10Q 2013 Q3

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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 March 29, 2013

o 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 000-51333

SILICON GRAPHICS INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)



	Delaware		32-0047154
	(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

46600 Landing Parkway

Fremont, California 94538

(Address of principal executive offices, including zip code)

(510) 933-8300

(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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 30, 2013, there were 33,821,838 shares of the registrant's common stock outstanding.

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SILICON GRAPHICS INTERNATIONAL CORP.

TABLE OF CONTENTS



		Page
PART I	FINANCIAL INFORMATION	2
Item 1.	Financial Statements	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 29, 2013 and March 30, 2012	2
	Condensed Consolidated Statement of Comprehensive Income (Loss) for the Three and Nine Months Ended March 29, 2013, and March 30, 2012	3
	Condensed Consolidated Balance Sheets as of March 29, 2013 and June 29, 2012	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 29, 2013 and March 30, 2012	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

PART II	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39

SIGNATURES

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SILICON GRAPHICS INTERNATIONAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended							Nine Months Ended
	March 29, 2013			March 30, 2012				March 29, 2013			March 30, 2012

Revenue
Product	$	173,142		$	131,290			$	413,580		$	364,297
Service	44,545			47,910				132,112			147,354
Combined product and service	14,901			20,190				51,003			61,848
Total revenue	232,588			199,390				596,695			573,499
Cost of revenue
Product	144,190			109,396				343,184			296,029
Service	26,969			25,620				79,524			80,990
Combined product and service	8,937			12,864				31,721			40,149
Total cost of revenue	180,096			147,880				454,429			417,168
Gross profit	52,492			51,510				142,266			156,331
Operating expenses:
Research and development	15,518			14,982				45,017			47,427
Sales and marketing	19,824			21,824				59,059			66,722
General and administrative	14,924			16,176				41,496			47,860
Restructuring	740			19				5,081			129
Total operating expenses	51,006			53,001				150,653			162,138
Income (loss) from operations	1,486			(1,491		)		(8,387		)	(5,807		)
Total other income (expense), net:
Interest income (expense), net	(11		)	(126		)		(278		)	(150		)
Other income (expense), net	(359		)	913				(1,253		)	(230		)
Total other income (expense), net	(370		)	787				(1,531		)	(380		)
Income (loss) before income taxes	1,116			(704		)		(9,918		)	(6,187		)
Income tax (benefit) provision	(8,108		)	458				(11,563		)	(112		)
Net income (loss)	$	9,224		$	(1,162	)		$	1,645		$	(6,075	)

Basic and diluted net income (loss) per share:							`
Basic	$	0.28		$	(0.04	)		$	0.05		(0.19		)
Diluted	$	0.27		$	(0.04	)		$	0.05		$	(0.19	)

Shares used in computing basic and diluted net income (loss) per share
Basic	33,201			31,783				32,593			31,557
Diluted	34,467			31,783				33,295			31,557

See accompanying notes.

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SILICON GRAPHICS INTERNATIONAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)



	Three Months Ended						Nine Months Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012

Net income (loss)	$	9,224		$	(1,162	)	$	1,645		$	(6,075	)
Other comprehensive income (loss):
Unrecognized gain (loss) on defined benefit plans, net of zero tax	44			(1		)	128			(157		)
Foreign currency translation adjustment, net of zero tax	(492		)	(1,591		)	(705		)	(969		)
Total comprehensive income (loss)	$	8,776		$	(2,754	)	$	1,068		$	(7,201	)

See accompanying notes.

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SILICON GRAPHICS INTERNATIONAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



	March 29, 2013			June 29, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	149,394		$	104,851
Current portion of restricted cash and cash equivalents	670			980
Accounts receivable, net of allowance for doubtful accounts of $1,209 and $1,597 as of March 29, 2013 and June 29, 2012, respectively	98,577			98,293
Inventories	76,338			123,391
Deferred cost of revenue	30,081			49,407
Prepaid expenses and other current assets	22,502			18,443
Total current assets	377,562			395,365
Non-current portion of restricted cash and cash equivalents	2,935			3,088
Property and equipment, net	26,027			27,404
Intangible assets, net	5,534			8,675
Non-current portion of deferred cost of revenue	9,719			17,466
Other assets	44,491			44,882
Total assets	$	466,268		$	496,880
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	55,305		$	69,448
Credit facility	—			15,200
Accrued compensation	26,485			24,246
Current portion of deferred revenue	112,465			124,924
Other current liabilities	54,543			48,587
Total current liabilities	248,798			282,405
Non-current portion of deferred revenue	55,496			64,717
Long-term income taxes payable	11,602			20,568
Retirement benefit obligations	11,353			11,484
Other non-current liabilities	4,604			6,814
Total liabilities	331,853			385,988
Commitments and contingencies (Note 21)
Stockholders' equity:
Preferred stock, par value $0.001 per share; 12,000 shares authorized; none outstanding	—			—
Common stock, par value $0.001 per share; 120,000 shares authorized; 34,610 shares and 32,723 shares issued at March 29, 2013 and June 29, 2012, respectively	34			33
Additional paid-in capital	507,355			484,461
Treasury stock, at cost (779 shares at March 29, 2013 and 749 shares at June 29, 2012)	(5,352		)	(4,912		)
Accumulated other comprehensive loss	(2,057		)	(1,480		)
Accumulated deficit	(365,565		)	(367,210		)
Total stockholders' equity	134,415			110,892
Total liabilities and stockholders' equity	$	466,268		$	496,880

See accompanying notes.

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SILICON GRAPHICS INTERNATIONAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	March 29, 2013			March 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,645		$	(6,075	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	10,680			11,220
Share-based compensation	7,816			7,925
Release of liability for unrecognized tax benefits	(10,306		)	—
Other	1,071			664
Changes in operating assets and liabilities:
Accounts receivable	(4,903		)	(29,856		)
Inventories	42,047			(26,575		)
Deferred cost of revenue	26,118			28,389
Prepaid expenses and other assets	(8,000		)	(3,585		)
Accounts payable	(12,791		)	(6,705		)
Deferred revenue	(16,119		)	(28,577		)
Other liabilities	10,375			(8,235		)
Net cash provided by (used in) operating activities	47,633			(61,410		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(2,841		)	(5,609		)
Other	1,743			(2,450		)
Net cash used in investing activities	(1,098		)	(8,059		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of credit facility	(15,300		)	—
Proceeds from draw-down	—			15,000
Funding of restricted stock units withheld for taxes	(1,375		)	(1,037		)
Purchase of treasury stock	(440		)	—
Proceeds from issuance of common stock upon exercise of stock options	13,010			1,841
Proceeds from issuance of common stock under employee stock purchase plan	3,444			3,262
Net cash (used in) provided by financing activities	(661		)	19,066
Effect of exchange rate changes on cash and cash equivalents	(1,331		)	(593		)
Net increase (decrease) in cash and cash equivalents	44,543			(50,996		)
Cash and cash equivalents-beginning of period	104,851			139,868
Cash and cash equivalents-end of period	$	149,394		$	88,872

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Income taxes paid	$	1,300		$	1,012

See accompanying notes.

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS

The principal business of Silicon Graphics International Corp. ("SGI" or the "Company") is the design, manufacture and implementation of highly scalable compute servers, high-capacity storage systems and high-end computing and data management systems. The Company has significant global presence providing products and services either directly or through its distributors and channel partners. In addition to the broad line of mid-range to high-end computing servers, data storage and data center technologies, the Company provides global customer support and professional services related to these products. The Company's products are used by the scientific, technical and business communities to solve challenging data-intensive computing, data management and visualization problems. The vertical markets the Company serves include the federal government, defense and strategic systems, weather and climate, physical sciences, life sciences, energy (including oil and gas), aerospace and automotive, internet, financial services, media and entertainment, and business intelligence and data analytics. The Company's headquarters is located in Fremont, California and its primary manufacturing facility is located in Chippewa Falls, Wisconsin.

2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods presented. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial information. The results for the interim periods are not necessarily indicative of results for the entire year or any future periods. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the fiscal year ended June 29, 2012, which are included in the Company's Annual Report on Form 10-K filed with the SEC on September 10, 2012.

The preparation of unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses as presented in the accompanying unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Fiscal Year. The Company has a 52 or 53-week fiscal year ending on the last Friday in June. The current fiscal year 2013 will be comprised of 52 weeks and will end on June 28, 2013. Fiscal year 2012 was comprised of 53 weeks and ended on June 29, 2012. When a 53-week year occurs, the Company includes the additional week in the first fiscal quarter. The Company's fiscal quarters generally have 13 weeks ending on the last Friday of the respective period. Accordingly, the first quarter of fiscal year 2012 ended September 30, 2011 was comprised of 14 weeks, while the first quarter of fiscal year 2013 ended September 28, 2012 was comprised of 13 weeks.

In fiscal year 2012, the Company's fiscal quarters ended on September 30, 2011 (first quarter), December 30, 2011 (second quarter), March 30, 2012 (third quarter) and June 29, 2012 (fourth quarter).

In fiscal year 2013, the Company's fiscal quarters end on September 28, 2012 (first quarter), December 28, 2012 (second quarter), March 29, 2013 (third quarter) and June 28, 2013 (fourth quarter).

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no changes in the Company's significant accounting policies for the three months ended March 29, 2013 as compared to those disclosed in the Company's Annual Report on Form 10-K for the year ended June 29, 2012.

Recently Issued Accounting Standards.

Comprehensive income. In June 2011, the FASB issued guidance which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. This requirement should be applied retrospectively and is effective for the Company in its first quarter of fiscal year 2013. The adoption of this standard had no effect on the Company's condensed consolidated statements of operations.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. In February 2013, the FASB issued the guidance for reporting of amounts reclassified out of accumulated other comprehensive income. The revised guidance requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal year 2014, at which time the Company will include the required disclosures. We do not expect a material impact to our consolidated financial statements due to the adoption of this guidance.

4. FINANCIAL INSTRUMENTS AND FAIR VALUE

The Company uses a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company's assets (in thousands) that are measured at fair value on a recurring basis which include total cash equivalent as well as the fair value of plan assets for the employee retirement benefit plan. See Note 16 for more information regarding the employee retirement benefit plan.



	March 29, 2013
	Carrying		Fair Value Measured Using						Total
	Value		Level 1		Level 2		Level 3		Balance
Assets
Money market funds	$	20,012	$	20,012	$	—	$	—	$	20,012
Investments held by insurance companies	6,127		—		6,127		—		6,127
Total assets measured at fair value	$	26,139	$	20,012	$	6,127	$	—	$	26,139



	June 29, 2012
	Carrying		Fair Value Measured Using						Total
	Value		Level 1		Level 2		Level 3		Balance
Assets
U.S treasuries	$	5,530	$	5,530	$	—	$	—	$	5,530
Investments held by insurance companies	6,127		—		6,127		—		6,127
Total assets measured at fair value	$	11,657	$	5,530	$	6,127	$	—	$	11,657

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three and nine months ended March 29, 2013 and March 30, 2012. The Company’s cash equivalents, consisting of U.S. treasuries and money market funds, are classified within Level 1 of the fair value hierarchy as they were valued using quoted market prices of the identical underlying securities in active markets.

Level 2 assets include investments that are pooled with other investment held by insurance companies within that general funds for our pension plans. The investments held by the insurance companies are valued by taking the percentage owned by the plan in the underlying net asset value of the insurance company's general fund.

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The fair values of accounts receivable, accounts payable, and accrued liabilities, due within one year approximates their carrying values because of their short-term nature.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

As of March 29, 2013 and June 29, 2012, the Company had no assets or liabilities measured at fair value on a non-recurring basis.

5. INVENTORIES

Inventories consist of the following (in thousands):



	March 29, 2013		June 29, 2012
Finished goods	$	15,701	$	47,728
Work in process	17,776		22,666
Raw materials	42,861		52,997
Total inventories	$	76,338	$	123,391

Finished goods include inventory in transit, at customer sites undergoing installation, or testing prior to customer acceptance; such amounts were $6.0 million at March 29, 2013 and $25.7 million at June 29, 2012.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):



	March 29, 2013		June 29, 2012
Value-added tax receivable	$	11,721	$	9,831
Prepaid taxes	3,743		1,555
Deferred income taxes	106		—
Other prepaid and current assets	6,932		7,057
Total prepaid expenses and other current assets	$	22,502	$	18,443

7. INTANGIBLE ASSETS, NET

Intangible assets by major asset class consist of the following (in thousands):



Intangible Asset Class	Weighted Average Useful Life (in Years)	At March 29, 2013
Intangible Asset Class	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net
Customer relationships	5	$	6,900	$	(5,405	)	$	1,495
Purchased technology	5	7,800		(5,745		)	2,055
Customer backlog	(a)	10,540		(9,459		)	1,081
Trademark/trade name portfolio	5	3,667		(2,894		)	773
Patents	2	200		(200		)	—
Other intangible assets	(b)	130		—			$	130
Total		$	29,237	$	(23,703	)	$	5,534

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)



Intangible Asset Class	Weighted Average Useful Life (in Years)	At June 29, 2012
Intangible Asset Class	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net
Customer relationships	5	$	7,245	$	(4,407	)	$	2,838
Purchased technology	5	7,800		(4,980		)	2,820
Customer backlog	(a)	10,695		(9,115		)	1,580
Trademark/trade name portfolio	5	3,738		(2,365		)	1,373
Patents and other	2	340		(276		)	64
Total		$	29,818	$	(21,143	)	$	8,675

(a) The customer backlog intangible asset is amortized as revenue recognition criteria is met for a particular customer order, reflecting the use of the asset.

(b) Other intangible asset with an indefinite life

Intangible assets amortization expense was $0.9 million and $1.2 million in the three months ended March 29, 2013 and March 30, 2012, respectively. Intangible assets amortization expense was $2.8 million and $4.1 million in the nine months ended March 29, 2013 and March 30, 2012, respectively.

As of March 29, 2013, expected amortization expense for all intangible assets was as follows (in thousands):



Fiscal Year	Amortization Expense
2013 (remaining three months)	$	891
2014	3,288
2015	473
2016	393
2017 and thereafter	489
	$	5,534

8. OTHER ASSETS

Other assets consist of the following (in thousands):



	March 29, 2013		June 29, 2012
Long-term service inventory	$	15,407	$	13,494
Restricted pension plan assets	7,750		7,318
Deferred tax assets	15,438		15,438
Long-term refundable deposits	3,349		3,943
Other assets	2,547		4,689
Total other assets	$	44,491	$	44,882

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

9. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):



	March 29, 2013		June 29, 2012
Accrued sales and use tax payable	$	16,068	$	10,795
Deferred tax liabilities	15,158		15,158
Accrued warranty, current portion	3,643		4,054
Accrued professional services fees	5,142		5,657
Income taxes payable	371		1,740
Accrued restructuring and severance	1,878		1,849
Other	12,283		9,334
Total other current liabilities	$	54,543	$	48,587

10. OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consist of the following (in thousands):



	March 29, 2013		June 29, 2012
Accrued warranty, non-current portion	$	2,653	$	3,248
Other	1,951		3,566
Total other non-current liabilities	$	4,604	$	6,814

11. WARRANTY RESERVE

Activity in the warranty reserve, which is included in other current and non-current liabilities, was as follows (in thousands):



	Three Months Ended						Nine Months Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012
Balance at beginning of period	$	6,541		$	8,036		$	7,302		$	7,578
Current period accrual	1,150			1,308			3,404			4,627
Warranty expenditures charged to accrual	(1,154		)	(1,341		)	(3,554		)	(3,751		)
Changes in accrual for pre-existing warranties	(241		)	(439		)	(856		)	(890		)
Balance at end of period	$	6,296		$	7,564		$	6,296		$	7,564

12. RESTRUCTURING ACTIVITY

On March 16, 2012, the Company's Board of Directors approved a restructuring action to streamline operations and decrease operating expense, reducing approximately 25% of the Company's European workforce and closing certain legal entities and offices in Europe.

In connection with the restructuring action, the Company expects to incur pre-tax cash charges (including charges recorded in fiscal 2012) between $14.0 million and $17.0 million, which consist of pre-tax cash charges between $13.0 million and $16.0 million for employee termination benefits, and up to $1.0 million for the planned office and legal entity closures, which expenses include contract termination costs and other associated costs. The Company expects to recognize the majority

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

of the expense associated with the employee termination benefits during fiscal 2013. Total expense incurred in connection with this restructuring plan for the three and nine months ended March 29, 2013 was $0.7 million and $5.1 million, respectively.

The restructuring expense is included in operating expenses in the accompanying condensed consolidated statements of operations. The total restructuring liability was $1.3 million as of March 29, 2013, all of which is classified as current liabilities in the accompanying consolidated balance sheet.

Activity in accrued restructuring for this restructuring action through March 29, 2013 was as follows (in thousands):



	Employee Terminations
Balance at June 29, 2012	$	1,621
Costs incurred	1,474
Cash payments	(2,377		)
Balance at September 28, 2012	718
Costs incurred	2,866
Cash payments	(578		)
Balance at December 28, 2012	3,006
Costs incurred	740
Cash payments	(2,418		)
Balance at March 29, 2013	$	1,328

13. CREDIT FACILITY

On December 5, 2011, the Company entered into a five-year senior secured credit facility in the aggregate principal amount of $35.0 million. The availability under the credit facility is limited to a borrowing base, subject to meeting certain conditions set forth in the credit facility. The credit facility includes a feature that allows the Company to increase the revolver amount in the first 18 months. The Company exercised this feature, and on May 1, 2012, the revolver amount was increased by $5.0 million to an aggregate principal amount of $40.0 million. On February 25, 2013, the Company amended the agreement and reduced the revolver amount by $15.0 million from an aggregate principal amount of $40.0 million to $25.0 million. The credit facility includes a $10.0 million letter of credit subfacility. See Note 20 "Commitments and Contingencies" for more information regarding the letter of credit.

The availability of the aggregate principal amount under the credit facility will fluctuate, generally monthly, based on eligible domestic accounts receivable and inventory due to a variety of factors including the Company's overall mix of sales and resulting accounts receivable with international and domestic customers, United States governmental agencies and a few individual customer accounts which may result in high concentrations of accounts receivable as compared to the overall level of the Company's accounts receivable. The credit facility contains financial covenants including, under certain conditions, maintaining a minimum fixed charge coverage ratio, as well as other non-financial covenants, including restrictions on declaring and paying dividends, and is secured by substantially all of the Company's assets. The credit facility terminates on December 5, 2016. Borrowings under the credit facility bear interest based on a rate of the Company's choice equal to either: 1) the LIBOR plus a margin of 2.50 percent per annum or 2) the base rate plus a margin of 1.75 percent per annum. The base rate is the greater of (a) the Federal Funds rate plus 0.50 percent, (b) the LIBOR rate plus 1.00 percent or (c) the prime rate of the financial institution. The LIBOR rate and the base rate are determined at the specified date preceding or at the time of the borrowing in accordance with the terms of the credit facility. In addition, unused line fees are payable on the credit facility at rates of 0.40 percent per annum.

In December 2012, the Company made a $15.7 million payment to pay off the outstanding balance on the credit facility, which included $0.4 million of accrued interest. Accordingly, as of March 29, 2013, the Company had no outstanding balance owed on the credit facility. As of March 29, 2013, the maximum amount available to be borrowed under the credit facility was approximately $23.0 million which takes into account a $2.0 million outstanding letter of credit to back the Company's obligation to pay for goods or services to a supplier. The Company was in compliance with all covenants as of March 29, 2013.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

14. SHARE-BASED COMPENSATION

During the three and nine months ended March 29, 2013 and March 30, 2012, the Company granted stock options and restricted stock units to employees and non-employee directors under its 2005 Equity Incentive Plan and issued shares of the Company's common stock to participating employees under its 2005 Employee Stock Purchase Plan. Total share-based compensation expense was as follows (in thousands):



	Three Months Ended				Nine Months Ended
	March 29, 2013		March 30, 2012		March 29, 2013		March 30, 2012
Cost of revenue	$	391	$	368	$	1,262	$	1,035
Research and development	619		526		1,746		1,548
Sales and marketing	473		458		1,282		1,258
General and administrative	1,326		2,264		3,526		4,084
Total share-based compensation expense	$	2,809	$	3,616	$	7,816	$	7,925

Determining Fair Value

The fair value of share-based awards was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for the following periods:



	Three Months Ended						Nine Months Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012
Option Plans Shares
Risk-free interest rate	0.8		%	0.8		%	0.7		%	1		%
Volatility	65.1		%	63.8		%	66.1		%	70.0		%
Weighted average expected life (in years)	5.00			4.76			5.00			4.73
Expected dividend yield	—			—			—			—
Weighted average fair value	$	5.66		$	5.36		$	4.83		$	7.17

ESPP Plan shares
Risk-free interest rate	0.2		%	0.2		%	0.2		%	0.2		%
Volatility	82.6		%	76.1		%	83.0		%	78.4		%
Weighted average expected life (in years)	1.25			1.25			1.25			1.25
Expected dividend yield	—			—			—			—
Weighted average fair value	$	5.77		$	4.37		$	4.75		$	5.38

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Stock Option Activity

A summary of stock option activity for the nine months ended March 29, 2013 was as follows:



	Options Outstanding
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual term in years	Aggregate Intrinsic Value
						(in thousands)
Balance at June 29, 2012	3,703,660		$	10.79
Options granted	154,000		8.87
Options exercised	(1,215,356	)	10.74
Options cancelled	(215,661	)	12.40
Balance at March 29, 2013	2,426,643		$	10.55	6.96	$	9,503
Vested and expected to vest at March 29, 2013	2,271,522		$	10.57	6.85	$	8,818
Exercisable at March 29, 2013	1,472,902		$	10.91	5.92	$	5,827

The total intrinsic value of options exercised in the nine months ended March 29, 2013 and March 30, 2012 was $3.9 million and $1.0 million, respectively. The total fair value of shares vested during the nine months ended March 29, 2013 and March 30, 2012 was $3.2 million and $2.2 million, respectively.

As of March 29, 2013, there was $2.1 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.14 years.

Restricted Stock Unit Activity

The following table summarizes the Company's activity with respect to restricted stock units (“RSUs”) for the nine months ended March 29, 2013:



	Number of Shares
Balance at June 29, 2012	918,764
Awarded	950,139
Released	(295,118	)
Forfeited	(117,250	)
Balance at March 29, 2013	1,456,535
Vested and expected to vest at March 29, 2013	1,128,162

In August 2012, the Company granted time-based RSUs ("executive time-based RSUs") and performance-based RSUs (“executive PSUs”) to members of the Company's executive management team. The executive time-based RSUs vest over four years, with 25% vesting after one year and an additional 6.25% vesting quarterly thereafter, subject to the recipient's continuous service through each vesting date. The executive PSUs are eligible to vest upon the achievement of certain financial performance criteria for the Company for fiscal 2013. If the performance criteria are not met, none of the executive PSUs will vest and will be forfeited. If the performance criteria are met, 25% of the executive PSUs would vest following the Company's public announcement of financial results for fiscal 2013 and the remaining 75% of the executive PSUs would vest in three annual installments thereafter, subject to the recipient's continued service through each vesting date. For purposes of reporting and determining the share-based compensation expense, the company estimated that 298,000 PSUs will be awarded as of March 29, 2013. The Company assesses the achievement of these performance metrics on a quarterly basis.

As of March 29, 2013, there was $8.7 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted average period of 2.74 years.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

RSUs are converted into common stock upon vesting. Upon the vesting of RSUs, the Company generally withholds a portion of the shares to cover applicable taxes and decreases the shares issued to the employee by a corresponding value. The withholding tax obligations are based upon the fair market value of the Company’s common stock on the vesting date. The number and the value of the shares withheld for tax purposes are summarized in the table below (in thousands except share amounts):



	Three Months Ended				Nine Months Ended
	March 29, 2013		March 30, 2012		March 29, 2013		March 30, 2012
RSUs shares withheld for taxes	66,254		22,673		113,399		79,730
RSUs amounts withheld for taxes	$	995	$	222	$	1,371	$	1,040

Employee Stock Purchase Plan

At March 29, 2013, the total unrecognized compensation cost related to rights to purchase the Company's common stock under the employee stock purchase plan ("ESPP") was approximately $1.5 million. This cost will be amortized on a straight-line basis over approximately 1.9 years. The following table shows the shares issued and their respective weighted-average purchase price per share, pursuant to the ESPP, during the three and nine months ended March 29, 2013 and March 30, 2012. Beginning in February 2013, the Company offered this benefit to employees in various international locations. Prior to that, the ESPP was offered primarily to employees located in the U.S.



	Three Months Ended				Nine Months Ended
	March 29, 2013		March 30, 2012		March 29, 2013		March 30, 2012
Shares issued	256,972		248,785		485,707		508,132
Weighted-average purchase price per share	$	6.76	$	6.87	$	7.09	$	6.42

15. STOCK REPURCHASE PROGRAM

On January 11, 2013, the Company's board of directors approved a plan for the Company to repurchase shares of its common stock with a market value of up to $15.0 million. The Company's common stock may be repurchased in the open market or through negotiated transactions, including 10b5-1 trading plans that would enable the company to repurchase its shares during periods outside of its normal trading windows. The repurchase program expires December 31, 2014. Purchases will cease if the authorized funds are spent or the program is discontinued. The Company is not obligated to acquire any particular amount of stock, and the program may be suspended or terminated at any time at the company's discretion.

The following table shows the total number of shares repurchased during the period (in thousands, except per share amount):



	Treasury Stock
	Number of Shares	Amount		Average Purchase Price Per Share
Balance at June 29, 2012	749	$	4,912	$	6.56
Repurchase of Treasury Stock:
Three months ended March 29, 2013	30	440		$14.83
Balance at March 29, 2013	779	$	5,352	$	6.87

Amount available to purchase		$	14,560

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

16. EARNINGS PER SHARE

Basic net income (loss) per common share is computed by dividing unaudited consolidated net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing consolidated net income (loss) by the weighted average number of common shares outstanding and dilutive common shares outstanding during the period. The dilutive effect of outstanding options and RSUs is reflected in diluted net income per share, but not diluted loss per share, by application of the treasury stock method, which includes consideration of share-based compensation required by accounting principles generally accepted in the U.S.

The following table sets forth the computation of basic and diluted net income (loss) per share for the three and nine months ended March 29, 2013 and March 30, 2012 (in thousands, except per share amount):



	Three Months Ended					Nine Months Ended
	March 29, 2013		March 30, 2012			March 29, 2013		March 30, 2012
Numerator:
Net income (loss)	$	9,224	$	(1,162	)	$	1,645	$	(6,075	)

Denominator:
Weighted-average common shares - basic	33,201		31,783			32,593		31,557
Effect of dilutive potential common shares	1,266		—			702		—
Weighted-average common shares - diluted	34,467		31,783			33,295		31,557

Basic net income (loss) per share	$	0.28	$	(0.04	)	$	0.05	$	(0.19	)
Diluted net income (loss) per share	$	0.27	$	(0.04	)	$	0.05	$	(0.19	)

The following potential common shares have been excluded from the basic net income (loss) per share calculations, as their effect would have been anti-dilutive (in thousands):

Three Months Ended

Nine Months Ended

March 29,
2013

March 30,
2012

March 29, 2013

March 30, 2012

Options, RSUs, and ESPP

2,623

4,702

3,230

4,761

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

17. RETIREMENT BENEFIT PLAN

Defined Benefit Plans

The Company sponsors defined benefit plans covering certain of its employees in Germany ("German plan") and Japan ("Japan plan").

The net periodic benefit cost of the German and Japan plans were comprised of the following components (in thousands):



	Three Months Ended						Nine Months Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012
Net periodic benefit cost
Service cost	$	170		$	178		$	524		$	694
Interest expense	144			155			426			508
Expected return on plan assets	(45		)	(44		)	(138		)	(137		)
Amortization of actuarial losses	44			—			129			—
Loss on settlement	—			—			—			992
Gain from curtailment	—			—			—			(1,265		)
Net periodic benefit cost	$	313		$	289		$	941		$	792

In October 2011, SGI Japan, Ltd ("SGI Japan"), its employees, and the Japanese Ministry of Health, Labor and Welfare approved an action to change SGI Japan's retirement benefit plan effective October 1, 2011 in accordance with the Defined Benefit Corporate Pension Law and Defined Contribution Corporate Pension Law of 2001 (the "Acts"). SGI Japan shifted a portion of its defined benefit plan to a defined contribution plan and modified the terms of its defined benefit plan in accordance with the Acts. The change in the retirement benefit plan reduced SGI Japan's retirement benefit obligation and resulted in a gain from curtailment of $1.3 million and a loss from settlement of $1.0 million for the nine months ended March 30, 2012.

18. INCOME TAXES

The Company recorded a tax benefit of $8.1 million and $11.6 million for the three and nine months ended March 29, 2013, respectively. The tax benefit primarily was comprised of the reversal of previously recorded unrecognized tax benefits in Canada and Israel, and a refund of provincial taxes in Canada, partially offset by tax liability computed based on the Company’s projected foreign financial results for the year ending June 28, 2013, state taxes, and tax and interest for unrecognized tax benefits. The reversal of the unrecognized tax benefits in Canada and the recording of a provincial refund due to the Company was the result of the conclusion of an income tax audit for fiscal years 1996 to 2004 by the Canada Revenue Agency. The Company also recorded a tax benefit for the abatement of interest granted by the Canada Revenue Agency. The effective tax rate differed from the combined federal and net state statutory income tax rate for the three and nine months ended March 29, 2013 primarily due to the tax rate differential of the Company's foreign operations, utilization of net operating losses, audit settlements and reversals of previously accrued taxes in foreign jurisdictions.

The Company recorded a tax expense of $0.5 million and a tax benefit of $0.1 million for the three and nine months ended March 30, 2012, respectively. The net tax benefit was primarily comprised of tax liability computed based on the Company's foreign projected financial results for the year ending June 29, 2012 offset by the reversals of unrecognized tax benefits including related interest. The effective tax rate differed from the combined federal and net state statutory income tax rate for the three and nine months ended March 30, 2012 primarily due to tax expense incurred by the Company's foreign subsidiaries with operating income, offset by the release of the unrecognized tax benefits due to lapse of statute of limitations, benefits from reversals of previously accrued taxes in foreign jurisdictions and benefit from utilization of net operating losses not previously recognized.

As of March 29, 2013, the Company has provided a partial valuation allowance against its net deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination.

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The Company had approximately $4.8 million of gross unrecognized tax benefit as of March 29, 2013, of which $2.6 million will impact the effective tax rate when recognized. The Company recognizes interest expense and penalties related to the unrecognized tax benefits within income tax expense. As of March 29, 2013, the Company also had approximately $8.6 million of interest and penalties attributable to the gross unrecognized tax benefits.

The income tax audit of fiscal years 1996 to 2004 by the Canadian tax authorities was concluded during the quarter ended March 29, 2013. The Company recorded a tax benefit of approximately $8.4 million and $12.7 million for the three and nine months ended March 29, 2013, comprised primarily of the abatement of interest granted by the Canada Revenue Agency, the reversal of previously recorded unrecognized tax benefits, and a provincial refund due to the Company as a result of the conclusion of the audit. It is reasonably possible that over the next twelve month period, the Company may experience an increase or a decrease in other unrecognized tax benefits.

19. SEGMENT INFORMATION

The Company manages its business primarily on a geographical basis. Accordingly, the Company determined its operating and reporting segments, which are generally based on the location of its sales and service employees generating revenue, to be the Americas, Europe, and Asia-Pacific operations. The Americas segment includes both North and South America. The Europe segment ("EMEA") includes European countries, as well as the Middle East and Africa. The Asia-Pacific segment ("APJ") includes Australia, Japan, and all other Asian countries.

The Company's operating segments are determined based upon several criteria including: the Company's internal organizational structure; the manner in which the Company's operations are managed; the criteria used by the Company's Chief Executive Officer, the Chief Operating Decision Maker (“CODM”), to evaluate segment performance; and the availability of separate financial information. The accounting policies of the various segments are the same as those described in Note 3. Summary of Significant Accounting Policies of this Form 10-Q and in Note 2 of the Consolidated Financial Statements in the Company's fiscal year 2012 Annual Report on Form 10-K.

The Company's CODM evaluates the performance of its operating segments based on revenue and operating profit (loss). Revenues are generally based on the location of its sales and service employees generating revenues. Operating profit (loss) for each segment includes related cost of sales and operating expenses directly attributable to the segment. A significant portion of the segments’ expenses arise from shared services and infrastructure that the Company has historically provided to the segments in order to realize economies of scale and to efficiently use resources. These expenses, collectively called corporate charges, include costs of centralized research and development, legal, accounting, information technology services, treasury and other corporate infrastructure expenses. These corporate charges are allocated to the segments and are reassessed on an annual basis. The allocations have been determined on a basis that the Company considers to be a reasonable reflection of the utilization of services provided to or benefits received by the segments. The Company does not include intercompany transfers between segments for management reporting purposes.

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Segment Results

Summary information by operating segment for the three and nine months ended March 29, 2013 and March 30, 2012 is as follows (in thousands):



	Three Months Ended						Nine Months Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012
Total revenue
Americas	$	142,215		$	128,321		$	377,958		$	350,434
APJ	36,314			44,660			108,483			141,639
EMEA	54,059			26,409			110,254			81,426
Total revenue	$	232,588		$	199,390		$	596,695		$	573,499

Product revenue
Americas	$	119,341		$	107,580		$	312,681		$	285,065
APJ	19,854			25,253			59,280			81,144
EMEA	47,945			17,406			89,534			56,025
Total product revenue	$	187,140		$	150,239		$	461,495		$	422,234

Service revenue
Americas	$	22,874		$	20,741		$	65,277		$	65,369
APJ	16,460			19,407			49,203			60,495
EMEA	6,114			9,003			20,720			25,401
Total service revenue	$	45,448		$	49,151		$	135,200		$	151,265

Operating income (loss)
Americas	$	8,374		$	(2,083	)	$	13,005		$	(348	)
APJ	3,018			1,749			342			3,710
EMEA	(9,906		)	(1,157		)	(21,734		)	(9,169		)
Total operating income (loss)	$	1,486		$	(1,491	)	$	(8,387	)	$	(5,807	)

The Company derives the results of the business segments directly from its internal management reporting system. The presentation of our revenue for segment information purposes differs from the accompanying unaudited condensed consolidated statements of operations. The segment information is presented on the basis which the Company's CODM evaluates the performance of its operating segments. The combined product and service revenue is allocated to product and service revenue on a contractual basis for segment information purposes.

The Company's assets are located primarily in the United States and are not allocated to any specific region. The Company does not measure the performance of its geographic regions on any asset-based metrics. Therefore, geographic information is presented only for revenue and operating profit (loss).

Customer information

For the three months ended March 29, 2013, two customers from the Americas segment each accounted for approximately 13% of the Company's revenue and various agencies of the United States government, excluding system integrators (collectively, U.S. government), accounted for approximately 26% of the Company's revenue. For the three months ended March 30, 2012, two customer from the Americas segment each accounted for approximately 13% of the Company's revenue.

For the nine months ended March 29, 2013, one customer from the Americas segment accounted for approximately 16% of the Company's revenue and various agencies of the U.S. government, excluding system integrators, accounted for

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

approximately 18% of the Company's revenue. For the nine months ended March 30, 2012, one customer from the Americas segment accounted for approximately 14% of the Company's revenue.

At March 29, 2013, one customer accounted for approximately 15% of the Company's accounts receivable. At June 29, 2012, one customer accounted for approximately 28% of the Company's accounts receivable.

Geographic Information

International sales to Japan and France both accounted for 10% or more of total revenue, were $66.7 million or 29% for the three months ended March 29, 2013. For the nine months ended March 29, 2013, our international sales to Japan, the only single foreign country which accounted for 10% or more of total revenue, were $83.7 million or 14% of revenues. For the three and nine months ended March 30, 2012, our international sales to Japan, the only single foreign country which accounted for ten percent or more of revenues, were $35.7 million or 18%, and $111.0 million or 19% of revenues, respectively. No other individual foreign country's revenue accounted for 10% or more of revenues in the three and nine months ended March 29, 2013 and March 30, 2012.

20. FINANCIAL GUARANTEES

The Company has issued financial guarantees to cover rent on leased facilities and equipment, to government authorities for value-added tax and other taxes and to various other parties to support payments in advance of future delivery on goods and services. The majority of the Company's financial guarantees have terms of one year or more. The maximum potential obligation under financial guarantees at March 29, 2013 was $3.8 million for which the Company has $3.6 million of assets held as collateral. The full amount of the assets held as collateral are included in short-term and long-term restricted cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets.

21. COMMITMENTS AND CONTINGENCIES

Letter of Credit

The Company's credit facility includes a $10.0 million letter of credit subfacility. As of March 29, 2013, the Company has $2.0 million of outstanding letter of credit to back the Company's obligation to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods or services to a supplier. See Note 13 for more information regarding the credit facility.

Indemnification Agreements

The Company enters into standard indemnification agreements with its customers and certain other business partners in the ordinary course of business. These agreements include provisions for indemnifying the customer against any claim brought by a third party to the extent any such claim alleges that the Company's product infringes a patent, copyright or trademark, or misappropriates a trade secret, of that third party. The agreements generally limit the scope of the available remedies in a variety of industry-standard methods, including, but not limited to, product usage and geography-based limitations, a right to control the defense or settlement of any claim, and a right to replace or modify the infringing products to make them non-infringing. The Company has not incurred significant expenses related to these indemnification agreements and no material claims for such indemnifications were outstanding as of March 29, 2013. As a result, the Company believes the estimated fair value of these indemnification agreements, if any, to be immaterial; accordingly, no liability has been recorded with respect to such indemnifications as of March 29, 2013.

Contingencies

The Company may, from time to time, be involved in legal proceedings and disputes that arise in the normal course of business. These matters include product liability actions, patent infringement actions, contract disputes, domestic and international federal, state and local tax reviews and audits, and other matters. The Company also may be subject to litigation and/or adverse rulings or judgments as a result of certain contractual indemnification obligations. The Company records a provision for a liability when management believes that it is both probable that a liability has been incurred and it can reasonably estimate the amount of the loss. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

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SILICON GRAPHICS INTERNATIONAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Third parties in the past have asserted, and may in the future assert, intellectual property infringement claims against the Company, and such future claims, if proven, could require the Company to pay substantial damages or to redesign its existing products or pay fees to obtain cross-license agreements. Litigation may be necessary in the future to enforce or defend the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of its proprietary rights or the proprietary rights of others. Any such litigation could result in substantial costs and diversion of management resources, either of which could harm the Company's business, operating results and financial condition. Further, many of the Company's current and potential competitors have the ability to dedicate substantially greater resources to enforcing and defending their intellectual property rights than the Company.

Additionally, from time to time, the Company receives inquiries from regulatory agencies informally requesting information or documentation. There can be no assurance in any given case that such informal review will not lead to further proceedings involving the Company in the future.

The Company is not aware of any pending disputes, including those outlined above, that would be likely to have a material adverse effect, either individually or in the aggregate, on its consolidated financial condition, results of operations or liquidity. However, litigation is subject to inherent uncertainties and costs and unfavorable outcomes could occur. An unfavorable outcome could include the payment of monetary damages, cash or other settlement, or an injunction prohibiting it from selling one or more products. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the Company's consolidated financial condition, results of operations or cash flows of the period in which the resolution occurs or on future periods.

Other Commitments

For a description of significant leases and purchase commitments see Note 24 of the Company's Annual Report on Form 10-K filed with the SEC on September 10, 2012.

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included or incorporated by reference in this Form 10-Q other than statements of historical fact, are forward-looking statements. Investors can identify these and other forward-looking statements by the use of words such as “estimate,” “may,” “will,” “could,” “anticipate,” “expect,” “intend,” “believe,” “continue” or the negative of such terms, or other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements also include the assumptions underlying or relating to such statements.

Our actual results could differ materially from those projected in the forward-looking statements included herein as a result of a number of factors, risks and uncertainties, including, among others, changes in the anticipated amounts and timing of restructuring charges to be incurred and cost savings expected to be realized from our restructuring actions in Europe, our ability to successfully execute our strategies, the risks discussed in this Part I, Item 2 -"Management's Discussion and Analysis of Financial Condition and Results of Operations,” the risk factors set forth in Part II, Item 1A- "Risk Factors” and elsewhere in this Form 10-Q, the risk factors set forth in our Annual Report on Form 10-K for the year ended June 29, 2012 filed with the Securities and Exchange Commission (the “SEC”) on September 10, 2012 (our “Annual Report”), and the risks detailed from time to time in our future reports filed with the SEC. The information included herein is as of the filing date of this Form 10-Q with the SEC and future events or circumstances could differ materially from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on these forward-looking statements. Unless required by law, we expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written or oral forward-looking statements attributable to SGI or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Readers are urged to carefully review and consider the various disclosures made in this report and other documents we file from time to time with the SEC to advise interested parties of the risks and factors that may affect our business.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in Part I, Item 1 in this Form 10-Q and with our financial statements and notes thereto for the year ended June 29, 2012 contained in our Annual Report.

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Overview

We are a global leader in technical computing. We are focused on helping customers solve their most demanding business and technology challenges by delivering large-scale computing and storage, high-performance compute and storage, and data center solutions. We develop, market, and sell a broad line of low cost, mid-range and high-end computing servers and data storage as well as differentiating software. We sell data center infrastructure products purpose-built for large-scale data center deployments. In addition, we provide global customer support and professional services related to our products. We enable enterprises to meet their computing and storage requirements at a lower total cost of ownership and provide them greater flexibility and scalability. We are also a leading developer of enterprise class, high-performance features for the Linux operating system that provide our customers with a standard Linux operating environment combined with our differentiated yet un-intrusive Linux capabilities that are designed to improve performance, simplify system management, and provide a more robust development environment.

Management has implemented a strategic plan which will drive changes in three major areas. First, we are targeting our investments towards the vertical markets where we can provide the highest value to our customers and differentiate our offerings to gain both market share and margin. Second, we are investing and aligning with key partners in order to provide our customers with integrated solutions in Big Data, storage and scale-up computing. Third, management is focusing on initiatives to improve our operational performance and cost structure. We have ongoing efforts to reduce material and other manufacturing costs. We believe that this strategic plan will help create a strong foundation for our business results in the long-term.

Our revenue mix by geography shows that we continue to have strong international presence with 41.4% and 39.6% of total revenue from sales outside of the U.S. in the three and nine months ended March 29, 2013, respectively. In addition, our customer base continues to expand in various sectors, including the public, cloud and manufacturing sectors.

Results of Operations

Summarized below are the results of our operations for the three and nine months ended March 29, 2013 as compared to the three and nine months ended March 30, 2012.

Financial Highlights

•

Our total revenue for the three months ended March 29, 2013 was $232.6 million, an increase of $33.2 million or 16.6%, from the comparable period in fiscal year 2012. In addition, revenue increased $23.2 million or 4.0% to $596.7 million in the nine months ended March 29, 2013 from $573.5 million in the nine months ended March 30, 2012. The increase was due primarily as a result of increased product sales n our product sales in our EMEA and Americas segments, where we recognized a number of significant large deals during the quarter. This was slightly offset by decreased service revenue in our EMEA and APJ geographic segments.

•

Our overall gross margin decreased by 3.2 percentage points from 25.8% in the three months ended March 30, 2012 to 22.6% in the three months ended March 29, 2013. The unfavorable change in the overall gross margin in the three months ended March 29, 2013 was due to unfavorable margins resulting from two significant low margin deals recognized during the third quarter of fiscal 2013. Our overall gross margin decreased by 3.5 percentage points from 27.3% in the nine months ended March 30, 2012 to 23.8% in the nine months ended March 29, 2013. The decrease for the nine months ended March 29, 2013 was also a result of the low margin deals previously discussed as well as a number of similar deals recognized during the first quarter of fiscal 2013 in Japan and EMEA. In addition, we also experienced higher excess and obsolete inventory charges during the first nine months of fiscal 2013. Our service margins declined by 6.5 percentage points and 5.2 percentage points for both the three and nine months ended March 29, 2013, respectively, largely as a result of lower support services revenue as our new products replace our installed base of older generation products which had higher margin support contracts. Typically our service revenue is recognized ratably over the respective service periods.

•

Our research and development and selling, general and administrative expenses were $50.3 million in the three months ended March 29, 2013 compared to $53.0 million in the prior year comparable quarter. Our research and development and selling, general and administrative expenses was $145.6 million for nine months ended March 29, 2013, a decrease of $16.4 million compared to $162.0 million for the nine months ended March 30, 2012. A primary driver of this decline was the decrease in compensation and related expenses due to reductions in headcount. Total headcount as of March 29, 2013 was 1,437, which reflects a reduction of 125 employees from 1,562 as of March 30, 2012 due to restructuring actions in fiscal 2012 and 2011 attrition. The savings from the headcount reductions more than offset the increases in salaries and wages due to merit increases. We have also been controlling our costs across all functions in order to streamline our operations and reduce operating expenses and have also benefited from lower charges for the amortization of intangible assets as these assets are nearing full amortization.

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•	We incurred restructuring expense of $0.7 million and $5.1 million in the three and nine months ended March 29, 2013, respectively, as part of the fiscal 2012 restructuring action primarily focused on cost reductions in Europe.

•

We recognized net income for the three months ended March 29, 2013 of $9.2 million compared to net loss of $1.2 million in the comparable quarter last year. Net income for the nine months ended March 29, 2013 was $1.6 million, compared to a net loss of $6.1 million for the nine months ended March 30, 2012. The $10.4 million increase in our net income for the three months ended March 29, 2013 compared to the comparable quarter last year was mainly driven by the income tax benefit recorded as a result of reversals of unrecognized tax benefits as well as our decreased cost structure. This was partially offset by two significant low margin deals that were recognized during the quarter. The $7.7 million increase in net income from the nine months ended March 30, 2012 was mainly driven by income tax benefit recorded as a result of unrecognized tax benefits, the decrease in our total operating expenses, which was partially offset by low margin deals that were recognized during the first and third quarters of fiscal 2013.


•	We are continuing to streamline our operations and have tight controls over our spending in order to help achieve our long-term operating target goals.

Revenue, cost of revenue, gross profit and gross margin

Our revenue mix by geography shows that we continue to have a strong international presence with 41.4% and 39.6% of total revenue attributed to international sales in the three and nine months ended March 29, 2013, respectively. In addition, our customer base continues to expand in various sectors, including the public, cloud and manufacturing sectors.

The following table presents revenue by operating segment for the three and nine months ended March 29, 2013 and March 30, 2012 (in thousands except percentages):



	Three Months Ended				Change				Nine Months Ended				Change
	March 29, 2013		March 30, 2012		$			%	March 29, 2013		March 30, 2012		$			%
Total revenue
Americas	$	142,215	$	128,321	$	13,894		10.8%	$	377,958	$	350,434	$	27,524		7.9%
APJ	36,314		44,660		(8,346		)	(18.7)%	108,483		141,639		(33,156		)	(23.4)%
EMEA	54,059		26,409		27,650			104.7%	110,254		81,426		28,828			35.4%
Total revenue	$	232,588	$	199,390	$	33,198		16.6%	$	596,695	$	573,499	$	23,196		4.0%

Product revenue
Americas	$	119,341	$	107,580	$	11,761		10.9%	$	312,681	$	285,065	$	27,616		9.7%
APJ	19,854		25,253		(5,399		)	(21.4)%	59,280		81,144		(21,864		)	(26.9)%
EMEA	47,945		17,406		30,539			175.5%	89,534		56,025		33,509			59.8%
Total product revenue	$	187,140	$	150,239	$	36,901		24.6%	$	461,495	$	422,234	$	39,261		9.3%

Service revenue
Americas	$	22,874	$	20,741	$	2,133		10.3%	$	65,277	$	65,369	$	(92	)	(0.1)%
APJ	16,460		19,407		(2,947		)	(15.2)%	49,203		60,495		(11,292		)	(18.7)%
EMEA	6,114		9,003		(2,889		)	(32.1)%	20,720		25,401		(4,681		)	(18.4)%
Total service revenue	$	45,448	$	49,151	$	(3,703	)	(7.5)%	$	135,200	$	151,265	$	(16,065	)	(10.6)%

Revenue. We derive revenue from the sale of products and services directly to end-users as well as through resellers and system integrators. Product revenue is derived from the sale of mid-range to high-end computing servers and data storage systems as well as software. We enter into sales contracts to deliver multiple products and/or services. In accordance with our revenue recognition policy, certain sales contracts are deferred and recognized over the service period. Service revenue is generated from the sale of standard maintenance contracts as well as custom maintenance contracts that are tailored to individual customers' needs. We recognize service revenue ratably over the service periods. Maintenance contracts are typically between one to three years in length and we actively pursue renewals of these contracts. We also generate professional services revenue related to implementation of and training on our products.

We continuously make revisions to our product offerings and improvements of our product's performance and data storage capacity. Accordingly, we are unable to directly compare our products from period to period, and are therefore unable

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to quantify the changes in pricing of our products from period to period. We believe that our on-going revisions to product offerings and product feature improvements help mitigate competitive pricing pressures by shifting the competitive landscape to differentiated value rather than price.

Segment Operating Performance

Americas

Revenue from our Americas segment increased $13.9 million or 10.8% to $142.2 million in the three months ended March 29, 2013 from $128.3 million in the three months ended March 30, 2012. The increase in Americas revenue was driven by higher product revenue as well as an increase in service revenue. Product revenue increased by $11.8 million primarily due to the strength in sales of our scale-out compute solutions, software and third party products. This increase in product revenue was partially offset by a decrease in sales of our scale-up solutions. We also experienced an increase in service revenue of $2.1 million primarily as a result of the sale of standard maintenance contracts as well as custom maintenance contracts that are associated with our customers using new products or replacing their existing installed base of older generation products. The increase in service revenue is primarily due to timing of when services were performed on consulting and product integration services. Our service revenue is typically recognized ratably over the respective service periods. The Americas segment represented 61.1% and 64.4% of the total revenue in the three months ended March 29, 2013 and March 30, 2012, respectively. The Americas segment represented a lower portion of total revenue during the three months ended March 29, 2013, primarily due to the significant increase in the EMEA segment.

Revenue from our Americas segment increased $27.5 million or 7.9% to $378.0 million in the nine months ended March 29, 2013 from $350.4 million in the nine months ended March 30, 2012. The increase in Americas revenue was driven primarily by higher product revenue as well as a decrease in service revenue of $0.1 million. Product revenue increased by $27.6 million primarily due to the strength in sales of our scale-out compute solutions, software and third party products. This increase in product revenue was partially offset by a decrease in sales of our scale-up compute and storage solutions. Our service revenue was $65.3 million in the nine months ended March 29, 2013, or about flat compared to comparable quarter last year. Service revenue will typically fluctuate due to timing of when services were performed on consulting and product integration services. Our service revenue is typically recognized ratably over the respective service periods. The Americas segment represented 63.3% and 61.1% of the total revenue in the nine months ended March 29, 2013 and March 30, 2012, respectively.

APJ

Revenue from our APJ segment decreased $8.3 million or 18.7% to $36.3 million in the three months ended March 29, 2013 from $44.7 million in the three months ended March 30, 2012. The revenue decline in APJ is primarily driven by lower product revenue for our scale-up and scale-out solutions and our third party products which was driven primarily in Japan. Our revenue for the three months ended March 29, 2013 is comprised of $19.9 million from product sales and $16.5 million from services compared to product and service revenue of $25.3 million and $19.4 million, respectively, for the three months ended March 30, 2012. The decrease in service revenue is primarily due to timing of when services were performed on consulting and product integration services as our new products replace our installed base of older generation products. During the three months ended March 30, 2012, we generated a large portion of revenue in Japan for professional services to assist our customers with the implementation of and training of new products. These types of services are typically non-recurring in nature as customers become more accustomed to our next generation products. We are also experiencing a slight deterioration in customer service contracts as existing maintenance contracts are lapsing at a faster rate than we are able to renew or enter into new contracts. The APJ segment represented 15.6% and 22.4% of the total revenue in the three months ended March 29, 2013 and March 30, 2012, respectively.

Revenue from our APJ segment decreased $33.2 million or 23.4% to $108.5 million in the nine months ended March 29, 2013 from $141.6 million in the nine months ended March 30, 2012. The revenue decline in APJ is primarily driven by lower product revenue for our scale-up and software solutions as well as third party products, partially offset by higher revenue generated in our scale-out solutions. Our revenue for the nine months ended March 29, 2013 is comprised of $59.3 million from product sales and $49.2 million from services compared to product and service revenue of $81.1 million and $60.5 million, respectively, for the nine months ended March 30, 2012. The decrease in service revenue is attributable to the timing of professional services provided as well as a slight deterioration in customer service maintenance contracts as discussed above. The APJ segment represented 18.2% and 24.7% of the total revenue in the nine months ended March 29, 2013 and March 30, 2012, respectively.

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EMEA

Revenue from our EMEA segment increased $27.7 million or 104.7% to $54.1 million in the three months ended March 29, 2013 from $26.4 million in the three months ended March 30, 2012. The increase in product revenue of $30.5 million is primarily driven by higher product revenue for our scale-out products as well as increases in our storage and scale-up solutions. This was offset by a slight decrease in service revenue of $2.9 million. The decrease in service revenue is attributable to the timing of professional services provided. We are also experiencing a slight deterioration in our customer service maintenance contracts as existing maintenance contracts are lapsing at a faster rate than we are able to renew or enter into new contracts. These types of services are typically non-recurring in nature as customers become more accustomed to our next generation products. The EMEA segment represented 23.2% and 13.2% of the total revenue in the three months ended March 29, 2013 and March 30, 2012, respectively.

Revenue from our EMEA segment increased $28.8 million or 35.4% to $110.3 million in the nine months ended March 29, 2013 from $81.4 million in the nine months ended March 30, 2012. The increase in revenue is primarily driven by higher products revenue for scale out products of $30.5 million as well as our storage solutions. This was offset by a decrease in service revenue of $4.7 million. The decrease in service revenue is attributable to the timing of professional services provided as well as a slight deterioration in customer service maintenance contracts as discussed above. The EMEA segment represented 18.5% of the total revenue in the nine months ended March 29, 2013 and 14.2% in the nine months ended March 30, 2012, respectively.

Cost of revenue and gross profit

Cost of revenue and gross profit for the three and nine months ended March 29, 2013 and March 30, 2012 were as follows (in thousands except percentages):



	Three Months Ended						Change				Nine Months Ended						Change
	March 29, 2013			March 30, 2012			$			%	March 29, 2013			March 30, 2012			$			%

Cost of product revenue	$	152,523		$	121,263		$	31,260		25.8%	$	372,470		$	333,347		$	39,123		11.7%
Cost of service revenue	27,573			26,617			956			3.6%	81,959			83,821			(1,862		)	(2.2)%
Total cost of revenue	$	180,096		$	147,880		$	32,216		21.8%	$	454,429		$	417,168		$	37,261		8.9%

Product gross profit	34,617			28,976			5,641			19.5%	89,025			88,887			138			0.2%
Service gross profit	17,875			22,534			(4,659		)	(20.7)%	53,241			67,444			(14,203		)	(21.1)%
Total gross profit	$	52,492		$	51,510		$	982		1.9%	$	142,266		$	156,331		$	(14,065	)	(9.0)%

Product gross margin	18.5		%	19.3		%					19.3		%	21.1		%
Service gross margin	39.3		%	45.8		%					39.4		%	44.6		%
Total gross margin	22.6		%	25.8		%					23.8		%	27.3		%

Cost of revenue consists of costs associated with direct material, labor, manufacturing overhead, shipment of products, inventory write downs and share-based compensation. Cost of revenue also includes personnel costs for providing maintenance and professional services. Our manufacturing overhead and professional services personnel costs are fixed or semi-variable. Our gross margins are impacted by changes in customer and product mix, pricing actions by our competitors and commodity prices that comprise a significant portion of cost of revenue from period to period. In addition, when certain sales contracts are deferred in accordance with our revenue recognition policy, the related cost of revenue is deferred and recognized upon recognition of revenue.

Our cost of revenue and gross profit are impacted by price changes, product configuration, revenue mix and product material costs. Our service cost of revenue and gross margin are impacted by timing of support service initiations and renewals, and incremental investments in our customer support infrastructure.

Overall gross profit increased by $1.0 million to $52.5 million in the three months ended March 29, 2013 from $51.5 million in the three months ended March 30, 2012 primarily due to an increase in revenue volume in the Americas segment. However, our overall gross margin decreased to 22.6% in the three months ended March 29, 2013 from 25.8% in the three months ended March 30, 2012. Our gross margin decreased primarily as a result of the low margin deals that occurred in the

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third quarter of fiscal 2013 in EMEA and Americas, impacting both our product and service margins. We also recorded higher excess and obsolete inventory charges during the three months ended March 29, 2013 compared to the three months ended March 30, 2012 which also contributed to the lower gross margin.

Overall gross profit decreased by $14.1 million to $142.3 million in the nine months ended March 29, 2013 from $156.3 million in the nine months ended March 30, 2012. Overall gross margin decreased to 23.8% in the nine months ended March 29, 2013 from 27.3% in the nine months ended March 30, 2012. Our gross margin decreased primarily as a result of the low margin deals described above as well as certain low margin deals that occurred in the first quarter of fiscal 2013 in Japan and EMEA. We also recorded higher excess and obsolete inventory charges during the nine months ended March 29, 2013 compared to the nine months ended March 30, 2012 which also contributed to the lower gross margin.

Product gross profit increased by $5.6 million to $34.6 million in the three months ended March 29, 2013 from $29.0 million in the three months ended March 30, 2012. Product gross margin decreased to 18.5% in the three months ended March 29, 2013 from 19.3% in the three months ended March 30, 2012. Product gross margin decreased by 0.8 percentage point on higher product revenue of $36.9 million primarily of the low margin deals that occurred in the third quarter of fiscal 2013 in EMEA and Americas. Service gross profit decreased $4.7 million or 20.7% to $17.9 million in the three months ended March 29, 2013 from $22.5 million in the three months ended March 30, 2012. Service gross margin decreased to 39.3% in the three months ended March 29, 2013 from 45.8% in the three months ended March 30, 2012 as a result of the low margin deals that were previously discussed.

Product gross profit increased $0.1 million or 0.2% to $89.0 million in the nine months ended March 29, 2013 from $88.9 million in the nine months ended March 30, 2012. Product gross margin decreased to 19.3% in the nine months ended March 29, 2013 from 21.1% in the nine months ended March 30, 2012 as a result of a few low margin product deals that occurred in both the first quarter of fiscal 2013 primarily in APJ and EMEA and the third quarter of fiscal 2013 in EMEA and the Americas compared to the nine month period ended March 30, 2012. Service gross profit decreased $14.2 million or 21.1% to $53.2 million in the nine months ended March 29, 2013 from $67.4 million in the nine months ended March 30, 2012. Service gross margin decreased to 39.4% in the nine months ended March 29, 2013 from 44.6% in the nine months ended March 30, 2012 primarily as a result of low margin deals that were previously discussed.

Operating Expenses

Operating expenses for the three and nine months ended March 29, 2013 and March 30, 2012 were as follows (in thousands except percentages):



	Three Months Ended				Change				Nine Months Ended				Change
	March 29, 2013		March 30, 2012		$			%	March 29, 2013		March 30, 2012		$			%

Research and development	$	15,518	$	14,982	$	536		3.6%	$	45,017	$	47,427	$	(2,410	)	(5.1)%
Sales and marketing	19,824		21,824		(2,000		)	(9.2)%	59,059		66,722		(7,663		)	(11.5)%
General and administrative	14,924		16,176		(1,252		)	(7.7)%	41,496		47,860		(6,364		)	(13.3)%
Restructuring	740		19		721			3,794.7%	5,081		129		4,952			3,838.8%
Total operating expense	$	51,006	$	53,001	$	(1,995	)	(3.8)%	$	150,653	$	162,138	$	(11,485	)	(7.1)%

Research and development. Research and development expense consists primarily of personnel and related costs, contractor fees, new component testing and evaluation, test equipment, new product design and testing, other product development activities, share-based compensation, and facilities and information technology costs.

Research and development expense increased $0.5 million or 3.6% to $15.5 million in the three months ended March 29, 2013 from $15.0 million in the three months ended March 30, 2012. The slight increase in research and development expense is primarily due to an increase in depreciation expense as well as a slight increase in compensation and related expenses as we continue to invest in our research and development programs.

Research and development expense decreased $2.4 million or 5.1% to $45.0 million in the nine months ended March 29, 2013 from $47.4 million in the nine months ended March 30, 2012. The decrease in research and development expense is primarily due to a reduction in third party provider and non-recurring engineering costs of approximately $1.1 million and equipment and materials of $1.2 million as we were ramping up for new product introductions in fiscal 2012.

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Sales and marketing. Sales and marketing expense consists primarily of salaries, bonuses and commissions paid to our sales and marketing employees, amortization of intangible assets, share-based compensation, and facilities and information technology costs. We also incur marketing expenses for activities such as trade shows, direct mail and advertising.

Sales and marketing expense decreased $2.0 million or 9.2% to $19.8 million in the three months ended March 29, 2013 from $21.8 million in the three months ended March 30, 2012. This decrease was primarily due to a decrease in our compensation and related expenses as a result of decreased headcount as well as lower commissions and bonus expense reflecting lower than expected achievement of sales commission targets and performance metrics compared to last year.

Sales and marketing expense decreased $7.7 million or 11.5% to $59.1 million in the nine months ended March 29, 2013 from $66.7 million in the nine months ended March 30, 2012. This reduction was primarily due to a decrease in our compensation and related expenses as a result of lower headcount as well as lower commissions and bonus expense reflecting lower achievement of sales commission targets and performance metrics. For the nine months ended March 29, 2013, we reduced our recruiting and marketing expenses by $0.2 million primarily due to cost control measures. In addition, we also benefited from a decrease in intangible amortization expense of $0.6 million as some of our intangible assets became fully amortized, resulting in lower intangible amortization expense.

General and administrative. General and administrative expense consists primarily of personnel costs, legal and professional service costs, depreciation, bad debt expense, share-based compensation, and facilities and information technology costs.

General and administrative expense decreased $1.3 million or 7.7% to $14.9 million in the three months ended March 29, 2013 from $16.2 million in the three months ended March 30, 2012. For the three months ended March 29, 2013, we reduced our professional fees, including legal related expenses and other third party consulting fees by approximately $0.6 million, primarily due to cost control measures. We have also benefited from lower compensation and related benefits as a result of the reduction of headcount and a decrease in share-based compensation expense of $0.9 million. Total share based compensation expense for the three months ended March 30, 2012 included a $1.3 million impact for the modification of certain terms of vested options held by the former Chief Executive Officer. This was partially offset by a net increase in bad debts of $0.3 million.

General and administrative expense decreased $6.4 million or 13.3% to $41.5 million in the nine months ended March 29, 2013 from $47.9 million in the nine months ended March 30, 2012. For the nine months ended March 29, 2013, we have reduced our professional fees, including legal related expenses and other third party consulting fees by approximately $1.6 million and recruiting fees by approximately $1.1 million, primarily due to cost control measures. We have also benefited from lower compensation and related benefits as a result of the reduction of headcount, a gain on the sale of assets of $0.4 million, as well as a decrease in share-based compensation expense of $0.6 million due to a stock modification discussed above. This was partially offset by a net increase in bad debts of $0.3 million and higher bonus expense reflecting achievement of performance metrics compared to last year.

Restructuring. Total restructuring expense related to our restructuring action in fiscal 2012 was approximately $0.7 million and $5.1 million for the three and nine months ended March 29, 2013, respectively and was $0.0 million and $0.1 million for the three and nine months ended March 30, 2012 in fiscal 2011. As a result of the restructuring action, we expect to incur between $14.0 million to $17.0 million of restructuring expense, of which we expect to recognize a portion in fiscal year 2014.

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Total other income (expense), net

Total other income (expense), net for the three and nine months ended March 29, 2013 and March 30, 2012 were as follows (in thousands except percentages):



	Three Months Ended						Change				Nine Months Ended						Change
	March 29, 2013			March 30, 2012			$			%	March 29, 2013			March 30, 2012			$			%

Interest income (expense), net	$	(11	)	$	(126	)	$	115		(91.3)%	$	(278	)	$	(150	)	$	(128	)	85.3%
Other income (expense), net	(359		)	913			(1,272		)	(139.3)%	(1,253		)	(230		)	(1,023		)	444.8%
Total other income (expense), net	$	(370	)	$	787		$	(1,157	)	(147.0)%	$	(1,531	)	$	(380	)	$	(1,151	)	302.9%

Interest income (expense), net. Interest income (expense), net primarily consists of interest earned on our interest-bearing investment accounts which include money market funds and U.S. treasury bills, as well as interest expense relating to our credit facility and to certain tax payments.

Other income (expense), net. Other income (expense), net during the three and nine months ended March 29, 2013 consisted of foreign exchange gains (losses) as a result of the exchange rates primarily for the Euro, British Pound and Canadian dollar against the U.S. Dollar. In July 2012, we implemented a hedging strategy that is intended to mitigate the effect of exchange rate fluctuations on certain foreign currency balance sheet accounts and cash flows.

Income tax (benefit) provision

Income tax (benefit) provision for the three and nine months ended March 29, 2013 and March 30, 2012 were as follows (in thousands except percentages):



	Three Months Ended					Change				Nine Months Ended						Change
	March 29, 2013			March 30, 2012		$			%	March 29, 2013			March 30, 2012			$			%

Income tax (benefit ) provision	$	(8,108	)	$	458	$	(8,566	)	(1,870.3)%	$	(11,563	)	$	(112	)	$	(11,451	)	10,224.1%

We recorded a tax benefit of $8.1 million and $11.6 million for the three and nine months ended March 29, 2013, respectively. The net tax benefit was primarily comprised of the reversal of previously recorded unrecognized tax benefits in Canada and Israel, and a refund receivable of provincial taxes in Canada, partially offset by tax liability computed based on the Company’s foreign projected financial results for the year ending June 28, 2013, state tax, and tax and interest for unrecognized tax benefits. The reversal of the unrecognized tax benefits in Canada and the recording of a provincial refund due to the Company was the result of the conclusion of an income tax audit for fiscal years 1996 to 2004 by the Canada Revenue Agency. The effective tax rate differed from the combined federal and net state statutory income tax rate for the three and nine months ended March 29, 2013 primarily due to tax expense incurred by the Company's foreign subsidiaries with operating income, offset by the release of the unrecognized tax benefits due to lapse of statute of limitations, benefits from reversals of previously accrued taxes in foreign jurisdictions and benefit from utilization of net operating losses not previously recognized.

We recorded a tax expense of $0.5 million and a tax benefit of $0.1 million for the three and nine months ended March 30, 2012, respectively. The net tax benefit was primarily comprised of tax liability computed based on the company's foreign projected financial results for the year ending June 28, 2012 offset by the reversals of unrecognized tax benefits including related interest. The effective tax rate differed from the combined federal and net state statutory income tax rate for the three and nine months ended March 30, 2012 primarily due to tax expense incurred by our foreign subsidiaries with operating income, offset by the release of the unrecognized tax benefits due to lapse of statute of limitations, benefits from reversals of previously accrued taxes in foreign jurisdictions, and benefit from utilization of net operating losses not previously recognized.

As of March 29, 2013, we have provided a partial valuation allowance against our net deferred tax assets. Based on all available evidence, on a jurisdictional basis, including our historical operating results, and the uncertainty of predicting our future income, the valuation allowance reduces the majority of our deferred tax assets to an amount that is more likely than not

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to be realized. The amount of the valuation allowance is attributable to U.S. federal, state and certain foreign deferred tax assets primarily consisting of net operating loss carryovers, tax credit carryovers, accrued expenses, and other temporary differences. We continue to evaluate the realizability of deferred tax assets and related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which management makes the determination.

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Liquidity and Capital Resources

We had $149.4 million of unrestricted cash and cash equivalents at March 29, 2013 and $104.9 million at June 29, 2012. As of March 29, 2013, $37.5 million of cash was held outside the United States. Historically, we have required capital principally to fund our working capital needs. If we invest any of our cash outside of non-interest-bearing operating accounts, it is our investment policy to invest in a manner that preserves capital, provides liquidity and maintains appropriate diversification and optimizes after-tax yield and return within our policy's framework and stipulated benchmarks. Adherence with our policy requires the assets to be liquid on and before their maturity dates. This liquidity requirement means that the holder of the assets must be able to pay us, upon our demand, the cash value of the assets invested.

At March 29, 2013, we had short-term and long-term restricted cash and cash equivalents of $3.6 million that are pledged as collateral for various guarantees issued to cover rent on leased facilities and equipment, to government authorities for value-added tax (“VAT”) and other taxes, and certain vendors to support payments in advance of delivery of goods and services.

As described further below under the section titled "Contractual Obligations and Other Commitments," in December 2011, we entered into a five-year senior secured credit facility in the aggregate principal amount of $35.0 million, which was increased to $40.0 million on May 1, 2012. On February 25, 2013, the Company amended the agreement and reduced the revolver amount by $15.0 million from an aggregate principal amount of $40.0 million to $25.0 million. The credit facility is intended to be used primarily to fund working capital requirements, capital expenditures and operations to the extent that cash provided by operating activities is not sufficient to fund our cash needs. During the three months ended March 29, 2013, we made a $10.7 million payment to pay down the outstanding balance of the credit facility of $10.3 million and accrued interest of $0.4 million. Accordingly, as of March 29, 2013, we had no outstanding balance owed on the credit facility. We had $2.0 million of outstanding letter of credit under this credit facility to back the Company's obligation to pay for goods or services to a supplier. As of March 29, 2013, the maximum amount available to be borrowed under the credit facility was approximately $23.0 million.

At March 29, 2013, we believe our current cash and cash equivalents, in conjunction with the funds that may be drawn down under our credit facility, will be sufficient to fund working capital requirements, capital expenditures, stock repurchase, and operations for at least the next twelve months. We have implemented processes to more effectively monitor our working capital. We have intensified our cash management processes related to monitoring, projecting and controlling procedures to operate our business and are more broadly requiring advance and milestone payments for certain large projects that would otherwise involve a significant lag between our payments to vendors for equipment and materials and the installation, acceptance, billing, and collection from the customer. We intend to retain any future earnings to support operations, to finance the growth and development of our business, and to fund our stock repurchase program. We do not anticipate paying any dividends in the foreseeable future. At the present time, we have no material commitments for capital expenditures.

The adequacy of these resources to meet our liquidity needs beyond the next twelve months will depend on our growth, operating results and capital expenditures required to meet our business needs. If we fail to generate cash from our operations on a timely basis, we may not have the cash resources required to run our business and we may need to seek additional sources of funds.

If we require additional capital resources to expand our business internally or to acquire complementary products, technologies and businesses at any time in the future, we may seek to sell additional equity or debt securities or obtain other debt financing. The sale of additional equity or debt securities could result in more dilution to our stockholders. Financing arrangements may not be available to us, or may not be available in amounts or on terms acceptable to us.

The following is a summary of cash activity (in thousands):



	Nine Months Ended
	March 29, 2013			March 30, 2012
Consolidated statements of cash flows data:
Net cash provided by (used in) operating activities	$	47,633		$	(61,410	)
Net cash used in investing activities	(1,098		)	(8,059		)
Net cash (used in) provided by financing activities	(661		)	19,066
Effect of exchange rate changes on cash and cash equivalents	(1,331		)	$	(593	)
Net increase (decrease) in cash and cash equivalents	$	44,543		$	(50,996	)

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Operating Activities

Cash provided in operating activities was $47.6 million for the nine months ended March 29, 2013. Our net income was $1.6 million for the nine months ended March 29, 2013. Non-cash items included in net income consisted primarily of depreciation and amortization expense of $10.7 million, share-based compensation expense of $7.8 million, release of previously recorded unrecognized tax benefits of $10.3 million and other items of $1.1 million. Net change in operating assets and liabilities contributed to the increase in cash from operating activities of $36.7 million. The primary sources of cash in operating activities were decreases in deferred cost of revenue and inventory as we shipped and installed solutions for a number of large contracts during the period. The primary uses of cash in operating activities were for decreases in deferred revenue and accounts payable for payments to our suppliers.

For the nine months ended March 29, 2013, inventory decreased $42.0 million reflecting timing of customer shipments and acceptance for a number of our large sales contracts for which we had built up inventory over the past few quarters in order to meet customer demands. Deferred cost also decreased by $26.1 million primarily due to the timing and recognition of revenue for these large deals. Additionally, other liabilities increased by $10.4 million primarily due to the timing of payments.

Accounts payable decreased $12.8 million, primarily due to the timing of payments. Accounts receivable increased $4.9 million reflecting the timing of revenue recognition and collections of the trade receivables. We continue to receive milestone payments from our customers which has improved our cash position. Deferred revenue decreased by $16.1 million and prepaid expenses and other assets increased $8.0 million.

Cash used in operating activities was $61.4 million for the nine months ended March 30, 2012. Our net loss was $6.1 million for the nine months ended March 30, 2012. Non-cash items included in net loss consisted primarily of depreciation and amortization expense of $11.2 million and share-based compensation expense of $7.9 million. Net change in operating assets and liabilities contributed to the decrease in cash from operating activities of $75.1 million. The primary operating activity use of cash was from purchases of inventory, increase in accounts receivable and prepayments, and payment of accrued compensation and accounts payable.

For the nine months ended March 30, 2012, inventory increased $26.6 million to meet the demands of the large sales contracts that we entered during the second quarter of fiscal year 2012, as well as due to timing of shipments to customers. Additionally, accounts receivable increased $29.9 million due to the timing of collections of the trade receivables, and prepaids and other current assets increased $3.6 million due mainly to timing of value-added tax remittances, as well as increase in prepayments. Accounts payable decreased $6.7 million, primarily due to the timing of payments, and accrued compensation decreased $4.4 million primarily due to timing of compensation related payments. The decrease in deferred revenue during the nine months ended March 30, 2012 was offset by a corresponding decrease in deferred cost of goods sold.

Investing Activities

Cash used by investing activities was $1.1 million in the nine months ended March 29, 2013, primarily due to purchases of property and equipment of $2.8 million offset by proceeds from other individually immaterial investing activities of $1.7 million.

Cash used by investing activities was $8.1 million in the nine months ended March 30, 2012, primarily due to purchases of property and equipment and other individually immaterial investing activities of $5.6 million and $2.5 million, respectively.

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Financing Activities

Cash used in financing activities was $0.7 million for the nine months ended March 29, 2013, primarily due to the payment of our credit facility of $15.3 million, repurchases of restricted stock units withheld for taxes of $1.4 million, and the repurchase of shares of our common stock of $0.4 million, which was offset by $16.5 million for the issuance of stock under our employee stock purchase plan and stock option exercises.

Cash provided by financing activities was $19.1 million in the nine months ended March 30, 2012, primarily due to proceeds from draw-down on our credit facility of $15.0 million, the issuance of stock under our employee stock purchase plan and stock option exercises of $5.1 million, which was partially offset by repurchases of restricted stock units of $1.0 million for tax withholding purposes.

We expect to continue to invest in the business including working capital, capital expenditures and operating expenses. We intend to fund these activities with our cash reserves, cash generated from operations, if any, and with the principal that is available for withdrawal on the credit facility to the extent that cash provided by operating activities is not sufficient to fund our cash needs. Increases in operating expenses may not result in an increase in our revenue and our anticipated revenue may not be sufficient to support these increased expenditures. We anticipate that operating expenses and working capital will constitute a material use of our cash resources.

Contractual Obligations and Commitments

Operating Leases

We lease certain real and personal property under non-cancelable operating leases. Certain leases require us to pay property taxes, insurance and routine maintenance and include renewal options and escalation clauses.

As of March 29, 2013, we had total outstanding commitments on non-cancelable operating leases of our real properties of $13.1 million, $4.2 million of which relates to our domestic leases. These domestic leases include our headquarters in Fremont, California and our warehouse facility in Chippewa Falls, Wisconsin. A significant portion of our domestic leases will expire in fiscal year 2014. As of March 29, 2013, we had total outstanding commitments of $8.9 million in non-cancelable international real property operating leases. The total outstanding commitments included $3.7 million relating to our leased facility in Japan, which we assumed as part of our acquisition of SGI Japan that closed in March 2011. Our major facility leases in our international locations are generally for terms of two to nine years, and generally do not provide renewal options, except for our leases in Japan, that generally provide for a two-year renewal option.

As of March 29, 2013, personal property under operating lease was comprised primarily of automobiles and office equipment. Total outstanding commitments under such leases totaled approximately $1.1 million at March 29, 2013.

Purchase Commitments

From time to time, we issue purchase orders to our contract manufacturers for the procurement of materials to be used for upcoming orders, particularly for those components that have long lead times. These purchase orders vary in size depending on our projected requirements. If we do not consume these materials on a timely basis or if our relationship with one of our contract manufacturers was to terminate, we could experience an abnormal increase to our inventory carrying amount and related accounts payable.

In connection with supplier agreements, we agreed to purchase certain units of inventory and non-inventory through fiscal year 2014. As of March 29, 2013, there was a remaining commitment of approximately $17.7 million, of which $14.4 million is expected to be paid in the next 12 months.

Other than the contractual obligations and commitments described above, we have no significant unconditional purchase obligations or similar instruments. We are not a guarantor of any other entities' debt or other financial obligations.

Credit Facility

On December 5, 2011, we entered into a five-year senior secured credit facility in the aggregate principal amount of $35.0 million. The availability under the credit facility is limited to a borrowing base, subject to meeting certain conditions set forth in the credit facility. The credit facility includes a feature that allows the Company to increase the revolver amount in the first 18 months. The Company exercised this feature, and on May 1, 2012, the revolver amount was increased by $5.0 million

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to an aggregate principal amount of $40.0 million. One February 25, 2013, the Company amended the agreement and reduced the revolver amount by $15.0 million from an aggregate principal amount of $40.0 million to $25.0 million. In December 2012, the Company made a $15.7 million payment to pay off the outstanding balance on the credit facility, which included $0.4 million of accrued interest. Accordingly, as of March 29, 2013, we had no outstanding balance owed on the credit facility. As of March 29, 2013, the maximum amount available to be borrowed under the credit facility was approximately $23.0 million which takes into account a $2.0 million outstanding letter of credit to back the Company's obligation to pay for goods or services to a supplier. This availability will fluctuate over time, and generally monthly, due to a variety of factors including our overall mix of sales and resulting accounts receivable with international and domestic customers, U.S. governmental agencies and a few individual customer accounts which may result in high concentrations of accounts receivable as compared to the overall level of our accounts receivable. See Note 13 to our unaudited condensed consolidated financial statements in this Form 10-Q for further information on the credit facility.

Uncertain Tax Positions

As of March 29, 2013, the net recorded tax liability for uncertain tax positions was $13.4 million, including interest and penalty. The Company is currently under audit by the Canadian tax authorities and expects that the audit will be concluded in fiscal 2013. We cannot conclude on the range of cash payments that will be made within the next twelve months associated with our uncertain tax positions.

Guarantees and Indemnifications

We have issued financial guarantees to cover rent on leased facilities and equipment, to government authorities for VAT and other taxes, and to various other parties to support payments in advance of future delivery on goods and services. The majority of our financial guarantees have terms of one year or more. The maximum potential obligation under financial guarantees at March 29, 2013 was $3.8 million, for which we have $3.6 million of assets held as collateral. The full amount of the assets held as collateral are included in short-term and long-term restricted cash and cash equivalents in the unaudited condensed consolidated balance sheets.

Additionally, we enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. These agreements include provisions for indemnifying the customer against any claim brought by a third party to the extent any such claim alleges that our product infringes a patent, copyright or trademark, or misappropriates a trade secret, of that third party. The agreements generally limit the scope of the available remedies in a variety of industry-standard methods, including, but not limited to, product usage and geography-based limitations, a right to control the defense or settlement of any claim, and a right to replace or modify the infringing products to make them non-infringing. We have not incurred significant expenses related to these indemnification agreements and no material claims for such indemnifications were outstanding as of March 29, 2013. As a result, we believe the estimated fair value of these indemnification agreements, if any, to be immaterial and, accordingly, no liability has been recorded with respect to such indemnifications as of March 29, 2013.

Off-Balance Sheet Arrangements

Our credit facility includes a $10.0 million letter of credit subfacility. As of March 29, 2013, we have $2.0 million of outstanding letter of credit to back our obligation to pay or perform when required to do so pursuant to the requirements of an underlying agreement or the provision of goods or services to a supplier.

We had no other off-balance sheet arrangements as of March 29, 2013.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. We periodically evaluate our material estimates and judgments based on the terms of underlying agreements, the expected course of development, historical experience and other factors that we believe are reasonable under the circumstances. However, actual future results may vary from our estimates.

We believe that the accounting policies discussed under Part I, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended June 29, 2012 are significantly affected by critical accounting estimates and that they are both highly important to the portrayal of our financial

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condition and results and require difficult management judgments and assumptions about matters that are inherently uncertain. Certain of these significant accounting policies are considered to be critical accounting policies.

Our critical accounting policies and estimates are as follows:


•	Revenue recognition;


•	Share-based compensation;


•	Restructuring reserve;


•	Inventory valuation;


•	Impairment of intangibles and long-lived assets;


•	Warranty reserve;


•	Retirement benefit obligations; and


•	Accounting for income taxes.

There have been no significant changes in the Company's significant accounting policies for the nine months ended March 29, 2013 as compared to those discussed under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended June 29, 2012.

Recent Accounting Pronouncements

See Note 3 to our unaudited condensed consolidated financial statements in this Form 10-Q for a description of recent accounting pronouncements, including our expected adoption dates and estimated effects on our results of operations, financial condition and cash flows.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk for investments associated with interest rate movements, liquidity risks, credit risks, and foreign exchange market risk associated with currency rate movements on non-U.S. Dollar denominated assets and liabilities. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.

Investment Risk

The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash, cash equivalents, and investments in high credit quality, readily liquid securities, primarily U.S. treasuries and money market funds. Our portfolio of investments has original maturities of less than three months from date of purchase.

There has been significant deterioration and instability in the financial markets since 2008. The extraordinary disruption and readjustment in the financial markets exposes us to additional investment risk. The value and liquidity of the securities in which we invest could deteriorate rapidly and the issuers of such securities could be subject to credit rating downgrades. In light of the current market conditions and these additional risks, we actively monitor market conditions and developments specific to the securities and security classes in which we invest. We believe that we take a conservative approach to investing our funds in that we generally invest in highly-rated securities with relatively short maturities and do not invest in securities we believe involve a higher degree of risk. While we believe we take prudent measures to mitigate investment related risks, such risks cannot be fully eliminated as there are circumstances outside of our control. We currently believe that the current credit market difficulties do not have a material impact on our investment portfolio. However, future degradation in credit market conditions could have a material adverse effect on our financial position.

Interest Rate Risk

Our exposure to market risks for changes in interest rates relates primarily to our investment portfolio and our credit facility. We currently do not hedge our interest rate exposure.

As of March 29, 2013, we held an immaterial amount of cash equivalents and we have $149.4 million cash on hand. We believe that the exposure of our principal to interest rate risk is minimal, although our future interest income is subject to reinvestment risk. We believe that the current risk of loss in fair value resulting from interest rate changes is minimal. At March 29, 2013, we had no interest rate forward contracts or option contracts.

The interest expense on outstanding cash borrowings under our credit facility is based on variable interest rates and is therefore affected by changes in market interest rates. If interest rates rise significantly, our results from operations and cash flows may be materially affected. As of March 29, 2013, we did not have any outstanding borrowings under our credit facility.

Foreign Exchange Risk

As of March 29, 2013, foreign currency cash accounts totaled $43.7 million, primarily in Japanese Yen, Euros, and British Pounds.

Foreign currency risks are associated with our cash and cash equivalents, investments, receivables, payables, and other monetary assets and liabilities denominated in foreign currencies. Fluctuations in exchange rates will result in foreign exchange gains and losses on these foreign currency assets and liabilities, which are included in other income (expense), net in our condensed consolidated statements of operations. Our exposure to foreign currency exchange rate risk relates to sales commitments, anticipated sales, purchases and other expenses, and assets and liabilities denominated in foreign currencies. For most currencies, we are a net receiver of the foreign currency and are adversely affected by a stronger U.S. Dollar relative to the foreign currency. Starting in July 2012, we have implemented a hedging strategy that is intended to mitigate our currency exposures by entering into foreign currency forward contracts that have maturities generally of one month or more. These contracts are used to reduce our risk associated with exchange rate movements, as gains and losses on these contracts are intended to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated balance sheet accounts or cash flows.

We assessed the risk of loss in fair values from the impact of hypothetical changes in foreign currency exchange rates. For foreign currency exchange rate risk, a 10% increase or decrease of foreign currency exchange rates against the U.S. dollar with all other variables held constant would have resulted in a $4.4 million change in the value of our foreign currency cash accounts.

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ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer (principal executive officer) and chief financial officer (principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The evaluation considered the procedures designed to ensure that the information required to be disclosed in reports we file under the Exchange Act, is recorded, processed, summarized and reported within the appropriate time periods and that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 29, 2013.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended March 29, 2013, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

We are involved in various legal proceedings and disputes that arise in the normal course of business. These matters include product liability actions, patent infringement actions, contract disputes, domestic and international federal, state and local tax reviews and audits, and other matters. We may also be subject to litigation and/or adverse rulings or judgments as a result of certain contractual indemnification obligations. We do not know whether we will prevail in these matters, nor can we assure that any remedy or resolution will be reached on commercially reasonable terms, if at all. We intend to defend ourselves vigorously in these actions. Based on currently available information, we believe that we have meritorious defenses and that the resolution of these cases, individually or in the aggregate, is not likely to have a material adverse effect on our business, financial condition or future results of operations. We record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.

From time to time, we may be involved in litigation or other legal proceedings relating to claims arising out of our day-to-day operations or otherwise. Litigation is inherently uncertain, and we could experience unfavorable judgments or rulings in the future. Should we experience an unfavorable judgment or ruling, there exists the possibility of a material adverse impact on our financial condition, results of operations, cash flows or on our business for the period in which the judgment or ruling occurs and/or future periods.

ITEM 1A. Risk Factors

The risk factors presented below update the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended June 29, 2012 (the “Annual Report”). The following factors, along with those in the Annual Report and those described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be reviewed carefully, in conjunction with the other information contained in this Form 10-Q and our financial statements. These factors, among others, could cause actual results to differ materially from those currently anticipated and contained in forward-looking statements made in this Form 10-Q and presented elsewhere by our management from time to time. See the discussion of forward-looking statements in "Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Customer Concentration-A concentrated number of customers that purchase our products in large quantities have historically accounted for a significant portion of our revenues. If we are unable to maintain or replace our relationships with such customers and/or diversify our customer base, our revenue may fluctuate or decline and our growth may be limited.

Historically, a significant portion of our revenue has come from a limited number of customers. There can be no guarantee that we will be able to sustain our revenue levels from these customers. For the three months ended March 29, 2013, our top five customers worldwide accounted for approximately 58.3% of our total revenues, with two customer in the Americas segment accounting for 26.1% and the U.S. government, excluding sales to system integrators, accounting for 26.2% of total revenue.

This customer concentration increases the risk of quarterly fluctuations in our revenues and operating results. The loss or reduction of business from one or a combination of our significant customers, for example as a result of a customer's capital expenditures budget reduction or U.S. government spending reductions, could materially adversely affect our revenues, financial condition and results of operations.

U.S. Government Sales-If our U.S. government-related sales decrease, or our ability to do business with the U.S. government or entities funded by the U.S. government is disrupted or limited, our operating performance could be adversely affected.

We generally derive a significant portion of our revenue from U.S. government entities, research institutions funded by the U.S. government and third parties that sell directly to the U.S. government through our subsidiary, Silicon Graphics Federal, Inc. For the three months ended March 29, 2013, such sales represented approximately 26.2% of our total revenue, excluding sales from system integrators. These sales present risks in addition to those involved in sales to commercial customers, including potential disruptions and delays due to changes in appropriation and spending priorities by the U.S.

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government. In addition, the U.S. government can terminate or modify its contracts with us at any time for its convenience. A significant reduction in such sales could adversely affect our operating performance.

Our U.S. government business is also subject to specific procurement regulations and a variety of other requirements applicable to companies doing business with the U.S government. Sales to the defense sector require us to comply with additional defense-specific regulations, including maintaining a compliant security program, obtaining security clearances for employees, and passing various inspections. Failure to comply with applicable regulations and requirements could lead to our suspension or debarment from U.S. government contracting or subcontracting for a period of time as well as fines against the Company.

Any disruption or limitation in our ability to do business with the U.S. government or entities funded by the U.S. government could materially adversely affect our revenue and operating results.

Dependence on Key Personnel-If we are unable to retain and attract adequate qualified personnel, we may not be able to execute on our business strategy.

During the past two years, we have experienced significant changes in our management team. In December 2011, Mark Barrenechea resigned from the positions of Chief Executive Officer and President effective January 1, 2012, and Ron Verdoorn, the Chairman of our Board of Directors, was appointed Interim Chief Executive Officer in accordance with the succession plan put in place by the Nominating and Corporate Governance Committee of the Board of Directors. The Board of Directors appointed Jorge L. Titinger as Chief Executive Officer and President, effective February 27, 2012. In addition, Timothy Pebworth resigned as Vice President and Chief Accounting Officer effective April 20, 2012, and James Wheat resigned as Senior Vice President, Chief Financial Officer and Chief Accounting Officer effective May 14, 2012, each for personal reasons. On April 30, 2012, Robert Nikl was appointed as Executive Vice President and Chief Financial Officer effective May 15, 2012. Mekonnen Asrat joined the company as Vice President and Corporate Controller on June 27, 2012 and became our Principal Accounting Officer on August 6, 2012. On January 21, 2013, Cassio Conceicao joined SGI as Executive Vice President and Chief Operating Officer, a newly created position at the company.

Our future success depends in large part upon the continued service and enhancement of our management team and our employees. If there are further changes in management, such changes could be disruptive and could negatively affect our operations, our culture and our strategic direction.

Further, our employees may terminate their employment with us at any time. Our U.S. employees are “at will,” while outside of the U.S., notice or severance may be required if we wish to terminate an employee. The failure of our management team to seamlessly manage employee transitions, or the loss of services of one or more members of our executive management or sales team or other key employees could seriously harm our business. Competition for qualified executives is intense and if we are unable to continue expanding our management team, or successfully integrate new additions to our management team in a manner that enables us to scale our business and operations effectively, our ability to operate effectively and efficiently could be limited or negatively impacted.

Additionally, to help attract, retain, and motivate certain qualified employees, we use share-based incentive awards such as employee stock options and non-vested share units (restricted stock units). If the value of such stock awards does not appreciate as measured by the performance of the price of our common stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.

International Sales and Operations-The global nature of our operations exposes us to increased risks and compliance obligations, which may adversely affect our business.

During the three months ended March 29, 2013, we derived approximately 41.4% of our revenue from sales outside of the United States. Our international business operations require us to recruit and retain qualified technical and managerial employees, manage multiple, remote locations and ensure intellectual property protection outside of the United States. Our international operations subject us to increased risks, including:


•	supporting multiple languages;


•	recruiting sales and technical support personnel internationally with the skills to design, manufacture, sell and support our products;


•	complying with governmental regulations, including obtaining required import or export approval for our products;


•	increased complexity and costs of managing international operations;


•	increased exposure to foreign currency exchange rate fluctuations;


•	commercial laws and business practices that favor local competition;


•	longer sales cycles and manufacturing lead times;

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•	financial risks such as longer payment cycles and difficulties in collecting accounts receivable;


•	difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner;


•	ineffective legal protection of intellectual property rights;


•	more complicated logistics and distribution arrangements;


•	additional taxes and penalties;


•	inadequate local infrastructure that could result in business disruptions;


•	political and economic instability, including the current credit crisis in Europe; and


•	other factors beyond our control such as natural disasters, terrorism, civil unrest, war and infectious diseases.

If any of the foreign economies in which we do business deteriorate or if we fail to effectively manage our global operations, our business and results of operations would be harmed.

In addition, our global operations are subject to numerous U.S. and foreign laws and regulations, including those related to anti-corruption, tax, corporate governance, imports and exports, financial and other disclosures, privacy and labor relations. These laws and regulations are complex and may have differing or conflicting legal standards, making compliance difficult and costly. If we or our employees, contractors or agents violate these laws and regulations, we could be subject to fines, penalties or criminal sanctions, and may be prohibited from conducting business in one or more countries. Any violation individually or in the aggregate could have a material adverse effect on our operations and financial condition.

Foreign Currency Fluctuations-We may experience foreign currency gains and losses.

We conduct a significant number of transactions in currencies other than the U.S. Dollar. Changes in the value of major foreign currencies, particularly the Euro, Japanese Yen, British Pound and the Canadian Dollar relative to the U.S. Dollar, can significantly affect revenues and our operating results. Our revenues and operating results are adversely affected when the U.S. Dollar strengthens relative to other currencies and are positively affected when the U.S. Dollar weakens. Although we have recently initiated foreign currency hedging transactions, we may be unable to hedge all of our foreign currency risk, which could have a negative impact on our results of operations. For the three months ended March 29, 2013, our combined revenue from our EMEA and APJ segments was $90.4 million. As of March 29, 2013, the balance in our foreign currency cash accounts was $43.7 million. As a result, an increase in the value of the U.S. Dollar relative to foreign currencies could make our products more expensive and, thus, not competitively priced in foreign markets. On the other hand, a decrease in the value of the U.S. Dollar relative to foreign currencies could increase our operating costs in foreign locations. In the future, a larger portion of our international revenue may be denominated in foreign currencies, which will subject us to additional risks associated with fluctuations in those foreign currencies. In addition, we may be unable to successfully hedge against any such fluctuations.

Weak Global Economy-Weak or unstable global market and economic conditions may have serious adverse consequences on our business.

The past several years have been characterized by weak global economic conditions including stock market volatility, tightened credit markets, concerns about both deflation and inflation, reduced demand for products, lower consumer confidence, reduced capital spending, liquidity concerns, business insolvencies and, more recently, concerns about the U.S. national debt and governmental spending cuts. Further declines and uncertainty about economic conditions, including uncertainty about future U.S. legislation regarding government deficit spending and the national debt, could negatively impact our customers' budgets, causing our customers to postpone their decision-making or decrease their spending or affecting our customers' ability to pay for our products, which would harm our operating results. In addition, one or more of our current service providers, manufacturers and other partners may go out of business, which could directly affect our ability to attain our operating goals on schedule and on budget.

If the global economy continues to experience uncertainty, our ability to obtain credit on favorable terms could be jeopardized. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our financial performance and stock price and could require us to change our business plans. Furthermore, should any of our banking partners declare bankruptcy or otherwise default on their obligations, it could adversely affect our financial results and our business.

We cannot predict if or when global economic confidence will be restored. Accordingly, our future business and financial results are subject to considerable uncertainty, and our stock price is at risk of volatile change.

Table of Contents

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Table of Contents

EXHIBIT INDEX

Exhibit

Number

Exhibit Description

Incorporated by Reference

Filing Date

Filed

Herewith

Form

Ex. No.

File No.

3.1

Amended and Restated Certificate of Incorporation

10-Q

3.1

000-51333

8/12/2005

3.2

Amended and Restated Bylaws

8-K

3.2

000-51333

3/7/2008

3.3

Certificate of Ownership and Merger

8-K

3.3

000-51333

5/21/2009

4.1

Reference is made to Exhibits 3.1, 3.2 and 3.3

4.2

Form of Specimen Stock Certificate

8-K

4.2

000-51333

5/21/2009

10.1*

Employment Agreement Letter dated January 18, 2013 between the Company and Cassio Conceicao

8-K

10.1

000-51333

1/22/2013

10.2

Amendment Number Four to Credit Agreement dated as of February 25, 2013, by and among the Company and Silicon Graphics Federal, Inc., the Lenders that are signatories thereto and Wells Fargo Capital Finance, LLC

8-K

10.1

000-51333

2/26/2013

10.3*

Second Amendment to the Employment Agreement Letter dated February 21, 2013 between the Company and Jennifer W. Pileggi

10.4*

Third Amendment to the Employment Agreement Letter dated February 21, 2012 between the Company and Anthony Carrozza

31.1

Certification of Principal Executive Officer furnished pursuant to Rule 13a-14(a) or Rule

15d-14(a).

31.2

Certification of Principal Financial Officer furnished pursuant to Rule 13a-14(a) or Rule

15d-14(a).

32.1

Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)

101.INS**

XBRL Instance Document

101.SCH**

XBRL Taxonomy Extension Schema Document

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**

XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase Document

_______________



* Indicates management contract or compensatory plan or arrangement.
** XBRL (eXtensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




	SILICON GRAPHICS INTERNATIONAL CORP.

	By:	/s/ ROBERT J. NIKL
		Robert J. Nikl Chief Financial Officer (Principal Financial Officer)

Dated: May 3, 2013

Exhibit 10.3

SILICON GRAPHICS INTERNATIONAL CORP.

SECOND AMENDMENT TO EMPLOYMENT LETTER

This SECOND AMENDMENT TO EMPLOYMENT LETTER (this “Second Amendment”), effective February 21, 2013 (the “Effective Date”), is executed by and between Silicon Graphics International Corp., a Delaware corporation (“SGI”), and Jennifer W. Pileggi (the “Executive”). SGI and the Executive are each individually referred to as a “Party” and are collectively referred to as the “Parties” herein.

RECITALS

Whereas, Executive and SGI have entered into an employment agreement letter dated September 9, 2011, as amended by a First Amendment dated December 17, 2012 (the “Employment Letter”); and

Whereas, the parties desire to amend the Employment Letter again.

AGREEMENT

Now therefore, in consideration of the mutual promises and covenants set forth in this Second Amendment, the receipt and sufficiency of which are hereby acknowledged, the Parties agree that upon the Effective Date, the Employment Letter is hereby amended as follows:


1.	Section 8 of the Employment Letter is hereby amended to read in its entirety as follows:

“CHANGE IN CONTROL SEVERANCE BENEFITS. If, within twelve (12) months following a Change in Control, your employment is terminated by the Company without Cause, or by you for Good Reason; and you sign, date, return to the Company and allow to become effective a release of all claims in the form attached hereto as Exhibit B or such other form satisfactory to the Company in its sole discretion (the “Release”), then in lieu of any Severance Benefits set forth in Section 9 herein, you shall be entitled to receive the following severance benefits (the “Change in Control Severance Benefits”); provided that you must execute and return the Release on or before the date specified by the Company in the prescribed form (the “Release Deadline”). The Release Deadline will in no event be later than fifty (50) days after your separation. If you fail to return the Release on or before the Release Deadline, or if you revoke the Release, then you will not be entitled to the benefits described in this Section 8. The severance payments will commence within sixty (60) days after your separation and, once they commence, will include any unpaid amounts accrued from the date of your separation. However, if the 60-day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year.


a.	Accelerated Vesting. All unvested stock options and restricted stock units referred to herein and any subsequent grants of stock options, restricted stock units or any other equity awards granted under current or future plans shall become fully vested upon the closing of a Change in Control of the Company;


b.	Severance Pay. You will be eligible to receive severance pay in the total amount equal to the sum of (i) twelve (12) months of your base salary in effect as of the employment termination date (ii) the full amount of your annual performance bonus at target, and (iii) the prorated amount of your quarterly performance bonus at target for the fiscal quarter in which the

Exhibit 10.3

termination occurred. The severance pay will be paid in one lump sum payment, subject to required payroll deductions and withholdings; and

COBRA Benefits. If you timely elect and continue to remain eligible for continued group health insurance coverage under federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), the Company will pay your COBRA premiums sufficient to continue your group health insurance coverage at the same level in effect as of your employment termination date (including dependent coverage, if applicable) for twelve (12) months after the employment termination date; provided that, the Company’s obligation to pay your COBRA premiums will cease earlier if you become eligible for group health insurance coverage through a new employer and you must provide prompt written notice to the Company if you become eligible for group health insurance coverage through a new employer within twelve (12) months after your employment termination date. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Services Act), the Company shall instead provide you a taxable monthly payment in an amount equal to the monthly COBRA premium that you would otherwise be required to pay to continue your group health coverage in effect from the date of your termination of employment, which payments shall be made regardless of whether you elect COBRA continuation coverage and shall end on the earlier of (x) the date on which you obtain other employment and (y) twelve (12) months after your employment termination date."

2. Section 9 of the Employment Letter is hereby amended to read in its entirety as follows:

“SEVERANCE BENEFITS. If, at any time other than during the twelve (12) month period following a Change in Control, your employment is terminated by the Company without Cause, or by you for Good Reason; and you sign, date, return to the Company and allow to become effective the Release, then you shall be entitled to receive the following severance benefits (the “Severance Benefits”); provided that you must execute and return the Release on or before the Release Deadline. If you fail to return the Release on or before the Release Deadline, or if you revoke the Release, then you will not be entitled to the benefits described in this Section 9. The severance payments will commence within sixty (60) days after your separation and, once they commence, will include any unpaid amounts accrued from the date of your separation. However, if the sixty (60) day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year.

Severance Pay. You will be eligible to receive severance pay in the total amount equal to the sum of (i) six (6) months of your base salary in effect as of the employment termination date, and (ii) the prorated amount of your quarterly performance bonus at target for the fiscal quarter in which the termination occurred. The severance pay will be subject to required payroll deductions and withholdings, and will be paid in thirteen (13) equal installments over a period of six (6) months, with such payments made on the Company’s normal payroll schedule; and


b.	COBRA Benefits. If you timely elect and continue to remain eligible for COBRA, the Company will pay your COBRA premiums sufficient to continue your group health insurance coverage at the same level in effect as of your employment termination date (including

Exhibit 10.3

dependent coverage, if applicable) for six (6) months after the employment termination date; provided that, the Company’s obligation to pay your COBRA premiums will cease earlier if you become eligible for group health insurance coverage through a new employer and you must provide prompt written notice to the Board if you become eligible for group health insurance coverage through a new employer within six (6) months after your employment termination date. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Services Act), the Company shall instead provide you a taxable monthly payment in an amount equal to the monthly COBRA premium that you would otherwise be required to pay to continue your group health coverage in effect from the date of your termination of employment, which payments shall be made regardless of whether you elect COBRA continuation coverage and shall end on the earlier of (x) the date on which you obtain other employment and (y) six (6) months after your employment termination date.”

3. Except as amended herein, the Employment Letter shall remain in full force and effect without modification thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the Effective Date.



SILICON GRAPHICS	EXECUTIVE
INTERNATIONAL CORP.

By: /s/ Jennifer Pratt	By: /s/ Jennifer W. Pileggi
Name: Jennifer Pratt	Name: Jennifer W. Pileggi
Title: SVP, Human Resource	Title: SVP, General Counsel and Corporate Secretary

Signature Date: April 4, 2013	Signature Date: April 4, 2013

Exhibit 10.4

SILICON GRAPHICS INTERNATIONAL CORP.

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT

This THIRD AMENDMENT TO EMPLOYMENT AGREEMENT (this “Third Amendment”), effective February 21, 2013 (the “Effective Date”), is executed by and between Silicon Graphics International Corp., a Delaware corporation, formerly known as Rackable Systems, Inc. (“SGI”), and Anthony Carrozza (the “Executive”). SGI and the Executive are each individually referred to as a “Party” and are collectively referred to as the “Parties” herein.

RECITALS

Whereas, Executive and SGI have entered into an employment agreement letter dated January 24, 2008, as amended by that certain First Amendment dated December 23, 2008 and a Second Amendment dated December 17, 2012 (collectively, the “Employment Agreement”); and

Whereas, the parties desire to amend the Employment Agreement again.

AGREEMENT

Now therefore, in consideration of the mutual promises and covenants set forth in this Third Amendment, the receipt and sufficiency of which are hereby acknowledged, the Parties agree that upon the Effective Date, the Employment Agreement is hereby amended as follows:


1.	Section 8 of the Employment Agreement is hereby amended to read in its entirety as follows:

a. Accelerated Vesting. All unvested stock options and restricted stock units referred to herein and any subsequent grants of stock options, restricted stock units or any other equity awards granted under current or future plans shall become fully vested upon the closing of a Change in Control of the Company;

b. Severance Pay. You will be eligible to receive severance pay in the total amount equal to the sum of (i) twelve (12) months of your base salary in effect as of the employment termination date (ii) the full amount of your annual performance bonus at target, and (iii) the prorated amount of your quarterly performance bonus at target for the fiscal quarter in which

Exhibit 10.4

the termination occurred. The severance pay will be paid in one lump sum payment, subject to required payroll deductions and withholdings; and

c. COBRA Benefits. If you timely elect and continue to remain eligible for continued group health insurance coverage under federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), the Company will pay your COBRA premiums sufficient to continue your group health insurance coverage at the same level in effect as of your employment termination date (including dependent coverage, if applicable) for twelve (12) months after the employment termination date; provided that, the Company’s obligation to pay your COBRA premiums will cease earlier if you become eligible for group health insurance coverage through a new employer and you must provide prompt written notice to the Company if you become eligible for group health insurance coverage through a new employer within twelve (12) months after your employment termination date. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Services Act), the Company shall instead provide you a taxable monthly payment in an amount equal to the monthly COBRA premium that you would otherwise be required to pay to continue your group health coverage in effect from the date of your termination of employment, which payments shall be made regardless of whether you elect COBRA continuation coverage and shall end on the earlier of (x) the date on which you obtain other employment and (y) twelve (12) months after your employment termination date.”

2. Section 9 of the Employment Agreement is hereby amended to read in its entirety as follows:

a. Severance Pay. You will be eligible to receive severance pay in the total amount equal to the sum of (i) six (6) months of your base salary in effect as of the employment termination date, and (ii) the prorated amount of your quarterly performance bonus at target for the fiscal quarter in which the termination occurred. The severance pay will be subject to required payroll deductions and withholdings, and will be paid in thirteen (13) equal installments over a period of six (6) months, with such payments made on the Company’s normal payroll schedule; and

b. COBRA Benefits. If you timely elect and continue to remain eligible for COBRA, the Company will pay your COBRA premiums sufficient to continue your group health insurance coverage at the same level in effect as of your employment termination date (including

Exhibit 10.4

3. Except as amended herein, the Employment Agreement shall remain in full force and effect without modification thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment as of the Effective Date.



SILICON GRAPHICS	EXECUTIVE
INTERNATIONAL CORP.

By: /s/ Jennifer Pratt	By: /s/ Anthony Carrozza
Name: Jennifer Pratt	Name: Anthony Carrozza
Title: SVP, Human Resources	Title: Executive VP, Worldwide Sales

Signature Date: April 19, 2013	Signature Date: April 19, 2013

EX31.1 2013 Q3

Exhibit 31.1

CERTIFICATION

I, Jorge Titinger, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Silicon Graphics International Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



			/s/ JORGE TITINGER
			Jorge Titinger President and Chief Executive Officer (Principal Executive Officer)

Date: May 3, 2013

EX31.2 2013 Q3

Exhibit 31.2

CERTIFICATION

I, Robert J. Nikl, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Silicon Graphics International Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



			/s/ ROBERT J. NIKL
			Robert J. Nikl Chief Financial Officer (Principal Financial Officer)

Date: May 3, 2013

EX32.1 2013 Q3

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Silicon Graphics International Corp. (the “Company”) for the quarter ended March 29, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jorge Titinger, President and Chief Executive Officer of the Company, and Robert J. Nikl, Chief Financial Officer of the Company, each hereby certifies, to such officer's knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report, to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 3^rd day of May, 2013



/s/ Jorge Titinger		/s/ Robert J. Nikl
Jorge Titinger		Robert J. Nikl
President and Chief Executive Officer		Chief Financial Officer
(Principal Executive Officer)		(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not deemed filed with the Securities and Exchange Commission as part of the Form 10-Q or as a separate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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