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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-15086
SUN MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 94-2805249
(State of incorporation) (I.R.S. Employer Identification No.)
2550 Garcia Avenue (415)-960-1300
Mountain View, CA 94043-1100
(Address of principal executive (Registrant's telephone number,
offices, including zip code) including area code)
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Securities pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Common Share Purchase Rights
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference on Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of September 17, 1996, was approximately $10,663,000,000
based upon the last sale price reported for such date on the Nasdaq National
Market System. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.
The number of shares of the Registrant's Common Stock outstanding as of
September 17, 1996 was 182,274,388.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Annual Report to Stockholders for the fiscal year ended June
30, 1996 are incorporated by reference into Items 1,5,6,7,8 and 14 hereof.
Parts of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Items 10, 11, 12 and 13 hereof.
1
PART I
ITEM 1. BUSINESS
General
Sun Microsystems(TM), Inc. ("Sun(TM) " or the "Company") is a leading
supplier of enterprise network computing products including workstations,
servers, software, microprocessors, and a full range of services and support.
Sun's products command a significant share of a rapidly growing segment of the
computer industry: networked computing environments. The Company's products are
used for many demanding commercial and technical applications in various
industries. Sun has differentiated itself from its competitors by its commitment
to the network computing model and the UNIX(TM) operating system, its rapid
innovation and its open systems architecture.
Sun conducts its business through various operating entities and divisions
organized around the Company's principal areas of added value. The individual
businesses generally operate independently within their charters, but with the
common corporate strategic vision of being a leading force in network computing.
Sun believes this organizational structure allows it to more efficiently focus
on its customers and the products, channels and markets necessary to serve them.
Sun's primary operating businesses are as follows:
Sun Microsystems Computer Company(TM) ("SMCC") - SMCC is responsible for
designing, manufacturing, and selling workstations and servers incorporating the
Scaleable Processor Architecture ("SPARC") for open network computing
environments. These workstations and servers are offered with the Solaris
software environment, licensed by SunSoft, Inc. to SMCC.
SunService(TM) Division ("SunService") - A leading UNIX service
organization, SunService provides a wide range of global services for
heterogeneous network computing environments, including system support,
education, information technology (IT) consulting, systems integration, and
system/network management.
SunSoft(TM), Inc. ("SunSoft") - SunSoft develops, markets, supplies and
supports Solaris(TM), a leading UNIX operating system software environment for
enterprise-wide distributed computing environments on SPARC and other volume
platforms, Solstice(TM), a complete enterprise-wide network management solution,
and WorkShop(TM), visual development tools to quickly and easily create
multiplatform applications for the Internet. SunSoft also offers software
products for network management and PC desktop integration.
Sun Microelectronics(TM) (SME)- SME designs and develops high performance
SPARC microprocessors, as well as enabling technologies, for SMCC and third
party customers.
SunExpress(TM), Inc. ("SunExpress") - SunExpress, Sun's aftermarketing
company, offers easy ordering and quick delivery of accessories, spare parts,
options, software and third party products to Sun's installed base and other
customers. SunExpress offers competitive prices and high quality services to
customers in the after-market using innovative direct marketing techniques.
JavaSoft(TM) - Sun's newest business, JavaSoft develops, markets and
supports the Java(TM) software technology and products based on it. JavaSoft
develops applications, tools, and systems platforms to further enhance Java as a
programming standard for complex networks such as the Internet and corporate
intranets.
Sun's network computing model and its hardware and software
implementations have attracted a large number of software vendors to port their
applications to Sun platforms, including an increasing number of vendors of
commercial applications. The availability of such third-party software provides
Sun and its customers with competitive advantage and strengthens the Company's
presence in network computing.
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Sun, the Sun Logo, Sun Microsystems, SunExpress, SunSoft, SunService, Sun
Microelectronics, JavaSoft, Ultra, Enterprise, NEO ,NFS, Joe, Solaris, Solstice,
Netra, SolarNet, SunNet Manager, SunSoft Workshop, Sun FORTRAN, Sun Ada,
Sunergy, and SunSpectrum are trademarks, registered trademarks or servicemarks
of Sun Microsystems, Inc. in the United States and other countries. All SPARC
trademarks, including the SCD Compliant logo, are used under license and are
trademarks or registered trademarks of SPARC International, Inc. in the United
States and other countries. Products bearing SPARC trademarks are based upon an
architecture developed by Sun Microsystems, Inc. UNIX is a registered trademark
in the United States and other countries, exclusively licensed through
X/OpenCompany Ltd.
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Products
Sun believes that customers increasingly demand computer systems that do
not limit them to any one vendor's proprietary technology. To respond to
customer needs, Sun has been a proponent of the open systems strategy, based on
industry standards such as POSIX, X/OPEN and the SPARC Compliance Definition
("SCD"). This open systems strategy offers users and software developers the
benefits of compatibility, interoperability, portability, upgradeability and
scalability in products. Sun's open systems architecture protects existing
customer investments while providing customers with new, innovative technology
to allow them to be competitive in their own markets.
Systems
Sun offers a full line of workstations from low-cost SPARCstations to
high-performance color graphics systems. Its line of multiprocessing servers can
provide various resources, including filesharing, system administration, and
database and network management.
The current desktop workstation line includes the low-end color
SPARCstation(TM) 4, the SPARCstation 5, the SPARCstation 20 series of
uniprocessor and multiprocessor systems, and the new high performance Ultra(TM)
series of uniprocessor and multiprocessor systems.
The SPARCstation 4 is a low priced, fully configured color workstation.
Based on the 110 MHz microSPARC II processor, this compact desktop system is
designed to satisfy users who demand a low-cost color system that still offers
high performance, networking and flexibility.
The SPARCstation 5 is an accelerated graphics workstation and is one of
the industry's lowest priced 24-bit color systems. Based on the 110 MHz
microSPARC II processor, this workstation is designed for customers seeking
expandability and fast application performance.
The SPARCstation 20 offers a combination of high-end workstation
performance and functionality at a competitive price.
The Ultra series of desktop workstations offer a combination of high-end
workstation performance and functionality at a competitive price. Available in
both uniprocessor and multiprocessor versions, the Ultra series achieves higher
performance from the use of UltraSPARC(TM) processors running at speeds of
143mhz to 200mhz, as well as high performance motherboards and ASICs. Designed
for users needing more specialized graphics power, the Ultra series features
leading edge graphics and networking integrated at the central processing unit
(CPU) level in addition to advanced Creator 3D graphics and networking
capabilities as add-on functionality.
The Company offers a wide range of servers from the low-end uniprocessors
SPARCserver 5 and Ultra Enterprise(TM) 1 Server to the Ultra Enterprise 6000
Server, a highly scalable, reliable, enterprise-wide symmetric multiprocessor
server.
The low-end servers also include the multiprocessing Ultra Enterprise 2
Server and the Enterprise 150 workgroup tower server with an integrated storage
subsystem. The Company's low-end servers are designed for high performance,
exceptional throughput, reliability and affordability. Ideal applications
include database, groupware, email, and internet/intranet capabilities. They can
also function as computational servers for electrical or mechanical design
automation. These systems are highly expandable, offering a range of main memory
and hard disk storage configurations.
For enterprises, Sun offers its new Ultra Enterprise Server family.
Additionally Sun has recently expanded the breadth of it's server line by
acquiring the 6400 SPARC (TM) product line of Cray Business Systems Division
along with the SPARC/Solaris fault tolerant product line of Integrated Micro
Products plc.
Sun's Ultra Enterprise Server family offers upgradeability and
expandability across this product line. The entry level Enterprise 3000 is a
powerful, scalable, versatile, upgradeable and affordable departmental UNIX
server in a compact package. The Enterprise 3000 is expandable up to 6 CPU's and
shares common CPU boards and peripherals that can be used across the Ultra
Enterprise product line to provide flexibility and protect the customers
investment. The Enterprise 4000 is expandable up to 14 processors and is one of
the most modular and powerful departmental servers offering outstanding
performance and the ability to scale system performance and capacity as needs
grow. The Enterprise 5000, Sun's entry level datacenter system is expandable up
to 14 processors and is packaged in a rack configuration to enable bundling of
additional storage in a single enclosure.
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The enterprise 6000 is expandable up to 30 processors and gives customers
the ability to deploy large scale, mission critical, applications in a
network-based environment. It is the most scalable and expandable Sun server
offering the performance and availability required for mainframe-class, mission
critical applications.
The Company's Netra(TM) servers provide preconfigured solutions for
Internet and intranet publishing. Sun also offers the SPARCstorage(TM) Array
Model 200 Series, a storage subsystem utilizing RAID technology, Sun's
affordable, high availability disk storage subsystem.
System Software
The system software environment is a key component for fulfilling customer
needs around the network. The Company continues to focus on providing
customer-centric solutions, including the Solaris operating environment with
built-in networking, WorkShop tools for building network applications, and
Solstice software that connects it all together and manages the entire computing
enterprise. The Company believes it derives competitive advantage from the
stability resulting from its many years of experience with operating system
software. The Company's principal software products are as follows:
Solaris - Solaris products include all desktop, workgroup and enterprise
operating system software products for SPARC and Intel platforms. The Solaris
advanced operating system provides a scalable, secure, and reliable platform for
corporate computing, intranet/internet business requirements, powerful
enterprise databases and high performance technical computing environments.
Solstice Enterprise Management Products - The Company's principal
enterprise computing management environment, Solstice enables customers to
manage every part of a network regardless of servers and desktops. Solstice
utilizes distributed computing technologies to scale and manage global
heterogeneous networks, such as those in telecommunications and financial
services companies. Solstice products decrease the complexity of managing
enterprise-wide networks while significantly lowering the total cost of
operation, giving companies the flexibility of distributed computing with the
control of centralized management. Solstice is one of the industry's leading
network management platforms and includes a next-generation enterprise
management platform, SunNet Manager and a complete line of system administration
and management tools.
Networking Products - Networking products are central to Sun's open
systems architecture. These products provide networking capabilities that make
distributed resources easily accessible by PC's, workstations, servers and other
computing devices on a single network. These products also integrate
heterogeneous global, department, local and remote network resources into
company-wide information systems. The Company is committed to developing
networking products that adhere to and promote open industry networking
standards and technologies in emerging areas such as the Internet and intranet.
The Company's networking products include the SolarNet(TM) family of
PC-to-enterprise networking solutions. The Company's fast growing line of
software products for the Internet includes a broad set of solutions spanning
internet access, security, and publishing for the World Wide Web. Web NFS(TM),
Sun's newest NFS technology, provides a rapid file access standard for the
Internet.
Developer Products - Developer products include programming tools for
professional software developers for UNIX, including Solaris, HP-UX, UnixWare,
and Java. These products provide a powerful, comprehensive software development
environment to enable the development of next-generation, network-based,
client/server, and intranet/internet applications. Specific products include
SunSoft WorkShop(TM) for C, Sun FORTRAN(TM), Sun Ada(TM), and software developer
kits for developers of Solaris applications. The Java Developers Kit enables
developers to create Java applets, which are miniature applications that run
inside a World Wide Web page, as well as Java applications.
NEO/Joe(TM) - The NEO(TM) product family provides object-oriented
development tools, system administration tools, and transparent networking to
lower the costs of creating, customizing, and maintaining applications. Joe, a
part of the NEO family, delivers business applications from the corporate
enterprise to the public internet by directly connecting Java-based web browsers
to existing business applications.
JavaSoft Products - In fiscal 1996, the Company established a new
operating division that is chartered to develop, market and support Java, a
robust, object-oriented, secure programming language. The Java Application
Environment (JAE) is one of the first widely accepted application environments
to enable the platform - independent development of application software. In
fiscal 1996, Sun licensed JAE to over thirty computer and software companies,
including several high volume operating system vendors. These vendors plan to
integrate JAE into their operating systems so that applications written in Java
will run on their systems.
4
Sales, Distribution and Marketing
Sun maintains a presence in most major markets and sells computer systems,
software and services to its customers worldwide through a combination of direct
and indirect channels. The Company also offers off-the-shelf software and
component products such as CPU chips, ASIC's and embedded boards on an OEM basis
to other hardware manufacturers, as well as supplies after-market and peripheral
products to its end user installed base, both directly and through independent
distributors and resellers.
In general, the Company's direct sales force is compensated on a
channel-neutral basis to reduce potential channel conflict with the Company's
distribution partners. Distribution channels include:
- a direct sales force selling to selected end-user named accounts
and numerous indirect channels.
- systems integrators, both government and commercial who serve the
market for large commercial projects requiring substantial
analysis, design, development, implementation and support of custom
solutions;
- master resellers who supply product and provide product marketing
and technical support services to the Company's smaller Value Added
Resellers ("VARs");
- VARs who provide added value in the form of software packages,
proprietary software development, high-end networking integration,
vertical integration, vertical industry expertise, training,
installation and support;
- OEMs who integrate the Company's products with other hardware and
software; and
- independent distributors who primarily cover markets in which Sun
does not have a direct presence.
The growth and management of the reseller channels is very important to the
future revenues and profitability of the Company. Channel partners account for
greater than 50% of Sun's revenue today and will continue to play a key role in
providing value and service and support that are critical to Sun's long term
success.
The Company's direct systems sales force serves educational institutions,
software vendors, governments, businesses and other strategic accounts. The
Company has approximately 80 sales and service offices in the United States and
approximately 100 sales and service offices in 41 other countries. In addition,
it uses independent distributors in approximately 150 countries, sometimes in
concert with other resellers and direct sales operations.
Revenues from outside the United States, including those from end users,
resellers and distributors, constituted approximately 51% of net revenues in
fiscal 1996, 1995 and 1994. Direct sales made in countries outside of the United
States are generally priced in local currencies and are, therefore, subject to
currency exchange fluctuations. The net impact of currency fluctuations on net
revenues and operating results cannot be precisely measured as the company's
product mix and pricing change over time in various markets, partially in
response to currency movements. To minimize currency exposure gains and losses,
the company borrows funds in local currencies, enters into forward exchange
contracts, purchases foreign currency options and promotes natural hedges by
purchasing components and incurring expenses in local currencies whenever
feasible. Sun's sales to overseas customers are made under export licenses that
must be obtained from the United States Department of Commerce. Protectionist
trade legislation in either the United States or other countries, such as a
change in the current tariff structures, export compliance laws or other trade
policies, could adversely affect Sun's ability to sell or to manufacture in
international markets. Sales to or through C. Itoh Technoscience Co. Ltd.,
Fujitsu, Ltd. and Toshiba Corporation together represent a significant portion
of Sun's revenues in Japan. See Note 9 of Notes to Consolidated Financial
Statements incorporated by reference for additional information concerning sales
to foreign customers and industry segments.
Seasonality affects the Company's revenues and 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 in proportion with such increased expense levels.
The Company's marketing activities include advertising in computer
publications and the business press, direct mailings to customers and prospects
and attendance at trade shows. Sun maintains a customer resource program,
Sunergy(TM), which includes live interactive satellite broadcasts and provides
5
electronic access to newsletter and technical information. Sun also sponsors a
series of seminars to specific resellers, university customers, end users and
government customers and prospects designed to familiarize attendees with the
capabilities of the Sun product line.
Sun's order backlog at June 30, 1996 was approximately $522 million,
compared with 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 significant decreases as a
result of customer order delays, changes or cancellations. As such, backlog
levels are not a reliable indicator of future operating results.
Customer Service and Support
The Company provides expertise in heterogeneous network computing through
a full range of global services, including support services (hardware and
software systems support), educational services and professional services (IT
consulting, systems integration and system/network management). Sun assists both
technical and commercial customers, supporting more than a half million systems
in 170 countries, training more than 50,000 people annually, and providing
consulting, integration and operations assistance to IT organizations worldwide.
In support services, the field support team of 2,200 includes mostly
software support engineers in the solution centers and in field offices. This
field force is complemented by third-party service providers, delivering a full
range of system support. Investments in field personnel and spare parts to meet
the service requirements of the growing installed base are being supplemented by
partnerships with third-party service providers. These partners invest in
complementary support infrastructure thereby facilitating an expansion of
geographical coverage while reducing the Company's investment in fixed
resources.
The Company offers a warranty for parts and labor on its systems,
generally for one year from date of sale. The Company maintains and services the
products during the warranty period and on a contractual basis after the initial
product warranty has expired. Post-warranty support services are primarily
offered through a tiered support offering called SunSpectrum(TM). SunSpectrum
offers four levels of differentiated support that are packaged as a single price
for the system: all hardware, peripherals and software. Warranty and
post-warranty services are provided from its over 290 field offices and 25
solutions centers in the United States and overseas handling over 550,000 calls
a year.
In educational services, Sun offers comprehensive skills migration,
consulting and courseware. Consultants can perform needs analysis, skills
assessment and migration, curriculum design and course customization.
Instructor-led courseware addresses the educational needs of many customers
including managers, operators, developers, system administrators, and end-users.
As an alternative to the classroom, customers may select self-study training,
including more than 50 interactive training products geared for all levels of
knowledge.
In the professional services, Sun provides the people, processes, and
technology to deliver single point-of-contact solutions tailored to meet
customer needs. Sun technical and project management experts help customers
plan, implement, and manage heterogeneous computing environments. To plan
technical solutions to meet changing business needs, Sun consultants help design
IT architectures and plan migrations from legacy systems to network computing.
To implement solutions, integration experts help customers develop and deploy
distributed computing environments for new applications. To keep the environment
operating at peak performance, operations experts help customers manage the
complexity of the heterogeneous systems and networks. In addition, Sun helps
with all phases of creating and implementing internet solutions.
The Company is investing in resources in the areas of mission critical
support, multivendor support, IT consulting, educational needs consulting and
geographic coverage with direct support capability in new emerging markets.
Certain complex computer systems sold by Sun require that a high level of
implementation support be provided to the customer, and consequently, the
customer's acceptance of such systems may be delayed in the event Sun does not
provide a sufficient level of such service. Delays in customer acceptance could
adversely affect the future operating results of the Company.
Product Development
The Company's research and product development programs are intended to
sustain and enhance its competitive position by incorporating the latest
worldwide advances in hardware, software, graphics, networking, data
communications and storage technologies. Sun's product development efforts,
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conducted within each of its businesses, are currently focused on enhancing its
products' performance and price/performance, as well as reliability,
availability, and serviceability, of both the Company's hardware and systems
software for the Company's expanding enterprise client-server computing customer
base. Additionally, Sun remains focused on system software platforms for
Internet and intranet applications, developing advanced workstation and server
architectures, designing application-specific integrated circuits and software
for networking and distributed computing. Sun product development continues to
be committed to including the high-performance implementation of existing
standards and the development of new technology standards.
Sun conducts research and development worldwide principally through
facilities in the United States, France, and Japan. Research and development
expenses were approximately $657 million, $563 million and $500 million in
fiscal 1996, 1995 and 1994, respectively. In recent years, Sun's research and
development efforts have focused increasingly on Solaris software and SPARC
microprocessors. Sun believes that software development provides and continues
to provide significant competitive differentiation. Therefore, Sun currently
devotes substantial resources to the development of workgroup software,
networking and data communications, video, graphics, object technology and the
software development environment.
The development of high performance computer products, such as the
Company's recent development of UltraSPARC, 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.
Sun introduced and began shipments of its new enhanced desktop systems
based upon the UltraSPARC processors in the second quarter of fiscal 1996. In
addition, enhanced server systems based on UltraSPARC were introduced in the
fourth quarter of fiscal 1996. Future operating results will depend to a
considerable extent on the Company's ability to rapidly and successfully
complete the integration of UltraSPARC into the Company's workstation and server
product lines.
Manufacturing and Supply
The Company's manufacturing operations consist primarily of printed
circuit board assembly and final assembly, test and quality control of systems,
materials and components. Sun has manufacturing facilities in California and
Scotland, and distribution facilities in California, the Netherlands and Japan.
The Company has continued its efforts to simplify its manufacturing process by
reducing the diversity of system configurations offered to customers, increasing
the standardization of components across product types and establishing local
sources of supply in major geographies.
Sun uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources. In particular,
Sun is dependent on Sony Corporation for various monitors and on Fujitsu Limited
(Fujitsu) and Texas Instruments, Incorporated for different implementations of
SPARC microprocessors. Certain custom silicon parts are designed by and produced
on a contractual basis for Sun. The process of substituting a new producer of
such parts could adversely affect Sun's operating results. Some suppliers of
certain components, including color monitors and custom silicon parts, require
long lead times such that it can be difficult for the Company to plan inventory
levels of components to consistently meet demand for Sun's products. Certain
other components, especially memory integrated circuits such as DRAMs, SRAMs,
and VRAMs, have from time to time been subject to industry-wide shortages.
Future shortages of components could negatively affect the Company's ability to
match supply and demand, and therefore could adversely impact the Company's
future operating results.
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 design process, the
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Company's operating results could be adversely affected due to the company's
obligations to fulfill such noncancelable purchase commitments. Once a hardware
product is developed the Company must rapidly bring it to volume manufacturing,
a process that requires accurate forecasting of both volumes and configurations,
among other things, in order to achieve acceptable yields and costs. Upon
introduction of new products, the Company must also manage the transition from
older, displaced products to minimize disruptions in customer ordering patterns,
reduce levels of older product inventory, and ensure that adequate supplies of
new products can be delivered to meet customer demand. The ability of the
Company to match supply and demand is further complicated by the need to take
pricing actions and the variability of timing of customer orders. 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.
The computer systems offered by Sun generally are the result of both
hardware and software development, so that delays in software development can
delay the Company's ability to ship new hardware products. Adoption of a new
release of an operating system may require effort on the part of the customer as
well as software porting by software vendors providing applications. As a
result, the timing of conversion to a new release is inherently unpredictable.
Moreover, delays in adoption of a new release of an operating system by
customers can limit the acceptability of hardware products tied to that release.
In either situation, the future operating results of the Company could be
adversely affected.
Competition
The market for the company'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 Sun's product line and the scalability of its products and
network computing model, the Company competes in many segments of the computer
market across a broad spectrum of customers. The requirements of those customers
and the basis of competition varies widely depending on the market segment and
types of users.
Sun's traditional customer base has been in the technical and scientific
markets. Competition in this segment is based primarily on system performance,
price/performance, availability and performance of application software,
robustness of the software development environment, system expandability and
upgradeability, adherence to standards, graphics features and performance and
product quality and reliability. Increasingly, Sun is finding that its strengths
in technical markets, particularly software development, design automation and
decision support, along with its network computing focus are enabling expansion
into mission critical enterprise applications. Sun's competitors in the
technical and scientific markets are primarily Hewlett-Packard Company (HP),
International Business Machines Corporation (IBM), Digital Equipment Corporation
(DEC) and Silicon Graphics, Inc. (SGI).
Sun has been making inroads into commercial markets both with Global 1000
companies which are downsizing and distributing their computer resources, as
well as with smaller companies which are upsizing and increasing the
capabilities of their network computing systems. Traditionally, competition in
these markets has been based on price/performance, capabilities and stability of
the systems software, product quality and reliability, ease of system operation
and administration, service and support, availability and performance of
applications and middleware, database performance, global marketing and
distribution capabilities, corporate reputation and name recognition.
Increasingly, companies which are downsizing their operations are focusing on
distributing their computing capabilities and adopting a model of network
computing. Companies which are upsizing typically are increasing their
experience in managing larger heterogeneous environments. In addition, Sun is
continuing to expand into the Internet and intranet markets. As a result, in
both the upsizing and downsizing competitive scenarios, networking capabilities,
internet and intranet capabilities and the ability to obtain all of the
traditional security, stability and administrative features of a central
computing model in a networked environment are significant factors that
influence the buying decision and the relative strength of the competition. In
both upsizing and downsizing opportunities, Sun's competition tends to come
principally from IBM, HP, and DEC, as well as other mini and mainframe computer
suppliers. In addition, the Company is facing increasing competition from these
competitors as well as from personal computer manufacturers such as Compaq
Computer Corporation and Dell Computer Corporation, with respect to products
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.
Sun has also encouraged the proliferation of its SPARC technology as a
standard in the computer marketplace by licensing much of the technology and
promoting open interfaces to the Solaris operating environment, as well as by
offering microprocessors and enabling technologies to third party customers.
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As a result, several licensees also offer SPARC/Solaris based products that
compete directly with Sun's products primarily in the desktop markets.
The Company expects that the markets for its products, technology and
services as well as its competitors within such markets, will continue to change
as the combination of these downsizing and upsizing trends shift customer buying
patterns to distributed systems employing multiple platform networks.
Competition in these markets will also continue to intensify as Sun and its
competitors aggressively position themselves to benefit from this shifting of
customer buying patterns and demand. The ability to continue to develop leading
edge products and rapidly bring them to market will continue to have a
significant impact on Sun's competitiveness and it's operating results. In
addition, Sun expects to see continued performance improvements in
microprocessor technology and products introduced by Intel and Motorola, Inc.
Such products, coupled with enhanced operating systems software from Microsoft
and other competitors, are expected to continue to provide competitive pressure
throughout the company's product range. The Company expects this pressure to
intensify in fiscal 1997 with the availability of Pentium Pro systems running
Windows' NT server software. While many other technical, service and support
capabilities affect a customer's buying decision, Sun's future operating results
will depend, in part, on its ability to compete with these technologies.
Patents and Licenses
Sun currently holds a number of U.S. and foreign patents relating to
various aspects of its products and technology. While the Company believes that
such patent protection is important, it also believes that patents are of less
competitive significance than such factors as innovative skills and
technological expertise.
As is common in the computer industry, the Company has from time to time
been notified that it may be infringing certain patents and other intellectual
property rights of others, although no material litigation has arisen out of any
of these claims. Several pending claims are in various stages of evaluation. The
Company is evaluating the desirability of entering into licensing agreements in
certain of these cases. Based on industry practice, the Company believes that in
most cases any necessary licenses or other rights could be obtained on
commercially reasonable terms. However, no assurance can be given that licenses
can be obtained on acceptable terms or that litigation will not occur. The
failure to obtain necessary licenses or other rights, or litigation arising out
of such claims, could have a material adverse effect on the Company's
operations.
Sun has entered into separate patent exchange agreements with IBM, Cray
Research, Inc. (Cray) and Fujitsu. Under each agreement, the parties grant to
each other non-exclusive, worldwide rights to patents in their respective patent
portfolios. These agreements cover patents issued or applied for during certain
limited periods as specified in the agreements. The agreements with Cray and
Fujitsu are royalty free. Sun's payment obligations with IBM terminated at the
end of fiscal 1995.
In March 1990, Texas Instruments Incorporated (TI) alleged that a
substantial number of the Company's products infringe certain of TI's patents.
Based on its discussions with TI, the Company believes that it will be able to
negotiate a license agreement with TI, if necessary, and that the outcome of
this matter will not have a material adverse effect on Sun's financial position
or its results of operations or cash flows in any given fiscal year. Such a
negotiated license may or may not have a material adverse impact on Sun's
results of operations or cash flows in a given fiscal quarter depending upon
various factors including, but not limited, to the structure and amount of
royalty payments, offsetting consideration from TI, if any, and the allocation
of royalties between past and future product shipments, none of which can be
forecast with reasonable certainty at this time.
On September 12, 1996, Sun received a Complaint filed in the United States
District Court, Northern District of Illinois, filed by GEN 17, Inc., alleging
patent infringement. See Item 3 "Legal Proceedings" for information regarding
the Complaint.
Employees
As of June 30, 1996, Sun employed approximately 17,400 people. The
Company's future operating results will depend on its ability to continue to
broaden and develop senior management to attract and retain skilled employees,
and on the ability of its management and key employees to manage growth
successfully through the enhancement of management information systems and
financial controls. The Company expects to continue to increase its number of
employees to support demand creation programs, service and support operations,
and overall projected growth. None of Sun's employees in the United States is
represented by a labor union.
9
ITEM 2. PROPERTIES
Sun conducts its worldwide operations using a combination of leased and
owned facilities. The Company believes that, while it currently has sufficient
facilities to conduct its operations during fiscal 1997, it will continue to
lease and acquire owned facilities throughout the world as its business
requires. Properties owned by the Company consist of an approximately 260,000
square foot facility on approximately 20 acres in Palo Alto, California; an
approximately 227,000 square foot facility on approximately 30 acres in
Linlithgow, Scotland; an approximately 30,000 square foot facility on
approximately 2.5 acres in Bagshot, England; approximately 90 acres in Newark,
California; and approximately 439,000 square feet on approximately 27 acres in
Menlo Park, California. Sun also leases approximately 28 acres in Menlo Park
with approximately 596,000 square feet ("Phase II and III") under construction
with an estimated completion date of the first quarter of fiscal 1997. Sun
leases approximately 270 sales and service offices throughout the world
aggregating about 2 million square feet. Sun also leases approximately 3 million
square feet for its research and development and manufacturing facilities,
primarily in Milpitas, Sunnyvale and Mountain View, California and Chelmsford,
Massachusetts. Sun plans to purchase Phases II and III of its Menlo Park campus
for approximately $116 million during the second quarter of fiscal 1997. Sun's
California manufacturing plant, the majority of its research and development
facilities, its Corporate headquarters and other critical business operations
are located near major earthquake faults. Operating results could be materially
adversely impacted in the event of a major earthquake.
ITEM 3. LEGAL PROCEEDINGS
On September 12, 1996, Sun received a Complaint filed in the United
States District Court, Northern District of Illinois, filed by GEN 17, Inc., an
Illinois corporation ("GEN 17"), alleging infringement of United States Patent
Number 4,956,809 (the '809 patent), issued September 11, 1990. The '809 patent
was originally assigned to The Mark Williams Company, an Illinois corporation
("MWC"). The '809 patent was recently acquired by GEN 17 from MWC and is titled
"Method for Canonical Ordering of Binary Data for Portable Operating Systems."
The lawsuit alleges that the patent covers processes used by Sun in the XDR
module of Sun's Network File System (NFS). Sun became aware of the '809 patent
in late 1990 and received a written opinion from outside patent counsel that Sun
does not infringe the claims and that the patent would likely be held invalid.
Sun communicated these findings with MWC counsel in 1990 and has had no further
communications from MWC or its counsel. Sun intends to vigorously defend itself
in this lawsuit and will evaluate the desirability of resolving the matter
through a reasonable license or other settlement of the issues. Counsel of GEN
17 has indicated a willingness to discuss a license or settlement. Sun does not
believe at this time that the outcome of this matter will have a material
adverse impact on Sun's financial position or its results of operations or cash
flows in any given fiscal year. Any negotiated license or settlement may or may
not have a material adverse impact on Sun's results of operations or cash flows
in a given fiscal quarter depending on various factors, including the structure
and amount of any settlement, and the allocation of settlement costs between
past and future product shipments, none of which can be forecast with reasonable
certainty at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
10
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of September 17, 1996:
Name Age Position
---- --- --------
Scott G. McNealy 41 Chairman of the Board of Directors,
President and Chief Executive Officer, Sun
Microsystems, Inc
Kenneth M. Alvares 52 Vice President, Human Resources, Sun
Microsystems, Inc
Alan E. Baratz 41 President, JavaSoft
Mel Friedman 58 Vice President, Worldwide Operations, Sun
Microsystems Computer Company
Lawrence W. Hambly 50 President, SunService Division
Masood A. Jabbar 46 Vice President, Chief Financial Officer,
Sun Microsystems Computer Company
William N. Joy 41 Vice President, Research and Development,
Sun Microsystems, Inc.
Michael E. Lehman 46 Vice President, Chief Financial Officer,
Sun Microsystems, Inc.
Michael H. Morris 48 Vice President, General Counsel and
Secretary, Sun Microsystems, Inc.
Alton D. Page 40 Vice President, Treasurer, Sun Microsystems
Inc.
Frank Pinto 51 Vice President, North American Field
Operations, Sun Microsystems Computer
Company
William J. Raduchel 50 Vice President, Corporate Planning and
Development and Chief Information Officer,
Sun Microsystems Inc.
George Reyes 42 Vice President, Corporate Controller, Sun
Microsystems, Inc.
Joseph P. Roebuck 60 Vice President, Worldwide Field Operations,
Sun Microsystems Computer Company
Edward Saliba 47 Vice President, Finance and Operations,
SunSoft, Inc.
Janpieter T. Scheerder 47 President, SunSoft, Inc.
Eric E. Schmidt 41 Vice President, Chief Technology Officer,
Sun Microsystems, Inc.
John C. Shoemaker 53 Vice President, General Manager, Enterprise
Servers and Storage Group, Sun Microsystems
Computer Company
Chester J. Silvestri 48 President, Sun Microelectronics
Dorothy A. Terrell 51 President, SunExpress, Inc.
Edward T. Zander 49 President, Sun Microsystems Computer Company
Mr. McNealy is a founder of the Company and has served as Chairman of the
Board of Directors, President and Chief Executive Officer since December 1984,
as President and Chief Operating Officer from February 1984 to December 1984 and
as Vice President of Operations from February 1982 to February 1984. Mr. McNealy
has served as a director of the Company since the incorporation of Sun in
February 1982.
Mr. Alvares has served as Vice President, Human Resources of the Company
since June 1992. From 1990 to June 1992, he served as Vice President, Human
Resources, Nichols Institute. He held various positions at Frito-Lay, Inc. from
1984 to 1990, including Vice President of Personnel from 1987 to 1990.
11
Mr. Alan Baratz has served as President, JavaSoft, since February 1996.
From August 1994 to November 1995, Mr. Baratz served as President and Chief
Executive Officer of Delphi Internet Services Corp., an Internet services
provider. From July 1993 to July 1994, Mr. Baratz served as Director of
Strategic Development for IBM Corporation. From January 1991 to June 1993, he
served as a Director of High Performance Computing and Communication of IBM
Corporation.
Mr. Freidman has served as Vice President, Worldwide Operations of Sun
Microsystems Computer Company since April 1996. From 1989 to April 1996 Mr.
Freidman served the Company in various positions including Vice President Supply
Management, Vice President California Operations and Vice President
Workstations, Servers and Graphics.
Mr. Hambly has served as President, SunService, a division of the Company,
since July 1993. From July 1991 to July 1993, he served as Vice President,
Marketing of Sun Microsystems Computer Company (formerly Sun Microsystems
Computer Corporation). From July 1988 to July 1991, he served as President of
Sun Microsystems Federal, Inc. From April 1983 to July 1988, he served in
various sales management capacities at the Company, most recently as Vice
President, Western Area Sales.
Mr. Jabbar has served as Vice President, Finance and Chief Financial
Officer of Sun Microsystems Computer Company since June 1994. From July 1992
until June 1994, Mr. Jabbar served as Vice President, Finance and Planning,
Worldwide Field Operations of Sun Microsystems Computer Company. From July 1991
to June 1992, he served as Vice President, Finance and Administration, United
Sates Field Operations for Sun Microsystems Computer Company and from October
1990 to June 1991, he served as Director, Finance and Administration, United
States Field Operations for the Company. From October 1989 to October 1990, he
served as Director of United States Field Market for the Company. From April
1988 to October 1989, he served as United States Sales and Service Controller
for the company. From December 1986 to April 1988 he served as United States and
Intercontinental Sales Controller for the Company.
Mr. Joy has served as Vice President, Research and Development of the
Company since August 1983.
Mr. Lehman has served as Vice President and Chief Financial Officer of the
Company since February 1994. From June 1990 until February 1994, Mr. Lehman
served as Vice President and Corporate Controller of the Company. From September
1989 to June 1990 he served as Director of Finance and Administration of Sun
Microsystems of California Ltd., one of the Company's Hong Kong subsidiaries. He
served as Assistant Corporate Controller of the company from September 1988 to
August 1989 and as External Reporting Manager from August 1987 to August 1988.
Mr. Morris has served as Vice President, General Counsel and Secretary of
the Company since October 1987.
Mr. Page has served as Vice President, Corporate Treasurer of the Company
since February 1996. Prior to that time, Mr. Page was a Partner of Ernst &
Young, LLP.
Mr. Pinto has served as Vice President, North American Field Operations of
Sun Microsystems Computer Company since July 1995. From January 1993 to June
1995, Mr. Pinto served as Vice President, Northeast Area for Sun Microsystems
Computer Company. From June 1989 to December 1992, he served as Metro Regional
Director of the Company and from November 1988 to June 1989, he served as the
Company's District Manager, Northeast Major OEM District.
Mr. Raduchel has served as Vice President, Corporate Planning and
Development and as Chief Information Officer of the Company since July 1991. In
addition, from July 1991 to June 1992, he served as Vice President, Human
Resources (acting). From June 1989 to July 1991, he served as Vice President and
Chief Financial Officer of the Company; he was also acting Chief Information
Officer of the Company from November 1990 to July 1991. From October 1988 to
June 1989, he served as Vice President, Corporate Planning and Development. From
1985 to 1988, he served as Vice President of Document Systems in the Strategic
Business Office of Xerox Corporation.
Mr. Reyes has served as Vice President and Corporate Controller of the
Company since April 1994. From April 1992 to March 1994, Mr. Reyes served as
Audit Director for the Company. From April 1991 to April 1992, he was Director
of Finance for the Company's ICON operations. From June 1989 to April 1991, he
served as Assistant Corporate Controller. From July 1988 to June 1989, Mr. Reyes
was the Controller of the Company's General Systems Group. From March 1988 to
June 1988, Mr. Reyes served as the Company's Marketing Controller.
Mr. Roebuck has served as Vice President, Worldwide Field Operations of
Sun Microsystems Computer Company since April 1992. From November 1988 to April
1992, he served as Vice President,
12
United States Field Operations, Sun Microsystems Computer Company and from
January 1986 to November 1988, he served as Vice President of Sales for the
Company.
Mr. Saliba has served as Vice President, Finance and Operations of
SunSoft, Inc. since February 1996. From May 1994 to February 1996, he served as
Finance Director for Sun Microelectronics. From May 1993 to May 1994 he served
as Finance Director of Worldwide Field Operations for Sun Microsystems Computer
Company. From June 1991 to May 1993 he served as Finance Director for Sun
Microsystems Computer Company Engineering. From April 1989 to June 1991 he
served as Finance Manager and Director East Coast Operations.
Mr. Scheerder has served as President of SunSoft, Inc., since August 1995.
From April 1995 to August 1995, he served as Vice President, Server Products of
Sun Microsystems Computer Company. From March 1992 to April 1995, Mr. Scheerder
served as Vice President, Solaris Products of SunSoft, Inc. From August 1991 to
March 1992, he was Director of Marketing and Programming of SunSoft, Inc. and
from February 1990 to August 1991, he was Vice President, Industry Standard
System Development at Data General.
Mr. Schmidt has served as Chief Technology Officer of the Company since
February 1994. From July 1991 to February 1994, Mr. Schmidt served as President
of Sun Technology Enterprises, Inc., formerly a subsidiary of the Company. From
July 1988 to July 1991, he served as Vice President of the Company's General
Systems Group. From May 1985 to July 1988, he served as Vice President and
General Manager, Software Products Division for the Company.
Mr. Shoemaker has served as Vice President, General Manager, Enterprise
Server and Storage Group of Sun Microsystems Computer Company since April 1996.
From July 1993 to April 1996 he served as Vice President, Worldwide Operations
of Sun Microsystems Computer Company. From June 1992 to July 1993 he served as
Vice President, U.S. Operations of Sun Microsystems Computer Company. From May
1990 to July 1993, he also served as Vice President, Finance and Planning,
Worldwide Operations (on an acting basis since July 1992). He served as Vice
President (Acting), Materials, Worldwide Operations from October 1991 to June
1992. From March 1989 to March 1990, he served as Senior Vice President,
Electronic Printing Worldwide Marketing, Xerox Corporation. From December 1986
to March 1989, he served as Vice President and General Manager, Document Systems
Business, Xerox Corporation.
Mr. Silvestri has served as President, Sun Microelectronics, a division of
the Company, since February 1994. From August 1992 to February 1994, Mr.
Silvestri served as Vice President, SPARC Sales. Prior to joining Sun, from
December 1986 to August 1992, he served as Vice President and General Manager,
Technology Products for MIPS Computer Systems, Inc., later acquired by Silicon
Graphics Incorporated.
Ms. Terrell has served as President of SunExpress, Inc. since August 1991.
She held various positions at Digital Equipment Corporation from 1976 to 1991,
including Group Manager, Application Specific Interconnect and Packaging in
1991, Manufacturing Manager from 1988 to 1991 and Resource Development Manager,
Corporate Manufacturing from 1987 to 1988.
Mr. Zander has served as President of Sun Microsystems Computer Company
since February 1995. From July 1991 to February 1995, Mr. Zander served as
President of SunSoft, Inc. From October 1987 to July 1991, he served as Vice
President of Corporate Marketing of the Company.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
inside back cover of Sun's 1996 Annual Report to Stockholders. At September 17,
1996 there were approximately 5,900 stockholders of record.
The following is a summary of all sales of the Company's Common Stock by
the Company's directors and executive officers who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended
June 30, 1996:
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Alvares, Kenneth 5/15/96 $59.875 500
5/28/96 $62.875 500
5/29/96 $62.00 12,000
Friedman, Mel 5/21/96 $60.00 2,490
5/28/96 $61.50 1,408
5/28/96 $61.50 6,000
Hambly, Lawrence 5/28/96 $62.50 5,000
5/28/96 $63.00 5,000
5/28/96 $63.50 5,000
Lehman, Michael 4/23/96 $52.1875 1,450
McNealy, Scott 5/3/96 $57.375 75,000
5/3/96 $57.50 25,000
Reyes, George 4/23/96 $50.00 460
4/23/96 $50.00 6,000
4/23/96 $50.00 520
Roebuck, Joseph 5/28/96 $63.00 25,000
Scheerder, Jan Pieter 4/19/96 $50.19 6,000
5/29/96 $61.875 856
Schmidt, Eric 5/2/96 $57.625 5,000
5/20/96 $58.625 5,000
5/21/96 $60.625 5,000
5/28/96 $61.125 5,000
5/30/96 $62.00 5,000
5/31/96 $61.75 5,000
14
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Shoemaker, John 5/2/96 $56.75 4,000
5/3/96 $57.125 4,000
5/14/96 $57.875 6,000
5/31/96 $63.125 5,000
Silvestri, Chester 5/13/96 $57.6671 6,000
5/13/96 $57.6671 2,000
Terrell, Dorothy 5/15/96 $59.875 500
5/28/96 $62.875 500
Walsh, Kevin 5/31/96 $63.00 8,000
Zander, Edward 4/24/96 $55.00 20,000
5/22/96 $59.6875 10,000
5/31/96 $61.125 7,000
5/31/96 $60.875 3,000
In July 1995, the Board of Directors approved a plan to repurchase
approximately 24 million shares of the Company's common stock. Repurchases under
this plan were completed in August 1996 at the cost of approximately $696
million.
- -------------------
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information included under the caption "Historical Financial Review" on pages 13
and 14 of Sun's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to the
information included under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 through 21 of Sun's
1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information included under the captions "Consolidated Statements of Income",
"Consolidated Balance Sheets", "Consolidated Statements of Cash Flows",
"Consolidated Statements of Equity", "Notes to Consolidated Financial
Statements" and "Report of Ernst & Young LLP, Independent Auditors" on pages 22
through 37 of Sun's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is incorporated by
reference from the information contained under the caption "Election of
Directors" in Sun's 1996 Proxy Statement for the Company's 1996 Annual Meeting
of Stockholders. Current executive officers of the Registrant found under the
caption "Executive Officers of the Registrant" in Part 1 hereof is also
incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information contained under the caption "Executive Compensation" in Sun's
1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from
the information contained under the caption "Information Concerning Solicitation
and Voting - Record Date and Outstanding Shares" and "Security Ownership of
Management" in Sun's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the information contained under the caption "Executive Compensation - Summary
Compensation Table", "Certain Transactions With Management" and "Employment
Contracts and Change-In-Control Arrangements" in Sun's 1996 Proxy Statement.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements that are incorporated herein by reference
to the following in Sun's 1996 Annual Report to Stockholders.
Consolidated Statements of Income for each of the three years
in the period ended June 30, 1996 (page 22).
Consolidated Balance Sheets at June 30, 1996 and 1995 (page
23).
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1996 (page 24).
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended June 30, 1996 (page 25).
Notes to Consolidated Financial statements (pages 26 through
36).
Report of Ernst & Young LLP, Independent Auditors (page 37).
The Company's 1996 Annual Report to Stockholders is not deemed
filed as part of this report except for those parts specifically
incorporated herein by reference.
2. Financial Statement schedule:
Page Schedule Title
---- -------- -----
S-1 II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements,
including the notes thereto.
17
3. Exhibits
Exhibit
Number Description
- -------- -----------
3.1(2) Amended and Restated Certificate of Incorporation of Registrant.
3.2(9) Bylaws of Registrant, as amended. 3.3(8) Certificate of Amendment
of the Restated Certificate of Incorporation of Registrant.
4.3(9) First Amended and Restated Common Shares Rights Agreement dated
December 14, 1990, between Registrant and The First National Bank
of Boston.
4.4(11) Amendment dated as of October 28, 1991 to the First Amended and
Restated Common Shares Rights Agreement dated December 14, 1990.
4.5(12) Second Amendment dated as of August 5, 1992 to the First Amended
and Restated Common Shares Rights Agreement dated December 14,
1990.
4.6(17) Third Amendment dated as of November 2, 1994 to First Amended and
Restated Commmon Shares Rights Agreement dated December 14, 1990.
4.7(17) Fourth Amendment dated as of November 1, 1995 to First Amended
and Restated Common Shares Rights Agreement dated December 14,
1990
10.1(1) Technology Transfer Agreement dated February 27, 1982, for the
purchase by the Registrant of certain technology for cash, and
related Assumption Agreement dated February 27, 1982
10.3(1) Form of Founders' Restricted Stock Purchase Agreement.
10.8(1) Registration Rights Agreement dated as of November 26, 1984.
10.8A(1) Amendment to Registration Rights Agreement.
10.9(3) Registrant's 1982 Stock Option Plan, as amended, and
representative forms of Stock Option Agreement
10.10(3) Registrant's Restricted Stock Plan, as amended, and
representative form of Stock Purchase Agreement.
10.11(10) Registrant's 1984 Employee Stock Purchase Plan, as amended.
10.21(1) License Agreement dated July 26, 1983, by and between Registrant
and The Regents of the University of California.
10.22(1) Software Agreement effective as of April 1, 1982 by and between
Registrant and American Telephone and Telegraph Company, and
Supplemental Agreement dated effective as of May 28, 1983.
10.48(3) Registrant's 1987 Stock Option Plan and representative form of
Stock Option Agreement.
10.51(4) First Amendment to Amended and Restated Term Loan Agreement dated
September 22, 1989.
10.56(4) Building Loan Agreement dated May 11, 1989, between Sun
Microsystems Properties, Inc. and the Toyo Trust and Banking
Company Limited, New York Branch and the related Promissory Note;
First Deed of Trust, Assignment of Leases, Rents and Other Income
and Security Agreement; Guaranty of Payment; Guaranty of
Completion (Sun Microsystems Properties, Inc.); Guaranty of
Completion (Sun Microsystems, Inc.); Shortfall Agreement and
Indemnity.
18
Exhibit
Number Description
------- -----------
10.57(4) Note and Warrant Purchase Agreement dated September 26, 1989,
between the Registrant, The Ohio National Life Insurance Company,
Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, The Prudential Life Insurance Company of America,
Prudential Property and Casualty Insurance Company and Teachers
Insurance and Annuity Association of America and related Common
Stock Purchase Annuity Association of America and related Common
Stock Purchase Warrant.
10.59(5) Second Amendment to Amended and Restated Term Loan Agreement
dated as of October 26, 1989.
10.60(6) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Metropolitan Life Insurance Company
and related Common Stock Purchase Warrant.
10.61(6) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Allstate Life Insurance Company,
Modern Woodmen of America, The Ohio National Life Insurance
Company, The Western and Southern Life Insurance Company,
Western-Southern Life Insurance Company and Keystone Provident
Life Insurance Company and related Common Stock Purchase Warrant.
10.63(7) Third Amendment to Amended and Restated Term Loan Agreement dated
as of April 3, 1990.
10.64(8) Registrant's 1988 Directors' Stock Option Plan and representative
form of Stock Option Agreement.
10.65(16) Registrant's 1990 Employee Stock Purchase Plan, as amended on
August 9, 1995.
10.66 Registrant's 1990 Long-Term Equity Incentive Plan, as amended on
August 15, 1996.
10.66A(10) Representative form of agreement to Registrant's 1990 Long-Term
Equity Incentive Plan.
10.69(10) Fourth Amendment to Amended and Restated Term Loan Agreement
dated June 27, 1991.
10.73(10) Representative form of letter dated June 25, 1991 between the
Registrant and the insurance companies who are parties to the
Note and Warrant Purchase Agreements dated September 16, 1986 and
December 15, 1989.
10.74(10) Software Distribution Agreement dated January 28, 1991 by and
between the Registrant and UNIX Systems Laboratories, Inc.
10.75(13) Promissory Notes from Kenneth Alvares to the Registrant dated
June 10, 1992 and July 13, 1992
10.77(14) Lease Agreement between BNP Leasing Corporation and Registrant,
effective as of September 25, 1992.
10.79(14) Amendments to Note and Warrant Purchase Agreement dated May 26,
1993.
19
Exhibit
Number Description
------- ------------
10.82 Revolving Credit Agreement dated June 28, 1996, between the
Registrant; Citicorp USA, Inc.; Bank of America National Trust
and Savings Association; ABN AMRO Bank N.V.; The First National
Bank of Boston; Barclays Bank PLC; Morgan Guaranty Trust Company
of New York; The Fuji Bank Limited, San Francisco Agency; The
Toronto-Dominion Bank; The Toyo Trust and Banking Co. Ltd.; The
Sumitomo Bank, Limited; The Sakura Bank Limited, San Francisco
Agency; Banque Nationale de Paris; Bayerische Vereinsbank AG, Los
Angeles Agency; The Industrial Bank of Japan, Limited, San
Francisco Agency; Swiss Bank Corporation.
10.83(15) Receivables Purchase Agreement dated as of August 5, 1994 among
the Registrant, SunExpress, Inc., Sun Microsystems Federal, Inc.,
SunSoft Inc., J.P. Morgan Delaware and Morgan Guaranty Trust
Company of New York.
10.84(16) Registrant's Non-Qualified Deferred Compensation Plan dated July
1, 1995.
10.85(16) Registrant's Section 162 (m) Executive Officer Performance-Based
Bonus Plan dated August 9, 1995.
10.86 First Amendment to Lease Agreement between BNP Leasing
Corporation and Registrant, effective as of September 23, 1994
11.0 Statement of computation of earnings per share.
13.0 1996 Annual Report to Stockholders (to be deemed filed only to
the extent required by the instructions to exhibits for reports
on Form 10-K).
22.0 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.0 Power of Attorney (See page 23).
27.0 Financial Data Schedule
- ------------------
20
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-2897), which became effective March 4, 1986.
(2) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1987.
(3) Incorporated by reference to Exhibits 19.1, 19.3 or 19.4, filed as Exhibits
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 25, 1987.
(4) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989.
(5) Incorporated by reference to Exhibits 19.0 and 19.3 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 29, 1989.
(6) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1989.
(7) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March
30, 1990.
(8) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990.
(9) Incorporated by reference to Exhibits 3.1 and 4.1 filed as exhibits to the
Registrant's Report on Form 8-K filed on December 28, 1990.
(10) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991.
(11) Incorporated by reference to Exhibit 4.0 filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
27, 1991.
(12) Incorporated by reference to Exhibit 3 filed as an exhibit to the
Registrant's Form 8 Amendment No. 3 to Registration Statement on Form 8-A
filed on September 16, 1992.
(13) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
(14) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993.
(15) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
(16) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
(17) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 1, 1995.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUN MICROSYSTEMS, INC.
Registrant
September 26, 1996
By: /s/ MICHAEL E. LEHMAN
------------------------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
22
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott G. McNealy and Michael E. Lehman jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer and Corporate controller and a
majority of the Board of Directors, on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ SCOTT G. McNEALY Chairman of the Board of Directors, September 26, 1996
- ------------------------------- President and Chief Executive Officer
(Scott G. McNealy) (Principal Executive Officer)
/s/ MICHAEL E. LEHMAN Vice President and Chief Financial September 26, 1996
- ------------------------------- Officer (Principal Financial Officer)
(Michael E. Lehman)
/s/ GEORGE REYES Vice President and Corporate Controller September 26, 1996
- ------------------------------- (Principal Accounting Officer)
(George Reyes)
/s/ L. JOHN DOERR Director September 26, 1996
- -------------------------------
(L. John Doerr)
/s/ JUDITH L. ESTRIN Director September 26, 1996
- -------------------------------
(Judith L. Estrin)
/s/ ROBERT J. FISHER Director September 26, 1996
- -------------------------------
(Robert J. Fisher)
/s/ ROBERT L. LONG Director September 26, 1996
- -------------------------------
(Robert L. Long)
/s/ M. KENNETH OSHMAN Director September 26, 1996
- -------------------------------
(M. Kenneth Oshman)
/s/ A. MICHAEL SPENCE Director September 26, 1996
- -------------------------------
(A. Michael Spence)
23
SCHEDULE II
SUN MICROSYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Balance at
Beginning Costs and Deduction/ End of
Description of Period Expenses Write-off Period
----------- ---------- ---------- ---------- ----------
Year ended June 30, 1994:
Accounts receivable allowances......................... $51,462 $167,281 $138,898 $79,845
======= ======== ======== =======
Year ended June 30, 1995:
Accounts receivable allowances......................... $79,845 $186,993 $167,231 $99,607
======= ======== ======== =======
Year ended June 30, 1996:
Accounts receivable allowances......................... $99,607 $189,782 $188,659 $100,730
======= ======== ======== ========
S-1