Exhibit 99.1
Sun Microsystems Delivers Another Solid Quarter
Reports Results for First Quarter Fiscal Year 2008
SANTA CLARA, Calif.- November 5, 2007 - Sun Microsystems, Inc. (NASDAQ: JAVA) reported results today for its fiscal first quarter, which ended September 30, 2007.
Revenues for the first quarter of fiscal 2008 were $3.219 billion, an increase of approximately 1 percent as compared with $3.189 billion for the first quarter of fiscal 2007. Total gross margin as a percent of revenues was 48.5, an increase of 5.0 percentage points, as compared with the first quarter of fiscal 2007.
Net income for the first quarter of fiscal 2008 on a GAAP basis was $89 million, or $0.03 per share on a diluted basis, as compared with a net loss of $56 million, or ($0.02) per share, for the first quarter of fiscal 2007. GAAP net income for the first quarter of fiscal 2008 includes a $113 million restructuring charge, which equates to $0.03 per share.
Cash generated from operations for the first quarter of fiscal 2008 was $574 million, and cash and marketable debt securities balance at the end of the quarter was $5.193 billion.
“We showed continued execution and operating discipline and delivered a very solid first quarter with continued revenue growth, profitability and gross margin expansion,” said Jonathan Schwartz, CEO of Sun Microsystems. “We saw particular strength in our high-end systems lineup, good growth in our subscription-based identity management software offerings, and even more adoption and momentum behind the award-winning open source SolarisTM 10 Operating System and our virtualization offerings. Growth remains our top priority for fiscal 2008 as we look to capitalize on our UltraSPARC® T2 servers, delivering outstanding Solaris and Linux performance with extreme energy efficiency.”
Sun has scheduled a conference call today to discuss its financial results for the first quarter fiscal year 2008 at 1:30 p.m. (PT), which is being broadcast live atwww.sun.com/investors.
About Sun Microsystems, Inc.
Sun Microsystems develops the technologies that power the global marketplace. Guided by a singular vision — “The Network is the ComputerTM” — Sun drives network participation through shared innovation, community development and open source leadership. Sun can be found in more than 100 countries and on the Web athttp://sun.com
# # #
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. 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.
This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding Sun’s future growth. 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 and implementation of new products and technologies; the
possibility of errors or defects in new products; a material acquisition, restructuring or other event that results in significant charges; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; 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; 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, 2007. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.
Investor Contact:
Bret Schaefer
650-786-0123
bret.schaefer@sun.com
Press Contact:
Kristi Rawlinson
650-786-6933
kristi.rawlinson@sun.com
Industry Analyst Contact:
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 | |||||||
September 30, 2007 | October 1, 2006 | ||||||
Net revenues: | |||||||
Products | $ | 1,980 | $ | 1,959 | |||
Services | 1,239 | 1,230 | |||||
Total net revenues | 3,219 | 3,189 | |||||
Cost of sales: | |||||||
Cost of sales-products (including stock-based compensation expense of $3 and $3)(1) | 1,029 | 1,123 | |||||
Cost of sales-services (including stock-based compensation expense of $8 and $8)(1) | 629 | 678 | |||||
Total cost of sales | 1,658 | 1,801 | |||||
Gross margin | 1,561 | 1,388 | |||||
Operating expenses: | |||||||
Research and development (including stock-based compensation expense of $14 and $18)(1) | 446 | 473 | |||||
Selling, general and administrative (including stock-based compensation expense of $23 and $29)(1) | 939 | 958 | |||||
Restructuring and related impairment of long-lived assets | 113 | 21 | |||||
Total operating expenses | 1,498 | 1,452 | |||||
Operating profit (loss) | 63 | (64 | ) | ||||
Gain on equity investments, net | 22 | — | |||||
Interest and other income, net | 58 | 42 | |||||
Income (loss) before income taxes | 143 | (22 | ) | ||||
Provision for income taxes | 54 | 34 | |||||
Net income (loss) | $ | 89 | $ | (56 | ) | ||
Net income (loss) per common share-basic and diluted | $ | 0.03 | $ | (0.02 | ) | ||
Shares used in the calculation of net income (loss) per common share-basic | 3,464 | 3,497 | |||||
Shares used in the calculation of net income (loss) per common share-diluted | 3,537 | 3,497 | |||||
(1) | For the three months ended September 30, 2007 and October 1, 2006, respectively. |
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
September 30, 2007 | June 30, 2007(1) | |||||
(unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 2,752 | $ | 3,620 | ||
Short-term marketable debt securities | 1,067 | 962 | ||||
Accounts receivable, net | 2,203 | 2,964 | ||||
Inventories | 571 | 524 | ||||
Deferred and prepaid tax assets | 214 | 200 | ||||
Prepaid expenses and other current assets | 1,083 | 1,058 | ||||
Total current assets | 7,890 | 9,328 | ||||
Property, plant and equipment, net | 1,556 | 1,533 | ||||
Long-term marketable debt securities | 1,374 | 1,360 | ||||
Goodwill | 2,466 | 2,514 | ||||
Other acquisition-related intangible assets, net | 559 | 633 | ||||
Other non-current assets | 513 | 470 | ||||
$ | 14,358 | $ | 15,838 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 1,140 | $ | 1,381 | ||
Accrued payroll-related liabilities | 649 | 842 | ||||
Accrued liabilities and other | 1,044 | 935 | ||||
Deferred revenues | 1,944 | 2,073 | ||||
Warranty reserve | 217 | 220 | ||||
Total current liabilities | 4,994 | 5,451 | ||||
Long-term debt | 1,270 | 1,264 | ||||
Long-term deferred revenues | 630 | 659 | ||||
Other non-current obligations | 1,271 | 1,285 | ||||
Total stockholders’ equity | 6,193 | 7,179 | ||||
$ | 14,358 | $ | 15,838 | |||
(1) | Derived from audited financial statements |
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Three Months Ended | ||||||||
September 30, 2007 | October 1, 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 89 | $ | (56 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 119 | 123 | ||||||
Amortization of other acquisition related intangible assets | 74 | 81 | ||||||
Deferred taxes | 8 | (3 | ) | |||||
Impairment of assets | — | 8 | ||||||
Gain on investments and other, net | (17 | ) | — | |||||
Stock-based compensation expense | 48 | 58 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 770 | 672 | ||||||
Inventories | (44 | ) | (71 | ) | ||||
Prepaid and other assets | (46 | ) | 2 | |||||
Accounts payable | (283 | ) | (151 | ) | ||||
Other liabilities | (144 | ) | (540 | ) | ||||
Net cash provided by operating activities | 574 | 123 | ||||||
Cash flows from investing activities: | ||||||||
Decrease in restricted cash | 3 | — | ||||||
Purchases of marketable debt securities | (637 | ) | (675 | ) | ||||
Proceeds from sales of marketable debt securities | 251 | 515 | ||||||
Proceeds from maturities of marketable debt securities | 269 | 136 | ||||||
Proceeds from sales of equity investments, net | 30 | 7 | ||||||
Purchases and sales of property, plant and equipment | (127 | ) | 160 | |||||
Net cash provided by (used in) investing activities | (211 | ) | 143 | |||||
Cash flows from financing activities: | ||||||||
Purchase of common stock under 2007 Stock Repurchase Plan | (1,250 | ) | — | |||||
Proceeds from issuance of common stock, net | 23 | 27 | ||||||
Principal payments on borrowings and other obligations | (4 | ) | (500 | ) | ||||
Net cash used in financing activities | (1,231 | ) | (473 | ) | ||||
Net decrease in cash and cash equivalents | (868 | ) | (207 | ) | ||||
Cash and cash equivalents, beginning of period | 3,620 | 3,569 | ||||||
Cash and cash equivalents, end of period | $ | 2,752 | $ | 3,362 | ||||
SUN MICROSYSTEMS, INC.
OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)
STATEMENTS OF OPERATIONS (in millions except per share amounts) | FY 2008 | FY 2007 | FY 2006 | ||||||||||||||||||||||||||||||
Q1 | Q1 | Q2 | Q3 | Q4 | FY07 | Q1 | Q2 | Q3 | Q4 | FY06 | |||||||||||||||||||||||
NET REVENUES | |||||||||||||||||||||||||||||||||
Products | 1,980 | 1,959 | 2,260 | 2,060 | 2,492 | 8,771 | 1,704 | 2,108 | 2,035 | 2,524 | 8,371 | ||||||||||||||||||||||
Services | 1,239 | 1,230 | 1,306 | 1,223 | 1,343 | 5,102 | 1,022 | 1,229 | 1,142 | 1,304 | 4,697 | ||||||||||||||||||||||
TOTAL | 3,219 | 3,189 | 3,566 | 3,283 | 3,835 | 13,873 | 2,726 | 3,337 | 3,177 | 3,828 | 13,068 | ||||||||||||||||||||||
Growth vs. prior year (%) | 0.9 | % | 17.0,0 | % | 6.9 | % | 3.3 | % | 0.2 | % | 6.2 | % | 3.7 | % | 17.5 | % | 20.9 | % | 28.7 | % | 18.0 | % | |||||||||||
Growth vs. prior quarter (%) | -16.1 | % | -16.7 | % | 11.8 | % | -7.9 | % | 16.8 | % | -8.3 | % | 22.4 | % | -4.8 | % | 20.5 | % | |||||||||||||||
COST OF SALES | |||||||||||||||||||||||||||||||||
Products | 1,029 | 1,123 | 1,228 | 1,148 | 1,312 | 4,811 | 966 | 1,223 | 1,152 | 1,486 | 4,827 | ||||||||||||||||||||||
Services | 629 | 678 | 734 | 674 | 711 | 2,797 | 558 | 693 | 658 | 703 | 2,612 | ||||||||||||||||||||||
TOTAL | 1,658 | 1,801 | 1,962 | 1,822 | 2,023 | 7,608 | 1,524 | 1,916 | 1,810 | 2,189 | 7,439 | ||||||||||||||||||||||
% of revenue | 51.5 | % | 56.5 | % | 55.0 | % | 55.5 | % | 52.8 | % | 54.8 | % | 55.9 | % | 57.4 | % | 57.0 | % | 57.2 | % | 56.9 | % | |||||||||||
GROSS MARGIN | |||||||||||||||||||||||||||||||||
Products | 951 | 836 | 1,032 | 912 | 1,180 | 3,960 | 738 | 885 | 883 | 1,038 | 3,544 | ||||||||||||||||||||||
% of product revenue | 48.0 | % | 42.7 | % | 45.7 | % | 44.3 | % | 47.4 | % | 45.1 | % | 43.3 | % | 42.0 | % | 43.4 | % | 41.1 | % | 42.3 | % | |||||||||||
Services gross margin | 610 | 552 | 572 | 549 | 632 | 2,305 | 464 | 536 | 484 | 601 | 2,085 | ||||||||||||||||||||||
% of service revenue | 49.2 | % | 44.9 | % | 43.8 | % | 44.9 | % | 47.1 | % | 45.2 | % | 45.4 | % | 43.6 | % | 42.4 | % | 46.1 | % | 44.4 | % | |||||||||||
TOTAL GROSS MARGIN | 1,561 | 1,388 | 1,604 | 1,461 | 1,812 | 6,265 | 1,202 | 1,421 | 1,367 | 1,639 | 5,629 | ||||||||||||||||||||||
% of revenue | 48.5 | % | 43.5 | % | 45.0 | % | 44.5 | % | 47.2 | % | 45.2 | % | 44.1 | % | 42.6 | % | 43.0 | % | 42.8 | % | 43.1 | % | |||||||||||
R&D | 446 | 473 | 507 | 514 | 514 | 2,008 | 439 | 541 | 523 | 543 | 2,046 | ||||||||||||||||||||||
% of revenue | 13.9 | % | 14.8 | % | 14.2 | % | 15.7 | % | 13.4 | % | 14.5 | % | 16.1 | % | 16.2 | % | 16.5 | % | 14.2 | % | 15.7 | % | |||||||||||
PURCHASED IN PROCESS R&D | 0 | 0 | 0 | 0 | 0 | 0 | 60 | 0 | 0 | 0 | 60 | ||||||||||||||||||||||
% of revenue | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 2.2 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.5 | % | |||||||||||
SG&A | 939 | 958 | 978 | 957 | 958 | 3,851 | 828 | 1,056 | 1,020 | 1,135 | 4,039 | ||||||||||||||||||||||
% of revenue | 29.2 | % | 30.0 | % | 27.4 | % | 29.2 | % | 25.0 | % | 27.8 | % | 30.4 | % | 31.6 | % | 32.1 | % | 29.6 | % | 30.9 | % | |||||||||||
RESTRUCTURING CHARGES | 113 | 21 | 26 | 35 | 15 | 97 | 12 | 10 | 36 | 226 | 284 | ||||||||||||||||||||||
% of revenue | 3.5 | % | 0.7 | % | 0.7 | % | 1.1 | % | 0.4 | % | 0.7 | % | 0.4 | % | 0.3 | % | 1.1 | % | 6.0 | % | 2.2 | % | |||||||||||
IMPAIRMENT EXPENSE | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 70 | 70 | ||||||||||||||||||||||
% of revenue | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 1.8 | % | 0.5 | % | |||||||||||
TOTAL OPERATING EXPENSES | 1,498 | 1,452 | 1,511 | 1,506 | 1,487 | 5,956 | 1,339 | 1,607 | 1,579 | 1,974 | 6,499 | ||||||||||||||||||||||
% of revenue | 46.5 | % | 45.5 | % | 42.4 | % | 45.9 | % | 38.8 | % | 42.9 | % | 49.1 | % | 48.2 | % | 49.7 | % | 51.6 | % | 49.7 | % | |||||||||||
OPERATING INCOME (LOSS) | 63 | (64 | ) | 93 | (45 | ) | 325 | 309 | (137 | ) | (186 | ) | (212 | ) | (335 | ) | (870 | ) | |||||||||||||||
Operating margin | 2.0 | % | -2.0 | % | 2.6 | % | -1.4 | % | 8.5 | % | 2.2 | % | -5.0 | % | -5.6 | % | -6.7 | % | -8.8 | % | -6.7 | % | |||||||||||
Interest and other income, net | 58 | 42 | 63 | 50 | 59 | 214 | 44 | 25 | 26 | 19 | 114 | ||||||||||||||||||||||
Gain (loss) on equity investments, net | 22 | 0 | 0 | 5 | 1 | 6 | 13 | 14 | 4 | (4 | ) | 27 | |||||||||||||||||||||
Settlement income | 0 | 0 | 0 | 54 | 0 | 54 | 0 | 0 | 0 | 54 | 54 | ||||||||||||||||||||||
PRETAX INCOME (LOSS) | 143 | (22 | ) | 156 | 64 | 385 | 583 | (80 | ) | (147 | ) | (182 | ) | (266 | ) | (675 | ) | ||||||||||||||||
Pretax income (loss) margin | 4.4 | % | -0.7 | % | 4.4 | % | 1.9 | % | 10.0 | % | 4.2 | % | -2.9 | % | -4.4 | % | -5.7 | % | -6.9 | % | -5.2 | % | |||||||||||
INCOME TAX PROVISION (BENEFIT) | 54 | 34 | 23 | (3 | ) | 56 | 110 | 43 | 76 | 35 | 35 | 189 | |||||||||||||||||||||
NET INCOME (LOSS) (Reported) | 89 | (56 | ) | 133 | 67 | 329 | 473 | (123 | ) | (223 | ) | (217 | ) | (301 | ) | (864 | ) | ||||||||||||||||
Growth vs. prior year (%) | 258.9 | % | 54.5 | % | 159.6 | % | 130.9 | % | 209.3 | % | 154.7 | % | 7.5 | % | -5675.0 | % | -675.0 | % | -702.0 | % | -707.5 | % | |||||||||||
Growth vs. prior quarter (%) | -72.9 | % | 81.4 | % | 337.5 | % | -49.6 | % | 391.0 | % | -346.0 | % | -81.3 | % | 2.7 | % | -38.7 | % | |||||||||||||||
Net income (loss) margin | 2.8 | % | -1.8 | % | 3.7 | % | 2.0 | % | 8.6 | % | 3.4 | % | -4.5 | % | -6.7 | % | -6.8 | % | -7.9 | % | -6.6 | % | |||||||||||
EPS (Diluted) (Reported) | 0.03 | (0.02 | ) | 0.04 | 0.02 | 0.09 | 0.13 | (0.04 | ) | (0.07 | ) | (0.06 | ) | (0.09 | ) | (0.25 | ) | ||||||||||||||||
Growth vs. prior year (%) | 250.0 | % | 50.0 | % | 157.1 | % | 133.3 | % | 200.0 | % | 152.0 | % | 0.0 | % | -100.0 | % | -500.0 | % | -1000.0 | % | -733.3 | % | |||||||||||
Growth vs. prior quarter (%) | -66.7 | % | 77.8 | % | 300.0 | % | -50.0 | % | 350.0 | % | -500.0 | % | -75.0 | % | 14.3 | % | -50.0 | % | |||||||||||||||
SHARES (CSE)(Diluted) | 3,537 | 3,497 | 3,626 | 3,661 | 3,632 | 3,606 | 3,407 | 3,424 | 3,443 | 3,475 | 3,437 | ||||||||||||||||||||||
OUTSTANDING SHARES | 3,297 | 3,512 | 3,540 | 3,554 | 3,534 | 3,534 | 3,409 | 3,458 | 3,470 | 3,505 | 3,505 |
FY 2008 | FY 2007 | FY 2006 | |||||||||||||||||||||||||||||||
(in millions) | Q1 | Q1 | Q2 | Q3 | Q4 | FY07 | Q1 | Q2 | Q3 | Q4 | FY06 | ||||||||||||||||||||||
REVENUE BY GEOGRAPHY(3) | |||||||||||||||||||||||||||||||||
UNITED STATES ($M) | 1,303 | 1,361 | 1,415 | 1,283 | 1,582 | 5,641 | 1,168 | 1,400 | 1,357 | 1,610 | 5,535 | ||||||||||||||||||||||
Growth vs. prior year (%) | -4.3 | % | 16.5 | % | 1.1 | % | -5.5 | % | -1.7 | % | 1.9 | % | 5.7 | % | 23.9 | % | 38.2 | % | 37.0 | % | 26.0 | % | |||||||||||
Growth vs. prior quarter (%) | -17.6 | % | -15.5 | % | 4.0 | % | -9.3 | % | 23.3 | % | -0.6 | % | 19.9 | % | -3.1 | % | 18.6 | % | |||||||||||||||
INTERNATIONAL AMERICAS ($M) | 204 | 197 | 230 | 195 | 241 | 863 | 138 | 190 | 185 | 242 | 755 | ||||||||||||||||||||||
Growth vs. prior year (%) | 3.6 | % | 42.8 | % | 21.1 | % | 5.4 | % | -0.4 | % | 14.3 | % | 25.5 | % | 15.2 | % | 28.5 | % | 41.5 | % | 28.0 | % | |||||||||||
Growth vs. prior quarter (%) | -15.4 | % | -18.6 | % | 16.8 | % | -15.2 | % | 23.6 | % | -19.3 | % | 37.7 | % | -2.6 | % | 30.8 | % | |||||||||||||||
EMEA ($M) | 1,161 | 1,109 | 1,311 | 1,212 | 1,367 | 4,999 | 966 | 1,224 | 1,115 | 1,341 | 4,646 | ||||||||||||||||||||||
Growth vs. prior year (%) | 4.7 | % | 14.8 | % | 7.1 | % | 8.7 | % | 1.9 | % | 7.6 | % | -0.7 | % | 18.0 | % | 10.5 | % | 18.4 | % | 11.9 | % | |||||||||||
Growth vs. prior quarter (%) | -15.1 | % | -17.3 | % | 18.2 | % | -7.6 | % | 12.8 | % | -14.7 | % | 26.7 | % | -8.9 | % | 20.3 | % | |||||||||||||||
APAC ($M) | 551 | 522 | 610 | 593 | 645 | 2,370 | 454 | 523 | 520 | 635 | 2,132 | ||||||||||||||||||||||
Growth vs. prior year (%) | 5.6 | % | 15.0 | % | 16.6 | % | 14.0 | % | 1.6 | % | 11.2 | % | 3.2 | % | 2.8 | % | 5.7 | % | 28.3 | % | 10.1 | % | |||||||||||
Growth vs. prior quarter (%) | -14.6 | % | -17.8 | % | 16.9 | % | -2.8 | % | 8.8 | % | -8.3 | % | 15.2 | % | -0.6 | % | 22.1 | % | |||||||||||||||
% of Total Revenue | |||||||||||||||||||||||||||||||||
UNITED STATES (%) | 40.5 | % | 42.7 | % | 39.7 | % | 39.1 | % | 41.3 | % | 40.7 | % | 42.8 | % | 42.0 | % | 42.7 | % | 42.1 | % | 42.4 | % | |||||||||||
INTERNATIONAL AMERICAS (%) | 6.3 | % | 6.2 | % | 6.4 | % | 5.9 | % | 6.3 | % | 6.2 | % | 5.1 | % | 5.7 | % | 5.8 | % | 6.3 | % | 5.8 | % | |||||||||||
EMEA (%) | 36.1 | % | 34.7 | % | 36.8 | % | 36.9 | % | 35.6 | % | 36.0 | % | 35.4 | % | 36.6 | % | 35.1 | % | 35.0 | % | 35.5 | % | |||||||||||
APAC (%) | 17.1 | % | 16.4 | % | 17.1 | % | 18.1 | % | 16.8 | % | 17.1 | % | 16.7 | % | 15.7 | % | 16.4 | % | 16.6 | % | 16.3 | % | |||||||||||
PRODUCTS AND SERVICES REVENUE | |||||||||||||||||||||||||||||||||
COMPUTER SYSTEMS PRODUCTS ($M) | 1,475 | 1,468 | 1,634 | 1,500 | 1,853 | 6,455 | 1,274 | 1,438 | 1,474 | 1,811 | 5,997 | ||||||||||||||||||||||
Growth vs. prior year (%) | 0.5 | % | 15.2 | % | 13.6 | % | 1.8 | % | 2.3 | % | 7.6 | % | -5.9 | % | -4.5 | % | 6.0 | % | 14.9 | % | 2.9 | % | |||||||||||
Growth vs. prior quarter (%) | -20.4 | % | -18.9 | % | 11.3 | % | -8.2 | % | 23.5 | % | -19.2 | % | 12.9 | % | 2.5 | % | 22.9 | % | |||||||||||||||
STORAGE PRODUCTS ($M) | 505 | 491 | 626 | 560 | 639 | 2,316 | 430 | 670 | 561 | 713 | 2,374 | ||||||||||||||||||||||
Growth vs. prior year (%) | 2.9 | % | 14.2 | % | -6.6 | % | -0.2 | % | -10.4 | % | -2.4 | % | 33.5 | % | 100.0 | % | 92.1 | % | 103.1 | % | 82.6 | % | |||||||||||
Growth vs. prior quarter (%) | -21.0 | % | -31.1 | % | 27.5 | % | -10.5 | % | 14.1 | % | 22.5 | % | 55.8 | % | -16.3 | % | 27.1 | % | |||||||||||||||
SUPPORT SERVICES ($M) | 979 | 987 | 1,001 | 950 | 1,024 | 3,962 | 835 | 953 | 904 | 986 | 3,678 | ||||||||||||||||||||||
Growth vs. prior year (%) | -0.8 | % | 18.2 | % | 5.0 | % | 5.1 | % | 3.9 | % | 7.7 | % | 12.1 | % | 23.1 | % | 23.2 | % | 26.7 | % | 21.3 | % | |||||||||||
Growth vs. prior quarter (%) | -4.4 | % | 0.1 | % | 1.4 | % | -5.1 | % | 7.8 | % | 7.3 | % | 14.1 | % | -5.1 | % | 9.1 | % | |||||||||||||||
PROFESSIONAL SERVICES & EDUCATIONAL SERVICES ($M) | 260 | 243 | 305 | 273 | 319 | 1,140 | 187 | 276 | 238 | 318 | 1,019 | ||||||||||||||||||||||
Growth vs. prior year (%) | 7.0 | % | 29.9 | % | 10.5 | % | 14.7 | % | 0.3 | % | 11.9 | % | -9.7 | % | 21.6 | % | 13.3 | % | 18.2 | % | 11.6 | % | |||||||||||
Growth vs. prior quarter (%) | -18.5 | % | -23.6 | % | 25.5 | % | -10.5 | % | 16.8 | % | -30.5 | % | 47.6 | % | -13.8 | % | 33.6 | % | |||||||||||||||
NET BOOKINGS ($M)(2) | 3,149 | 3,036 | 3,603 | 3,238 | 3,909 | 13,786 | 2,413 | 3,018 | 2,680 | 3,376 | 11,487 | ||||||||||||||||||||||
Growth vs. prior year (%) | 3.7 | % | 25.8 | % | 19.4 | % | 20.8 | % | 15.8 | % | 20.0 | % | -1.6 | % | 1.4 | % | 5.7 | % | 9.7 | % | 4.0 | % | |||||||||||
Growth vs. prior quarter (%) | -19.4 | % | -10.1 | % | 18.7 | % | -10.1 | % | 20.7 | % | -21.6 | % | 25.1 | % | -11.2 | % | 26.0 | % | |||||||||||||||
BOOK TO BILL RATIO | 0.98 | 0.95 | 1.01 | 0.99 | 1.02 | 0.97 | 1.11 | 0.99 | 1.04 | ||||||||||||||||||||||||
PRODUCT BACKLOG ($M)(1), (2) | 980 | 994 | 1,021 | 975 | 1,051 | 718 | 1,021 | 980 | 1,099 | ||||||||||||||||||||||||
SERVICES BACKLOG ($M) | 951 | 875 | 729 | 820 | 624 | 690 | 580 | 608 | 752 | ||||||||||||||||||||||||
TOTAL BACKLOG ($M) | 1,931 | 1,869 | 1,750 | 1,795 | 1,675 | 1,408 | 1,601 | 1,588 | 1,851 | ||||||||||||||||||||||||
DEFERRED REVENUES | |||||||||||||||||||||||||||||||||
PRODUCTS DEFERRED REVENUES ($M) | 597 | 507 | 568 | 603 | 629 | 460 | 519 | 527 | 621 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 17.8 | % | 10.2 | % | 9.4 | % | 14.4 | % | 1.3 | % | 11.8 | % | 19.9 | % | 29.5 | % | 15.2 | % | |||||||||||||||
Growth vs. prior quarter (%) | -5.1 | % | -18.4 | % | 12.0 | % | 6.2 | % | 4.3 | % | -14.7 | % | 12.8 | % | 1.5 | % | 17.8 | % | |||||||||||||||
SERVICES DEFERRED REVENUES ($M) | 1,977 | 1,746 | 1,630 | 1,881 | 2,103 | 1,596 | 1,491 | 1,629 | 1,873 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 13.2 | % | 9.4 | % | 9.3 | % | 15.5 | % | 12.3 | % | 9.4 | % | 6.6 | % | 7.8 | % | 13.3 | % | |||||||||||||||
Growth vs. prior quarter (%) | -6.0 | % | -6.8 | % | -6.6 | % | 15.4 | % | 11.8 | % | -3.4 | % | -6.6 | % | 9.3 | % | 15.0 | % | |||||||||||||||
TOTAL DEFERRED REVENUES ($M) | 2,574 | 2,253 | 2,198 | 2,484 | 2,732 | 2,056 | 2,010 | 2,156 | 2,494 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 14.2 | % | 9.6 | % | 9.4 | % | 15.2 | % | 9.5 | % | 9.9 | % | 9.7 | % | 12.4 | % | 13.8 | % | |||||||||||||||
Growth vs. prior quarter (%) | -5.8 | % | -9.7 | % | -2.4 | % | 13.0 | % | 10.0 | % | -6.2 | % | -2.2 | % | 7.3 | % | 15.7 | % |
(1) | Our product backlog includes orders for which customer-requested delivery is scheduled within six months and orders that have been specified by the customers for which products have been shipped but revenue has been deferred. |
(2) | The numbers presented prior to Q1 fiscal 2007 did not contain StorageTek information and should not be viewed as comparable. |
(3) | Geographic revenue reported for FY06, Q1FY07 and Q2FY07 has been adjusted to reflect a correction in intercompany revenue to properly report country of origin. |
BALANCE SHEETS(2) (3) (in millions) | FY 2008 | FY 2007 | FY 2006 | |||||||||||||||||||||||||||||
Q1 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | ||||||||||||||||||||||||
CASH & ST INVESTMENTS | 3,819 | 3,971 | 3,456 | 4,114 | 4,582 | 2,501 | 2,449 | 2,872 | 4,065 | |||||||||||||||||||||||
ACCOUNTS RECEIVABLE, NET | 2,203 | 2,036 | 2,331 | 2,458 | 2,964 | 2,087 | 2,289 | 2,301 | 2,702 | |||||||||||||||||||||||
RAW MATERIALS | 130 | 119 | 126 | 106 | 125 | 82 | 95 | 49 | 68 | |||||||||||||||||||||||
WORK IN PROCESS | 110 | 92 | 106 | 101 | 95 | 183 | 134 | 125 | 97 | |||||||||||||||||||||||
FINISHED GOODS | 331 | 373 | 373 | 360 | 304 | 286 | 321 | 400 | 375 | |||||||||||||||||||||||
TOTAL INVENTORIES | 571 | 584 | 605 | 567 | 524 | 551 | 550 | 574 | 540 | |||||||||||||||||||||||
OTHER CURRENT ASSETS | 1,297 | 961 | 970 | 1,023 | 1,258 | 998 | 933 | 966 | 966 | |||||||||||||||||||||||
TOTAL CURRENT ASSETS | 7,890 | 7,552 | 7,362 | 8,162 | 9,328 | 6,137 | 6,221 | 6,713 | 8,273 | |||||||||||||||||||||||
PP&E, NET | 1,556 | 1,583 | 1,579 | 1,586 | 1,533 | 1,901 | 1,914 | 1,880 | 1,812 | |||||||||||||||||||||||
GOODWILL | 2,466 | 2,566 | 2,571 | 2,571 | 2,514 | 2,466 | 2,472 | 2,487 | 2,610 | |||||||||||||||||||||||
LT MARKETABLE DEBT SECURITIES | 1,374 | 700 | 1,381 | 1,372 | 1,360 | 2,032 | 1,827 | 1,557 | 783 | |||||||||||||||||||||||
OTHER NON-CURRENT ASSETS | 1,072 | 1,493 | 1,409 | 1,359 | 1,103 | 1,938 | 1,874 | 1,733 | 1,604 | |||||||||||||||||||||||
TOTAL ASSETS | 14,358 | 13,894 | 14,302 | 15,050 | 15,838 | 14,474 | 14,308 | 14,370 | 15,082 | |||||||||||||||||||||||
ACCOUNTS PAYABLE | 1,140 | 1,263 | 1,296 | 1,187 | 1,381 | 1,091 | 1,214 | 1,315 | 1,446 | |||||||||||||||||||||||
ACCRUED LIABILITIES & OTHER | 1,910 | 1,999 | 2,062 | 1,953 | 1,997 | 2,659 | 2,413 | 2,423 | 2,731 | |||||||||||||||||||||||
DEFERRED REVENUES | 1,944 | 1,695 | 1,631 | 1,895 | 2,073 | 1,507 | 1,541 | 1,684 | 1,988 | |||||||||||||||||||||||
TOTAL CURRENT LIABILITIES | 4,994 | 4,957 | 4,989 | 5,035 | 5,451 | 5,257 | 5,168 | 5,422 | 6,165 | |||||||||||||||||||||||
LT DEBT | 1,270 | 582 | 579 | 1,270 | 1,264 | 603 | 593 | 585 | 575 | |||||||||||||||||||||||
LT DEFERRED REVENUES | 630 | 558 | 567 | 589 | 659 | 549 | 469 | 472 | 506 | |||||||||||||||||||||||
OTHER NON-CURRENT OBLIGATIONS | 1,271 | 1,388 | 1,396 | 1,264 | 1,285 | 1,410 | 1,585 | 1,504 | 1,492 | |||||||||||||||||||||||
STOCKHOLDERS’ EQUITY | 6,193 | 6,409 | 6,771 | 6,892 | 7,179 | 6,655 | 6,493 | 6,387 | 6,344 | |||||||||||||||||||||||
TOTAL LIABILITIES & SE | 14,358 | 13,894 | 14,302 | 15,050 | 15,838 | 14,474 | 14,308 | 14,370 | 15,082 | |||||||||||||||||||||||
CASH FLOW(2) | Q1 | Q1 | Q2 | Q3 | Q4 | FY07 | Q1 | Q2 | Q3 | Q4 | FY06 | |||||||||||||||||||||
OPERATING ACTIVITIES | 574 | 123 | 129 | 142 | 564 | 958 | 204 | (211 | ) | 184 | 390 | 567 | ||||||||||||||||||||
INVESTING ACTIVITIES | (211 | ) | 143 | (1,013 | ) | (110 | ) | (97 | ) | (1,077 | ) | (750 | ) | (194 | ) | 230 | 1,366 | 652 | ||||||||||||||
FINANCING ACTIVITIES | (1,231 | ) | (473 | ) | 135 | 647 | (139 | ) | 170 | 3 | 90 | 34 | 172 | 299 | ||||||||||||||||||
KEY METRICS | Q1 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||
DAYS SALES OUTSTANDING (DSO) | 62 | 57 | 59 | 67 | 70 | 69 | 62 | 65 | 64 | |||||||||||||||||||||||
DAYS OF SUPPLY ON HAND (DOS) | 31 | 29 | 28 | 28 | 23 | 33 | 26 | 29 | 22 | |||||||||||||||||||||||
DAYS PAYABLES OUTSTANDING (DPO) | (62 | ) | (63 | ) | (59 | ) | (59 | ) | (61 | ) | (64 | ) | (57 | ) | (65 | ) | (59 | ) | ||||||||||||||
CASH CONVERSION CYCLE (CCC) | 31 | 23 | 28 | 36 | 32 | 37 | 31 | 29 | 26 | |||||||||||||||||||||||
L-T DEBT/EQUITY (%) | 20.5 | % | 9.1 | % | 8.6 | % | 18.4 | % | 17.6 | % | 9.1 | % | 9.1 | % | 9.2 | % | 9.1 | % | ||||||||||||||
INVENTORY TURNS-PRODUCT ONLY (hist.) | 8.2 | 8.8 | 8.6 | 8.7 | 9.0 | 8.6 | 8.8 | 9.3 | 9.9 | |||||||||||||||||||||||
ROE (12 mo. avg.)(%) | 9.1 | % | -12.4 | % | -6.8 | % | -2.4 | % | 6.9 | % | -1.5 | % | -4.9 | % | -7.8 | % | -13.4 | % | ||||||||||||||
ROA (12 mo. avg.)(%) | 4.2 | % | -5.5 | % | -3.1 | % | -1.1 | % | 3.2 | % | -0.7 | % | -2.3 | % | -3.6 | % | -5.9 | % | ||||||||||||||
ROIC (12 mo. avg.)(%) | 1.7 | % | -5.5 | % | -3.7 | % | -2.5 | % | 4.5 | % | -2.9 | % | -4.0 | % | -4.2 | % | -26.0 | % | ||||||||||||||
DEPREC. & AMORT. ($M) | 193 | 204 | 214 | 209 | 203 | 189 | 265 | 228 | 224 | |||||||||||||||||||||||
CAPITAL INVESTMENTS, NET ($M)(1) | 127 | (160 | ) | 81 | 152 | (36 | ) | 48 | 82 | 63 | 122 | |||||||||||||||||||||
NUMBER OF EMPLOYEES | 33,904 | 36,250 | 34,667 | 34,494 | 34,219 | 38,588 | 38,802 | 38,312 | 38,061 | |||||||||||||||||||||||
REVENUE PER EMPLOYEE (12 mo. Avg.) ($K) | 405 | 357 | 374 | 387 | 397 | 334 | 332 | 333 | 340 |
(1) | Included in the Q1 fiscal 2007 capital investments, net, are the cash proceeds of approximately $214 million from the sale of our Newark, California facility. |
(2) | Certain numbers presented in the Q1-Q3 fiscal 2007 and all periods in Fiscal 2006 balance sheets and statements of cash flow have been reclassified from other non-current assets to other current assets and investing activities to operating activities, respectively, to reflect a change in associated classification. |
(3) | Certain numbers presented in the fiscal 2007 balance sheets have been reclassified from accounts payable to accrued liabilities and other. |
SUN MICROSYSTEMS, INC.
ADJUSTED EBITDA - NON-GAAP(1) (in millions) | FY2008 | FY2007 | FY 2006 | ||||||||||||||||||||||||||||||
Q1 | Q1 | Q2 | Q3 | Q4 | FY07 | Q1 | Q2 | Q3 | Q4 | FY06 | |||||||||||||||||||||||
Net income (loss), as reported | 89 | (56 | ) | 133 | 67 | 329 | 473 | (123 | ) | (223 | ) | (217 | ) | (301 | ) | (864 | ) | ||||||||||||||||
Interest (income) expense, net | (58 | ) | (42 | ) | (63 | ) | (50 | ) | (59 | ) | (214 | ) | (44 | ) | (25 | ) | (26 | ) | (19 | ) | (114 | ) | |||||||||||
Taxes | 54 | 34 | 23 | (3 | ) | 56 | 110 | 43 | 76 | 35 | 35 | 189 | |||||||||||||||||||||
Amortization of acquisition related intangibles | 74 | 81 | 80 | 78 | 74 | 313 | 46 | 107 | 89 | 89 | 331 | ||||||||||||||||||||||
Depreciation and amortization | 119 | 123 | 134 | 131 | 129 | 517 | 143 | 158 | 139 | 135 | 575 | ||||||||||||||||||||||
EBITDA | 278 | 140 | 307 | 223 | 529 | 1,199 | 65 | 93 | 20 | (61 | ) | 117 | |||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||
Stock based compensation | 48 | 58 | 58 | 50 | 48 | 214 | 58 | 58 | 50 | 48 | 214 | ||||||||||||||||||||||
(Gain) loss on equity investments, net | (22 | ) | 0 | 0 | (5 | ) | (1 | ) | (6 | ) | (13 | ) | (14 | ) | (4 | ) | 4 | (27 | ) | ||||||||||||||
Settlement (income) loss | 0 | 0 | 0 | (54 | ) | 0 | (54 | ) | 0 | 0 | 0 | (54 | ) | (54 | ) | ||||||||||||||||||
Adjusted EBITDA | 304 | 198 | 365 | 214 | 576 | 1,353 | 110 | 137 | 66 | (63 | ) | 250 | |||||||||||||||||||||
Adjusted EBITDA % of revenue | 9.4 | % | 6.2 | % | 10.2 | % | 6.5 | % | 15.0 | % | 9.8 | % | 4.0 | % | 4.1 | % | 2.1 | % | -1.6 | % | 1.9 | % | |||||||||||
Growth vs. prior year (%) | 53.5 | % | 80.0 | % | 166.4 | % | 224.2 | % | 1014.3 | % | 441.2 | % | -11.3 | % | -45.2 | % | -33.3 | % | -148.1 | % | -58.6 | % | |||||||||||
Growth vs. prior quarter (%) | -47.2 | % | 414.3 | % | 84.3 | % | -41.4 | % | 169.2 | % | 0.0 | % | -16.0 | % | 24.5 | % | -51.8 | % | -195.5 | % | 0.0 | % |
(1) | Non-GAAP Financial Measures |
This operations analysis and the related conference call contain non-GAAP financial measures. Sun utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing its overall business performance, for making operating decisions and for forecasting and planning future periods. These non-GAAP financial measures include EBITDA and Adjusted EBITDA. EBITDA is defined as earnings before net interest, taxes, amortization of acquisition related intangibles and other depreciation and amortization. We further exclude stock-based compensation, gain on equity investments, net, and settlement income to determine Adjusted EBITDA. These measures are used by some investors when assessing the performance of Sun. Sun believes the assessment of its operations excluding these items is relevant to the assessment of internal operations and comparisons to industry performance.
Reasons for Presenting Non-GAAP Measures. Sun believes these non-GAAP measures help indicate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside on-going operating results. Accordingly, Sun uses these non-GAAP measures to gain a better understanding of Sun’s comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Sun believes these non-GAAP measures, when read in conjunction with Sun’s GAAP financials, provide useful information to investors by offering:
• | the ability to make more meaningful period-to-period comparisons of Sun’s on-going operating results; |
• | the ability to better identify trends in Sun’s underlying business and perform related trend analysis; |
• | a better understanding of how management plans and measures Sun’s underlying business; and |
• | an easier way to compare Sun’s most recent results of operations against investor and analyst financial models. |
Items Excluded From Non-GAAP Measures. As described above, the calculation of Adjusted EBITDA (and, in some cases, EBITDA) excludes items in the following general categories, which are discussed in more detail below:
Stock-based Compensation. Stock-based compensation is a key incentive offered to our employees, and Sun believes such compensation contributed to the revenues earned during the periods presented and also believes it will contribute to the generation of future period revenues. Nevertheless, Sun believes that the exclusion of non-cash stock-based compensation allows management and investors to compare Sun’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use to account for stock-based compensation under FAS 123R, Sun’s management believes that providing a non-GAAP financial measure that excludes stock-based compensation allows investors to make meaningful comparisons between Sun’s recurring core business operating results and those of other companies, as well as providing Sun’s management with an important tool for financial and operational decision making and for evaluating Sun’s own recurring core business operating results over different periods of time. In addition, Sun prepares and maintains its budgets and forecasts for future periods excluding stock-based compensation. Stock-based compensation expenses will recur in future periods.
Amortization of Acquisition Related Intangibles. Sun excludes amortization of intangible assets resulting from acquisitions to allow more accurate comparisons of its financial results to its historical operations, forward-looking guidance and the financial results of peer companies. In recent years, Sun has completed the acquisition of StorageTek and the acquisition of other assets and technologies, which resulted in operating expenses that would not otherwise have been incurred. Sun believes that providing non-GAAP information for amortization of intangible assets allows the users of its financial statements to review both the GAAP expenses in the period, as well as the non-GAAP expenses, thus providing for enhanced understanding of historic and future financial results and facilitating comparisons to peer companies. Additionally, had Sun internally developed these intangible assets, the amortization of intangible assets would have been expensed historically, and Sun believes the assessment of its operations excluding these costs is relevant to the assessment of internal operations and comparisons to industry performance. Amortization of Acquisition Related Intangibles will recur in future periods.
Net Interest Expense, Taxes, Other Depreciation and Amortization, Net Gain (Loss) on Equity Investments and Settlement Income. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Each of these items are expected to recur in future periods.
Limitations. Each of the non-GAAP financial measures described above, and used in this operations analysis and the related conference call, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in Sun’s financial results for the foreseeable future. In addition, other companies, including other companies in Sun’s industry, may calculate non-GAAP financial measures differently than Sun does, limiting their usefulness as a comparative tool. Sun compensates for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, Sun evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial information.