Sun Microsystems Reports Results for Fourth Quarter Fiscal Year 2006
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Sun Microsystems Reports Results for Fourth Quarter Fiscal Year 2006

- Sequential revenue growth fueled by Solaris 10 Operating System and increasing acceptance of recently introduced products

SANTA CLARA, Calif., July 25 /PRNewswire-FirstCall/ -- Sun Microsystems, Inc. (NASDAQ: SUNW) reported results today for its fiscal fourth quarter, which ended June 30, 2006.

Revenues for the fourth quarter of fiscal 2006 were $3.828 billion, an increase of 29 percent as compared with $2.974 billion for the fourth quarter of fiscal 2005. Year over year revenue increase resulted from both acquisitions and increasing acceptance of the Solaris(TM) 10 Operating System, as well as recently introduced products. Computer Systems Products revenues increased 15% year over year, the second consecutive quarter of year over year revenue increase.

Net loss for the fourth quarter of fiscal 2006 on a GAAP basis was $301 million or a net loss of ($0.09) per share, as compared with net income of $50 million, or net income per share of $0.01, for the fourth quarter of fiscal 2005.

GAAP net loss for the fourth quarter of fiscal 2006 included: $86 million principally related to intangible asset amortization associated with recent acquisitions, $63 million of stock-based compensation charges relating to the adoption of SFAS 123R, $228 million of restructuring charges and an $8 million benefit for related tax effects, $70 million in impairment of acquisition- related intangible assets, $54 million in settlement income, and a $4 million loss on equity investments. In addition, we incurred a $58 million tax charge and $14 million reduction in other income due to a repatriation of foreign earnings. The net impact of these nine items was approximately ($0.13) per share.

Cash generated from operations for the fourth quarter was $410 million and cash and marketable debt securities balance at the end of the quarter was $4.848 billion.

"We're making excellent progress returning Sun to growth and profitability. Revenue, bookings and backlog are all up substantially -- indicating we're gaining traction, market confidence and share," said Jonathan Schwartz, CEO, Sun Microsystems. "Our position is steadily improving -- among a few highlights: the Solaris OS exceeded 5 million licenses in Q4, largely on Dell and HP servers, and on Sun. The Java(TM) platform continues to drive demand in the datacenter and on leading consumer devices. And by opening our UltraSPARC(R) platforms to Ubuntu Linux -- we're proving great products and customer choice matter."

"Our total revenues grew by more than 20% sequentially in the June quarter, and this was the largest sequential growth from Q3 to Q4 since fiscal 2000. Our revenue growth was fairly broad-based from both a geographic and industry basis. In the former Sun standalone business, more than half of our 15 geographies had double-digit product revenue growth year over year. The company did an outstanding job remaining focused on the fundamentals, including shipping product, controlling inventory, and managing the overall cash conversion cycle. And, we're starting the new fiscal year with a healthy product backlog of over $1 billion," said Michael Lehman, chief financial officer and executive vice president, Corporate Resources, Sun Microsystems.

Sun has scheduled a conference call today to discuss its financial results for Q4 fiscal year 2006 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"(TM) -- 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.

     FOR MORE INFORMATION

     INVESTOR CONTACT:
     Bret Schaefer 650-786-0123
     
Email Contact

     MEDIA  CONTACT:
     Kristi Rawlinson 650-786-6933
     
Email Contact

     INDUSTRY ANALYST CONTACT:
     Emma Johnson 650-786-3746
     
Email Contact

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding returning to growth and profitability, increasing share and improving market position. 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 actual results to differ materially from those contained in our projections and forward-looking statements include: risks associated with Sun's ability to achieve expected cost reductions within expected time frames; increased competition; failure to rapidly and successfully develop and introduce new products; 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 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; Sun's dependence on channel partners; and failure to successfully integrate acquired companies. 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, 2005 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 25, 2005, December 25, 2005 and March 26, 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.

NOTE: 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 in other countries. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. in the US and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.


                            SUN MICROSYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (unaudited)
                   (in millions, except per share amounts)

                                            Three Months      Fiscal Years
                                               Ended             Ended
                                          June 30, June 30, June 30, June 30,
                                            2006     2005     2006    2005 *

    Net revenues:
      Products                             $2,524   $1,927   $8,371   $7,126
      Services                              1,304    1,047    4,697    3,944
        Total net revenues                  3,828    2,974   13,068   11,070
    Cost of sales:
      Cost of sales-products (including
       stock-based compensation expense of
       $3 and $10) (1)                      1,486    1,130    4,827    4,174
      Cost of sales-services (including
       stock-based compensation expense of
       $8 and $29) (1)                        703      613    2,612    2,307
        Total cost of sales                 2,189    1,743    7,439    6,481
          Gross margin                      1,639    1,231    5,629    4,589
    Operating expenses:
      Research and development (including
       stock-based compensation expense of
       $19 and $74) (1)                       543      472    2,046    1,785
      Selling, general and administrative
       (including stock-based compensation
       expense of $33 and $112) (1)         1,133      788    4,037    2,919
      Restructuring charges                   228       86      286      262
      Impairment of other acquisition-
       related intangible assets               70       --       70       --
      Purchased in-process research and
       development                             --       --       60       --
      Total operating expenses              1,974    1,346    6,499    4,966
        Operating loss                       (335)    (115)    (870)    (377)
    Gain (loss) on equity investments,
     net                                       (4)      (1)      27        6
    Interest and other income, net             19       32      114      133
    Settlement income                          54       --       54       54
    Loss before income taxes                 (266)     (84)    (675)    (184)
    Provision for (benefit from) income
     taxes                                     35     (134)     189      (77)
    Net income (loss)                       $(301)     $50    $(864)   $(107)

    Net income (loss) per common share-
     basic                                 $(0.09)   $0.01   $(0.25)  $(0.03)
    Net income (loss) per common share-
     diluted                               $(0.09)   $0.01   $(0.25)  $(0.03)
    Shares used in the calculation of net
     income (loss) per common share-basic   3,475    3,399    3,437    3,368
    Shares used in the calculation of net
     income (loss) per common share-
     diluted                                3,475    3,410    3,437    3,368

    (1) For the three months and fiscal year ended June 30, 2006,
        respectively.

    * Derived from audited financial statements


                            SUN MICROSYSTEMS, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in millions)

                                                   June 30,          June 30,
                                                     2006              2005
                                                  (unaudited)
    ASSETS
    Current assets:
        Cash and cash equivalents                   $3,569            $2,051
        Short-term marketable debt securities          496             1,345
        Accounts receivable, net                     2,702             2,231
        Inventories                                    540               431
        Deferred and prepaid tax assets                118               255
        Prepaid expenses and other current assets      757               878
            Total current assets                     8,182             7,191

    Property, plant and equipment, net               1,806             1,769
    Long-term marketable debt securities               783             4,128
    Goodwill                                         2,569               441
    Other acquisition-related intangible
     assets, net                                       929               113
    Other non-current assets, net                      657               548
                                                   $14,926           $14,190
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Current portion of long-term debt and
         short-term borrowings                        $503               $--
        Accounts payable                             1,446             1,167
        Accrued payroll-related liabilities            777               713
        Accrued liabilities and other                1,185             1,014
        Deferred revenues                            1,988             1,648
        Warranty reserve                               261               224
            Total current liabilities                6,160             4,766

    Long-term debt                                     575             1,123
    Long-term deferred revenues                        546               544
    Other non-current obligations                    1,301             1,083
    Total stockholders' equity                       6,344             6,674
                                                   $14,926           $14,190

    * Derived from audited financial statements


                            SUN MICROSYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (unaudited, in millions)

                                                        Fiscal Years Ended
                                                     June 30,        June 30,
                                                      2006              2005
    Cash flows from operating activities:
      Net loss                                       $(864)            $(107)
        Adjustments to reconcile net loss to
         net cash provided by
         operating activities:
        Depreciation and amortization                  575               671
        Amortization of other acquisition
         related intangible assets                     331                96
        Tax benefits from employee stock plan           --                25
        Deferred taxes                                  73              (315)
        Impairment of assets                           155                --
        (Gain) loss on investments, net                (10)                9
        Stock-based compensation expense               225                --
        Purchased in-process research and
         development                                    60                --
        Changes in operating assets and
         liabilities:
          Accounts receivable, net                    (163)              111
          Inventories                                   44                32
          Prepaid and other assets                     246               (19)
          Accounts payable                             130               105
          Other liabilities                           (162)             (239)
    Net cash provided by operating
     activities                                        640               369
    Cash flows from investing activities:
      Increase in restricted cash                      (69)               --
      Purchases of marketable debt
       securities                                   (1,831)           (7,154)
      Proceeds from sales of marketable
       debt securities                               5,434             6,181
      Proceeds from maturities of
       marketable debt securities                      580               941
      Proceeds from sales of equity
       investments, net                                 15                49
      Purchases of property, plant and
       equipment, net                                 (315)             (257)
      Purchases of spare parts and other
       assets                                          (73)              (90)
      Payments for acquisitions, net of
       cash acquired                                (3,162)              (95)
    Net cash provided by (used in)
     investing activities                              579              (425)
    Cash flows from financing activities:
      Proceeds from issuance of common
       stock, net                                      249               218
      Principal payments on borrowings and
       other obligations                                50              (252)
    Net cash provided by (used in)
     financing activities                              299               (34)
    Net increase (decrease) in cash and
     cash equivalents                                1,518               (90)
    Cash and cash equivalents, beginning
     of period                                       2,051             2,141
    Cash and cash equivalents, end of
     period                                         $3,569            $2,051


                            SUN MICROSYSTEMS, INC.
      NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS
                                 (unaudited)
                   (in millions, except per share amounts)

                                             Three Months     Fiscal Years
                                                Ended             Ended
                                           June 30, June 30, June 30, June 30,
                                             2006     2005      2006     2005

    Calculation of net income (loss)
     excluding special items:
      Net income (loss)**, ***              $(301)     $50     $(864)   $(107)
      Restructuring charges                   228       86       286      262
      Impairment of other
       acquisition-related
       intangible assets                       70        --       70        --
      Purchased in-process research and
       development                             --        --       60        --
      Loss (gain) on equity
       investments, net                         4        1       (27)      (6)
      Settlement income                       (54)      --       (54)     (54)
      Settlement of litigation*                --       --        --       55
      Valuation allowance on
       deferred tax assets                     --       --        --      (34)
      Related tax effects                      (8)      (6)      (19)     (26)
    Net income (loss) excluding special
     items                                   $(61)    $131     $(548)     $90
    Net income (loss) excluding special
     items per common share - basic        $(0.02)   $0.04    $(0.16)   $0.03
    Net income (loss) excluding special
     items per common share - diluted      $(0.02)   $0.04    $(0.16)   $0.03

    Shares used in the calculation of
     net income (loss) excluding
     special items per common share -
     basic                                  3,475    3,399     3,437    3,368
    Shares used in the calculation of
     net income (loss) excluding
     special items per common share -
     diluted                                3,475    3,410     3,437    3,392

          * Included in Cost of sales - products
         ** Net loss for the three months and fiscal year ended June 30, 2006
            included $63 million and $225 million of stock-based compensation
            expense or approximately $0.02 per share and $0.07 per share,
            respectively.
       ***  Net loss for the three months and fiscal year ended June 30, 2006
            included $86 million and $440 million of purchase price accounting
            adjustments and intangible asset amortization relating to our
            recent acquisitions or approximately $0.02 per share and $0.13 per
            share, respectively.

Web site: http://sun.com//