<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 April 2, 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 of (I.R.S. Employer
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 practicable date.
CLASS OUTSTANDING AT APRIL 2, 1995
- --------------------------------- ----------------------------
Common stock - $0.00067 par value 95,584,872
<PAGE> 2
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 8
PART II - OTHER INFORMATION
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
APRIL 2, JUNE 30,
1995 1994
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 451,776 $ 433,937
Short-term investments 619,359 448,879
Accounts receivable, net 886,808 853,031
Inventories 326,734 294,948
Other current assets 338,464 274,298
---------- -----------
Total current assets 2,623,141 2,305,093
Property, plant and equipment, at cost 1,012,257 877,268
Accumulated depreciation and amortization (586,981) (517,020)
---------- -----------
425,276 360,248
Other assets, net 227,612 232,651
---------- -----------
$ 3,276,029 $ 2,897,992
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowing $ 21,989 $ 78,687
Accounts payable 291,631 363,828
Accrued liabilities 681,337 500,908
Other current liabilities 288,136 204,415
---------- -----------
Total current liabilities 1,283,093 1,147,838
Long-term debt and other obligations 82,009 121,831
Stockholders' equity 1,910,927 1,628,323
---------- -----------
$ 3,276,029 $ 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 NINE MONTHS ENDED
-------------------------- --------------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $1,505,030 $1,195,997 $4,253,818 $3,287,155
Cost and expenses:
Cost of sales 855,136 684,297 2,478,627 1,911,074
Research and development 131,279 124,137 382,580 343,465
Selling, general and administrative 368,087 302,806 1,071,306 866,768
---------- ---------- ---------- ----------
Total costs and expenses 1,354,502 1,111,240 3,932,513 3,121,307
---------- ---------- ---------- ----------
Operating income 150,528 84,757 321,305 165,848
Interest income (expense), net 7,630 2,336 13,398 3,775
---------- ---------- ---------- ----------
Income before income taxes 158,158 87,093 334,703 169,623
Provision for income taxes 50,611 29,612 107,105 51,712
---------- ---------- ---------- ----------
Net income $ 107,547 $ 57,481 $ 227,598 $ 117,911
========== ========== ========== ==========
Net income per common
and common-equivalent
share $ 1.09 $ 0.60 $ 2.32 $ 1.21
========= ========= ========= ========
Common and common-equivalent
shares used in the calculation
of net income per share 98,697 95,520 97,850 97,315
====== ====== ====== ======
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
APRIL 2, MARCH 27,
1995 1994
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 227,598 $ 117,911
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization
and other non-cash items 201,488 183,907
Increase in accounts receivable (33,778) (175,555)
(Increase) decrease in inventories (31,786) 13,132
Increase (decrease) in accounts payable (72,197) 87,087
Net increase in other current and
non-current assets (63,431) (38,992)
Net increase in other current
and non-current liabilities 260,022 184,197
----------- -----------
Net cash provided from operating activities 487,916 371,687
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (203,738) (146,944)
Acquisition of other assets (35,216) (135,787)
Acquisition of short-term investments (2,315,526) (2,070,926)
Maturities and sales of short-term investments 2,142,584 1,952,046
----------- -----------
Net cash used by investing activities: (411,896) (401,611)
----------- -----------
Cash flow from financing activities:
Issuance of common stock 35,431 17,708
Acquisition of treasury stock (25,039) (281,566)
Proceeds from employee stock purchase plans 29,907 31,924
Reduction of short-term borrowings, net (56,698) (44,038)
Reduction of long-term borrowings and other (41,782) (40,856)
----------- -----------
Net cash used by financing activities (58,181) (316,828)
----------- -----------
Net increase (decrease) in cash and cash equivalents $ 17,839 $ (346,752)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 13,520 $ 11,926
=========== ===========
Income taxes $ 79,983 $ 54,510
=========== ===========
</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>
APRIL 2, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Raw materials $147,845 $ 129,784
Work in process 34,705 35,798
Finished goods 144,184 129,366
-------- --------
$326,734 $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 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, time deposits, 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 April 2, 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, nor as of the fiscal quarter ended April 2, 1995.
Gross realized gains and gross realized losses on sales of available-for-sale
securities for the quarter and nine months ended April 2, 1995 were not
material.
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 NINE MONTHS ENDED
---------------------------- -----------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1995 1994 1995 1994
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 56.8 57.2 58.3 58.1
===== ===== ===== =====
Gross margin 43.2 42.8 41.7 41.9
Research and development 8.7 10.4 9.0 10.4
Selling, general and administrative 24.5 25.3 25.2 26.4
===== ===== ===== =====
Operating income 10.0 7.1 7.6 5.1
Interest income, net 0.5 0.2 0.3 0.1
Income before income taxes 10.5 7.3 7.9 5.2
Provision for income taxes 3.4 2.5 2.5 1.6
Net income 7.1% 4.8% 5.4% 3.6%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Operating results to date in fiscal 1995 have 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 SPARCserver
1000, SPARCstation 5, and SPARCstation 20 products and high growth in
revenues from add-on memory, storage options and accessories have produced
favorable operating results for Sun thus far in fiscal 1995. The growth in
shipments of richly configured desktop systems and high performance servers
in the third quarter resulted in a favorable impact on gross margin. Future
operating results will depend in part on the Company's ability to maintain a
favorable mix of system, software, service and other revenues, achieve
component cost reductions and operating efficiencies, and control operating
expense growth relative to growth in revenues. Future operating results will
also depend to a considerable extent on the Company's ability to successfully
integrate higher performance microprocessors in the upgrading of certain of
its current product lines, and its ability to closely manage such 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. In addition, the
Company's future operating results will partly 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 $1.51 billion for the third quarter and $4.25 billion for
the first nine months of fiscal 1995, representing increases of 25.8 percent
and 29.4 percent, respectively, over the comparable periods of fiscal 1994.
System unit shipments grew by 16 percent and 31 percent for the third quarter
and for the first nine months of this fiscal year, respectively, as compared
with the same periods of fiscal 1994. The net revenue growth in both periods
compared is attributable in part to the strong demand experienced for the
SPARCserver 1000 and the SPARCstation 20. Strong demand for the SPARCstation
5 during the first nine months and the SPARCserver 2000 in the third quarter
also accounted for part of the growth over the comparable periods of the
prior year. Approximately one-third of the third quarter growth and
approximately one-half of the growth for the first nine months of this fiscal
year over the corresponding periods of fiscal 1994 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, revenues
from other businesses including services, direct marketing, microprocessors
and software also increased for the third quarter and first nine months of
fiscal 1995.
Domestic net revenues increased by 26 percent and 31 percent while
international net revenues (including United States exports) grew 25 percent
and 28 percent in the third quarter and first nine months of fiscal 1995,
respectively, compared with the corresponding periods of fiscal 1994. Europe
net revenues increased 24 percent and 31 percent and net revenues in the Rest
of World increased 27 percent and 25 percent in the third quarter and first
nine months of fiscal 1995, respectively, when compared with the same periods
of fiscal 1994. These increases are due primarily to the expanding
client-server computer markets in Japan and Asia, as well as continued
strengthening of the markets in central and northern Europe. International
net revenues represented 54 percent and 51 percent of total net revenues in
the third quarter and first nine months of fiscal 1995, relatively unchanged
from 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.
Gross margin
Gross margin was 43.2 percent for the third quarter and 41.7 percent for the
first nine months of fiscal 1995, compared with 42.8 percent and 41.9
percent, respectively for the corresponding periods of fiscal 1994. The
increase in gross margin for the third quarter reflects the effects of
revenues generated from more richly configured desktop systems and higher
margin servers partially offset by increases in shipments of lower
price-point desktop systems. For the first nine months of fiscal 1995, gross
margin remained relatively unchanged compared with the corresponding period
of fiscal 1994, as the impact of higher shipments of lower price-point
desktop systems to date in fiscal 1995 has offset the richer revenue mix
described above and the effect of revenue increases in Sun's other
businesses, including services, direct marketing, microprocessors and
software.
Systems repricing actions may be initiated in the future, which would result
in downward pressure on gross margin. The Company's future operating results
will depend in part on the Company's ability to mitigate this margin pressure
by increased software licensing, a change in the systems mix to higher margin
products such as servers, other favorable product or geographical mix shifts,
as well as component cost reductions and operating efficiencies generated by
higher unit volumes.
9
<PAGE> 10
Research and development
Research and development (R&D) expenses were $131.3 million in the third
quarter and $382.6 million for the first nine months of fiscal 1995, compared
with $124.1 and $343.5 million for the same periods of fiscal 1994. As a
percentage of net revenues, R&D expenses decreased to 8.7 percent and 9.0
percent for the third quarter and first nine months of fiscal 1995,
respectively, from 10.4 percent for both of the comparable periods of the
prior year. The decreases as a percent of net revenues are primarily due to
the increase in revenues in both the third quarter and first nine months of
fiscal 1995 over the comparable periods of fiscal 1994. Slightly more than
half of the dollar increase for the first nine months of the fiscal year
compared with the respective period of fiscal 1994 reflects increases in
compensation based principally on the achievement of specified performance
goals. The increases in both periods compared 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 $368.1 million in
the third quarter and $1,071.3 million in the first nine months of fiscal
1995, representing increases of $65.3 million (21.6 percent) and $204.5
million (23.6 percent), respectively, from the corresponding periods of
fiscal 1994. As a percentage of net revenues, SG&A expenses were 24.5
percent and 25.2 percent in the third quarter and first nine months of fiscal
1995, respectively, and 25.3 and 26.4 percent, respectively, in the
comparable periods of fiscal 1994. Approximately one-third of the dollar
increases for the third quarter and approximately one-half of the dollar
increases for the first nine months of fiscal 1995 over the comparable
periods of fiscal 1994 are attributable to increases in sales and marketing
staff as well as 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 third quarter and first nine months of fiscal 1995
reflects, in part, the increase in revenues in both the third quarter and
first nine months of fiscal 1995 as well as the Company's ongoing efforts to
reduce certain SG&A expenses over time through improvements in business
processes and cycle times.
Interest income, net
Net interest income was $7.6 million for the third quarter and $13.4 million
for the first nine months of fiscal 1995, compared with $2.3 million and $3.8
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 third quarter and first nine
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.
10
<PAGE> 11
Future operating results
The Company operates in a highly competitive industry characterized by
increasingly aggressive pricing, 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.
The development of new, high performance computer products, in particular the
Company's current development of the next generation, UltraSPARC
microprocessor based on a 64-bit architecture, 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 may require 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.
11
<PAGE> 12
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 April
2, 1995 was approximately $334 million, relatively unchanged from the backlog
level of $338 million at June 30, 1994. Backlog fluctuated due to temporary
component shortages during the first six months of fiscal 1995 and increased
in the third quarter because the mix of orders received late in the quarter
exceeded the available supply. 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 significant 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. 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.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at April 2, 1995 increased by approximately $378.0 million from
June 30, 1994, due principally to increases in short-term investments ($170.4
million), net property, plant and equipment ($65.0 million) and other current
assets ($64.2 million). The increase in short-term investments results from
increased generation of cash from operations thus far in fiscal 1995 combined
with the Company's continuing emphasis on maximizing return on liquid assets.
Net property, plant and equipment increased primarily due to the purchase and
development of new operating facilities. Other current assets increased
partly as the result of increases in the Company's deferred tax assets.
Total liabilities increased approximately $95.4 million from June 30, 1994,
due principally to increases in accrued liabilities ($180.4 million) and
other current liabilities ($83.7 million) offset by decreases in accounts
payable ($72.2 million), short-term borrowings ($56.7 million) and long-term
debt and other obligations ($39.8 million). Accrued liabilities increased in
part due to increases in unpaid compensation, sales and marketing costs.
Other current liabilities increased primarily as a result of deferred
revenues on service contract renewals as well as income taxes payable on
fiscal 1995 earnings. Accounts payable decreased due to the receipt of less
inventory in the last few weeks of the third quarter in the current fiscal
year than received in the comparable period of the fourth quarter of fiscal
1994.
At April 2, 1995, the Company's primary sources of liquidity consisted of
cash, cash equivalents and short-term investments of $1,071 million;
uncommitted lines of credit available to the Company's international
subsidiaries totalling approximately $500 million, of which approximately
$478 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 the remainder of calendar 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
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 April 2, 1995:
<TABLE>
<CAPTION>
NUMBER OF
OFFICER DATE PRICE SHARES SOLD
-------------------------------------------------------------------
<S> <C> <C> <C>
Richard Barker* 2/27/95 $32.875 7,750
William Joy 2/28/95 $31.875 5,000
Michael Lehman 2/14/95 $33.25 3,647
Michael Morris 2/17/95 $33.565 15,000
William Raduchel 2/14/95 $33.125 5,000
Joseph Roebuck 2/27/95 $32.6875 10,000
Eric Schmidt 2/23/95 $32.875 5,000
2/28/95 $31.875 1,250
</TABLE>
* As of April 11, 1995, Richard Barker was no longer subject to Section 16,
as a result of his death.
13
<PAGE> 14
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 nine months ended April 2, 1995
b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended April 2, 1995.
14
<PAGE> 15
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: May 9, 1995
15
<PAGE> 16
EXHIBITS TO REPORT
ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 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 NINE MONTHS ENDED
----------------------- ------------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1995 1994 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income $107,547 $57,481 $227,598 $117,911
======== ======= ======== ========
Weighted average common
shares outstanding 95,444 93,739 95,007 95,618
Common-equivalent shares
attributable to stock options and warrants 3,253 1,781 2,843 1,697
Total common and
common-equivalent shares
outstanding 98,697 95,520 97,850 97,315
======== ======= ======== ========
Net income per common and
common-equivalent share $ 1.09 $ 0.60 $ 2.32 $ 1.21
======== ======= ======== ========
</TABLE>
<PAGE> 2
EXHIBIT 11.0 (continued)
SUN MICROSYSTEMS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FULLY DILUTED
- -----------------------
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1995 1994 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income $107,547 $57,481 $227,598 $117,911
======== ======= ======== ========
Weighted average common
shares outstanding 95,444 93,739 95,007 95,618
Common-equivalent shares attributable
to stock options and warrants 3,267 1,810 2,927 1,783
Total common and
common-equivalent shares
outstanding 98,711 95,549 97,934 97,401
======== ======= ======== ========
Net income per common and
common-equivalent share $ 1.09 $ 0.60 $ 2.32 $ 1.21
======== ======= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> APR-02-1995
<CASH> 451,776
<SECURITIES> 619,359
<RECEIVABLES> 886,808
<ALLOWANCES> 94,142
<INVENTORY> 326,734
<CURRENT-ASSETS> 2,623,141
<PP&E> 1,012,257
<DEPRECIATION> 586,981
<TOTAL-ASSETS> 3,276,029
<CURRENT-LIABILITIES> 1,283,093
<BONDS> 77,982
<COMMON> 72
0
0
<OTHER-SE> 1,910,855
<TOTAL-LIABILITY-AND-EQUITY> 3,276,029
<SALES> 4,253,818
<TOTAL-REVENUES> 4,253,818
<CGS> 2,478,627
<TOTAL-COSTS> 3,932,513
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,250
<INTEREST-EXPENSE> (13,398)
<INCOME-PRETAX> 334,703
<INCOME-TAX> 107,105
<INCOME-CONTINUING> 227,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,598
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.32
</TABLE>
