-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JQO/leSeP9L5IRy/Y1wIHbu1O0Srr9EJfQA13U81B/InQ0iLPddAM51lUyqttFED 9kh/5RDZWSb3fvNvBRQIZA== 0000950005-96-000242.txt : 19960515 0000950005-96-000242.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950005-96-000242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96562369 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 FORM 10-Q 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 31, 1996 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 incorporation (I.R.S. Employer or organization) Identification No.) 2550 Garcia Avenue, Mountain View, CA 94043-1100 (Address of principal executive offices with zip code) Registrant's telephone number, including area code: (415) 960-1300 N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES NO ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at March 31, 1996 Common stock - $0.00067 par value 184,067,944 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 1 - Legal Proceedings 13 Item 5 - Other Information 14 Item 6 - Exhibits and Reports on Form 8 - K 16 SIGNATURES 17 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, June 30, 1996 1995 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 453,136 $ 413,869 Short-term investments 403,368 814,151 Accounts receivable, net 1,187,460 1,041,804 Inventories 507,999 319,672 Other current assets 386,207 344,868 ----------- ----------- Total current assets 2,938,170 2,934,364 Property, plant and equipment, at cost 1,221,464 1,045,876 Accumulated depreciation and amortization (719,959) (616,871) ----------- ----------- 501,505 429,005 Other assets, net 171,168 181,184 ----------- ----------- $ 3,610,843 $ 3,544,553 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 27,708 $ 50,786 Accounts payable 399,579 303,995 Accrued liabilities 777,721 688,325 Other current liabilities 265,929 287,676 ----------- ----------- Total current liabilities 1,470,937 1,330,782 Long-term debt and other obligations 63,393 91,176 Stockholders' Equity 2,076,513 2,122,595 ----------- ----------- $ 3,610,843 $ 3,544,553 =========== =========== See accompanying notes 3 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts)
Three Months Ended Nine Months Ended ----------------------- ------------------------ March 31, April 2, March 31, April 2, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Net revenues $1,840,028 $1,505,030 $5,076,689 $4,253,818 Cost and expenses: Cost of sales 1,028,688 855,136 2,842,386 2,478,627 Research and development 165,402 142,775 477,582 414,858 Selling, general and administrative 444,147 356,591 1,264,015 1,039,028 ---------- ---------- ---------- ---------- Total costs and expenses 1,638,237 1,354,502 4,583,983 3,932,513 Operating Income 201,791 150,528 492,706 321,305 Interest income, net 8,954 7,630 27,958 13,398 ---------- ---------- ---------- ---------- Income before income taxes 210,745 158,158 520,664 334,703 Provision for income taxes 67,438 50,611 166,612 107,105 ---------- ---------- ---------- ---------- Net Income $ 143,307 $ 107,547 $ 354,052 $ 227,598 ========== ========== ========== ========== Net income per common and and common - equivalent share $0.73 $0.54 $1.80 $1.16 ===== ===== ===== ===== Common and common-equivalent shares used in the calculation of net income per share 195,743 197,394 196,447 195,700 ======= ======= ======= ======= See accompanying notes.
4 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended ------------------------- March 31, April 2, 1996 1995 ---------- ---------- Cash flow from operating activities: Net income $ 354,052 $ 227,598 Adjustments to reconcile net income to operating cash flows: Depreciation, amortization and other non-cash items 251,811 201,488 Increase in accounts receivable (145,656) (33,778) Increase in inventories (188,327) (31,786) Increase (decrease) in accounts payable 95,584 (72,197) Net increase in other current and non-current assets (28,460) (63,431) Net increase in other current and non-current liabilities 59,107 260,022 ---------- ---------- Net cash provided from operating activities 398,111 487,916 ---------- ---------- Cash flow from investing activities: Acquisition of property, plant and equipment (222,691) (203,738) Acquisition of other assets (62,421) (35,216) Acquisition of short-term investments (1,131,865) (2,315,526) Maturities of short-term investments 1,543,880 2,142,584 ---------- ---------- Net cash (used by) provided from investing activities 126,903 (411,896) ---------- ---------- Cash flow from financing activities: Issuance of common stock 43,515 35,431 Acquisition of treasury stock (504,640) (25,039) Proceeds from employee stock purchase plans 38,104 29,907 Reduction of short - term borrowings, net (23,078) (56,698) Reduction of long - term borrowings and other (39,648) (41,782) ---------- ---------- Net cash used by financing activities (485,747) (58,181) ---------- ---------- Net increase in cash and cash equivalents $ 39,267 $ 17,839 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 13,796 $ 13,520 Income taxes $ 170,492 $ 79,983 See accompanying notes. 5 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 1995 Annual Report to Stockholders which is incorporated by reference in the Company's 1995 Form 10-K. INVENTORIES (in thousands) March 31, 1996 June 30, 1995 -------------- ------------- Raw materials $350,003 $170,337 Work in process 72,899 32,356 Finished goods 85,097 116,979 -------- -------- $507,999 $319,672 ======== ======== INCOME TAXES The Company accounts for income taxes under the liability method of Statement of Financial Accounting Standards No. 109. The provision for income taxes during the interim periods considers anticipated annual income before taxes, earnings of foreign subsidiaries permanently invested in foreign operations, and other differences. STOCK DIVIDEND The Company effected a 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 20, 1995. Share and per share amounts presented have been adjusted to reflect the stock dividend. 6 LITIGATION On January 24, 1995, a putative class action entitled Abraham and Evelyn Kostick Trust V. Peter O. Crisp, et al. No. CV755458 ("Kostick Matter"), was filed in the Superior Court of the State of California in the County of Santa Clara. Named as defendants were Apple Computer, Inc., members of Apple's Board of Directors and the Company. The plaintiff claimed that certain actions alleged to be taken by Apple and its Board of Directors amounted to a breach of fiduciary duty by Apple's Board of Directors. The Company was alleged to incur liability by "aiding and abetting" the Apple Board's actions. The complaint sought an injunction against any combination by Apple with the Company and an award of unspecified compensatory and punitive damages. On February 22, 1996, the Company received a letter from Milberg Weiss Bershad Hynes & Lerach regarding the Kostick matter and a related matter, filed subsequent thereto, Manson v. Peter O. Crisp, Case No. CV755504. This letter specifically notified the Company that the Company was being dropped as a defendant in the foregoing matters and that the Company need not respond to the complaints set forth therein. On February 22, 1996, an amended complaint was filed in the Superior Court of the State of California, County of Santa Clara regarding and consolidating the forgoing matters and the Company was no longer named as a defendant. SUBSEQUENT EVENT During April 1996 the Company acquired all of the assets of Integrated Micro Products, plc and its wholly - owned subsidiaries Integrated Micro Products (UK) Ltd. and Integrated Micro Products, Inc. for $96,100,000 in cash and estimated acquisition expenses of $4,200,000. As a result of this acquisition the Company is expecting to take a one time charge of approximately $38,300,000 related to In - Process R&D in the fourth quarter of fiscal year 1996. The acquisition will be accounted for as a purchase. 7 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: Three Months Ended Nine Months Ended ------------------ ------------------- March 31, April 2, March 31, April 2, 1996 1995 1996 1995 ----- ----- ----- ----- Net Revenues 100.0% 100.0% 100.0% 100.0% Cost of sales 55.9 56.8 56.0 58.3 ----- ----- ----- ----- Gross margin 44.1 43.2 44.0 41.7 Research and development 9.0 9.5 9.4 9.7 Selling, general and administrative 24.1 23.7 24.9 24.4 ----- ----- ----- ----- Operating income 11.0 10.0 9.7 7.6 Interest income, net 0.5 0.5 0.6 0.3 ----- ----- ----- ----- Income before income taxes 11.5 10.5 10.3 7.9 Provision for income taxes 3.7 3.4 3.3 2.5 ----- ----- ----- ----- Net income 7.8% 7.1% 7.0% 5.4% ===== ===== ===== ===== RESULTS OF OPERATIONS Net revenues Net revenues were $1.840 billion for the third quarter and $5.077 billion for the first nine months of fiscal 1996, representing increases of 22.3 % and 19.3%, respectively, over the corresponding periods of fiscal 1995. Approximately two-thirds of the growth in revenues resulted from strong demand for richly configured servers, and high-end desktop systems, and from memory, storage options, and accessories shipped as part of system sales and as separate orders. The remaining increase reflects growth in revenues from other Sun businesses, including service, aftermarketing, microprocessors, and software. Domestic net revenues increased by 22.6% and 16.8% while international net revenues (including United States exports) grew 21.9% and 21.8% in the third quarter and first nine months of fiscal 1996, respectively, compared with the corresponding periods of fiscal 1995. European net revenues increased 26.1% and 21.7% while net revenues in Rest of World increased 18.3% and 21.9% in the third quarter and first nine months of fiscal 1996, respectively, when compared with the corresponding periods of fiscal 1995. These increases are due primarily to continued strengthening of the markets in Japan, Germany and the United Kingdom and the expanding markets in Korea and Taiwan. 8 Compared with the third quarter of fiscal 1995 and for the nine months ended April 2, 1995, the dollar has remained relatively consistent against most major European currencies and strengthened against the Japanese yen. Management has estimated that the net impact of currency fluctuations on operating results, while slightly unfavorable, was not significant in the third quarter or the first nine months of fiscal 1996. Gross margin Gross margin was 44.1% for the third quarter and 44.0% for the first nine months of fiscal 1996, compared with 43.2% and 41.7%, respectively, for the corresponding periods of fiscal 1995. The increase in the gross margin reflects the effects of increased revenue generated from richly configured, higher margin servers and memory storage options and accessories. While, the factors described above resulted in a favorable impact on gross margin for the third quarter and first nine months of fiscal 1996, systems repricing actions are likely to be initiated in the future, which could result in downward pressure on gross margins. Sun's future operating results would be adversely affected if such repricing actions were to occur and the Company is unable to mitigate the margin pressure by maintaining a favorable mix of systems, software, service, and other revenues and / or by achieving component cost reductions and operating efficiencies. Research and development Research and development (R&D) expenses were $165.4 million in the third quarter and $477.6 million for the first nine months of fiscal 1996, compared with $142.8 and $414.9 million for the same periods of fiscal 1995. As a percentage of net revenues, R&D expenses decreased to 9.0% and 9.4% for the third quarter and first nine months of fiscal 1996, respectively, from 9.5% and 9.7% in the corresponding periods of fiscal 1995. The decrease as a percentage of net revenues is primarily due to the increase in revenues in both the third quarter and first nine months of fiscal 1996 over the comparable periods of fiscal 1995. Slightly more than a half of the dollar increase in the third quarter and the first nine months of fiscal 1996 over the corresponding periods in fiscal 1995 reflects increases in compensation as a result of increased staffing. The remaining increase in dollar amount of such expenses is due to Sun's development of UltraSPARC and the Company's continuing emphasis on technological advancement for both hardware and software products, as well as microprocessor technologies. To maintain its competitive position in the industry, the Company expects to continue to invest significant resources in new hardware, software and microprocessor product development, as well as in enhancements to existing products. Selling, general and administrative Selling, general and administrative (SG&A) expenses were $444.1 million in the third quarter and $1,264 million in the first nine months of fiscal 1996, compared with $356.6 and $1,039 million for the same periods of fiscal 1995. As a percentage of net revenues, SG&A expenses increased to 24.1% and 24.9% in the third quarter and first nine months of fiscal 1996, respectively, from 23.7% and 24.4%, respectively, in the corresponding periods of fiscal 1995. Approximately half of the dollar increase is attributable to increased marketing costs related to new product introductions and other promotional programs, and an increase in marketing headcount as compared to the third quarter and first nine months of fiscal 1995. The remaining increases primarily reflect costs incurred in connection with the Company's ongoing efforts to improve business processes. The Company expects to continue to invest in efforts to achieve additional operating efficiencies through continual review and improvement of business processes . In addition, the Company expects to continue to hire personnel to drive its demand creation programs and service and support organizations. 9 Interest income, net Net interest income was $8.9 million for the third quarter and $27.9 million for the first nine months of fiscal 1996, compared with $7.6 million and $13.4 million, respectively, in net interest income for the corresponding periods in fiscal 1995. The increase is primarily the result of interest savings from reduced debt levels and an increase in the effective interest rate earned on investments in fiscal 1996 as compared to the corresponding periods in fiscal 1995. Income taxes The Company's effective income tax rate for the third quarter and the first nine months of both fiscal 1996 and 1995 was 32%. FUTURE OPERATING RESULTS This following section of the report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties so 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 1995 Annual Report to Stockholders which is incorporated by reference in the Company's 1995 Form 10-K. Sun introduced and began shipments of its new enhanced desktop systems based upon the UltraSPARC processors in the second quarter of this fiscal year. In addition, enhanced server systems based upon the UltraSPARC processor were introduced in the fourth quarter of fiscal 1996. Future operating results will depend to a considerable extent on the Company's ability to closely manage the introduction of products based upon UltraSPARC processors. In addition, the timing of introductions of new products and services by Sun's competitors may negatively affect the future operating results of the Company. These new UltraSPARC products include advanced components designed internally and manufactured by third party suppliers. The manufacture and timely delivery of the Company's UltraSPARC products depends on the ability of certain suppliers to manufacture and deliver advanced components in sufficient quantity and quality to build these products. Furthermore, in order to secure components for production and introduction of these new products, the Company frequently makes advanced payments to certain suppliers and often enters into noncancelable purchase commitments with vendors with respect to the purchase of components. Due to the variability of material requirement specifications during development and production, the Company must closely manage material purchase commitments and respective delivery schedules. The inability of the Company to secure enough components to build the new products in the quantities and configurations required or to produce, test and deliver sufficient products to meet demand in a timely manner, and any delays in production or variability of customer demand in light of the Company's noncancelable purchase commitments would adversely affect the Company's net revenues and operating results. The introduction of the UltraSPARC products requires that the Company must rapidly bring such products to volume manufacturing, a process that requires accurate forecasting of volumes, mix of products and configurations, among other things in order to achieve acceptable yields and costs. The Company must manage the transition from older, displaced products to minimize disruptions in customer ordering patterns, reduce levels of older product inventory, and ensure that adequate volumes of the new products can be delivered to meet customer demand. The ability of the Company to match supply and demand is further complicated by the Company's need to adjust prices to reflect changing competitive and market conditions and the variability and timing of customer orders taken with respect to its older products. As a result, the Company's operating results 10 could be adversely affected if the Company is not able to correctly anticipate the level of demand and 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 fluctuations particularly when measured on a quarterly basis. Generally, the computer systems sold by Sun, such as the UltraSPARC 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. Sun's systems based on the UltraSPARC processors operate using the Company's recently released version of its operating system, Solaris 2.5. In attempts to minimize the aforementioned risks, the Company has expended significant effort toward making Solaris 2.5 binary compatible with the applications currently running on Solaris 2.x, so customers should not need to modify these applications to run on UltraSPARC- based systems. The Company's operating results would be adversely affected if Solaris 2.5 does not achieve market acceptance in a timely manner. The Company's order backlog at March 31, 1996 was approximately $334 million, an increase of $11 million from the backlog level of approximately $323 million at June 30, 1995. Backlog includes only orders for which a delivery schedule within six months has been specified by the customer. Backlog levels vary with demand, product availability and the Company's delivery lead times and are subject to decreases as a result of customer order delays, changes or cancellations. As such, backlog levels are not a reliable indicator of future operating results. The Company receives questions from time to time from stockholders regarding the fluctuation of operating results. The Company's future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including volume, mix, and timing of orders received during the period, the ability to develop, manufacture and introduce new products, the timing of new product introductions, the availability of components, price erosion, conditions in the computer hardware and software industries generally and the general economy, such as recessionary periods, political instability, changes in trade policies, fluctuations in interest or currency exchange rates and other competitive factors. Seasonality also affects the Company's operating results, particularly in the first quarter of each fiscal year. 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. In addition, the Company plans to continue to evaluate and, when appropriate, make strategic investments which are considered beneficial. As part of this process, the Company will continue to evaluate the carrying 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 results in significant volatility in the Company's future performance and stock price. LIQUIDITY AND CAPITAL RESOURCES Total assets at March 31, 1996 increased by approximately $66 million from June 30, 1995, due principally to increases in accounts receivable ($146 million) inventories ($188 million), other current assets ($41 million), property, plant and equipment- net ($73 million) offset by a decrease in cash, cash equivalents and short-term investments ($371 million). Cash and short-term investments decreased primarily due to the repurchase of 17.2 million shares of common stock for $455 million during the first quarter of fiscal 1996, and to scheduled debt repayments ($60 million), offset by net maturities of short term investments of $183 million. The accounts receivable increase reflects an increase in quarterly revenues from the fourth quarter of fiscal 1995 to the third 11 quarter of fiscal 1996 of $192 million. The increase in inventories reflects a build-up of supply to meet anticipated customer demand for new products introduced in the fourth quarter of fiscal 1996. Other current assets increased principally due to the timing of payments for income and other taxes. Increase in property, plant and equipment reflects additions to the Company's Menlo Park campus and capital additions to support the increased headcount, primarily in engineering and marketing. Total liabilities increased $113 million from June 30, 1995, due principally to increases in accounts payable ($96 million) and accrued liabilities ($89 million) and offset by a decreases in short-term and long term debt obligations ($51 million) and other current liabilities ($22 million). The increase in accounts payable primarily reflects increased inventory receipts in the last two weeks of the quarter as compared to the fourth quarter of fiscal 1995. Accrued liabilities increased in part due to increases in sales and marketing costs, accrued purchase commitments to meet customer demand for future products, and the timing of stock purchases under the Employee Stock Purchase Plan. Short-term and long term debt obligations decreased as a result of scheduled debt repayments. The net decrease in other current liabilities reflects the decreases in income tax payable due to the timing of tax payments, offset by an increase in deferred revenues on service contract renewals. At March 31, 1996, the Company's primary sources of liquidity consisted of cash, cash equivalents and short-term investments of $857 million and a revolving credit facility with banks aggregating $150 million, which was available subject to compliance with certain covenants. The Company believes that the liquidity provided by existing cash and short-term investment balances and the borrowing arrangements described above will be sufficient to meet the Company's capital requirements through calendar 1996. However, the Company believes the level of financial resources is a significant competitive factor in its industry and may choose at any time to raise additional capital through debt or equity financing to strengthen its financial position, facilitate growth and provide the Company with additional flexibility to take advantage of business opportunities that may arise. The sufficiency of the Company's capital resources are forward looking statements which involve risks and uncertainties and actual results may vary materially. 12 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS On January 24, 1995, a putative class action entitled Abraham and Evelyn Kostick Trust V. Peter O. Crisp, et al. No. CV755458 ("Kostick Matter"), was filed in the Superior Court of the State of California in the County of Santa Clara. Named as defendants were Apple Computer, Inc., members of Apple's Board of Directors and the Company. The plaintiff claimed that certain actions alleged to be taken by Apple and its Board of Directors amounted to a breach of fiduciary duty by Apple's Board of Directors. The Company was alleged to incur liability by "aiding and abetting" the Apple Board's actions. The complaint sought an injunction against any combination by Apple with the Company and an award of unspecified compensatory and punitive damages. On February 22, 1996, the Company received a letter from Milberg Weiss Bershad Hynes & Lerach regarding the Kostick matter and a related matter, filed subsequent thereto, Manson v. Peter O. Crisp, Case No. CV755504. This letter specifically notified the Company that the Company was being dropped as a defendant in the foregoing matters and that the Company need not respond to the complaints set forth therein. On February 22, 1996, an amended complaint was filed in the Superior Court of the State of California, County of Santa Clara regarding and consolidating the forgoing matters and the Company was no longer named as a defendant. 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 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 31, 1996: OFFICER / DATE PRICE NUMBER OF DIRECTOR SHARES SOLD ============================================================================ Kenneth Alvares 2/9/96 $49.00 10,000 2/22/96 $49.875 2,000 2/23/96 $53.875 2,000 2/26/96 $54.875 1,000 2/26/96 $55.125 1,000 2/27/96 $54.6875 1,200 Lawrence Hambly 2/22/96 $50.25 3,018 2/22/96 $49.50 5,284 2/22/96 $50.50 17,500 2/22/96 $49.25 5,000 Masood Jabbar 2/16/96 $48.50 10,000 2/16/96 $48.625 1,000 2/22/96 $48.625 9,000 2/26/96 $54.88 45,106 William Joy 2/26/96 $55.1563 20,000 2/28/96 $53.2188 20,000 2/29/96 $53.2875 10,000 2/29/96 $53.375 20,000 2/29/96 $53.0938 10,000 Michael Lehman 2/9/96 $48.5884 22,634 2/12/96 $48.375 10,000 2/16/96 $47.50 10,000 Michael Morris 2/12/96 $48.815 4,516 Frank Pinto 2/26/96 $55.065 10,000 William Raduchel 2/14/96 $47.375 36,822 George Reyes 2/9/96 $48.50 418 Joesph Roebuck 2/29/96 $53.50 20,000 14 OFFICER / DATE PRICE NUMBER OF DIRECTOR SHARES SOLD ============================================================================ JanPieter Scheerder 1/29/96 $44.44 4,000 2/21/96 $47.63 2,012 Eric Schmidt 2/12/96 $48.375 5,000 2/21/96 $47.875 5,000 2/22/96 $51.125 5,000 2/23/96 $53.25 5,000 2/28/96 $54.125 5,000 2/29/96 $52.625 5,000 John Shoemaker 2/22/96 $51.50 8,000 Chester Silvestri 2/12/96 $48.125 10,000 2/12/96 $48.25 10,000 2/12/96 $48.125 20,000 2/23/96 $52.81 10,000 Michael Spence 2/20/96 $47.125 10,000 Dorothy Terrell 2/22/96 $49.25 6,000 2/23/96 $54.00 2,000 2/23/96 $53.1875 2,000 2/26/96 $55.125 2,000 Kevin Walsh 2/28/96 $53.2734 16,000 Edward Zander 2/9/96 $48.5625 28,000 2/23/96 $53.375 3,600 2/23/96 $53.00 13,600 2/23/96 $53.75 5,000 2/26/96 $56.50 5,000 2/29/96 $52.875 5,000 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 for the period ended March 31, 1996 b) REPORTS ON FORM 8-K A report on Form 8-K was filed on July 11, 1995 whereby the Company stated that on July 10, 1995, the Company gave public notice that William Heart III resigned from the Company's Board of Directors, effective July 1, 1995. A report on Form 8-K was filed on February 26, 1996 whereby the Company stated that it had received a letter from Milberg Weiss Bershad Hynes & Lerach regarding the matter of Kostick Trust v. Peter O. Crisp, et. al., Case No. CV755458 (Kostick v. Crisp) and related matters, filed subsequent thereto, informing the Company that it was being dropped as a defendant in these matters and that the Company need not respond to the claims set forth therein. For a further description of this matter see "Item 1- Legal Proceedings". 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: May 14, 1996 17 EXHIBITS TO REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 18 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE (unaudited) (in thousands, except per share amounts) PRIMARY Three Months Ended Nine Months Ended -------------------- -------------------- March 31, April 2, March 31, April 2, 1996 1995 1996 1995 -------- -------- -------- -------- Net income $143,307 $107,547 $354,052 $227,598 ======== ======== ======== ======== Weighted average common shares outstanding 183,673 190,888 185,653 190,014 Common - equivalent shares attributable to stock options and warrants 12,070 6,506 10,794 5,686 -------- -------- -------- -------- Total common and common - equivalent shares outstanding 195,743 197,394 196,447 195,700 ======== ======== ======== ======== Net income per common and common - equivalent share $0.73 $0.54 $1.80 $1.16 ===== ===== ===== ===== 19 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE (unaudited) (in thousands, except per share amounts) FULLY DILUTED Three Months Ended Nine Months Ended -------------------- -------------------- March 31, April 2, March 31, April 2, 1996 1995 1996 1995 -------- -------- -------- -------- Net income $143,307 $107,547 $354,052 $227,598 ======== ======== ======== ======== Weighted average common shares outstanding 183,673 190,888 185,653 190,014 Common - equivalent shares attributable to stock options and warrants 12,391 6,534 11,213 5,854 -------- -------- -------- -------- Total common and common - equivalent shares outstanding 196,064 197,422 196,866 195,868 ======== ======== ======== ======== Net income per common and common - equivalent share $0.73 $0.54 $1.80 $1.16 ===== ===== ===== ===== 20 EX-27 2 FDS
5 1,000 US DOLLARS 3-MOS JUN-30-1996 JAN-01-1996 MAR-31-1996 1 453,136 403,368 1,187,460 99,418 507,999 2,938,170 1,221,464 719,959 3,610,843 1,470,937 40,309 72 0 0 2,076,441 3,610,843 1,840,028 1,840,028 1,028,688 1,638,237 0 3,307 2,780 210,745 67,438 143,307 0 0 0 143,307 .73 .73
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