Sun Microsystems is a leadingsupplier of computer-related products, including servers,workstations, storage devices, and network switches. In 2009, SunMicrosystems was acquired by Oracle Corporation.
In the letter to stockholders as part of the 2001 annual report,President and CEO Scott G. McNealy offered the followingremarks:
Fiscal 2001 wasclearly a mixed bag for Sun, the industry, and the economy as awhole. Still, we finished with revenue growth of 16 percentâandthat's significant. We believe it's a good indication that Suncontinued to pull away from the pack and gain market share. Forthat, we owe a debt of gratitude to our employees worldwide, whoaggressively brought costs downâeven as they continued to bringexciting new products to market.
The statement would not appear to betelling you enough. For example, McNealy says the year was a mixedbag with revenue growth of 16 percent. But what about earnings? Youcan delve further by examining the income statement in Exhibit 4.Also, for additional analysis of other factors, consolidatedbalance sheet(s) are presented in Exhibit 5.
Exhibit 1
2001Dollars 2000Dollars 1999Dollars 1998Dollars Netrevenues $ 18,375 $ 15,718 $11,845 $9,878 Costs andexpenses: Cost of sales
$ 10,044
$ 7,547
$ 5,661
$ 3,865
Research and development
2,018
1,625
1,281
1,029
Selling, general andadministrative
4,542
4,073
3,198
2,811
Goodwill amortization
260
64
19
0.6
In-process research anddevelopment
81 12 120 174 Total costs andexpenses $ 16,945 $ 13,321 $10,279 $7,879.6 OperatingIncome $ 1,430 $ 2,397 $1,566 $1,998.4 Gain (loss) onstrategic investments $ -90 $ 207 - - Interest income,net $ 361 $ 166 $84 $46 Litigationsettlement - - - - Income beforetaxes $ 1,701 $ 2,770 $1,650 $2,044.4 Provision forincome taxes $ 794.36 $ 906.05 $635.37 $1,247.9 Cumulative effectof change in accounting principle, net $ -56 - - - Netincome $ 962.64 $ 1,863.95 $1,014.63 $796.5 Net income percommon share-diluted $ 0.28 $ 0.55 $0.31 $0.25 Shares used inthe calculation of net income per common share-diluted 3,438 3,389 3,273 3,186
Exhibit 2
Assets 2001 2000 Currentassets: Cash and cashequivalents $ 1,474 $ 1,842 Short-term investments 390 623 Accounts receivable, net allowancesof $410 in 2001 and $534 in 2000 2,955 2,682 Inventories 1,049 552 Deferred tax assets 1,000 674 Prepaids and other currentassets 971 475 Totalcurrent assets 7,839 6,848 Property, plantand equipment, net 2,695 2,096 Long-terminvestments 4,671 4,492 Goodwill, net ofaccumulated amortization of $349 in 2001 and $88 in2000 2,036 161 Other assets,net 831 516 18,072 14,113 Liabilities andStockholders' Equity Currentliabilities: Short-term borrowings 4 7 Accounts payable 1,045 923 Accrued payroll-relatedliabilities 491 753 Accrued liabilities andother 1,379 1,154 Deferred revenues and customerdeposits 1,822 1,291 Warranty reserve 314 214 Income taxes payable 91 219 Totalcurrent liabilities 5,146 4,561 Deferred incometaxes 743 582 Long-term debtand other obligations 1,705 1,723 Totaldebt 7,594 6,866 Commitments andcontingencies Stockholders'equity: Preferred stock, $0.001 par value,10 shares authorized (1 sahre which has been designated as Series APreferred participating stock): no shares issued andoutstanding - - Common stock andadditional paid-in-capital, $0.00067 par value, 7,200 sharesauthorized; issued: 3,536 shares in 2001 and 301 shares in2000 6,241 2,731 Treasury stock,at cost: 288 shares in 2001 and 301 shares in 2000 -2,434 -1,439 Deferred equitycompensation -70 -13 Retainedearnings 6,769 5,891 Accumulated othercomprehensive income (loss) -28 77 Total stockholders'equity 10,478 7,247 18,072 14,113
Part A
Referring to Exhibit 1, compute theannual percentage change in net income per common share-diluted(second numerical line from the bottom) for 1998â1999, 1999â2000,and 2000â2001.
Rate of change, 1998to 1999:
Rate of change, 1999to 2000:
Rate of change, 2000to 2001:
Part B
Also in Exhibit 1, compute netincome/net revenue (sales) for each of the four years. Begin with1998.
1998 ProfitMargin:
1999 ProfitMargin:
2000 ProfitMargin:
2001 ProfitMargin:
Part C
Compute return on stockholdersâequity for 2000 and 2001 using data from Exhibits 1 and2.
2000 Return onStockholders' Equity:
2001 Return onStockholders' Equity:
Part D
Analyze your results to Question 2more completely by computing ratios 1, 2a, 2b,and 3b (all from this chapter) for 2000 and 2001.Actually, the answer to ratio 1 can be found as part of the answerto question 2, but it is helpful to look at it again.
Ratio 2000 2001 1 2a 2b
Part E
The average stock prices for each ofthe four years shown in Exhibit 1 were as follows:
1998 11¼
1999 16¾
2000 28½
2001 9½
Compute the price/earnings (P/E)ratio for each year. That is, take the stock price shown above anddivide by net income per common stock-dilution from Exhibit1.
1998 P/ERatio:
1999 P/ERatio:
2000 P/ERatio:
2001 P/ERatio:
Sun Microsystems is a leadingsupplier of computer-related products, including servers,workstations, storage devices, and network switches. In 2009, SunMicrosystems was acquired by Oracle Corporation.
In the letter to stockholders as part of the 2001 annual report,President and CEO Scott G. McNealy offered the followingremarks:
Fiscal 2001 wasclearly a mixed bag for Sun, the industry, and the economy as awhole. Still, we finished with revenue growth of 16 percentâandthat's significant. We believe it's a good indication that Suncontinued to pull away from the pack and gain market share. Forthat, we owe a debt of gratitude to our employees worldwide, whoaggressively brought costs downâeven as they continued to bringexciting new products to market.
The statement would not appear to betelling you enough. For example, McNealy says the year was a mixedbag with revenue growth of 16 percent. But what about earnings? Youcan delve further by examining the income statement in Exhibit 4.Also, for additional analysis of other factors, consolidatedbalance sheet(s) are presented in Exhibit 5.
Exhibit 1
2001Dollars | 2000Dollars | 1999Dollars | 1998Dollars | |
Netrevenues | $ 18,375 | $ 15,718 | $11,845 | $9,878 |
Costs andexpenses: | ||||
Cost of sales | $ 10,044 | $ 7,547 | $ 5,661 | $ 3,865 |
Research and development | 2,018 | 1,625 | 1,281 | 1,029 |
Selling, general andadministrative | 4,542 | 4,073 | 3,198 | 2,811 |
Goodwill amortization | 260 | 64 | 19 | 0.6 |
In-process research anddevelopment | 81 | 12 | 120 | 174 |
Total costs andexpenses | $ 16,945 | $ 13,321 | $10,279 | $7,879.6 |
OperatingIncome | $ 1,430 | $ 2,397 | $1,566 | $1,998.4 |
Gain (loss) onstrategic investments | $ -90 | $ 207 | - | - |
Interest income,net | $ 361 | $ 166 | $84 | $46 |
Litigationsettlement | - | - | - | - |
Income beforetaxes | $ 1,701 | $ 2,770 | $1,650 | $2,044.4 |
Provision forincome taxes | $ 794.36 | $ 906.05 | $635.37 | $1,247.9 |
Cumulative effectof change in accounting principle, net | $ -56 | - | - | - |
Netincome | $ 962.64 | $ 1,863.95 | $1,014.63 | $796.5 |
Net income percommon share-diluted | $ 0.28 | $ 0.55 | $0.31 | $0.25 |
Shares used inthe calculation of net income per common share-diluted | 3,438 | 3,389 | 3,273 | 3,186 |
Exhibit 2
Assets | 2001 | 2000 |
Currentassets: | ||
Cash and cashequivalents | $ 1,474 | $ 1,842 |
Short-term investments | 390 | 623 |
Accounts receivable, net allowancesof $410 in 2001 and $534 in 2000 | 2,955 | 2,682 |
Inventories | 1,049 | 552 |
Deferred tax assets | 1,000 | 674 |
Prepaids and other currentassets | 971 | 475 |
Totalcurrent assets | 7,839 | 6,848 |
Property, plantand equipment, net | 2,695 | 2,096 |
Long-terminvestments | 4,671 | 4,492 |
Goodwill, net ofaccumulated amortization of $349 in 2001 and $88 in2000 | 2,036 | 161 |
Other assets,net | 831 | 516 |
18,072 | 14,113 | |
Liabilities andStockholders' Equity | ||
Currentliabilities: | ||
Short-term borrowings | 4 | 7 |
Accounts payable | 1,045 | 923 |
Accrued payroll-relatedliabilities | 491 | 753 |
Accrued liabilities andother | 1,379 | 1,154 |
Deferred revenues and customerdeposits | 1,822 | 1,291 |
Warranty reserve | 314 | 214 |
Income taxes payable | 91 | 219 |
Totalcurrent liabilities | 5,146 | 4,561 |
Deferred incometaxes | 743 | 582 |
Long-term debtand other obligations | 1,705 | 1,723 |
Totaldebt | 7,594 | 6,866 |
Commitments andcontingencies | ||
Stockholders'equity: | ||
Preferred stock, $0.001 par value,10 shares authorized (1 sahre which has been designated as Series APreferred participating stock): no shares issued andoutstanding | - | - |
Common stock andadditional paid-in-capital, $0.00067 par value, 7,200 sharesauthorized; issued: 3,536 shares in 2001 and 301 shares in2000 | 6,241 | 2,731 |
Treasury stock,at cost: 288 shares in 2001 and 301 shares in 2000 | -2,434 | -1,439 |
Deferred equitycompensation | -70 | -13 |
Retainedearnings | 6,769 | 5,891 |
Accumulated othercomprehensive income (loss) | -28 | 77 |
Total stockholders'equity | 10,478 | 7,247 |
18,072 | 14,113 |
Part A
Referring to Exhibit 1, compute theannual percentage change in net income per common share-diluted(second numerical line from the bottom) for 1998â1999, 1999â2000,and 2000â2001.
Rate of change, 1998to 1999:
Rate of change, 1999to 2000:
Rate of change, 2000to 2001:
Part B
Also in Exhibit 1, compute netincome/net revenue (sales) for each of the four years. Begin with1998.
1998 ProfitMargin:
1999 ProfitMargin:
2000 ProfitMargin:
2001 ProfitMargin:
Part C
Compute return on stockholdersâequity for 2000 and 2001 using data from Exhibits 1 and2.
2000 Return onStockholders' Equity:
2001 Return onStockholders' Equity:
Part D
Analyze your results to Question 2more completely by computing ratios 1, 2a, 2b,and 3b (all from this chapter) for 2000 and 2001.Actually, the answer to ratio 1 can be found as part of the answerto question 2, but it is helpful to look at it again.
Ratio | 2000 | 2001 | |
1 | |||
2a | |||
2b |
Part E
The average stock prices for each ofthe four years shown in Exhibit 1 were as follows:
1998 11¼
1999 16¾
2000 28½
2001 9½
Compute the price/earnings (P/E)ratio for each year. That is, take the stock price shown above anddivide by net income per common stock-dilution from Exhibit1.
1998 P/ERatio:
1999 P/ERatio:
2000 P/ERatio:
2001 P/ERatio: