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
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
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
<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
<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
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
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
<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
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
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
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
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
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
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
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
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
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
EXHIBITS TO REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997 18
<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
<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