8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 28, 2009

Sun Microsystems, Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-15086	94-2805249
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4150 Network Circle Santa Clara, California	95054-1778
(Address of Principal Executive Offices)	(Zip Code)

(650) 960-1300

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On April 28, 2009, Sun Microsystems, Inc. (“Sun”) issued a press release regarding Sun’s financial results for the fiscal quarter ended March 29, 2009. The full text of Sun’s press release, together with the related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis—Consolidated, are attached hereto as Exhibit 99.1.

The press release 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 the press release, 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 the 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.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibits are filed herewith:

Exhibit Number

Description

99.1

Text of press release issued by Sun Microsystems, Inc., dated April 28, 2009, titled “Sun Microsystems Reports Results for the Third Quarter Fiscal Year 2009,” together with related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis - Consolidated.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 28, 2009

SUN MICROSYSTEMS, INC.
By:	/s/ Michael E. Lehman
	Michael E. Lehman
	Chief Financial Officer and Executive Vice President, Corporate Resources

EXHIBIT INDEX

Exhibit No.

Description

99.1

Text of press release issued by Sun Microsystems, Inc., dated April 28, 2009, titled “Sun Microsystems Reports Results for the Third Quarter Fiscal Year 2009,” together with related Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Calculation of Non-GAAP Net Income (Loss) and Operations Analysis - Consolidated.

EX-99.1

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, Solaris ^TM-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 visit www.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 Computer^TM” — 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 at http://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.