-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mv6QByKVBg7DxAiJaFZpF0xzTkOwGN6dIMZFyHMHmmqgNC6kY2zCcv6oTF/RqJtN fsEXoyJumPHAw24WQTZJeg== 0000891618-95-000086.txt : 19950515 0000891618-95-000086.hdr.sgml : 19950515 ACCESSION NUMBER: 0000891618-95-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950101 FILED AS OF DATE: 19950215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN MICROSYSTEMS INC CENTRAL INDEX KEY: 0000709519 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 942805249 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15086 FILM NUMBER: 95511525 BUSINESS ADDRESS: STREET 1: 2550 GARCIA AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-1100 BUSINESS PHONE: 4159601300 MAIL ADDRESS: STREET 1: 2550 GARCIA AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-1100 10-Q 1 QRTLY REPORT ENDING 1/1/95 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 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 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
2 3 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
January 1, June 30, 1995 1994 ----------- ---------- (unaudited) 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 ========== ==========
See accompanying notes. 3 4 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended --------------------------- --------------------------- January 1, December 26, January 1, December 26, 1995 1993 1995 1993 ---------- ------------ ---------- ------------ 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 ====== ====== ====== ======
See accompanying notes. 4 5 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six Months Ended --------------------------------------- January 1, December 26, 1995 1993 ----------- ------------ 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 =========== ===========
See accompanying notes. 5 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)
January 1, 1995 June 30, 1994 --------------- ------------- Raw materials $142,343 $129,784 Work in process 41,634 35,798 Finished goods 131,207 129,366 -------- -------- $315,184 $294,948 ======== ========
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 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 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:
Three Months Ended Six Months Ended ---------------------------- --------------------------- January 1, December 26, January 1, December 26, 1995 1993 1995 1993 ---------- ------------ ---------- ------------ 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% ===== ===== ===== =====
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 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 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 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 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 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:
Votes ---------------------------------- For Withheld ---------- -------- 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
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 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:
OFFICER DATE PRICE NUMBER OF SHARES SOLD ======================================================================== 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
14 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 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 17 EXHIBITS TO REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 1995 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.0 SUN MICROSYSTEMS, INC. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (unaudited) (in thousands, except per share amounts)
PRIMARY - ------- Three Months Ended Six Months Ended -------------------------------- ---------------------------------- January 1, December 26, January 1, December 26, 1995 1993 1995 1993 ---------- ------------ ------------- ------------- 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 ======= ======= ======== =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 0 6-MOS JUN-30-1995 JUL-01-1994 JAN-01-1995 1 474,341 404,575 941,449 96,619 315,184 2,347,613 980,234 580,602 2,980,589 1,123,625 77,912 72 0 0 1,775,413 2,980,589 2,748,788 2,748,788 1,623,491 2,578,012 0 17,191 (5,768) 176,545 56,494 120,051 0 0 0 120,051 1.23 1.23
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