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 October 1, 1995 or
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________
to ____________
Commission file number: 0-15086
SUN MICROSYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2805249
--------------------------------- -------------------
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
2550 Garcia Avenue, Mountain View, CA 94043-1100
------------------------------------------------------
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (415) 960-1300
-------------------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES _____ NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at October 1, 1995
- ---------------------------------- ------------------------------
Common stock -- $0.00067 par value 90,935,733
<PAGE>
INDEX
PAGE
COVER PAGE ................................................................ 1
INDEX ..................................................................... 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets ....................... 3
Condensed Consolidated Statements of Income ................. 4
Condensed Consolidated Statements of Cash Flows ............. 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition ............... 7
PART II - OTHER INFORMATION
Item 5 - Other Information ........................................... 11
Item 6 - Exhibits and Reports on Form 8-K ............................ 14
SIGNATURES ................................................................ 15
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
October 1, June 30,
1995 1995
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............ $ 385,615 $ 413,869
Short-term investments ............... 363,541 814,151
Accounts receivable, net ............. 927,586 1,041,804
Inventories .......................... 352,703 319,672
Other current assets ................. 387,837 344,868
----------- -----------
Total current assets ............ 2,417,282 2,934,364
Property, plant and equipment, at cost ....... 1,087,024 1,045,876
Accumulated depreciation and amortization .... (645,475) (616,871)
----------- -----------
441,549 429,005
Other assets, net ............................ 186,616 181,184
----------- -----------
$ 3,045,447 $ 3,544,553
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ................ $ 28,077 $ 50,786
Accounts payable ..................... 329,340 303,995
Accrued liabilities .................. 607,195 688,325
Other current liabilities ............ 247,995 287,676
----------- -----------
Total current liabilities ....... 1,212,607 1,330,782
Long-term debt and other obligations ......... 50,386 91,176
Stockholders' equity ......................... 1,782,454 2,122,595
----------- -----------
$ 3,045,447 $ 3,544,553
=========== ===========
See accompanying notes.
3
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SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Ended
------------------
October 1, October 2,
1995 1994
---------- ----------
Net revenues ..................................... $1,485,278 $1,273,439
Cost and expenses:
Cost of sales ............................ 829,033 761,378
Research and development ................. 144,685 129,221
Selling, general and administrative ...... 398,616 329,022
---------- ----------
Total costs and expenses ............ 1,372,334 1,219,621
---------- ----------
Operating income ................................. 112,944 53,818
Interest income, net ............................. 11,609 2,692
---------- ----------
Income before income taxes ....................... 124,553 56,510
Provision for income taxes ....................... 39,857 18,083
---------- ----------
Net income ....................................... $ 84,696 $ 38,427
========== ==========
Net income per common
and common-equivalent share .............. $ 0.85 $ 0.40
========== ==========
Common and common-equivalent
shares used in the calculation
of net income per share .................. 99,662 95,667
---------- ----------
See accompanying notes.
4
<PAGE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
------------------
October 1, October 2,
1995 1994
---------- ----------
Cash flow from operating activities:
Net income ..................................... $ 84,696 $ 38,427
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization
and other non-cash items ....... 82,939 66,501
Decrease in accounts receivable ........ 114,218 13,627
Increase in inventories ................ (33,031) (44,518)
Increase (decrease) in accounts payable 25,345 (92,908)
Net decrease in other current
and non-current assets ......... (39,544) (5,766)
Net increase (decrease) in other current
and non-current liabilities .... (135,106) 3,387
---------- ----------
Net cash (used by) provided from operating activities 99,517 (21,250)
---------- ----------
Cash flow from investing activities:
Acquisition of property, plant and equipment ... (75,900) (26,012)
Acquisition of other assets .................... (25,754) (11,096)
Acquisition of short-term investments .......... (695,886) (589,932)
Maturities of short-term investments ........... 1,146,591 624,995
---------- ----------
Net cash (used by) provided from investing activities 349,051 (2,045)
---------- ----------
Cash flow from financing activities:
Issuance of common stock ....................... 25,982 9,344
Acquisition of treasury stock .................. (455,032) (9,303)
Proceeds from employee stock purchase plans .... 14,794 12,187
Reduction of short-term borrowings, net ........ (22,709) (10,627)
Reduction of long-term
borrowings and other ................... (39,857) (40,143)
---------- ----------
Net cash used by financing activities .............. (476,822) (38,542)
---------- ----------
Net decrease in cash and cash equivalents .......... $ (28,254) $ (61,837)
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ....................................... $ 5,388 $ 6,670
Income taxes ................................... $ 64,454 $ 21,137
See accompanying notes.
5
<PAGE>
SUN MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sun
Microsystems, Inc. ("Sun" or "the Company") and its wholly-owned
subsidiaries. Intercompany accounts and transactions have been eliminated.
Certain amounts from prior years have been reclassified to conform to
current year presentation.
While the quarterly financial information furnished is unaudited, the
financial statements included in this report reflect all adjustments
(consisting only of normal recurring accruals) that the Company considers
necessary for a fair presentation of the results of operations for the
interim periods covered and of the financial condition of the Company at
the date of the interim balance sheet. The results for interim periods are
not necessarily indicative of the results for the entire year. The
information included in this report should be read in conjunction with the
Company's 1995 Annual Report to Stockholders.
INVENTORIES (in thousands)
October 1, 1995 June 30, 1995
--------------- -------------
Raw materials .................... $203,478 $170,337
Work in process .................. 43,704 32,356
Finished goods ................... 105,521 116,979
-------- --------
$352,703 $319,672
======== ========
INCOME TAXES
The Company accounts for income taxes under the liability method of
Statement of Financial Accounting Standards No. 109. The provision for
income taxes during the interim periods considers anticipated annual income
before taxes, earnings of foreign subsidiaries permanently invested in
foreign operations, and other differences.
STOCK DIVIDEND
On November 2, 1995 the Company announced a two-for-one stock dividend.
Stockholders of record as of the close of business on November 20, 1995
will be issued one additional share of common stock for each share of
common stock held. The amounts presented for October 1, 1995, June 30, 1995
and October 2, 1994 do not reflect the stock dividend.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following table sets forth items from the Condensed Consolidated
Statements of Income as percentages of net revenues:
Three Months Ended
------------------
October 1, October 2,
1995 1994
---------- ----------
Net revenues ................................. 100.0% 100.0%
Cost of sales ................................ 55.8 59.8
------ ------
Gross margin ......................... 44.2 40.2
Research and development ..................... 9.7 10.1
Selling, general and administrative .......... 26.8 25.9
------ ------
Operating income ............................. 7.6 4.2
Interest income, net ......................... 0.8 0.2
------ ------
Income before income taxes ................... 8.4 4.4
Provision for income taxes ................... 2.7 1.4
------ ------
Net income ........................... 5.7% 3.0%
====== ======
RESULTS OF OPERATIONS
Net revenues
Net revenues were $1.49 billion for the first quarter of fiscal 1996,
representing an increase of 16.6% over the comparable period of fiscal
1995. The growth in revenues resulted from strong demand for richly
configured servers, including the SPARCserver 1000, and memory, storage
options, and accessories shipped as part of system sales and separate
orders. Server unit shipments increased over the comparable period in
fiscal 1995, while desktop unit shipments remained relatively unchanged.
Revenues from other Sun businesses, including service, aftermarketing,
microprocessors, and software, in total increased significantly in absolute
dollars as compared with the corresponding period of fiscal 1995.
Domestic net revenues and international net revenues (including United
States exports) increased by 16.6% and 16.7%, respectively, in the first
quarter of fiscal 1996 compared with the corresponding period of fiscal
1995. Net revenues in Rest of World and Europe increased 19.5% and 14.1%,
respectively, in the first quarter of fiscal 1996 over fiscal 1995's
comparable period. These increases are due primarily to continued
strengthening of the markets in central and northern Europe and the
expanding client server markets in Asia. International net revenues
represented 49.1% and 48.9% of total net revenues in the first quarter of
fiscal 1996 and fiscal 1995, respectively.
7
<PAGE>
Compared with the first quarter of the prior fiscal year, the dollar has
weakened against most major European currencies as well as against the
Japanese yen. Management has estimated that the net impact of currency
fluctuations on operating results, while slightly favorable, it was not
significant in the first quarter of fiscal 1996.
Gross margin
Gross margin was 44.2% for the first quarter of fiscal 1996, compared with
40.2% for the corresponding period of fiscal 1995. The increase in gross
margin reflects the effects of increased revenue generated from richly
configured, higher margin servers, memory storage options and accessories,
and increased revenues from Sun's service and support operations.
The factors described above resulted in a favorable impact on gross margin.
As part of the planned introduction of the UltraSPARC family of
next-generation processors based on a 64-bit architecture (referred to
hereafter as UltraSPARC) in the second quarter of fiscal 1996, the Company
plans to reduce prices on certain products in its current line. Such
repricing actions will result in downward pressure on gross margin. Sun's
future operating results will be adversely affected if the Company is
unable to mitigate this margin pressure by maintaining a favorable mix of
system, software, service, and other revenues and by achieving component
cost reductions and operating efficiencies.
Research and development
Research and development (R&D) expenses were $144.7 million in the first
quarter of fiscal 1996, compared with $129.2 million for the same period of
fiscal 1995. As a percentage of net revenues, R&D expenses decreased to 9.7
percent for the first quarter of fiscal 1996, from 10.1 percent for the
corresponding period of fiscal 1995. The decrease as a percent of revenues
is primarily due to the increase in revenues in the first quarter of fiscal
1996 over the comparable period of fiscal 1995. Slightly more than a third
of the dollar increase for the first three months of fiscal 1996 over the
comparable period of fiscal 1995 reflects increases in compensation as a
result of increased staffing. The remaining increase in absolute dollars is
due to Sun's development of UltraSPARC and the Company's continuing
emphasis on technological advancement for both hardware and software
products, as well as microprocessor technologies. To maintain its
competitive position in the industry, the Company expects to continue to
invest significant resources in new hardware, software and microprocessor
product development, as well as in enhancements to existing products.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses were $398.6 million in
the first quarter of fiscal 1996, an increase of $69.6 million, or 21.2%,
from the corresponding period of fiscal 1995. As a percentage of net
revenues, SG&A expenses increased to 26.8% for the first quarter of fiscal
1996 from 25.8% for the comparable period of fiscal 1995. Approximately one
third of the dollar increase reflects increases in marketing costs related
to new product introductions and other promotional programs. The remaining
increase reflects continued growth in field sales, service and support
organizations as well costs incurred in connection with the Company's
ongoing efforts to improve business processes and cycle times. The Company
expects to continue to invest in efforts to achieve additional operating
efficiencies through continual review and improvement of business
processes. In addition, the Company expects to continue to hire personnel
to drive its demand creation programs and service and support operations.
Interest income, net
Net interest income was $11.6 million for the first quarter of fiscal 1996,
compared with $2.7 million for the first quarter of fiscal 1995. The
increase is primarily the result of higher interest earned on increased
average cash and investment balances as well as interest savings from
scheduled debt repayments.
8
<PAGE>
Income taxes
The Company's effective income tax rate for the first quarter of both
fiscal 1996 and 1995 was 32%.
FUTURE OPERATING RESULTS
The future operating results discussed below represent specific risks which
could impact the Company's financial condition and results over the next
few quarters. This information below should be read in conjunction with the
Company's 1995 Annual Report to Stockholders.
The introductions of Sun's enhanced systems based on the UltraSPARC
processors are planned to begin in the second quarter of this fiscal year.
Future operating results will depend to a considerable extent on the
Company's ability to closely manage this planned product introduction.
These new UltraSPARC products include advanced components manufactured
internally and by third party suppliers. The manufacture and timely
delivery of the Company's UltraSPARC products depends on the ability of
certain suppliers to manufacture and deliver advanced components in
sufficient quantity and quality to build theses products. Furthermore, in
order to secure components for production and introduction of these new
products, the Company frequently makes advanced payments to certain
suppliers and often enters into noncancelable purchase commitments with
vendors with respect to the purchase of components. Due to the variability
of material requirement specifications during development and production,
the Company must closely manage material purchase commitments and
respective delivery schedules. The inability of the Company to secure
enough components to build the new products in the quantities and
configurations required or to produce, test and deliver sufficient products
to meet demand in a timely manner, and any delays in production or
variability of customer demand in light of the Company's noncancelable
purchase commitments would adversely affect the Company's net revenues and
operating results.
The introduction of the UltraSPARC products requires that the Company must
rapidly bring such products to volume manufacturing, a process that
requires accurate forecasting of volumes, mix of products and
configurations, among other things in order to achieve acceptable yields
and costs. The Company must manage the transition from older, displaced
products to minimize disruptions in customer ordering patterns, reduce
levels of older product inventory, and ensure that adequate volumes of the
new products can be delivered to meet customer demand. The ability of the
Company to match supply and demand is further complicated by the Company's
pricing actions taken with respect to its older products. As a result, the
Company's operating results could be adversely affected if the Company is
not able to correctly anticipate the level of demand and the mix of
products.
Generally, the computer systems sold by Sun, such as the UltraSPARC
products, are the result of both hardware and software development, such
that delays in the software development can delay the ability of the
Company to ship new hardware products. In addition, adoption of a new
release of an operating system may require effort on the part of the
customer and porting by software vendors providing applications. As a
result, the timing of conversion to a new release is inherently
unpredictable. Moreover, delays by customers in adoption of a new release
of an operating system can limit the acceptability of hardware products
tied to that release. Such delays could adversely affect the future
operating results of the Company. Sun's systems based on UltraSPARC
processors operate using the Company's recently released version of its
operating system, Solaris 2.5. In attempts to minimize the aforementioned
risks, the Company has expended significant effort toward making Solaris
2.5 binary compatible with the applications currently running on Solaris
2.x, so customers should not need to port these applications to run on
UltraSPARC-based systems. The Company's operating results would be
adversely affected if Solaris 2.5 does not achieve market acceptance on a
timely basis.
The Company's customer order backlog at October 1, 1995 was approximately
$287 million, a decrease of $36 million from the backlog level of
approximately $323 million at June 30, 1995 due in part to customer
anticipation of the introduction of UltraSPARC-based systems. Backlog
includes only orders for which a delivery schedule within six months has
been specified by the customer. Backlog levels vary with demand, product
availability and the Company's delivery lead times and are subject to
decreases as a result of customer order delays, changes or cancellations.
As such, backlog levels are not necessarily a reliable indicator of future
operating results.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets at October 1, 1995 decreased by approximately $499 million
from June 30, 1995, due principally to decreases in cash, cash equivalents
and short-term investments ($479 million) and accounts receivable ($114
million) offset by increases in inventories ($33 million) and other current
assets ($43 million). Cash and short-term investments decreased primarily
due to the repurchase of 8.6 million shares of common stock for $455
million and due to scheduled debt repayments. The decrease in accounts
receivable reflects the seasonal decrease in revenues. The increase in
inventories reflects a build-up of supply to meet anticipated customer
demand for new products to be introduced in the second fiscal quarter.
Other current assets increased principally due to the timing of payments
for income and other taxes.
Total liabilities decreased approximately $159 million from June 30, 1995,
due principally to decreases in accrued liabilities ($81 million), and
long-term debt and other obligations ($41 million). Accrued liabilities
decreased due to payments of performance based compensation, commissions,
and income taxes. Long-term debt and other obligations decreased as a
result of scheduled debt repayments.
At October 1, 1995, the Company's primary sources of liquidity consisted of
cash, cash equivalents and short-term investments of $749 million and a
revolving credit facility with banks aggregating $150 million, which was
available subject to compliance with certain covenants. The Company
believes that the liquidity provided by existing cash and short-term
investment balances and the borrowing arrangements described above will be
sufficient to meet the Company's capital requirements through fiscal 1996.
However, the Company believes the level of financial resources is a
significant competitive factor in its industry and may choose at any time
to raise additional capital through debt or equity financings to strengthen
its financial position, facilitate growth and provide the Company with
additional flexibility to take advantage of business opportunities that may
arise.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER
The following is a summary of all sales of the Company's Common Stock by
the Company's executive officers and directors who are subject to Section
16 of the Securities Exchange Act of 1934, as amended, during the fiscal
quarter ended October 1, 1995:
OFFICER DATE PRICE NUMBER OF
SHARES SOLD
=================================================================
Kenneth Alvares 8/14/95 $50.4375 1,000
8/15/95 $52.625 1,000
8/16/95 $55.50 1,000
8/16/95 $57.00 1,000
8/22/95 $56.4375 1,000
8/22/95 $54.8125 2,000
8/23/95 $60.1875 1,750
Patrick Deagman 8/14/95 $50.74 2,000
8/14/95 $50.74 900
8/14/95 $50.74 6,000
8/14/95 $50.74 800
8/14/95 $50.74 3,000
Larry Hambly 8/14/95 $50.00 5,000
8/14/95 $51.00 4,000
8/15/95 $53.00 8,000
8/16/95 $54.25 4,000
8/16/95 $57.0625 2,500
8/18/95 $56.375 5,000
8/18/95 $56.625 5,000
8/23/95 $60.625 12,000
8/31/95 $57.00 12,000
*William Hearst 8/16/95 $56.00 1,250
8/16/95 $56.00 2,500
8/16/95 $56.00 3,750
8/16/95 $56.00 5,000
11
<PAGE>
OFFICER DATE PRICE NUMBER OF
SHARES SOLD
=================================================================
Masood Jabbar 8/15/95 $52.88 5,000
*Jon Kannegaard 8/14/95 $51.25 1,500
8/14/95 $51.25 1,600
8/14/95 $51.25 1,600
Michael Lehman 8/11/95 $48.00 4,000
8/17/95 $56.75 2,000
8/17/95 $56.75 1,500
*William Marr 8/8/95 $45.4375 363
8/8/95 $45.4375 3,000
8/8/95 $45.4375 2,400
8/14/95 $50.00 8,871
8/14/95 $48.50 10,000
8/14/95 $49.00 10,000
8/14/95 $49.88 10,000
Michael Morris 8/17/95 $56.815 3,200
8/17/95 $56.815 6,000
Frank Pinto 8/14/95 $50.19 1,500
8/23/95 $59.94 2,000
George Reyes 8/10/95 $48.00 2,000
Janpieter Scheerder 8/17/95 $56.565 1,000
8/17/95 $56.565 3,600
Eric Schmidt 8/14/95 $50.125 5,000
8/17/95 $56.50 7,500
8/18/95 $56.75 5,000
8/23/95 $60.75 7,500
8/25/95 $58.125 5,000
8/30/95 $55.125 5,000
John Shoemaker 8/21/95 $56.875 3,200
8/21/95 $56.875 363
12
<PAGE>
OFFICER DATE PRICE NUMBER OF
SHARES SOLD
=================================================================
Dorothy Terrell 8/10/95 $49.9375 1,000
8/11/95 $48.00 1,000
8/14/95 $50.4375 2,000
8/15/95 $52.3125 1,000
8/16/95 $55.50 1,000
8/16/95 $57.00 1,000
8/22/95 $54.8125 1,750
8/22/95 $56.4375 2,000
8/23/95 $60.625 1,400
8/23/95 $58.9375 1,000
8/31/95 $57.9375 3,000
Kevin Walsh 8/31/95 $57.625 2,400
8/31/95 $57.625 1,600
Edward Zander 8/16/95 $56.0625 6,478
8/23/95 $60.75 10,000
* A former Section 16 Officer or Director of Sun Microsystems, Inc.
13
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
4.6 (1) Third Amendment dated as of November 2, 1994 to the First
Amended and Restated Common Shares Rights Agreement dated
December 14, 1990.
4.7 (2) Fourth Amendment dated as of November 1, 1995 to the First
Amended and Restated Common Shares Rights Agreement dated
December 14, 1990.
11.0 Statement re: Computation of Earnings Per Share
27.0 Financial data schedule for the period ended October 1, 1995
-------
(1) Incorporated by reference to Exhibit 4 filed as an exhibit to
Registrant's Form 8A/A Amendment No. 4 to Registration Statement
on Form 8-A filed on November 17, 1994.
(2) Incorporated by reference to Exhibit 5 filed as an exhibit to
Registrant's Form 8A/A Amendment No. 5 to Registration Statement
on Form 8-A filed on November 7, 1995.
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended October 1,
1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN MICROSYSTEMS, INC.
BY
/s/ Michael E. Lehman
------------------------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
/s/ George Reyes
------------------------------------------
George Reyes
Vice President and Corporate Controller,
Chief Accounting Officer
Dated: November 14, 1995
15
<PAGE>
EXHIBITS TO REPORT
------------------
ON FORM 10-Q
------------
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1995
----------------------------------------------
EXHIBIT 4.6
THIRD AMENDMENT
TO
FIRST AMENDED AND RESTATED
COMMON SHARES RIGHTS AGREEMENT
Third Amendment dated as of November 2, 1994 (the "Amendment"), to the
First Amended and Restated Common Shares Rights Agreement dated as of December
14, 1990, as amended to date (the "Agreement"), between Sun Microsystems, Inc.,
a Delaware corporation (the "Company") and The First National Bank of Boston
(the "Rights Agent").
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interest of the Company and its stockholders to amend the Agreement
as set forth herein and the Rights Agent has agreed to such amendment; and
WHEREAS, the Company and the Rights Agent have determined that, pursuant to
Section 27 of the Agreement, the Agreement may be amended as set forth herein
without the approval of the holders of the Rights (as defined in the Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the Agreement is hereby amended as follows:
1. Section 1(c)(i) of the Rights Agreement is hereby amended in its
entirety to read as follows:
"(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes
of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or
any comparable or successor law or regulation); provided, however,
if such Person or any of such Person's Affiliates and Associates, as
the case may be, files pursuant to Rule 13d-1 of the Exchange Act a
Schedule 13G and, therefore, is not required to file a Schedule 13D,
reporting beneficial ownership of not greater than twenty percent
(20%) of the Company's outstanding Common Shares, then such Person,
or any of such Person's Affiliates or Associates, as the case may
be, shall not be deemed the "Beneficial Owner" and shall not be
considered to "beneficially own" any securities so held nor be
deemed an "Acquiring Person" for purposes of this Agreement, but
only for so long as such Person, or any such Person's Affiliates or
Associates, as the case may be, (i) does not file, nor in the
determination of the Board of Directors is it required to file, a
report on Schedule 13D pursuant to Section 13(d) or Rule 13d-1 of
the Exchange Act, or (ii) notwithstanding the foregoing proviso,
beneficially owns less than twenty percent (20%) of the Company's
outstanding Common Shares."
2. This Amendment may be executed in any number of counterparts, each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUN MICROSYSTEMS, INC.
By: /s/ MICHAEL H. MORRIS
-------------------------------
Name: Michael H. Morris
Title: Vice President, General Counsel
and Secretary
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ KATHERINE S. ANDERSON
-------------------------------
Name: Katherine S. Anderson
Title: Administration Manager
EXHIBIT 4.7
FOURTH AMENDMENT
TO
FIRST AMENDED AND RESTATED
COMMON SHARES RIGHTS AGREEMENT
This Fourth Amendment, dated as of November 1, 1995 (the "Amendment" ), is
to the First Amended and Restated Common Shares Rights Agreement dated as of
December 14, 1990, as amended to date (the "Agreement"), between Sun
Microsystems, Inc., a Delaware corporation (the "Company") and BancBoston State
Street Investors (the "Rights Agent").
WHEREAS, on November 1, 1995, the Board of Directors of the Company
determined that it is in the best interests of the Company and its stockholders
to amend the Agreement in order to increase the "Purchase Price", as defined
pursuant to the terms of the Agreement, from $100.00 to $200.00 (without giving
effect to the Company's recent two-for-one stock split declared by the Board of
Directors of the Company on November 2, 1995 in the form of a stock dividend
issuable to stockholders of record on November 20, 1995 (the "Recent Stock
Split")), such Purchase Price is subject to adjustment from time to time as a
result of certain events described in the Agreement, including the Recent Stock
Split, and the Rights Agent has agreed to such amendment; and
WHEREAS, the Company and the Rights Agent have determined that, pursuant to
Section 27 of the Agreement, the Agreement may be amended as set forth herein
without the approval of the holders of the Rights (as defined in the Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the Agreement is hereby amended as follows:
1. Section 7(b) of the Rights Agreement is hereby amended in its entirety
to read as follows:
"(b) The Purchase Price for each Common Share issuable pursuant to the
exercise of a Right shall initially be $200.00, shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below."
2. All other terms and conditions of the Agreement, including the Exhibits
thereto, shall remain in full force and effect.
3. This Amendment may be executed in any number of counterparts, each of
such counter parts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on this 3rd day of November, 1995.
SUN MICROSYSTEMS, INC.
By: /s/ MICHAEL H. MORRIS
------------------------------------
Name: Michael H. Morris
Title: Vice President, General Counsel
and Secretary
BANCBOSTON STATE STREET INVESTOR
SERVICES (formerly, THE FIRST NATIONAL
BANK OF BOSTON)
By: /s/ GEOFFREY D. ANDERSON
------------------------------------
Name: GEOFFREY D. ANDERSON
Title: Senior Accounts Manager
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned, Michael H. Morris, hereby certifies as follows:
1. I am the Vice President and General Counsel of Sun Microsystems, Inc.
(the "Company").
2. The Fourth Amendment dated as of November 1, 1995 to the First Amended
and Restated Common Shares Rights Agreement dated as of December 14, 1990 is in
compliance with the terms of Section 27 of the First Amended and Restated Common
Shares Rights Agreement dated as of December 14, 1990 by and between the Company
and The First National Bank of Boston, as Rights Agent.
SUN MICROSYSTEMS, INC.
By: /s/ MICHAEL H. MORRIS
------------------------------------
Michael H. Morris, Vice President
and General Counsel
EXHIBIT 11.0
SUN MICROSYSTEMS, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
PRIMARY
- -------
Three Months Ended
------------------
October 1, October 2,
1995 1994
---------- ----------
Net income ................................... $84,696 $38,427
======= =======
Weighted average common shares
outstanding .......................... 94,948 94,501
Common-equivalent shares attributable to
stock options and warrants ........... 4,714 1,166
------- -------
Total common and common-equivalent
shares outstanding ................... 99,662 95,667
======= =======
Net income per common and
common-equivalent share .............. $ 0.85 $ 0.40
======= =======
<PAGE>
EXHIBIT 11.0 (continued)
SUN MICROSYSTEMS, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
FULLY DILUTED
- -------
Three Months Ended
------------------
October 1, October 2,
1995 1994
---------- ----------
Net income ................................... $84,696 $38,427
======= =======
Weighted average common shares
outstanding .......................... 94,948 94,501
Common-equivalent shares attributable to
stock options and warrants ............ 4,890 1,378
------- -------
Total common and common-equivalent
shares outstanding .................... 99,838 95,879
======= =======
Net income per common and
common-equivalent share $ ............. $ 0.85 $ 0.40
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> OCT-01-1995
<EXCHANGE-RATE> 1
<CASH> 385,615
<SECURITIES> 363,541
<RECEIVABLES> 927,586
<ALLOWANCES> 98,253
<INVENTORY> 352,703
<CURRENT-ASSETS> 2,417,282
<PP&E> 1,087,024
<DEPRECIATION> 645,475
<TOTAL-ASSETS> 3,045,447
<CURRENT-LIABILITIES> 1,212,607
<BONDS> 41,033
<COMMON> 72
0
0
<OTHER-SE> 1,782,382
<TOTAL-LIABILITY-AND-EQUITY> 3,045,447
<SALES> 1,485,278
<TOTAL-REVENUES> 1,485,278
<CGS> 829,033
<TOTAL-COSTS> 1,372,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,726
<INTEREST-EXPENSE> 2,389
<INCOME-PRETAX> 124,553
<INCOME-TAX> 39,857
<INCOME-CONTINUING> 84,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,696
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
