-----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, a02ujCellgzk1h+AjjPCfnyuzVivFO/Hr17HGwg3QOF2mE+8ATwKzNmJrj1QAy2P 8x2QiewCmARvncUs2N8CJQ== 0000912057-94-001769.txt : 19940602 0000912057-94-001769.hdr.sgml : 19940602 ACCESSION NUMBER: 0000912057-94-001769 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10441 FILM NUMBER: 94528907 BUSINESS ADDRESS: STREET 1: 2011 N SHORELINE BLVD P O BOX 7311 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 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039-7311 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1994 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 No.) 2011 N. SHORELINE BOULEVARD, MOUNTAIN VIEW, CALIFORNIA 94043-1389 (Address of principal executive offices) (Zip Code) (415) 960-1980 (Registrant's telephone number, including area code) __________________ 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 ___ --- As of April 30, 1994 there were 138,839,823 shares of Common Stock outstanding. SILICON GRAPHICS, INC. INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1: Financial Statements: Consolidated Balance Sheet at March 31, 1994 and June 30, 1993 . . . . . . . . . . . . 3 Consolidated Statement of Income for the Three Months Ended and Nine Months Ended March 31, 1994 and 1993. . . . . . . . . . . . . . . . . 4 Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 1994 and 1993. . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . 6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . 7-10 PART II - OTHER INFORMATION Items 1 and 6: . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Index of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 13 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SILICON GRAPHICS, INC. CONSOLIDATED BALANCE SHEET (In thousands)
March 31, June 30, 1994 1993 ---- ---- (Unaudited) ASSETS - - ------ Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 201,622 $ 142,668 Short-term investments . . . . . . . . . . . . . . . . . . . . 38,224 12,142 Accounts receivable, net . . . . . . . . . . . . . . . . . . . 363,542 317,470 Inventories, net . . . . . . . . . . . . . . . . . . . . . . . 186,368 156,165 Prepaid expenses and other current assets. . . . . . . . . . . 73,476 70,359 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . 863,232 698,804 Long-term financial instruments. . . . . . . . . . . . . . . . . 218,988 42,670 Property and equipment: Land and building. . . . . . . . . . . . . . . . . . . . . . . 27,710 26,742 Machinery and equipment. . . . . . . . . . . . . . . . . . . . 213,651 175,978 Furniture and fixtures . . . . . . . . . . . . . . . . . . . . 49,343 44,230 Leasehold improvements . . . . . . . . . . . . . . . . . . . . 50,628 41,573 --------- --------- 341,332 288,523 Accumulated depreciation and amortization. . . . . . . . . . (168,953) (136,783) --------- --------- Net property and equipment . . . . . . . . . . . . . . . . . 172,379 151,740 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 121,824 119,813 --------- --------- $1,376,423 $1,013,027 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY - - ------------------------------------ Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 64,517 $ 92,020 Accrued compensation . . . . . . . . . . . . . . . . . . . . . 41,859 33,543 Income taxes payable . . . . . . . . . . . . . . . . . . . . . 61,385 39,215 Other accrued liabilities. . . . . . . . . . . . . . . . . . . 63,843 46,026 Long-term debt due within one year . . . . . . . . . . . . . . 9,853 7,048 Accrued merger expenses. . . . . . . . . . . . . . . . . . . . 10,449 12,140 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 61,227 50,446 --------- --------- Total current liabilities. . . . . . . . . . . . . . . . . . 313,133 280,438 Deferred revenue and other accrued expenses, long-term . . . . . 2,578 5,102 Long-term debt due after one year. . . . . . . . . . . . . . . . 226,787 25,989 Accrued merger expenses, long-term . . . . . . . . . . . . . . . 9,891 13,802 Stockholders' equity: Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . 33,996 33,996 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 137 132 Additional paid-in capital.. . . . . . . . . . . . . . . . . . 635,882 601,994 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 152,736 56,348 Accumulated translation adjustment . . . . . . . . . . . . . . 1,283 (4,774) --------- --------- Total stockholders' equity . . . . . . . . . . . . . . . . . 824,034 687,696 --------- --------- $1,376,423 $1,013,027 --------- --------- --------- ---------
Prior periods have been restated to reflect the adoption of FASB Statement No. 109, "Accounting for Income Taxes". The effect at March 31, 1993 is to increase current assets by $36.9 million, increase other assets by $50.3 million, increase current liabilities by $26.5 million and increase stockholders' equity by $60.7 million. The effect at June 30, 1993 is to increase current assets by $22.5 million, increase other assets by $44.4 million, increase current liabilities by $12.9 million and increase stockholders' equity by $54.0 million. SEE ACCOMPANYING NOTES 3 SILICON GRAPHICS, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited; in thousands except per share amounts)
Three Months Ended Nine Months Ended March 31, March 31, -------- -------- 1994 1993 1994 1993 ---- ---- ---- ---- Product and other revenues . . . . . . . . . . . . . . $334,898 $239,429 $930,821 $682,773 Service revenues . . . . . . . . . . . . . . . . . . . 41,395 31,237 117,504 89,158 ------- ------- --------- ------- Total revenues . . . . . . . . . . . . . . . . . . . 376,293 270,666 1,048,325 771,931 Costs and expenses: Cost of product and other revenues.. . . . . . . . . 160,775 111,082 447,464 310,652 Cost of service revenues . . . . . . . . . . . . . . 22,615 18,794 63,471 56,503 Research and development . . . . . . . . . . . . . . 44,568 34,931 126,153 98,353 Selling, general and administrative. . . . . . . . . 99,394 76,456 279,024 226,496 ------- ------- ------- ------- Total costs and expenses . . . . . . . . . . . . . 327,352 241,263 916,112 692,004 ------- ------- ------- ------- Operating income . . . . . . . . . . . . . . . . . . . 48,941 29,403 132,213 79,927 Interest income (expense) and other, net . . . . . . . 1,197 (484) 3,325 (929) ------- ------- ------- ------- Income before taxes . . . . . . . . . . . . . . . . . 50,138 28,919 135,538 78,998 Provision for income taxes . . . . . . . . . . . . . . 15,041 8,676 38,361 23,700 ------- ------- ------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . $ 35,097 $ 20,243 $ 97,177 $ 55,298 ------- ------- ------- ------- ------- ------- ------- ------- Net income per common share. . . . . . . . . . . . . . $ 0.23 $ 0.14 $ 0.63 $ 0.38 ---- ---- ---- ---- ---- ---- ---- ---- Common shares and common share equivalents used in the calculation of net income per common share . . . . . . . . . . . . . . . . . . . . . 155,523 146,714 153,782 144,432 ------- ------- ------- ------- ------- ------- ------- -------
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 $1.7 million and $0.01 for the three months ended March 31, 1993 and $4.7 million and $0.03 for the nine months ended March 31, 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. SEE ACCOMPANYING NOTES 4 SILICON GRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; in thousands)
Nine Months Ended March 31, -------- 1994 1993 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,177 $ 55,298 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . 60,319 47,688 Accrued interest on convertible subordinated debenture . . . . 3,460 -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,242 (3,601) (Increase) decrease in assets: Accounts receivable. . . . . . . . . . . . . . . . . . . . . (46,072) (24,246) Inventories. . . . . . . . . . . . . . . . . . . . . . . . . (30,203) (15,679) Prepaid expenses and other current assets. . . . . . . . . . (3,117) 139 Increase (decrease) in liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . (27,725) 5,835 Accrued compensation . . . . . . . . . . . . . . . . . . . . 8,316 5,291 Income taxes payable . . . . . . . . . . . . . . . . . . . . 22,170 15,085 Other accrued liabilities. . . . . . . . . . . . . . . . . . 17,555 5,018 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 10,157 5,618 Deferred revenue and other accrued expenses, long-term . . . (1,900) (168) Accrued merger expenses. . . . . . . . . . . . . . . . . . . (5,409) (33,357) ------- ------- Total adjustments. . . . . . . . . . . . . . . . . . . . . 13,793 7,623 ------- ------- Net cash provided by operating activities. . . . . . . . . . 110,970 62,921 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (62,573) (53,524) Increase in other assets . . . . . . . . . . . . . . . . . . . . (13,908) (21,243) Investments in short-term financial instruments. . . . . . . . . (73,696) (109,643) Principal proceeds from matured short-term investments . . . . . 56,326 64,022 Investments in long-term financial instruments . . . . . . . . (252,361) (10,199) Principal proceeds from redemption of long-term investments. . . 67,331 -- ------- ------- Net cash used in investing activities. . . . . . . . . . . . (278,881) (130,587) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock . . . . . . . . . . . . . . . . . . . . . . 33,405 27,151 Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . 203,345 931 Payments of debt principal . . . . . . . . . . . . . . . . . . (9,360) (9,012) Cash dividends - preferred stock . . . . . . . . . . . . . . . . (525) (525) ------- ------- Net cash provided by financing activities. . . . . . . . . . 226,865 18,545 ------- ------- Net increase (decrease) in cash and cash equivalents . . . . . . 58,954 (49,121) Cash and cash equivalents at beginning of period . . . . . . . . 142,668 154,485 ------- ------- Cash and cash equivalents at end of period . . . . . . . . . . . $201,622 $105,364 ------- ------- ------- -------
SEE ACCOMPANYING NOTES 5 SILICON GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The results of operations for the interim periods shown herein are not necessarily indicative of operating results for the entire fiscal year. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The unaudited Consolidated Financial Statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements for the fiscal year ended June 30, 1993. 2. CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM FINANCIAL INSTRUMENTS 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. 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. Long-term financial instruments consist of high quality financial securities with maturities greater than one year. 3. INVENTORIES Inventories stated at the lower of cost (first-in, first-out) or market consist of (in thousands):
March 31, June 30, 1994 1993 ---- ---- (Unaudited) Raw material $ 29,682 $ 26,016 Work in process 45,804 44,958 Finished goods 14,562 16,616 Service & marketing 96,320 68,575 ------- ------- Total inventories, net $186,368 $156,165 ------- ------- ------- -------
4. CONVERTIBLE DEBT During the second quarter of fiscal 1994, the Company completed a private placement of zero coupon convertible subordinated debentures due in 2013, which generated proceeds to the Company of approximately $200 million in additional cash. The face amount of the debentures at maturity is $455 million. The initial price to the public for the debentures was $439.77 per $1,000 of face amount at maturity, which equates to a yield to maturity over the term of the bonds of 4.15% (on a semi-annual bond equivalent basis). The bonds are convertible into common stock at the rate of 16.269 shares per $1,000 of face amount at maturity, which equates to an initial conversion price of $27.03 per share. 5. INCOME TAXES In February 1992, the FASB issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which supercedes SFAS 96 and APB 11 and establishes a new method of accounting for income taxes. The Company adopted SFAS 109 in its first quarter of fiscal 1994 and applied its provisions retroactively to fiscal 1989. The effect of adopting SFAS 109 was 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 ($0.71 per share) and decreased net income for fiscal 1993 by $7.5 million ($0.10 per share). 6. PER SHARE DATA Net income per share is computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents for the three month and nine month periods ended March 31, 1994 consist of stock options (using the modified treasury stock method) and convertible preferred stock. The Company's Series A convertible preferred stock is included on an as-if-converted basis. The Company's twenty year zero-coupon convertible subordinated debenture issued in November 1993 is not a common stock equivalent and therefore not included in the equivalent shares. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth, for the periods indicated, certain income and expense items as a percentage of net revenues:
Three Months Ended Nine Months Ended March 31, March 31, March 31, March 31, 1994 1993 1994 1993 ---- ---- ---- ---- Product and other revenues . . . . . . . . . . . . . 89.0% 88.5% 88.8% 88.5% Service revenues . . . . . . . . . . . . . . . . . . 11.0 11.5 11.2 11.5 ----- ----- ----- ----- Total revenues . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 Cost of product and other revenues . . . . . . . . . 42.7 41.1 42.7 40.2 Cost of service revenues . . . . . . . . . . . . . . 6.0 6.9 6.0 7.3 ----- ----- ----- ----- Gross margin . . . . . . . . . . . . . . . . . . . . 51.3 52.0 51.3 52.4 Research and development expenses. . . . . . . . . . 11.8 12.9 12.0 12.7 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . 26.4 28.3 26.6 29.3 ----- ----- ----- ----- Operating income . . . . . . . . . . . . . . . . . . 13.0 10.9 12.6 10.4 Interest income (expense) and other, net . . . . . . 0.3 (0.2) 0.3 (0.1) ----- ----- ----- ----- Income before taxes . . . . . . . . . . . . . . . . 13.3 10.7 12.9 10.2 Provision for income taxes . . . . . . . . . . . . . 4.0 3.2 3.7 3.1 ----- ----- ----- ----- Net Income . . . . . . . . . . . . . . . . . . . . . 9.3% 7.5% 9.3% 7.2% ----- ----- ----- ----- ----- ----- ----- -----
Percentages may not add due to rounding. The following table sets forth, for the periods indicated, growth rates for certain income and expense items:
Increase/(Decrease) for the ------------------------------------------------------------------------ Three Months Ended March 31, 1994 Nine Months Ended March 31, 1994 ------------------ --------------- -------------------------------- vs Prior Qtr vs Year Ago Qtr vs Year Ago Period ------------ --------------- ------------------ Product and other revenues . . . . . . . . . . . . . 1% 40% 36% Service revenues . . . . . . . . . . . . . . . . . . 5% 33% 32% Total revenues . . . . . . . . . . . . . . . . . . . 2% 39% 36% Gross Profit . . . . . . . . . . . . . . . . . . . . 2% 37% 33% Research and development. . . . . . . . . . . . . . 5% 28% 28% Selling, general and administrative. . . . . . . . . 3% 30% 23% Net Income . . . . . . . . . . . . . . . . . . . . . (3)% 73% 76%
7 RESULTS OF OPERATIONS - - ---------------------- TOTAL REVENUES: Revenue growth over the prior year for both the three and nine month periods resulted principally from increased unit shipments of the Company's products as the Company introduced new, higher performance models which provided graphics or computing performance enhancements, or both. Total revenues for the third quarter of fiscal 1994 were essentially flat over the second quarter of fiscal 1994, consistent with third quarter revenue patterns over the last few years. REVENUE BY GEOGRAPHY (as a percentage of total revenue)
Three Months Ended Nine Months Ended ------------------ ----------------- March 31, March 31, March 31, March 31, 1994 1993 1994 1993 ---- ---- ---- ---- North America 49% 48% 53% 49% Europe/Pacific 51% 52% 47% 51%
The nine month change in geographical mix is largely due to the relative strength of the U.S. economy versus those of Europe and Japan. The change in geographical mix is believed to be contrary to the long-term trend in mix. Revenue from Japan represented approximately 16% of total revenues for the quarter and approximately 13% for the nine months ended March 31, 1994, compared to approximately 16% and approximately 14%, respectively, in the prior year's comparable periods. The increase reflects higher spending by the Japanese Government. PRODUCT AND OTHER REVENUES: The Company's product and other revenues result primarily from shipment of workstation and server products, with subsystem and software revenues, license fees, and non-recurring engineering (NRE) contract payments comprising the remainder. NRE contract payments are generally recognized upon the completion of contract requirements or milestones, and the expenses related to these efforts are included in research and development expense. SHIPMENT REVENUES BY PRODUCT LINE (as a percent of shipment revenue, excluding service and other revenue)
Three Months Ended Nine Months Ended ------------------ ----------------- March 31, March 31, March 31, March 31, 1994 1993 1994 1993 ---- ---- ---- ---- High-end 37% 37% 39% 38% Low-end 63% 63% 61% 62%
High-end and low-end mix has remained relatively constant as the Company continues to develop and deliver a wide range of products to a broadening marketplace. To date, the Company has derived a substantial portion of its revenues in any fiscal period from its most recently introduced product series. Over the last twelve months the Company has introduced new products at both the low-end and high-end of its product line, most of which have shipped in volume. In order for the Company to increase its total revenues it must continue to develop and introduce new products. As the technology for computer systems, including microprocessors, hardware, software and networking, included in the Company's products becomes more complex, the potential for delay or difficulty in new product introduction increases. In addition, as the Company's product lines become increasingly varied and complex, the process of planning production and inventory levels also becomes more complex. Any delay in the process of new product development and introduction, deferral of purchases by customers in anticipation of such new products, difficulties encountered by the Company in introducing new products or failure of these products to compete successfully with alternatives offered by other vendors could adversely affect the Company's revenues 8 and profitability. The Company experienced some strength in certain countries during the quarter; however, periods of general economic weakness have had direct and indirect negative effects on revenues and income in the past and could continue to do so in the future. SERVICE REVENUES: Service revenues, which are comprised of hardware and software support and maintenance, grew as a result of the continuing increase in the installed base of the Company's products. The Company expects service revenues to increase at about the same rate of growth as fiscal year 1994 to date. COST OF GOODS SOLD/GROSS MARGIN: The decrease in gross margin for the three month period compared to the prior year was the result of several factors including lower pricing on desktop products, which was partially offset by an increase in service margins. The decrease in gross margin for the nine month period was primarily the result of lower pricing on desktop products and a change in the geographical mix, partially offset by increased service margins. The overall gross margin achieved during the third quarter of fiscal 1994 and the nine month period of fiscal 1994 are in the range that management believes to be normal. The level of gross margin for the Company may be affected from period to period by fluctuations in the proportion of other revenues, such as license and NRE fees, which generally have higher margins than product revenues, and by changes in the Company's mix of products and channels of distribution. The increase in gross margin on service revenue was primarily a result of efficiencies from in the continuing increase in the installed base of the Company's products. RESEARCH AND DEVELOPMENT EXPENSE: Research and development expense as a percentage of total revenues declined slightly due to the large increase in total revenue. As a percentage of revenue, research and development expense is currently in the Company's normal range. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: The year-over-year decrease in selling, general and administrative expense as a percent of revenue is a result of managing expense growth relative to revenue growth. Selling, general, and administrative expense as a percentage of revenue is currently at the low-end of the Company's normal range. INTEREST INCOME (EXPENSE) AND OTHER, NET: Interest and other, net for the quarter and nine month period ended March 31, 1994 improved compared to the prior year due to decreased cost of hedging foreign currencies, and increased interest income as a result of higher invested cash balances and higher interest earned on investments. PROVISION FOR INCOME TAXES: The Company's combined federal, state and foreign effective income tax rate for the three and nine month periods ended March 31, 1994 was 30% and 28% respectively, compared to 30% for the same periods of the prior fiscal year. The combined effective income tax rate for the nine month period was comprised of an estimated annual 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 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," which supercedes SFAS 96 and APB 11 and establishes a new method of 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 9 million. The restatement decreased the net loss for fiscal 1992 by $40.4 million ($0.71 per share) and decreased net income for fiscal 1993 by $7.5 million ($0.10 per share). Net income for the three and nine months ended March 31, 1993 decreased by $1.7 and $4.7 million respectively ($0.01 and $0.03 per share). The Company believes that current levels of taxable income, adjusted for non-recurring items, will be sufficient to realize the deferred tax assets. Accordingly, the Company has determined that no valuation allowance for deferred tax assets is required to reduce such assets to an amount which is more likely than not to be realized either through carrybacks, or by offsetting deferred tax liabilities or future taxable income. NET INCOME: As a result of the above factors, net income increased 73% and 76%, respectively, for the three and the nine month periods. It is important to recognize the ongoing risks related to the Company's business. In any given period net income could be negatively affected by such factors as increased competition, reductions in average selling prices, changes in product and geographical mix, the effect of changes in currency exchange rates, the costs of introducing new products or difficulties in developing, introducing and manufacturing these products, increased product costs (including the availability and cost of components and trade protection measures) and adverse changes in general domestic and international economic conditions and in U.S. Government spending. Revenues and net income could also be adversely affected by reduced demand for software and subsystem products, for product support and maintenance and by fluctuations in licensing and NRE contract fees. The Company does not typically have a significant backlog of orders at the beginning of each period. The Company generally books and ships a majority of its business within the same quarter, with a substantial portion being shipped in the third month of the quarter. Additionally, the timing of expenditures for research and development and sales and marketing programs and the timing of orders by major customers may cause operating income to fluctuate between periods. The Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of such shortfalls until late in or shortly after the end of the fiscal period, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which in and of itself often results in significant volatility of the Company's common stock price. FINANCIAL CONDITION - - ------------------- For the three months ended March 31, 1994, the Company's cash and cash equivalents, short term investments and long-term financial instruments increased by $58 million. This increase was primarily due to positive cash flow from operating activities of $81 million, as well as $11 million generated from sales of stock through employee benefit programs, which was partially offset by $24 million of capital expenditures and $8 million of debt payment. For the nine months ended March 31, 1994, the Company's cash and cash equivalents, short term investments and long-term financial instruments increased by $261 million. This increase was primarily due to proceeds of $200 million generated from the sale of twenty-year zero coupon convertible subordinated debentures. Positive cash flow from operating activities of $111 million and sale of stock through employee benefit programs of $33 million was partially offset by capital expenditures of $63 million, increase in other assets of $14 million, and $6 million net reduction in debt excluding the convertible debenture. As of March 31, 1994, the Company's principal sources of liquidity included cash and cash equivalents, short-term investments and long-term financial instruments of $459 million and up to $20 million available under a committed line of credit. These resources should be adequate to fund the Company's projected cash needs beyond fiscal 1994. The Company believes that the level of financial resources is an important competitive factor in the computer industry, and accordingly, elected to raise additional capital in anticipation of future needs. It might do so again in the future. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. The Company's motion for summary judgment is currently pending. A trial date has been set for June 27, 1994. The Company believes that it has meritorious defenses to the claims alleged in this lawsuit and intends to defend the action vigorously. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Statement of Computation of Common Shares and Common Share Equivalents (b) Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended March 31, 1994. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 13, 1994 SILICON GRAPHICS, INC. a Delaware Corporation By: /s/ Stanley J. Meresman ------------------------------------------- Stanley J. Meresman Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer) By: /s/ Dennis P. McBride ------------------------------------------- Dennis P. McBride Vice President, Controller (Principal Accounting Officer) By: /s/ Tom Oswold ------------------------------------------- Tom Oswold Vice President, Finance and Treasurer 12 SILICON GRAPHICS, INC. INDEX TO EXHIBITS Exhibit Description Page - - ------- ----------- ---- 11 Statement of Computation of Common Shares, Common Share Equivalents and Earnings Per Share 14 13 EX-11 2 EXHIBIT 11 EXHIBIT 11 STATEMENT OF COMPUTATION OF COMMON SHARES, COMMON SHARE EQUIVALENTS AND EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended March 31, March 31, -------- -------- 1994 1993 1994 1993 ---- ---- ---- ---- Common shares 136,128 128,582 134,321 126,338 Convertible preferred shares 1,536 2,606 1,963 4,038 Stock options 17,859 15,526 17,498 14,056 ------- ------- ------- ------- Total weighted average shares outstanding 155,523 146,714 153,782 144,432 ------- ------- ------- ------- ------- ------- ------- ------- Net income available to common stockholders $35,097 $20,243 $97,177 $55,298 ------- ------- ------- ------- ------- ------- ------- ------- Income Per Share: Net income per share $ 0.23 $ 0.14 $ 0.63 $ 0.38 ------ ------ ------ ------ ------ ------ ------ ------
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 $1.7 million and $0.01 for the three months ended March 31, 1993 and $4.7 million and $0.03 for the nine months ended March 31, 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. 14 -----END PRIVACY-ENHANCED MESSAGE-----