporation of the Company. 3.2.1 Bylaws of the Company, as amended. 4.4(5) Silicon Graphics, Inc. $25,000,000 8.98% Senior Notes Due February 1, 1996, Note Agreement and Note, dated February 1, 1991. 4.5(7) Amended and Restated Preferred Shares Rights Agreement, dated as of May 6, 1992 between the Company and The First National Bank of Boston, including the Certificate of Designation of Rights, Preferences and Privileges of Series B Participating Preferred Stock, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C respectively. 4.6(11) Indenture dated November 1, 1993 between the Company and The First National Bank of Boston, as Trustee. 10.2(6)* 1984 Incentive Stock Option Plan, as amended, and amended form of Incentive Stock Option Agreement. 10.3(8)* 1986 Incentive Stock Option Plan, as amended, and amended forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement. 10.17(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. 10.33(4)* 1987 Stock Option Plan and form of Stock Option Agreement. 10.35(2) Software License Agreement dated January 24, 1986, between the Company and AT&T Information Systems Inc. 10.50(3) Stock Purchase Agreement dated March 2, 1990 among the Company, NKK Corporation and NKK U.S.A. Corporation. 10.52(8)* Directors' Stock Option Plan and form of Stock Option Agreement. 10.56(8) Form of Indemnification Agreement entered into between the Company and its directors, executive officers and certain other agents. 10.57(8) Form of Indemnification Agreement entered into between the Company and its directors, executive officers and certain other agents. (Revised) -18- 10.58(8)* 1985 Stock Incentive Program. 10.59(8) Exchange Agreement dated August 14, 1992 among the Company, NKK Corporation and NKK U.S.A. Corporation. 10.61(10) Credit Agreement dated June 15, 1993, among the Company, Bank of America, National Trust and Savings Association, and The First National Bank of Boston. 10.62(10) Purchase and Sale Agreement, as amended, between Richard T. Peery, John Arrillaga and Silicon Graphics, Inc. executed on April 30, 1993. 10.63(10) Waiver and Release Agreement between Richard T. Peery, John Arrillaga and Silicon Graphics Real Estate, Inc. dated May 7, 1993. 10.64(11)* 1993 Long-Term Incentive Stock Plan and form of stock option agreement. 10.65(12)* Employee Stock Purchase Plan, as amended as of October 21, 1993. 10.66(11)* Form of Employment Continuation Agreement entered into between the Company and its executive officers, as amended as of October 21, 1993. 10.67(11)* Consulting Agreement dated as of October 25, 1993 between the Company and Mark W. Perry. 10.68* Non-Qualified Deferred Compensation Plan dated as of September 9, 1994. 11.1 Statement of Computation of Common Shares and Common Share Equivalents. 13.1 Excerpts from Annual Report for the year ended June 30, 1994. 21.1 List of Subsidiaries. 23.1 Consent of Independent Auditors (see page 24). 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 similarly numbered exhibit to the Company's Registration Statement on Form S-1 (No. 33-8892), which became effective October 29, 1986. (2) Incorporated by reference to similarly numbered exhibit to the Company's Registration Statement on Form S-1 (No. 33-12863), which became effective March 31, 1987. -19- (3) Incorporated by reference to exhibits to the Company's Current Report on Form 8-K dated March 16, 1990. (4) Incorporated by reference to exhibits to the Company's Post-Effective Amendment to Registration Statement on Form S-8 (No. 33-16529), which became effective June 18, 1990. (5) Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1990. (6) Incorporated by reference to similarly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1991. (7) Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1992. (8) Incorporated by reference to similarly numbered exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1992. (9) Incorporated by reference to similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1992. (10) Incorporated by reference to similarly numbered exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1993. (11) Incorporated by reference to similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1993. (12) Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 033-50999), which became effective November 10, 1993. (b) REPORTS ON FORM 8-K. No Current Reports on Form 8-K were filed during the quarter ended June 30, 1994. TRADEMARKS USED IN THIS FORM 10-K Silicon Graphics, Indigo, IRIS Indigo, Geometry Engine and the Company's logo are registered trademarks of Silicon Graphics, Inc. Challenge, Galileo Video, Indigo Elan, Indigo Magic, Indigo(2), Indigo(2) Extreme, Indy, Indy Cam, InPerson, IRIX, Onyx, POWER Challenge, POWER Onyx, Reality Engine(2) and VTX are trademarks of Silicon Graphics, Inc. Extreme is a trademark used by Silicon Graphics, Inc. under license. MIPS and R4000 are registered trademarks and R3000A, R3010A, R4200, R4400 and R8000 are trademarks of MIPS Technologies, Inc. IBM is a registered trademark of International Business Machines Corporation. R4600 is a trademark of Integrated Device Technology, Inc. Nintendo is a registered trademark and Ultra 64 is a trademark of Nintendo. UNIX is a registered trademark of X Open Consortium. Alpha AXP is a trademark of Digital Equipment Corporation. Pentium is a trademark of Intel Corporation. -20- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SILICON GRAPHICS, INC. By: /s/ Edward R. McCracken ----------------------- Edward R. McCracken Chairman of the Board and Chief Executive Officer Dated: September 27, 1994 -21- Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - - -------------------------- ---------------------------- ------------------ /s/ Edward R. McCracken Chairman of the Board, Chief SEPTEMBER 27, 1994 - - -------------------------- Executive Officer and Director Edward R. McCracken (Principal Executive Officer) /s/ Thomas A. Jermoluk President, Chief Operating SEPTEMBER 27, 1994 - - -------------------------- Officer and Director Thomas A. Jermoluk /s/ Stanley J. Meresman Senior Vice President, SEPTEMBER 27, 1994 - - -------------------------- Finance and Chief Financial Stanley J. Meresman Officer (Principal Financial Officer) /s/ Thomas J. Oswold Vice President, Finance SEPTEMBER 27, 1994 - - -------------------------- Thomas J. Oswold /s/ Dennis P. McBride Vice President, Controller SEPTEMBER 27, 1994 - - -------------------------- (Principal Accounting Officer) Dennis P. McBride /s/ Robert R. Bishop Director and President, Silicon SEPTEMBER 27, 1994 - - -------------------------- Graphics World Trade Robert R. Bishop Corporation /s/ Mark W. Perry Director SEPTEMBER 27, 1994 - - -------------------------- Mark W. Perry /s/ Allen F. Jacobson Director SEPTEMBER 27, 1994 - - -------------------------- Allen F. Jacobson /s/ C. Richard Kramlich Director SEPTEMBER 27, 1994 - - -------------------------- C. Richard Kramlich /s/ James A. McDivitt Director SEPTEMBER 27, 1994 - - -------------------------- James A. McDivitt /s/ Robert C. Miller Director SEPTEMBER 27, 1994 - - -------------------------- Robert C. Miller -22- /s/ Joseph A. Mollica Director SEPTEMBER 27, 1994 - - -------------------------- Joseph A. Mollica /s/ Lucille Shapiro Director SEPTEMBER 27, 1994 - - -------------------------- Lucille Shapiro /s/ James G. Treybig Director SEPTEMBER 27, 1994 - - -------------------------- James G. Treybig
-23- Consent of Ernst & Young, LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Silicon Graphics, Inc. of our report dated July 18, 1994, included in the 1994 Annual Report to Stockholders of Silicon Graphics, Inc. Our audits also included the financial statement schedules of Silicon Graphics, Inc. listed in item 14(a)2. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to incorporation by reference in the Registration Statements (Form S-8 File Nos. 33-11703, 33-16529, 33-18717, 33-26003, 33-34919, 33-38536, 33-40879, 33-44305, 33-44333, 33-48890, 33-59098, 33-65190, 033-50999 and 033- 51275) pertaining to the Employee Stock Purchase Plan, 1987 Stock Option Plan, 1986 Incentive Stock Option Plan, 1985 Stock Incentive Program, 1984 Incentive Stock Option Plan, 1982 Stock Option Plan, Directors' Stock Option Plan and Subsidiary Stock Agreement, and the 1993 Long-Term Incentive Stock Plan of Silicon Graphics, Inc., of our report dated July 18, 1994 with respect to the consolidated financial statement and schedules of Silicon Graphics, Inc., incorporated by reference and included in this Annual Report (Form 10-K) for the year ended June 30, 1994. Ernst & Young, LLP Palo Alto, California September 26, 1994 -24- Schedule I SILICON GRAPHICS, INC. MARKETABLE SECURITIES AND LONG-TERM FINANCIAL INSTRUMENTS AS OF JUNE 30, 1994 (in thousands)
Amount Carried Par Value on Balance Sheet --------- ---------------- Short-Term Investments (1): Government U.S. Treasury Notes $69,627 $68,831 U.S. Government Agency Obligations 10,235 10,117 Corporate Bonds/Notes Floating Rate Notes 11,200 11,200 -------- -------- Total Short-Term Investments $91,062 $90,147 -------- -------- -------- -------- Long-Term Financial Instruments (1): Government U.S. Treasury Notes $128,500 $128,419 U.S. Government Agency Obligations 2,400 2,400 Corporate Bonds/Notes AT&T 2,000 2,000 Ford Motor Company 4,800 4,815 Nations Bank 2,500 2,500 WMX 1,800 1,813 Merrill Lynch 5,000 4,999 Pepsico 1,000 1,003 Bankers Trust 2,500 2,498 International Lease Finance 5,000 4,988 Associates Corp 7,500 7,491 National Bank 6,000 5,994 Floating Rate Notes 17,900 17,916 -------- -------- Total Long-Term Financial Instruments $186,900 $186,836 -------- -------- -------- -------- - - --------------- (1) Stated at cost that approximates market value at June 30, 1994.
S-1 Schedule II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES (in thousands) FOR THE YEAR ENDED JUNE 30, 1994:
Balance at Balance at Beginning Amounts End of Name of Debtor of Period Additions Collected Period -------------- ---------- --------- --------- ---------- Richard Bahr (1): 8.5% Note Receivable $118 $0 $0 $118 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Jack Cuthbert (2): 8% Note Receivable $238 $0 $0 $238 6.73% Forgivable Note Receivable $7 $0 $7 $0 Interest Free Note Receivable $156 $0 $156 $0 ---------- --------- --------- ---------- $401 $0 $163 $238 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Tom Furlong (3): 7.91% Note Receivable $129 $0 $63 $66 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Mark Jacobson (4): 7.04% Note Receivable $175 $0 $0 $175 Interest Free Forgivable Note Receivable $32 $0 $11 $21 ---------- --------- --------- ---------- $207 $0 $11 $196 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Peter Kenyon (5): 8.62% Note Receivable $75 $0 $75 $0 6.22% Note Receivable $200 $0 $171 $29 6.22% Note Receivable $100 $0 $100 $0 ---------- --------- --------- ---------- $375 $0 $346 $29 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Robert Mansfield (6): Interest Free Forgivable Note Receivable $0 $100 $0 $100 Interest Free Note Receivable $0 $134 $0 $134 ---------- --------- --------- ---------- $0 $234 $0 $234 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Michael Nielsen (7): 6.6% Forgivable Note Receivable $112 $0 $50 $62 ---------- --------- --------- ---------- ---------- --------- --------- ----------
S-2
Balance at Balance at Beginning Amounts End of Name of Debtor of Period Additions Collected Period -------------- ---------- --------- --------- ---------- Harry Pforzheimer (8): 8.48% Note Receivable $170 $0 $0 $170 Interest Free Forgivable Note Receivable $16 $0 $12 $4 ---------- --------- --------- ---------- $186 $0 $12 $174 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Warren Pratt (9): 6.69% Note Receivable $150 $0 $0 $150 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Tom Whiteside (10): Interest Free Note Receivable $0 $125 $125 $0 Interest Free Forgivable Note Receivable $0 $250 $38 $212 ---------- --------- --------- ---------- $0 $375 $163 $212 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Fred Welz (11): 8.56% Note Receivable $200 $0 $0 $200 ---------- --------- --------- ---------- ---------- --------- --------- ---------- - - --------------- (1) This Note is in connection with a relocation and is secured by a deed of trust. (2) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. (3) This Note is in connection with a relocation and is to be repaid in four annual installments. (4) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $885 per month; no collections are made. (5) The 8.62% Note Receivable is to repay former employer relocation obligations and is secured by a deed of trust. The 6.22% Note Receivable in the principal amount of $200,000 is also secured by a deed of trust. (6) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month, no collections are made. (7) This note is in connection with the employee's acceptance of employment with the Company and is to be repaid in four annual installments. (8) These notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. (9) This Note is in connection with a relocation and is secured by a deed of trust. (10) These Notes are in connection with a relocation and are secured by a deed of trust. The interest free note receivable was repaid in December 1993. The forgivable loan is forgiven at the rate of $4,166.67 per month; no collections are made. (11) This Note is in connection with a relocation and is secured by a deed of trust.
S-3 Schedule II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES (in thousands) FOR THE YEAR ENDED JUNE 30, 1993:
Balance at Balance at Beginning Amounts End of Name of Debtor of Period Additions Collected Period -------------- ---------- --------- --------- ---------- Richard Bahr (1): 8.5% Note Receivable $118 $0 $0 $118 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Jack Cuthbert (2): 8% Note Receivable $238 $0 $0 $238 6.73% Forgivable Note Receivable $19 $0 $12 $7 Interest Free Note Receivable $462 $0 $306 $156 ---------- --------- --------- ---------- $719 $0 $318 $401 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Tom Furlong (3): 7.91% Note Receivable $250 $0 $121 $129 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Mark Jacobson (4): 7.04% Note Receivable $175 $0 $0 $175 Interest Free Forgivable Note Receivable $43 $0 $11 $32 Interest Free Note Receivable $68 $0 $68 $0 ---------- --------- --------- ---------- $286 $0 $79 $207 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Peter Kenyon (5): 8.62% Note Receivable $75 $0 $0 $75 6.22% Note Receivable $0 $200 $0 $200 6.22% Note Receivable $0 $100 $0 $100 ---------- --------- --------- ---------- $75 $300 $0 $375 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Michael Nielsen (6): 6.6% Forgivable Note Receivable $200 $0 $88 $112 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Harry Pforzheimer (7): 8.48% Note Receivable $170 $0 $0 $170 Interest Free Forgivable Note Receivable $28 $0 $12 $16 ---------- --------- --------- ---------- $198 $0 $12 $186 ---------- --------- --------- ---------- ---------- --------- --------- ----------
S-4
Balance at Balance at Beginning Amounts End of Name of Debtor of Period Additions Collected Period -------------- ---------- --------- --------- ---------- Warren Pratt (8): 6.69% Note Receivable $150 $0 $0 $150 Interest Free Forgivable Note Receivable $19 $0 $19 $0 ---------- --------- --------- ---------- $169 $0 $19 $150 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Chester Silvestri (9): 5.13% Note Receivable $120 $0 $120 $0 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Fred Welz (10): 8.56% Note Receivable $200 $0 $0 $200 Interest Free Forgivable Note Receivable $6 $0 $6 $0 ---------- --------- --------- ---------- $206 $0 $6 $200 ---------- --------- --------- ---------- ---------- --------- --------- ---------- - - --------------- (1) This Note is in connection with a relocation and is secured by a deed of trust. (2) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. (3) This Note is in connection with a relocation and is to be repaid in four annual installments. (4) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $885 per month; no collections are made. The Interest Free Note Receivable was repaid in August 1992. (5) The 8.62% Note Receivable is to repay former employer relocation obligations and is secured by a deed of trust. The 6.22% Note Receivable in the principal amount of $200,000 is also secured by a deed of trust. (6) This note is in connection with the employee's acceptance of employment with the Company and is to be repaid in four annual installments. (7) These notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. (8) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $2,000 per month; no collections are made. (9) This Note was repaid in March 1993. (10) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan was forgiven at the rate of $1,000 per month; no collections were made.
S-5 Schedule II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES (in thousands) FOR THE YEAR ENDED JUNE 30, 1992:
Balance at Balance at Beginning End of Name of Debtor of Period Additions Collections Period -------------- ---------- --------- ----------- ---------- Peter Kenyon (1): 8.62% Note Receivable $75 $0 $0 $75 Interest Free Forgivable Note Receivable $14 $0 $14 $0 ---------- --------- --------- ---------- $89 $0 $14 $75 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Evan Ellis (2): Interest Free Note Receivable $361 $0 $361 $0 Harry Pforzheimer (3): 8.48% Note Receivable $170 $0 $0 $170 Interest Free Forgivable Note Receivable $40 $0 $12 $28 ---------- --------- --------- ---------- $210 $0 $12 $198 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Fred Welz (4): 8.56% Note Receivable $200 $0 $0 $200 Interest Free Forgivable Note Receivable $18 $0 $12 $6 Interest Free Note Receivable $6 $0 $6 $0 ---------- --------- --------- ---------- $224 $0 $18 $206 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Richard Bahr (5): 8.5% Note Receivable $0 $118 $0 $118 ---------- --------- --------- ---------- ---------- --------- --------- ---------- David Orton (6): Interest Free Note Receivable $0 $225 $225 $0 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Jack Cuthbert (7): 8% Note Receivable $0 $238 $0 $238 6.73% Forgivable Note Receivable $0 $25 $6 $19 Interest Free Note Receivable $0 $462 $0 $462 ---------- --------- --------- ---------- $0 $725 $6 $719 ---------- --------- --------- ---------- ---------- --------- --------- ----------
S-6
Balance at Balance at Beginning End of Name of Debtor of Period Additions Collections Period -------------- ---------- --------- ----------- ---------- Warren Pratt (8): 6.69% Note Receivable $0 $150 $0 $150 Interest Free Forgivable Note Receivable $0 $25 $6 $19 Interest Free Note Receivable $0 $110 $110 $0 ---------- --------- --------- ---------- $0 $285 $116 $169 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Mark Jacobson (9): 7.04% Note Receivable $0 $175 $0 $175 Interest Free Forgivable Note Receivable $0 $43 $0 $43 Interest Free Note Receivable $0 $68 $0 $68 ---------- --------- --------- ---------- $0 $286 $0 $286 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Robert Miller (10): Interest Free Note Receivable $299 $0 $299 $0 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Charles Boesenberg (11): Interest Free Note Receivable $172 $0 $172 $0 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Tom Furlong (12): 7.91% Note Receivable $250 $0 $0 $250 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Michael Nielsen (13): 6.6% Forgivable Note Receivable $0 $200 $0 $200 ---------- --------- --------- ---------- ---------- --------- --------- ---------- Chester Silvestri (14): 5.13% Note Receivable $0 $120 $0 $120 ---------- --------- --------- ---------- ---------- --------- --------- ---------- - - --------------- (1) These Notes are to repay former employer relocation obligations and are secured by a deed of trust. The loan is forgiven at the rate of $1,250 per month; no collections are made. (2) This Note is in connection with a relocation and is secured by a deed of trust. (3) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. (4) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. The interest free note receivable was repaid July 1991. (5) This Note is in connection with a relocation and is secured by a deed of trust. (6) This Note is in connection with a relocation and is secured by a deed of trust. The Note was repaid in October 1991. (7) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $1,000 per month; no collections are made. S-7 (8) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $2,000 per month; no collections are made. The interest free note receivable was repaid in April 1992. (9) These Notes are in connection with a relocation and are secured by a deed of trust. The forgivable loan is forgiven at the rate of $885 per month; no collections are made. (10) This Note is in connection with a relocation and is forgiven at the rate of $20,833 per month for the first six months and $14,520 per month for the last six months of fiscal 1992. In addition, pursuant to the loan agreement, the remaining balance of $87,000 was forgiven at June 29, 1992 upon the completion of the merger between MIPS Computer Systems, Inc. and Silicon Graphics, Inc. (11) This Note is in connection with the employee's acceptance of employment with the Company and is secured by a deed of trust. The interest free loan was repaid in full in February 1992 upon the employee's termination of employment with the Company. This former MIPS executive officer resigned from MIPS in February 1992. (12) This Note is in connection with a relocation and is to be repaid in four annual installments. (13) This Note is in connection with the employee's acceptance of employment with the Company and is to be repaid in four annual installments. (14) This Note is to be repaid in April 1993, one year from the date of the Note. This former officer of MIPS resigned from the Company in July 1992.
S-8 Schedule VIII SILICON GRAPHICS, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Charged to Balance at Beginning Costs and Deductions End of Description of Period Expenses Write-offs Period - - -------------- ---------- ---------- ---------- ---------- Year Ended June 30, 1992: Accounts receivable allowances $5,373 $1,447 $1,488 $5,332 Year Ended June 30, 1993: Accounts receivable allowances $5,332 $3,618 $2,233 $6,717 Year Ended June 30, 1994: Accounts receivable allowances $6,717 $3,095 $1,514 $8,298
S-9 Schedule X SILICON GRAPHICS, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION (in thousands)
Charged to Costs and Expenses in the Years Ended: ------------------------------------------------- June 30, 1994 June 30, 1993 June 30, 1992 ------------- ------------- ------------- Depreciation and Amortization of Intangible Assets $18,200 $12,871 $13,518 Taxes other than payroll or income taxes $10,790 $10,294 $9,273
Amounts for royalties, repairs and maintenance and advertising costs are not presented as such amounts are less than one percent of total revenues for each of the years ended June 30, 1994, 1993 and 1992. S-10 EXHIBIT INDEX 3.2.1 Bylaws of the Company, as amended. 10.68* Non-Qualified Deferred Compensation Plan dated as of September 9, 1994 11.1 Statement of Computation of Common Shares and Common Share Equivalents. 13.1 Excerpts from Annual Report for the year ended June 30, 1994. 21.1 List of Subsidiaries. 23.1 Consent of Independent Auditors (see page 24). 27.1 Financial Data Schedule. (3) Incorporated by reference to exhibits to the Company's Current Report on Form 8-K dated March 16, 1990. (4) Incorporated by reference to exhibits to the Company's Post-Effective Amendment to Registration Statement on Form S-8 (No. 33-16529), which became effective June 18, 1990. (5) Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1990. (6) Incorporated by reference to similarly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1991. (7) Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1992. (8) Incorporated by reference to similarly numbered exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1992. (9) Incorporated by reference to similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1992. (10) Incorporated by reference to similarly numbered exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1993. (11) Incorporated by reference to similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1993. EX-3.21 2 EXHIBIT 3.2.1 BYLAWS EXHIBIT 3.2.1 AMENDED AND RESTATED BYLAWS OF SILICON GRAPHICS, INC. May 2, 1994 TABLE OF CONTENTS Page ---- ARTICLE I - CORPORATE OFFICES 1 1.1 Registered Office 1 1.2 Other Offices 1 ARTICLE II - STOCKHOLDERS 1 2.1 Place of Meetings 1 2.2 Annual Meeting 1 2.3 Special Meeting 2 2.4 Notice of Stockholders Meetings 2 2.5 Manner of Giving Notice; Affidavit of Notice 3 2.6 Quorum 3 2.7 Adjourned Meeting; Notice 3 2.8 Voting 3 2.9 Waiver of Notice 4 2.10 Stockholder Action by Written Consent Without a Meeting 4 2.11 Record Date for Stockholder Notice; Voting; Giving Consents 5 2.12 Proxies 6 2.13 List of Stockholders Entitled to Vote 7 2.14 Conduct of Business 7 2.15 Inspectors of Election 7 2.16 Inspectors of Election and Procedures for Counting Written Consents 8 ARTICLE III - DIRECTORS 9 3.1 Powers 9 3.2 Number of Directors 9 3.3 Election, Qualification and Term of Office of Directors 9 3.4 Resignation and Vacancies 11 3.5 Place of Meetings; Meetings by Telephone 12 3.6 Regular Meetings 12 3.7 Special Meetings; Notice 12 3.8 Quorum 13 3.9 Waiver of Notice 13 3.10 Adjourned Meeting; Notice 13 3.11 Board Action by Written Consent Without a Meeting 13 3.12 Fees and Compensation of Directors 14 3.13 Approval of Loans to Officers 14 i 3.14 Removal of Directors 14 3.15 Conduct of Business 14 ARTICLE IV - COMMITTEES 15 4.1 Committees of Directors 15 4.2 Committee Minutes 16 4.3 Meetings and Action of Committees 16 ARTICLE V - OFFICERS 16 5.1 Officers 16 5.2 Appointment of Officers 16 5.3 Subordinate Officers 17 5.4 Removal and Resignation of Officers 17 5.5 Vacancies in Offices 17 5.6 Chairman of the Board 17 5.7 Chief Executive Officer; President 17 5.8 Vice Presidents 18 5.9 Secretary 18 5.10 Chief Financial Officer 19 5.11 Treasurer 19 5.12 Assistant Secretary 19 5.13 Assistant Treasurer 20 5.14 Authority and Duties of Officers 20 5.15 Representation of Shares of Other Corporations 20 ARTICLE VI - INDEMNITY 20 6.1 Indemnification of Directors and Officers 20 6.2 Indemnification of Others 21 6.3 Insurance 21 ARTICLE VII - RECORDS AND REPORTS 21 7.1 Maintenance and Inspection of Records 21 7.2 Inspection by Directors 22 7.3 Annual Statement to Stockholders 22 ARTICLE VIII - GENERAL MATTERS 22 8.1 Checks 22 8.2 Execution of Corporate Contracts and Instruments 22 8.3 Stock Certificates; Partly Paid Shares 23 8.4 Special Designation on Certificates 23 8.5 Lost Certificates 24 ii 8.6 Construction; Definitions 24 8.7 Dividends 24 8.8 Fiscal Year 24 8.9 Seal 25 8.10 Transfer of Stock 25 8.11 Stock Transfer Agreements 25 8.12 Registered Stockholders 25 8.13 Notices 25 ARTICLE IX - AMENDMENTS 26 ARTICLE X - DISSOLUTION 26 ARTICLE XI - CUSTODIAN 27 11.1 Appointment of a Custodian in Certain Cases 27 11.2 Duties of Custodian 27 iii AMENDED AND RESTATED BYLAWS OF SILICON GRAPHICS, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held, each year, on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the third Thursday of October in each year at 2:00 p.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected and any other proper business may be transacted. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the meeting by a stockholder, the secretary of the -1- corporation must have received notice in writing from the stockholder not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that if less than thirty-five (35) days' notice of the meeting is given to stockholders, such notice shall have been received by the secretary not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. Such written notice to the secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the number of shares of stock of the corporation beneficially owned by such stockholder, and (iv) any material interest of such stockholder in such business. Notwithstanding any provision in the bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.2. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors, by the chairman of the board, by the secretary or by any executive officer of the corporation. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, chief executive officer or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS MEETINGS All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise -2- provided herein or required by law (meaning, here and hereinafter, as required from time to time by the General Corporation Law of Delaware or the certificate of incorporation of the corporation). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM At any meeting of the stockholders, the holders of a majority, present in person or by proxy, of all of the shares of the stock entitled to vote at the meeting shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority, present in person or by proxy, of the shares of such class or classes entitled to take action with respect to that vote on that matter shall constitute a quorum. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, those present at such adjourned meeting shall constitute a quorum (but in no event shall a quorum consist of less than one- third of the shares entitled to vote at the meeting), and all matters shall be determined by a majority of the votes cast at such meeting, except as otherwise required by law. 2.7 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. -3- 2.8 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Each stockholder shall have one (1) vote for every share of stock entitled to vote that is registered in his or her name on the record date for the meeting (as determined in accordance with Section 2.11 of these bylaws), except as otherwise provided herein or required by law. At a stockholders' meeting at which directors are to be elected, each stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) if the candidates' names have been properly placed in nomination (in accordance with these bylaws) prior to commencement of the voting and the stockholder requesting cumulative voting has given notice prior to commencement of the voting of the stockholder's intention to cumulate votes. If cumulative voting is properly requested, each holder of stock, or of any class or classes or of a series or series thereof, who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or provided herein, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. 2.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express -4- purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or able to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation at its registered office in Delaware, its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days after the date the earliest dated consent is delivered to the corporation, a written consent or consents signed by holders of a sufficient number of votes to take action are delivered to the corporation in the manner prescribed in the first paragraph of this section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. -5- 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall neither precede nor be more than ten (10) days after the date upon which such resolution is adopted by the board of directors. Any stockholder of record seeking to have the stockholders authorize or take action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such notice is received, adopt a resolution fixing the record date. If the board of directors has not fixed a record date within such time, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in the manner prescribed in the first paragraph of Section 2.10 of these bylaws. If the board of directors has not fixed a record date within such time and prior action by the board of directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the -6- date on which the board of directors adopts the resolution taking such prior action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.12 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, filed in accordance with the procedure established for the meeting or taking of action in writing, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 2.12 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. -7- 2.14 CONDUCT OF BUSINESS Such person as the board of directors may have designated or, in the absence of such a person, any executive officer of the corporation, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the secretary of the corporation, the secretary of the meeting shall be such person as the chairman appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. 2.15 INSPECTORS OF ELECTION The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. 2.16 INSPECTORS OF ELECTION AND PROCEDURES FOR COUNTING WRITTEN CONSENTS Within three (3) business days after receipt of the earliest dated consent delivered to the corporation in the manner provided in Section 228(c) of the Delaware General Corporation Law or the determination by the board of directors of the corporation that the corporation should seek corporate action by written consent, as the case may be, the secretary may engage nationally recognized independent inspectors of elections for the purpose of performing a ministerial review of the validity of the consents and revocations. The cost of retaining inspectors of election shall be borne by the corporation. Consents and revocations shall be delivered to the inspectors upon receipt by the corporation, the stockholder or stockholders soliciting consents or soliciting revocations in opposition to action by consent proposed by the corporation (the "Soliciting Stockholders") or their proxy solicitors or other designated agents. As soon as consents and revocations are received, the inspectors shall review the consents and revocations and shall maintain a -8- count of the number of valid and unrevoked consents. The inspectors shall keep such count confidential and shall not reveal the count to the corporation, the Soliciting Stockholders or their representatives or any other person or entity. As soon as practicable after the earlier of (i) sixty (60) days after the date of the earliest dated consent delivered to the corporation in the manner provided in Section 228(c) of the Delaware General Corporation Law or (ii) a written request therefor by the corporation or the Soliciting Stockholders (whichever is soliciting consents) (which request, except in the case of corporate action by written consent taken pursuant to the solicitations of not more than ten (10) persons, may be made no earlier than after such reasonable amount of time after the commencement date of the applicable solicitation of consents as is necessary to permit the inspectors to commence and organize their count, but in no event less than five (5) days after such commencement date), notice of which request shall be given to the party opposing the solicitation of consents, if any, which request shall state that the corporation or Soliciting Stockholders, as the case may be, have a good faith belief that the requisite number of valid and unrevoked consents to authorize or take the action specified in the consents has been received in accordance with these bylaws, the inspectors shall issue a preliminary report to the corporation and the Soliciting Stockholders stating: (i) the number of valid consents; (ii) the number of valid revocations; (iii) the number of valid and unrevoked consents; (iv) the number of invalid consents; (v) the number of invalid revocations; and (vi) whether, based on their preliminary count, the requisite number of valid and unrevoked consents has been obtained to authorize or take the action specified in the consents. Unless the corporation and the Soliciting Stockholders shall agree to a shorter or longer period, the corporation and the Soliciting Stockholders shall have 48 hours to review the consents and revocations and to advise the inspectors and the opposing party in writing as to whether they intend to challenge the preliminary report of the inspectors. If no written notice of an intention to challenge the preliminary report is received within 48 hours after the inspectors' issuance of the preliminary report, the inspectors shall issue to the corporation and the Soliciting Stockholders their final report containing the information from the inspectors' determination with respect to whether the requisite number of valid and unrevoked consents was obtained to authorize and take the action specified in the consents. If the corporation or the Soliciting Stockholders issue written notice of an intention to challenge the inspectors' preliminary report within 48 hours after the issuance of that report, a challenge session shall be scheduled by the inspectors as promptly as practicable. A transcript of the challenge session shall be recorded by a certified court reporter. Following completion of the challenge session, the inspectors shall as promptly as practicable issue their final report to the corporation and the Soliciting Stockholders, which report shall contain the information included in the preliminary report, plus all changes made to the vote totals as a result of the challenge and a certification -9- of whether the requisite number of valid and unrevoked consents was obtained to authorize or take the action specified in the consents. A copy of the final report of the inspectors shall be included in the book in which the proceedings of meetings of stockholders are recorded. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be eleven (11) until changed by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. The directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, which classes are hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next regularly-scheduled annual meeting of stockholders after the date of this amendment; the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders; and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so -10- designated and elected at the annual meeting of stockholders scheduled to be held in October 1992. At each annual meeting after the annual meeting of stockholders scheduled to be held in October 1992, directors to replace those of the class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as is practicable. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Nominations for election to the board of directors of the corporation at an annual meeting of stockholders may be made by the board or on behalf of the board by a nominating committee appointed by the board, or by any stockholder of the corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by or on behalf of the board, shall be made by notice in writing received by the secretary of the corporation not less than thirty (30) days nor more than sixty (60) days prior to the date of the annual meeting; provided, however, that if less than thirty-five (35) days notice of the meeting is given to stockholders, such nomination shall have been received by the secretary not later than the close of business on the seventh (7th) day following the day on which the notice was mailed. Such notice shall set forth (i) the name and address of the stockholder who intends to make the nomination; (ii) a representation that the nominating stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iii) the number of shares of stock held beneficially and of record by the nominating stockholder; (iv) the name, age, business address and, if known, residence address of each nominee proposed in such notice; (v) the principal occupation or employment of such nominee; (vi) the number of shares of stock of the corporation beneficially owned by each such nominee; (vii) a description of all arrangements or understandings between the nominating stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the nominating stockholder; (viii) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934; and (ix) the consent of such nominee to serve as a director of the corporation if so elected. -11- The chairman of the annual meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure. If such determination and declaration is made, the defective nomination shall be disregarded. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. When one or more directors so resign and the resignation is effective at a future date, only a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled only by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time -12- outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the board of directors and publicized among all directors. A notice of each regular meeting shall not be required. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the secretary or by any executive officer of the corporation, or by one-third of the directors then in office (rounded up to the nearest whole number) and shall be held at a place, on a date and at a time as such officer or such directors shall fix. Notice of the place, date and time of special meetings, unless waived, shall be given to each director by mailing written notice not less than two (2) days before the meeting or by sending a facsimile transmission of the same not less than two (2) hours before the time of the holding of the meeting. If the circumstances warrant, notice may also be given personally or by telephone not less than two (2) hours before the time of the holding of the meeting. Oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. 3.8 QUORUM -13- At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.10 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. -14- 3.12 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance of each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.13 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.14 REMOVAL OF DIRECTORS Any director may be removed from office by the stockholders of the corporation only for cause. For purposes of the foregoing paragraph, 'cause' shall mean (i) continued willful failure to perform the obligations of a director, (ii) gross negligence by the director, (iii) engaging in transactions that defraud the corporation, (iv) fraud or intentional misrepresentation, including falsifying use of funds and intentional misstatements made in financial statements, books, records or reports to stockholders or governmental agencies, (v) material violation of any agreement between the director and the corporation, (vi) knowingly causing the corporation to commit violations of applicable law (including by failure to act), (vii) acts of moral turpitude or (viii) conviction of a felony. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. -15- 3.15 CONDUCT OF BUSINESS At any meeting of the board of directors, business shall be transacted in such order and manner as the board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, a supplemental resolution of the board of directors, the bylaws or the certificate of -16- incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), and Section 3.11 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolutions of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a chief executive officer, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a vice chairman of the board, a president, one or more vice presidents, one or more assistant secretaries, a controller, one or more assistant controllers, a treasurer, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS -17- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the chief executive officer to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 CHIEF EXECUTIVE OFFICER; PRESIDENT -18- Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the chief executive officer of the corporation shall , subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of the chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. He shall also function as president of the corporation unless the board of directors names another person as president, in which case, the president shall have such powers and duties as may be prescribed by the board of directors. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the chief executive officer or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. -19- The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. The duties of the chief financial officer may be allocated by the board of directors among one or more persons, in its discretion. 5.11 TREASURER The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts or the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.12 ASSISTANT SECRETARY -20- The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.13 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.14 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. 5.15 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the chief executive officer, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors, the chief executive officer, the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its -21- directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director, officer, employee or agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorney's fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS -22- The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. -23- 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile -24- signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. -25- 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of -26- stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 8.13 NOTICES Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery, by mail, postage paid, or by facsimile transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his last known address as it appears on the books of the corporation. The time when such notice shall be deemed received, if hand delivered, or dispatched, if sent by mail or facsimile, transmission, shall be the time of the giving of the notice. ARTICLE IX AMENDMENTS Any of these bylaws may be altered, amended or repealed by the affirmative vote of a majority of the board of directors or, with respect to bylaw amendments placed before the stockholders for approval and except as otherwise provided herein or required by law, by the affirmative vote of the holders of a majority of the shares of the corporation's stock entitled to vote in the election of directors, voting as one class. -27- ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES -28- The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -29- EX-10.68 3 EXHIBIT 10.68 DEFERRED COMPENSATION PLAN EXHIBIT 10.68 SILICON GRAPHICS, INC. NON-QUALIFIED DEFERRED COMPENSATION PLAN (EFFECTIVE SEPTEMBER 9, 1994) TABLE OF CONTENTS PAGE ARTICLE I - PLAN ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II - ELIGIBILITY, PARTICIPATION AND BENEFICIARY DESIGNATION. . . 3 ARTICLE III - PLAN CONTRIBUTIONS AND ALLOCATIONS . . . . . . . . . . . . 3 ARTICLE IV - VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE V - GENERAL DUTIES . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VI - PARTICIPANTS' ACCOUNTS. . . . . . . . . . . . . . . . . . . 6 ARTICLE VII - PAYMENTS TO A TRUST BENEFICIARY. . . . . . . . . . . . . . 6 ARTICLE VIII - IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . 8 ARTICLE IX - COMPANY INSOLVENCY. . . . . . . . . . . . . . . . . . . . . 9 ARTICLE X - THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE XI - PLAN AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE XII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 12 i SILICON GRAPHICS, INC. NON-QUALIFIED DEFERRED COMPENSATION PLAN This Plan, effective as of September 9, 1994 (the "Effective Date"), is adopted by Silicon Graphics, Inc. (the "Company"), acting on behalf of itself and its designated subsidiaries. Throughout, the term "Company" shall include wherever relevant any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity or investment interest, as determined by the Company. RECITALS: 1. The Company wishes to establish a supplemental retirement plan for the benefit of a select group of management or highly compensated employees of the Company, and for the benefit of non-employee members of the Company's Board of Directors. 2. The Company wishes to provide that the plan to be established under this plan or agreement shall be designated as the Silicon Graphics, Inc. Non- Qualified Deferred Compensation Plan (the "Plan"). 3. The Company wishes to provide under the Plan for the payment of vested accrued benefits to Plan participants and their beneficiary or beneficiaries ("Trust Beneficiaries"). 4. The Company wishes to provide under the Plan that the Company shall pay all of the accrued benefits from its general assets. 5. The Company has entered into an agreement (the "Trust Agreement") with Merrill Lynch Trust Company of California, a corporation (the "Trustee"), establishing an irrevocable trust (the "Trust") in connection with the Plan. 6. The Company wishes to make contributions to the Trust and that such contributions be held by the Trustee and invested, reinvested and distributed, all in accordance with the provisions of this Plan and the Trust Agreement. 7. The Company intends that amounts allocated to the Trust and the earnings thereon shall be used by the Trustee to satisfy the liabilities of the Company under the Plan with respect to each Plan participant for whom an Account has been established and such utilization shall be in accordance with the procedures set forth herein. -1- 8. The Company intends that the Trust be a "grantor trust" with the corpus and income of the Trust treated as assets and income of the Company for federal and state income tax purposes. 9. The Company intends that the assets of the Trust shall at all times be subject to the claims of the general creditors of the Company as provided in the Trust Agreement. 10. The Company intends that the existence of the Trust shall not alter the characterization of the Plan as "unfunded" for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and shall not be construed to provide income to Plan participants under the Plan prior to actual payment of the vested accrued benefits thereunder. NOW THEREFORE, the Company does hereby establish the Plan as follows and does also hereby agree that the Plan shall be structured, held and disposed of as follows: ARTICLE I PLAN ADMINISTRATION A. The Plan shall be administered by the Non-Qualified Deferred Compensation Committee of the Company (the "Committee"). Subject to the provisions in the Plan and to the specific duties delegated by the Board of Directors (the "Board") to such Committee, the Committee shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions. The Committee shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties: (1) discretionary authority to construe and interpret the terms of the Plan, and to determine eligibility and the amount, manner and time of payment of any benefits hereunder; (2) to prescribe forms and procedures for purposes of Plan participation and distribution of benefits; (3) to direct the Trustee as to the distribution of Plan assets; B. The Committee may adopt such rules, regulations and bylaws and may take such actions as it deems necessary or desirable for the proper administration of the Plan. Any rule or decision that is not inconsistent with the provisions of the Plan shall be conclusive and binding upon all persons affected by it, and there shall be no appeal from any ruling by the Committee that is within its authority, except as otherwise provided herein. -2- C. The Committee shall have the power to (i) select investment funds for the Trust Fund; and (ii) appoint or employ agents, recordkeepers and advisors to assist the Committee in discharging its duties under the Plan. ARTICLE II ELIGIBILITY, PARTICIPATION AND BENEFICIARY DESIGNATION A. ELIGIBLE PARTICIPANTS. The following categories of employees and directors of the Company ("Eligible Participants") shall be eligible to participate in the Plan: (i) employees who hold the position of vice-president or above; (ii) non-employee members of the Board ("Directors"); and (iii) any other employee or category of employee that is designated by the Committee as eligible to participate in the Plan. The Committee reserves the right to modify the definition of eligible participant at any time. Any Eligible Participant who has commenced participation in the Plan shall be referred to in this Plan as a "Participant." B. PARTICIPATION. Each Participant may elect to commence participation in the Plan by completing a Silicon Graphics, Inc. Non-Qualified Deferred Compensation Plan Election Form ("Deferred Compensation Agreement") within 30 days following the Effective Date. Any individual who becomes an Eligible Participant after the Effective Date may participate in the Plan by filing a Deferred Compensation Agreement within 30 days following the date on which the Committee gives such individual written notice that the individual is an Eligible Participant. Any Eligible Participant who does not execute a Deferred Compensation Agreement within the time periods described herein may nevertheless participate in the Plan commencing with Compensation paid in the next succeeding calendar year by filing an executed Deferred Compensation Agreement with the Committee before the beginning of such calendar year. C. BENEFICIARY DESIGNATION. Each Participant shall designate a beneficiary or beneficiaries to receive the remainder of any interest of the Participant under the Plan. A Participant may change his or her beneficiary designation at any time on written notice to the Committee. Each beneficiary designation shall be in a form prescribed by the Committee and will be effective only when filed with the Committee during the Participant's lifetime. Each beneficiary designation filed with the Committee will cancel all previously filed beneficiary designations. In the absence of a valid designation, or if no designated beneficiary survives the Participant, the Participant's interest shall be distributed to the representative of the Participant's estate. ARTICLE III PLAN CONTRIBUTIONS AND ALLOCATIONS A. PARTICIPANT DEFERRALS. Each Participant participating in the Plan shall execute a Deferred Compensation Agreement authorizing the Company to withhold a percentage or dollar amount of the Participant's Compensation that would otherwise be paid to the Participant with -3- respect to services rendered. Compensation under the Plan is defined (1) in the case of a Participant who is an employee of the Company, as the annual base salary and any cash bonuses payable to the Participant in connection with the Participant's services to the Company, and (2) in the case of a Director, as the cash compensation payable to the Participant in connection with the Participant's services as a member of the Board, including in either case all amounts that the Participant elects to have the Company contribute to the Plan on his or her behalf as a deferral contribution ("Compensation"). The deferral percentage is applied to Compensation after all other applicable payroll deductions have been applied. The Committee may, in its discretion, establish in the Deferred Compensation Agreement minimum and maximum levels of Compensation that may be deferred pursuant to the Plan. Compensation deferrals made by a Participant under this Plan shall be held as an asset of the Company and the Company intends to deposit the amounts deferred into the Trust. B. ELECTION CHANGES. A Participant may, in such form and at such time or times as the Committee may prescribe, discontinue or modify deferral of future Compensation at any time; however, unless otherwise authorized by the Committee, no modifications to the Deferred Compensation Agreement may be made prior to the commencement of the calendar year following written notification to the Company of any desired modifications. The Committee has the power to establish uniform and nondiscriminatory rules and from time to time to modify or change such rules governing the manner and method by which Compensation deferral contributions shall be made, as well as the manner and method by which Compensation deferral contributions may be changed or discontinued temporarily or permanently. All Compensation deferral contributions shall be authorized by the Participant in writing, made by payroll deduction, deducted from the Participant's Compensation without reduction for any taxes or withholding (except to the extent required by law or the regulations) and paid over to the Trust by the Company. Notwithstanding the foregoing, each Participant shall remain liable for any and all employment taxes owing with respect to such Participant's Compensation deferral contributions. C. CESSATION OF ELIGIBLE STATUS. In the event a Participant ceases to be an Eligible Participant while participating in the Plan, such individual may continue to make Compensation deferral contributions under the Plan through the end of the payroll period in which the individual ceases to be an Eligible Participant. Thereafter, such individual shall not make any further Compensation deferral contributions to the Plan unless or until he or she again meets the eligibility requirements of Article II above. D. COMPANY MATCHING CONTRIBUTIONS. As of the last day of each calendar year or such earlier time or times as the Committee may determine, the Company may make a matching contribution to the Trust in such amount as the Board may specify. E. COMPANY DISCRETIONARY CONTRIBUTIONS. The Company may, in its sole discretion, make discretionary contributions to the Accounts of one or more Participants at such times and in such amounts as the Board may determine. -4- F. ALLOCATIONS. The Compensation deferral contributions and any Company contributions made under the Plan on behalf of a Participant shall be credited to the Participant's Account. The Committee shall establish and maintain separate subaccounts as it determines to be necessary and appropriate for the proper administration of the Plan. The Committee may cause the Trustee to maintain and invest separate asset accounts corresponding to each Participant Account. Each Participant Account consists of the aggregate interest of the Participant under the Plan (and in the Trust Fund), as reflected in the records maintained by the Company for such purposes. ARTICLE IV VESTING A. COMPENSATION DEFERRAL CONTRIBUTIONS. The value of a Participant's Account attributable to Participants' Compensation deferral contributions shall always be fully vested and nonforfeitable. B. COMPANY CONTRIBUTIONS. The value of a Participant's Account attributable to any Company contributions pursuant to Article III.D and E shall vest at such time or times as the Board shall specify in connection with any such contributions. Unless otherwise specified by the Board, Participants shall become fully vested in his or her Account immediately prior to a Change of Control of the Company (as defined in Article VII.A). Upon termination of a Participant's employment with the Company for any reason or, in the case of a Participant who is a Director, upon cessation of the Director's services as a member of the Board for any reason, any portion of the Participant's Account that is not then vested (including allocable earnings, as determined by the Committee), shall be forfeited. Unless otherwise determined by the Board or the Committee, forfeitures shall be used to satisfy the Company's obligation to remit contributions to the Trust under the Plan. ARTICLE V GENERAL DUTIES A. TRUSTEE DUTIES. The Trustee shall manage, invest and reinvest the Trust Fund as provided in the Trust Agreement. The Trustee shall collect the income on the Trust Fund, and make distributions therefrom, all as provided in this Plan and in the Trust Agreement. B. COMPANY CONTRIBUTIONS. While the Plan remains in effect, and prior to a Change of Control, as defined below, the Company shall make contributions to the Trust Fund at least once each quarter. The amount of any quarterly contributions shall be at the discretion the Company. At the close of each calendar year, the Company shall make an additional contribution to the Trust Fund to the extent that previous contributions to the Trust Fund for the current calendar year are not equal to the total of the Compensation deferrals made by each Participant plus Company matching contributions and discretionary contributions, if any, accrued, as of the close of the current calendar -5- year. The Trustee shall not be liable for any failure by the Company to provide contributions sufficient to pay all accrued benefits under the Plan in full in accordance with the terms of this Plan. C. DEPARTMENT OF LABOR DETERMINATION. In the event that any Participants are found to be ineligible, that is, not members of a select group of highly compensated employees, according to a determination made by the Department of Labor, the Committee will take whatever steps it deems necessary, in its sole discretion to equitably protect the interests of the affected Participants. ARTICLE VI PARTICIPANTS' ACCOUNTS A. SEPARATE ACCOUNTS. The Committee shall open and maintain a separate Account for each Participant. Each Participant's Account shall reflect the amounts allocated thereto and distributed therefrom and such other information as affects the value of such Account pursuant to this Plan. B. STATEMENT OF ACCOUNTS. Periodically at such times as the Committee shall determine but no less frequently than yearly, the Committee shall furnish to each Participant a statement of Account, determined as of the end of each such period. Upon the discovery of any error or miscalculation in an Account, the Committee shall correct it, to the extent correction is practically feasible; provided, however, that any such statement of Account shall be considered to reflect accurately the status of the Participant's Account for all purposes under the Plan unless, subject to any longer period required by ERISA, the Participant reports a discrepancy to the Committee within six (6) months after receipt of the statement. The Committee shall have no obligation to make adjustments to a Participant's Account for any discrepancy reported to the Committee more than six (6) months after receipt of the statement, or for a discrepancy caused by the Participant's error. Statements to Participants are for reporting purposes only, and no allocation, valuation or statement shall vest any right or title in any part of the Trust Fund, nor require any segregation of Trust assets, except as is specifically provided in this Plan. C. DISTRIBUTION OF ACCOUNTS. Payment to a Participant shall be based on the value of the vested portion of the Participant's Account as of the Valuation Date immediately preceding his the date of distribution plus any contribution subsequently credited to such Account and less any distributions subsequently made from the Account. ARTICLE VII PAYMENTS TO A TRUST BENEFICIARY A. GENERAL. Payments of vested accrued benefits to Trust Beneficiaries from the Trust shall be made in accordance with the Deferred Compensation Agreement between the Company and the Participant; provided, however, the Trustee shall make such payments, as directed by the -6- Committee, to the extent the Company is not at such time Insolvent as defined in Article IX. Except as otherwise expressly provided in the Participant's Deferred Compensation Agreement, no distribution shall be made or commenced prior to the Participant's termination of employment or death, or a "Change of Control," whichever occurs earlier. A Participant who makes a Specified Date Distribution Election (as defined in the Deferred Compensation Agreement) may, at least one year prior to the distribution date specified in such Specified Date Distribution Election, revoke such Election in favor of a subsequent distribution date; provided that a Participant may revoke a Specified Date Distribution election once only. For purposes of this Plan, a "Change of Control" means: (1) the acquisition of any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act")) as beneficial owner (as such term is used in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding shares of capital stock of the Company's then-outstanding securities with respect to the election of the Board, or (2) during any period of three (3) consecutive years individuals who, at the beginning of such period, constitute the Company's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director of the Board subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) shall be for these purposes, considered as though such person were a member of the Incumbent Board." The Trustee shall have no responsibility to determine whether a Change of Control has occurred and shall be advised of such event by the Company. B. CASH DISTRIBUTIONS. Where the distribution of all or any portion of a Participant's Account is to be deferred in the form of cash, the Account shall continue to be held and invested in the Trust. C. IN KIND DISTRIBUTIONS. In kind distributions shall be (1) made only in a form of investment that was held on behalf of the Participant as a segregated investment pursuant to Article X.B in a separate investment fund pursuant to Article X.D immediately preceding the date of distribution, (2) limited to the amount of such investment so held, and (3) based on the fair market value of the distributable property, as determined by the Trustee at the time of distribution. D. METHOD OF DISTRIBUTION. Payment to any Trust Beneficiary shall be made pursuant to the Deferred Compensation Agreement executed by the Participant, in whole or in part. A Trust Beneficiary may change a prior distribution election or otherwise specify, at least one (1) year prior to the commencement of any distribution, whether such distribution shall be made. (1) In a lump sum, in cash and/or in kind, or -7- (2) In annual installments equal to 1/n of the Participant's vested accrued benefit where n is the number of installments remaining to be paid. E. CERTAIN DISTRIBUTIONS. In case of any distribution to a minor or to a legally incompetent person, the Committee may (1) direct the Trustee to make the distribution to his or her legal representative, to a designated relative, or directly to such person for his or her benefit, or (2) instruct the Trustee to use the distribution directly for his or her support, maintenance, or education. The Trustee shall not be required to oversee the application, by any third party, of any distributions made pursuant to this Article VII.E. F. IRS DETERMINATION. Notwithstanding any other provisions of this Plan, if any amounts held in the Trust are found in a "determination" (within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended (the "Code")), to have been includible in the gross income of any Trust Beneficiary prior to payment of such amounts from the Trust, the Trustee shall, as soon as practicable pay such amounts to the Trust Beneficiary, as directed by the Company. For purposes of this Section, the Trustee shall be entitled to written notice from the Committee that a determination described in the preceding sentence has occurred and to receive a copy of such notice. The Trustee shall have no responsibility until so advised by the Committee. ARTICLE VII IN-SERVICE WITHDRAWALS A. HARDSHIP WITHDRAWAL. If a Participant suffers an unforeseen emergency, as defined herein, the Committee, in its sole discretion, may pay to the Participant only that portion, if any, of the vested portion of his or her Account which the Committee determines is necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. A Participant requesting an emergency payment shall apply for the payment in writing in a form approved by the Committee and shall provide such additional information as the Committee may require. For purposes of this Plan, the term "unforeseen emergency" shall mean severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. B. VOLUNTARY WITHDRAWAL. At the request of a Participant, the Committee shall authorize a withdrawal of the Participant's vested accrued benefit (including any earnings attributable thereto) provided that as the consequences of making such a withdrawal, (1) the Participant shall forfeit an amount equal to ten percent (10%) of the requested withdrawal amount; and (2) the Participant shall be ineligible to participate in the Plan for a period of not less than twelve (12) months following any such withdrawal. The Committee may establish reasonable procedures and limitations concerning Participants' withdrawal rights pursuant to this Article VIII.B as the Committee may, in its sole discretion, deem necessary or appropriate or in furtherance of the -8- purposes of the Plan. Distributions pursuant to Participant withdrawal elections under this Article VII.B shall be made as soon as practicable following the Committee's receipt of a Participant's written withdrawal election, which election shall be in such form as the Committee shall prescribe. ARTICLE IX COMPANY INSOLVENCY A Participant shall become fully vested in his or her Account immediately prior to the Company becoming insolvent, in which case the Participant will have the same rights as a general creditor of the Employer with respect to his or her Account balance. For purposes of this Plan, the Company shall be considered "Insolvent" and an "Insolvency" shall be deemed to exist for purposes of this Plan under any of the following circumstances: (1) The Company is unable to pay its debts as they mature, defined as having a weighted average overdue payables balance in excess of 270 days. (2) A receiver or trustee is appointed to take possession of all or substantially all of the assets of the Company. (3) There is a general assignment by the Company for the benefit of creditors. (4) An action or proceeding is commenced by or against the Company under any insolvency or bankruptcy act, or any other statute or regulation having as its purpose the protection of creditors, and the action or proceeding is not discharged within 60 days after the date of commencement. ARTICLE X THE TRUST A. THE TRUST. Contributions made by the Company to the Plan and all other assets of the Plan shall be held in Trust pursuant to the terms of the Trust Agreement. Such Trust Agreement shall be attached hereto and is by reference incorporated herein and made a part of this Plan. B. INVESTMENTS. The Trustee shall have the power: (1) To invest and reinvest the Trust Funds; provided, however, the Trustee may delegate this investment authority, in whole or in part, and subject to such terms and conditions and as the Trustee shall require, to the Committee, and, in accordance with Sections B through F below, Participants participating in the Plan (with respect to their own account); -9- (2) To collect and receive any and all money and other property due to the Trust Fund and to give full discharge therefore; (3) To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust; to commence or defend suits or legal proceedings to protect any interest of the Trust; and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; (4) Generally to do all acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable for the protection of the Trust Fund. Persons dealing with the Trustee shall be under no obligation to see to the proper application of any money paid or property delivered to the Trustee or to inquire into the Trustee's authority as to any transaction. C. SEGREGATED INVESTMENTS - PARTICIPANT DIRECTION PERMITTED. At the discretion of the Committee, Participants may be permitted to direct the Trustee in writing regarding the investment of funds in their Accounts, in a manner and form prescribed by the Committee; provided that such right to direct shall apply on a nondiscriminatory basis to all Participants who meet the requirements established by the Committee. Such directed investment Accounts shall be segregated and shall be valued separately by the Trustee. Valuations of such Accounts shall be made at such times as the Committee may require, but no less frequently than annually. In no event, for valuation purpose, shall the property constituting such segregated Accounts, or the net income or loss thereon, be commingled with other Participants' Accounts. Such segregated Accounts may be charged with their proportionate share of any general expenses charged to the Trust or with the full share of any expense incurred directly or indirectly in connection with such Accounts. D. PARTICIPANT DIRECTION SUBJECT TO COMMITTEE AND TRUSTEE APPROVAL. Neither the Committee nor the Trustee shall be under any obligation to approve or disapprove any specific investment medium. Neither the Company nor the Trustee has any liability for any losses or damage that may occur or result from (1) the approval of or failure to approve of any specific investment medium; (2) the imposition of any administrative rules relating to the timing of investment elections of any sort; or (3) any administrative delay in carrying out or failure to carry out investment elections within a specified time. The Committee or the Trustee may disapprove or refuse to carry out any investment directions which in its opinion would subject the Company or the Trustee to burdensome administrative responsibilities or which the Committee determines to be inappropriate from a legal, financial or social perspective. Prior to carrying out any investment direction of a Participant, the Trustee may require releases or any other documents, agreements or indemnifications as it may consider necessary. The Trustee, in approving any investment medium -10- or in making investments under this Plan, shall not be restricted by statutes governing the legal investment of trust funds. E. SEPARATE INVESTMENT FUNDS - COMMITTEE MAY ESTABLISH SEPARATE FUNDS. The Committee may, in its sole discretion, direct the Trustee to create one or more separate investment funds, having such different specific investment objectives as the Committee shall from time to time determine. The Committee shall determine and may from time to time redetermine the number of investment funds and the specific objectives of said funds and the investments or kinds of investment which shall be authorized therefor. Each Participant has the right to instruct the Committee to direct the Trustee in writing to invest his or her Account in one or more separate investment funds, or in a directed investment, provided, however, that if any Participant fails to make a direction pursuant to this Article as to all or any part of such Account, the undirected portion of a Participant's Account shall be invested by the Trustee. F. COMMITTEE TO ESTABLISH RULES. The Committee may at any time make such uniform and nondiscriminatory rules as it determines necessary regarding the administration of the directed investment option. The Committee may also develop and maintain rules governing the rights of Participants to change their investment directions and the frequency with which such changes can be made. ARTICLE XI PLAN AMENDMENT PLAN AMENDMENT. This Plan may be amended, or the Plan terminated or suspended, by an instrument in writing executed on behalf of the Company by the President of the Company or the Committee, or a duly appointed representative of the Board and delivered to the Trustee, provided, however, that (1) no amendment will be made to this Plan which will cause this Plan, the Trust or the assets of the Trust Fund to be governed by or subject to Part 2, 3 or 4 of Title I of ERISA, (2) no such amendment shall adversely affect any Trust Beneficiary's accrued benefit, (3) no such amendment shall increase the duties or responsibilities of the Trustee unless the Trustee consents thereto in writing, (4) no such amendment which would cause the Trust to be other than a "grantor trust," or have contributions to the Trust by the Company, or income and gains of the Trust Fund, constitute a taxable event to the Trust or to the Participants, and (5) no such amendment shall cause the vested accrued benefit paid to Trust Beneficiaries from the Trust Fund to become nondeductible to the Company in the year of payment. -11- ARTICLE XII MISCELLANEOUS A. CALIFORNIA LAW. This Plan shall be construed and regulated by the laws of the State of California. B. HEADINGS. The headings of sections in this Plan are used herein for convenience of reference only and in case of any conflict the text of this Plan shall control. C. SUCCESSORSHIP. This Plan shall be binding upon and inure to the benefit of any successor to the Company or its business as the result of merger, consolidation, reorganization, transfer of assets or otherwise, and any subsequent successor thereto; and any such successor shall be deemed to be the "Company" under this Plan. -12- EX-11.1 4 EXHIBIT 11.1 COMPUTATION OF EARNINGS EXHIBIT 11.1 STATEMENT OF COMPUTATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS WEIGHTED AVERAGE SHARES OUTSTANDING: (THOUSANDS OF SHARES)
Three Months Ended Twelve Months Ended June 30, June 30, -------- -------- 1994 1993 1994 1993 ---- ----- ---- ---- Common shares 138,705 130,880 135,417 127,474 Convertible preferred shares 1,402 2,382 1,963 4,038 Stock options 15,928 16,314 17,106 14,620 ------- ------- ------- ------- Total weighted average shares outstanding 156,035 149,576 154,486 146,132 ------- ------- ------- ------- ------- ------- ------- ------- Net income available to common stockholders $ 43,497 $ 32,393 $140,674 $ 87,691 ------- ------- ------- ------- ------- ------- ------- ------- Income Per Share: Net income per share $ 0.28 $ 0.22 $ 0.91 $ 0.60 ------- ------- ------- ------- ------- ------- ------- -------
Prior periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes". The effect is to reduce net income and earnings per share by $2.8 million and $0.02 for the three months ended June 30, 1993 and $7.5 million and $0.05 for the year ended June 30, 1993 reflecting elimination of the extraordinary item for the benefit of tax loss carryforwards. All share and per share data have been restated for all periods presented to reflect the two-for-one stock split payable in the form of a stock dividend which was distributed on December 15, 1993 to holders of record on November 30, 1993. EX-13.1 5 EXHIBIT 13.1 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following table sets forth, for the fiscal years indicated, certain income and expense items as a percentage of total revenues (percentages may not add due to rounding):
1994 1993 1992(1) Product and other revenues 89.0% 88.7% 89.4% Service revenue 11.0 11.3 10.6 ------------------------------------------ Total revenues 100.0 100.0 100.0 Cost of product and other revenues 42.7 40.5 41.7 Cost of service revenue 5.9 7.1 7.4 ------------------------------------------ Gross margin 51.4 52.5 50.9 Research and development expenses 12.0 12.5 14.8 Selling, general and administrative expenses 26.4 28.5 33.3 Merger-related expenses -- -- 12.7 Restructuring costs -- -- 2.7 ------------------------------------------ Operating income (loss) 13.0 11.5 (12.5) Interest expense (0.6) (0.3) (0.3) Interest income and other, net 0.9 0.3 1.0 ------------------------------------------ Income (loss) before income taxes 13.3 11.5 (11.8) Provision for income taxes 3.8 3.4 2.8 ------------------------------------------ Net income (loss) 9.5% 8.0% (9.0)% (1) The Company merged with MIPS Computer Systems, Inc. in June 1992. The merger was accounted for on a pooling of interests basis, and accordingly the results presented for fiscal 1992 have been restated to include those of MIPS.
Total revenues were $1.48 billion in 1994, $1.09 billion in 1993 and $867 million in 1992, reflecting growth of 36% from fiscal 1993 to 1994 and 26% from fiscal 1992 to 1993. Revenue growth in fiscal 1994 and fiscal 1993 reflected increased shipments across the entire product line, as well as increased service revenue supporting a larger installed base. The effect of the 39% increase in unit volumes in fiscal 1994 was partially offset by the continued shift toward lower priced workstations. The Company expects this trend to continue in fiscal 1995. PRODUCT AND OTHER REVENUES For fiscal 1994, the Company's low-end products (Indy, IRIS Indigo-R-, and Indigo(2) workstations and servers) accounted for 62% of shipment revenue while the high-end products (CHALLENGE and Onyx) comprised 38%. The weighting of product mix was essentially the same year-to-year. The remainder of the product and other revenues are primarily attributable to software and subsystem products, royalties, licensing fees and NRE contracts. Revenue from outside of North America provided 47%, 49%, and 47% of total revenues in fiscal 1994, 1993, and 1992, respectively. The geographic mix in fiscal 1994 reflected a strong performance from the Company's North American operations but lower growth in certain European markets which continue to be affected by weak economic conditions. Japanese business grew 33% despite continued economic weakness in that country. 20 During fiscal 1994, the Company expanded its product line by introducing higher performance models which provide graphics and/or computing performance enhancements over the Company's earlier products. The Company also introduced high performance, low cost products, in particular Indy, a digital media desktop workstation with an entry price of $5,999. The introduction of Indy and upgrades to existing products contributed substantially to the revenue growth of the Company. SERVICE REVENUE Service revenue, which is comprised of hardware and software support and maintenance, accounted for 11.0%, 11.3%, and 10.6% of total revenues in fiscal 1994, 1993, and 1992, respectively. The increases are a direct result of the increases in the Company's shipment revenues, resulting in a larger installed base. The Company expects the percentage of service revenue to total revenue to continue at or near the current level. COST OF GOODS SOLD AND GROSS MARGIN Cost of product and other revenues include costs related to product shipments, including materials, labor, overhead and other direct or allocated costs involved in their manufacture or delivery. Costs associated with NRE revenue are recognized in research and development expense. Cost of service revenue includes all costs incurred in the support and maintenance of the Company's products. In fiscal 1994, the overall gross margin decreased to 51.4% from 52.5% in fiscal 1993. The decrease was due to lower pricing on desktop products, which was partially offset by increased service margins. The Company's gross margins are affected by a number of factors and will fluctuate from period to period. See "Factors That May Affect Future Results." Service margins increased to 46% in fiscal 1994 from 38% in fiscal 1993. The increase in gross margin on service revenue was primarily a result of efficiencies from the continuing increase in the installed base of the Company's products. Management believes that the service margins achieved in fiscal 1994 are at the high end of the sustainable range. In fiscal 1993, the overall gross margin increased to 52.5% from 50.9% in fiscal 1992. This increase was primarily due to an increase in manufacturing efficiencies and an increase in service margins from 30% in fiscal 1992 to 38% in fiscal 1993, partially offset by less favorable product mix within the high-end product line. RESEARCH AND DEVELOPMENT Research and development expenses increased by 30% in fiscal 1994 over fiscal 1993 and increased 7% in fiscal 1993 over fiscal 1992. The increase in fiscal 1993 over fiscal 1992 of only 7% was a result of the elimination of duplicate functions after the merger. Research and development expense as a percentage of total revenues decreased to 12.0% in 1994 from 12.5% in 1993, as result of the large increase in total revenue. The Company will continue to increase the dollar amount of research and development spending in fiscal 1995, and plans that the expense as a percentage of total revenues will be at approximately the level reported in fiscal 1994. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses decreased to 26.4% of total revenues in fiscal 1994 compared to 28.5% in 1993 and 33.3% in 1992. The decrease is a result of rapid revenue growth, expense management and economies of scale. The Company believes it received the full benefit in fiscal 1993 of increased efficiencies associated with the 1992 merger. The Company does not expect that selling, general and administrative expenses as a percent of total revenue will experience further significant declines in fiscal 1995. 21 MERGER-RELATED EXPENSES Merger-related expenses of $110 million were recorded in the fourth quarter of fiscal 1992. The merger-related expenses were associated with the closing of duplicate facilities, write-offs of inventory, equipment and capitalized software related to duplicate product lines, professional fees, employee severance packages, and the integration of the companies' management information systems. No additional charges were recorded during fiscal 1993 or fiscal 1994, and the Company believes that no further charges will be required. RESTRUCTURING COSTS Prior to its merger with Silicon Graphics, MIPS implemented a corporate restructuring in September 1991. Employee severance costs, together with write-downs of capitalized software, inventory and equipment, and a provision for idle facility costs, resulted in a one-time charge of $23.4 million during fiscal 1992. INTEREST EXPENSE Interest expense increased in fiscal 1994, as a result of both increased debt associated with the issuance of the zero coupon debentures and higher interest rates. Interest expense increased slightly in fiscal 1993, primarily as a result of the increased debt incurred in constructing the Company's manufacturing facility in Switzerland. This increase was in part offset by a reduction in interest expense realized when the Company repaid a portion of the Company's Senior Notes. INTEREST INCOME AND OTHER, NET Interest income and other, net for fiscal 1994 increased 313% from fiscal 1993 primarily due to increased interest income as a result of higher invested cash balances, higher interest earned on investments, and lower foreign exchange hedging costs. Interest income and other, net for fiscal 1993 decreased 64% from fiscal 1992 primarily due to lower average investment balances, lower interest rates on investments and higher costs of foreign exchange hedging. PROVISION FOR INCOME TAXES The Company's combined state, federal and foreign tax rate was approximately 29% for fiscal year 1994 compared to 30% for the prior fiscal year. The combined income tax rate for the fiscal 1994 was comprised of an effective tax rate of 30% and a non-recurring benefit from the Revenue Reconciliation Act of 1993 in the amount Of $2.3 million attributable to the retroactive extension of the research and development credit to the beginning of fiscal year 1993 and the effect of applying the increased corporate tax rate to the Company's deferred tax asset. The combined tax rate differed from the federal statutory rate primarily as a result of the imposition of state taxes, the tax benefit derived from the Company's Foreign Sales Corporation, and foreign earnings taxed at lower rates. The Company does not provide for U.S. federal income taxes on undistributed earnings of foreign subsidiaries which it intends to permanently reinvest in those operations. In February 1992, the FASB issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The Company adopted SFAS 109 in its first quarter of fiscal 1994 and has applied its provisions retroactively to fiscal 1989. The effect of adopting SFAS 109 is to increase previously reported net income for years prior to fiscal 1994 by a cumulative $39.7 million. The restatement decreased the net loss for fiscal 1992 by $40.4 million ($.36 per share) and decreased net income for fiscal 1993 by $7.5 million ($.05 per share). NET INCOME As a result of the above factors, net income was $141 million for fiscal 1994 compared to $88 million in fiscal 1993. 22 FINANCIAL CONDITION Stockholders' equity increased by $234 million in fiscal 1994 and $143 million in fiscal 1993 primarily as a result of increased net income, sales of common stock through employee benefits plans, and tax benefits. During fiscal 1994 the Company's cash and cash equivalents, short-term investments and long-term financial instruments increased by $390 million. This increase was primarily due to positive cash flow from operating activities of $260 million, net proceeds of $195 million from the sale of twenty-year zero coupon convertible subordinated debentures, and $49 million from sales of stock through employee benefit programs. This was partially offset by $89 million of capital expenditures, increases in other assets of $22 million, and $3 million of other items. As of June 30, 1994, the Company's principal sources of liquidity included cash, cash equivalents and short and long-term investments of $588 million, and up to $20 million available under bank lines of credit. The Company believes that these resources should be adequate to fund the Company's projected cash needs through at least fiscal 1995. The Company believes that the level of financial resources is an important competitive factor in the computer industry and, accordingly, may elect to raise additional capital through debt or equity financing in anticipation of future needs. FACTORS THAT MAY AFFECT FUTURE RESULTS As is true for technology companies generally, Silicon Graphics operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risks. PERIOD-TO-PERIOD FLUCTUATIONS The Company has experienced substantial revenue growth in recent years, and it plans its operating expenses, many of which are relatively fixed in the short term, on the basis that its revenues will continue to grow. As a result it may not be possible for management to quickly adjust expense levels in response to revenue shortfalls. Further, because of short delivery cycles the Company generally does not have a large order backlog, which makes the forecasting of revenue inherently less certain. This uncertainty is compounded because each quarter's revenue results predominantly from orders received and shipments made during the last month of the quarter, with a disproportionate amount occurring in the latter half of that month. This pattern sharply limits the Company's ability to react to revenue shortfalls within a particular quarter. Accordingly, even relatively minor shipment disruptions, which could result from factors such as supply constraints, delays in the availability of new products, an unanticipated change in product mix, transit interruptions or natural disasters, may cause a particular period's results to be substantially below expectations. The Company's results have followed a seasonal pattern, with relatively strong second and fourth fiscal quarters and weaker first and third fiscal quarters, reflecting the buying patterns of the Company's customers. A variety of other factors may cause period-to-period fluctuations in revenues and profitability, including changes in the mix of high-end and desktop products, the mix of configurations within a product line, the geographic mix of sales, and the percentage of revenues derived from service or NRE during any fiscal period. Nearly half of the Company's revenue is derived from sales outside the United States and many key components for its products are produced outside the United States. As a result, the Company's financial performance could be negatively affected by such factors as changes in foreign currency exchange rates, trade protection measures, generally longer accounts receivable collection patterns, and changes in 23 regional or worldwide economic or political conditions. The Company's sales to foreign customers are subject to export regulations, with sales of some of the Company's high-end products requiring clearance and export licenses from the U.S. Department of Commerce. The Company's export sales would be adversely affected if such regulations were tightened, or if they are not modified over time to reflect the increasing performance of the Company's products. Sales in foreign countries are generally priced in local currencies and therefore are subject to the effects of currency exchange fluctuations. Changes in foreign currency exchange rates can have either a positive or negative effect on revenue and/or income in any given period. The Company attempts to reduce the impact of currency fluctuations on net income primarily through the use of forward exchange contracts and foreign currency options that hedge foreign currency denominated receivables between the parent and its international subsidiaries. The Company has generally not hedged capital expenditures, investments in subsidiaries, inventory purchases or the anticipated sales or net income of its international subsidiaries. The Company's stock price, like that of other technology companies, is subject to significant volatility. If revenues or earnings in any quarter fail to meet expectations of the investment community, there could be an immediate impact on the Company's stock price. In addition, the Company's stock price may be affected by broader market trends that may be unrelated to the Company's performance. PRODUCT DEVELOPMENT AND INTRODUCTION The Company has achieved revenue growth and profitability that are well above average within the computer industry because it has been able to develop and rapidly bring to volume production highly differentiated, technologically complex and innovative products. The Company's future results depend on its ability to sustain this competitive advantage. As in prior years, the Company plans to introduce a number of new products in fiscal 1995, including products that will replace products in the Company's current product offering. A number of risks are inherent in this process. The process of developing new technology and incorporating it in the Company's products is increasingly complex and uncertain, which raises the potential for delays in new product introduction. The introduction of a new computer system requires close collaboration and continued technological advancement, involving multiple hardware and software design and manufacturing teams within the Company as well as teams at outside suppliers of key components such as semiconductor and storage products. The failure of any one of these elements could cause the Company's new products to fail to meet specifications or to miss the aggressive timetables that the Company establishes. As the variety and complexity of the Company's product offering increases, the process of planning production and inventory levels also becomes more difficult. The Company generally has derived a substantial portion of its revenues in any fiscal period from its most recently introduced products. During fiscal 1994, the Company introduced new products at both the desktop and high-end of its product line, most of which have shipped in volume. The Company's results could be adversely affected by such factors as development or manufacturing delays, variations in product costs, and delays in customer purchases of existing products in anticipation of the introduction of new products. 24 The Company's customers require applications software that addresses their needs. The Company develops very limited applications software, and thus relies on the availability of key third-party applications software addressing a wide range of customer requirements. The Company actively manages programs to promote the development of such applications, but there can be no assurance that all competitively important applications will be available for the Company's systems. DEVELOPMENT AND ACCEPTANCE OF MIPS RISC ARCHITECTURE All of the Company's system products incorporate microprocessors based upon the Company's MIPS RISC microprocessor architecture. The Company licenses the manufacturing and distribution rights to these microprocessors to selected semiconductor manufacturing companies (the "Semiconductor Partners"). The Company and its Semiconductor Partners generally have jointly funded the development of new MIPS RISC microprocessors, including the R4200 and R8000 processors introduced in fiscal 1994. Changes in the timing, level or availability of such funding could adversely affect the continued development of the MIPS RISC architecture or increase the portion of the development budget that is borne by the Company. The Company believes that the continued development and broad acceptance of the MIPS architecture are critical to its future success. NEW VENTURES During fiscal 1993 and 1994, the Company entered into several ventures with other companies to address new and emerging markets, including ventures with Time Warner, Nintendo and AT&T. While the Company believes that these new ventures are strategically important, there are substantial uncertainties associated with the development of new products and technologies for evolving markets. The success of these ventures will be determined not only by the Company's efforts, but also by those of its venture partners. Initial timetables for the development and introduction of new technologies, products or services may not be achieved, and price/performance targets may not prove feasible. External factors, such as the development of competitive alternatives or government regulation, may cause new markets to evolve in an unanticipated direction. COMPETITION The computer industry is highly competitive and is characterized by rapid technological advances in both hardware and software development, which result in steadily improving price/performance and shortening product life cycles. As the segments in which the Company operates continue to grow faster than the industry as a whole, the Company is experiencing an increase in competition, and it expects this trend to continue. Many of the Company's competitors have substantially greater technical, marketing and financial resources than the Company, as well as a larger installed base of customers and a wider range of general purpose applications software available for their platforms. The strong competition faced throughout the Company's product line can result in significant discounting of sales prices which would decrease the Company's gross margins. BUSINESS DISRUPTION The Company's corporate headquarters, including its research and development operations and most of its manufacturing facilities, are located in the Silicon Valley area of Northern California, a region known for seismic activity. Operating results could be materially affected by a significant earthquake. The Company is predominantly self-insured for losses and business interruptions of this kind. 25 SELECTED CONSOLIDATED FINANCIAL DATA
Years ended June 30 (In thousands, except per share amounts) 1994 1993(1) 1992(1) 1991(1,2) 1990(1,2) OPERATING DATA: Total revenues $1,481,602 $1,091,200 $ 866,593 $ 698,488 $ 520,531 Costs and expenses: Cost of goods sold 719,660 518,712 425,540 319,316 229,941 Research and development 177,217 136,641 127,905 93,094 64,613 Selling, general and administrative 391,583 310,761 288,302 240,014 169,92O Merger-related expenses -- -- 110,000 -- -- Restructuring costs -- -- 23,416 -- -- ------------------------------------------------------------------------------ Operating income (loss) from continuing operations 193,142 125,086 (108,570) 46,064 56,057 Interest and other, net 4,536 187 5,968 9,401 1,838 ------------------------------------------------------------------------------ Income (loss) from continuing operations before income taxes 197,678 125,273 (102,602) 55,465 57,895 Income (loss) from continuing operations 140,674 87,691 (78,063) 36,098 38,032 Net income (loss) 140,674 87,691 (78,063) 36,098 33,967 Income (loss) per common share(3): Income (loss) from continuing operations: Primary $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.39 Fully diluted $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.38 Net income (loss): Primary $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.35 Fully diluted $ 0.91 $ 0.60 $ (0.74) $ 0.31 $ 0.34 Weighted average common shares and common share equivalents outstanding(3): Primary 154,486 146,132 112,944 118,598 99,760 Fully diluted 154,486 146,132 112,944 118,598 109,840 BALANCE SHEET DATA: Cash and cash equivalents, short-term investments and long-term financial instruments $ 587,750 $ 197,480 $ 183,165 $ 294,573 $ 177,792 Working capital 668,087 418,366 376,252 469,695 332,605 Total assets 1,518,783 1,013,027 845,320 839,293 538,510 Long-term debt 229,950 25,989 27,295 29,297 37,945 Stockholders' equity 921,261 687,696 544,960 651,219 379,894 STATISTICAL DATA: Number of employees 4,357 3,743 3,575 3,345 2,702 Revenue/employee (average; in thousands) $ 359 $ 307 249 $ 225 $ 225 Long term debt/total capitalization 20% 4% 5% 4% 9% (1) These periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes." (2) These periods have been restated to reflect the merger of Silicon Graphics, Inc. and MIPS Computer Systems, Inc. in fiscal 1992, which has been accounted for on a pooling of interests basis. The periods prior to fiscal 1992 combine the June 30 results of Silicon Graphics with the prior calendar year of MIPS. (3) All share and per share data above has been retroactively restated to reflect a two-for-one stock split in the form of a stock dividend which was distributed in December 1993. The Company has not paid dividends on its common stock to date and does not anticipate paying cash dividends in the foreseeable future.
26 QUARTERLY DATA
Fiscal 1994 (unaudited) (In thousands, except per share amounts) June 30 March 31 Dec. 31 Sept. 30 Total revenues $433,277 $376,293 $370,396 $30l,636 Cost and expenses: Cost of goods sold 208,725 183,390 181,407 146,138 Research and development 51,064 44,568 42,560 39,025 Selling, general and administrative 112,559 99,394 96,131 83,499 Operating income 60,929 48,941 50,298 32,974 Interest income and other, net 1,211 1,197 1,616 512 Income before taxes 62,140 50,138 51,914 33,486 Net income 43,497 35,097 36,340 25,740 Net income per common share(2) $ 0.28 $ 0.23 $ 0.24 $ 0.17 Weighted average common shares and common share equivalents outstanding(2) 156,035 155,523 154,046 151,140 Fiscal 1993 (unaudited)(1) (In thousands, except per share amounts) June 30 March 31 Dec. 31 Sept. 30 Total revenues $319,269 $270,666 $270,170 $231,095 Cost and expenses: Cost of goods sold 151,557 129,876 128,234 109,045 Research and development 38,288 34,931 33,440 29,982 Selling, general and administrative 84,265 76,456 79,110 70,930 Operating income 45,159 29,403 29,386 21,138 Interest income (expense) and other, net 1,116 (484) 2,014 (2,459) Income before taxes 46,275 28,919 31,400 18,679 Net income 32,393 20,243 21,980 13,075 Net income per common share(2) $ 0.22 $ 0.14 $ 0.15 $ 0.09 Weighted average common shares and common share equivalents outstanding(2) 149,576 146,714 143,804 140,580 (1) These periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes." (2) All share and per share data above has been retroactively restated to reflect a two-for-one stock split in the form of a stock dividend which was distributed in December 1993.
27 CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30 (In thousands, except per share amounts) 1994 1993(1) 1992(1) Product and other revenues $1,318,693 $ 967,710 $ 774,911 Service revenue 162,909 123,490 91,682 ------------------------------------------------------- Total revenues 1,481,602 1,091,200 866,593 Cost and expenses: Cost of product and other revenues 632,440 441,540 361,157 Cost of service revenue 87,220 77,172 64,383 Research and development 177,217 136,641 127,905 Selling, general and administrative 391,583 310,761 288,302 Merger-related expenses -- -- 110,000 Restructuring costs -- -- 23,416 ------------------------------------------------------- Total costs and expenses 1,288,460 966,114 975,163 ------------------------------------------------------- Operating income (loss) 193,142 125,086 (108,570) Interest expense (8,302) (2,924) (2,774) Interest income and other, net 12,838 3,111 8,742 ------------------------------------------------------- Income (loss) before income taxes 197,678 125,273 (102,602) Provision for income taxes 57,004 37,582 (24,539) ------------------------------------------------------- Net income (loss) 140,674 87,691 (78,063) Preferred stock dividend requirement -- -- 5,231 ------------------------------------------------------- Net income (loss) available to common stockholders $ 140,674 $ 87,691 $ (83,294) ------------------------------------------------------- Net income (loss) per common share $ 0.91 $ 0.60 $ (0.74) ------------------------------------------------------- Common shares and common share equivalents used in the calculation of net income per common share 154,486 146,132 112,944 See accompanying notes. (1) These periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes."
28 CONSOLIDATED BALANCE SHEET
As of June 30 (Dollars in thousands, except per share amounts) 1994 1993(1) ASSETS Current assets: Cash and cash equivalents $ 310,767 $ 142,668 Short-term investments 90,147 12,142 ----------------------------------- Total cash and short-term investments 400,914 154,810 Accounts receivable, net of allowance for doubtful accounts of $8,298 in 1994, $6,717 in 1993 391,271 317,470 Inventories 164,319 156,165 Prepaid expenses and other current assets 67,862 70,359 ----------------------------------- Total current assets 1,024,366 698,804 Long-term financial instruments 186,836 42,670 Property and equipment, at cost, net of accumulated depreciation and amortization 183,330 151,740 Other assets 124,251 119,813 ----------------------------------- $1,518,783 $1,013,027 ----------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 85,781 $ 92,020 Accrued compensation 46,216 33,543 Income taxes payable 50,390 39,215 Other accrued liabilities 80,457 46,026 Long-term debt due within one year 10,450 7,048 Accrued merger expenses 10,303 12,140 Deferred revenue 72,682 50,446 ----------------------------------- Total current liabilities 356,279 280,438 Deferred revenue and other accrued expenses, long-term 1,928 5,102 Long-term debt due after one year 229,950 25,989 Accrued merger expenses, long-term 9,365 13,802 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value: Issuable in series, 2,000,000 shares authorized; Series A: 35,000 convertible preferred shares authorized, issued and outstanding 33,996 33,996 Common stock, $.001 par value; 200,000,000 shares authorized; shares issued and outstanding: 139,212,257 in 1994; 131,574,612 in 1993. 139 132 Additional paid-in capital 678,211 601,981 Retained earnings 195,985 56,361 Accumulated translation adjustment 12,930 (4,774) ----------------------------------- Total stockholders' equity 921,261 687,696 ----------------------------------- $1,518,783 $1,013,027 See accompanying notes. (1) This period has been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes."
29 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Retained Additional Earnings Accumulated Total Three years ended June 30, 1994 Preferred Stock Common Stock Paid-In (Accumulated Translation Stockholders' (In thousands) Shares Amount Shares Amount Capital Deficit) Adjustment Equity Balance, June 30, 1991(1,2) 170 $ 166,686 106,476 $ 106 $ 417,855 $ 69,889 $ (3,317) $ 651,219 Common stock issued, net of repurchases -- -- 15,486 16 96,894 -- -- 96,910 Recognition of compensation expense in connection with voluntary separation incentive program -- -- -- -- 1,018 -- -- 1,018 Acquisition of minority interest in subsidiary -- -- 280 -- 2,459 -- -- 2,459 Convertible preferred stock, Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050) Convertible preferred stock, Series C preferred dividends -- -- -- -- -- (4,181) -- (4,181) Repurchase of preferred stock, Series C (135) (132,690) -- -- -- (17,310) -- (150,000) Currency translation adjustment -- -- -- -- -- -- 2,536 2,536 Tax benefit from stock options -- -- -- -- 19,375 -- -- 19,375 Net loss -- -- -- -- -- (78,063) -- (78,063) Net transactions of MIPS during eliminated period from January 1, 1991 to June 30, 1991 -- -- 1,316 2 4,939 435 (639) 4,737 ------------------------------------------------------------------------------------------- Balance, June 30, 1992(1) 35 $ 33,996 123,558 $ 124 $ 542,540 $ (30,280) $ (1,420) $ 544,960 Common stock issued, net of repurchases -- -- 8,016 8 42,884 -- -- 42,892 Convertible preferred stock, Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050) Currency translation adjustment -- -- -- -- -- -- (3,354) (3,354) Tax benefit from stock options -- -- -- -- 16,557 -- -- 16,557 Net income -- -- -- -- -- 87,691 -- 87,691 ------------------------------------------------------------------------------------------- Balance, June 30, 1993 35 $ 33,996 131,574 $ 132 $ 601,981 $ 56,361 $ (4,774) $ 687,696 Common stock issued, net of repurchases -- -- 7,638 7 49,380 -- -- 49,387 Convertible preferred stock, Series A preferred dividends -- -- -- -- -- (1,050) -- (1,050) Currency translation adjustment -- -- -- -- -- -- 17,704 17,704 Tax benefit from stock options -- -- -- -- 26,850 -- -- 26,850 Net income -- -- -- -- -- 140,674 -- 140,674 ------------------------------------------------------------------------------------------- Balance, June 30, 1994 35 $ 33,996 139,212 $ 139 $ 678,211 $ 195,985 $ 12,930 $ 921,261 See accompanying notes. (1) These periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes." (2) This period has been restated to reflect the merger of Silicon Graphics, Inc. and MIPS Computer Systems, Inc. in fiscal 1992, which has been accounted for on a pooling of interests basis.
30/31 CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30 (In thousands) 1994 1993(1) 1992(l) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $140,674 $87,691 $(78,063) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 84,200 64,297 63,399 Non-cash portion of merger expenses -- -- 37,017 Non-cash portion of restructuring charge -- -- 17,219 Accrued interest on convertible subordinated debenture 5,565 -- -- Other 18,051 (3,374) 2,795 (Increase) decrease in assets: Accounts receivable (73,829) (77,575) (27,216) Inventories (8,255) (32,333) (24,178) Prepaid expenses and other current assets 2,497 (2,124) (37,224) Increase (decrease) in liabilities: Accounts payable (6,461) 35,728 7,229 Accrued compensation 12,673 6,623 4,635 Income taxes payable 38,025 28,668 43,362 Other accrued liabilities 34,432 4,425 5,846 Deferred revenue 21,612 10,805 7,061 Deferred revenue and other accrued expenses, long-term (2,550) 2,944 (5,488) Accrued merger expenses (6,412) (40,440) 67,012 --------------------------------------- Total adjustments 119,548 (2,356) 161,469 --------------------------------------- Net cash provided by operating activities 260,222 85,335 83,406
32 CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30 (In thousands) 1994 1993(1) 1992(l) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (89,350) (83,615) (66,972) Increase in other assets (22,308) (20,366) (65,026) Investments in short-term financial instruments (83,795) (109,643) (36,337) Principal proceeds from matured short-term investments 59,703 136,380 126,247 Investments in long-term financial instruments (265,410) (52,869) (12,546) Principal proceeds from redemption of long-term investments 67,331 -- 19,012 Net decrease in cash and cash equivalents of MIPS for the period January 1991 to June 1991. -- -- (10,556) --------------------------------------- Net cash used in investing activities (333,829) (130,113) (46,178) --------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of preferred stock -- -- (150,000) Sale of common stock 48,738 42,223 99,312 Issuance of debt 204,006 1,761 4,856 Payments of debt principal (9,988) (9,973) (8,303) Cash dividends - preferred stock (1,050) (1,050) (5,925) --------------------------------------- Net cash provided by (used in) financing activities 241,706 32,961 (60,060) --------------------------------------- Net increase (decrease) in cash and cash equivalents 168,099 (11,817) (22,832) Cash and cash equivalents at beginning of period 142,668 154,485 177,317 --------------------------------------- Cash and cash equivalents at end of period $ 310,767 $ 142,668 $ 154,485 See accompanying notes. (1) These periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes."
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Silicon Graphics, Inc. ("Silicon Graphics" or the "Company") is a leading manufacturer of high-performance visual computing systems. The company delivers interactive three-dimensional graphics, digital media and multiprocessing supercomputing technologies to technical, scientific and creative professionals. Its subsidiary, wholly-owned MIPS Technologies, Inc., designs and licenses the industry's leading RISC processor technology for the computer systems and consumer electronics markets. The Company distributes its products primarily through a direct sales force, but also works with original equipment manufacturers, value-added resellers and value-added dealers. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of significant intercompany transactions and balances, including transactions between the Company and MIPS Computer Systems, Inc. ("MIPS"), which was merged into the Company effective June 29, 1992, for relevant periods prior to such merger date (See Note 2). These periods have been restated to reflect the merger, which has been accounted for as a pooling of interests. The consolidated financial statements for all periods prior to fiscal 1992 have not been restated for the change in fiscal year. Such periods include Silicon Graphics' results of operations and balance sheet data on a June 30 fiscal year basis and MIPS' on a December 31 calendar year basis. The financial statements of foreign subsidiaries have been converted into U.S. dollars using applicable exchange rates. CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents consist of cash on deposit with banks and high quality money market instruments with original maturities of 90 days or less, and are stated at cost, which approximates fair value. Short-term investments consist of high quality money market instruments with original maturities greater than 90 days, but less than or equal to one year, and are stated at cost, which approximates fair value. Long-term financial instruments consist of high quality financial securities with maturities greater than one year, and are stated at cost, which approximates fair value. The Company's long-term financial investments typically have a maximum maturity of three years. FAS 115 The Company will adopt Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," effective July 1, 1994. Had SFAS 115 been adopted for the June 30, 1994 balance sheet, the impact on the Company's financial position would be immaterial. FAS 109 The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," in the first quarter of fiscal 1994 and has applied its provisions retroactively to fiscal 1989. The impact of adopting SFAS 109 is to increase previously reported net income for years prior to fiscal 1994 by a cumulative $39.7 million. The restatement decreased the net loss for fiscal 1992 by $40.4 million ($0.36 per share) and decreased net income for fiscal 1993 by $7.5 million ($0.05 per share). CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company invests its excess cash in deposits with major banks, in U.S. Treasury and U.S. Agency obligations and in money market securities of companies with strong credit ratings and in a variety of industries. These investments typically bear minimal risk. This diversification of risk is consistent with the Company's policy to maintain high liquidity and ensure safety of principal. 34 The Company sells its products to a large number of customers in diversified industries, primarily in the United States, Europe and the Pacific/Americas. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company invests its excess cash in deposits with major banks, in U.S. Treasury and U.S. Agency obligations and in money market securities of companies with strong credit ratings and from a variety of industries. Those securities classified as cash equivalents and short-term investments typically mature within one year of their purchase date. The Company's long-term financial investments typically have a maximum maturity of three years. INVENTORIES Manufacturing inventories are stated at the lower of cost (first-in, first-out) or market. Service and marketing inventories are stated at cost less depreciation (typically based on a two- to five-year life). The inventory detail at June 30, 1994 and 1993 is as follows (in thousands):
1994 1993 Raw materials $ 9,602 $ 26,016 Work-in-process 48,680 44,958 Finished goods 17,829 16,616 Service and marketing 88,208 68,575 ---------------------------- Total inventories $ 164,319 $ 156,165
PROPERTY AND EQUIPMENT Property and equipment detail at June 30, 1994 and 1993 is as follows (in thousands):
1994 1993 Land and building $ 28,980 $ 26,742 Machinery and equipment 228,129 175,978 Furniture and fixtures 50,806 44,230 Leasehold improvements 58,066 41,573 ---------------------------- 365,981 288,523 Accumulated depreciation and amortization (182,651) (136,783) ---------------------------- Net property and equipment $ 183,330 $ 151,740
Property and equipment are stated at cost and depreciation is computed using the straight-line method. Useful lives of two-to-five years are used for machinery and equipment and furniture and fixtures; leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. Property and equipment includes $7,511,000 and $1,801,000 of equipment under capital leases at June 30, 1994 and 1993. Accumulated depreciation for such equipment was $2,281,000 and $951,000 at June 30, 1994 and 1993. OTHER ASSETS Other assets are primarily composed of prepaid income taxes, purchased technologies, capital investments, refundable deposits related to facilities, purchased software costs, prepaid software license fees, capitalized internally developed software costs and goodwill. Purchased technologies, capitalized software and licenses and goodwill are generally amortized on a straight-line basis, over the course of their respective useful lives. 35 Internally developed software costs and purchased software costs are capitalized at the point of technological feasibility, in accordance with Statement of Financial Accounting Standards No. 86 ("SFAS 86") issued by the Financial Accounting Standards Board ("FASB"). Such costs are amortized, commencing upon first customer shipment of the derivative software products, over the greater of either the straight-line basis with an estimated useful life of three years or the ratio of current revenue to the total of current and anticipated future revenue. Goodwill represents the excess cost over fair value of net assets acquired primarily from Silicon Graphics World Trade Corporation in fiscal 1991, and is amortized on a straight-line basis over a 20-year period. REVENUE RECOGNITION Product and other revenues primarily include revenue from system and software products shipments, revenue from the sale of software distribution rights, revenue from technology licensing agreements and non-recurring engineering ("NRE") contracts. Product revenues are recognized at the time of shipment to the customers and the Company has no additional performance obligations. Initial software fees are recognized when the product has been delivered and provided that the Company has no additional performance obligations. Revenue recognition under technology agreements is dependent on the nature and level of efforts required to deliver and/or support the technology transfer. Generally, technology revenue is recognized upon the completion of contract requirements or milestones. Service revenue results primarily from customer support and maintenance contracts, and is recognized ratably over the related contractual period. Deferred revenue includes prepaid royalty payments which are recognized on a straight-line basis over the useful life of the technology licensed under the agreements and revenue related to future commitments under service contracts. PRODUCT WARRANTY The Company provides at the time of sale for the estimated cost to warrant its products against defects in materials and workmanship. Through fiscal 1994, this was generally for 90 days from the date of shipment with some international sales having warranties of up to one year. At the beginning of fiscal 1994, the Company introduced new low-end products with one year worldwide warranties. FOREIGN CURRENCY TRANSLATION The Company translates the assets and liabilities of its foreign subsidiaries to U.S. dollars at the rates of exchange in effect at the end of the period. Gains and losses from this translation are credited or charged to the "accumulated translation adjustment" account included in stockholders' equity. The effect of fluctuating foreign exchange rates on the value of monetary assets and liabilities that are denominated in currencies other than the relevant entity's functional currency is recognized in current operations and has not been significant to the Company's operating results in any period. Revenues and expenses are translated using rates in effect during the period. FOREIGN EXCHANGE CONTRACTS The Company enters into forward foreign exchange and currency option contracts as a hedge against the effects of fluctuating currency exchange rates on certain monetary assets and liabilities (primarily cash, accounts receivable and payable) denominated in currencies other than the functional currency of the relevant entity. Gains and losses on these contracts, which equal the difference between the foreign exchange contract rate and the prevailing market spot rate at the time of valuation, are recognized in the consolidated statement of operations. At June 30, 1994, the Company had forward contracts open in seventeen currencies with a face and fair market value of $174,700,435 and maturities between July 1, 1994 and October 19, 1994 ($148,997,000 at June 30, 1993 with maturities between July 15, 1993 and August 1, 1993). At June 30, 1994 and 1993, there were no currency option contracts outstanding. 36 STOCK SPLIT On November 11, 1993, the Company announced a two-for-one stock split of its common stock payable in the form of a stock dividend which was distributed on December 15, 1993 to holders of record on November 30, 1993. In connection with the stock split the Company issued 67,549,236 shares of common stock. All shares and per share data have been restated for all periods presented to reflect the stock split. PER SHARE DATA For years in which the Company had net income, primary earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents include stock options and warrants using the treasury stock or modified treasury stock method (whichever applies) and, if dilutive for the relevant periods, convertible securities which are considered common stock equivalents under relevant accounting rules, on an as-if-converted basis. Interest expense related to convertible securities assumed to be converted is added back into net income on a tax adjusted basis for purposes of the calculations. Dividends associated with convertible preferred stock are deducted from net income in calculating earnings per share unless the preferred stock is treated on an as-if-converted basis. For the purpose of calculating earnings per share, the Company's Series A and C convertible preferred stocks are considered to be common stock equivalents. For the year in which the Company's results were in a net loss position, loss per share data was computed using only the weighted average number of common shares outstanding during the period and preferred stock dividends were deducted from the net loss. Fully diluted earnings per share are substantially the same as reported earnings per share. Fully diluted earnings per share are calculated using the same factors as primary earnings per share with the exception that, if dilutive, convertible securities not defined as common stock equivalents are included in the share count on an as-if-converted basis for the period for which they were outstanding. The related interest expense is added to the amount used for the primary calculation if conversion is assumed. Fully diluted earnings per share are substantially the same as reported earnings per share. RELATED PARTY TRANSACTIONS The Company has from time to time engaged in significant transactions with related parties in the ordinary course of business. Significant related parties are: Tandem Computers, Incorporated as a representative of Tandem is a member of the Company's board of directors; Control Data Systems, Inc. ("CDSI") due to the Company's investment in common stock of CDSI; and, NKK Corporation of Japan through its ownership of 100% of Series A Convertible Preferred Stock (See Note 6). Product and other revenues for the years ended June 30, 1994, 1993, and 1992 included, in aggregate, sales to related parties in the amount of $83,094,000; $56,717,000; and $27,240,000, respectively. In addition, purchases from related parties totaled in aggregate $1,880,000; $1,505,000; and $4,918,000 in the years ended June 30, 1994, 1993, and 1992, respectively. Amounts receivable from and payable to such related parties were immaterial at June 30, 1994 and 1993. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. MERGER WITH MIPS COMPUTER SYSTEMS, INC. On June 29, 1992, the Company merged with MIPS Computer Systems, Inc. ("MIPS") and acquired all of the common stock of MIPS for 26,774,580 shares of the Company's common stock. MIPS was a designer, manufacturer and marketer of products based on Reduced Instruction Set Computing technology. The merger was accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements and notes to consolidated financial statements have been restated to include the results of MIPS for all periods presented. Included in total revenue for fiscal 1992 are revenues from MIPS of $128,936,000. Included in net income (loss) for fiscal 1992 is income (loss) from MIPS of $67,579,000. Adjustments to combine both entities, consisting primarily of intercompany transactions, were not significant. The Company incurred substantial costs in connection with the merger and consolidation of operations. Included in the accompanying consolidated statement of operations for the year ended June 30,1992 are merger-related expenses totaling $110,000,000, consisting primarily of charges for elimination of duplicate facilities, discontinuance of duplicate product lines and related supporting assets, professional fees and personnel severance costs. 3. INCOME TAXES As discussed in Note 1, the Company adopted SFAS 109 in the first quarter of 1994 and has applied the provisions of the SFAS retroactively to fiscal 1989. The components of income before income taxes consist of the following (in thousands):
Year Ended June 30, 1994 1993 1992 United States $110,328 $ 65,296 $ (119,189) International 87,350 59,977 16,587 ---------------------------------------- $ 197,678 $ 125,273 $(102,602) The provision for income taxes consists of the following (in thousands): Year Ended June 30, Federal State Foreign Total 1994 Current $ 31,180 $ 8,083 $ 19,518 $ 58,781 Deferred (9,303) 959 6,567 (1,777) ------------------------------------------------------ $ 57,004 1993 Current 16,639 3,372 13,724 33,735 Deferred 2,106 1,826 (85) 3,847 ------------------------------------------------------ $ 37,582 1992 Current 41,291 3,056 12,182 56,529 Deferred (73,051) (5,837) (2,180) (81,068) ------------------------------------------------------ $ (24,539)
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for income taxes reconciles to the amounts computed by applying the statutory federal rate to earnings before taxes as follows (in thousands):
Year Ended June 30, 1994 1993 1992 Tax at U.S. federal statutory rate $ 69,187 $ 42,592 $ (34,885) State taxes, net of federal tax benefit 5,877 3,431 (1,835) Earnings subject to foreign taxes at higher (lower) rates (11,302) (9,040) 7,320 Income of Foreign Sales Corporation not subject to U.S. tax (4,660) (2,310) (2,153) Research and experimentation credits (944) -- -- Nondeductible professional fees -- -- 3,524 Other (1,154) 2,909 3,490 --------------------------------------- Provision for income taxes $ 57,004 $ 37,582 $ (24,539)
No provision for residual federal taxes has been made on approximately $68,668,000 of accumulated undistributed earnings of the Company's foreign subsidiaries since it is the Company's intention to permanently invest such earnings in foreign operations. The Company has been granted an exemption from tax on income from certain manufacturing operations located outside the U.S. for years through 1999. The income tax benefits attributable to the tax status of this subsidiary are estimated to be $24,000,000 at June 30, 1994. The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following (in thousands):
Year Ended June 30, 1994 1993 1992 Deferred tax assets: Net operating loss carryforwards $ 12,972 $ 30,848 $ 29,297 Foreign taxes on unremitted foreign earnings net of related U.S. tax liability 8,158 4,909 5,365 General business credit carryforwards 22,818 14,257 10,005 Foreign tax credit carryforwards 4,434 6,525 1,906 Depreciation 12,626 10,469 5,967 Inventory valuation 13,948 11,140 8,870 Nondeductible vacation pay accrual 8,409 4,807 3,138 Intercompany profit elimination 10,353 6,629 6,957 Merger expenses 6,022 8,310 30,076 Other 1,469 1,538 1,698 ------------------------------------------ Total $ 101,209 $ 99,432 $ 103,279
At June 30, 1994, Silicon Graphics had a federal net operating loss carryforward of approximately $30,000,000 for United States federal tax return purposes which will expire in the year 2006. At June 30, 1994, Silicon Graphics also had general business credit carryovers of approximately $22,000,000 for United States federal tax purposes, expiring in the years 1999 through 2009. In addition, Silicon Graphics had foreign tax credit carryovers of approximately $4,000,000 for United States federal tax purposes, expiring in the years 1995 through 1999. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of the merger of MIPS into Silicon Graphics in fiscal year 1992, MIPS experienced a "change of ownership" as defined under Section 382 of the Internal Revenue Code and is subject to an annual limitation on the utilization of its pre-merger net operating loss and tax credit carryovers. Consequently, a substantial portion of Silicon Graphics' net operating loss, foreign tax credit, and research and experimentation credit carryforwards are subject to this annual limitation. The limitation is expected to defer complete utilization of these net operating losses and credit carryforwards for approximately two years to four years. No valuation ailowance was recorded for the years presented. 4. LONG-TERM DEBT AND LINES OF CREDIT Long-term debt consists of the following (in thousands):
June 30, 1994 1993 Zero coupon convertible subordinated debentures, due 2013 $ 205,660 $ -- Senior Notes 12,500 18,750 Loan on Swiss Manufacturing Facility 14,698 13,267 Other (including local currency loans, capitalized leases and loans secured by equipment payable in monthly installments) 7,542 1,020 ------------------------ 240,400 33,037 Less amounts due within one year 10,450 7,048 ------------------------ Long-term debt due after one year $ 229,950 $ 25,989
In November 1993, the Company completed a private placement of zero coupon convertible subordinated debentures (the "Debentures"). The Debentures, due November 2013, have an original principal amount at maturity Of $455,000,000. The Debentures were issued at a price of $439.77 per $1,000 principal amount at maturity, resulting in gross proceeds of $200,095,000 to the Company. The yield to maturity is 4.15% per annum, compounded on a semi-annual basis, and the Debentures have no periodic interest payments. No sinking fund is provided for the Debentures. Effective November 2, 1998, the Debentures will be redeemable at any time, at the option of the Company, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. At the option of the holder, each Debenture is convertible into 16.269 shares of common stock of the Company at any time. Also at the option of the holder, the Debentures will be purchased by the Company on November 2, 1998, November 2, 2003 or November 2, 2008, at purchase prices equal to the issue price plus accrued original issue discount to such purchase date. The Company, at its option, may elect to pay any such purchase price in cash or shares of common stock, or any combination thereof. At June 30, 1994, the fair value of the outstanding Debentures was $199,063,000, based on current market yields. Related to the Debentures, the Company has entered into an interest rate swap agreement on a notional amount of $200,095,000 resulting in a variable interest rate of LIBOR (the London Interbank Offered Rate) less 47 basis points. Interest related to this swap agreement is recorded as net interest expense. As of June 30, 1994, based upon current interest rates, the Company had an off-balance sheet exposure of $10,025,000 relating to this interest rate swap agreement. In February 1991, the Company issued $25,000,000 of 8.98% Senior Notes due 1996 (the "Senior Notes") to Prudential Insurance Company of America and Prudential Property and Casualty Insurance Company. The Senior Notes are unsecured, pay interest semi-annually and have mandatory annual payments of $6,250,000, which began February 1, 1993. As of June 30, 1994, the fair value of the Senior Notes out- 40 standing was $12,668,000, based on quoted market prices for similar securities. The Senior Notes may be prepaid at the option of the Company for 100% of the principal plus interest accrued thereon and a yield maintenance premium, if applicable. The Company has a Swiss Loan for 19,500,000 Swiss Francs, equivalent to $14,698,000 at June 30, 1994, which funded the construction of a manufacturing facility in Cortaillod, Switzerland. As of June 30, 1994, the fair value approximated cost since the interest rate resets quarterly. The effective interest rate at June 30, 1994 was 3.77%. The Swiss Loan is secured by land and real property. The Company also has an unsecured line of credit totaling $20,000,000. No cash borrowings were made on the line during any of the periods presented. Interest on any borrowings would be based upon either the prime, Eurodollar, or certificate of deposit rate, at the Company's option. As of June 30, 1994, $20,000,000 was available for borrowing. Principal maturities of capital leases and long-term debt, other than the Debentures, at June 30, 1994, are as follows (in thousands): 1995 - $10,450; 1996 - $9,396; 1997 - $2,177; 1998 - $1,826; 1999 - $1,856; and $9,035 thereafter. Covenants governing the Senior Notes and the unsecured line of credit require the maintenance of certain financial ratios and prohibit the payment of dividends except for dividends on currently outstanding preferred stock. At June 30, 1994, the Company was in compliance with these Covenants. The capitalized lease portion of other debt is secured by equipment. The book value of collateralized assets as of June 30, 1994 was $25,287,000. 5. COMMITMENTS The Company leases its facilities and some of its equipment under non-cancelable operating lease arrangements. Future minimum annual lease payments under operating leases, net of subleases and rental income, at June 30, 1994 were as follows (in thousands): 1995 - $40,464; 1996 - $35,184; 1997 - $27,704; 1998 - $19,730; 1999 - $16,566; and $19,423, thereafter. Aggregate operating lease rent expense was (in thousands) $42,997, $35,594, and $35,929, in 1994, 1993, and 1992, respectively. 6. STOCKHOLDERS' EQUITY COMMON STOCK TRANSACTIONS On June 29, 1992,the Company sold a total of 4,300,000 shares of common stock in a public offering and 2,906,200 shares in a private placement at a price of $8.56. Net proceeds to the Company for both offerings were $59,627,000. PREFERRED STOCK TRANSACTIONS In May 1991, the Company sold 135,000 shares of Series C Convertible Preferred Stock to Compaq Computer Corporation for $135,000,000. The Series C preferred stockholders received a 5% cumulative annual dividend and had preference upon liquidation in the amount of the purchase price. In February 1992, the Company repurchased all 135,000 outstanding shares of the Company's Series C Convertible Preferred Stock at an aggregate repurchase price of $150,000,000 plus accrued dividends. In addition, the Company and Compaq terminated a joint development and cross license agreement, but have agreed to grant each other licenses to continue to use technology exchanged under the original agreement. 41 In April 1990, the Company sold 35,000 shares of Series A Convertible Preferred Stock to a wholly-owned U.S. subsidiary of NKK Corporation of Japan for $35,000,000. The Series A Preferred stockholders receive a 3% cumulative annual dividend, have preference upon liquidation in the amount of the purchase price and have aggregate voting rights equivalent to 2,800,000 shares of common stock. The preferred stock will be convertible into the common stock of the Company at certain times after November 30, 1994 at a conversion price based on the then-current price of the common stock. The preferred is perpetual, but is subject to redemption at the option of the Company at certain times after the initial conversion date if the market price of the common stock is below $8.75 per share. In addition, NKK entered into a distribution agreement with the Company's Japanese subsidiary under which NKK became a distributor and value-added reseller of the Company's products in Japan. The total amount of dividends accrued and paid on the Series A Preferred Stock during fiscal 1994 was $1,050,000. STOCK OPTION PLANS At June 30, 1994 the Company had two stock option plans under which options to purchase shares of common stock may be granted to employees. Under these plans, the Company may grant either nonstatutory or incentive stock options. Under the 1993 plan, all stock options are granted at not less than fair market value. Under the 1985 plan, nonstatutory stock options can be granted at less than, equal to or greater than fair market value as determined by the Board of Directors. At June 30, 1994, an aggregate of 2,661,508 shares were reserved for future option grants under the 1993 and 1985 plans. Under the 1993 plan, options generally become exercisable at the rate of 2% per month, although grants to new employees become exercisable 20% after ten months with 2% per month vesting thereafter. Under the 1985 plan, options granted generally become exercisable over a four year period, commencing one year from the date of grant. In the event the employee is no longer employed by the Company, the Company has the right to cancel any unexercised options. Canceled options are returned to the option plans and are available for future grants. At June 30, 1994, the Company had outstanding options to purchase 23,133,788 shares under three stock option plans that were terminated effective October 21, 1993 with respect to future grants. Under these plans, incentive stock options were granted at not less than fair market value, and nonstatutory stock options were granted at fair market value or no less than 85% of fair market value. Shares forfeited under these three terminated plans become available for future issuance under the 1993 Plan. In addition, the Company has a Directors' Stock Option Plan which allows for nonstatutory stock options to be issued to nonemployee directors at not less than the fair market value at the date of grant. Each such director is granted an option to purchase 30,000 shares of Common Stock upon the date on which each person first becomes a director (on or after the effective date of this plan, July 24, 1990). On November 1 of each year, starting November 1, 1991, each eligible nonemployee director is granted an option to purchase an additional 10,000 shares of common stock. The directors' options generally vest in installments cumulatively as to 34% of the shares on the first anniversary of the date of grant and as to 33% of the remaining shares subject to the option for each year thereafter that the optionee remains a director. At June 30, 1994, 283,200 shares were reserved for future option grants under the Directors' Stock Option Plan. 42 As of June 30, 1994, outstanding options to purchase 18,053,238 shares were exercisable, at an average exercise price of $7.15 per share. Activity under all of the plans was as follows:
Shares Shares Under Outstanding Options Available For Grant Shares Price Balance at June 30, 1991 3,191,992 33,374,950 $ 0.18 - $ 23.68 Additional shares authorized for issuance 5,000,000 -- -- Options granted (9,672,204) 9,672,204 $ 0.96 - $ 14.79 Options exercised -- (6,252,422) $ 0.25 - $ 12.02 Options repurchased 4,478 -- -- Options cancelled 4,515,406 (4,515,406) $ 0.72 - $ 23.68 Net transactions of MIPS during the period from January 1, 1991 to June 30, 1991 (see Note 2) (1,159,828) 170,088 $ 0.36 - $ 16.30 -------------------------------------------------- Balance at June 30, 1992 1,879,844 32,449,414 $ 0.18 - $ 19.47 Additional shares authorized for issuance 5,000,000 -- -- Options granted (5,340,578) 5,340,578 $ 9.07 - $ 17.25 Options exercised -- (6,080,084) $ 0.18 - $ 14.32 Options cancelled 1,785,194 (1,785,194) $ 0.84 - $ 19.47 Plan Shares Expired (11,908) -- -- -------------------------------------------------- Balance at June 30, 1993 3,312,552 29,924,714 $ 0.18 - $ 19.47 Additional shares authorized for issuance 4,605,110 -- -- Option granted (5,847,300) 5,847,300 $ 13.92 - $ 25.63 Options exercised -- (5,135,538) $ 0.25 - $ 22.88 Options cancelled 874,346 (874,346) $ 0.96 - $ 25.63 -------------------------------------------------- Balance at June 30, 1994 2,944,708 29,762,130 $ 0.18 - $ 25.63
During fiscal year 1992, options to purchase 1,157,824 shares were reissued at lower per-share prices under an option exchange program. This option reissuance was done by MIPS prior to the merger and the Company's assumption of the option plan. These reissuances are included above as cancellations (at the original price) and grants (at the new price). STOCK PURCHASE PLAN The Company has an employee stock purchase plan under which eligible employees may purchase stock at 85% of the lower of the closing prices for the stock at the beginning of a 24-month offering period or the end of each six month purchase period. (Six month periods begin in May and November). Purchases are limited to 10% of each employee's compensation. As of June 30, 1994, 9,131,805 shares had been issued under the plan and 3,828,195 shares were reserved for future issuance. STOCKHOLDER RIGHTS PLAN The Company has a stockholder rights plan (the "Rights Plan") which provides existing stockholders with the right to purchase one one-thousandth (0.001) preferred share for each share of common stock held in the event of certain changes in the Company's ownership. The Rights Plan may serve as a deterrent to certain abusive takeover tactics which are not in the best interests of stockholders. 43 7. EXPORT SALES AND DOMESTIC AND FOREIGN OPERATIONS The Company's export sales (i.e., sales to unaffiliated customers outside of the U.S. by the U.S. operation) were approximately $114,738,000, $77,383,000, and $69,414,000 in 1994, 1993, and 1992, respectively. Transfers between geographic areas are accounted for by using the transfer prices in effect for the respective subsidiaries. Pacific/Americas is defined as: North and South Pacific, Latin America, South America and Canada. Information regarding operations in different geographic areas for the year ended June 30, 1994 is as follows (in thousands):
Geographic Area United Pacific/ States Europe Americas Eliminations Total Sales to unaffiliated customers $ 871,631 $ 369,199 $ 240,772 $ -- $ 1,481,602 Intercompany transfers 289,776 -- -- (289,776) -- -------------------------------------------------------------------------- Net sales 1,161,407 369,199 240,772 (289,776) 1,481,602 -------------------------------------------------------------------------- Operating income 91,794 69,616 35,526 (3,794) 193,142 -------------------------------------------------------------------------- Income before income taxes 115,633 51,299 34,540 (3,794) 197,678 -------------------------------------------------------------------------- Identifiable assets 1,162,554 399,776 136,560 (180,107) 1,518,783
Information regarding operations in different geographic areas for the year ended June 30, 1993 is as follows (in thousands):
Geographic Area United Pacific/ States Europe Americas Eliminations Total Sales to unaffiliated customers $ 606,320 $ 292,878 $ 192,002 $ -- $ 1,091,200 Intercompany transfers 202,294 -- -- (202,294) -- -------------------------------------------------------------------------- Net sales 808,614 292,878 192,002 (202,294) 1,091,200 -------------------------------------------------------------------------- Operating income 40,763 62,516 18,721 3,086 125,086 -------------------------------------------------------------------------- Income before income taxes 62,694 41,579 17,914 3,086 125,273 -------------------------------------------------------------------------- Identifiable assets 834,286 261,409 98,327 (180,995) 1,013,027
Information regarding operations in different geographic areas for the year ended June 30, 1992 is as follows (in thousands):
Geographic Area United Pacific/ States Europe Americas Eliminations Total Sales to unaffiliated customers $ 494,587 $ 226,492 $ 145,514 $ -- $ 866,593 Intercompany transfers 195,277 -- -- (195,277) -- -------------------------------------------------------------------------- Net sales 689,864 226,492 145,514 (195,277) 866,593 -------------------------------------------------------------------------- Operating income (loss) (136,972) 23,676 14,611 (9,885) (108,570) -------------------------------------------------------------------------- Income (loss) before income taxes (109,386) 3,683 12,904 (9,803) (102,602) -------------------------------------------------------------------------- Identifiable assets 722,969 196,488 82,849 (156,986) 845,320
44 8. STATEMENT OF CASH FLOWS Supplemental disclosures of cash flow information (in thousands):
1994 1993 1992 Cash paid during the year for: Interest $ 3,194 $ 2,954 $ 2,677 Income taxes, net of refunds 21,972 4,299 13,526
Supplemental schedule of noncash investing and financing activities (in thousands):
1994 1993 1992 Acquisition of minority interest in subsidiary $ - $ - $ 2,459 Tax benefit from stock options 26,850 12,080 19,375 Property and equipment purchased under construction financing - 4,736 6,039 Equipment purchased under capital leases 6,008 866 - Recognition of compensation expense in connection with voluntary separation incentive program - - 1,018
9. CONTINGENCIES On March 11, 1992, the Company entered into an agreement with MIPS, pursuant to which the Company acquired MIPS through the merger of a subsidiary of the Company into MIPS. On March 17, 1992, a putative class action lawsuit entitled DIANE PROVENZ AND AHIKIM EIZENBERG v. ROBERT C. MILLER, ET AL. was filed in the United States District Court for the Northern District of California. The plaintiffs purport to represent a class of all persons who purchased MIPS' common stock between January 31, 1991 and October 9, 1991 (the "Class Period"). Named as defendants are MIPS and certain executive officers of MIPS. The Company is not a defendant, but is defending the case as a successor in interest to MIPS. The complaint alleges that the defendants violated various federal securities laws and California statutes through material misrepresentations and omissions during the Class Period. On June 27, 1994, the Court granted the defendants' motion for summary judgment as to all counts. The plaintiffs' motion for reconsideration of the order granting summary judgment is pending. The Company believes that it has meritorious defenses to the claims alleged in this lawsuit and intends to continue its defense of the action vigorously. As is typical in the computer industry, the Company from time to time receives communications from third parties asserting patent rights, trademarks, copyrights or other rights covering the Company's products, designs or processes. In some cases, the Company seeks to obtain licenses from such third parties. Although there can be no assurance that the Company will be able to obtain these licenses or rights on commercially reasonable terms, management believes that payment of royalties under any such license arrangements currently under consideration would not have a material adverse effect on the Company's financial condition. 10. CORPORATE RESTRUCTURING In fiscal 1992 prior to its merger with Silicon Graphics, MIPS recorded a $23,416,000 restructuring charge, included in operating expenses, as a result of aligning programs and projects to focus on the Advanced Computing Environment (ACE) initiative and as a result of lowering its cost structure. The restructuring costs included severance costs for an approximate 10% reduction in the employment levels, write-downs of capitalized software, inventory and equipment, and a provision for idle facility costs. 45 PRICE RANGE OF COMMON STOCK The Company's Common Stock was traded in the over-the-counter market under the NASDAQ symbol SGIC from the Company's initial public offering in 1986 until February 6, 1990, when the Company's Common Stock began trading on the New York Stock Exchange under the NYSE symbol of SGI. The following table sets forth, for the periods indicated, the high, low, and close prices for the Common Stock as reported on the NYSE, giving effect to a two-for-one stock split effective December 15, 1993.
Fiscal 1994 Fiscal 1993 Low High Close Low High Close First Quarter $16.06 $22.50 $21.50 $ 8.19 $12.00 $ 9.38 Second Quarter 19.81 24.75 24.75 8.81 14.63 14.31 Third Quarter 21.50 26.88 23.88 13.56 16.50 14.25 Fourth Quarter 18.75 25.88 22.13 11.75 19.25 18.69
The Company had approximately 4,747 stockholders of record as of June 30, 1994. The Company has not paid any dividends on its common stock. Covenants governing the Senior Notes and lines of credit restrict the payment of dividends, except for dividends on currently outstanding preferred stock. The Company currently intends to retain earnings for use in its business; therefore it does not anticipate paying cash dividends in the foreseeable future to common stockholders. 46 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Silicon Graphics, Inc. We have audited the accompanying consolidated balance sheets of Silicon Graphics, Inc. as of June 30, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silicon Graphics, Inc. at June 30, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1994 the Company changed its method of accounting for income taxes. /s/ ERNST & YOUNG LLP Palo Alto, California July 18, 1994 48 EX-21.1 6 EXHIBIT 21.1 SUBSIDIARIES Exhibit 21.1 SILICON GRAPHICS, INC. SUBSIDIARIES Jurisdiction of Name Incorporation ---- ------------- MIPS Technologies, Inc. Delaware Silicon Graphics Real Estate, Inc. Delaware Silicon Graphics World Trade Corporation Delaware Silicon Studio, Inc. Delaware Silicon Graphics Pty Limited Australia Silicon Graphics Computer Systems Ges.m.b.H. Austria Silicon Graphics International Inc. Barbados Silicon Graphics S.A./N.V. Belgium Silicon Graphics Comercio e Servicos Limitada Brazil Silicon Graphics Canada, Inc. Canada Silicon Graphics A/S Denmark Silicon Graphics OY Finland Silicon Graphics France Silicon Graphics GmbH Germany Silicon Graphics Limited Hong Kong Silicon Graphics Kft. Hungary Silicon Graphics Systems (India) Private Ltd India Silicon Graphics Computer Systems Limited Israel Silicon Graphics S.p.A. Italy Nihon Silicon Graphics K.K. Japan Korea Silicon Graphics Ltd. South Korea Silicon Graphics S.A. de C.V. Mexico Silicon Graphics B.V. Netherlands Silicon Graphics Manufacturing European Finance B.V. Netherlands Silicon Graphics A/S Norway Silicon Graphics Pte. Limited Singapore Silicon Graphics (Pty) Limited South Africa Silicon Graphics, S.A. Spain Silicon Graphics AB Sweden Silicon Graphics S.A. Switzerland Silicon Graphics Manufacturing S.A. Switzerland Silicon Graphics Limited Taiwan MIPS Computer Systems Limited United Kingdom Silicon Graphics Application Systems Limited United Kingdom Silicon Graphics Limited United Kingdom Silicon Graphics Manufacturing Finance Limited Jersey Channel Islands EX-27 7 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements incorporated in the Company's 1994 Annual Report to Stockholders filed as Exhibit 13.1 to this Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JUN-30-1994 JUL-01-1993 JUN-30-1994 310,767 90,147 399,569 8,298 164,319 1,024,366 365,981 182,651 1,518,783 356,279 229,950 139 0 33,996 877,126 1,518,783 1,318,693 1,481,602 632,440 719,660 568,800 0 8,302 197,678 57,004 140,674 0 0 0 140,674 0.91 0.91
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