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Silicon Graphics Inc · 10-Q · For 9/30/00

Filed On 11/14/00 4:03pm ET   ·   SEC File 1-10441   ·   Accession Number 912057-0-50019

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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

11/14/00  Silicon Graphics Inc              10-Q        9/30/00    3:24                                     Merrill Corp/FA

Quarterly Report   ·   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      21     82K 
 2: EX-10.28    Material Contract                                      1      5K 
 3: EX-27.1     Financial Data Schedule                                2      4K

10-Q   ·   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
2Item 1. Financial Statements (Unaudited):
4Condensed Consolidated Balance Sheets
11Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
14Other operating expense
15Risks That Affect Our Business
17Export Regulation
"Item 3. Quantitative and Qualitative Disclosures About Market Risk
18Item 4. Submission of Matters to a Vote of Security Holders
19Item 6. Exhibits and Reports on Form 8-K
20Signatures
21Index to Exhibits 
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q

(Mark One)                                                                      

X       Quarterly Report Pursuant to Section 13 or 15(d) of the Securities    
    Exchange Act of 1934. For the quarterly period ended SEPTEMBER 30,
2000.                                                         
or                                                                              

     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 No.)

 1600 AMPHITHEATRE PKWY., MOUNTAIN VIEW, CALIFORNIA 94043-1351
 (Address of principal executive offices) (Zip Code)

(650) 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 November 3, 2000 there were 191,308,440
 shares of Common Stock outstanding.


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SILICON GRAPHICS, INC.
 QUARTERLY REPORT ON FORM 10-Q

 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]

                                                                                                              PAGE NO.

                         PART I - FINANCIAL INFORMATION                                                               
                                                                                                                      
Item 1.  Financial Statements (Unaudited):                                                                            

         Condensed Consolidated Statements of Operations........................................................  3   

         Condensed Consolidated Balance Sheets..................................................................  4   

         Condensed Consolidated Statements of Cash Flows........................................................  5   

         Notes to Condensed Consolidated Financial Statements...................................................  6   

Item 2.  Management's Discussion and Analysis                                                                         
         of Results of Operations and Financial Condition......................................................  11   

Item 3.  Quantitative and Qualitative Disclosures About Market Risk ...........................................  17   

                           PART II - OTHER INFORMATION                                                                

Item 1.  Legal Proceedings.....................................................................................  18   

Item 4.  Submission of Matters to a Vote of Security Holders...................................................  18   

Item 6.  Exhibits and Reports on Form 8-K......................................................................  19   

Signatures  ...................................................................................................  20   

Index to Exhibits  ............................................................................................  21   

TRADEMARKS USED IN THIS FORM 10-Q: Silicon Graphics, OCTANE, Onyx, O2 and       
IRIX are registered trademarks and Origin, Onyx2 and SGI are trademarks of      
Silicon Graphics, Inc. MIPS is a registered trademark of MIPS Technologies,     
Inc. used under license by Silicon Graphics, Inc. UNIX is a registered          
trademark in the United States and other countries, licensed exclusively        
through X/Open Company Ltd. Windows NT is a registered trademark of Microsoft   
Corporation. Intel is a registered trademark of Intel Corporation. Linux is a   
registered trademark of Linus Torvalds in the U.S. and other countries. Red     
Hat is a registered trademark of Red Hat, Inc.                                  

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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS                                                   
SILICON GRAPHICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share amounts)                                        

                                                        [Enlarge/Download Table]

                                                           Three Months Ended September 30,      
                                                      -------------------------------------------
                                                             2000                   1999         
                                                             -----                  ----         
                                                                                                 
Product and other revenue............................     $   279,999           $   425,001      
Service revenue......................................         146,337               160,202      
                                                       --------------        --------------      
     Total revenue...................................         426,336               585,203      

Costs and expenses:                                                                              
     Cost of product and other revenue...............         166,907               312,178      
     Cost of service revenue.........................         116,218               129,085      
     Research and development........................          57,349                85,350      
     Selling, general and administrative.............         185,663               228,360      
     Other operating expense (1).....................          (6,221)              144,538      
                                                      ----------------      ---------------      
         Total costs and expenses....................         519,916               899,511      
                                                      ---------------       ---------------      

Operating loss.......................................         (93,580)             (314,308)     

Gain on sale of marketable investments ..............          38,805                    --      
Interest and other income (expense), net.............           9,303                (4,019)     
                                                      ---------------       ---------------      
Loss before income taxes.............................         (45,472)             (318,327)     

Income tax provision (benefit).......................           3,516              (105,426)     
                                                      ---------------       ---------------      
Net loss.............................................         (48,988)             (212,901)     

Preferred stock dividend requirement.................            (131)                 (131)     
                                                      ---------------       ---------------      
Net loss available to common stockholders............     $   (49,119)         $   (213,032)     
                                                      ===============       ===============      

Net loss per share - basic and diluted...............     $     (0.26)          $     (1.17)     
                                                      ===============       ===============      

Common shares outstanding - basic and diluted........         187,872               181,924      
                                                      ===============       ===============      

(1)     September 30, 2000 amount represents a change in previously estimated   
  restructuring costs and the September 30, 1999 amount represents a
charge for estimated restructuring costs.                       

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS. 

SILICON GRAPHICS, INC.

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 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

                                                                [Download Table]

                                               September 30,       June 30,   
                                                   2000            2000 (1)   
                                              ----------------  --------------
                                                 (unaudited)                  
                                                                              
Assets:                                                                       
Current assets:                                                               
   Cash and cash equivalents                      $  192,857       $  251,811 
   Short-term marketable investments                   7,447            6,270 
   Accounts receivable, net                          309,667          347,515 
   Inventories                                       169,723          181,594 
   Prepaid expenses and other current assets          84,032          133,119 
                                                ------------       ---------- 
      Total current assets                           763,726          920,309 

   Restricted investments                            104,380          126,408 
   Property and equipment, net                       483,089          466,726 
   Other assets                                      282,646          325,768 
                                                ------------       ---------- 
                                                  $1,633,841       $1,839,211 
                                                ============       ========== 

Liabilities and Stockholders' Equity:                                         
Current liabilities:                                                          
   Accounts payable                               $  124,258       $  147,366 
   Other current liabilities                         585,266          714,162 
                                                ------------       ---------- 
      Total current liabilities                      709,524          861,528 

Long-term debt and other                             403,895          385,133 

      Total stockholders' equity                     520,422          592,550 
                                                ------------       ---------- 
                                                  $1,633,841       $1,839,211 
                                                ============       ========== 

(1)  The balance sheet at June 30, 2000 has been derived from the audited       
financial statements at that date but does not include all of the     
information and footnotes required by generally accepted accounting   
principles for complete financial statements.                         

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS. 

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SILICON GRAPHICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                        Three Months Ended September 30,     
                                                        -------------------------------------
                                                             2000                 1999       
                                                        ----------------     ----------------
                                                                                             
Cash Flows From Operating Activities:                                                        
 Net loss                                               $   (48,988)        $    (212,901)   
Adjustments to reconcile net loss to net cash (used                                          
  in) provided by operating activities:                                                      
      Depreciation and amortization                          31,558                54,483    
      Gain on sale of marketable investments                (38,805)                   --    
      Gain on sale of Cray product line                     (11,753)                   --    
      Restructuring                                          (6,221)              144,538    
      Other                                                  (4,543)              (92,605)   
Changes in operating assets and liabilities:                                                 
      Accounts receivable                                    37,848               171,402    
      Inventories                                            13,156               (11,880)   
      Accounts payable                                      (23,108)              (36,847)   
      Other assets and liabilities                          (24,419)                8,254    
                                                        ------------        --------------   
         Total adjustments                                  (26,287)              237,345    
                                                        ------------        --------------   
            Net cash (used in) provided by operating                                         
               activities                                   (75,275)               24,444    

Cash Flows From Investing Activities:                                                        
Short-term investments:                                                                      
   Purchases                                                 (1,177)              (41,620)   
   Sales                                                         --                    --    
   Maturities                                                    --                12,005    
Purchases of restricted investments                         (38,878)             (101,502)   
Proceeds from the maturities of restricted investments       60,906                94,226    
Capital expenditures                                        (41,397)             (154,462)   
Decrease in other assets                                     37,672                   157    
                                                        ------------        --------------   
            Net cash provided by (used in) investing                                         
               activities                                    17,126              (191,196)   

Cash Flows From Financing Activities:                                                        
Payments of debt principal                                   (1,822)               (1,859)   
Sale of SGI common stock                                      1,148                13,941    
Repurchase of SGI common stock                                   --               (24,420)   
Cash dividends-preferred stock                                 (131)                 (131)   
                                                        ------------        --------------   
            Net cash used in investing activities              (805)              (12,469)   
                                                        ------------        --------------   
Net decrease in cash and cash equivalents                   (58,954)             (179,221)   
Cash and cash equivalents at beginning of period            251,811               571,117    
                                                        ------------        --------------   
Cash and cash equivalents at end of period              $   192,857         $     396,896    
                                                        ============        ==============   

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS. 

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SILICON GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       CONSOLIDATED FINANCIAL STATEMENTS.                                     

The consolidated financial statements include the accounts of SGI and our       
wholly-owned subsidiaries. The unaudited 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 accruals) necessary to present 
fairly the financial position, results of operations and cash flows for all     
periods presented have been made. The unaudited condensed consolidated financial
statements included in this Form 10-Q should be read in conjunction with the    
audited consolidated financial statements and notes thereto for the fiscal year 
ended June 30, 2000.                                                            

2.       INVENTORIES.                                                           

                                                        [Enlarge/Download Table]

 (In thousands)                                              September 30, 2000       June 30, 2000       
----------------------------------------------------------------------------------------------------------
                                                                                                          
Components and subassemblies                                        $ 37,898             $ 38,855         
Work-in-process                                                       42,732               50,051         
Finished goods                                                        37,568               45,896         
Demonstration systems                                                 51,525               46,792         
                                                                    --------             --------         
Total inventories                                                   $169,723             $181,594         
                                                                    ========             ========         

3.       RESTRICTED INVESTMENTS.                                                

Restricted investments consist of long-term investments pledged as collateral   
against letters of credit and an equity forward purchase arrangement. Restricted
investments are held in the Company's name by major financial institutions.     

4.       PROPERTY AND EQUIPMENT.                                                

                                                        [Enlarge/Download Table]

 (In thousands)                                              September 30, 2000       June 30, 2000       
----------------------------------------------------------------------------------------------------------
                                                                                                          
Property and equipment, at cost                                   $1,077,980           $1,050,991         
Accumulated depreciation and amortization                           (594,891)            (584,265)        
                                                                  ----------           ----------         
Property and equipment, net                                       $  483,089           $  466,726         
                                                                  ==========           ==========         

5.       OTHER ASSETS.                                                          

                                                        [Enlarge/Download Table]

 (In thousands)                                              September 30, 2000       June 30, 2000       
----------------------------------------------------------------------------------------------------------
                                                                                                          
Investments                                                         $108,311             $152,642         
Spare parts                                                           99,605               98,601         
Software licenses, goodwill and other                                 74,730               74,525         
                                                                  ----------           ----------         
                                                                    $282,646             $325,768         
                                                                  ==========           ==========         

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6.       RESTRUCTURING AND RELATED CHARGES.                                     

During the first quarter of fiscal 2000, we announced and began to implement    
restructuring actions that resulted in aggregate charges of $145 million.       
These charges included $65.8 million for the elimination of approximately       
1,100 positions across essentially all of our functions and locations. We       
also recorded operating asset write downs of $26.6 million for fixed assets     
and evaluation units, prepaid license agreements and other intangible assets    
associated with the end of life of our Silicon Graphics 320 and 540 visual      
workstations and certain high-end graphics development projects that were       
canceled. Third party contract cancellation charges associated with the above   
actions totaled $8.5 million. We planned to vacate approximately 1,500,000      
square feet of leased sales and administrative facilities throughout the        
world, with lease terms expiring through fiscal 2004. We estimated this would   
require ongoing lease payments of $26 million until subleases could be          
arranged, abandoning $11 million of leasehold improvements and other fixed      
assets and incurring $7 million in exit costs, including costs to restore       
facilities to original condition.                                               

During the second through fourth quarters of fiscal 2000, we lowered our        
estimate of the total costs associated with the fiscal 2000 restructuring       
activities described above. As a result, a cumulative adjustment of             
approximately $35 million was recorded in fiscal 2000. The adjustment primarily 
reflected far more favorable settlements of lease obligations attributable to   
extremely high demand for facilities in Mountain View, California. It also      
reflected our new approach to structuring our field organization. The adjustment
further reflected lower than estimated severance and related charges due to     
higher than expected attrition and lower per person costs. We now estimate that 
there will be 900 involuntary employee terminations associated with the fiscal  
2000 restructuring activity. Estimated costs of contract cancellations were also
adjusted due to favorable settlements.                                          

During the first quarter of fiscal 2001, we again lowered our estimate of the   
total costs associated with the fiscal 2000 restructuring activities and        
recorded an adjustment of $6 million. The adjustment primarily reflects lower   
than estimated facilities closure costs due to negotiating better than          
anticipated sublease arrangements. The adjustment also reflects lower than      
estimated severance and related charges attributable to higher than expected    
attrition and lower per person costs. As of September 30, 2000, substantially   
all of the estimated 900 positions have been eliminated. All remaining severance
related charges are expected to be paid by December 31, 2000. The remaining     
facilities related accrual balance of approximately $4 million at September 30, 
2000 is expected to result in cash expenditures through fiscal 2004.            

The following table depicts the restructuring activity during the first three   
months of fiscal 2001:                                                          

                                                        [Enlarge/Download Table]

                                                Severance                            
                                                and Related    Vacated               
Category                                        Charges      Facilities     Total    
-------------------------------------------------------------------------------------
                                                                                     
Balance at June 30, 2000                          $ 3,265    $ 6,440         $ 9,705 
Adjustments:                                                                         
        Decrease                                   (2,590)    (3,631)         (6,221)
        Increase                                       --      3,619           3,619 
Expenditures:                                                                        
        Cash                                         (345)    (1,990)         (2,335)
        Non-cash                                       --       (756)           (756)
                                                -------------------------------------
Balance at September 30, 2000                     $   330    $ 3,682         $ 4,012 
                                                =====================================

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7.       EARNINGS PER SHARE.                                                    

The following table sets forth the computation of basic and diluted loss per    
share:                                                                          

                                                        [Enlarge/Download Table]

                                                             Three Months Ended        
                                                                September 30,          
                                                       --------------------------------
(In thousands, except per share amounts)                    2000             1999      
------------------------------------------------------ ---------------- ---------------
                                                                                       
Net loss                                                 $   (48,988)      $ (212,901) 
Less preferred stock dividends                                  (131)            (131) 
                                                        -------------    ------------- 

Net loss available to common stockholders                $   (49,119)      $ (213,032) 
                                                         ============      =========== 
Weighted average shares                                                                
    outstanding - basic and diluted                          187,872          181,924  
                                                         ============      =========== 

Net loss per share - basic and diluted                   $     (0.26)      $    (1.17) 
                                                         ============      =========== 

Potentially dilutive securities excluded from                                          
    computations because they are anti-dilutive               13,563           12,087  
                                                         ============      =========== 

8.       COMPREHENSIVE LOSS.                                                    

The components of comprehensive loss, net of tax, are as follows:               

                                                        [Enlarge/Download Table]

                                                                              Three Months Ended        
                                                                                September 30,           
                                                                       ---------------------------------
(In thousands)                                                               2000             1999      
---------------------------------------------------------------------- ----------------- ---------------
                                                                                                        
Net loss                                                                   $ (48,988)       $ (212,901) 
Change in unrealized gain (loss) on available-for-sale investments              (753)               91  
Reclassification adjustment of accumulated unrealized gain                                              
     related to the sale of investments                                      (24,450)               --  
Change in unrealized gain on derivative instruments designated and                                      
    qualifying as cash flow hedges                                             4,347               606  
Foreign currency translation adjustments                                      (3,868)           10,011  
                                                                          -----------      -----------  
Comprehensive loss                                                         $ (73,712)       $ (202,193) 
                                                                          ===========      ===========  

The components of accumulated other comprehensive income (loss), net of tax, are
as follows:                                                                     

                                                        [Enlarge/Download Table]

                                                                        September 30,       June 30,    
(In thousands)                                                               2000             2000      
---------------------------------------------------------------------- ----------------- ---------------
                                                                                                        
Unrealized gain on available-for-sale investments                        $  5,496              $ 30,699 
Unrealized gain (loss) on derivative instruments designated                                             
    and qualifying as cash flow hedges                                      1,686                (2,661)
Foreign currency translation adjustments                                  (13,340)               (9,472)
                                                                        ----------             ---------
Accumulated other comprehensive income (loss)                            $ (6,158)             $ 18,566 
                                                                        ==========             =========

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9.       SEGMENT INFORMATION.                                                   

SGI is a leader in high-performance computing and advanced graphics             
solutions, offering powerful servers and visual workstations. We have three     
reportable segments: Servers, Visual Workstations and Global Services.          
Reportable segments are determined based on several factors including           
customer base, homogeneity of products, technology, delivery channels and       
other factors. The Server segment's current products include Silicon            
Graphics-Registered Trademark- Onyx2-Registered Trademark- and the next         
generation Onyx 3000 family of graphics systems, the SGI-TM- Origin-TM- 200     
family of servers, the SGI-TM- 1000 family of servers and the Origin-TM- 2000   
and the next generation Origin-TM- 3000 family of high-performance servers.     
Fiscal 2000 results include the Cray product line which was sold to Tera        
Computer Company ("Tera") in the third quarter of fiscal 2000. The Visual       
Workstation segment's current products include the Silicon                      
Graphics-Registered Trademark- O2-Registered Trademark- and Silicon             
Graphics-Registered Trademark- Octane-Registered Trademark- visual              
workstations based upon the MIPS-Registered Trademark- microprocessor and the   
IRIX-Registered Trademark- operating system and the Silicon                     
Graphics-Registered Trademark- 230, 330 and 550 visual workstations based       
upon the Intel mircoprocessor and the Windows NT and Red Hat-Registered         
Trademark- Linux operating systems. Fiscal 2000 results include the Silicon     
Graphics 320 and Silicon Graphics 540 visual workstations based upon the        
Intel-Registered Trademark- microprocessor and the Windows NT-Registered        
Trademark- operating system which were discontinued in favor of more industry   
standard architectures. The Global Services segment supports our computer       
hardware and software products and provides professional services to help       
customers realize the full value of their information technology investments.   
Our professional services organization provides technology consulting,          
education, communication and entertainment services. We evaluate performance    
for each of these segments based on profit or loss from operations before       
interest and taxes.                                                             

In addition to the aforementioned reportable segments, expenses of the sales and
marketing, manufacturing, finance and administration groups are allocated to the
operating units and are included in the results reported. The revenue and       
related expenses of our wholly-owned software subsidiary Alias|Wavefront, as    
well as certain corporate-level operating expenses are not allocated to         
operating units and are included in "Other" in the reconciliation of reported   
revenue and operating profit. In addition, the revenue and related expenses of  
MIPS, a designer of high-performance processors and related intellectual        
property that was a majority-owned subsidiary until SGI distributed its interest
in MIPS to its shareholders through a spin-off effective June 20, 2000, are also
included in "Other" in the reconciliation of reported revenue and operating     
profit.                                                                         

We do not identify or allocate assets or depreciation by operating segment, nor 
do we evaluate segments on these criteria. Operating units do not sell product  
to each other, and accordingly, there is no inter-segment revenue to be         
reported.                                                                       

Information on reportable segments is as follows (in thousands):                

                                                        [Enlarge/Download Table]

                                                               Three Months Ended September 30,          
                                                                              Visual          Global     
                                                            Servers        Workstations      Services    
------------------------------------------------------ ------------------ --------------- ---------------
                                                                                                         
2000:                                                                                                    
Revenue from external customers                          $      145,792   $    96,142     $    161,238   
Segment profit (loss)                                    $      (72,019)  $   (30,727)    $      2,301   

------------------------------------------------------ ------------------ --------------- ---------------
1999:                                                                                                    
Revenue from external customers                          $      214,893   $    160,035    $    166,084   
Segment profit (loss)                                    $      (56,586)  $   (113,710)   $     (6,546)  
Significant  item:                                                                                       
 Non-recurring charges for contract cancellations and                                                    
       inventory and future  support costs related to                                                    
       the Silicon Graphics 320 and 540 visual                                                           
       workstations                                      $           --   $    (65,790)   $    (19,750)  

------------------------------------------------------ ------------------ --------------- ---------------

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Reconciliation to SGI as reported (in thousands):                               

                                                        [Enlarge/Download Table]

                                                              Three Months Ended        
                                                                September 30,           
                                                       ---------------------------------
                                                             2000             1999      
------------------------------------------------------ ----------------- ---------------
                                                                                        
REVENUE:                                                                                
Total reportable segments                              $     403,172     $     541,012  
Other                                                         23,164            44,191  
                                                       ----------------- ---------------
Total SGI consolidated                                 $     426,336     $     585,203  
                                                       ================= ===============

OPERATING PROFIT (LOSS):                                                                
Total reportable segments                              $    (100,445)    $    (176,842) 
Other                                                            644             7,072  
Restructuring                                                  6,221          (144,538) 
                                                       ----------------- ---------------
Total SGI consolidated                                 $     (93,580)    $    (314,308) 
                                                       ================= ===============

10.      RECENT ACCOUNTING PRONOUNCEMENTS                                       

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"), and  
amended it in March and June 2000. SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements for all public   
registrants. Changes in our revenue recognition policy, if any, resulting from  
the interpretation of SAB 101 would be reported as a change in accounting       
principle. We are currently reviewing the impact of SAB 101 on our previously   
reported results of operations and anticipate that we will adopt SAB 101 during 
the fourth quarter of fiscal 2001.                                              

11.      CONTINGENCIES.                                                         

We are defending the lawsuits described below. We believe we have good defenses 
to the claims in each of these lawsuits and we are defending each of them       
vigorously.                                                                     

We are defending putative securities class action lawsuits filed in the U.S.    
District Court for the Northern District of California and in California        
Superior Court for the County of Santa Clara in December 1997 and January 1998  
alleging that SGI and certain of its officers made material misrepresentations  
and omissions during the period from July to October 1997. The U.S. District    
Court is considering plaintiffs' motion for a voluntary dismissal of the case   
without prejudice and defendants' motion for partial summary judgment. Discovery
is proceeding in the California Superior Court case.                            

We are also defending a securities class action lawsuit involving Alias Research
Inc., which we acquired in June 1995. The Alias case, which was filed in 1991 in
the U.S. District Court for the District of Connecticut, alleges that Alias and 
a former officer and director made material misrepresentations and omissions    
during the period from May 1991 to April 1992. The case has been remanded to the
U.S. District Court and is proceeding through discovery.                        

The U.S. Departments of Commerce and Justice are currently conducting civil and 
criminal investigations into SGI's compliance with export regulations in        
connection with several export sales to Tier 3 countries. See "Risks That Affect
Our Business - Export Regulation."                                              

We routinely receive communications from third parties asserting patent or other
rights covering our products and technologies. Based upon our evaluation, we may
take no action or we may seek to obtain a license. There can be no assurance in 
any given case that a license will be available on terms we consider reasonable,
or that litigation will not ensue.                                              

We are not aware of any pending disputes, including those described above, that 
would be likely to have a material adverse effect on SGI's financial condition, 
results of operations or liquidity. However, our evaluation of the likely impact
of these pending disputes could change in the future.                           

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND       
FINANCIAL CONDITION.                                                            

MANAGEMENT'S DISCUSSION AND ANALYSIS                                            

This Quarterly Report on Form 10-Q includes forward-looking statements regarding
our business, objectives, financial condition and future performance. These     
forward-looking statements include, among others, statements relating to        
expected levels of revenue, gross margin, operating expense, and future         
profitability, our business transition objectives, headcount reductions and the 
expected impact on our business of legal proceedings and government regulatory  
actions. We have based these forward-looking statements on our current          
expectations about future events. In some cases, you can identify               
forward-looking statements by terminology such as "may," "will," "should,"      
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"         
"potential" or "continue" or the negative of such terms or other comparable     
terminology. These statements are only predictions.                             

These forward-looking statements are subject to risks and uncertainties that    
could cause actual results to differ materially from those expressed or implied 
in such forward looking statements. Such risks and uncertainties include, among 
other things: adverse changes in general economic or business conditions;       
adverse changes in the specific markets for our products, including expected    
rates of growth and decline in our current markets; adverse business conditions;
changes in customer order patterns; the impact of employee attrition rates;     
heightened competition, reflecting rapid technological advances and constantly  
improving price/performance, which may result in significant discounting and    
lower gross profit margins; continued success in technological advancements and 
new product introduction, including timely development and successful           
introduction of strategic products for specific markets; inability to           
effectively implement our visual workstation and server strategy, including the 
development of appropriate distribution, marketing and customer support models; 
risks related to dependence on our partners and suppliers; risks related to     
foreign operations (including the downturn of economic trends, unfavorable      
currency movements, and export compliance issues); risks associated with        
implementation of our new business practices, processes and information systems;
litigation involving export compliance, intellectual property or other issues;  
and other factors including those listed under the heading "Risks That Affect   
Our Business."                                                                  

We undertake no obligation to publicly update or revise any forward looking     
statements, whether changes occur as a result of new information, future events 
or otherwise. The matters addressed in this discussion, with the exception of   
the historical information presented, are forward-looking statements involving  
risks and uncertainties, including business transition and other risks discussed
under the heading "Risks That Affect Our Business" and elsewhere in this report.
Our actual results may differ significantly from the results discussed in the   
forward-looking statements.                                                     

The following tables and discussion present certain financial information on a  
comparative basis. During the third and fourth quarters of fiscal 2000,         
respectively, we sold our Cray product line and distributed our remaining       
interest in MIPS Technologies, Inc. ("MTI") through a spin-off. We believe it   
more relevant if certain current fiscal year results (revenue, gross margin and 
operating expenses other than restructuring activity) are compared with pro     
forma fiscal 2000 results. The pro forma results for the first quarter of fiscal
2000 used throughout this discussion are adjusted to exclude the results of     
operations of the Cray product line and MIPS.                                   

                                                        [Enlarge/Download Table]

RESULTS OF OPERATIONS                                                       Pro Forma Three 
                                                 Three Months Ended            Months Ended 
(Numbers may not add due to rounding)               September 30,             September 30, 
---------------------------------------------- ----------- ------------ --------------------
$ in millions, except per share amounts             2000         1999                 1999  
---------------------------------------------- ----------- ------------ --------------------
                                                                                            
Total revenue                                     $  426       $  585               $  514  
Cost of revenue                                      283          441                  408  
---------------------------------------------- ----------- ------------ --------------------
Gross profit                                         143          144                  106  
Gross profit margin                                 33.6 %       24.6 %               20.5 %
Total operating expenses                             237          458                  436  
---------------------------------------------- ----------- ------------ --------------------
Operating loss                                       (94)        (314)                (330) 
Interest and other income (expense), net              48           (4)                  (2) 
---------------------------------------------- ----------- ------------ --------------------
Loss before income taxes                             (45)        (318)                (333) 
---------------------------------------------- ----------- ------------ --------------------
Net loss                                          $  (49)      $ (213)              $ (224) 
---------------------------------------------- ----------- ------------ --------------------
Net loss per share - basic and diluted            $(0.26)      $(1.17)              $(1.23) 
---------------------------------------------- ----------- ------------ --------------------

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REVENUE                                                                         

The following discussion of revenue is based on the results of our reportable   
segments as described in Note 9 to the Condensed Consolidated Financial         
Statements. Total revenue is principally derived from three reportable segments:
Servers, Visual Workstations and Global Services. These segments were determined
based on factors such as customer base, homogeneity of products, technology,    
delivery channels and other factors.                                            

Revenue for the first quarter of fiscal 2001 decreased $88 million or 17%       
compared with pro forma revenue for the first quarter of fiscal 2000.           

The following table presents total revenue by reportable segment:               

                                                                [Download Table]

                                                     Pro Froma Three  
                               Three Months Ended     Months Ended    
                                 September 30,        September 30,   
----------------------------- --------------------- ------------------
$ in millions                 2000        1999           1999         
----------------------------- ----------- --------- ------------------
                                                                      
Servers                       $  146      $  215         $  191       
% of total revenue                34%         37%            37%      
Visual Workstations           $   96      $  160         $  160       
% of total revenue                23%         27%            31%      
Global Services               $  161      $  166         $  138       
% of total revenue                38%         28%            27%      
Other                         $   23      $   44         $   25       
% of total revenue                 5%          8%             5%      
----------------------------- ----------- --------- ------------------

Server revenue for the first quarter of fiscal 2001 decreased $45 million or 23%
compared with pro forma server revenue for the first quarter of fiscal 2000. The
decrease reflects the effects on revenue of industry-wide shortages of          
components used in our newly introduced Origin 3000 family of high-performance  
servers and Onyx 3000 family of graphics systems. We experienced significant    
constraints on our ability to ship orders received from customers for these     
products principally due to insufficient wafer starts and limited availability  
of the industry-standard ceramic packaging used by our supplier of custom ASICs.

Visual Workstation revenue for the first quarter of fiscal 2001 decreased $64   
million or 40% compared with pro forma Visual Workstation revenue for the       
first quarter of fiscal 2000. This decrease reflects the effects of strong      
competition in the shrinking UNIX-Registered Trademark- workstation market      
and a product transition from the Silicon Graphics 320 and 540 visual           
workstations included in the first quarter of fiscal 2000 to our newly          
introduced family of products based on the Intel microprocessor which has not   
yet ramped to its target revenue levels. Configurations of the Octane2-TM-      
graphics workstation were also affected by the component shortages described    
above.                                                                          

Global Services revenue, which is comprised of hardware and software support and
maintenance, professional services and remanufactured systems sales, increased  
$23 million or 17% for the first quarter of fiscal 2001 compared with the first 
quarter of fiscal 2000 on a pro forma basis. This increase primarily reflects an
increase in professional services revenue and remanufactured systems sales,     
offset in part by a decline in our traditional customer support revenue.        

Other revenue is principally comprised of our operating units that are not      
reportable segments, including the product and service revenue of our software  
subsidiary, Alias|Wavefront.                                                    

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Total revenue by geographic area was as follows (in millions):                  

                                                                [Download Table]

                                             Pro Forma Three  
                       Three Months Ended     Months Ended    
                         September 30,        September 30,   
--------------------- --------------------- ------------------
Area                  2000         1999          1999         
--------------------- ------------ -------- ------------------
                                                              
Americas              $  246       $ 351         $ 318        
Europe                    97         150           128        
Rest of World             83          84            68        
--------------------- ------------ -------- ------------------
Total revenue         $  426       $ 585         $ 514        
--------------------- ------------ -------- ------------------

Geographic revenue as a percentage of total revenue was as follows:             

                                                                [Download Table]
                                             Pro Forma Three  
                       Three Months Ended     Months Ended    
                         September 30,        September 30,   
--------------------- --------------------- ------------------
Area                    2000       1999            1999       
--------------------- ------------ -------- ------------------
                                                              
Americas                58%        60%             62%        
Europe                  23%        26%             25%        
Rest of World           19%        14%             13%        
--------------------- ------------ -------- ------------------

The decrease in Americas business as a percentage of total revenue in the first 
quarter of fiscal 2001 compared with the corresponding period of fiscal 2000 on 
a pro forma basis is primarily due to a decline in high-performance servers and 
graphics systems revenue which was impacted by component shortages, and to a    
lesser extent the effects of strong competition in the shrinking UNIX           
workstation market, offset in part by an increase in professional services and  
traditional customer support revenue. The decrease in business in Europe as a   
percentage of total revenue in the first quarter of fiscal 2001 compared with   
the corresponding period of fiscal 2000 on a pro forma basis primarily reflects 
the effects of strong competition in the shrinking UNIX workstation market. The 
increase in Rest of World business as a percentage of total revenue in the first
quarter of fiscal 2001 compared with the corresponding period of fiscal 2000 on 
a pro forma basis is principally due to an increase in professional services    
revenue in Japan.                                                               

Our consolidated backlog at September 30, 2000 was $366 million compared with   
$298 million at June 30, 2000. The increase is primarily due to material        
shortages of wafer-starts and the ceramic packaging for many of our custom ASICS
that impacted our ability to ship new products which contain these components.  

GROSS PROFIT MARGIN                                                             

Cost of product and other revenue includes costs related to product shipments,  
including materials, labor, overhead and other direct or allocated costs        
involved in their manufacture or delivery. Costs associated with non-recurring  
engineering revenue are included in research and development expense. Cost of   
service revenue includes all costs incurred in the support and maintenance of   
our products, as well as costs to deliver professional services.                

Our overall gross profit margin increased to 33.6% in the first quarter of      
fiscal 2001 compared with pro forma gross profit margin of 20.5% in the first   
quarter of fiscal 2000. Pro forma gross profit margin for the first quarter of  
fiscal 2000 included certain adjustments related to our decision to discontinue 
the Silicon Graphics 320 and 540 visual workstations product family. We charged 
cost of product and other revenues approximately $40 million for third party    
manufacturing contract cancellations and purchase commitments and $25 million   
for excess product and demonstration inventory. We also charged $20 million to  
cost of service revenue for future unrecoverable support costs. Without these   
adjustments, our first quarter fiscal 2000 adjusted pro forma gross profit      
margin would have been 37.2%. Gross profit margin of 33.6% for the first quarter
of fiscal 2001 decreased 3.6 percentage points compared with the adjusted pro   
forma gross profit margin for the first quarter of fiscal 2000. This 3.6        
percentage point decline in gross profit margin principally reflects the effect 
of component shortages on high-end, high gross profit margin systems,           
particularly on the new products within our Origin scalable server and Onyx     
graphics systems businesses. Despite the impact that decreased volumes and      
continuing pricing pressures in both the Server and Visual Workstation segments,

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as well as in our Global Services business has had on gross profit margin, we   
have been able to partially mitigate these effects by consolidation and         
outsourcing of certain manufacturing operations and continued improvements in   
manufacturing efficiencies and procurement practices.                           

                                                                [Download Table]

OPERATING EXPENSES                                            Pro Forma Three    
                                      Three Months Ended        Months Ended     
                                         September 30,         September 30,     
------------------------------------- --------------------- ---------------------
$ in millions                         2000        1999           1999            
------------------------------------- ----------- --------- ---------------------
                                                                                 
Research and development              $   57      $   85         $    70         
% of total revenue                      13.5 %      14.6%           13.6%        
Selling, general and administrative   $  186      $  228         $   221         
% of total revenue                      43.5 %      39.0%           43.1%        
Other                                 $   (6)     $  145         $   145         
% of total revenue                      (1.5)%      24.7%           28.1%        
------------------------------------- ----------- --------- ---------------------

OPERATING EXPENSE (EXCLUDING OTHER OPERATING EXPENSE). Operating expense for    
the first quarter of fiscal 2001 declined 17% in absolute dollars, and, as a    
percentage of total revenue, remained flat at 57.0% compared with pro forma     
operating expense for the first quarter of fiscal 2000. The decrease in         
operating expense resulted primarily from lower headcount as a result of        
restructuring activities and attrition. In addition, concentrated research      
and development spending, management focus on expense control and lower         
outside services expense contributed to the decline in operating expense year   
over year. We currently expect that operating expense will remain flat in the   
second quarter of fiscal 2001 and then decline on a quarterly basis in the      
second half of fiscal 2001.                                                     

OTHER OPERATING EXPENSE. Other operating expense for the first quarter of fiscal
2001 represents a $6 million reduction to the restructuring costs we estimated  
during the first quarter of fiscal 2000. Other operating expense for the first  
quarter of fiscal 2000 represents a charge for estimated restructuring costs of 
$145 million. See Note 6 to the Condensed Consolidated Financial Statements,    
"Restructuring and Related Charges," for further information regarding these    
activities.                                                                     

INTEREST AND OTHER                                                              
INTEREST EXPENSE Interest expense for the first quarter of fiscal 2001 remained 
relatively consistent compared with the first quarter of fiscal 2000.           

INTEREST INCOME AND OTHER, NET Interest income and other, net includes interest 
on our cash investments, gains and losses on other investments, and other       
non-operating items. Interest income and other, net for the first quarter of    
fiscal 2001 increased $50 million compared with the first quarter of fiscal 2000
on a pro forma basis. Interest income on our cash investments decreased         
approximately $5 million year over year due to lower cash balances. The increase
in interest and other income, net for the first quarter of fiscal 2001 was      
primarily due to a $39 million gain on the sale of marketable investments and a 
$12 million gain related to the sale of the Cray product line.                  

TAXES Our provision for income taxes for the first quarter of fiscal 2001 arose 
principally from taxes currently payable in foreign jurisdictions. The effective
tax benefit rate for the first quarter for fiscal 2000 was 23%, excluding the   
impact of the $86 million charge related to the Silicon Graphics 320 and 540    
visual workstation product line and the $145 million charge for estimated       
restructuring costs, which were tax effected at 37%. The fiscal 2000 benefit    
rate, excluding the charges related to the Silicon Graphics 320 and 540 products
and estimated restructuring charges, differed from the federal statutory rate   
primarily due to foreign losses for which no benefit was recognized.            

FINANCIAL CONDITION                                                             
At September 30, 2000, cash and cash equivalents and marketable and restricted  
investments totaled $305 million, down from $384 million at June 30, 2000.      
Included in the September 30, 2000 and June 30, 2000 balances are approximately 
$104 million and $126 million, respectively, of restricted investments that     
serve as collateral for letters of credit and an equity forward purchase        
arrangement.                                                                    

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Operating activities used $75 million during the first quarter of fiscal 2001   
compared with provided $24 million during the first quarter of fiscal 2000. To  
present cash flows from operating activities, net loss for the first quarter of 
fiscal year 2001 was adjusted for certain significant items. The first quarter  
of fiscal year 2001 net loss is adjusted to remove the impact of the $39 million
gain on the sale of marketable investments that is reflected as a cash flow from
investing activities. The negative operating cash flow was partially offset by a
decrease in accounts receivable attributable to lower revenue levels.           

Investing activities, other than changes in available-for-sale and restricted   
investments, consumed $4 million in cash during the first quarter of fiscal 2001
compared with $154 million in the first quarter of fiscal 2000. Capital         
expenditures of $41 million were the principal investing activity during the    
first quarter of fiscal 2001. This outflow was partially offset by proceeds of  
$43 million on the sale of marketable investments. The principal investing      
activity in the first quarter of fiscal 2000 is attributable to our election to 
exercise an option to purchase five buildings on our Mountain View campus for   
approximately $125 million that had been held under an off-balance sheet        
financing arrangement.                                                          

Financing activities used $1 million during the first quarter of fiscal 2001    
compared with $12 million during the first quarter of fiscal of 2000. The       
principal financing activities during the first quarter of fiscal 2001 included 
the use of $2 million for debt payments, offset in part by proceeds from the    
issuance of stock. The principal financing activities during the first quarter  
of fiscal 2000 included the use of $24 million to repurchase shares of our      
common stock, offset in part by proceeds from employee stock option exercises.  

At September 30, 2000, our principal sources of liquidity included cash and cash
equivalents and marketable investments of $200 million. We believe that these   
principal sources of liquidity, along with cash generated from operations and   
the sale or refinance of certain non-strategic assets such as real estate,      
should be adequate to fund our projected cash flow needs. We believe that the   
level of financial resources is an important competitive factor in the computer 
industry, and accordingly, we may elect to raise additional capital through debt
or equity financing or the sale of other selected assets in anticipation of     
future needs.                                                                   

RISKS THAT AFFECT OUR BUSINESS                                                  

SGI operates in a rapidly changing environment that involves a number of risks, 
some of which are beyond our control. This discussion highlights some of these  
risks.                                                                          

BUSINESS TRANSITION. SGI has had declining revenue and has been unprofitable    
on an operating basis for each of the past three fiscal years. Our plan to      
restore growth and profitability will require significant transitions in        
product strategy and in operating expenses. We have announced product           
roadmaps for both the server and workstation businesses that will, over the     
next five years, supplement our products based on the MIPS processor            
architecture with products based on the Intel processor architecture, and       
from the IRIX operating system to Linux-Registered Trademark- and Windows NT.   
This process will involve our supporting both architectures indefinitely in     
order to provide flexibility and support to our customers. Risks associated     
with this strategy include uncertainty among employees, customers and           
partners, potential customer defection and higher operating expenses. There     
can be no assurance that we will introduce the new products required for        
these transitions as planned, successfully support our customer and partner     
base as they adopt these new products or otherwise manage this process in a     
way that will allow us to recover from this uncertainty.                        

NEW PRODUCTS. In the last quarter of fiscal 2000 and the first quarter of       
2001 we introduced major new products in every segment of our computer system   
business, including the Origin 3000 family of high-performance servers, new     
graphics subsystems both in the visual workstation and Onyx high-performance    
graphics systems families, and new Intel processor-based workstations and       
servers. Our ability to meet our objectives for fiscal 2001 is highly           
dependent on the success of these new products, and on our success in ramping   
these new products to commercial volumes as scheduled. Our first quarter        
results suffered from various industry-wide and world-wide supply               
constraints, including, in particular constraints on the ceramic packaging      
for ASICs that are critical components of our systems. We are working with      
our suppliers to resolve these supply issues, but we cannot be assured that     
we will receive sufficient supplies at the delivery dates that will enable us   
to meet our objectives for the second quarter and beyond. Any extended          
failure to meet these objectives could affect not only our ability to ship      
our backlog but to continue to attract new orders.                              

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EXPENSE REDUCTION PROGRAM. While our operating expenses, excluding other        
operating expenses, have declined from $1.5 billion in fiscal 1998 to $1.3      
billion in fiscal 1999 and to $1.1 billion in fiscal 2000, our expenses remain  
out of line with our revenues. We expect that we will be designing and          
implementing global systems for Enterprise Resource Planning and Customer       
Relationship Management, improving the efficiency of related business processes,
and taking other additional steps in fiscal 2001 to address this issue. While   
our objective is to reduce our costs in ways that will not have a material      
impact on revenue levels, there is no assurance that this will be achieved.     

DEPENDENCE ON PARTNERS AND SUPPLIERS. Our business has always involved close    
collaboration with partners and suppliers. However, many elements of our current
business strategy, including the longer-term transition to the Intel            
architecture and additional outsourcing of manufacturing, will increase our     
dependence on Intel and other partners, and on our manufacturing partners and   
other component suppliers. Our business could be adversely affected, for        
example, if Intel fails to meet product release schedules, if we experience     
supply constraints such as those that currently exist, or if we experience any  
other interruption in the supply chain. The competitiveness of our system       
products, particularly our servers, is significantly affected by the            
availability on our platform of third-party software applications that are      
important to customers in our target markets. Our ability to work with our      
software partners to ensure porting of these applications to our IRIX operating 
system and, in the future, to Linux, is a key factor to our business success.   

EMPLOYEES. Our success depends on our ability to continue to attract, retain and
motivate highly qualified technical, marketing and management personnel, who are
in great demand. The uncertainties surrounding SGI's business prospects have    
increased the challenges of retaining world-class talent. We have initiated     
hiring and retention programs to attract and retain key employees, but there is 
no assurance that these programs will succeed.                                  

PRODUCT DEVELOPMENT AND INTRODUCTION. Our continued success depends on our      
ability to develop and rapidly bring to market technologically complex and      
innovative products. Product transitions are a recurring part of our business. A
number of risks are inherent in this process.                                   

The development of new technology and products is increasingly complex and      
uncertain, which increases the risk of delays. The introduction of a new        
computer system requires close collaboration and continued technological        
advancement involving multiple hardware and software design teams, internal and 
external manufacturing teams, outside suppliers of key components such as       
semiconductor and storage products and outsourced manufacturing partners. The   
failure of any one of these elements could cause our new products to fail to    
meet specifications or to miss the aggressive timetables that we establish.     
There is no assurance that acceptance of our new systems will not be affected by
delays in this process. As noted above, our ability to successfully attract and 
retain key technical, marketing and management personnel in a competitive hiring
environment has a direct impact on our ability to maintain our product          
development timetables.                                                         

Short product life cycles place a premium on our ability to manage the          
transition to new products. We often announce new products in the early part of 
a quarter while the product is in the final stages of development, and seek to  
manufacture and ship the product in volume during the same quarter. Our results 
could be adversely affected by such factors as development delays, the release  
of products to manufacturing late in any quarter, quality or yield problems     
experienced by suppliers, variations in product costs and excess inventories of 
older products and components. In addition, some customers may delay purchasing 
existing products in anticipation of new product introductions.                 

PERIOD TO PERIOD FLUCTUATIONS. Our operating results may fluctuate for a number 
of reasons. Delivery cycles are typically short, other than for large-scale     
server products. A little over half of each quarter's product revenue results   
from orders booked and shipped during the third month, and disproportionately in
the latter half of that month. These factors make the forecasting of revenue    
inherently uncertain. Because we plan our operating expenses, many of which are 
relatively fixed in the short term, on expected revenue, even a relatively small
revenue shortfall may cause a period's results to be substantially below        
expectations. Such a revenue shortfall could arise from any number of factors,  
including lower than expected demand, supply constraints, delays in the         
availability of new products, transit interruptions, overall economic conditions
or natural disasters. Demand can also be adversely affected by product and      
technology transition announcements by SGI or our competitors. The timing of    
customer acceptance of certain large-scale server products may also have a      
significant effect on periodic operating results. Margins are heavily influenced
by mix considerations, including geographic concentrations, the mix of product  
and service revenue, and the mix of server and desktop product revenue including
the mix of configurations within these product categories.                      

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Our results have typically followed a seasonal pattern, with stronger sequential
growth in the second and fourth fiscal quarters, reflecting the buying patterns 
of our customers.                                                               

Our stock price, like that of other technology companies, is subject to         
significant volatility. If revenue or earnings in any quarter fail to meet the  
investment community's expectations, there could be an immediate impact on our  
stock price. The stock price may also be affected by broader market trends      
unrelated to our performance.                                                   

COMPETITION. The computer industry is highly competitive, with rapid            
technological advances and constantly improving price/performance. Most of our  
competitors have substantially greater technical, marketing and financial       
resources and, in some segments, a larger installed base of customers and a     
wider range of available applications software. Competition may result in       
significant discounting and lower gross margins.                                

IMPACT OF GOVERNMENT CUSTOMERS. A significant portion of our revenue is derived 
from sales to the U.S. government, either directly by us or through system      
integrators and other resellers. Sales to the government present risks in       
addition to those involved in sales to commercial customers, including potential
disruptions due to appropriation and spending patterns and the government's     
reservation of the right to cancel contracts for its convenience. A portion of  
our business requires security clearances from the United States government. We 
have implemented measures to maintain our clearances in light of the fact that  
our CEO, Mr. Robert Bishop, is not a United States citizen. However, these      
arrangements are subject to customer review and approval and periodic review by 
the Defense Security Service of the Department of Defense. Any disruption or    
limitation in our ability to do business with the United States government could
have an adverse impact on SGI.                                                  

EXPORT REGULATION. Our sales to foreign customers are subject to export         
regulations. Sales of many of our high-end products require clearance and export
licenses from the U.S. Department of Commerce under these regulations. The      
Departments of Commerce and Justice are currently conducting civil and criminal 
investigations into SGI's compliance with the export regulations in connection  
with several export sales to Tier 3 countries. We believe that these matters    
will be resolved without a significant adverse effect on our business. However, 
there is no assurance that these matters will not have an unforeseen outcome    
that could impair the conduct of our business with the U.S. government or our   
sales outside the United States.                                                

Our international sales would also be adversely affected if such regulations    
were tightened, or if they are not modified over time to reflect the increasing 
performance of our products.                                                    

INTELLECTUAL PROPERTY. We routinely receive communications from third parties   
asserting patent or other rights covering our products and technologies. Based  
upon our evaluation, we may take no action or may seek to obtain a license. In  
any given case there is a risk that a license will not be available on terms    
that we consider reasonable, or that litigation will ensue. We expect that, as  
the number of hardware and software patents issued continues to increase, and as
competition in the markets we address intensifies, the volume of these          
intellectual property claims will also increase.                                

MARKET RISK. In the normal course of business, our financial position is        
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-U.S. dollar          
denominated assets and liabilities, as well as collectibility of accounts       
receivable. We regularly assess these risks and have established policies and   
business practices to protect against the adverse effects of these and other    
potential exposures. As a result, we do not anticipate material losses in these 
areas.                                                                          

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.            

The information required under this Item 3 is included in the section above     
entitled Market Risk.                                                           

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 PART II - OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS                                                      

We are defending putative securities class action lawsuits filed in the U.S.    
District Court for the Northern District of California and in California        
Superior Court for the County of Santa Clara in December 1997 and January 1998  
alleging that SGI and certain of its officers made material misrepresentations  
and omissions during the period from July to October 1997. The U.S. District    
Court is considering plaintiffs' motion for a voluntary dismissal of the case   
without prejudice and defendants' motion for partial summary judgment. Discovery
is proceeding in the California Superior Court case.                            

We are also defending a securities class action lawsuit involving Alias Research
Inc., which we acquired in June 1995. The Alias case, which was filed in 1991 in
the U.S. District Court for the District of Connecticut, alleges that Alias and 
a former officer and director made material misrepresentations and omissions    
during the period from May 1991 to April 1992. The case has been remanded to the
U.S. District Court and is proceeding through discovery.                        

The U.S. Departments of Commerce and Justice are currently conducting civil and 
criminal investigations into SGI's compliance with export regulations in        
connection with several export sales to Tier 3 countries. See "Risks That Affect
Our Business - Export Regulation."                                              

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

(a)      SGI held its Annual Meeting of Stockholders on October 25, 2000. The   
   meeting was adjourned and reconvened on November 1, 2000 to allow
         additional time for shareholders to vote on Proposal 2, an amendment to
      SGI's Certificate of Incorporation to eliminate the classified Board
structure. Proxies for the meeting were solicited pursuant to 
Regulation 14A.                                               

(b)      SGI's Board of Directors is divided into three classes, with directors 
 in each class serving for three-year terms. As noted below, the
        proposal to eliminate this classified Board structure was not approved
 by a majority of the outstanding shares, which was the required
      shareholder vote. Accordingly, not all Directors are elected at each
      Annual Meeting of Stockholders. Robert A. Lutz and James A. McDivitt
        were re-elected as Directors at the meeting. The Directors whose terms
   of office continued after the meeting are Robert R. Bishop and C.
         Richard Kramlich. Dr. Lucy Shapiro resigned from the Board in July 2000
   and Robert Shapiro resigned effective October 25, 2000. The Board
         adopted an amendment to the bylaws to reduce the number of directors to
four effective October 25, 2000.                              

(c)      The matters described below were voted on at the Annual Meeting of     
        Stockholders, and the number of votes cast with respect to each matter
     and, with respect to the election of a director, were as indicated.

                                                        [Enlarge/Download Table]
                                                                                         
1. To elect two Class II Directors of SGI to serve for a three-year                      
   term.                                                                                 

   CLASS II DIRECTORS:                                                                   

   ROBERT A. LUTZ:                                                                       

   For: 156,003,249    Withheld: 3,403,022                                               

   JAMES A. MCDIVITT:                                                                    

   For: 157,811,326    Withheld: 1,594,945                                               

2. To approve an amendment to SGI's Restated Certificate of                              
   Incorporation to eliminate classification of the Board of                             
   Directors.                                                                            

   For: 78,606,116     Against: 1,083,771       Abstain: 283,876     Non-vote: 79,974,887

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       3.     To ratify the appointment of Ernst & Young LLP, as independent
         auditors of SGI for the fiscal year ending June 30, 2001.

             For: 158,804,637    Against: 388,382         Abstain: 213,352

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

(a)      Exhibits                                                               

    10.28  Letter of Agreement entered into by the Company with Harold
Covert dated July 20, 2000.                     

27.1   Financial Data Schedule.                               

(b)      Reports on Form 8-K.                                                   

None                                                          

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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: November 13, 2000             SILICON GRAPHICS, INC.                     
                a Delaware corporation

                  By:   Harold L. Covert
                                        --------------------------------------
                        Harold L. Covert
                                       Executive Vice President, Chief
                                   Financial Officer and Chief
                                         Administrative Officer (Principal
                          Financial Officer)

                       Jeffrey Zellmer
                                         ---------------------------------------
                       Jeffrey Zellmer
                                            Vice President, Corporate Controller
                                      (Principal Accounting Officer)

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SILICON GRAPHICS, INC.

 INDEX TO EXHIBITS

                                                                [Download Table]

Exhibit       Description                                                       
-------       -----------                                                       
                                                                                
 10.28        Letter of Agreement entered into by the Company with Harold Covert
              dated July 20, 2000.                                              

 27.1         Financial Data Schedule                                           

          -21-

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 10-Q Filing   Date First   Last      Other Filings
9/30/99310-Q
6/20/0098-K
6/30/0041410-K, 8-K
7/20/001921
For The Period Ended9/30/00115
10/25/0018DEF 14A, PRE 14A
11/1/0018
11/3/001
11/13/0020
Filed On / Filed As Of11/14/00
12/31/00710-Q
6/30/011910-K405, 10-K405/A, NT 10-K
 
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