Securities and Exchange Commission 					Washington, D.C. 20549 ===================================================================== 						Form 10-Q 			QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 			 OF THE SECURITIES EXCHANGE ACT OF 1934 			For the Quarter Ended April 3, 1994 					Commission File 					Number 0-12064 ===================================================================== 				STRATUS COMPUTER, INC. 		(Exact name of registrant as specified in its Charter) Massachusetts					 No. 04-2697554 (State of Incorporation)		 (I.R.S. Employer Identification No.) 	55 Fairbanks Boulevard, Marlborough, Massachusetts 01752 	(Address of principal executive office) (Zip) (508) 460-2000 (Telephone number, including area code) ===================================================================== 	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 of1934 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____. Number of Common Shares outstanding at the latest practicable date, May 5, 1994: 24,172,820. ===================================================================== STRATUS COMPUTER, INC. INDEX TO 10-Q Part I Financial information 	Consolidated statements of income - 	three months ended April 3, 1994 	and April 4, 1993 	Consolidated balance sheets - 	April 3, 1994 and January 2, 1994 	Consolidated statements of cash flows - 	three months ended April 3, 1994 	and April 4, 1993 	Notes to consolidated financial statements 	Management's Discussion and Analysis of Financial 	Condition and Results of Operations Part II Other information 	Legal Proceedings 	Exhibits and reports on Form 8-K Signatures 	PART I - FINANCIAL INFORMATION			 					 						 	Item 1 - FINANCIAL STATEMENTS				 				 						 	STRATUS COMPUTER, INC.					 				 						 	CONSOLIDATED STATEMENTS OF INCOME			 	 	(Unaudited)						 										 	(In thousands, except per share amounts)		 		 		 										 										 									 Quarter Ended	 								 ---------------------	 	 	 							April 3,		 April 4, 								 1994		 1993 								 --------	 -------- Revenues:									 	 	Product sales				 $98,521	 $87,469 	Service						 36,886		 27,179 								 -------	 	------ Total revenues					 135,407 114,648 								 Costs and expenses:									 	Product cost of sales				 44,040		 34,980 	Service expense					 19,561		 14,871 	Research and development expense		 20,756		 19,537 	Selling, general and administrative 	 expenses						 38,239		 35,309 								 ------		 ------ Total costs and expenses			 122,596	 104,697 							 -------	 ------- Operating income						 12,811		 9,951 										 Other income						 1,250	 	 1,214 								 ------		 ------ Income before provision for income taxes		 14,061		 11,165 										 Provision for income taxes				 2,672		 2,345 								 ------		 ------ Net income						 $11,389		 $8,820 							 	======		 ====== 										 Net income per common share				 $.46		 $.37 								 =======		 ====== 										 Weighted average number of shares of 	common stock and common stock 	equivalents outstanding				 24,527		 23,584 								 ======		 ====== 										 				See accompanying notes.				 STRATUS COMPUTER, INC. CONSOLIDATED BALANCE SHEETS			 		 										 (In thousands, except share and per share amounts)	 											 										 	 						 April 3,		 January 2, ASSETS						 1994			 1994 - - -----------------			 	 	-------		 ---------- 						 (Unaudited)		 Current assets:										 	Cash and cash equivalents		 $210,388		 $191,005 	Accounts receivable, net		 131,226		 151,105 	Inventories: 		Finished products			 19,434		 16,854 		Work-in-process			 4,631		 10,899 		Parts and assemblies		 16,171		 12,153 							 -------		 -------- 							 40,236		 39,906 										 	Other current assets			 27,426		 26,105 							 -------		 ------- 			Total current assets	 409,276		 408,121 										 										 								 		 Property, plant and equipment, at cost	 264,271		 246,293 Less: accumulated depreciation		 158,970		 143,610 							 ------		 ------- 			Net property, plant 				and equipment	 105,301		 102,683 										 Other assets, net					 49,027		 47,727 							 --------		 ------- 			Total assets		 $563,604		 $558,531 						 ========		 ======== 										 LIABILITIES AND STOCKHOLDERS' EQUITY				 Current liabilities: 	Accounts payable				 $15,704		 $16,346 	Accrued expenses				 37,028		 38,190 	Income taxes payable			 25,921		 30,103 	Short-term borrowings 		and obligations			 5,295		 4,372 	Deferred revenue				 19,865		 19,817 							 --------		 -------- 		Total current liabilities	 103,813		 108,828 										 Long-term obligations				 7,872		 10,879 Deferred gain on sale-leaseback 	of land/building				 2,723		 2,864 										 Stockholders' equity:									 	Common stock, $.01 par value, 150,000,000	shares authorized, 		24,143,490 and	24,047,391 shares 		issued and outstanding, 		respectively			 241		 240 	Junior common stock, $.01 par value 		500,000 shares authorized		 -			 - 	Additional paid-in capital		 169,669		 168,095 	Retained earnings				 280,973		 269,584 	Cumulative translation adjustment	 -1,687	 -1,959 							 ------- -------- 			Total stockholders' equity		 449,196		 435,960 							 ------		 ------- 			Total liabilities and 				stockholders'equity		 $563,604		 $558,531 							 ======== 	 ======== 					See accompanying notes. 	STRATUS COMPUTER, INC. 	CONSOLIDATED STATEMENTS OF CASH FLOWS 	(Unaudited)	 	(In thousands) 								 Three Months Ended 								 --------------------- 							 April 3,	 	April 4,	 							 1994			 1993	 							---------		 ---------	 Cash flows from operating activities: 	Net income					 $11,389		 $8,820 	Adjustment to reconcile net income to net cash provided 	by operating activities: 		Depreciation and amortization	 12,955		 10,502 	Add (deduct) changes in working 		capital: 	Decrease in accounts receivable	 21,390		 29,577 	(Increase) decrease in inventory		 -62		 1,321 	Decrease in accounts payable and 		accrued liabilities		 -4,226		 -6,343 	Decrease in income taxes payable	 -4,070		 -505 	Decrease in other working capital 		items					 -918		 -898 							 -------		 ------- Net cash provided by operating activities	 36,458		 42,474 Cash flows from investing activities: 	Acquisition of property, plant 		and equipment			 -11,154		 -10,096 	Acquisition of other long-term 		assets				 -5,299		 -1,771 							 --------		 --------- Net cash used in investing activities	 -16,453	 -11,867 Cash flows from financing activities: 	Net proceeds and benefits from 		employee stock plans		 1,575	 2,364 	Reduction of long-term debt and 		capital lease obligations	 -2,639	 -999 							---------		 -------- Net cash provided by (used in) financing 	 activities					 -1,064	 1,365 Effect of exchange rate changes on cash		 442			 105 							 ---------		 -------- Net increase in cash and cash equivalents	 19,383	 32,077 Cash and cash equivalents at beginning 	of year					 191,005	 134,962 							 ---------		 -------- Cash and cash equivalents at end of 	period					 $210,388	 $167,039 						 ========		 ======== 					See accompanying notes. STRATUS COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 3, 1994 and April 4, 1993 (Unaudited) (In thousands) 1.	The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The information herein should be read in conjunction with the annual report on Form 10-K for the year ended January 2, 1994. It is management's opinion that the accompanying statements reflect all adjustments necessary for a fair presentation of the results for this interim period and the comparable periods presented. Certain amounts in the consolidated financial statements for the prior years have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported results of operations. 2.	Primary earnings per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding. Fully diluted earnings per share has not been separately presented as the amount does not differ significantly from primary earnings per share. 3.	There were no non-cash investing and financing activities for the first three months of 1994 or 1993. The Company made interest payments of $301 and $143 and tax payments of $7,532 and $3,827 in the first three months of 1994 and 1993, respectively. STRATUS COMPUTER, INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Revenues Net revenues of $135,407 for the first quarter of 1994 increased 18% over the corresponding period in 1993. The Company's product revenue, exclusive of revenues generated by the three software subsidiaries acquired during the fourth quarter of 1993, increased 8% in 1994's first quarter compared to the same 1993 period. These newly acquired software subsidiaries contributed $4,398, or five percentage points, of additional product revenue growth. The Company's direct product revenue increased 12% from the first quarter of 1993, reflecting a variety of factors including 21% domestic growth rate, led by sales in the telecommunications, financial services and retail industries. Also, international direct product revenue increased 2% over 1993's first quarter. Within Europe for the first quarter, revenue increases in the United Kingdom, Italy and Sweden were offset by declines in Spain and Germany. In the Asia/Pacific region for the first quarter, growth in revenues in the Far East were offset by a decline in revenue in Australia. Product revenue from indirect channels declined 6% in the 1994 first quarter compared to the same 1993 period. Sales to Olivetti increased 155% in the first quarter of 1994 compared to the same 1993 period, and were 4% of total product revenue, while sales to IBM decreased 87% to 0.5% of total product revenue. Product revenue to international distributors increased 1% from the prior year's first quarter. Sales to NEC decreased by 13% for the first quarter when compared to 1993, declining from 4% to 3% of total product revenue. Total service revenue increased 36% in the first quarter of 1994 over the corresponding period in the previous year. This growth was due to the increased service and education provided to the expanding customer base. The three software subsidiaries acquired in the fourth quarter of 1993 were responsible for $4,598, or 17 percentage points of the growth in total service revenue. Cost of Sales The gross margin on product revenue of 55% for the first quarter of 1994 declined five percentage points from the gross margin on product revenue achieved in the corresponding 1993 period. This was due primarily to higher discounting due to competitive pressures, as well as a higher proportion of mid-range and low-end RISC-based systems shipped during the 1994 period versus 1993. The gross margin on service revenue was 47% for the first quarter of 1994. This compares to the 45% service margin realized in the first quarter of 1993. This increase in the service margin percentage was primarily due to the service revenue growth, combined with well-managed expense growth in the service organization. Other Operating Expenses Total operating expenses for the first quarter of 1994 increased 8% over the corresponding 1993 period. As a percentage of net revenues, operating expenses decreased by 4% in the first quarter of 1994 to 44% compared to 1993's first quarter. Research and development expense in the first quarter of 1994 increased $1,219, or 6%, from the first quarter of 1993. The total amount of the increase was attributable to the three acquisitions made in the fourth quarter of 1993. As a percentage of net revenues, R&D expense declined two percentage points to 15% for the first quarter of 1994 compared to the same 1993 period due mainly to the Company's continued focus on strong cost controls. Stratus has a commitment to provide both hardware and software products to the critical online computing marketplace. Throughout 1994, the Company will continue to develop the next generation of RISC machines. In addition, the Company will continue the transition to open systems technology by increasing the functionality of FTX, its UNIXrSystem V Release 4 operating system, and integrating open architecture standards into its hardware platforms. For the first quarter of 1994, selling, general and administrative expenses increased $2,930, or 8%, over the same 1993 period. The three software subsidiaries contributed $3,871 to this increase in SG&A expenses. This increase was mitigated by savings of $941 due to the implementation of strong cost controls. Total SG&A expenses were 28% of net revenues, down three percentage points, for the 1994 first quarter as compared with the same 1993 period. The Company's strategy in 1994 is to focus the sales organization on strategic markets within vertical industries, as well as continue to improve selling efficiencies and focus on strong cost management. Other Income Other income for the first quarter of 1994 increased slightly over the same period in 1993. Interest income continued to increase in connection with the Company's larger cash balance. Interest expense increased in connection with the debt incurred for the acquisition of Isis Distributed Systems, Inc. in the fourth quarter of 1993, and was somewhat offset by the continued decline in capital lease activity. The effective tax rate decreased to 19% in 1994's first quarter from 21% in 1993's first quarter due to increased U.S. tax credits and a more favorable mix of foreign tax rates. Liquidity and Capital Resources At April 3, 1994, the Company had cash and cash equivalents of $210,388 which reflects a $19,383 increase over the balance at the beginning of the year. Profitable operations, improved collections on receivables and capital generated through employee stock plans were the major factors in the increased cash balance. The Company has a Multicurrency Revolving Credit Agreement providing up to $50 million of borrowings through March 1997. There have been no borrowings against this Agreement, and the Company anticipates no borrowings during the remainder of 1994. At April 3, 1994, the Company had $9,194 in outstanding debt related to the Isis acquisition and $304 in capital lease obligations. Certain subsidiaries have entered into credit arrangements with local banks, principally Overdraft Agreements, for the purpose of short-term liquidity management. Borrowings under these Agreements were $1,447 at April 3, 1994. 	 In the first quarter of 1994 the Company purchased its Ireland manufacturing plant for $5,372. The ratio of current assets to current liabilities for the Company as of April 3, 1994 was 3.9 to 1. Based upon its current cash position, and expected cash flow from operating activities supplemented by continued stock issuance from the Employee Stock Purchase Plan and stock option plans, management believes that the Company's capital resources are sufficient to meet its financial requirements for the foreseeable future. The Company plans to invest approximately $37 million in capital improvements and $36 million in capitalized software in 1994. UNIX is a registered trademark of UNIX System Laboratories, Inc. Stratus is a registered trademark of Stratus Computer, Inc. PART II - OTHER INFORMATION Item 1.	Legal Proceedings There are no material legal proceedings, either outstanding or pending, with respect to the Company. Item 6.	Exhibits and reports on Form 8-K No reports on Form 8-K have been filed during the first quarter ended April 3, 1994. 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 duly authorized. 						 STRATUS COMPUTER, INC. 						 (Registrant) Date	May 12, 1994			 ROBERT E. DONAHUE	 - - -----------------			 ----------------- 						 Robert E. Donahue 						 Vice President, Finance and 						 Chief Financial Officer 						 hereunto duly authorized