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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-------------------------------
(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, 1997
[ ] 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)
--------------------------------------
Delaware 94-2805249
(State of incorporation) (I.R.S. Employer
Identification No.)
901 San Antonio Road (650)-960-1300
Palo Alto, CA 94303
(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
------------------------------
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 16, 1997, was approximately $21,833,000,000
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 16, 1997 was 429,685,824.
----------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Annual Report to Stockholders for the fiscal year ended
June 30, 1997 are incorporated by reference into Items 1,5,6,7,8 and 14 hereof.
Parts of the Proxy Statement for the 1997 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 desktop systems,
servers, storage subsystems, network switches, 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.
The Company continually evaluates the effectiveness of its organizational
structure. As a result of its evaluation, the Company at any time may create,
merge or discontinue various business units to increase customer and product
focus. Sun's primary operating businesses are as follows:
Sun Microsystems Computer Company(TM) ("SMCC") - SMCC designs,
manufactures, and sells desktop systems, a broad range of servers, storage
subsystems, and network switches, incorporating the Scaleable Processor
Architecture ("SPARC") microprocessors and 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 on SPARC and other volume platforms,
Solstice(TM), a complete enterprise-wide management solution, and WorkShop(TM),
a set of 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 and Java microprocessors, as well as enabling technologies, for SMCC and
third party customers.
JavaSoft(TM) - JavaSoft develops, markets and supports the Java(TM)
software technology and products based on this technology. 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 and encouraged 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.
- --------------------------
Sun, the Sun Logo, Sun Microsystems, SunSoft, SunService, Sun Microelectronics,
JavaSoft,Ultra, Enterprise, NEO ,NFS, Joe, Solaris, Solstice, Netra, SolarNet,
SunNet Manager, SunSoft Workshop, Sun FORTRAN, Sun Ada, Sunergy, Gigaplane - XB
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.
2
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. 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
The Company offers a full line of workstations from low-cost SPARCstations
to high-performance color graphics systems.
The current desktop workstation line includes the low-end color
SPARCstation(TM) 5, and the high performance Ultra(TM) series of uniprocessor
and multiprocessor systems.
The SPARCstation 5 is an accelerated graphics workstation and is one of the
industry's lowest priced 24-bit color systems. Based on the 170 MHz microSPARC
II processor, this workstation is designed for customers seeking expandability
and fast application performance.
The Ultra series of workstations offers 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 300mhz, 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 Ultra
Enterprise(TM) 1 Server to the Ultra Enterprise 10000 Server, a highly
scaleable, reliable, enterprise-wide symmetric multiprocessor server.
The low-end servers also include the multiprocessing Ultra Enterprise 2
Server and the highly reliable 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 storage configurations.
For enterprises, Sun offers its new Ultra Enterprise Server family. This
includes the Enterprise 10000 server which scales to 64 processors.
Sun's Ultra Enterprise Server family offers upgradeability and
expandability across this product line. The entry level Enterprise 3000 is a
powerful, scaleable, versatile, upgradeable and affordable departmental UNIX
server in a compact package. The Enterprise 3000 is expandable up to 6 CPUs and
shares common CPU boards and peripherals that can be used across the Ultra
Enterprise product line to provide flexibility and protect the customer's
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.
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 offers the performance and availability required
for mainframe-class, mission critical applications.
The Enterprise 10000 is the most scaleable SMP system in the product lineup
and incorporates mainframe features such as dynamic system domains, which allow
for dynamic partitioning of the system, super computer class interconnect called
Gigaplane- XB (TM) which speeds internal data handling, and a separate service
processor/console for system monitoring and management.
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 high availability disk storage subsystem utilizing RAID
technology.
3
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 Operating Environment - Solaris products include desktop,
intranet, ISP and enterprise operating environments for SPARC and Intel
platforms. Solaris is a fast, highly reliable, scaleable and secure operating
environment, easy to install and use, optimized for Java and supports more than
12,000 applications. The Solaris environment is optimized for corporate
computing, intranet/Internet business requirements, powerful enterprise
databases and high performance technical computing environments.
Network Management Products - The Company's principal enterprise
computing management solution, Sun Network Management Products (Solstice)
provide a comprehensive suite of system and network management tools and
applications that give network managers the flexibility of distributed computing
with the control of centralized management for workgroups, departments, or the
enterprise - regardless of the vendors or operating systems comprising their
network. Solstice utilizes distributed computing technologies to scale and
manage global heterogeneous networks, such as those in telecommunications and
financial services companies. Solstice products such as Enterprise Manager
decrease the complexity of managing enterprise-wide networks while significantly
lowering the total cost of operation.
Sun Network Management Products are central to Sun's open systems
architecture. These products provide networking capabilities that make
distributed resources easily accessible by PCs, 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.
In addition, Sun Internet Mail Server software helps companies consolidate
their business on a single, scaleable e-mail architecture, enabling open,
reliable, and cost-effective communication. Built on Internet and industry
standards such as SMTP and MIME, Sun Internet Mail Server offers a single, open
Internet alternative to proprietary mail systems. Sun Internet Mail Server
provides the industry's most complete implementation of the latest Internet
standard, Internet Message Access Protocol version 4 (IMAP4), for reliable mail
messaging.
Network Security Solutions - Sun provides businesses with a
comprehensive set of modular, heterogeneous, and scaleable security solutions
that include encryption, authentication, access control, and firewall defense
products needed to make use of the Internet, intranets and extranets, as
communications and trading channels.
Developer Products - The Workshop integrated development tool suites
support Java, C++, C, Sun FORTRAN(TM), Sun ADA(TM), and the Interface Definition
Language (IDL). In addition, Sun offers integrated development environments for
OpenStep, PASCAL and MicroFocus COBOL. Java Workshop is a powerful and
streamlined Internet programming environment allowing developers to create and
publish Internet applications. Visual Workshop for C++ provides a tightly
integrated visual programming environment for professional developers to build
and deploy high-performance client-server applications. Internet Workshop also
offers tools for developing object-oriented, three-tier networked applications
with Java, C++ and the NEO CORBA-compliant IDL.
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.
JavaSoft Products - 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 1997, Sun licensed
JAE and JavaOS 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. In addition, the Company initiated a range of development activities
during fiscal 1997 to increase the capabilities of the Java language.
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, ASICs and embedded boards on an OEM basis
to other hardware manufacturers, and 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 our 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 the value, 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 88 sales and service offices in 40 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 49% in fiscal 1997 and 50%
of net revenues in fiscal 1996, and 1995. 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 herein for additional information
concerning sales to foreign customers and industry segments.
Seasonality affects the Company's revenues and operating results,
particularly in the first and third 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 proportionatly 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,
televised programs and attendance at trade shows.
6
Sun maintains a customer resource program, Sunergy(TM), which includes live
interactive satellite broadcasts and provides 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, 1997 was approximately $378 million,
compared with approximately $522 million at June 30, 1996. 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, among other things, 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 (education consulting, skills migration
and training) and professional services (IT consulting, systems integration and
system/network management). Sun assists both technical and commercial customers,
supporting more than 700,000 systems in 170 countries, training more than 75,000
students annually, and providing consulting, integration and operations
assistance to IT organizations worldwide.
In support services, Sun has increased field resources in direct service
delivery, especially software support engineers based in solution centers and
field offices. Higher levels of field resources are critical to the overall
investments being made in mission-critical support capability. This direct Sun
capability is complemented by third-party service providers who primarily
deliver hardware support services. Software support continues to be primarily
delivered by Sun software support engineers. Third party service providers
provide necessary leverage on critical field resources such as parts inventories
and staff to meet the service requirements of the growing installed base.
Investments by these third-party service providers in complementary support
infrastructure facilitates expansion of geographical coverage without additional
fixed cost investment by the Company.
The Company offers a warranty for parts and labor on its hardware products
generally for one year from date of sale and a limited warranty on software
generally for 90 days 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 package hardware, software and
peripherals in a single price support service. Warranty and post-warranty
services are provided through 27 solution centers worldwide.
Sun's educational services offers comprehensive skills migration, enterprise
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
expertise.
In 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. Sun consultants also 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. Investments
have been made in competencies in Internet/Java, business applications and
systems and network management.
Certain complex systems sold by Sun require a high level of implementation
support 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
6
efforts, 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 $826 million, $653 million and $563 million in
fiscal 1997, 1996 and 1995, respectively. In recent years, Sun's research and
development efforts have focused increasingly on the Java architecture, 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, disk
array, object technology and the software development environment.
The development of high performance computer products 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.
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,
Oregon, England 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 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
7
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, and 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. 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
8
upsizing trends shift customer buying patterns to network centric 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 its 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
continue to intensify in fiscal 1998 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.
In order to remain competitive in a rapidly changing industry, the Company
is continually improving and changing its business practices, processes and
information systems. In this regard, the Company has begun to implement a number
of new business practices and a series of related information systems; such
activities are currently planned to be fully operational in the first half of
fiscal 1999. Implementing a number of new business practices and information
systems is a complex process, affecting numerous operational and financial
systems and processes as well as requiring comprehensive employee training.
While the Company tests these new systems and processes in advance of
implementation, there are inherent limitations in the Company's ability to
simulate a full-scale operating environment in advance of system cutover. To the
extent that the Company encounters problems after introduction of these new
systems and practices that prevent or limit their full utilization, there could
be a material, adverse impact on the Company's results.
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 have
granted 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. The agreement with IBM
expired at the end of fiscal 1995 and the licenses to the patents thereunder do
not apply to the patents of IBM or the Company applied for after that date.
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.
Employees
9
As of June 30, 1997, Sun employed approximately 21,500 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 are
represented by a labor union.
10
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 1998, 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; 40 acres in Farnborough England;
two separate parcels of land in Newark, California of approximately 90 acres and
60 acres, approximately 1,000,000 square feet on approximately 55 acres in Menlo
Park, California; approximately 120 acres in Broomfield, Colorado; and
approximately 158 acres in Burlington, Massachusetts. Sun also plans on
acquiring an approximately 82 acre site in Santa Clara, California and an
additional 48 acre site in Newark, California. The Company has approved the
construction of an approximately 525,000 square foot facility on one of its Bay
Area sites, an approximately 500,000 square feet facility on its Broomfield,
Colorado site, an approximately 475,000 square feet facility on its Burlington,
Massachusetts site and approximately 225,000 square foot manufacturing facility
on one of its Newark, California parcels. Total cost for these facilities are
expected to be approximately $300 to $600 million. Sun leases approximately 230
sales and service offices throughout the world aggregating about 3 million
square feet. Sun also leases approximately 3 million square feet for its
research and development and manufacturing facilities, primary in Milpitas,
Sunnyvale, San Jose and Mountain View, California and Chelmsford, Massachusetts.
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
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of September 16, 1997:
Name Age Position
Scott G. McNealy 42 Chairman of the Board of Directors, President and Chief
Executive Officer, Sun Microsystems, Inc.
Kenneth M. Alvares 53 Vice President, Human Resources, Sun Microsystems, Inc.
Alan E. Baratz 42 President, JavaSoft
Mel Friedman 59 Vice President, Worldwide Operations, Sun Microsystems
Computer Company
Lawrence W. Hambly 51 President, SunService Division
Masood A. Jabbar 47 Vice President, Chief Financial Officer, Sun Microsystems
Computer Company
Michael E. Lehman 47 Vice President, Chief Financial Officer, Sun Microsystems,
Inc.
Michael H. Morris 49 Vice President, General Counsel and Secretary, Sun
Microsystems, Inc.
Alton D. Page 41 Vice President, Treasurer, Sun Microsystems Inc.
Frank Pinto 52 Vice President, North American Field Operations, Sun
Microsystems Computer Company
William J. Raduchel 51 Vice President, Corporate Planning and Development and
Chief Information Officer, Sun Microsystems Inc.
George Reyes 43 Vice President, Corporate Controller, Sun Microsystems,
Inc.
Joseph P. Roebuck 61 Vice President, Worldwide Field Operations, Sun
Microsystems Computer Company
Edward Saliba 48 Vice President, Finance and Operations, SunSoft, Inc.
Janpieter T. Scheerder 48 President, SunSoft, Inc.
John C. Shoemaker 54 Vice President, General Manager Enterprise Servers and
Storage Group, Sun Microsystems Computer Company
Chester J. Silvestri 49 President, Sun Microelectronics
Edward T. Zander 50 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.
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
12
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. Friedman has served as Vice President, Worldwide Operations of Sun
Microsystems Computer Company since April 1996. Prior to such time, since 1989,
Mr. Friedman 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, 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 States 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. 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, 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 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 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, 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 SunSoft, Inc. since
February 1996. From May 1994 to February 1996, he served as Finance Director for
Sun Microelectronics. From May 1993 to
13
May 1994 he served as Finance Director of Worldwide 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. Shoemaker has served as Vice President, General Manager, Enterprise
Server and Storage Group, 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.
Mr. Zander has served as President, 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.
14
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 1997 Annual Report to Stockholders. At September 16,
1997 there were 8,521 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, 1997:
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Kenneth Alvares 5/16/97 $32.00 15,000
5/16/97 $32.1875 15,000
5/27/97 $33.93750 10,000
Robert Long 5/16/97 $31.875 6,338
Scott McNealy 5/1/97 $28.50 600,000
Frank Pinto 5/29/97 $33.50 12,000
5/29/97 $33.50 8,000
5/29/97 $33.50 5,200
5/29/97 $33.50 4,800
George Reyes 5/6/97 $30.375 920
5/6/97 $30.375 1,040
5/6/97 $30.375 4,800
Edward Saliba 5/16/97 $31.875 4,800
5/16/97 $31.875 4,800
5/16/97 $31.875 2,400
5/16/97 $31.875 800
5/16/97 $31.875 1,840
Janpieter Scheerder 4/22/97 $26.125 12,000
5/29/97 $33.375 936
John Shoemaker 2/10/97 $33.815 8,000
2/20/97 $34.065 11,000
2/20/97 $34.190 1,000
5/23/97 33.57 8,000
Chester Silvestri 1/22/97 $33.375 5,000
1/22/97 $33.250 2,000
1/22/97 33.13 2,000
1/22/97 $33.00 18,000
1/22/97 $33.50 5,000
1/22/97 $33.00 8,000
5/14/97 $32.00 20,000
15
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Edward Zander 1/21/97 $32.0625 10,000
1/21/97 33.25 6,000
1/21/97 $31.95 10,000
4/22/97 27 10,000
4/23/97 27.5 10,000
4/29/97 $28.5625 7,200
5/7/97 30.56 10,000
5/7/97 $31.00 10,000
5/13/97 $30.9375 10,000
5/13/97 31.31 20,000
- -------------------
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 18
and 19 of Sun's 1997 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 20 through 25 of Sun's
1997 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item, with the exception of the subsequent
events described here, 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
Stockholders' Equity", "Notes to Consolidated Financial Statements"and "Report
of Ernst & Young LLP, Independent Auditors" on pages 26 through 44 of Sun's 1997
Annual Report to Stockholders.
During September 1997 the Company acquired all of the outstanding capital
stock of Integrity Arts, Inc. The transaction will be accounted for as a
purchase and, on this basis, the purchase price will be allocated to tangible
and intangible assets, and in-process research and development.
16
On August 22, 1997 the Company signed a definitive agreement to purchase
substantially all of the assets and certain liabilities of Chorus Systems SA,
Chorus Systems KK and Chorus Systems, Inc. Upon and subject to closing, the
transaction will be accounted for as a purchase and, on this basis, the purchase
price will be allocated to tangible and intangible assets, and in-process
research and development. The closing of this acquisition is contingent upon the
completion of various closing conditions
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
17
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 1997 Proxy Statement for the Company's 1997 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 1997
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 1997 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 1997 Proxy Statement.
18
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 1997 Annual Report to Stockholders.
Consolidated Statements of Income for each of the three years
in the period ended June 30, 1997 (page 26).
Consolidated Balance Sheets at June 30, 1997 and 1996 (page
27).
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1997 (page 28).
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended June 30, 1997 (page 29).
Notes to Consolidated Financial statements (pages 30 through
43).
Report of Ernst & Young LLP, Independent Auditors (page 44).
The Company's 1997 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.
19
3. Exhibits
Exhibit
Number Description
------ -----------
3.2(9) Bylaws of Registrant, as amended. 3.3(8) Certificate of
Amendment of the Restated Certificate of Incorporation of
Registrant.
3.3(19) Registrant's Amended and Restated Certificate of Incorporation
(as amended to date).
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 Common 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.
10.56(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.
20
Exhibit
Number Description
------ -----------
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(15) 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.
10.73(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.
10.77(14) Lease Agreement between BNP Leasing Corporation and Registrant,
effective as of September 25, 1992.
10.82 Restated Revolving Credit Agreement dated August 27, 1997,
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 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; The Bank of New York; Cariplo - Cassa
Di-Risparmio Delle Provincie Lombade SPA; Corestes Bank NA; The
Northern Trust Company, Royal Bank Of Canada, Union Bank of
California.
10.84 Registrant's Non-Qualified Deferred Compensation Plan dated
July 1, 1995, as amended and restated effective October 1,
1997.
10.85(16) Registrant's Section 162 (m) Executive Officer
Performance-Based Bonus Plan dated August 9, 1995.
10.86(15) First Amendment to Lease Agreement between BNP Leasing
Corporation and Registrant, effective as of September 23, 1994.
10.87 The Sun Microsystems, Inc. Equity Compensation Acquisition
Plan, as amended.
10.89(18) Form of Change of Control Agreement executed by each corporate
executive officer of Registrant.
10.90(18) Form of Change of Control Agreement executed by Chief Executive
Officer of Registrant.
10.91(18) Form of Vice President Change of Control Severance Plan.
10.92(18) Form of Director - Level Change of Control Severance Plan.
11 Statement of Computation of Earnings per Share.
13.0 1997 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.
21
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24 Power of Attorney (See page 25).
27 Financial Data Schedule.
22
(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) Not used.
(6) Not used.
(7) Not used.
(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) Not used.
(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, 1996.
(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.
(18) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 29, 1996.
(19) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 29, 1996.
23
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 25, 1997
By: /s/ MICHAEL E. LEHMAN
------------------------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
24
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 25, 1997
- -------------------------- President and Chief Executive Officer
(Scott G. McNealy) (Principal Executive Officer)
/s/ MICHAEL E. LEHMAN Vice President and Chief Financial September 25, 1997
- -------------------------- Officer (Principal Financial Officer)
(Michael E. Lehman)
/s/ GEORGE REYES Vice President and Corporate Controller September 25, 1997
- -------------------------- (Principal Accounting Officer)
(George Reyes)
/s/ L. JOHN DOERR Director September 25, 1997
- --------------------------
(L. John Doerr)
/s/ JUDITH L. ESTRIN Director September 25, 1997
- --------------------------
(Judith L. Estrin )
/s/ ROBERT J. FISHER Director September 25, 1997
- --------------------------
(Robert J. Fisher)
/s/ ROBERT L. LONG Director September 25, 1997
- --------------------------
(Robert L. Long)
/s/ M. KENNETH OSHMAN Director September 25, 1997
- --------------------------
(M. Kenneth Oshman)
/s/ A. MICHAEL SPENCE Director September 25, 1997
- --------------------------
(A. Michael Spence)
25
SCHEDULE 2
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, 1995:
Accounts receivable $79,845 $186,993 $167,231 $99,607
allowances......................... ======== ======== ======== ========
Year ended June 30, 1996:
Accounts receivable $99,607 $195,840 $194,717 $100,730
allowances......................... ======== ======== ======== ========
Year ended June 30, 1997:
Accounts receivable $100,730 $273,959 $178,598 $196,091
allowances......................... ======== ======== ======== ========
26