Sun and Oracle Channel Sun How to Buy Log In United States [Change] English

Q3 FY 2007 Earnings Press Release

Investor Resources:
»   Corporate Governance
»   Sun News
»   Press Releases
»   Product Reviews
»   Customer Wins
 


Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Non-GAAP Calculation Of Net Loss Excluding Special Items

Sun Microsystems Delivers Another Quarter of Growth and Profitability Reports Results for Third Quarter Fiscal Year 2007

April 24, 2007 - Sun Microsystems, Inc. (NASDAQ: SUNW) reported results today for its fiscal third quarter, which ended April 1, 2007.

Revenues for the third quarter of fiscal 2007 were $3.283 billion, an increase of 3.3 percent as compared with $3.177 billion for the third quarter of fiscal 2006. Total gross margin as a percent of revenues was 44.5 percent, an increase of 1.5 percentage points, as compared with the third quarter of fiscal 2006.

Net income for the third quarter of fiscal 2007 on a GAAP basis was $67 million, or $0.02 per share on a diluted basis, as compared with a net loss of $217 million, or ($0.06) per share, for the third quarter of fiscal 2006.

GAAP net income for the third quarter of fiscal 2007 included: $50 million of stock-based compensation charges, $35 million of restructuring and related impairment of assets charges, $75 million of purchase price accounting adjustments and intangible asset amortization charges related to acquisitions in fiscal 2006, benefits for $5 million of gain on equity investments, $54 million of settlement income and $8 million of related tax effects. The net impact of these six items reduced earnings per share on a diluted basis by approximately $0.02.

Cash generated from operations for the third quarter of fiscal 2007 was $175 million, and cash and marketable debt securities balance at the end of the quarter was $5.486 billion.

"With another quarter of profitability, we're seeing continued progress operationally, strategically and financially, and we remain committed to our fourth quarter goal of at least 4% operating profit," said Jonathan Schwartz, president and CEO of Sun Microsystems. "The performance in our Software and Services businesses confirms the broad appeal of our software offerings in the quarter, and we look forward to further extending the reach of the Solaris 10 Operating System and leveraging strong partnerships with AMD, Fujitsu and Intel. Along with disciplined financial execution, we're focused on growth and look forward to increased momentum in the fourth quarter, fueled by the continued rise of Java, increased adoption of Solaris and the competitiveness of our core systems and storage innovations."

Sun has scheduled a conference call today to discuss its financial results for the third quarter fiscal year 2007 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

A singular vision -- "The Network Is The Computer" -- guides Sun in the development of technologies that power the world's most important markets. Sun's philosophy of sharing innovation and building communities is at the forefront of the next wave of computing: the Participation Age. Sun can be found in more than 100 countries and on the Web at sun.com.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding continued progress operationally, strategically and financially, Sun's commitment to its fourth quarter goal of at least 4% operating profit, extending the reach of the Solaris 10 Operating System, leveraging partnerships with AMD, Fujitsu and Intel, Sun's focus on growth, and increased momentum in the fourth quarter fueled by the continued rise of Java, the increased adoption of Solaris and the competitiveness of Sun's core systems and storage innovations. These forward-looking statements involve risks and uncertainties and actual results could differ materially from those predicted in any such forward-looking statements. Factors that could cause Sun's actual results to differ materially from those contained in such forward-looking statements include: risks associated with developing, designing, manufacturing and distributing new products; lack of success in technological advancements; pricing pressures; lack of customer acceptance of new products; the possibility of errors or defects in new products; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; the cancellation of or delay in implementation of the alliance with Intel; Sun's reliance on single-source suppliers; risks associated with Sun's ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with Sun's international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; Sun's dependence on significant customers and specific industries; and Sun's dependence on channel partners. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended October 1, 2006 and December 31, 2006. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

To supplement Sun's consolidated financial statements presented in accordance with GAAP, Sun provides non-GAAP net income (loss) and non-GAAP net income (loss) per share data. The presentation of these non-GAAP financial measures should be considered in addition to Sun's GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Sun's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain charges, gains and tax effects that may not be indicative of Sun's core business operating results. Sun believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Sun's performance. These non-GAAP financial measures also facilitate comparisons to Sun's historical performance and its competitors' operating results. Sun includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Non-GAAP measures are reconciled to comparable GAAP measures in the table entitled "Non-GAAP Calculation of Net Income (Loss) Excluding Special Items " following the text of this press release.

Sun, Sun Microsystems, the Sun logo, Solaris, Java and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries.

For More Information
Investor Contact
Press Contact
Industry Analyst Contact
Bret Schaefer
(650) 786-0123
bret.schaefer@sun.com
Kathy Engle
415-294-4368
kathy.engle@sun.com
Melissa Selcher
650-787-1807
melissa.selcher@sun.com

Sun Microsystems, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(in millions, except per share amounts)

  Three Months Ended Nine Months Ended
April 1, 2007 March 26, 2006 April 1, 2007 March 26, 2006
Net revenues:
    Products $2,060 $2,035 $6,279 $5,847
    Services 1,223 1,142 3,759 3,393
      Total net revenues 3,283 3,177 10,038 9,240
Cost of sales:
    Cost of sales-products (including stock-based compensation expense of $3, $3, $10 and $8)(1) 1,148 1,152 3,499 3,341
    Cost of sales-services (including stock-based compensation expense of $8, $7, $24 and $21)(1) 674 658 2,086 1,909
      Total cost of sales 1,822 1,810 5,585 5,250
        Gross margin 1,461 1,367 4,453 3,990
Operating expenses:
    Research and development (including stock-based compensation expense of $15, $19, $49 and $54)(1) 514 523 1,494 1,503
    Selling, general and administrative (including stock-based compensation expense of $24, $28, $83 and $79)(1) 957 1,020 2,893 2,904
    Restructuring and related impairment of long-lived assets 35 36 82 58
    Purchased in-process research and development - - - 60
      Total operating expenses 1,506 1,579 4,469 4,525
        Operating loss (45) (212) (16) (535)
Gain on equity investments, net 5 4 5 31
Interest and other income, net 50 26 155 95
Settlement income 54 - 54 -
     Income (loss) before income taxes 64 (182) 198 (409)
Provision (benefit) for income taxes (3) 35 54 154
Net income (loss) $67 $(217) $144 $(563)
Net income (loss) per common share-basic $0.02 $(0.06) $0.04 $(0.16)
Net income (loss) per common share-diluted $0.02 $(0.06) $0.04 $(0.16)
Shares used in the calculation of net income (loss) per common share-basic 3,548 3,443 3,523 3,425
Shares used in the calculation of net income (loss) per common share-diluted 3,661 3,443 3,598 3,425

(1) For the three months ended April 1, 2007 and March 26, 2006 and the nine months ended April 1, 2007 and March 26, 2006, respectively.

Sun Microsystems, Inc.
Condensed Consolidated Balance Sheets
(in millions)

  April 1, 2007
(unaudited) 		June 30, 2006*
Assets
Current Assets:
   Cash and cash equivalents $3,292 $3,569
   Short-term marketable debt securities 822 496
   Accounts receivable, net 2,458 2,702
   Inventories 567 540
   Deferred and prepaid tax assets 230 209
   Prepaid expenses and other current assets 793 757
     Total current assets 8,162 8,273
Property, plant and equipment, net 1,586 1,812
Long-term marketable debt securities 1,372 783
Goodwill 2,571 2,610
Other acquisition-related intangible assets, net 694 929
Other non-current assets, net 665 675
  $15,050 $15,082
Liabilities and stockholders' equity
Current liabilities:
   Current portion of long-term debt and short-term borrowings $ 1 $ 503
   Accounts payable 1,214 1,446
   Accrued payroll-related liabilities 759 777
   Accrued liabilities and other 941 1,190
   Deferred revenues 1,895 1,988
   Warranty reserve 225 261
     Total current liabilities 5,035 6,165
Long-term debt 1,270 575
Long-term deferred revenues 589 506
Other non-current obligations 1,264 1,492
Total stockholders' equity 6,892 6,344
  $15,050 $15,082

* Derived from audited financial statements.

Sun Microsystems, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)

  Nine Months Ended
April 1, 2007 March 26, 2006
Cash flows from operating activities:
Net income (loss):
 $144 $(563)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
 388 440
Amortization of other acquisition related intangible assets
 239 242
Deferred taxes
 (20) (9)
Impairment of assets
 16 -
Gain on investments, net
 - (31)
Stock-based compensation expense
 166 162
Purchased in-process research and development
 - 60
Changes in operating assets and liabilities:
Accounts receivable, net
 265 229
Inventories
 (51) 30
Prepaid and other assets
 (13) 264
Accounts payable
 (222) (6)
Other liabilities
 (427) (588)
 
Net cash provided by operating activities
 
 
485
 
 
230
 
Cash flows from investing activities:
Increase in restricted cash
 (4) (63)
Purchases of marketable debt securities
 (2,465) (1,652)
Proceeds from sales of marketable debt securities
 1,041 4,038
Proceeds from maturities of marketable debt securities
 523 289
Proceeds from sales of equity investments, net
 8 17
Purchases of property, plant and equipment, net
 (73) (193)
Acquisition of spare parts and other assets
 (91) (53)
Payments for acquisitions, net of cash acquired
 (10) (3,150)
 
Net cash used in investing activities
 
 
(1,071)
 
 
(767)
 
Cash flows from financing activities:
Purchase of hedge on convertible notes
 (83) -
Proceeds from issuance of common stock, net
 176 127
Proceeds from (principal payments on) borrowings and other obligations, net
 216 -
 
Net cash provided by (used in) financing activities
 
 
309
 
 
127
 
Net decrease in cash and cash equivalents
 (277) (410)
Cash and cash equivalents, beginning of period
 3,569 2,051
 
Cash and cash equivalents, end of period
 
 
$3,292
 
 
$1,641
 

Sun Microsystems, Inc.
Non-GAAP Calculation Of Net Income (Loss) Excluding Special Items (unaudited)
(in millions, except per share amounts)

  Three Months Ended Nine Months Ended
April 1, 2007 March 26, 2006 April 1, 2007 March 26, 2006
Calculation of net income (loss) excluding special items:
Net income (loss)*,**
 $67 $(217) $144 $(563)
Restructuring and related impairment of long-lived assets
 35 36 82 58
Purchased in-process research and development
 - - - 60
Gain on equity investments, net
 (5) (4) (5) (31)
Settlement income
 (54) - (54) -
Related tax effects
 (8) (4) (19) (11)
Net income (loss) excluding special items
 $35 $(189) $148 $(487)
Net income (loss) excluding special items per common share - basic
 $0.01 $(0.06) $0.04 $(0.14)
Net income (loss) excluding special items per common share - diluted
 $0.01 $(0.06) $0.04 $(0.14)
Shares used in the calculation of net income (loss) excluding special items per common share - basic
 3,548 3,443 3,523 3,425
Shares used in the calculation of net income (loss) excluding special items per common share - diluted
 3,661 3,443 3,598 3,425

* Net income for the three and nine months ended April 1, 2007 included $50 million and $166 million of stock-based compensation expense or approximately $0.01 per share and $0.05 per share, respectively. Net loss for the three and nine months ended March 26, 2006 included $57 million and $162 million of stock-based compensation expense or approximately $0.02 per share and $0.05 per share, respectively.
**Net income for the three and nine months ended April 1, 2007 included $75 million and $233 million of purchase price accounting adjustments and intangible asset amortization relating to our fiscal 2006 acquisitions or approximately $0.02 per share and $0.07 per share, respectively. Net loss for the three and nine months ended March 26, 2006 included $87 million and $354 million of purchase price accounting adjustments and intangible asset amortization relating to our fiscal 2006 acquisitions or approximately $0.03 per share and $0.10 per share, respectively.