SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__X__ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 30, 1997 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 Identification No.)
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 practical date.
Class Outstanding at March 30, 1997
Common stock - $0.00067 par value 368,872,018
<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 8
PART II - OTHER INFORMATION
Item 2- Changes in Securities 14
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8 - K 16
SIGNATURES 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 30, June 30,
1997 1996
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 484,479 $ 528,854
Short-term investments 487,581 460,743
Accounts receivable, net 1,421,489 1,206,612
Inventories 491,470 460,914
Deferred tax assets 203,494 177,554
Other current assets 236,132 199,059
----------- -----------
Total current assets 3,324,645 3,033,736
Property, plant and equipment, at cost 1,591,714 1,282,384
Accumulated depreciation and amortization (865,256) (748,535)
----------- -----------
726,458 533,849
Other assets, net 171,691 233,324
----------- -----------
$ 4,222,794 $ 3,800,909
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,556 $ 49,161
Accounts payable 521,714 325,067
Accrued liabilities 864,843 801,550
Other current liabilities 240,515 313,491
----------- -----------
Total current liabilities 1,631,628 1,489,269
Long-term debt and other obligations 107,266 60,154
Stockholders' equity 2,483,900 2,251,486
----------- -----------
$ 4,222,794 $ 3,800,909
=========== ===========
See accompanying notes.
3
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $2,114,618 $1,840,028 $6,055,225 $5,076,689
Cost and expenses:
Cost of sales 1,053,194 1,016,688 3,058,697 2,806,186
Research and development 196,151 164,102 583,429 474,482
Purchased in-process research and
development 22,958 -- 22,958 --
Selling, general and administrative 585,305 457,447 1,701,302 1,303,315
---------- ---------- ---------- ----------
Total costs and expenses 1,857,608 1,638,237 5,366,386 4,583,983
Operating income 257,010 201,791 688,839 492,706
Gain on sale of equity investment 62,245 -- 62,245 --
Interest income, net 9,438 8,954 21,331 27,958
---------- ---------- ---------- ----------
Income before income taxes 328,693 210,745 772,415 520,664
Provision for income taxes 105,182 67,438 247,173 166,612
---------- ---------- ---------- ----------
Net income $ 223,511 $ 143,307 $ 525,242 $ 354,052
========== ========== ========== ==========
Net income per common and
and common-equivalent
share $ 0.58 $ 0.37 $ 1.35 $ 0.90
========== ========== ========== ==========
Common and common-equivalent
shares used in the calculation
of net income per share 388,364 391,486 389,073 392,894
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
March 30, March 31,
1997 1996
----------- -----------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 525,242 $ 354,052
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization and
other non-cash items 305,884 251,811
Gain on sale of equity investment (62,245) --
Other non-cash items 22,958 --
Increase in accounts receivable (214,877) (145,656)
Increase in inventories (30,556) (188,327)
Increase in accounts payable 196,647 95,584
Net increase in other current
and non-current assets (91,890) (28,460)
Net increase in other current
and non-current liabilities 116,271 59,107
----------- -----------
Net cash provided from operating activities 767,434 398,111
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (403,589) (222,691)
Acquisition of other assets (27,270) (62,421)
Payment for LongView Technologies acquisition (22,958)
Acquisition of short-term investments (473,939) (1,131,865)
Maturities of short-term investments 447,574 1,543,880
----------- -----------
Net cash (used by) provided from investing activities (480,182) 126,903
----------- -----------
Cash flow from financing activities:
Issuance of common stock 32,482 43,515
Acquisition of treasury stock (398,267) (504,640)
Proceeds from employee stock purchase plans 51,287 38,104
Proceeds from sale of equity investment 62,245 --
Reduction of short - term borrowings, net (44,605) (23,078)
Reduction of long - term borrowings (34,769) (39,648)
----------- -----------
Net cash used by financing activities (331,627) (485,747)
----------- -----------
Net (decrease) increase in cash and cash equivalents $ (44,375) $ 39,267
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,616 $ 13,796
Income taxes $ 248,172 $ 170,492
<FN>
See accompanying notes.
</FN>
</TABLE>
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 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 the 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 1996 Annual Report to Stockholders which is incorporated by
reference in the Company's 1996 Form 10-K.
INVENTORIES (in thousands)
March 30, 1997 June 30, 1996
-------------- -------------
Raw materials $281,534 $267,811
Work in process 47,094 58,337
Finished goods 162,842 134,766
-------- --------
$491,470 $460,914
======== ========
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
The Company a declared two-for-one stock split (effected in the form of a stock
dividend) to stockholders of record as of the close of business on November 18,
1996. Share and per share amounts presented have been adjusted to reflect the
stock dividend.
6
<PAGE>
ACQUISITIONS
On February 14, 1997, the Company acquired all of the interests of LongView
Technologies LLC, a limited liability development stage company, for $22,957,500
in cash. None of LongView's products had achieved technological feasibility and
no alternative future uses have been established by the Company. The transaction
was accounted for as a purchase. The excess of the purchase price over the
estimated fair value of net tangible assets has been allocated to purchased in -
process research and development based upon an independent third party
valuation. The purchased in-process research and development resulted in a
write-off of $22,957,500.
RECENT PRONOUNCEMENTS
In 1997 Financial Accounting Standards No. 128 ("FAS 128") "Earnings Per Share"
was issued and is effective for the fiscal year commencing after December 15,
1997. The Company will be required to change the method currently used to
compute earnings per share and restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the three month periods ended March 30, 1997
and March 31, 1996 of $0.03 and $0.02 per share, respectively (and an increase
in primary earnings per share for the nine month periods ended March 30, 1997
and March 31, 1996 of $0.07 and $0.05 per share, respectively). The impact of
FAS 128 on the calculation of fully diluted earnings per share for these periods
is not expected to be material.
7
<PAGE>
<TABLE>
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 a percentage of net revenues:
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 49.8 55.3 50.5 55.3
------ ------ ------ ------
Gross margin 50.2 44.7 49.5 44.7
Research and development 9.3 8.9 9.6 9.3
Purchased in-process research and
development 1.1 -- .4 --
Selling, general and administrative 27.6 24.8 28.1 25.7
------ ------ ------ ------
Operating income 12.2 11.0 11.4 9.7
Gain on sale of equity investment 2.9 -- 1.0 --
Interest income, net 0.4 0.5 0.4 0.6
------ ------ ------ ------
Income before income taxes 15.5 11.5 12.8 10.3
Provision for income taxes 4.9 3.7 4.1 3.3
------ ------ ------ ------
Net income 10.6% 7.8% 8.7% 7.0%
====== ====== ====== ======
</TABLE>
This following sections contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties such that actual results may vary
materially.
The future operating results discussed below represent specific risks which
could impact the financial condition and results over the next few quarters.
This information below should be read in conjunction with the 1996 Annual Report
to Stockholders which is incorporated by reference in the Company's 1996 Form
10-K.
RESULTS OF OPERATIONS
Net revenues
Net revenues were $2.115 billion for the third quarter and $6.055 billion for
the first nine months of fiscal 1997, representing increases of 14.9% and 19.3%,
respectively, over the comparable periods of fiscal 1996.
8
<PAGE>
Approximately eighty-five percent of the growth in revenues resulted from
increased demand for servers, high-end desktop systems, and from memory, storage
options, and accessories shipped as part of system sales. The remaining increase
reflects growth in revenues from other Sun businesses, including service,
aftermarketing, and microprocessors, as compared with the corresponding periods
of fiscal 1996.
Domestic net revenues increased by 20.6% and 22.9% while international net
revenues (including United States exports) grew 10.2% and 16.1% in the third
quarter and first nine months of fiscal 1997, respectively, compared with the
corresponding periods of fiscal 1996. European net revenues increased 15.1% and
17.8% while net revenues in Rest of World increased 5.6% and 14.0% in the third
quarter and first nine months of fiscal 1997, respectively, when compared with
the same periods of fiscal 1996. The increase in European revenues in the third
quarter was principally related to improving demand in Germany, Switzerland and
France. The increase in such revenues for the nine month period was principally
related to higher levels of demand in the United Kingdom, Germany and
Switzerland.
During the third quarter of fiscal 1997, the Company's revenues in Japan, a
principal component of the "Rest of World" category, declined slightly in local
currency. This decline somewhat offset the continued growth in other parts of
Asia, and parts of Latin and South America. The Company attributes the decrease
in revenues in Japan principally to the current economic trends effecting the
Japanese market and is not expecting significant change in the near term. If the
economic trends in Japan significantly worsen in a quarter or continue to
decline over an extended period of time, the Company's results from operations
and cash flows could be adversely effected.
Compared with the third quarter of fiscal 1996, the dollar has weakened against
the British pound sterling and strengthened against the Japanese yen, German
mark, and French franc. For the nine month period ended March 30, 1997, the
dollar has strengthened against the Japanese yen and most major European
currencies, compared with the corresponding period of fiscal 1996. Management
has estimated that fluctuations of the dollar against all other foreign
currencies on a net basis during the quarter resulted in approximately a 3%
reduction in the Company's revenues for the quarter ended March 30, 1997. The
overall impact of currency fluctuations on operating results, while slightly
unfavorable, was not significant in either the third quarter or the first nine
months of fiscal 1997.
The Company generally manages currency exposure through the use of simple,
short-term forward foreign exchange and currency option contracts, the objective
of which is to minimize the impact of currency fluctuations on the results of
operations. As the Company utilizes projected data to establish its forward
exchange and currency option contracts, variances which result from forecasting
differences and the extent of currency movement during the quarter could have a
material adverse effect on the results of operations and cash flows.
Gross margin
Gross margin was 50.2% for the third quarter and 49.5% for the first nine months
of fiscal 1997, compared with 44.7%, respectively, for the corresponding periods
in fiscal 1996. The increase in gross margin for the periods compared reflects
principally the effects of increased revenue generated from sales of higher
margin servers, memory storage options and accessories, as well as continued
component cost decreases by the Company.
The factors described above resulted in a favorable impact on gross margin for
the third quarter and first nine months of fiscal 1997. The Company continuously
evaluates the competitiveness of its product offerings. These evaluations could
result in repricing actions in the near term. Sun's future operating results
would be adversely affected if such repricing actions were to occur and the
Company were unable to mitigate the resulting margin pressure by maintaining a
favorable mix of systems, software, service, and other products and by achieving
component cost reductions, operating efficiencies and increasing volumes.
9
<PAGE>
Research and development
Research and development (R&D) expenses were $196.2 million in the third quarter
and $583.4 million for the first nine months of fiscal 1997, compared with
$164.1 and $474.5 million, respectively, for the same periods of fiscal 1996. As
a percentage of net revenues, R&D expenses increased to 9.3% for the third
quarter and 9.6% for the first nine months of fiscal 1997, from 8.9% and 9.3%
,respectively, for the comparable periods of fiscal 1996. Approximately
one-fourth of the dollar increase in the third quarter and the first nine months
of fiscal 1997 over the comparable periods in fiscal 1996 reflects development
of hardware and software products which utilize the Java architecture. The
remaining increase for the third quarter and first nine months of fiscal 1997 is
primarily attributable to continued development of UltraSPARC systems, storage
products and further development of products acquired through acquisitions of
Integrated Micro Products, plc and Cray Business Systems, a division of Cray
Research, Inc. and increased compensation due primarily to higher levels of
staffing.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses were $585.3 million in the
third quarter and $1,701.3 million in the first nine months of fiscal 1997,
compared with $457.4 and $1,303.3 million, respectively, for the same periods of
fiscal 1996. As a percentage of net revenues, SG&A expenses were 27.6% and 28.1%
in the third quarter and first nine months of fiscal 1997, respectively, and
24.8% and 25.7%, respectively, in the comparable periods of fiscal 1996.
Approximately half of the dollar increases are attributable to increased
marketing costs related to new product introductions and other promotional
programs, and increases related to compensation primarily resulting from higher
levels of headcount. The remaining increases reflect 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 further expand its demand creation programs and service support
organizations.
Purchased in - process research and development
Purchased in-process research and development represents the write-off of
purchased in-process research and development associated with the Company's
acquisition of Longview Technologies, LLC, a development stage company.
Gain on sale of equity investment
The gain on sale of equity investment represents the net proceeds from the sale
of the Company's equity investment in Iona Technologies, plc.
Interest income, net
Net interest income was $9.4 million for the third quarter and $21.3 million for
the first nine months of fiscal 1997, compared with $9.0 million and $28.0
million, respectively, for the corresponding periods in fiscal 1996. The
increase for the third quarter of fiscal 1997 is primarily the result of higher
interest earnings due to a larger average portfolio of cash and investments and
interest savings from reduced debt levels, as compared to the corresponding
period in fiscal 1996. The decrease for the first nine months of fiscal 1997 is
primarily the result of lower interest earnings due to a smaller average
portfolio of cash and investments as compared to the corresponding period in
fiscal 1996.
10
<PAGE>
Income taxes
The Company's effective income tax rate for the third quarter and the first nine
months of both fiscal 1997 and 1996 was 32%.
FUTURE OPERATING RESULTS
The market for Sun's products and services is intensely competitive and subject
to continuous, rapid technological change, short product life cycles and
frequent product performance improvements and price reductions. Due to the
breadth of the Company's product lines and the scalability of its products and
network computing model, Sun competes in many segments of the network computing
market across a broad spectrum of customers. The Company expects the markets for
its products and technologies, as well as its competitors within such markets,
will continue to change as the rightsizing trend shifts customer buying patterns
to network based systems which often employ solutions from multiple vendors.
Competition in these markets will also continue to intensify as Sun and its
competitors, principally Hewlett-Packard Co., International Business Machines
Corporation, Digital Equipment Corporation, and Silicon Graphics, Inc.,
aggressively position themselves to benefit from this shifting of customer
buying patterns and demand. The Company is also facing competition from these
competitors, as well as other systems manufacturers, such as Compaq Computer
Corporation and Dell Computer Corporation, whose products are based on
microprocessors from Intel Corporation coupled with Windows NT operating system
software from Microsoft Corporation. These products demonstrate the viability of
certain networked personal computer solutions and have increased the competitive
pressure, particularly in the Company's workstation and lower-end server product
lines. Finally, the timing of introductions of new products and services by
Sun's competitors may negatively impact the future operating results of the
Company, particularly when such introductions occur in periods leading up to the
Company's introduction of its own new enhanced products. The Company expects
this pressure to continue and to intensify throughout the remainder of fiscal
1997 and into fiscal 1998. While many other technical, service and support
capabilities affect a customer's buying decision, the Company's future operating
results will depend, in part, on its ability to compete with these technologies.
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 new systems, 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,
such as the Company's development of the UltraSPARC microprocessor is a complex
and uncertain process requiring high levels of innovation from the Company's
designers and suppliers, as well as accurate anticipation of customer
requirements and technological trends. Once a hardware product is developed, 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. Future
operating results will depend to a considerable extent on the Company's ability
to closely manage product introductions, in order to minimize unfavorable
patterns of customer orders, to reduce levels of older inventory and to 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 Company's need to adjust prices to reflect changing competitive market
conditions as well as the variability and timing of customer orders with respect
to the Company's 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 for the mix of products. 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.
11
<PAGE>
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, or the failure of any of the
Company's own designers to develop advanced innovative products on a timely
basis, 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. To secure
components for development, production, and introduction of new products, the
Company frequently makes advanced payments to certain suppliers and often enters
into noncancelable 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 respective delivery schedules. In the event of a delay or flaw
in the Company's design process, the Company's operating results could be
adversely affected due to the Company's obligations to fulfill such
noncancelable purchase commitments.
Generally, the computer systems sold by Sun, such as the UltraSPARC based
products, are the result of 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 adopting 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.
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. Additionally, the Company plans to continue to evaluate and, when
appropriate, make acquisitions of complementary technologies, products or
businesses. As part of this process, the Company will continue to evaluate the
changing value of its assets, and when necessary, make adjustments thereto.
While the Company cannot predict what effect these various factors may have on
its financial results, the aggregate effect of these and other factors could
result in significant volatility in the Company's future performance and stock
price.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The sufficiency of the Company's capital resources are forward looking
statements which involve risks and uncertainties and actual results may vary
materially.
Total assets at March 30, 1997 increased by approximately $422 million from June
30, 1996, due principally to increases in accounts receivable of $215 million,
property, plant and equipment-net of $193 million, inventory of $31 million and
other current assets of $63 million, offset by decreases in other assets of $62
million and cash equivalents and short term investments of $17 million. The
increase in accounts receivable reflects a larger percentage of sales occurring
near the end of the quarter and the timing of cash receipts as compared to the
fourth quarter of fiscal 1996. The increase in property, plant and equipment
reflects the purchase of Phase II of the campus located in Menlo Park,
California for approximately $100 million and capital additions to support
increased headcount, primarily in engineering, service and marketing. Other
current assets increased due to the timing of payments for insurance and other
taxes. Cash was principally used for the repurchase of 14.2 million shares of
common stock for $398 million, capital expenditures of approximately $303
million, purchase of Phase II of the campus located in Menlo Park, scheduled
debt repayments of $40 million, and net acquisitions of short-term investments
of $26 million and cash provided from operations. The reduction in other current
assets reflects amortization related to capitalized software and intangible
assets.
Total current liabilities increased $142 million from June 30, 1996, due
principally to an increase in accounts payable of $196 million offset by a
decrease in short-term borrowings of $45 million. The increase in accounts
payable reflects increased inventory receipts during the last three weeks of the
quarter as compared to the fourth quarter of fiscal 1996. The decrease in
short-term borrowings reflects the final payment related to the Company's senior
notes and scheduled debt repayments.
At March 30, 1997, the Company's primary sources of liquidity consisted of cash,
cash equivalents and short-term investments of $972 million and a revolving
credit facility with banks aggregating $300 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
arrangement described above will be sufficient to meet the Company's capital
requirements through fiscal 1998. 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 financing
to strengthen its financial position, facilitate growth and provide the Company
with additional flexibility to take advantage of business opportunities that may
arise.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
On February 14, 1997, former shareholders of LongView Technologies LLC
("LongView") who are now employees of the Company were sold 87,049 shares of the
Company's common stock , $.00067 par value (the "Shares"). The Shares were
purchased at $0.01 per share and are subject to repurchase by the Company at
such purchase price in the event certain vesting restrictions with respect to
the Shares are not met. These Shares were sold pursuant to Section 4(2) of the
Securities Act of 1993. The Shares were issued to six individuals in a
transaction not involving a public offering for proceeds to the Company of
$870.49.
14
<PAGE>
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 March 30, 1997:
OFFICER/ DATE PRICE NUMBER OF
DIRECTOR SHARES SOLD
================================================================================
Kenneth Alvares 2/05/97 $33.625 16,000
2/05/97 $33.625 9,200
2/07/97 $33.875 8,000
2/11/97 $34.125 548
2/13/97 $34.875 1,200
2/13/97 $34.875 6,000
Mel Friedman 2/03/97 $33.00 30,000
Michael Lehman 1/28/97 $32.625 8,000
2/19/97 $34.00 10,000
2/19/97 $34.75 10,000
Michael Morris 1/28/97 $32.625 2,568
George Reyes 1/28/97 $32.8715 424
Joseph Roebuck 2/18/97 $34.25 100,000
2/19/97 $34.036 70,000
Edward Saliba 1/23/97 $33.25 2,388
Eric Schmidt 2/04/97 $32.125 5,000
2/05/97 $33.25 5,000
2/18/97 $33.625 5,000
2/19/97 $34.50 5,000
2/19/97 $34.50 568
2/19/97 $34.6250 10,000
2/24/97 $32.25 5,000
2/24/97 $32.125 5,000
2/27/97 $32.25 10,000
2/28/97 $30.875 5,000
2/28/97 $30.75 5,000
John Shoemaker 1/21/97 $33.2486 12,800
1/29/97 $32.33065 8,000
2/10/97 $33.815 8,000
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
11.0 Statement re: Computation of Earnings Per Share
27.0 Financial data for the period ended March 30, 1997
b) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the quarter ended March 30,
1997.
16
<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: May 13, 1997
17
<PAGE>
EXHIBITS TO REPORT
ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
18
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
PRIMARY
- -------
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $223,511 $143,307 $525,242 $354,052
======== ======== ======== ========
Weighted average common
shares outstanding 368,247 367,346 367,915 371,306
Common - equivalent shares
attributable to stock options and warrants 20,117 24,140 21,158 21,588
-------- -------- -------- --------
Total common and common -
equivalent shares outstanding 388,364 391,486 389,073 392,894
======== ======== ======== ========
Net income per common and
common - equivalent share $ 0.58 $ 0.37 $ 1.35 $ 0.90
======== ======== ======== ========
</TABLE>
19
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
FULLY DILUTED
- -------------
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $223,511 $143,307 $525,242 $354,052
======== ======== ======== ========
Weighted average common
shares outstanding 368,247 367,346 367,915 371,306
Common - equivalent shares
attributable to stock options and warrants 20,662 24,782 21,743 22,426
-------- -------- -------- --------
Total common and common -
equivalent shares outstanding 388,909 392,128 389,658 393,732
======== ======== ======== ========
Net income per common and
common - equivalent share $ 0.58 $ 0.37 $ 1.35 $ 0.90
======== ======== ======== ========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-30-1997
<CASH> 484,479
<SECURITIES> 487,581
<RECEIVABLES> 1,421,489
<ALLOWANCES> 157,882
<INVENTORY> 491,470
<CURRENT-ASSETS> 3,324,645
<PP&E> 1,591,714
<DEPRECIATION> 865,256
<TOTAL-ASSETS> 4,222,794
<CURRENT-LIABILITIES> 1,631,628
<BONDS> 40,000
<COMMON> 73
0
0
<OTHER-SE> 2,483,827
<TOTAL-LIABILITY-AND-EQUITY> 4,222,794
<SALES> 2,114,618
<TOTAL-REVENUES> 2,114,618
<CGS> 1,053,194
<TOTAL-COSTS> 1,857,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,161
<INTEREST-EXPENSE> 1,730
<INCOME-PRETAX> 328,693
<INCOME-TAX> 105,182
<INCOME-CONTINUING> 223,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,511
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
