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Q1 FY 2010 Earnings Press Release

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Sun Microsystems Reports Final Results for the First Quarter Fiscal Year 2010

Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Calculation of Non-GAAP Net Income (Loss)

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

	Three Months Ended
	September 27, 2009	September 28, 2008⁽¹⁾
Net revenues:
Products	$1,187	$1,764
Services	1,056	1,226
Total net revenues	$2,243	$2,990
Cost of sales:
Cost of sales-products	695	1,143
Cost of sales-services	575	646
Total cost of sales	1,270	1,789
Gross margin	973	1,201
Operating expenses:
Research and development	354	423
Selling, general and administrative	668	920
Restructuring charges	45	63
Impairment of goodwill and acquisition-related intangible assets	6	1,445
Total operating expenses	1,073	2,851
Operating loss	(100)	(1,650)
Gain (loss) on equity investments, net	(2)	8
Interest and other income expense, net	(11)	(18)
Loss before income taxes	(113)	(1,660)
Provision for income taxes	7	21
Net loss	$(120)	$(1,681)
Loss per common share - basic	$(0.16)	$(2.24)
Loss per common share - diluted	$(0.16)	$(2.24)
Shares used in the calculation of loss per common share - basic	753	749
Shares used in the calculation of loss per common share - diluted	753	749

(1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

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

	September 27, 2009 (unaudited)	June 30, 2009^(1),(2)
Assets
Current Assets:
Cash and cash equivalents	$1,757	$1,876
Short-term marketable debt securities	624	981
Accounts receivable, net	1,743	2,258
Inventories	559	566
Deferred and prepaid tax assets	198	188
Prepaid expenses and other current assets, net	948	995
Total current assets	5,829	6,864
Property, plant and equipment, net	1,556	1,616
Long-term marketable debt securities	171	204
Goodwill	1,745	1,743
Other acquisition-related intangible assets, net	211	269
Other non-current assets, net	554	536
	$10,066	$11,232
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	825	1,027
Accrued payroll-related liabilities	538	573
Accrued liabilities and other	850	983
Deferred revenues	2,152	2,341
Warranty reserve	125	143
Current portion of long-term debt	-	554
Total current liabilities	4,490	5,621
Long-term debt	589	581
Long-term deferred revenues	643	635
Other non-current obligations	960	976
Stockholders' equity:
Preferred stock	-	-
Common stock and additional paid-in-capital	7,787	7,746
Treasury stock, at cost	(2,527)	(2,569)
Accumulated deficit	(2,273)	(2,105)
Accumulated other comprehensive income	397	347
Total stockholders' equity	3,384	3,419
	$10,066	$11,232

(1) Derived from audited financial statements.
(2) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.

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

	Three Months Ended
	September 27, 2009	September 28, 2008⁽¹⁾
Cash flows from operating activities:
Net loss:	$(120)	$(1,681)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	104	114
Amortization of acquisition related intangible assets	52	80
Accretion of discounts on convertible debt	7	7
Stock-based compensation expense	41	49
Purchased in-process research and development	-	-
Impairment of goodwill and acquisition-related intangible assets	6	1,445
Loss on investments and other, net	1	14
Changes in operating assets and liabilities:
Accounts receivable, net	516	565
Inventories	7	16
Prepaid and other assets, net	4	99
Accounts payable	(201)	(280)
Other liabilities	(379)	(280)
Net cash provided by operating activities	38	148
Cash flows from investing activities:
Decrease (increase) in restricted cash	3	(8)
Purchases of marketable debt securities	(111)	(262)
Proceeds from sales of marketable debt securities	95	95
Proceeds from maturities of marketable debt securities	414	75
Proceeds from sales of equity investments, net	-	7
Purchases of property, plant and equipment, net	(22)	(165)
Net cash provided (used) in investing activities	379	(258)
Cash flows from financing activities:
Purchase of common stock under stock repurchase plans	-	(130)
Proceeds from issuance of options and ESPP purchases, net	1	3
Principal payments on borrowings and other obligations	(554)	(5)
Net cash used in financing activities	(553)	(132)
Effect of changes in exchange rates on cash and cash equivalents	17	-
Net decrease in cash and cash equivalents	(119)	(242)
Cash and cash equivalents, beginning of period	1,876	2,272
Cash and cash equivalents, end of period	$1,757	$2,030

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

	Three Months Ended
	September 27, 2009	September 28, 2008⁽¹⁾
Calculation of non-GAAP net income (loss):
GAAP loss	$(120)	$(1,681)
Amortization of acquisition related intangibles	52	80
Accretion of discounts on convertible debt	7	7
Stock-based compensation	41	49
Restructuring charges	45	63
Impairment of goodwill and acquisition-related intangible assets	6	1,445
Gain (loss) on equity investments, net	2	(8)
Tax effect of non-GAAP adjustments	(18)	(17)
Non-GAAP income (loss)	$15	$(62)
Diluted non-GAAP income (loss) per share	$0.02	$(0.08)
Shares used in the calculation of non-GAAP net income (loss) per common share - diluted	760	749

1) Amounts presented for this period have been adjusted as a result of our adoption of new standards that changed the accounting for convertible debt instruments. Sun adopted the new standards in the first quarter of fiscal 2010 and they required retrospective application. Additional details regarding the new standards are provided in our Form 10-Q for the fiscal quarter ended September 27, 2009.