Exhibit 99.1
Sun Microsystems Reports Results for the Third Quarter Fiscal 2009
SANTA CLARA, Calif. - April 28, 2009 - Sun Microsystems, Inc. (NASDAQ: JAVA) reported results today for its third quarter of fiscal 2009, which ended March 29, 2009.
Revenues for the third quarter of fiscal 2009 were $2.614 billion, as compared with $3.266 billion for the third quarter of fiscal 2008, and compared with $3.220 billion for the second quarter of fiscal 2009. Total gross margin as a percent of revenues was 42.7, a decrease of 2.2 percentage points as compared with the third quarter of fiscal 2008 and an increase of 0.8 percentage points as compared with the second quarter of fiscal 2009.
Net loss for the third quarter of fiscal 2009 on a GAAP basis was $201 million, or $(0.27) per share on a diluted basis, as compared with a net loss of $34 million, or $(0.04) per share, for the third quarter of fiscal 2008, and compared with a net loss of $209 million, or $(0.28) per share, for the second quarter of fiscal 2009. GAAP net loss per share includes a restructuring charge of $46 million primarily related to the restructuring announcement of November 2008.
On a non-GAAP basis, net loss for the third quarter of fiscal 2009 was $52 million, or $(0.07) per share on a diluted basis, as compared with a non-GAAP net income of $132 million, or $0.17 per share, for the third quarter of fiscal 2008, and compared with a non-GAAP net income of $114 million, or $0.15 per share, for the second quarter of fiscal 2009. Non-GAAP net income per share excludes purchased in-process research and development, amortization of acquisition-related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, net gain or loss on equity investments and the tax effect of these non-GAAP adjustments.
Sun ended the quarter with a cash and marketable debt securities balance of $2.990 billion and generated cash flow from operations for the third quarter of fiscal 2009 of $178 million – the third consecutive quarter of positive cash flow from operations in fiscal 2009, and following upon 19 consecutive years of positive cash flow from operations.
Third Quarter Highlights
• | Grew billings nearly 4 percent year-over-year in combined key growth categories of Total Software, Open Storage, SolarisTM-based SPARC® CMT Servers, and X64 Servers. |
¡ | Combined key growth categories accounted for 40 percent of total billings in the third quarter of fiscal 2009 versus 30 percent in the third quarter of fiscal 2008. |
¡ | Total Software billings grew 28 percent year-over-year. |
¡ | Open Storage billings grew 63 percent year-over-year. |
¡ | Solaris-based SPARC CMT Servers billings grew 3 percent year-over-year. |
• | Reduced R&D and SG&A expenses nearly 15 percent year-over-year. |
Sun will not be hosting a conference call in conjunction with these results. For more information or to access the financial results, please visitwww.sun.com/investors.
To supplement Sun’s preliminary financial results presented in accordance with GAAP, Sun provides non-GAAP net income and non-GAAP net income per share data on a diluted basis. The presentation of these non-GAAP financial measures should be considered in addition to Sun’s GAAP results and are 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 gains, losses and charges 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 “Calculation of Non-GAAP Net Income (Loss)” following the text of this press release.
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, Java, Solaris, and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. or its subsidiaries 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 United States and other countries. Producers bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.
Investor Contact:
Ron Pasek
650-786-8008
ron.pasek@sun.com
Press Contact:
Kristi Rawlinson
650-786-6933
kristi.rawlinson@sun.com
Industry Analyst Contact:
Kathy Engle
415-294-4368
kathy.engle@sun.com
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)
Three Months Ended | Nine Months Ended | ||||||||||||||
March 29, 2009 | March 30, 2008 | March 29, 2009 | March 30, 2008 | ||||||||||||
Net revenues: | |||||||||||||||
Products | $ | 1,519 | $ | 2,003 | $ | 5,222 | $ | 6,232 | |||||||
Services | 1,095 | 1,263 | 3,602 | 3,868 | |||||||||||
Total net revenues | 2,614 | 3,266 | 8,824 | 10,100 | |||||||||||
Cost of sales: | |||||||||||||||
Cost of sales-products | 877 | 1,106 | 3,200 | 3,296 | |||||||||||
Cost of sales-services | 621 | 692 | 1,957 | 2,022 | |||||||||||
Total cost of sales | 1,498 | 1,798 | 5,157 | 5,318 | |||||||||||
Gross margin | 1,116 | 1,468 | 3,667 | 4,782 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 393 | 457 | 1,227 | 1,366 | |||||||||||
Selling, general and administrative | 843 | 989 | 2,679 | 2,923 | |||||||||||
Restructuring charges and related impairment of long-lived assets | 46 | 14 | 331 | 159 | |||||||||||
Purchased in-process research and development | 3 | 24 | 3 | 25 | |||||||||||
Impairment of goodwill | — | — | 1,445 | — | |||||||||||
Total operating expenses | 1,285 | 1,484 | 5,685 | 4,473 | |||||||||||
Operating income (loss) | (169 | ) | (16 | ) | (2,018 | ) | 309 | ||||||||
Gain on equity investments, net | 3 | — | 8 | 22 | |||||||||||
Interest and other income (expense), net | (2 | ) | 34 | (3 | ) | 145 | |||||||||
Income (loss) before income taxes | (168 | ) | 18 | (2,013 | ) | 476 | |||||||||
Provision for income taxes | 33 | 52 | 74 | 161 | |||||||||||
Net income (loss) | $ | (201 | ) | $ | (34 | ) | $ | (2,087 | ) | $ | 315 | ||||
Net income (loss) per common share-basic | $ | (0.27 | ) | $ | (0.04 | ) | $ | (2.80 | ) | $ | 0.38 | ||||
Net income (loss) per common share-diluted | $ | (0.27 | ) | $ | (0.04 | ) | $ | (2.80 | ) | $ | 0.38 | ||||
Shares used in the calculation of net income (loss) per common share-basic | 745 | 785 | 746 | 821 | |||||||||||
Shares used in the calculation of net income (loss) per common share-diluted | 745 | 785 | 746 | 837 | |||||||||||
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 29, 2009 | June 30, 2008 (1) | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,569 | $ | 2,272 | ||||
Short-term marketable debt securities | 1,134 | 429 | ||||||
Accounts receivable, net | 2,265 | 3,019 | ||||||
Inventories | 561 | 680 | ||||||
Deferred and prepaid tax assets | 185 | 216 | ||||||
Prepaid expenses and other current assets, net | 1,036 | 1,218 | ||||||
Total current assets | 6,750 | 7,834 | ||||||
Property, plant and equipment, net | 1,670 | 1,611 | ||||||
Long-term marketable debt securities | 287 | 609 | ||||||
Goodwill | 1,740 | 3,215 | ||||||
Other acquisition-related intangible assets, net | 357 | 565 | ||||||
Other non-current assets, net | 458 | 506 | ||||||
$ | 11,262 | $ | 14,340 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,049 | $ | 1,387 | ||||
Accrued payroll-related liabilities | 595 | 734 | ||||||
Accrued liabilities and other | 1,142 | 1,105 | ||||||
Deferred revenues | 2,190 | 2,236 | ||||||
Warranty reserve | 160 | 206 | ||||||
Current portion of long-term debt | 562 | — | ||||||
Total current liabilities | 5,698 | 5,668 | ||||||
Long-term debt | 695 | 1,265 | ||||||
Long-term deferred revenues | 548 | 683 | ||||||
Other non-current obligations | 970 | 1,136 | ||||||
Stockholders’ equity: | ||||||||
Common stock and additional paid-in-capital | 7,541 | 7,391 | ||||||
Treasury stock, at cost | (2,680 | ) | (2,726 | ) | ||||
Retained earnings (accumulated deficit) | (1,819 | ) | 430 | |||||
Accumulated other comprehensive income | 309 | 493 | ||||||
Total stockholders’ equity | 3,351 | 5,588 | ||||||
$ | 11,262 | $ | 14,340 | |||||
(1) | Derived from audited financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Nine Months Ended | ||||||||
March 29, 2009 | March 30, 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (2,087 | ) | $ | 315 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 321 | 354 | ||||||
Amortization of acquisition-related intangible assets | 224 | 224 | ||||||
Stock-based compensation expense | 150 | 157 | ||||||
Purchased in-process research and development | 3 | 25 | ||||||
Impairment of goodwill | 1,445 | — | ||||||
(Gain) loss on investments and other, net | 23 | (54 | ) | |||||
Deferred taxes | 2 | 8 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 752 | 603 | ||||||
Inventories | 118 | (205 | ) | |||||
Prepaid and other assets, net | 177 | (105 | ) | |||||
Accounts payable | (341 | ) | (114 | ) | ||||
Other liabilities | (405 | ) | 31 | |||||
Net cash provided by operating activities | 382 | 1,239 | ||||||
Cash flows from investing activities: | ||||||||
Decrease (increase) in restricted cash | (19 | ) | 22 | |||||
Purchases of marketable debt securities | (1,535 | ) | (1,292 | ) | ||||
Proceeds from sales of marketable debt securities | 423 | 1,404 | ||||||
Proceeds from maturities of marketable debt securities | 684 | 764 | ||||||
Proceeds from sales of equity investments, net | 7 | 25 | ||||||
Purchases of property, plant and equipment, net | (404 | ) | (297 | ) | ||||
Payment for acquisitions, net of cash acquired | (55 | ) | (923 | ) | ||||
Net cash used in investing activities | (899 | ) | (297 | ) | ||||
Cash flows from financing activities: | ||||||||
Purchase of common stock under stock repurchase plans | (130 | ) | (2,300 | ) | ||||
Proceeds from issuance of options and ESPP purchases, net | 24 | 121 | ||||||
Principal payments on borrowings and other obligations | (12 | ) | (20 | ) | ||||
Net cash used in financing activities | (118 | ) | (2,199 | ) | ||||
Effect of changes in exchange rates on cash and cash equivalents | (68 | ) | — | |||||
Net decrease in cash and cash equivalents | (703 | ) | (1,257 | ) | ||||
Cash and cash equivalents, beginning of period | 2,272 | 3,620 | ||||||
Cash and cash equivalents, end of period | $ | 1,569 | $ | 2,363 | ||||
SUN MICROSYSTEMS, INC.
CALCULATION OF NON-GAAP NET INCOME (LOSS)
(unaudited)
(in millions, except per share amounts)
Three Months Ended | ||||||||||||
March 29, 2009 | March 30, 2008 | December 28, 2008 | ||||||||||
Calculation of non-GAAP net income (loss): | ||||||||||||
GAAP loss | $ | (201 | ) | $ | (34 | ) | $ | (209 | ) | |||
Purchased in-process research and development | 3 | 24 | — | |||||||||
Amortization of acquisition related intangibles | 72 | 76 | 72 | |||||||||
Stock-based compensation | 49 | 57 | 52 | |||||||||
Restructuring and related impairment of long-lived assets | 46 | 14 | 222 | |||||||||
(Gain) loss on equity investments, net | (3 | ) | — | 3 | ||||||||
Tax effect of non-GAAP adjustments | (18 | ) | (5 | ) | (26 | ) | ||||||
Non-GAAP net income (loss) | $ | (52 | ) | $ | 132 | $ | 114 | |||||
Diluted non-GAAP net income (loss) per share | $ | (0.07 | ) | $ | 0.17 | $ | 0.15 | |||||
Shares used in the calculation of non-GAAP net income (loss) per common share – diluted | 745 | 797 | 746 | |||||||||
SUN MICROSYSTEMS, INC.
OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)
STATEMENTS OF OPERATIONS
FY 2009 | FY 2008 | FY 2007 | ||||||||||||||||||||||||||||||||||
(in millions except per share amounts) | Q1 | Q2 | Q3 | FY09 | Q1 | Q2 | Q3 | Q4 | FY08 | Q3 | Q4 | FY07 | ||||||||||||||||||||||||
NET REVENUES | ||||||||||||||||||||||||||||||||||||
Products | 1,764 | 1,939 | 1,519 | 5,222 | 1,980 | 2,249 | 2,003 | 2,386 | 8,618 | 2,060 | 2,492 | 8,771 | ||||||||||||||||||||||||
Services | 1,226 | 1,281 | 1,095 | 3,602 | 1,239 | 1,366 | 1,263 | 1,394 | 5,262 | 1,223 | 1,343 | 5,102 | ||||||||||||||||||||||||
TOTAL | 2,990 | 3,220 | 2,614 | 8,824 | 3,219 | 3,615 | 3,266 | 3,780 | 13,880 | 3,283 | 3,835 | 13,873 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -7.1 | % | -10.9 | % | -20.0 | % | -12.6 | % | 0.9 | % | 1.4 | % | -0.5 | % | -1.4 | % | 0.1 | % | 3.3 | % | 0.2 | % | 6.2 | % | ||||||||||||
Growth vs. prior quarter (%) | -20.9 | % | 7.7 | % | -18.8 | % | -16.1 | % | 12.3 | % | -9.7 | % | 15.7 | % | -7.9 | % | 16.8 | % | ||||||||||||||||||
COST OF SALES | ||||||||||||||||||||||||||||||||||||
Products | 1,143 | 1,180 | 877 | 3,200 | 1,029 | 1,161 | 1,106 | 1,372 | 4,668 | 1,148 | 1,312 | 4,811 | ||||||||||||||||||||||||
Services | 646 | 690 | 621 | 1,957 | 629 | 701 | 692 | 735 | 2,757 | 674 | 711 | 2,797 | ||||||||||||||||||||||||
TOTAL | 1,789 | 1,870 | 1,498 | 5,157 | 1,658 | 1,862 | 1,798 | 2,107 | 7,425 | 1,822 | 2,023 | 7,608 | ||||||||||||||||||||||||
% of revenue | 59.8 | % | 58.1 | % | 57.3 | % | 58.4 | % | 51.5 | % | 51.5 | % | 55.1 | % | 55.7 | % | 53.5 | % | 55.5 | % | 52.8 | % | 54.8 | % | ||||||||||||
GROSS MARGIN | ||||||||||||||||||||||||||||||||||||
Products | 621 | 759 | 642 | 2,022 | 951 | 1,088 | 897 | 1,014 | 3,950 | 912 | 1,180 | 3,960 | ||||||||||||||||||||||||
% of product revenue | 35.2 | % | 39.1 | % | 42.3 | % | 38.7 | % | 48.0 | % | 48.4 | % | 44.8 | % | 42.5 | % | 45.8 | % | 44.3 | % | 47.4 | % | 45.1 | % | ||||||||||||
Services gross margin | 580 | 591 | 474 | 1,645 | 610 | 665 | 571 | 659 | 2,505 | 549 | 632 | 2,305 | ||||||||||||||||||||||||
% of service revenue | 47.3 | % | 46.1 | % | 43.3 | % | 45.7 | % | 49.2 | % | 48.7 | % | 45.2 | % | 47.3 | % | 47.6 | % | 44.9 | % | 47.1 | % | 45.2 | % | ||||||||||||
TOTAL GROSS MARGIN | 1,201 | 1,350 | 1,116 | 3,667 | 1,561 | 1,753 | 1,468 | 1,673 | 6,455 | 1,461 | 1,812 | 6,265 | ||||||||||||||||||||||||
% of revenue | 40.2 | % | 41.9 | % | 42.7 | % | 41.6 | % | 48.5 | % | 48.5 | % | 44.9 | % | 44.3 | % | 46.5 | % | 44.5 | % | 47.2 | % | 45.2 | % | ||||||||||||
R&D | 423 | 411 | 393 | 1,227 | 446 | 463 | 457 | 468 | 1,834 | 514 | 514 | 2,008 | ||||||||||||||||||||||||
% of revenue | 14.1 | % | 12.8 | % | 15.0 | % | 13.9 | % | 13.9 | % | 12.8 | % | 14.0 | % | 12.4 | % | 13.2 | % | 15.7 | % | 13.4 | % | 14.5 | % | ||||||||||||
PURCHASED IN PROCESS R&D | — | — | 3 | 3.00 | — | 1 | 24 | 6 | 31 | — | — | — | ||||||||||||||||||||||||
% of revenue | 0.0 | % | 0.0 | % | 0.1 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.7 | % | 0.2 | % | 0.2 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
SG&A | 920 | 916 | 843 | 2,679 | 939 | 995 | 989 | 1,032 | 3,955 | 957 | 958 | 3,851 | ||||||||||||||||||||||||
% of revenue | 30.8 | % | 28.4 | % | 32.2 | % | 30.4 | % | 29.2 | % | 27.5 | % | 30.3 | % | 27.3 | % | 28.5 | % | 29.2 | % | 25.0 | % | 27.8 | % | ||||||||||||
RESTRUCTURING CHARGES | 63 | 222 | 46 | 331 | 113 | 32 | 14 | 104 | 263 | 35 | 15 | 97 | ||||||||||||||||||||||||
% of revenue | 2.1 | % | 6.9 | % | 1.8 | % | 3.8 | % | 3.5 | % | 0.9 | % | 0.4 | % | 2.8 | % | 1.9 | % | 1.1 | % | 0.4 | % | 0.7 | % | ||||||||||||
IMPAIRMENT OF GOODWILL | 1,445 | — | — | 1,445 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
% of revenue | 48.3 | % | 0.0 | % | 0.0 | % | 16.4 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
TOTAL OPERATING EXPENSES | 2,851 | 1,549 | 1,285 | 5,685 | 1,498 | 1,491 | 1,484 | 1,610 | 6,083 | 1,506 | 1,487 | 5,956 | ||||||||||||||||||||||||
% of revenue | 95.4 | % | 48.1 | % | 49.2 | % | 64.4 | % | 46.5 | % | 41.2 | % | 45.4 | % | 42.6 | % | 43.8 | % | 45.9 | % | 38.8 | % | 42.9 | % | ||||||||||||
OPERATING INCOME (LOSS) | (1,650 | ) | (199 | ) | (169 | ) | (2,018 | ) | 63 | 262 | (16 | ) | 63 | 372 | (45 | ) | 325 | 309 | ||||||||||||||||||
Operating margin | -55.2 | % | -6.2 | % | -6.5 | % | -22.9 | % | 2.0 | % | 7.2 | % | -0.5 | % | 1.7 | % | 2.7 | % | -1.4 | % | 8.5 | % | 2.2 | % | ||||||||||||
Interest and other income, net | (11 | ) | 10 | (2 | ) | (3 | ) | 58 | 53 | 34 | 16 | 161 | 50 | 59 | 214 | |||||||||||||||||||||
Gain (loss) on equity investments, net | 8 | (3 | ) | 3 | 8 | 22 | — | — | 10 | 32 | 5 | 1 | 6 | |||||||||||||||||||||||
Settlement income | — | — | — | — | — | — | — | 45 | 45 | 54 | — | 54 | ||||||||||||||||||||||||
PRETAX INCOME (LOSS) | (1,653 | ) | (192 | ) | (168 | ) | (2,013 | ) | 143 | 315 | 18 | 134 | 610 | 64 | 385 | 583 | ||||||||||||||||||||
Pretax income (loss) margin | -55.3 | % | -6.0 | % | -6.4 | % | -22.8 | % | 4.4 | % | 8.7 | % | 0.6 | % | 3.5 | % | 4.4 | % | 1.9 | % | 10.0 | % | 4.2 | % | ||||||||||||
INCOME TAX PROVISION (BENEFIT) | 24 | 17 | 33 | 74 | 54 | 55 | 52 | 46 | 207 | (3 | ) | 56 | 110 | |||||||||||||||||||||||
NET INCOME (LOSS) (Reported) | (1,677 | ) | (209 | ) | (201 | ) | (2,087 | ) | 89 | 260 | (34 | ) | 88 | 403 | 67 | 329 | 473 | |||||||||||||||||||
Growth vs. prior year (%) | -1984.3 | % | -180.4 | % | -491.2 | % | -762.5 | % | 258.9 | % | 95.5 | % | -150.7 | % | -73.3 | % | -14.8 | % | 130.9 | % | 209.3 | % | 154.7 | % | ||||||||||||
Growth vs. prior quarter (%) | -2005.7 | % | 87.5 | % | 3.8 | % | -72.9 | % | 192.1 | % | -113.1 | % | 358.8 | % | -49.6 | % | 391.0 | % | ||||||||||||||||||
Net income (loss) margin | -56.1 | % | -6.5 | % | -7.7 | % | -23.7 | % | 2.8 | % | 7.2 | % | -1.0 | % | 2.3 | % | 2.9 | % | 2.0 | % | 8.6 | % | 3.4 | % | ||||||||||||
EPS (Diluted) (Reported)(1) | (2.24 | ) | (0.28 | ) | (0.27 | ) | (2.80 | ) | 0.10 | 0.31 | (0.04 | ) | 0.11 | 0.49 | 0.07 | 0.36 | 0.52 | |||||||||||||||||||
Growth vs. prior year (%) | -2340.0 | % | -190.3 | % | -575.0 | % | -856.8 | % | 266.7 | % | 106.7 | % | -157.1 | % | -69.4 | % | -5.8 | % | 128.0 | % | 202.9 | % | 151.5 | % | ||||||||||||
Growth vs. prior quarter (%) | -2136.4 | % | 87.5 | % | 3.6 | % | -72.2 | % | 210.0 | % | -112.9 | % | 375.0 | % | -53.3 | % | 414.3 | % | ||||||||||||||||||
SHARES (CSE)(Basic)(1) | 749 | 743 | 745 | 746 | 866 | 806 | 785 | 772 | 809 | 887 | 889 | 883 | ||||||||||||||||||||||||
SHARES (CSE)(Diluted)(1) | 749 | 743 | 745 | 746 | 884 | 826 | 785 | 776 | 822 | 915 | 908 | 902 | ||||||||||||||||||||||||
OUTSTANDING SHARES(1) | 738 | 745 | 746 | 746 | 824 | 792 | 782 | 751 | 751 | 889 | 884 | 884 | ||||||||||||||||||||||||
(1) | Basic, diluted and outstanding shares have been retroactively restated to reflect the one-for-four reverse stock split effective November 12, 2007. Accordingly, basic and diluted EPS has also been retroactively restated to reflect the reverse stock split. |
FY 2009 | FY 2008 | FY 2007 | ||||||||||||||||||||||||||||||||||
(in millions) | Q1 | Q2 | Q3 | FY09 | Q1 | Q2 | Q3 | Q4 | FY08 | Q3 | Q4 | FY07 | ||||||||||||||||||||||||
REVENUE BY GEOGRAPHY(1) (2) | ||||||||||||||||||||||||||||||||||||
NORTH AMERICA REGION ($M) | 1,213 | 1,258 | 1,042 | 3,513 | 1,386 | 1,407 | 1,253 | 1,551 | 5,597 | 1,352 | 1,676 | 5,964 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -12.5 | % | -10.6 | % | -16.8 | % | -13.2 | % | -3.5 | % | -6.2 | % | -7.3 | % | -7.5 | % | -6.2 | % | -6.4 | % | -1.7 | % | 2.0 | % | ||||||||||||
Growth vs. prior quarter (%) | -21.8 | % | 3.7 | % | -17.2 | % | -17.3 | % | 1.5 | % | -10.9 | % | 23.8 | % | -9.9 | % | 24.0 | % | ||||||||||||||||||
EUROPE REGION ($M) | 954 | 1,067 | 849 | 2,870 | 1,042 | 1,223 | 1,114 | 1,252 | 4,631 | 1,079 | 1,201 | 4,449 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -8.4 | % | -12.8 | % | -23.8 | % | -15.1 | % | 5.3 | % | 3.7 | % | 3.2 | % | 4.2 | % | 4.1 | % | 13.8 | % | 4.7 | % | 11.6 | % | ||||||||||||
Growth vs. prior quarter (%) | -23.8 | % | 11.8 | % | -20.4 | % | -13.2 | % | 17.4 | % | -8.9 | % | 12.4 | % | -8.5 | % | 11.3 | % | ||||||||||||||||||
EMERGING MARKETS REGION ($M) | 463 | 558 | 407 | 1,428 | 415 | 563 | 463 | 528 | 1,969 | 418 | 496 | 1730 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 11.6 | % | -0.9 | % | -12.1 | % | -0.9 | % | 11.6 | % | 26.8 | % | 10.8 | % | 6.5 | % | 13.8 | % | 12.7 | % | 2.7 | % | 11.5 | % | ||||||||||||
Growth vs. prior quarter (%) | -12.3 | % | 20.5 | % | -27.1 | % | -16.3 | % | 35.7 | % | -17.8 | % | 14.0 | % | -5.9 | % | 18.7 | % | ||||||||||||||||||
APAC REGION ($M) | 360 | 337 | 316 | 1,013 | 376 | 422 | 436 | 449 | 1,683 | 434 | 462 | 1,730 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -4.3 | % | -20.1 | % | -27.5 | % | -17.9 | % | -3.8 | % | -4.7 | % | 0.5 | % | -2.8 | % | -2.7 | % | 5.1 | % | -6.3 | % | 2.9 | % | ||||||||||||
Growth vs. prior quarter (%) | -19.8 | % | -6.4 | % | -6.2 | % | -18.6 | % | 12.2 | % | 3.3 | % | 3.0 | % | -2.0 | % | 6.5 | % | ||||||||||||||||||
% of Total Revenue | ||||||||||||||||||||||||||||||||||||
NORTH AMERICA REGION (%) | 40.6 | % | 39.1 | % | 39.8 | % | 39.8 | % | 43.1 | % | 38.9 | % | 38.4 | % | 41.0 | % | 40.3 | % | 41.2 | % | 43.7 | % | 43.0 | % | ||||||||||||
EUROPE REGION (%) | 31.9 | % | 33.1 | % | 32.5 | % | 32.5 | % | 32.4 | % | 33.8 | % | 34.1 | % | 33.1 | % | 33.4 | % | 32.9 | % | 31.3 | % | 32.1 | % | ||||||||||||
EMERGING MARKETS REGION (%) | 15.5 | % | 17.3 | % | 15.6 | % | 16.2 | % | 12.9 | % | 15.6 | % | 14.2 | % | 14.0 | % | 14.2 | % | 12.7 | % | 12.9 | % | 12.5 | % | ||||||||||||
APAC REGION (%) | 12.0 | % | 10.5 | % | 12.1 | % | 11.5 | % | 11.6 | % | 11.7 | % | 13.3 | % | 11.9 | % | 12.1 | % | 13.2 | % | 12.1 | % | 12.4 | % | ||||||||||||
PRODUCTS AND SERVICES REVENUE | ||||||||||||||||||||||||||||||||||||
COMPUTER SYSTEMS PRODUCTS ($M) | 1,257 | 1,369 | 1,094 | 3,720 | 1,475 | 1,594 | 1,473 | 1,722 | 6,264 | 1,500 | 1,853 | 6,455 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -14.8 | % | -14.1 | % | -25.7 | % | -18.1 | % | 0.5 | % | -2.4 | % | -1.8 | % | -7.1 | % | -3.0 | % | 1.8 | % | 2.3 | % | 7.6 | % | ||||||||||||
Growth vs. prior quarter (%) | -27.0 | % | 8.9 | % | -20.1 | % | -20.4 | % | 8.1 | % | -7.6 | % | 16.9 | % | -8.2 | % | 23.5 | % | ||||||||||||||||||
STORAGE PRODUCTS ($M) | 507 | 570 | 425 | 1,502 | 505 | 655 | 530 | 664 | 2,354 | 560 | 639 | 2,316 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 0.4 | % | -13.0 | % | -19.8 | % | -11.1 | % | 2.9 | % | 4.6 | % | -5.4 | % | 3.9 | % | 1.6 | % | -0.2 | % | -10.4 | % | -2.4 | % | ||||||||||||
Growth vs. prior quarter (%) | -23.6 | % | 12.4 | % | -25.4 | % | -21.0 | % | 29.7 | % | -19.1 | % | 25.3 | % | -10.5 | % | 14.1 | % | ||||||||||||||||||
SUPPORT SERVICES ($M) | 963 | 946 | 853 | 2,762 | 979 | 1,041 | 961 | 1,042 | 4,023 | 950 | 1,024 | 3,962 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -1.6 | % | -9.1 | % | -11.2 | % | -7.3 | % | -0.8 | % | 4.0 | % | 1.2 | % | 1.8 | % | 1.5 | % | 5.1 | % | 3.9 | % | 7.7 | % | ||||||||||||
Growth vs. prior quarter (%) | -7.6 | % | -1.8 | % | -9.8 | % | -4.4 | % | 6.3 | % | -7.7 | % | 8.4 | % | -5.1 | % | 7.8 | % | ||||||||||||||||||
PROFESSIONAL SERVICES & EDUCATIONAL SERVICES ($M) | 263 | 335 | 242 | 840 | 260 | 325 | 302 | 352 | 1,239 | 273 | 319 | 1,140 | ||||||||||||||||||||||||
Growth vs. prior year (%) | 1.2 | % | 3.1 | % | -19.9 | % | -5.3 | % | 7.0 | % | 6.6 | % | 10.6 | % | 10.3 | % | 8.7 | % | 14.7 | % | 0.3 | % | 11.9 | % | ||||||||||||
Growth vs. prior quarter (%) | -25.3 | % | 27.4 | % | -27.8 | % | -18.5 | % | 25.0 | % | -7.1 | % | 16.6 | % | -10.5 | % | 16.8 | % | ||||||||||||||||||
NET BOOKINGS ($M)) (4) | 2,981 | 3,259 | 2,619 | 8,859 | 3,149 | 3,872 | 3,186 | 3,783 | 13,990 | 3,238 | 3,909 | 13,786 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -5.3 | % | -15.8 | % | -17.8 | % | -13.2 | % | 3.7 | % | 7.5 | % | -1.6 | % | -3.2 | % | 1.5 | % | 20.8 | % | 15.8 | % | 20.0 | % | ||||||||||||
Growth vs. prior quarter (%) | -21.2 | % | 9.3 | % | -19.6 | % | -19.4 | % | 23.0 | % | -17.7 | % | 18.7 | % | -10.1 | % | 20.7 | % | ||||||||||||||||||
BOOK TO BILL RATIO ) (4) | 1.00 | 1.01 | 1.00 | 0.98 | 1.07 | 0.98 | 1.00 | 0.99 | 1.02 | |||||||||||||||||||||||||||
PRODUCT BACKLOG ($M) (3) (4) | 1,149 | 1,187 | 1,192 | 980 | 1,235 | 1,154 | 1,157 | 975 | 1,051 | |||||||||||||||||||||||||||
SERVICES BACKLOG ($M) (4) | 773 | 598 | 645 | 951 | 772 | 753 | 779 | 820 | 879 | |||||||||||||||||||||||||||
TOTAL BACKLOG ($M) | 1,922 | 1,785 | 1,837 | 1,931 | 2,007 | 1,907 | 1,936 | 1,795 | 1,930 | |||||||||||||||||||||||||||
DEFERRED REVENUES | ||||||||||||||||||||||||||||||||||||
PRODUCTS DEFERRED REVENUES ($M) (4) | 868 | 898 | 930 | 564 | 793 | 745 | 897 | 577 | 603 | |||||||||||||||||||||||||||
Growth vs. prior year (%) | 53.9 | % | 13.2 | % | 24.8 | % | 16.0 | % | 47.4 | % | 29.1 | % | 48.8 | % | 14.9 | % | 0.2 | % | ||||||||||||||||||
Growth vs. prior quarter (%) | -3.2 | % | 3.5 | % | 3.6 | % | -6.5 | % | 40.6 | % | -6.1 | % | 20.4 | % | 7.2 | % | 4.5 | % | ||||||||||||||||||
SERVICES DEFERRED REVENUES ($M) (4) | 1,899 | 1,693 | 1,808 | 1,977 | 1,896 | 1,861 | 2,022 | 1,881 | 2,103 | |||||||||||||||||||||||||||
Growth vs. prior year (%) | -3.9 | % | -10.7 | % | -2.8 | % | 13.2 | % | 16.3 | % | -1.1 | % | -3.9 | % | 15.5 | % | 12.3 | % | ||||||||||||||||||
Growth vs. prior quarter (%) | -6.1 | % | -10.8 | % | 6.8 | % | -6.0 | % | -4.1 | % | -1.8 | % | 8.7 | % | 15.4 | % | 11.8 | % | ||||||||||||||||||
TOTAL DEFERRED REVENUES ($M) | 2,767 | 2,591 | 2,738 | 2,541 | 2,689 | 2,606 | 2,919 | 2,458 | 2,706 | |||||||||||||||||||||||||||
Growth vs. prior year (%) | 8.9 | % | -3.6 | % | 5.1 | % | 13.8 | % | 24.0 | % | 6.0 | % | 7.9 | % | 15.3 | % | 9.3 | % | ||||||||||||||||||
Growth vs. prior quarter (%) | -5.2 | % | -6.4 | % | 5.7 | % | -6.1 | % | 5.8 | % | -3.1 | % | 12.0 | % | 13.4 | % | 10.1 | % | ||||||||||||||||||
(1) | Geographic revenue reported for Q2FY07 has been adjusted to reflect a correction in intercompany revenue to properly report country of origin. |
(2) | Effective Q1FY09, we began utilizing revised geographic groupings. Revenue figures have been adjusted to reflect the change in the compilation of the countries that make up each of our geographic regions. |
(3) | 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. |
(4) | The bookings and products and services backlog and deferred revenue number presented in Q3 FY08, Q4 FY08 and Q1 FY09 have been adjusted to reflect a correction. Q4 FY07 services backlog has also been adjusted to reflect a correction. |
BALANCE SHEETS(1) (2) (3)
FY 2009 | FY 2008 | FY 2007 | ||||||||||||||||||||||||||||||||||
(in millions) | Q1 | Q2 | Q3 | Q1 | Q2 | Q3 | Q4 | Q3 | Q4 | |||||||||||||||||||||||||||
CASH & ST INVESTMENTS | 2,631 | 2,644 | 2,703 | 3,819 | 3,433 | 3,027 | 2,701 | 4,114 | 4,582 | |||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE, NET | 2,448 | 2,574 | 2,265 | 2,203 | 2,789 | 2,405 | 3,019 | 2,458 | 2,964 | |||||||||||||||||||||||||||
RAW MATERIALS | 153 | 115 | 99 | 130 | 152 | 159 | 154 | 106 | 125 | |||||||||||||||||||||||||||
WORK IN PROCESS | 94 | 67 | 61 | 110 | 96 | 99 | 90 | 101 | 95 | |||||||||||||||||||||||||||
FINISHED GOODS | 415 | 410 | 401 | 331 | 383 | 477 | 436 | 360 | 304 | |||||||||||||||||||||||||||
TOTAL INVENTORIES | 662 | 592 | 561 | 571 | 631 | 735 | 680 | 567 | 524 | |||||||||||||||||||||||||||
OTHER CURRENT ASSETS | 1,356 | 1,298 | 1,221 | 1,297 | 1,306 | 1,329 | 1,434 | 1,221 | 1,258 | |||||||||||||||||||||||||||
TOTAL CURRENT ASSETS | 7,097 | 7,108 | 6,750 | 7,890 | 8,159 | 7,496 | 7,834 | 8,360 | 9,328 | |||||||||||||||||||||||||||
PP&E, NET | 1,662 | 1,645 | 1,670 | 1,556 | 1,569 | 1,584 | 1,611 | 1,586 | 1,533 | |||||||||||||||||||||||||||
GOODWILL | 1,700 | 1,700 | 1,740 | 2,466 | 2,496 | 3,288 | 3,215 | 2,571 | 2,514 | |||||||||||||||||||||||||||
LT MARKETABLE DEBT SECURITIES | 490 | 364 | 287 | 1,374 | 1,244 | 774 | 609 | 1,372 | 1,360 | |||||||||||||||||||||||||||
OTHER NON-CURRENT ASSETS, NET | 961 | 867 | 815 | 1,072 | 1,011 | 1,120 | 1,071 | 1,161 | 1,103 | |||||||||||||||||||||||||||
TOTAL ASSETS | 11,910 | 11,684 | 11,262 | 14,358 | 14,479 | 14,262 | 14,340 | 15,050 | 15,838 | |||||||||||||||||||||||||||
CURRENT PORTION OF LT DEBT | 565 | 569 | 562 | — | — | — | — | — | — | |||||||||||||||||||||||||||
ACCOUNTS PAYABLE | 1,110 | 1,290 | 1,049 | 1,140 | 1,312 | 1,306 | 1,387 | 1,187 | 1,381 | |||||||||||||||||||||||||||
ACCRUED LIABILITIES & OTHER | 1,957 | 2,003 | 1,897 | 1,943 | 2,074 | 2,056 | 2,045 | 1,979 | 2,023 | |||||||||||||||||||||||||||
DEFERRED REVENUES | 2,226 | 2,070 | 2,190 | 1,911 | 2,049 | 1,979 | 2,236 | 1,869 | 2,047 | |||||||||||||||||||||||||||
TOTAL CURRENT LIABILITIES | 5,858 | 5,932 | 5,698 | 4,994 | 5,435 | 5,341 | 5,668 | 5,035 | 5,451 | |||||||||||||||||||||||||||
LT DEBT | 694 | 694 | 695 | 1,270 | 1,273 | 1,275 | 1,265 | 1,270 | 1,264 | |||||||||||||||||||||||||||
LT DEFERRED REVENUES | 541 | 521 | 548 | 630 | 640 | 627 | 683 | 589 | 659 | |||||||||||||||||||||||||||
OTHER NON-CURRENT OBLIGATIONS | 1,055 | 1,014 | 970 | 1,271 | 1,259 | 1,229 | 1,136 | 1,264 | 1,285 | |||||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY | 3,762 | 3,523 | 3,351 | 6,193 | 5,872 | 5,790 | 5,588 | 6,892 | 7,179 | |||||||||||||||||||||||||||
TOTAL LIABILITIES & SE | 11,910 | 11,684 | 11,262 | 14,358 | 14,479 | 14,262 | 14,340 | 15,050 | 15,838 | |||||||||||||||||||||||||||
CASH FLOW(1) (4) | ||||||||||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | FY09 | Q1 | Q2 | Q3 | Q4 | FY08 | Q3 | Q4 | FY07 | |||||||||||||||||||||||||
OPERATING ACTIVITIES | 168 | 36 | 178 | 382 | 574 | 336 | 329 | 90 | 1,329 | 142 | 564 | 958 | ||||||||||||||||||||||||
INVESTING ACTIVITIES | (258 | ) | (414 | ) | (227 | ) | (899 | ) | (211 | ) | (199 | ) | 113 | 231 | (66 | ) | (110 | ) | (97 | ) | (1,077 | ) | ||||||||||||||
FINANCING ACTIVITIES | (132 | ) | 13 | 1 | (118 | ) | (1,231 | ) | (675 | ) | (293 | ) | (412 | ) | (2,611 | ) | 647 | (139 | ) | 170 | ||||||||||||||||
FX ON CASH | (20 | ) | (35 | ) | (13 | ) | (68 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||
KEY METRICS |
| |||||||||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q1 | Q2 | Q3 | Q4 | Q3 | Q4 | ||||||||||||||||||||||||||||
DAYS SALES OUTSTANDING (DSO) | 74 | 72 | 78 | 62 | 69 | 66 | 72 | 67 | 70 | |||||||||||||||||||||||||||
DAYS OF SUPPLY ON HAND (DOS) | 33 | 28 | 34 | 31 | 30 | 37 | 29 | 28 | 23 | |||||||||||||||||||||||||||
DAYS PAYABLES OUTSTANDING (DPO) | (56 | ) | (62 | ) | (63 | ) | (62 | ) | (63 | ) | (65 | ) | (59 | ) | (59 | ) | (61 | ) | ||||||||||||||||||
CASH CONVERSION CYCLE (CCC) | 51 | 38 | 49 | 31 | 36 | 38 | 42 | 36 | 32 | |||||||||||||||||||||||||||
L-T DEBT/EQUITY (%) | 18.4 | % | 19.7 | % | 20.7 | % | 20.5 | % | 21.7 | % | 22.0 | % | 22.6 | % | 18.4 | % | 17.6 | % | ||||||||||||||||||
INVENTORY TURNS-PRODUCT ONLY (hist.) | 7.8 | 7.9 | 7.1 | 8.2 | 7.5 | 7.1 | 7.8 | 8.7 | 9.0 | |||||||||||||||||||||||||||
ROE (12 mo. avg.)(%) | -25.9 | % | -39.3 | % | -49.3 | % | 9.1 | % | 11.4 | % | 10.3 | % | 6.9 | % | -2.4 | % | 6.9 | % | ||||||||||||||||||
ROA (12 mo. avg.)(%) | -9.9 | % | -14.0 | % | -16.3 | % | 4.2 | % | 5.0 | % | 4.4 | % | 2.8 | % | -1.1 | % | 3.2 | % | ||||||||||||||||||
ROIC (12 mo. avg.)(%) | -38.3 | % | -52.0 | % | -63.8 | % | 8.1 | % | 11.8 | % | 10.7 | % | 4.0 | % | -11.6 | % | 5.2 | % | ||||||||||||||||||
DEPREC. & AMORT. ($M) | 194 | 172 | 179 | 193 | 196 | 189 | 208 | 209 | 203 | |||||||||||||||||||||||||||
CAPITAL INVESTMENTS, NET ($M) | 165 | 120 | 119 | 127 | 108 | 62 | 144 | 152 | (36 | ) | ||||||||||||||||||||||||||
NUMBER OF EMPLOYEES | 33,423 | 33,556 | 32,780 | 33,904 | 33,350 | 34,440 | 34,909 | 34,494 | 34,219 | |||||||||||||||||||||||||||
REVENUE PER EMPLOYEE (12 mo. Avg.) ($K) | 401 | 389 | 374 | 405 | 410 | 410 | 406 | 387 | 397 | |||||||||||||||||||||||||||
(1) | Certain numbers presented in the Q2-Q3 fiscal 2007 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. |
(2) | Certain numbers presented in the fiscal 2007 balance sheets have been reclassified from accounts payable to accrued liabilities and other. |
(3) | Certain numbers presented in the fiscal 2007 and first quarter of fiscal 2008 balance sheets have been reclassified from deferred revenues to accrued liabilities and other. |
(4) | Cash flow from operating activities for fiscal 2009 includes the impact of foreign exchange movements on cash. |
SUN MICROSYSTEMS, INC.
OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)
CALCULATION OF NON-GAAP NET INCOME (LOSS)
FY 2009 | FY 2008 | FY 2007 | ||||||||||||||||||||||||||||||||||
(in millions except per share amounts) | Q1 | Q2 | Q3 | FY09 | Q1 | Q2 | Q3 | Q4 | FY08 | Q3 | Q4 | FY07 | ||||||||||||||||||||||||
GAAP net income (loss) | (1,677 | ) | (209 | ) | (201 | ) | (2,087 | ) | 89 | 260 | (34 | ) | 88 | 403 | 67 | 329 | 473 | |||||||||||||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||||||||||||||
Purchased in-process research and development | — | — | 3 | 3 | — | 1 | 24 | 6 | 31 | — | — | — | ||||||||||||||||||||||||
Amortization of acquisition related intangibles | 80 | 72 | 72 | 224 | 74 | 74 | 76 | 86 | 310 | 78 | 74 | 313 | ||||||||||||||||||||||||
Stock-based compensation | 49 | 52 | 49 | 150 | 48 | 52 | 57 | 57 | 214 | 50 | 48 | 214 | ||||||||||||||||||||||||
Restructuring and related impairment of long-lived assets | 63 | 222 | 46 | 331 | 113 | 32 | 14 | 104 | 263 | 35 | 15 | 97 | ||||||||||||||||||||||||
Impairment of goodwill | 1,445 | — | — | 1,445 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
(Gain) loss on equity investments, net | (8 | ) | 3 | (3 | ) | (8 | ) | (22 | ) | — | — | (10 | ) | (32 | ) | (5 | ) | (1 | ) | (6 | ) | |||||||||||||||
Settlement income | — | — | — | — | — | — | — | (45 | ) | (45 | ) | (54 | ) | — | (54 | ) | ||||||||||||||||||||
Tax effect of non-GAAP adjustments | (17 | ) | (26 | ) | (18 | ) | (61 | ) | (17 | ) | (10 | ) | (5 | ) | (11 | ) | (43 | ) | (10 | ) | (7 | ) | (34 | ) | ||||||||||||
Non-GAAP net income (loss) | (65 | ) | 114 | (52 | ) | (3 | ) | 285 | 409 | 132 | 275 | 1,101 | 161 | 458 | 1,003 | |||||||||||||||||||||
Diluted non-GAAP net income (loss) per share | -0.09 | 0.15 | -0.07 | 0.00 | 0.32 | 0.50 | 0.17 | 0.35 | 1.34 | 0.18 | 0.50 | 1.11 | ||||||||||||||||||||||||
Growth vs. prior year (%) | -128.1 | % | -70.0 | % | -141.2 | % | -101.0 | % | 190.9 | % | 56.3 | % | -5.6 | % | -30.0 | % | 20.7 | % | 357.1 | % | 455.6 | % | -3800.0 | % | ||||||||||||
Growth vs. prior quarter (%) | -125.7 | % | 266.7 | % | -146.7 | % | -36.0 | % | 56.3 | % | -66.0 | % | 105.9 | % | -43.8 | % | 177.8 | % | ||||||||||||||||||
This operations analysis contains 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. The non-GAAP financial measures Sun uses include non-GAAP net income and diluted non-GAAP net income per share. Non-GAAP net income is defined as net income excluding purchased in-process research and development, amortization of acquisition related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, impairment of goodwill, gain or loss on equity investments, net, settlement income and the tax effect of these non-GAAP adjustments. 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 illustrate Sun’s baseline performance before gains, losses or charges that are considered by Sun to be outside of 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 non-GAAP net income excludes items in the following categories:
Purchased In-Process Research and Development and Amortization of Acquisition Related Intangibles. Sun excludes purchased in-process research and development and 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 acquisitions of MySQL and 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 a non-GAAP financial measure that excludes purchased in-process research and development and the amortization of acquisition related intangible assets provides the users of its financial statements an enhanced understanding of historic and future financial results and facilitates comparisons to peer companies. Additionally, with respect to the amortization of acquisition related intangible assets, had Sun internally developed these intangible assets, the amortization of such 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. Although purchased in-process research and development expenses are not recurring with respect to past acquisitions, Sun will incur these expenses in connection with any future acquisitions.
Stock-Based Compensation. Stock-based compensation is a key incentive offered to Sun’s 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.
Restructuring and Related Impairment of Long-Lived Assets, Impairment of Goodwill, Gain or Loss on Equity Investments, Net, Settlement Income and Tax Effect of Non-GAAP Adjustments. Sun excludes these items because it believes that they are not directly related to the underlying performance of Sun’s core business operations. Other than impairment of goodwill, 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, 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 operations analysis 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.