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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
 
                    FOR THE FISCAL YEAR ENDED JUNE 30, 1998
 
      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
 
                         FOR THE TRANSITION PERIOD FROM
                               --------------- TO
                                ---------------
 
                        COMMISSION FILE NUMBER: 0-15086
 
                             SUN MICROSYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------
 
<TABLE>
<S>                                              <C>
                    DELAWARE                                        94-2805249
            (STATE OF INCORPORATION)                   (I.R.S. EMPLOYER IDENTIFICATION NO.)
              901 SAN ANTONIO ROAD                                (650) 960-1300
              PALO ALTO, CA 94303                         (REGISTRANT'S TELEPHONE NUMBER
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,                   INCLUDING AREA CODE)
              INCLUDING ZIP CODE)
</TABLE>
 
                            ------------------------
 
             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 15, 1998, was approximately $18,682,000,000 based
upon the last sale price reported for such date on the Nasdaq National Market.
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 15, 1998 was 381,262,063.
                            ------------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Parts of the Annual Report to Stockholders for the fiscal year ended June
30, 1998 are incorporated by reference into Items 1, 5, 6, 7, 8 and 14 hereof.
 
    Parts of the Proxy Statement for the 1998 Annual Meeting of Stockholders are
incorporated by reference into Items 10, 11, 12 and 13 hereof.
 
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<PAGE>   2
 
                                     PART I
 
ITEM 1. BUSINESS
 
     This Annual Report on Form 10-K contains forwarding-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
particularly statements regarding market opportunities, market share growth,
competitive growth, new product introductions, success of research and
development, research and development expenses, customer acceptance of new
products, gross margin and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, and the cautionary
statements set forth below, including those contained in "Additional Factors
Affecting the Company's Business" identify important factors that could cause
actual results to differ materially form those predicted in any such forward
looking statements. Such factors include, but are not limited to, adverse
changes in general economic conditions, including adverse changes in the
specific markets for the Company's products, adverse business conditions,
decreased or lack of growth in the computing industry, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancement, risks
associated with foreign operations (including the downturn of economic trends
and unfavorable currency movements in the Asia Pacific marketplace), risks
associated with the Company's efforts to comply with Year 2000 requirements, and
other factors, including those listed below.
 
GENERAL
 
     Sun Microsystems, Inc. (Sun or the Company) was incorporated in California
in February, 1982 and reincorporated in Delaware in July, 1987. Sun 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(R)
operating system, its rapid innovation and its open systems architecture.
 
     During the last fiscal year, Sun began reorganizing its business around
specific product development competencies operating under the direction of Sun's
new Chief Operating Officer, Ed Zander. This reorganization was effective July
1, 1998. Sun's new divisions generally operate within their own charters, but
with the common corporate strategic vision of being a leading force in network
computing. Sun believes this new 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 and at any time may create, merge or discontinue
various businesses to increase customer and product focus. Sun's business is now
organized as follows:
 
     Computer Systems -- Computer Systems designs, manufactures, and sells a
broad range of desktop systems, servers and network switches, incorporating the
Scaleable Processor Architecture (SPARC) microprocessors and the
Solaris(TM)software operating environment and it also sells storage subsystems,
as well as software to enterprise customers.
 
     Network Storage -- Network Storage develops Sun's storage hardware and
software platforms.
 
     Consumer and Embedded -- Consumer and Embedded develops and markets Sun's
core technologies for consumers and embedded markets which includes Chorus and
Java OS(TM) for Business(TM), PersonalJava(TM), EmbeddedJava(TM), Java Card(TM)
implementations, the hardware and software for the set-top, auto and phone
markets, Diba technologies and the Jini and Persona projects.
---------------
Sun, the Sun Logo, Sun Microsystems, Sun Workshop, Solaris Solstice, Sun
Enterprise, Sun Internet Mail Server, Java, EmbeddedJava, PersonalJava, Java
Card, Java OS, Java OS for Business, Ultra, Ultra Enterprise, Java Studio, Java
Beans, JDK, Sunergy, Gigaplane-XB, Sun Spectrum, Java Compatible, the Java
Compatible logo are trademark or registered trademarks of Sun Microsystems, Inc.
in the United States and other countries. All SPARC trademarks, including
UltraSPARC, are used under license and are trademarks or registered trademarks
of SPARC International, Inc. in the United States and other countries. Products
bearing SPARC trademarks are based upon an architecture developed by Sun
Microsystems, Inc. UNIX is a registered trademark in the United States and other
countries, exclusively licensed through X/OpenCompany Ltd.
 
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     Enterprise Services -- Enterprise Services, a leading UNIX service
organization, provides a full range of global services for heterogeneous network
computing environments, including system/network management and support,
education, information technology (IT) consulting and systems integration.
 
     Solaris Software -- Solaris Software develops and supports Solaris, a
leading UNIX operating system software environment for enterprise-wide
distributed computing on SPARC and other volume platforms. Solaris Software also
develops software products for network management, messaging/mail management,
security, and eCommerce.
 
     Microelectronics -- Microelectronics designs, develops and markets high
performance SPARC(TM) and Java(TM) microprocessors, as well as enabling
technologies, for Sun products and third-party customers.
 
     Java Software -- Java Software develops, markets and supports the Java(TM)
software technology. Java Software also develops applications, tools, and
systems platforms to further enhance Java(TM) technology as a programming
standard for complex networks. Java Software oversees Sun's efforts to continue
enhancing the Java platform and works with third parties to create products and
technologies that will augment the Java platform's capabilities.
 
     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 vendors
provides Sun and its customers with a competitive advantage and strengthens the
Company's presence in network computing.
 
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
 
     Workstations -- The Company offers a full line of UltraSPARC(TM)-based
workstations from low-cost high-performance workstations to high-end,
multi-processor capable graphics systems.
 
     The Ultra(TM) 5, based on the UltraSPARC IIi processor, is a reliable,
scaleable entry level workstation designed for customers seeking high
performance for computer intensive software development, digital content
creation and database applications at a low cost.
 
     The Ultra 10 based on a 333 MHz Ultra SPARC IIi processor with a 2MB cache
and the Sun Elite3D graphics accelerator offers customers point-of-entry to
high-end graphical computing. The Ultra 10 was designed for graphics intensive,
price sensitive markets such as health care, software development, entry-level
MCAD, animation and digital content creation.
 
     Sun's Ultra 60 and Ultra 450 workstations offer a combination of high-end
workstation performance and functionality at a competitive price. Available in
both uniprocessor and multiprocessor versions, these systems achieve higher
performance from the use of UltraSparc II processors at speeds of up to 360 MHz,
as well as high performance motherboards and ASIC's.
 
     The Ultra 60 workstation, with up to two 300 or 360 MHz UltraSPARC II
processors, is designed for customers who require power for the most demanding
scientific and technical applications.
 
     The Ultra 450 workstation is Sun's most expandable and flexible
workstation. The Ultra 450 can support two of Sun's high-end Elite3D m6 graphics
cards and scales to include up to four 300 MHz UltraSPARC II
 
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processors, 180GB of hard disk drive space, 4GB of memory and 10 PCI slots,
allowing customers to grow and tailor the system to address specific application
requirements.
 
     Workgroup Servers -- The Company also offers a wide range of binary
compatible servers from the entry level high performance Ultra Enterprise(TM) 5S
Server to the Ultra Enterprise 1000 Server, a highly scaleable, reliable,
enterprise-wide symmetric multiprocessor server. Sun's entry level server
products are designed to provide high performance, reliable, easy to use,
scaleable architecture with exceptional throughput at prices comparable to PC
server products. These servers run the Solaris operating system and provide
software solutions to connect to any client as well as the ability to simply
install and manage a customer's servers.
 
     The Ultra Enterprise 5S Server and Ultra Enterprise 10S Server utilize the
high performance UltraSPARC IIi processor and offer customers low priced
solutions that function as file and print servers, internet/intranet solutions
as well as platforms for eCommerce and Internet Service Providers.
 
     The Company's Sun(TM) Enterprise(TM) 450 Servers provide the scalability,
performance and reliability for critical business needs. The Enterprise 450
Server supports up to four 300 MHz UltraSPARC II processors and utilizes the 1.6
GB/second UPA interconnect and 10 PCI slots, which allows the Sun Enterprise 450
to scale as application demand grows. The Sun Enterprise 450 Server is designed
with up to 20 hot pluggable disk drives, hot pluggable N+1 power, and features
such as Automatic System Recovery, providing the reliability features that are
usually found in more expensive enterprise servers. The Sun Enterprise 450
provides customers with the reliability, availability and scalability needed for
demanding applications and solutions such as groupware, distributed database
applications, clustering, enterprise resource planning as well as email and
internet/intranet requirements.
 
     Sun Enterprise Servers -- Sun offers to its enterprise customers its Sun
Enterprise Server family. This includes the Sun Enterprise 10000 that scales to
64 processors. The Sun Enterprise Server family offers upgradeability and
expandability across the product line.
 
     The entry level Sun Enterprise 3500 is a powerful, scaleable, versatile and
upgradeable departmental UNIX server in a compact package. The Sun Enterprise
3500 is expandable up to 8 Central Processing Units ("CPU") 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 Sun Enterprise 4500 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 Sun Enterprise 5500, Sun's entry level data center 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 Sun Enterprise 6500 is expandable up to 30 processors and provides
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 Sun Enterprise 10000 is the most scaleable system in the product line
and incorporates mainframe features such as dynamic system domains which allow
for dynamic partioning of the system, super computer class interconnection
called the Gigaplane-XB(TM) which speeds internal data handling and a separate
service processor/console for system monitoring and management.
 
SYSTEM AND INTERNET SOFTWARE
 
     The system and internet 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, Sun(TM) WorkShop(TM) tools for building
network applications, and internet products including the Sun(TM) Internet Mail
Server that affords reliability and scalability across an
 
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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 -- The Solaris product line includes 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 the Java platform and
supports more than 12,000 applications. The Solaris environment is optimized for
corporate computing, Internet business requirements, powerful enterprise
databases and high performance technical computing environments.
 
     Network Management Products -- These products are central to Sun's open
systems architecture and 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.
 
     Network Security Solutions -- Sun provides businesses with a comprehensive
set of modular, heterogeneous, and scaleable security solutions for protecting
corporate assets, enabling new business models such as secure intranets,
establishing tighter relationships with partners via secure extranets, and
supporting secure remote access for mobile and remote employees. The Network
Security Solutions include encryption, authentication, access control, and
firewall defense products needed to make use of the Internet, intranets and
extranets, as communications and trading channels.
 
     Internet Products -- The Company's Sun Internet Mail Server software helps
companies consolidate their business on a single, scaleable email architecture,
enabling open, reliable, and cost-effective communication. For service
providers, Sun Internet Mail Server delivers the superior scalability,
reliability and performance needed for finding and retaining customers and
growing their business. 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.
 
     JavaSoftware Products -- The Java(TM) Application Environment (JAE) is one
of the first widely accepted application environments to enable the platform
independent of the development of application software. In fiscal 1998, Sun
broadly expanded the definition and availability of the Java platform, to extend
the adoption of the Java platform to the smallest devices (smart cards and
embedded controllers) and set-top boxes (PersonalJava), in addition to the
high-end enterprise platform. Java technology is licensed to over 150 system
software vendors and OEM ("Original Equipment Manufacturers") manufacturers. The
Company continues to invest in the performance, stability and compatibility of
the Java platform, to ensure its continued acceptance and deployment across the
internet.
 
     Developer Products -- The Workshop integrated development tool suites
support the Java(TM) programming language, C++, C, and Sun(TM) FORTRAN. In
addition, Sun offers an integrated development environment for MicroFocus COBOL.
Visual Workshop for C++ and Performance Workshop Fortran provide tightly
integrated visual programming environments for professional developers to build
and deploy high-performance client-server and computing applications. Java(TM)
Workshop(TM) is a powerful and streamlined Internet programming environment
allowing developers to create and publish Internet applications. Java(TM)
Studio(TM) is an easy to use point and click environment for assembling
solutions from reusable JavaBeans(TM) components. Sun's extensive line of
software development products provide life cycle support from database modeling
to testing, improving productivity and quality of the application.
 
     The Java(TM) Developer's Kit enables developers to create and run applets
(which are miniature applications written in the Java programming language) that
run inside a compatible web browser, and full applications written using the
Java programming language.
 
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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 was recently reorganized
within Sun into two primary direct sales forces concentrating on enterprise
systems, storage, and software and consumer and embedded products. These sales
forces sell to selected end-user named accounts and numerous indirect channels
and are compensated on a channel-neutral basis to reduce potential channel
conflict with the Company distribution partners. Other distribution channels
include:
 
     - 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 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 100 sales and service offices in the United States and
approximately 135 sales and service offices in 45 other countries. In addition,
the Company 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 48%, 49% and 50% of total
revenues in fiscal 1998, 1997, and 1996, respectively. 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. The Company is primarily
exposed to changes in exchange rates on the Japanese yen, British pound
sterling, French franc, and German mark. When the U.S. dollar strengthens
against these currencies, the U.S. dollar value of non-U.S. dollar-based sales
decreases. When the U.S. dollar weakens against these currencies, the dollar
value of non-U.S. dollar-based sales increases. Correspondingly, the U.S. dollar
value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and
decreases when the U.S. dollar strengthens. Overall the Company is a net
receiver of currencies other then the U.S. dollar and, as such, benefits from a
weaker dollar and is adversely affected by a stronger dollar relative to major
currencies worldwide. Accordingly, changes in exchange rates, and in particular
a strengthening of the U.S. dollar, may adversely affect the Company's
consolidated sales and gross margins as expressed in U.S. dollars. 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
 
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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.
Furthermore, revenues from outside the United States are subject to inherent
risks related thereto, including the general economic and political conditions
in each country. 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. There can be no assurance that the economic crisis and
currency issues currently being experienced in certain parts of Asia will not
have a material adverse effect on the Company's revenue, revenue growth rates,
or operating results in the future.
 
     One customer accounted for more than 10% of revenues in fiscal 1998. Sales
to MRA Systems, Inc. for fiscal 1998 were approximately 14% of total revenues.
No individual customer accounted for more than 10% of revenues in fiscal 1997 or
1996. Any termination by a significant customer of its relationship with the
Company or material reduction in the amount of business such a customer does
with the Company could materially adversely effect the Company's business,
financial condition or operating results. Also 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 also 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 proportionately.
 
     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.
 
     Sun maintains a customer resource program, Sunergy(SM), 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, 1998 was approximately $599 million,
compared with approximately $378 million at June 30, 1997. 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 (systems support for
hardware and software), 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 1 million systems in 174 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.
 
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     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(SM). 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 36 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 technologies, 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 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's 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 $1,014 million, $826 million and $653 million in
fiscal 1998, 1997 and 1996, 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 will continue 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 Company'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. The development of new high-performance computer products is
a complex and uncertain process requiring high
 
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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 final assembly,
test and quality control of systems, materials and components. Sun has
manufacturing facilities in California, Oregon, 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 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
materially 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 materially 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 material 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
materially 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
materially 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 volumes,
mix of products and configurations, among other things, in order to achieve
acceptable yields and costs. Future operating results will depend to a
considerable extent on the Company's ability to closely manage product
introductions in order to minimize unfavorable patterns of customer orders, to
reduce levels of older inventory, and to 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 adjust prices to
reflect changing competitive market conditions as well as the variability and
timing of customer orders with respect to the Company's older products. As a
result, the Company's operating results could be materially 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.
 
                                        8
<PAGE>   10
 
     Generally, the computer systems sold by Sun, such as the products based on
UltraSPARC processors are the result of both hardware and software development,
such that delays in software development can delay the Company's ability to ship
new hardware products. In addition, adoption of a new release of an operating
system may require effort on the part of the customer and porting by software
vendors providing applications. As a result, the timing of conversion to a new
release is inherently unpredictable. Moreover, delays by customers in adopting a
new release of an operating system can limit the acceptability of hardware
products tied to that release. Such delays could materially adversely affect the
future operating results of the Company.
 
COMPETITION
 
     The markets for the Company's products and services are 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 lines and the scalability of its products
and network computing model, the Company competes in many segments of the
network computing market across a broad spectrum of customers.
 
     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
upgrade ability, 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), Compaq Computer Corporation
(Compaq) 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 Compaq, as well as other mini and mainframe
computer suppliers. In addition, the Company is facing increasing competition
from these competitors as well as from certain systems manufacturers such as
Dell Computer Corporation and certain of its competitors listed above, whose
products are based on microprocessors from Intel Corporation (Intel) coupled
with Windows NT operating system software from Microsoft Corporation
(Microsoft). 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 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.
 
                                        9
<PAGE>   11
 
     Sun has also strived to make its Java technology a programming standard for
complex networks. Sun develops applications, tools and systems platforms, as
well as works with third-parties to create products and technologies, in order
to continue enhance the Java platform's capabilities. As part of this effort,
Sun licenses its Java technology widely encouraging competitors of Sun to also
develop products competing with these applications, tools and platforms. 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 network-based systems,
which often employ solutions from multiple vendors. Competition in these markets
will also continue to intensify as Sun and its competitors, principally HP, IBM,
Compaq and SGI, 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. Also, the
timing of introductions of new products and services by Sun's competitors may
negatively impact the future operating results of the Company, particularly when
such introductions occur in periods leading up to the Company's introduction of
its own new enhanced products. 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 and intensify into fiscal 1999 with the
increased availability of products based on microprocessors from Intel coupled
with Windows NT operating system software. While many other technical, service
and support capabilities affect a customer's buying decision, Sun's future
operating results will depend, in part, on its ability to compete with these
technologies.
 
PATENTS AND LICENSES
 
     Sun currently holds a number of U.S. and foreign patents relating to
various aspects of its products and technology. While the Company believes that
such patent protection is important, it also believes that patents are of less
competitive significance than such factors as innovative skills and
technological expertise.
 
     As is common in the computer industry, the Company has from time to time
been notified that it may be infringing certain patents or 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
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.
 
     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
 
     As of June 30, 1998, Sun had approximately 26,300 employees. 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
 
                                       10
<PAGE>   12
 
operations, and overall projected growth. None of Sun's employees in the United
States are represented by a labor union.
 
ADDITIONAL FACTORS AFFECTING THE COMPANY'S BUSINESS
 
     The Company plans to continue to evaluate and, when appropriate, make
acquisitions of complementary technologies, products or businesses. As part of
this process, the Company will continue to evaluate the value of its assets, and
when necessary, make adjustments thereto. Acquisitions may involve the
amortization of acquired intangible assets in periods following such
acquisitions. In addition, acquisition transactions are accompanied with a
number of risks, including, among other things, those associated with
integrating operations, personnel and technologies acquired and the potential
for unknown liabilities of the acquired business.
 
     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 across the
enterprise that affect numerous operational and financial systems and processes.
Such activities are currently planned to be fully operational in the first half
of fiscal 1999. The time period in which the new business practices and related
information systems will be implemented are forward-looking statements subject
to risks and uncertainties, and actual results may differ materially from those
set forth above as a result of a number of risk factors. In particular, the
timing and duration of the implementation of the new business practices and
information systems is subject to a number of risks, including the complexity of
the conversion process and the new systems themselves, the transfer of business
data and information from the previous system to the new system and the need for
substantial and comprehensive employee training in connection with the adoption
of such new business practices and information systems. 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 implementing these systems. In addition, the
implementation of these systems will require the Company to be without certain
capabilities critical to normal operation of its business (such as processing
orders and shipping product) for a period of time as the Company shifts to the
new systems. There can be no assurance that this interruption in the use and
availability of enterprise-wide information systems will not have a material
adverse effect on the Company's business and operating results. In addition, 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 operating results.
 
     Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As the Year 2000
approaches, these code fields will need to accept four digit entries to
distinguish years beginning with "19" from those beginning with "20". As a
result, in less than two years, computer systems and/or software products used
by many companies may need to be upgraded to comply with such Year 2000
requirements. The Company is currently expending resources to review its
products and services, as well as its internal use software in order to identify
and modify those products, services and systems that are not Year 2000
compliant. The costs associated with this effort are not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes any modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. In addition, the Company believes that its
internal system implementation efforts (as described in the above paragraph),
principally conducted to improve operating efficiencies, will also address the
Company's internal Year 2000 compliance issues. Additionally, the Company is in
the process of evaluating the need for contingency plans with respect to Year
2000 requirements. The necessity of any contingency plan must be evaluated on a
case-by-case basis and will vary considerably in nature depending on the Year
2000 issue it may need to address. The Company's expectations as to the extent
and timeliness of modifications required in order to achieve Year 2000
compliance is a forward-looking statement subject to risks and uncertainties.
Actual results may vary materially as a result of a number of factors,
including, among others, those described in this paragraph and the paragraph
below. There can be no assurance however, that the Company will be able to
successfully
 
                                       11
<PAGE>   13
 
modify on a timely basis such products, services and systems to comply with Year
2000 requirements, which failure could have a material adverse effect on the
Company's operating results.
 
     Based on the Company's assessment to date, most newly introduced products
and services of the Company are Year 2000 compliant, however some of the
Company's customers are running product versions that are not Year 2000
compliant. The Company has been encouraging such customers to migrate to current
product versions. In addition, the Company faces risks to the extent that
suppliers of products, services and systems purchased by the Company and others
with whom the Company transacts business on a worldwide basis do not have
business systems or products that comply with the Year 2000 requirements. To the
extent that Sun is not able to test technology provided by third-party hardware
or software vendors, Sun is in the process of obtaining assurances from such
vendors that their systems are Year 2000 compliant. In the event any such third
parties cannot in a timely manner provide the Company with products, services or
systems that meet the Year 2000 requirements, the Company's operating results
could be materially adversely effected. Although the Company believes that the
cost of Year 2000 modifications for both internal-use software and systems or
the Company's products are not material, there can be no assurance that various
factors relating to the Year 2000 compliance issues, including litigation, will
not have a material adverse effect on the Company's business, operating results
or financial position.
 
     Eleven of the 15 member countries of the European Union are scheduled to
establish fixed conversion rates between their existing sovereign currencies and
the Euro and to adopt the Euro as their common legal currency effective January
1, 1999. The Euro will then trade on currency exchanges and be available for
non-cash transactions. The Company is currently expending resources to review
and modify its products to support the Euro's requirements, determine pricing
strategies in the new economic environment, analyze the legal and contractual
implications for contracts, evaluate system capabilities, and ensure banking
vendors can support the Company's operations with respect to Euro transactions.
The Company expects that modifications will be made to its business operations
and systems on a timely basis and does not believe that the cost of such
modifications will have a material adverse impact on the Company's operating
results. There can be no assurance, however, the Company will be able to
complete such modifications to comply with Euro requirements, which could have a
material adverse effect on the Company's operating results. In addition, the
Company faces risks to the extent that vendors upon whom the Company relies and
their suppliers are unable to make appropriate modifications to support Euro
transactions. The Company has not yet completed it evaluation of the impact of
the Euro upon its functional currency designations.
 
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 1999, it will continue to
lease and acquire facilities throughout the world as its business requires.
Properties owned by the Company consist of approximately 1,000,000 square feet
on approximately 55 acres in Menlo Park, California; an approximately 300,000
square foot facility on approximately 60 acres in Newark, California where an
additional 400,000 square feet of facilities are under construction; an
approximately 260,000 square foot facility on approximately 20 acres in Palo
Alto, California; an approximately 230,000 square foot facility on approximately
30 acres in Linlithgow, Scotland; an approximately 235,000 square foot facility
in Plantation, Florida; an approximately 140,000 square foot facility in
Melbourne, Florida; 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
50 acres, approximately 120 acres in Broomfield, Colorado on which an
approximately 500,000 square foot facility is under construction; and
approximately 158 acres in Burlington, Massachusetts on which an approximately
530,000 square foot facility is under construction. The Company acquired an
approximately 82 acre site in Santa Clara, California. The Company also leases
approximately 7.2 million square feet, of which, approximately 3.1 million
square feet is in the San Francisco Bay Area with the remainder in approximately
230 sales and service offices located around the world. A substantial portion of
the Company's facilities, including its corporate headquarters and other
critical business operations are located near major earthquake faults. The
Company is uninsured and does not fund for earthquake-related losses. In
addition, the Company faces risks to the extent that suppliers
 
                                       12
<PAGE>   14
 
of products, services and systems purchased by the Company and others with whom
the Company transacts business on a worldwide basis are impacted by an
earthquake. As a result, the Company's business, financial condition or
operating results could be materially adversely effected in the event of a major
earthquake.
 
ITEM 3. LEGAL PROCEEDINGS
 
     On October 7, 1997, the Company filed suit against Microsoft Corporation in
the United States District Court for the Northern District of California
alleging breach of contract, trademark infringement, false advertising, unfair
competition, interference with prospective economic advantage and inducing
breach of contract. The Company filed an amended complaint on October 14, 1997.
Microsoft Corporation filed its answer, affirmative defenses and counterclaims
to the amended complaint. The counterclaims include breach of contract, breach
of the covenant of good faith and fair dealing, violation of the California
Business & Professions Code and declaratory judgment. The Company believes that
the counterclaims are without merit and/or that the Company has affirmative
defenses and intends vigorously to defend itself with respect thereto. On March
24, 1998 the United States District Court judge ruled in favor of the Company
granting a preliminary injunction directing Microsoft Corporation to cease using
the Company's Java Compatible Logo(TM) on Microsoft products that failed to pass
the applicable test suites from Sun. In addition, on May 12, 1998, the Company
filed a second amended complaint alleging copyright infringement by Microsoft
and motions requesting further preliminary injunctive relief directed against
the planned release by Microsoft of additional products that failed to pass the
applicable test suites from Sun. The Court held hearings and arguments on such
motions on September 8, 9, and 10, 1998 and took the matter under advisement.
The Company believes that the outcome of this matter will not have a material
adverse impact on Sun's financial condition, results of operations or cash flows
in any given fiscal year.
 
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 15, 1998:
 
<TABLE>
<CAPTION>
          NAME              AGE                             POSITION
          ----              ---                             --------
<S>                         <C>    <C>
Scott G. McNealy            43     Chairman of the Board of Directors, President and Chief
                                   Executive Officer
William T. Agnello          49     Vice President, Real Estate and the Workplace
Kenneth M. Alvares          54     Vice President, Human Resources
Alan E. Baratz              43     President, Java Software
Mel Friedman                60     President, Microelectronics
Lawrence W. Hambly          52     President, Enterprise Services
Masood A. Jabbar            48     President, Computer Systems
James Judson                44     Vice President, Finance, Worldwide Operations
Michael E. Lehman           48     Vice President, Corporate Resources and Chief Financial
                                   Officer
Marc L. Loupe               44     Vice President, Finance and Planning, World-wide Field
                                   Operations, Computer Systems
John S. McFarlane           49     President, Solaris Software
Stephen T. McGowan          50     Vice President, Finance, Computer Systems
Michael H. Morris           50     Vice President, General Counsel and Secretary
Michael Murray              42     Vice President, Finance and Administration, Enterprise
                                   Services
Alton D. Page               42     Vice President, Treasurer
Gregory M. Papadopoulos     40     Vice President and Chief Technology Officer
Marissa Peterson            36     Vice President, Worldwide Operations, Computer Systems
</TABLE>
 
                                       13
<PAGE>   15
 
<TABLE>
<CAPTION>
          NAME              AGE                             POSITION
          ----              ---                             --------
<S>                         <C>    <C>
Frank A. Pinto              53     Vice President, Sales, The Americas, Computer Systems
Michael L. Popov            52     Vice President, COO Staff Operations
William J. Raduchel         52     Chief Strategy Officer
George Reyes                44     Vice President, Corporate Controller
Joseph P. Roebuck           62     Vice President, Worldwide Sales, Computer Systems
Edward Saliba               49     Vice President, Finance, Solaris Software
Janpieter T. Scheerder      49     President, Network Storage
John C. Shoemaker           55     Vice President and General Manager, Enterprise Desktop and
                                   Server Systems, Computer Systems
Mark E. Tolliver            46     President, Consumer and Embedded
Kevin Walsh                 56     Vice President, Operations, Corporate Resources
Edward J. Zander            51     Chief Operating Officer
</TABLE>
 
     Mr. McNealy is a founder of the Company and has served as Chairman of the
Board, 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 the Company in
February 1982.
 
     Mr. Agnello has served as Vice President, Real Estate and the Workplace of
the Company since March 1994. From June 1991 to March 1994 he served as
President, CB Madison Advisory Group, CB Commercial Real Estate Services Inc.
 
     Mr. Alvares has served as Vice President, Human Resources of the Company
since June 1992.
 
     Mr. Baratz has served as President, Java Software of the Company since
April 1998 and as President, JavaSoft from January 1996 to April 1998. From
August 1994 to November 1995 Mr. Baratz served as President and Chief Executive
Officer of Delphi Internet Services Corp., an Internet services provider. He
held various positions at IBM Corporation, including Director of Strategic
Development from July 1993 to July 1994 and as a Director of High Performance
Computing and Communication from January 1991 to June 1993.
 
     Mr. Friedman has served as President, Microelectronics of the Company since
March 1998 and as Vice President, Worldwide Operations of Sun Microsystems
Computer Company ("SMCC") from April 1996 to March 1998. 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, Enterprise Services of the Company
since April 1998, as President, SunService from July 1993 to April 1998, as Vice
President, Marketing of SMCC from July 1991 to July 1993, as President of Sun
Microsystems Federal, Inc. from July 1988 to July 1991 and in various sales
management capacities of the Company from April 1983 to July 1988, most recently
as Vice President, Western Area Sales.
 
     Mr. Jabbar has served as President, Computer Systems of the Company since
April 1998 and President of SMCC from February 1998 to April 1998. He served as
Vice President and Chief Financial Officer of SMCC from June 1994 to April 1998,
as Vice President, Finance and Planning, Worldwide Field Operations of SMCC from
July 1992 to June 1994 and as Vice President, Finance and Administration, United
States Field Operations for SMCC from July 1991 to June 1992. Mr. Jabbar served
as Director, Finance Administration, United States Field Operations for the
Company from October 1990 to June 1991, as Director of United States Field
Market for the Company from October 1989 to October 1990, as United States Sales
and Service Controller for the Company from April 1988 to October 1989 and as
United States and Intercontinental Sales Controller for the Company from
December 1986 to April 1988.
 
     Mr. Judson has served as Vice President, Finance, Worldwide Operations of
the Company since May 1998. He served as SMCC Controller from May 1995 to May
1998 and as Assistant Controller for SMCC
 
                                       14
<PAGE>   16
 
Worldwide Field Operations from November 1993 to May 1995. Mr. Judson served as
Director of Financial Planning & Analysis, Worldwide Operations of the Company
from February 1992 to November 1993, as Director of Finance, Product Development
of the Company from November 1989 to August 1991, as Director and Division
Controller, Sun Microsystems Federal, Inc. from July 1986 to November 1989 and
as Plant Controller, Cost Accounting Manager, Financial Analyst of the Company
from July 1983 to July 1986.
 
     Mr. Lehman has served as Vice President, Corporate Resources and Chief
Financial Officer of the Company since January 1998. He has served as Vice
President and Chief Financial Officer from February 1994 to January 1998, as
Vice President and Corporate Controller from June 1990 to February 1994, as
Director of Finance and Administration of Sun Microsystems of California, Ltd.
from September 1989 to June 1990, 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. Loupe has served as Vice President, Finance and Planning, Worldwide
Field Operations (WWFO), Computer Systems of the Company since May 1998. He
served as Director, International Development from June 1997 to May 1998, as
Director of Internal Audit from April 1994 to June 1997, as Director of Finance,
Intercontinental Operations from April 1991 to April 1994 and as Vice
President -- Finance & Operations, Sitka Corporation from July 1990 to April
1991. From July 1987 to July 1990, he served as Controller, Centram Systems
West.
 
     Mr. McFarlane has served as President, Solaris Software of the Company
since April 1998. He served as Vice President, Solaris and Network Software from
December 1997 to April 1998 and as Vice President, Network Software Group from
May 1997 to December 1997. Mr. McFarlane served as Vice President, Technology at
Northern Telecom from 1993 to 1997.
 
     Mr. McGowan has served as Vice President, Finance, Computer Systems of the
Company since March 1998. He served as Vice President, Finance, WWFO from June
1995 to March 1998 and as Vice President, Finance, Noth American Field
Operations (NAFO) from October 1992 to June 1995.
 
     Mr. Morris has served as Vice President, General Counsel and Secretary of
the Company since October 1987.
 
     Mr. Murray has served as Vice President, Finance and Administration,
Enterprise Services of the Company since April 1998 and as Assistant Corporate
Controller from August 1996 to April 1998. He served as Director, Finance, Sun
Microsystems Australia Pty. Ltd. from August 1994 to August 1996 and as
Director, Finance, Sun Microsystems of California, Ltd. from April 1992 to
August 1994. Mr. Murray served as Director, Internal Audit of the Company from
October 1989 to April 1992 and as Manager, Internal Audit from March 1989 to
October 1989.
 
     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. Papadopoulos has served as Vice President and Chief Technology Officer
of the Company since March 1998. He served as Vice President and Chief
Technology Officer of SMCC from March 1996 to March 1998, as Chief Technology
Officer of SMCC from December 1995 to March 1996 and as Chief Scientist, Server
Systems Engineering of the Company from September 1994 to December 1995. Mr.
Papadopoulos served as Senior Architect, Thinking Machines Corporation from May
1993 to September 1994 and as Associate Professor, MIT from June 1991 to June
1995.
 
     Ms. Peterson has served as Vice President, Worldwide Operations, Computer
Systems of the Company since April 1998. She served as Vice President, Worldwide
Logistics from October 1996 to April 1998. Prior to such time, since 1989 Ms.
Peterson served the Company in various positions, including Director, Worldwide
Manufacturing, Director, Sun Manufacturing and Director, Business Proc.
 
     Mr. Pinto has served as Vice President, Sales, The Americas, Computer
Systems of the Company since July 1998. He served as Vice President, NAFO of
SMCC from July 1995 to July 1998, as Vice President, Northeast Area for SMCC
from January 1993 to June 1995, as Metro Regional Director of the Company
 
                                       15
<PAGE>   17
 
from June 1989 to December 1992 and as the Company's District Manager, Northeast
Major OEM District from November 1988 to June 1989.
 
     Mr. Popov has served as Vice President, COO Staff Operations of the Company
since April 1998. He served as Vice President, Finance, SunService from June
1994 to April 1998 and as Assistant Corporate Controller of the Company from
January 1992 to June 1994.
 
     Mr. Raduchel has served as Chief Strategy Officer of the Company since
January 1998. He served as Vice President, Corporate Planning and Development
and as Chief Information Officer from July 1991 to January 1998, as Vice
President Human Resources (acting) from July 1991 to June 1992, as Vice
President and Chief Financial Officer from June 1989 to July 1991, as well as
Chief Information Officer (acting) from November 1990 to July 1991 and as Vice
President, Corporate Planning and Development from October 1988 to June 1989.
 
     Mr. Reyes has served as Vice President, Corporate Controller of the Company
since April 1994. He served as Audit Director from April 1992 to March 1994, as
Director of Finance for the Company's ICON operations from April 1991 to April
1992, as Assistant Controller from June 1989 to April 1991, as the Controller of
the Company's General Systems Group from July 1988 to June 1989 and as the
Company's Marketing Controller from March 1988 to June 1988.
 
     Mr. Roebuck has served as Vice President, Worldwide Sales, Computer Systems
of the Company since April 1998. He served as Vice President, WWFO of SMCC from
April 1992 to April 1998, as Vice President, United States Field Operations,
SMCC from November 1988 to April 1992, and as Vice President of Sales for the
Company from January 1986 to November 1988.
 
     Mr. Saliba has served as Vice President, Finance, Solaris Software of the
Company since May 1998. He served as Vice President, Finance, SunSoft, Inc. from
February 1996 to May 1998, as Finance Director, Sun Microelectronics from May
1994 to February 1996, as Finance Director, SMCC Worldwide Operations from May
1993 to May 1994, as Finance Director, SMCC Engineering from June 1991 to May
1993 and as Finance Manager and Director, East Coast Operations from April 1989
to June 1991.
 
     Mr. Scheerder has served as President, Network Storage of the Company since
April 1998. He served as President, SunSoft, Inc. from August 1995 to April
1998, as Vice President, Server Products, SMCC from April 1995 to August 1995,
as Vice President, Solaris Products, SunSoft, Inc. from March 1992 to April 1995
and as Director of Marketing and Programming, SunSoft, Inc. from August 1991 to
March 1992.
 
     Mr. Shoemaker has served as Vice President, General Manager, Enterprise
Desktop and Server Systems, Computer Systems of the Company since April 1998. He
served as Vice President, General Manager, Enterprise Server and Storage Group,
SMCC from April 1996 to April 1998, as Vice President, Worldwide Operations,
SMCC from July 1993 to April 1996, as Vice President, U.S. Operations, SMCC from
June 1992 to July 1993, as Vice President, Finance and Planning, Worldwide
Operations of the Company (on an acting basis since July 1992) from May 1990 to
July 1993, and as Vice President (acting), Materials, Worldwide Operations from
October 1991 to June 1992.
 
     Mr. Tolliver has served as President, Consumer and Embedded of the Company
since April 1998. He served as Vice President, Market Development from July 1996
to April 1998 and as Vice President, Strategy from December 1995 to July 1996.
Mr. Tolliver served as Vice President, Marketing, MasPar Computer Corporation
from 1991 to 1994.
 
     Mr. Walsh has served as Vice President, Operations, Corporate Resources of
the Company since March 1998. He served as Vice President, Worldwide Operations,
Finance and Planning, from February 1993 to March 1998.
 
     Mr. Zander has served as Chief Operating Officer of the Company since
January 1998. He served as President, SMCC from February 1995 to January 1998,
as President, SunSoft, Inc. from July 1991 to February 1995 and as Vice
President, Corporate Marketing of the Company from October 1987 to July 1991.
 
                                       16
<PAGE>   18
 
                                    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 1998 Annual Report to Stockholders. At September 15,
1998 there were 9,145 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, 1998:
 
<TABLE>
<CAPTION>
                                                                                    NUMBER OF
                          OFFICER                              DATE      PRICE     SHARES SOLD
                          -------                             -------    ------    -----------
<S>                                                           <C>        <C>       <C>
Michael L. Popov............................................  4/28/98    $40.50      10,160
Janpieter T. Scheerder......................................  5/21/98    $41.50       4,024
                                                              5/21/98    $41.50         687
</TABLE>
 
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 1998 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
1998 Annual Report to Stockholders.
 
ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company's market risk disclosures pursuant to item 7A are not material
and are therefore not required.
 
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item, is incorporated by reference to the
information included under the captions "Consolidated Statements of Income",
"Consolidated Balance Sheets", "Consolidated Statements of Cash Flows",
"Consolidated Statements of Stockholders' Equity", "Notes to Consolidated
Financial Statements" and "Report of Ernst & Young LLP, Independent Auditors" on
pages 26 through 44 of Sun's 1998 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 the information contained under the caption "Election of Directors" in
Sun's 1998 Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders. Information regarding 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. Information regarding
Section 16 reporting compliance is incorporated by reference from information
contained under the caption "Executive Compensation -- Section 16(a) Beneficial
Ownership Reporting Compliance" in Sun's 1998 Proxy Statement.
 
                                       17
<PAGE>   19
 
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 1998
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 1998 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 1998 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 1998 Annual Report to Stockholders.
 
           Consolidated Statements of Income for each of the three years in the
           period ended June 30, 1998 (page 26).
 
           Consolidated Balance Sheets at June 30, 1998 and 1997 (page 27).
 
           Consolidated Statements of Cash Flows for each of the three years in
           the period ended June 30, 1998 (page 28).
 
           Consolidated Statements of Stockholders' Equity for each of the three
           years in the period ended June 30, 1998 (page 29).
 
           Notes to Consolidated Financial Statements (pages 30 through 43).
 
           Report of Ernst & Young LLP, Independent Auditors (page 44).
 
     The Company's 1998 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:
 
<TABLE>
<CAPTION>
    PAGE    SCHEDULE                               TITLE
    ----    --------                               -----
    <C>     <C>         <S>
    S-1...     II       Valuation and Qualifying Accounts
</TABLE>
 
     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
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
    <C>          <S>
     3.1(11)     Registrant's Restated Certificate of Incorporation, as
                 amended February 12, 1998.
     3.2(11)     Registrant's Bylaws, as amended February 11, 1998.
</TABLE>
 
                                       18
<PAGE>   20
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
    <C>          <S>
     4.8(12)     Second Amended and Restated Shares Rights Agreement dated as
                 of February 11, 1998.
    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(2)      Registrant's 1982 Stock Option Plan, as amended, and
                 representative forms of Stock Option Agreement.
    10.10(2)     Registrant's Restricted Stock Plan, as amended, and
                 representative form of Stock Purchase Agreement.
    10.11(4)     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(2)     Registrant's 1987 Stock Option Plan and representative form
                 of Stock Option Agreement.
    10.56(3)     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.
    10.64(10)    Registrant's 1988 Directors' Stock Option Plan as amended on
                 August 13, 1997.
    10.65(10)    Registrant's 1990 Employee Stock Purchase Plan, as amended
                 on August 13, 1997.
    10.66(6)     Registrant's 1990 Long-Term Equity Incentive Plan, as
                 amended on August 15, 1996.
    10.66A(5)    Representative form of agreement to Registrant's 1990
                 Long-Term Equity Incentive Plan.
    10.74(5)     Software Distribution Agreement dated January 28, 1991 by
                 and between the Registrant and UNIX Systems Laboratories,
                 Inc.
    10.82(9)     Revolving Credit Agreement dated August 28, 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, N.A.; and The Sumitomo
                 Trust Banking Co., Ltd.
    10.84        Registrant's Non-Qualified Deferred Compensation Plan, as
                 amended July 1, 1998.
    10.85(7)     Registrant's Section 162(m) Executive Officer
                 Performance-Based Bonus Plan dated August 9, 1995.
    10.87(9)     Registrant's Equity Compensation Acquisition Plan, as
                 amended on August 28, 1997.
</TABLE>
 
                                       19
<PAGE>   21
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
    <C>          <S>
    10.89(8)     Form of Change of Control Agreement executed by each
                 corporate executive officer of Registrant.
    10.90(8)     Form of Change of Control Agreement executed by Chief
                 Executive Officer of Registrant.
    10.91(8)     Form of Vice President Change of Control Severance Plan.
    10.92(8)     Form of Director-Level Change of Control Severance Plan.
    13.0         Registrant's 1998 Annual Report to Stockholders (to be
                 deemed filed only to the extent required by the instructions
                 to exhibits for reports on Form 10-K).
    21.0         Subsidiaries of Registrant.
    23.1         Consent of Ernst & Young LLP, Independent Auditors.
    24           Power of Attorney (See pages 21-22).
    27           Financial Data Schedule.
</TABLE>
 
---------------
 (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 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.
 
 (3) 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.
 
 (4) Incorporated by reference to Exhibit 4.1 filed as an Exhibit to
     Registrant's Registration Statement on Form S-8 file number 33-38220, filed
     with the Securities and Exchange Commission on December 14, 1990.
 
 (5) 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.
 
 (6) 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.
 
 (7) 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.
 
 (8) 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.
 
 (9) 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, 1997.
 
(10) Incorporated by reference to Exhibits 4.2 and 4.1, respectively filed as
     exhibits to Registrant's Registration Statement on Form S-8 file number
     333-40677, filed with the Securities and Exchange Commission on November
     20, 1997.
 
(11) Incorporated by reference to identically numbered exhibits filed as
     exhibits to Registrant's Quarterly Report on Form 10-Q for the quarter
     ended March 29, 1998.
 
(12) Incorporated herein by reference to the Registrant's Registration Statement
     on Form 8-A/A Amendment No. 6 filed on February 13, 1998.
 
                                       20
<PAGE>   22
 
                                   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 24, 1998
                                          By:     /s/ MICHAEL E. LEHMAN
                                            ------------------------------------
                                                     Michael E. Lehman
                                            Vice President, Corporate Resources
                                                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.
 
<TABLE>
<CAPTION>
                SIGNATURE                                    TITLE                           DATE
                ---------                                    -----                           ----
<S>                                             <C>                                   <C>
 
           /s/ SCOTT G. MCNEALY                     Chairman of the Board of          September 24, 1998
------------------------------------------       Directors, President and Chief
            (Scott G. McNealy)                    Executive Officer (Principal
                                                       Executive Officer)
 
          /s/ MICHAEL E. LEHMAN                    Vice President, Corporate          September 24, 1998
------------------------------------------       Resources and Chief Financial
           (Michael E. Lehman)                    Officer (Principal Financial
                                                            Officer)
 
             /s/ GEORGE REYES                     Vice President and Corporate        September 24, 1998
------------------------------------------      Controller (Principal Accounting
              (George Reyes)                                Officer)
 
            /s/ L. JOHN DOERR                               Director                  September 24, 1998
------------------------------------------
             (L. John Doerr)
 
           /s/ JUDITH L. ESTRIN                             Director                  September 24, 1998
------------------------------------------
            (Judith L. Estrin)
 
           /s/ ROBERT J. FISHER                             Director                  September 24, 1998
------------------------------------------
            (Robert J. Fisher)
</TABLE>
 
                                       21
<PAGE>   23
 
<TABLE>
<CAPTION>
                SIGNATURE                                    TITLE                           DATE
                ---------                                    -----                           ----
<S>                                             <C>                                   <C>
            /s/ ROBERT L. LONG                              Director                  September 24, 1998
------------------------------------------
             (Robert L. Long)
 
          /s/ M. KENNETH OSHMAN                             Director                  September 24, 1998
------------------------------------------
           (M. Kenneth Oshman)
 
          /s/ A. MICHAEL SPENCE                             Director                  September 24, 1998
------------------------------------------
           (A. Michael Spence)
</TABLE>
 
                                       22
<PAGE>   24
 
                                                                     SCHEDULE II
 
                             SUN MICROSYSTEMS, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                       BALANCE AT   CHARGED TO                BALANCE AT
                                                       BEGINNING    COSTS AND    DEDUCTION/     END OF
                     DESCRIPTION                       OF PERIOD     EXPENSES    WRITE-OFF      PERIOD
                     -----------                       ----------   ----------   ----------   ----------
<S>                                                    <C>          <C>          <C>          <C>
Year ended June 30, 1996:
  Accounts receivable allowances.....................   $ 99,607     $195,840     $194,717     $100,730
                                                        ========     ========     ========     ========
Year ended June 30, 1997:
  Accounts receivable allowances.....................   $100,730     $273,959     $178,598     $196,091
                                                        ========     ========     ========     ========
Year ended June 30, 1998:
  Accounts receivable allowances.....................   $196,091     $345,071     $305,599     $235,563
                                                        ========     ========     ========     ========
</TABLE>
<PAGE>   25
 
                                    EXHIBITS
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
    <C>          <S>
     3.1(11)     Registrant's Restated Certificate of Incorporation, as
                 amended February 12, 1998.
     3.2(11)     Registrant's Bylaws, as amended February 11, 1998.
     4.8(12)     Second Amended and Restated Shares Rights Agreement dated as
                 of February 11, 1998.
    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(2)      Registrant's 1982 Stock Option Plan, as amended, and
                 representative forms of Stock Option Agreement.
    10.10(2)     Registrant's Restricted Stock Plan, as amended, and
                 representative form of Stock Purchase Agreement.
    10.11(4)     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(2)     Registrant's 1987 Stock Option Plan and representative form
                 of Stock Option Agreement.
    10.56(3)     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.
    10.64(10)    Registrant's 1988 Directors' Stock Option Plan as amended on
                 August 13, 1997.
    10.65(10)    Registrant's 1990 Employee Stock Purchase Plan, as amended
                 on August 13, 1997.
    10.66(6)     Registrant's 1990 Long-Term Equity Incentive Plan, as
                 amended on August 15, 1996.
    10.66A(5)    Representative form of agreement to Registrant's 1990
                 Long-Term Equity Incentive Plan.
    10.74(5)     Software Distribution Agreement dated January 28, 1991 by
                 and between the Registrant and UNIX Systems Laboratories,
                 Inc.
    10.82(9)     Revolving Credit Agreement dated August 28, 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, N.A.; and The Sumitomo
                 Trust Banking Co., Ltd.
    10.84        Registrant's Non-Qualified Deferred Compensation Plan, as
                 amended July 1, 1998.
</TABLE>
<PAGE>   26
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                              DESCRIPTION
     -------                             -----------
    <C>          <S>
    10.85(7)     Registrant's Section 162(m) Executive Officer
                 Performance-Based Bonus Plan dated August 9, 1995.
    10.87(9)     Registrant's Equity Compensation Acquisition Plan, as
                 amended on August 28, 1997.
    10.89(8)     Form of Change of Control Agreement executed by each
                 corporate executive officer of Registrant.
    10.90(8)     Form of Change of Control Agreement executed by Chief
                 Executive Officer of Registrant.
    10.91(8)     Form of Vice President Change of Control Severance Plan.
    10.92(8)     Form of Director-Level Change of Control Severance Plan.
    13.0         Registrant's 1998 Annual Report to Stockholders (to be
                 deemed filed only to the extent required by the instructions
                 to exhibits for reports on Form 10-K).
    21.0         Subsidiaries of Registrant.
    23.1         Consent of Ernst & Young LLP, Independent Auditors.
    24           Power of Attorney (See pages 21-22).
    27           Financial Data Schedule.
</TABLE>
 
---------------
 (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 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.
 
 (3) 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.
 
 (4) Incorporated by reference to Exhibit 4.1 filed as an Exhibit to
     Registrant's Registration Statement on Form S-8 file number 33-38220, filed
     with the Securities and Exchange Commission on December 14, 1990.
 
 (5) 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.
 
 (6) 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.
 
 (7) 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.
 
 (8) 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.
 
 (9) 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, 1997.
 
(10) Incorporated by reference to Exhibits 4.2 and 4.1, respectively filed as
     exhibits to Registrant's Registration Statement on Form S-8 file number
     333-40677, filed with the Securities and Exchange Commission on November
     20, 1997.
 
(11) Incorporated by reference to identically numbered exhibits filed as
     exhibits to Registrant's Quarterly Report on Form 10-Q for the quarter
     ended March 29, 1998.
 
(12) Incorporated herein by reference to the Registrant's Registration Statement
     on Form 8-A/A Amendment No. 6 filed on February 13, 1998.