Sun Microsystems Reports Results for Third Quarter Fiscal Year 200626 April 2006
Sun Microsystems, Inc. (Nasdaq: SUNW) reported results today for its fiscal third quarter, which ended March 26, 2006.
Revenues for the third quarter of fiscal 2006 were $3.177 billion, an increase of 21 percent as compared with $2.627 billion for the third quarter of fiscal 2005. The year over year revenue increase was driven by recent acquisitions and by growth in traditional products. Total gross margin as a percent of revenues was 43.0 percent, an increase of 1.6 percentage points, as compared with the third quarter of fiscal 2005.
Net loss for the third quarter of fiscal 2006 on a GAAP basis was $217 million or a net loss of ($0.06) per share, as compared with a net loss of $28 million, or a net loss per share of ($0.01), for the third quarter of fiscal 2005.
GAAP net loss for the third quarter of fiscal 2006 includes: $87 million principally related to intangible asset amortization associated with our recent acquisitions, $57 million of stock-based compensation charges relating to the implementation of SFAS 123R, $36 million of restructuring charges, a $4 million gain on equity investments, and a $4 million benefit for related tax effects. The net impact of these five items is approximately ($0.05) per share.
Cash generated from operations for the third quarter was $197 million and cash and marketable debt securities balance at the end of the quarter was $4.429 billion.
"We're growing again. Products are winning awards. The Solaris(TM) 10 Operating System is a runaway success. The next step is consistent profitability," said Scott McNealy, chairman and CEO, Sun Microsystems.
"Each quarter we drive for measurable improvement in our products, customer acceptance, competitive position and operational execution. During Q3, we grew our traditional business year over year in the United States, most of Asia, parts of Europe and almost all parts of the International Americas. We're pleased with customer acceptance of our products in key markets such as telco, government, energy and retail, to name a few. We're well positioned in the marketplace, and expect to reach new and traditional customers with our open source, industry-leading Solaris 10 software stack and our recently improved systems products," said Jonathan Schwartz, president and COO, Sun Microsystems.
"Our investments in R&D during the past couple of years have resulted in a terrific product line. Combined with our recent acquisitions of StorageTek and SeeBeyond, as well as other technologies, we now offer a broader and more compelling portfolio of choices to our customers. We're pleased with the improvement in demand across numerous geographies; in particular, our growth in the U.S. market was broadly-based across both traditional and nascent industries. We delivered the results we were anticipating, including our operating expense guidance for the quarter," said Michael Lehman, chief financial officer and executive vice president, Corporate Resources, Sun Microsystems.
Sun has scheduled a conference call today to discuss its earnings for Q3 fiscal year 2006 at 1:30 p.m. (PT), which is being broadcast live at http://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
bret.schaefer@sun.com
MEDIA CONTACT:
Stephanie Von Allmen 650-786-8589
stephanie.vonallmen@sun.com
INDUSTRY ANALYST CONTACT:
Joanne Masters 650-786-0847
joanne.masters@sun.com
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the future results and performance of Sun Microsystems, Inc., including statements regarding growth, consistent profitability, Sun's position in the marketplace and expectations regarding reaching new and traditional customers. 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: increased competition; failure to rapidly and successfully develop and introduce new products; our reliance on single-source suppliers; risks associated with our ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with our international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; our dependence on significant customers and specific industries; our dependence on channel partners; risks associated with our tape products; and failure to successfully integrate acquisition candidates. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended September 25, 2005 and December 25, 2005. 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 our 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 our performance by excluding certain charges, gains and tax effects that may not be indicative of our 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 our competitors' operating results. We include these non-GAAP financial measures because we believe 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, and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and in other countries.
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
March 26, March 27, March 26, March 27,
2006 2005 2006 2005
Net revenues:
Products $2,035 $1,683 $5,847 $5,199
Services 1,142 944 3,393 2,897
Total net revenues 3,177 2,627 9,240 8,096
Cost of sales:
Cost of sales-products (including
stock-based compensation expense
of $3 and $8) (1) 1,152 975 3,341 3,044
Cost of sales-services (including
stock-based compensation expense
of $7 and $21) (1) 658 565 1,909 1,694
Total cost of sales 1,810 1,540 5,250 4,738
Gross margin 1,367 1,087 3,990 3,358
Operating expenses:
Research and development
(including stock-based
compensation expense of $19
and $54) (1) 523 450 1,503 1,313
Selling, general and
administrative (including stock-
based compensation expense of $28
and $79) (1) 1,020 735 2,904 2,131
Restructuring charges 36 44 58 176
Purchased in-process research and
development -- -- 60 --
Total operating expenses 1,579 1,229 4,525 3,620
Operating loss (212) (142) (535) (262)
Gain on equity investments, net 4 2 31 7
Interest and other income, net 26 91 95 155
Loss before income taxes (182) (49) (409) (100)
Provision for (benefit from)
income taxes 35 (21) 154 57
Net loss $(217) $(28) $(563) $(157)
Net loss per common share-basic &
diluted $(0.06) $(0.01) $(0.16) $(0.05)
Shares used in the calculation of
net loss per common share-basic &
diluted 3,443 3,376 3,425 3,358
(1) For the three and nine months ended March 26, 2006, respectively.
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 26, June 30,
2006 2005*
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,641 $2,051
Short-term marketable debt securities 1,231 1,345
Accounts receivable, net 2,301 2,231
Inventories 574 431
Deferred and prepaid tax assets 279 255
Prepaid expenses and other
current assets 687 878
Total current assets 6,713 7,191
Property, plant and equipment, net 1,880 1,769
Long-term marketable debt securities 1,557 4,128
Goodwill 2,487 441
Other acquisition-related intangible
assets, net 1,083 113
Other non-current assets, net 650 548
$14,370 $14,190
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and short-term borrowings $505 $--
Accounts payable 1,315 1,167
Accrued payroll-related liabilities 744 713
Accrued liabilities and other 930 1,014
Deferred revenues 1,651 1,648
Warranty reserve 244 224
Total current liabilities 5,389 4,766
Long-term debt 585 1,123
Long-term deferred revenues 505 544
Other non-current obligations 1,504 1,083
Total stockholders' equity 6,387 6,674
$14,370 $14,190
* Derived from audited financial statements
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Nine Months Ended
March 26, March 27,
2006 2005
Cash flows from operating activities:
Net loss $(563) $(157)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 440 497
Amortization of other acquisition related
intangible assets 242 57
Deferred taxes (9) (107)
Stock-based compensation expense 162 15
Purchased in-process research and development 60 --
Gain on investments, net (31) (7)
Changes in operating assets and liabilities:
Accounts receivable, net 229 338
Inventories 30 79
Prepaid and other assets 264 (265)
Accounts payable (6) 16
Other liabilities (588) (292)
Net cash provided by operating activities 230 174
Cash flows from investing activities:
Increase in restricted cash (63) --
Purchases of marketable debt securities (1,652) (5,115)
Proceeds from sales of marketable
debt securities 4,038 4,066
Proceeds from maturities of marketable
debt securities 289 651
Proceeds from sales of equity investments,
net 17 47
Purchases of property, plant and
equipment, net (193) (199)
Purchases of spare parts and other
assets (53) (68)
Payments for acquisitions, net of
cash acquired (3,150) (45)
Net cash used in investing activities (767) (663)
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 127 134
Principal payments on borrowings and
other obligations -- (252)
Net cash provided by (used in)
financing activities 127 (118)
Net decrease in cash and cash equivalents (410) (607)
Cash and cash equivalents, beginning
of period 2,051 2,141
Cash and cash equivalents, end of period $1,641 $1,534
SUN MICROSYSTEMS, INC.
NON-GAAP CALCULATION OF NET LOSS EXCLUDING SPECIAL ITEMS
(unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
March 26, March 27, March 26, March 27,
2006 2005 2006 2005
Calculation of net loss excluding
special items:
Net loss**, *** $(217) $(28) $(563) $(157)
Restructuring charges 36 44 58 176
Purchased in-process research
and development -- -- 60 --
Gain on equity investments, net (4) (2) (31) (7)
Settlement income**** (54) (54)
Settlement of litigation* -- -- -- 55
Valuation allowance on
deferred tax assets -- (34) -- (34)
Related tax effects (4) (7) (11) (20)
Net loss excluding special items $(189) $(81) $(487) $(41)
Net loss excluding special items
per common share - basic & diluted $(0.06) $(0.02) $(0.14) $(0.01)
Shares used in the calculation of
net loss excluding special items
per common share - basic & diluted 3,443 3,376 3,425 3,358
* Included in Cost of sales - products
** Net loss for the three and nine months ended March 26, 2006 included
$57 million and $162 million of stock-based compensation expense or
approximately $0.02 per share and $0.05 per share, respectively.
*** Net loss for the three and nine months ended March 26, 2006 included
$87 million and $354 million of purchase price accounting adjustments
and intangible asset amortization relating to our recent acquisitions
or approximately $0.03 per share and $0.10 per share, respectively.
**** Included in Interest and other income, Net
Source: prnewswire
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