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, 1995, or - - - ----- 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.) 2550 Garcia Avenue Mountain View, CA 94043-1100 (Address of principal executive offices, including zip code) (415) 960-1300 (Registrant's telephone number, including area code) ---------------------------------------------------- Securities registered 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in 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 5, 1995, was approximately $5,555,000,000 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 5, 1995 was 94,976,613. ------------------------------------ DOCUMENTS INCORPORATED BY REFERENCE Parts of the Annual Report to Stockholders for the fiscal year ended June 30, 1995 are incorporated by reference into Items 1, 5, 6, 7, 8 and 14 hereof. Parts of the Proxy Statement for the 1995 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and 13 hereof.
PART I ITEM 1. BUSINESS General - - - ------- Sun Microsystems, Inc. ("Sun" or the "Company") is a leading supplier of 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 workstations and servers. 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 operating system, its rapid innovation and its open systems architecture. The Company's objective is to be the leading provider of network computing products and technologies to enterprises worldwide. Sun operates in a single industry segment and conducts its business through principal 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 ("SMCC") - SMCC, a principal operating business of the Company, is responsible for designing, manufacturing, selling and supporting workstations and servers incorporating the Scalable Processor Architecture ("SPARC") for open network computing environments. These workstations and servers are offered with the Solaris software environment, licensed by SMCC from SunSoft, Inc. SunService 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, Inc. ("SunSoft") - SunSoft develops, markets, supplies and supports Solaris, a leading 32-bit UNIX operating system software environment for enterprise-wide distributed computing environments on SPARC and other volume platforms. SunSoft also offers software products for enterprise networking, professional software development, network management and PC desktop integration. SPARC Technology Business - SPARC Technology Business designs and develops high performance SPARC microprocessors, as well as enabling technologies, for SMCC and third party customers. SunExpress, 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 aftermarket using innovative direct marketing techniques. 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. - - - --------------- Sun, the Sun Logo, Sun Microsystems, SunExpress, SunSoft, SunService, NFS, ONC+, Solaris, Solstice, Netra, PC-NFS, SolarNet, SunNet Manager, SunSoft Workshop, Sun FORTRAN, Sun Ada, SunPC, Wabi, 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/Open Company Ltd.
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's workstations span the range from low-cost X-terminals to high-performance color graphics systems. Its multiprocessing servers can provide various resources, including filesharing, system administration, and database and network management. As a filesharing resource, a server enables users to access data distributed across multiple storage devices and networks. The current desktop workstation line includes the low-end SPARCXterminal 1, the low-end color SPARCstation 4, the SPARCstation 5 and the high performance SPARCstation 20 series of uniprocessor and multiprocessor systems. The SPARCXterminal 1 computer is the only X-terminal to feature a low-cost, plug-and-play upgrade to a SPARC workstation, so that users can continue to maximize their current investment as their computing needs evolve. The SPARCstation 4 is a low priced, fully configured color workstation. Based on the 85 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 series represents Sun's line of its highest performance workstations and offers a combination of high-end workstation performance and functionality at a competitive price. Available in both uniprocessor and multiprocessor versions, the SPARCstation 20 line achieves higher performance from the use of 50 MHz (in entry level systems) and 75MHz SuperSPARC processors and 125 MHz HyperSPARC processors, as well as high performance motherboards and ASICs. Designed for users needing more specialized graphics power, the SPARCstation 20 features a broad complement of graphics computing capabilities, such as 24-bit color and built-in imaging acceleration. The Company offers a wide range of servers from the low-end SPARCserver 4 and SPARCserver 5, two low-cost entry servers for small workgroups, to the SPARCcenter 2000, a high-end, enterprise-wide multiprocessor server. Midrange servers include the SPARCserver 20 and SPARCserver 1000. These servers are balanced, high-performance multipurpose platforms that are designed for fast input-output and distributed computing. They can also function as computational servers for technical applications such as simulation and analysis for electrical and mechanical CAD. These systems offer a range of main memory and hard disk storage configurations, as well as ease of expandability. The SPARCserver 20 is a competitively priced RISC-based multiprocessing UNIX server with a modular design that provides workgroup users with an easy upgrade path to future processor technologies. The SPARCserver 1000 is a powerful, scalable, versatile, upgradeable and affordable departmental UNIX server in an extremely compact package. The SPARCcenter 2000 is Sun's high-end server for the data center and the enterprise. Based on up to twenty 60MHz SPARC microprocessors, the SPARCcenter 2000 delivers competitive results in NFS file server performance, system computational performance, and multi-user throughput. The Company's Netra servers, a line of "turnkey" packaged servers which include integrated hardware and software, offer specialized capabilities such as providing system management or Internet functionality. Sun also offers the SPARCstorage Array Model 100 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 of network computing. The Company continues to focus on developing Solaris (an open client-server UNIX system software environment now offered on SPARC and Intel platforms; Solaris for the PowerPC platform is currently under development) as 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 system software products for SPARC and Intel platforms. The Solaris advanced operating system offers connectivity and interoperability among hardware platforms from other vendors, ease of application development and availability of over 10,000 products from third party software and hardware developers. Enterprise Management Products - The Company's principal enterprise management environment, 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. The Company's networking products include the SolarNet family of PC-to-enterprise networking solutions such as PC-NFSpro, PC-X and Netware compatability, ONC+/NFS networking technologies which run on most major computing platforms, and DCE for Solaris. 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. Developer Products - Developer products include programming tools for professional software developers for UNIX, including Solaris, HP-UX and UnixWare. These products provide a powerful, comprehensive software development environment to enable the development of next-generation, network-based, client/server applications. Specific products include SunSoft WorkShop for C, Sun FORTRAN and Sun Ada, integrated suites of tools for individuals and teams of software developers that support the rapid development of single and mutithreaded applications, and software developer kits for developers of Solaris applications. PC Desktop Integration Products - Included in this line are the Solaris Desktop integration products, which give UNIX users the power to run productivity applications written for non-UNIX environments, including MS-DOS, DOS-Windows and Macintosh. Products include SunPC, Merge, Wabi, and the Macintosh Application Environment. Sales, Distribution and Marketing - - - --------------------------------- Sun maintains a presence in most major markets and sells hardware, software and services to its customers worldwide through a combination of direct and, increasingly, indirect channels. The Company also offers off-the-shelf software products on an OEM basis to other hardware manufacturers, as well as supplies aftermarket and peripheral products to its end user installed base, both directly and through independent distributors and resellers. In general, the Company's systems sales force is compensated on a channel-neutral basis to reduce potential channel conflict. Distribution channels include: - a direct sales force selling to selected end-user named accounts and numerous indirect channels, including commercial systems integrators 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"); - OEMs who integrate the Company's products with other hardware and software; - VARs who provide added value in the form of software packages, proprietary software development, high-end networking integration, vertical industry expertise, training, installation and support; and - independent distributors who primarily cover markets in which Sun does not have a direct presence. Over time, the Company expects that systems revenues from the indirect channels will continue to increase in proportion to direct channel revenues. The growth and management of the reseller channels is important to the future revenues and profitability of the Company. 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 85 sales and service offices in 38 other countries. In addition, it uses independent distributors in approximately 100 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 both fiscal 1995 and 1994, respectively, and 49% of net revenues in fiscal 1993. 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 7 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, an future operating results will be adversely affected if revenues do not in- crease accordingly. 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, which includes live interactive satellite broadcasts and provides electronic access to newsletters 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, 1995 was approximately $323 million, relatively unchanged as compared with approximately $338 million at June 30, 1994. 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 necessarily 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 system and software support, education, 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 the system support arena, the field support team of 1,700 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. 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 170 field offices and 22 solutions centers in the United States and overseas handling over 500,000 calls a year. Sun also 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 arena the Company provides services that help a customer design their IT architecture, plan their migration, program manage several turnkey solutions and manage and operate the network. The Company is investing in providing mission critical support, multivendor support and global contract support while expanding its direct support presence in new emerging markets as well as completing its professional services portfolio by further developing education and skills migration, IT consulting, system integration and system and network management services. Certain computer systems sold by Sun require a high level of service and support to 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 service. Such 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 and data communications technologies. Sun's product development efforts, conducted within each of its businesses, are currently focused on increasing the price/performance of its systems, improving its system software platforms and developing advanced workstation and server architectures, application-specific integrated circuits and software for networking and distributed computing, including the high-performance implementation of existing standards and the development of new technology standards where none exist. Sun conducts research and development worldwide principally through facilities in the United States, France, and Japan. Research and development expenses were approximately $520 million, $455 million and $445 million in fiscal 1995, 1994 and 1993, respectively. In recent years, Sun's research and development efforts have focused increasingly on Solaris software and SPARC microprocessors, including the current development of the next generation, UltraSPARC microprocessor based on a 64-bit architecture (referred to hereafter as UltraSPARC). Sun also believes that in the future, software will 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, in particular the Company's current 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's future operating results will depend to a considerable extent on its ability to rapidly and continuously develop, introduce and deliver in quantity new systems, software, and service products, as well as new microprocessor technologies, that offer its customers enhanced performance at competitive prices. 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 and VRAMs, have from time to time been subject to industrywide 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 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. Sun's systems based on UltraSPARC processors will require completion of the next version of the Company's operating system, Solaris 2.5, which is currently in the beta testing phase of development. To minimize the aforementioned risks, the Company has expended significant effort toward making Solaris 2.5 binary compatible with the applications currently running on Solaris 2.x, so customers should not need to port these applications to run on UltraSPARC-based systems. 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 is 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 upgradability, 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), Digital Equipment Corporation (DEC) and Silicon Graphics, Inc. (SGI). Personal computer manufacturers, offering products based on microprocessors from Intel Corporation (Intel) and software from Microsoft Corporation (Microsoft), have recently increased the competition in these markets, as their system performance and functionality begin to scale at lower price points. 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. As a result, in both the upsizing and downsizing competitive scenarios, networking 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 downsizing opportunities, Sun's competition tends to come from International Business Machines (IBM), HP and DEC, as well as other mini and mainframe computer suppliers. In upsizing opportunities, competition tends to come from personal computer manufacturers such as Compaq Computer Corporation and Apple Computer, Inc, in addition to the other competitors previously mentioned. 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 rightsizing trend shifts 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 timing of introductions of new desktop and server products by Sun's competitors may negatvely impact the future operating results of the Company, particularly when occurring in periods leading up to the Company's introductions of its own new or enhanced products. As raw microprocessor performance is a highly visible element of the industry's competitive landscape, Sun's future operating results will depend on the Company's ability to rapidly and successfully complete the development and integration of UltraSPARC into the Company's desktop and server lines. 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 1996. 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 in 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 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. The agreement with IBM required Sun to make payments through fiscal 1995. These payments have not been material to Sun's financial position. 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 negotiatied 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 - - - --------- As of June 30, 1995, Sun employed approximately 14,500 people. The Company's future operating results will depend on its ability to continue to broaden and develop senior management and 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 are represented by a labor union in the United States. 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 1996, 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 10 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; and approximately 90 acres in Newark, California. In addition, in fiscal 1995, Sun puchased a facility totaling 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 under construction with an estimated completion date of the first quarter of fiscal 1997. Sun leases approximately 170 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'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.
EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information regarding the executive officers of the Company as of September 5, 1995: NAME AGE POSITION - - - ------------------- --- ------------------------------------------------ Scott G. McNealy 40 Chairman of the Board of Directors, President and Chief Executive Officer, Sun Microsystems, Inc. Kenneth M. Alvares 51 Vice President, Human Resources, Sun Microsystems, Inc. Patrick J. Deagman 47 Vice President, Finance, Information Resources and Operations, SunSoft, Inc. Lawrence W. Hambly 49 President, SunService Division Masood A. Jabbar 45 Vice President, Chief Financial Officer Sun Microsystems Computer Company William N. Joy 40 Vice President, Research and Development; Sun Microsystems, Inc. Michael E. Lehman 45 Vice President, Chief Financial Officer Sun Microsystems, Inc. Michael H. Morris 47 Vice President, General Counsel and Secretary, Sun Microsystems, Inc. Rajesh H. Parekh 42 Vice President, Engineering, Sun Microsystems Computer Company Frank Pinto 50 Vice President, North American Field Operations, Sun Microsystems Computer Company William J. Raduchel 49 Vice President, Corporate Planning and Development and Chief Information Officer, Sun Microsystems, Inc. George Reyes 41 Vice President, Corporate Controller, Sun Microsystems, Inc. Joseph P. Roebuck 59 Vice President, Worldwide Field Operations, Sun Microsystems Computer Company Janpieter T. Scheerder 46 President, SunSoft, Inc. Eric E. Schmidt 40 Vice President, Chief Technology Officer, Sun Microsystems, Inc. John C. Shoemaker 52 Vice President, Worldwide Operations, Sun Microsystems Computer Company Chester J. Silvestri 46 President, SPARC Technology Business
NAME AGE POSITION - - - ------------------- --- ------------------------------------------------ Dorothy A. Terrell 50 President, SunExpress, Inc. Kevin J.F. Walsh 53 Vice President, Finance and Planning, Worldwide Operations, Sun Microsystems Computer Company Edward J. Zander 48 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. Deagman has served as Vice President, Finance, Information Resources and Operations of SunSoft, Inc. since July 1993. From July 1991 to June 1993, he served as Director, Finance, Information Resources and Operations of SunSoft, Inc. From October 1990 to June 1991, he served as Director, Worldwide Operations, Finance and Business Planning. Prior to joining Sun, from November 1988 to September 1990, Mr. Deagman served as Vice President and Chief Financial Officer of Xerox Imaging Systems, a subsidiary of Xerox Corporation. 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 June 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 Marketing 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 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. Parekh has served as Vice President, Engineering for Sun Microsystems Computer Company since July 1993. From September 1992 to July 1993, he served as Vice President, Advanced Workstations and Graphics for Sun Microsystems Computer Company. Prior to joining the Company, from September 1982 to May 1992, he served in various positions, including Vice President and General Manager, Personal Systems and Corporate Vice President Advanced Technology for Silicon Graphics, Inc. ("SGI"). From May 1992 to September 1992, he was employed by SGI as an independent consultant. 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 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. 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, Worldwide Operations of Sun Microsystems Computer Company since July 1993. 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, SPARC Technology Business 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 SGI. 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. Walsh has served as Vice President, Finance and Planning, Worldwide Operations for Sun Microsystems Computer Company since February 1993. From February 1993 to February 1994, Mr. Walsh also served as Corporate Controller for Sun Microsystems Computer Company. Prior to joining the Company, from June 1990 to January 1993, he served as Chief Operating Officer of Spatial Technology Inc. From 1985 to May 1990, he served as Vice President, Finance for Schlumberger Technologies, Inc. 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.
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 1995 Annual Report to Stockholders. At September 5, 1995 there were 3,828 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, 1995*: Number of Officer Date Price Shares Sold ------- ---- ----- ----------- Alvares, Kenneth 4/27/95 $38.939 24,600 4/27/95 $39.625 593 5/22/95 $46.0625 2,000 5/23/95 $47.125 500 5/23/95 $47.375 500 5/23/95 $48.00 500 5/23/95 $48.625 500 5/23/95 $48.875 500 5/24/95 $49.75 500 5/24/95 $50.00 500 Deagman, Patrick 5/9/95 $41.69 3,000 5/10/95 $43.25 323 Hambly, Larry 4/24/95 $38.00 2,500 4/26/95 $39.00 2,500 4/27/95 $40.0625 2,500 5/12/95 $44.00 5,000 Jabbar, Masood 5/11/95 $43.00 10,000 Joy, William 4/25/95 $38.00 30,000 Kannegaard, Jon** 5/26/95 $47.1875 6,700 5/31/95 $44.6758 9,600 Lehman, Michael 4/24/95 $38.0625 6,500 5/8/95 $40.9375 2,000 Marr, William** 5/3/95 $41.875 10,000 5/3/95 $41.50 17,000 5/17/95 $44.75 25,857 5/25/95 $48.875 8,821 (sold by spouse) McNealy, Scott 5/2/95 $39.90 50,000 Morris, Michael 5/4/95 $41.94 3,470 Parekh, Rajesh 5/15/95 $44.00 2,279 Raduchel, William 4/21/95 $37.4375 2,500 5/15/95 $44.00 37,828 Reyes, George 4/21/95 $37.5625 6,375 4/21/95 $37.875 1,570 5/16/95 $44.6875 2,957
Number of Officer Date Price Shares Sold ------- ---- ----- ----------- Roebuck, Joseph 5/5/95 $41.50 25,000 5/5/95 $41.375 25,000 5/17/95 $45.125 4,000 5/18/95 $45.00 12,352 Silvestri, Chester 5/24/95 $49.9375 10,000 Schmidt, Eric 4/21/95 $37.50 5,000 4/28/95 $39.50 5,000 5/3/95 $41.375 5,000 5/15/95 $44.00 5,000 5/22/95 $46.75 10,000 5/26/95 $47.125 5,000 5/31/95 $44.75 5,000 5/31/95 $44.50 10,000 Shoemaker, John 4/21/95 $37.339 22,031 4/21/95 $37.589 15,000 4/21/95 $37.714 5,000 Terrell, Dorothy 4/21/95 $37.6875 14,000 4/26/95 $38.375 4,400 4/27/95 $39.0625 4,000 Zander, Edward 4/21/95 $37.6875 10,000 5/9/95 $43.125 10,000 5/25/95 $50.00 7,000 * Share sales, if any, by Janpieter Scheerder are not included herein as Mr. Scheerder was appointed on August 15, 1995. **former officer 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 15 and 16 of Sun's 1995 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 pages 18 through 22 of Sun's 1995 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference to pages 23 through 36 of Sun's 1995 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company is incorporated by reference from "Election of Directors" in Sun's 1995 Proxy Statement for the Company's 1995 Annual Meeting of Stockholders. Current executive officers of the Registrant found under the caption "Executive Officers of the Registrant" in Part I 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 section entitled "Executive Compensation" in Sun's 1995 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section entitled "Information Concerning Solicitation and Voting - Record Date and Outstanding Shares" and "Security Ownership of Management" in Sun's 1995 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the sections entitled "Executive Compensation - Summary Compensation Table", "Certain Transactions With Management" and "Employment Contracts and Change-In-Control Arrangements" in Sun's 1995 Proxy Statement.
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 1995 Annual Report to Stockholders: Consolidated Statements of Income for each of the three years in the period ended June 30, 1995 (page 23). Consolidated Balance Sheets at June 30, 1995 and 1994 (page 24). Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1995 (page 25). Consolidated Statement of Stockholders' Equity for each of the three years in the period ended June 30, 1995 (page 26). Notes to Consolidated Financial Statements (pages 27 through 35). Report of Ernst & Young LLP, Independent Auditors (page 36). The Company's 1995 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.
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. 4.1(5) Indenture between Registrant and Harris Trust and Savings Bank, Trustee, covering $135,000,000 of 6 3/8% Debentures (including form of Debenture) due October 15, 1999. 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. 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. 10.50(4) Amended and Restated Term Loan Agreement dated June 7, 1989 between the Registrant, The First National Bank of Boston, Security Pacific National Bank and The First National Bank of Boston, as agent for the banks.
Exhibit Number Description ------- ----------- 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. 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 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. 10.62(7) Credit Agreement dated as of April 4, 1990, between the Registrant; Citibank N.A.; Bank of America National Trust and Savings Association; The First National Bank of Boston; Barclays Bank PLC; Security Pacific National Bank; Morgan Guaranty Trust Company of New York; Morgan Bank (Delaware); Algemene Bank Nederland N.V.; The Fuji Bank, Limited; Mitsui Taiyo Kobe Bank, Limited; and the Bank of California, N.A. 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 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 9, 1995.
Exhibit Number Description ------- ----------- 10.66A(10) Representative form of agreement to Registrant's 1990 Long-Term Equity Incentive Plan. 10.68(10) First Amendment to Credit Agreement dated as of June 25, 1991. 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 26, 1986 and December 15, 1989. 10.74(10) Software Distribution Agreement dated January 28, 1991 by and between the Registrant and UNIX System 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. 10.80(15) Promissory note from Chester Silvestri to the Registrant dated December 30, 1992. 10.81(15) Notice of Exercise and Irrevocable Subscription Agreement dated July 26, 1994 between Lawrence W. Hambly and the Registrant. 10.82(15) Revolving Credit Agreement dated June 1, 1994, 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 Bank of California, N.A.; 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 Registrant's Non-Qualified Deferred Compensation Plan dated July 1, 1995 10.85 Registrant's Section 162(m) Executive Officer Performance-Based Bonus Plan dated August 9, 1995 11.0 Statement of computation of earnings per share. 13.0 1995 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.
Exhibit Number Description ------- ----------- 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.0 Power of Attorney (See page 22). 27.0 Financial Data Schedule. (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 Registrants 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 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.
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, 1995 BY: /s/ Michael E. Lehman ----------------------------- Michael E. Lehman Vice President and Chief Financial Officer
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 September 26, 1995 - - - ------------------------- Directors, President and (Scott G. McNealy) Chief Executive Officer (Principal Executive Officer) /s/ Michael E. Lehman Vice President and September 26, 1995 - - - ------------------------- Chief Financial Officer (Michael E. Lehman) (Principal Financial Officer) /s/ George Reyes Vice President and Corporate September 26, 1995 - - - ------------------------- Controller (Principal (George Reyes) Accounting Officer) /s/ L. John Doerr Director September 26, 1995 - - - ------------------------- (L. John Doerr) /s/ Judith L. Estrin Director September 26, 1995 - - - ------------------------- (Judith L. Estrin) /s/ Robert J. Fisher Director September 26, 1995 - - - ------------------------- (Robert J. Fisher) /s/ Robert L. Long Director September 26, 1995 - - - ------------------------- (Robert L. Long) /s/ M. Kenneth Oshman Director September 26, 1995 - - - ------------------------- (M. Kenneth Oshman) /s/ A. Michael Spence Director September 26, 1995 - - - ------------------------- (A. Michael Spence)
<TABLE> SCHEDULE II SUN MICROSYSTEMS, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands) <CAPTION> Balance at Charged to Balance at Beginning Costs and Deduction/ End of Description of Period Expenses Writeoff Period - - - ---------------------------------- ------------ ------------ ------------ ---------- <S> <C> <C> <C> <C> Year ended June 30, 1993: Accounts receivable allowances $48,697 $ 89,027 $ 86,262 $51,462 ======= ======== ======== ======= 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 ======= ======== ======== ======= </TABLE>
EXHIBITS TO REPORT ------------------ ON FORM 10-K ------------ FOR YEAR ENDED JUNE 30, 1995 ----------------------------
INDEX TO EXHIBITS Exhibit Number Description - - - ------- --------------------------------------------- 10.65 1990 Employee Stock Purchase Plan, as amended 10.66 1990 Long-Term Equity Incentive Plan, as amended 10.84 Non-Qualified Deferred Compensation Plan 10.85 Section 162(m) Executive Officer Performance-Based Bonus Plan 11.0 Statement of computation of earnings per share 13.0 1995 Annual Report to Stockholders 22.0 Subsidiaries of Registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 27.0 Financial Data Schedule