<PAGE> 1
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 January 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 Identification No.)
of incorporation or organization)
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 practible date.
CLASS OUTSTANDING AT JANUARY 1, 1995
----- ------------------------------
Common stock - $0.00067 par value 95,095,671
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 1, June 30,
1995 1994
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 474,341 $ 433,937
Short-term investments 404,575 448,879
Accounts receivable, net 844,830 853,031
Inventories 315,184 294,948
Other current assets 308,683 274,298
---------- ----------
Total current assets 2,347,613 2,305,093
Property, plant and equipment, at cost 980,234 877,268
Accumulated depreciation and amortization (580,602) (517,020)
---------- ----------
399,632 360,248
Other assets, net 233,344 232,651
---------- ----------
$2,980,589 $2,897,992
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 32,506 $ 78,687
Accounts payable 269,585 363,828
Accrued liabilities 573,865 500,908
Other current liabilities 247,669 204,415
---------- ----------
Total current liabilities 1,123,625 1,147,838
Long-term debt and other obligations 81,479 121,831
Stockholders' equity 1,775,485 1,628,323
---------- ----------
$2,980,589 $2,897,992
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
January 1, December 26, January 1, December 26,
1995 1993 1995 1993
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net revenues $1,475,349 $1,130,678 $2,748,788 $2,091,159
Cost and expenses:
Cost of sales 862,113 658,805 1,623,491 1,226,778
Research and development 131,935 111,429 251,302 219,327
Selling, general and administrative 364,342 294,892 703,218 563,962
---------- ---------- ---------- ----------
Total costs and expenses 1,358,390 1,065,126 2,578,011 2,010,067
---------- ---------- ---------- ----------
Operating income 116,959 65,552 170,777 81,092
Interest income (expense), net 3,076 848 5,768 1,438
---------- ---------- ---------- ----------
Income before income taxes 120,035 66,400 176,545 82,530
Provision for income taxes 38,411 22,576 56,494 22,100
---------- ---------- ---------- ----------
Net income $ 81,624 $ 43,824 $ 120,051 $ 60,430
========== ========== ========== ==========
Net income per common
and common-equivalent
share $ 0.83 $ 0.46 $ 1.23 $ 0.62
========== ========== ========== ==========
Common and common-equivalent
shares used in the calculation
of net income per share 97,759 95,450 96,977 98,213
====== ====== ====== ======
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
January 1, December 26,
1995 1993
----------- ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 120,051 $ 60,430
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization
and other non-cash items 133,581 118,081
(Increase) decrease in accounts receivable 8,201 (115,052)
(Increase) decrease in inventories (20,236) 24,893
Increase (decrease) in accounts payable (94,243) 42,858
Net (increase) decrease in other current and
non-current assets (41,109) 9,549
Net increase in other current
and non-current liabilities 117,814 10,691
----------- -----------
Net cash provided from operating activities 224,059 151,450
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (137,174) (94,085)
Acquisition of other assets (22,164) (49,946)
Acquisition of short-term investments (1,376,229) (1,116,198)
Maturities of short-term investments 1,418,071 1,000,026
----------- -----------
Net cash used by investing activities (117,496) (260,203)
----------- -----------
Cash flow from financing activities:
Issuance of common stock 20,279 7,289
Acquisition of treasury stock (18,979) (266,419)
Proceeds from employee stock purchase plans 21,034 21,630
Reduction of short-term borrowings, net (46,181) (1,484)
Reduction of long-term borrowings and other (42,312) (37,521)
----------- -----------
Net cash used by financing activities (66,159) (276,505)
----------- -----------
Net increase (decrease) in cash and cash equivalents $ 40,404 $ (385,258)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,057 $ 11,441
=========== ===========
Income taxes $ 32,978 $ 40,290
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
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.
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 1994
Annual Report to Stockholders.
INVENTORIES (in thousands)
<TABLE>
<CAPTION>
January 1, 1995 June 30, 1994
--------------- -------------
<S> <C> <C>
Raw materials $142,343 $129,784
Work in process 41,634 35,798
Finished goods 131,207 129,366
-------- --------
$315,184 $294,948
======== ========
</TABLE>
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,
research and development tax credits, earnings of foreign subsidiaries
permanently invested in foreign operations, and other differences.
CONTINGENCY
In March, 1990, Sun received a letter from Texas Instruments Incorporated
("TI") alleging that a substantial number of Sun's products infringe certain
of TI's patents. Based on initial discussions with TI, Sun believes that it
will be able to negotiate a license agreement with TI and that the outcome of
this matter will not have a material adverse impact on Sun's financial
position or its results of operations or cash flows in any given fiscal year.
Such a negotiated license may or may not have a material adverse impact on
Sun's results of operations or cash flows in a given fiscal quarter depending
upon various factors including but not limited to the structure and amount of
royalty payments, offsetting consideration from TI, if any, and the
allocation of royalties between past and future product shipments, none of
which can be forecast with reasonable certainty at this time.
6
<PAGE> 7
ACCOUNTING CHANGE
In fiscal 1995, the Company adopted Financial Accounting Standards Board
Statement No. 115 (FAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." Under FAS 115, debt securities that the Company has both
the positive intent and ability to hold to maturity are carried at amortized
cost. Debt securities that the Company does not have the positive intent and
ability to hold to maturity and all marketable equity securities are
classified as either available-for-sale or trading and are carried at fair
value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of stockholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
Cash equivalents consist primarily of highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less at date of acquisition. Short-term investments consist primarily of
auction market preferred stock, commercial paper and tax-exempt securities
with original maturities beyond three months and less than twelve months.
Auction market preferred stock is traded at par and carries a floating rate
dividend that is paid and reset, at intervals of 49 days or less, through a
bidding process that determines the yield. All of the Company's short-term
investments and cash equivalents are classified as available-for-sale at
January 1, 1995. The adoption of FAS 115 resulted in an impact to
stockholders' equity that was not material as of the date of adoption, July
1, 1994, or as of the fiscal quarter ended January 1, 1995. Gross realized
gains and gross realized losses on sales of available-for-sale securities for
the quarter and six months ended January 1, 1995 were immaterial.
7
<PAGE> 8
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ---------------------------
January 1, December 26, January 1, December 26,
1995 1993 1995 1993
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.4 58.3 59.1 58.7
----- ----- ----- -----
Gross margin 41.6 41.7 40.9 41.3
Research and development 8.9 9.8 9.1 10.5
Selling, general and administrative 24.7 26.1 25.6 27.0
----- ----- ----- -----
Operating income 7.9 5.8 6.2 3.8
Interest income, net 0.2 0.1 0.2 0.1
----- ----- ----- -----
Income before income taxes 8.1 5.9 6.4 3.9
Provision for income taxes 2.6 2.0 2.0 1.0
----- ----- ----- -----
Net income 5.5% 3.9% 4.4% 2.9%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Operating results in the first half of fiscal 1995 improved over the
comparable period of fiscal 1994 due primarily to increased demand for more
richly configured desktop and server products. Strong demand for the
SPARCstation 5, SPARCserver 1000 and SPARCstation 20 products, high growth in
revenues from add-on memory, storage options and accessories, and increased
availability of memory component supplies in the second quarter have produced
very favorable operating results for Sun thus far in fiscal 1995. Operating
results in the second half of this fiscal year will depend in part on the
Company's ability to manage planned product enhancements in order to
minimize disruptions in customer ordering patterns, reduce levels of older
inventory and ensure that adequate supplies of new products can be delivered
to meet customer demand.
The Company operates in a highly competitive industry characterized by
increasingly aggressive pricing. Increased demand for Sun's higher
performance desktop and server products, reductions in component costs and
increased operating efficiencies have, to date, significantly offset the
effects of Sun's product price reductions. Future operating results will
depend on additional component cost reductions, further operating
efficiencies and the mix of systems, software and other products, which in
turn depend in part on the Company's ability to generate revenues through
increased system, service and software license volumes. Sun's future
operating results will also depend on the continued acceptance and migration
of customers to the Solaris 2 software environment, as well as the efforts of
independent software vendors to develop new, and port existing, application
software.
8
<PAGE> 9
NET REVENUES
Net revenues were $1.48 billion for the second quarter and $2.75 billion for
the first six months of fiscal 1995, representing increases of 30.5 percent
and 31.4 percent, respectively, over the comparable periods of fiscal 1994.
System unit shipments grew by 34 percent and 41 percent for the second
quarter and for the first six months of this fiscal year, respectively as
compared to the same periods of fiscal 1994. This growth is attributable in
part to the strong demand experienced in the second quarter for the
SPARCstation 5, SPARCserver 1000 and SPARCstation 20. Slightly less than
half of the growth in net revenues for both periods resulted from increased
revenues from memory, storage options and accessories shipped both to new
customers purchasing more richly configured systems and to installed base
customers. When compared with the respective periods of fiscal 1994,
aftermarket revenues from services, software and other businesses increased
in absolute dollars for the second quarter and first six months of fiscal
1995 but declined as a percent of net revenues primarily due to the increases
in system unit shipments.
Domestic net revenues increased by 38 percent and 33 percent while
international net revenues (including United States exports) grew 24 percent
and 30 percent in the second quarter and first six months of fiscal 1995,
respectively, compared with the corresponding periods of fiscal 1994. Europe
net revenues increased 26 percent and 35 percent while net revenues in the
Rest of World increased 21 percent and 25 percent in the second quarter and
first six months of fiscal 1995, respectively, when compared with the same
periods of fiscal 1994 due primarily to the continued strengthening of
international markets, principally central and northern Europe, and Asia.
International net revenues represented 49 percent of total net revenues in
the second quarter and first six months of fiscal 1995, compared with 52
percent and 50 percent for each of the comparable periods of fiscal 1994.
The impact of currency fluctuations on net revenues and operating results
cannot be precisely measured because the Company's product mix and pricing
change over time in various markets, partially in response to currency
movements. Further, the Company's international structure and transaction
activity provide a degree of natural hedge where fluctuations in a particular
currency result in financial effects that mitigate or tend to offset each
other on a consolidated basis. The Company generally manages currency
exposure through an established hedging program, the objective of which is to
minimize the impact of currency fluctuations on results of operations.
Compared with the second quarter and first six months 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, was not
significant in the second quarter or first six months of fiscal 1995.
GROSS MARGIN
Gross margin was 41.6 percent for the second quarter and 40.9 percent for the
first six months of fiscal 1995, compared with 41.7 percent and 41.3 percent,
respectively for the corresponding periods of fiscal 1994. The slight
decrease in gross margin for the periods compared reflects the effects of
increased shipments of lower price-point desktop systems partially offset by
a richer mix of revenues from more richly configured desktop systems and
higher margin servers, as well as favorable manufacturing variances resulting
from higher volumes.
Systems repricing actions may be initiated in the future, which could result
in downward pressure on gross margin. This margin pressure could be
mitigated by increased software licensing, a change in the systems mix to
higher margin products such as servers, or by other favorable product or
geographical mix shifts. In addition, the pressure could be mitigated by
component cost reductions and operating efficiencies generated by higher unit
volumes.
9
<PAGE> 10
RESEARCH AND DEVELOPMENT
Research and development (R&D) expenses were $131.9 million in the second
quarter and $251.3 million for the first six months of fiscal 1995, compared
with $111.4 and $219.3 million for the same periods of fiscal 1994. As a
percentage of net revenues, R&D expenses decreased to 8.9 percent and 9.1
percent for the second quarter and first six months of fiscal 1995,
respectively, from 9.8 percent and 10.5 percent in the comparable periods of
the prior year. The decrease as a percent of net revenues is primarily due
to the increase in revenues in both the second quarter and first six months
of fiscal 1995 over the comparable periods of fiscal 1994. Slightly less than
half of the dollar increases reflect increases in compensation based
principally on the achievement of specified performance goals. The increases
also result from 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 $364.3 million in
the second quarter and $ 703.2 million in the first six months of fiscal
1995, representing increases of $69.4 million (23.6 percent) and $139.3
million (24.7 percent), respectively, from the corresponding periods of
fiscal 1994. As a percentage of net revenues, SG&A expenses were 24.7 percent
and 25.6 percent in the second quarter and first six months of fiscal 1995,
respectively, and 26.1 and 27.0 percent, respectively, in the comparable
periods of fiscal 1994. Approximately half of the dollar increases are
attributable to increases in compensation based principally on the
achievement of specified performance goals. The dollar increases also reflect
investments in demand creation programs, including various marketing and
promotional activities for new software products. The decrease as a percent
of net revenues in the second quarter and first six months of fiscal 1995
reflects, in part, the increase in revenues in both the second quarter and
first six months of fiscal 1995 as well as the Company's ongoing efforts to
reduce the level of SG&A expenses over time through improvements in business
processes and cycle times.
INTEREST INCOME, NET
Net interest income was $3.1 million for the second quarter and $5.8 million
for the first six months of fiscal 1995, compared with $.8 million and $1.4
million, respectively, in net interest income for the corresponding periods
in fiscal 1994. The increase is primarily the result of higher interest
earned on investments as well as interest savings from scheduled debt
repayments.
INCOME TAXES
The Company's effective income tax rate for the second quarter and first six
months of fiscal 1995, was 32 percent compared with 34 percent for the
corresponding periods of fiscal 1994, prior to the one-time credit of $5.9
million resulting from the Omnibus Budget Reconciliation Act of 1993. The
decrease in the fiscal 1995 rates compared with the 34 percent for the
corresponding periods of fiscal 1994 is primarily due to increased earnings
of foreign subsidiaries permanently invested in foreign operations.
FUTURE OPERATING RESULTS
The computer industry is marked by rapidly changing technology and increasing
competition. The Company expects that the markets for its products and
technology, as well as its competitors within such markets, will continue to
change as the rightsizing trend shifts customer buying patterns to
distributed systems employing solutions from multiple vendors. In addition,
improvements in hardware and operating system software products introduced,
or to be introduced, by competing companies are expected to improve the
characteristics of certain networked personal computer solutions. These
developments are expected to provide competitive pressure, particularly at
the low end of the Company's product range, where customers are more price
sensitive and the systems environment is less complex. Therefore, the
Company's future operating results will depend to a considerable extent on
its ability to rapidly and continuously develop, introduce and deliver in
quantity competitive new hardware, software and service products, as well as
new microprocessor technologies, that offer its customers enhanced
performance at competitive prices.
10
<PAGE> 11
The development of new, high performance computer products is a complex and
uncertain process requiring high levels of innovation from both the Company's
designers and those of its suppliers, as well as accurate anticipation of
customer requirements and technological trends. The Company is increasingly
dependent on the ability of its suppliers to design, manufacture and deliver
advanced components required for the timely introduction of new products. The
failure of any of these suppliers to deliver components on time or in
sufficient quantities could result in a significant adverse impact on the
Company's operating results. The inability to secure enough components to
build products, including new products, in the quantities and configurations
required, or to produce, test and deliver sufficient products to meet demand
in a timely manner, would adversely affect the Company's net revenues and
operating results.
The production and introduction of new or enhanced products also requires the
Company to make advanced payments, if necessary, under contracts with certain
suppliers. In addition, in order to secure components for development of new
products, the Company frequently enters into non-cancelable purchase
commitments with vendors early in the design process. Due to the variability
of material requirement specifications during the design process, the Company
must closely manage material purchase commitments and their respective
delivery schedules. Once a hardware product is developed, the Company must
rapidly bring it into volume manufacturing, a process that requires accurate
forecasting of both volumes and configurations, among other things, in order
to achieve acceptable yields and costs. The Company must also manage the
transition from older, displaced products in order to minimize disruptions in
customer ordering patterns, reduce levels of older product inventory and
ensure that adequate supplies of new products can be delivered to meet
customer demand. The ability of the Company to match supply and demand is
further complicated by the need to take pricing actions, which may result in
the Company not being able to correctly anticipate the demand for the mix of
products following those pricing actions. Because the Company is continuously
engaged in this product development, introduction and transition process, its
operating results may be subject to considerable fluctuation, particularly
when measured on a quarterly basis.
Generally, the computer systems sold by Sun are the result of both hardware
and software development, so that delays in 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 typically requires effort on
the part of the customer as well as software porting by software vendors
providing applications. As a result, the timing of conversion to a new
release is inherently unpredictable. Moreover, delays in adoption of a new
release of an operating system by customers can limit the acceptability of
hardware products tied to that release. Such delays could adversely affect
the future operating results of the Company.
The Company's operating results will also be affected by the volume, mix and
timing of orders received during a period and by conditions both in the
computer industry and in the general economy, such as recessionary periods,
political instability, changes in trade policies and fluctuations in interest
or currency exchange rates. The Company's customer order backlog at January
1, 1995 was approximately $281 million, approximately $57 million lower than
the backlog level of $338 million at June 30, 1994. The reduction in the
backlog level is primarily due to reduced customer lead times resulting from
increased availability of memory component supplies in the second quarter.
Backlog only includes 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 may not be a reliable indicator of future operating
results. As delivery lead times continue to decrease, the Company must
generate a higher percentage of revenue from new order bookings in the same
fiscal period.
Seasonality also affects the Company's operating results, particularly in
the first quarter of each fiscal year. In addition, the Company's operating
expenses are increasing as the Company continues to expand its operations,
and future operating results will be adversely affected if revenues do not
increase accordingly. The Company expects to continue efforts to achieve
additional operating efficiencies through the continual review and
improvement of business processes and cycle times. In connection with these
efforts, the Company is continuously engaged in the process of managing the
mix and level of its workforce.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Total assets at January 1, 1995 increased by approximately $82.6 million from
June 30, 1994, due principally to increases in net property, plant and
equipment ($39.4 million) and other current assets ($34.4 million). Net
property, plant and equipment increased primarily due to the purchase of
operating facilities in the second quarter of fiscal 1995. Other current
assets increased partly as the result of increases in the Company's deferred
tax assets.
Total liabilities decreased approximately $64.6 million from June 30, 1994,
due principally to decreases in accounts payable ($94.2 million) and
long-term debt and other obligations ($40.4 million) offset by increases in
accrued liabilities ($72.9 million). Accounts payable decreased due to
increased linearity of inventory receipts in the second quarter of fiscal
1995, compared with the fourth quarter of fiscal 1994. Approximately 80%
less inventory was received in the last few weeks of the second quarter than
was received in the comparable period of the fourth quarter of the prior
year. Long-term debt and other obligations decreased as a result of
scheduled debt repayments. Accrued liabilities increased partly due to
increases in accrued compensation costs.
At January 1, 1995, the Company's primary sources of liquidity consisted of
cash, cash equivalents and short-term investments of $879 million;
uncommitted lines of credit available to the Company's international
subsidiaries totalling approximately $478 million, of which approximately
$445 million was available; and a revolving credit facility with banks
aggregating $150 million, all of 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 1995. 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.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 2, 1994, the Annual Meeting of Stockholders of the Company was
held in Mountain View, California. An election of directors was held with
the following individuals being elected to the Board of Directors of the
Company:
<TABLE>
<CAPTION>
Votes
----------------------------------
For Withheld
---------- --------
<S> <C> <C>
Scott G. McNealy 80,331,306 351,230
L. John Doerr 80,345,579 336,957
William R. Hearst III 79,701,041 981,495
Robert L. Long 80,316,600 365,936
M. Kenneth Oshman 80,345,314 337,222
A. Michael Spence 80,343,418 339,118
</TABLE>
The six nominees who received the highest number of votes were elected to the
Board of Directors. Votes withheld from any nominee were counted for
purposes of determining the presence or absence of a quorum.
The stockholders also approved an amendment to the Company's 1990 Employee
Stock Purchase Plan which increased the number of shares of Common Stock
reserved for issuance thereunder by 1,250,000 shares to an aggregate of
7,550,000 shares. There were 76,678,106 votes cast for the amendment,
3,198,517 votes against the amendment and 764,667 abstentions. Additionally,
the stockholders approved an amendment to the Company's 1990 Long-Term Equity
Incentive Plan which (i) increased the number of shares of Common Stock
reserved for issuance thereunder by 3,350,000 shares to an aggregate of
13,250,000 shares of Common Stock and (ii) provided for certain specific
limitations on the grant of stock options to employees, including executive
officers, of the Company. There were 53,862,349 votes cast for the
amendments, 25,976,532 votes cast against the amendments and 802,409
abstentions. The affirmative votes of the stockholders of a majority of the
shares of the Company's Common Stock present or represented and "entitled to
vote" at the Annual Meeting on the amendments to the 1990 Employee Stock
Purchase Plan and 1990 Long-Term Equity Incentive Plan were required to
approve these amendments. Votes cast against the proposal were counted for
the purposes of determining the presence or absence of a quorum for the
transaction of business and the total number of shares present or represented
and entitled to vote on the proposal. Votes cast against were also counted
for purposes of determining whether the affirmative vote of a majority of the
shares present or represented and entitled to vote on the proposal had been
obtained and were treated as votes against the proposal. While there is no
definitive statutory or case law authority in Delaware as to proper treatment
of abstentions in the counting of votes with respect to proposals such as the
above-described plan amendments, the Company believes that abstentions should
be counted for purposes of determining both the presence or absence of a
quorum for the transaction of business and the total number of shares present
or represented and entitled to vote on the proposal. The Company treated
abstentions on this proposal in this manner. In a 1988 Delaware case, Berlin
v. Emerald Partners, the Delaware Supreme Court held that broker non-votes
may be counted for purposes of determining the presence or absence of a
quorum for the transaction of business. There were no broker non-votes with
respect to these proposals.
13
<PAGE> 14
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 directors and executive officers who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter
ended January 1, 1995:
<TABLE>
<CAPTION>
OFFICER DATE PRICE NUMBER OF
SHARES SOLD
========================================================================
<S> <C> <C> <C>
Kenneth Alvares 11/21/94 $33.8125 7,500
Patrick Deagman 11/4/94 $33.00 435
Larry Hambly 11/29/94 $31.0625 2,500
William Joy 10/25/94 $30.875 12,000
10/25/94 $31.125 18,000
10/25/94 $31.125 2,000
Michael Lehman 11/15/94 $33.8125 1,656
Eric Schmidt 10/25/94 $30.75 5,000
11/29/94 $33.00 5,139
A. Michael Spence 10/24/94 $31.4688 20,000
Dorothy Terrell 11/21/94 $33.8125 2,000
</TABLE>
14
<PAGE> 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
11.0 Statement re: Computation of Earnings Per Share
27.0 Financial data schedule for the period ended January 1, 1995
b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on January 9, 1995 reporting that J.
Phillip Samper, President of Sun Microsystems Computer Company, a
division of the Company, had elected to step down from his current
position at the end of February 1995 and, further, that he would
assume a consulting and advisory role for the Company following such
time.
15
<PAGE> 16
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: February 15, 1995
16
<PAGE> 17
EXHIBITS TO REPORT
ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 1995
<PAGE> 1
EXHIBIT 11.0
SUN MICROSYSTEMS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRIMARY
- -------
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
January 1, December 26, January 1, December 26,
1995 1993 1995 1993
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income $81,624 $43,824 $120,051 $60,430
======= ======= ======== =======
Weighted average common
shares outstanding 95,075 94,150 95,052 96,558
Common-equivalent shares
attributable to stock options and warrants 2,684 1,300 1,925 1,655
Total common and
common-equivalent shares
outstanding 97,759 95,450 96,977 98,213
======= ======= ======== =======
Net income per common and
common-equivalent share $ 0.83 $ 0.46 $ 1.23 $ 0.62
======= ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JAN-01-1995
<EXCHANGE-RATE> 1
<CASH> 474,341
<SECURITIES> 404,575
<RECEIVABLES> 941,449
<ALLOWANCES> 96,619
<INVENTORY> 315,184
<CURRENT-ASSETS> 2,347,613
<PP&E> 980,234
<DEPRECIATION> 580,602
<TOTAL-ASSETS> 2,980,589
<CURRENT-LIABILITIES> 1,123,625
<BONDS> 77,912
<COMMON> 72
0
0
<OTHER-SE> 1,775,413
<TOTAL-LIABILITY-AND-EQUITY> 2,980,589
<SALES> 2,748,788
<TOTAL-REVENUES> 2,748,788
<CGS> 1,623,491
<TOTAL-COSTS> 2,578,012
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,191
<INTEREST-EXPENSE> (5,768)
<INCOME-PRETAX> 176,545
<INCOME-TAX> 56,494
<INCOME-CONTINUING> 120,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,051
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
