SUN MICROSYSTEMS, INC. - 8-K filing on 2007-04-24

Exhibit 99.1

Sun Microsystems Delivers Another Quarter of Growth and Profitability

Reports Results for Third Quarter Fiscal Year 2007

SANTA CLARA, Calif. - April 24, 2007 - Sun Microsystems, Inc. (NASDAQ: SUNW) reported results today for its fiscal third quarter, which ended April 1, 2007.

Revenues for the third quarter of fiscal 2007 were $3.283 billion, an increase of 3.3 percent as compared with $3.177 billion for the third quarter of fiscal 2006. Total gross margin as a percent of revenues was 44.5 percent, an increase of 1.5 percentage points, as compared with the third quarter of fiscal 2006.

Net income for the third quarter of fiscal 2007 on a GAAP basis was $67 million, or $0.02 per share on a diluted basis, as compared with a net loss of $217 million, or ($0.06) per share, for the third quarter of fiscal 2006.

GAAP net income for the third quarter of fiscal 2007 included: $50 million of stock-based compensation charges, $35 million of restructuring and related impairment of assets charges, $75 million of purchase price accounting adjustments and intangible asset amortization charges related to acquisitions in fiscal 2006, benefits for $5 million of gain on equity investments, $54 million of settlement income and $8 million of related tax effects. The net impact of these six items reduced earnings per share on a diluted basis by approximately $0.02.

Cash generated from operations for the third quarter of fiscal 2007 was $175 million, and cash and marketable debt securities balance at the end of the quarter was $5.486 billion.

“With another quarter of profitability, we're seeing continued progress operationally, strategically and financially, and we remain committed to our fourth quarter goal of at least 4% operating profit,” said Jonathan Schwartz, president and CEO of Sun Microsystems. “The performance in our Software and Services businesses confirms the broad appeal of our software offerings in the quarter, and we look forward to further extending the reach of the Solaris™ 10 Operating System and leveraging strong partnerships with AMD, Fujitsu and Intel. Along with disciplined financial execution, we're focused on growth and look forward to increased momentum in the fourth quarter, fueled by the continued rise of Java^TM, increased adoption of Solaris and the competitiveness of our core systems and storage innovations.”

Sun has scheduled a conference call today to discuss its financial results for the third quarter fiscal year 2007 at 1:30 p.m. (PT), which is being broadcast live at www.sun.com/investors.

About Sun Microsystems, Inc.

A singular vision — “The Network Is The Computer^TM” — guides Sun in the development of technologies that power the world's most important markets. Sun's philosophy of sharing innovation and building communities is at the forefront of the next wave of computing: the Participation Age. Sun can be found in more than 100 countries and on the Web at http://sun.com.

This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding continued progress operationally, strategically and financially, Sun's commitment to its fourth quarter goal of at least 4% operating profit, extending the reach of the Solaris 10 Operating System, leveraging partnerships with AMD, Fujitsu and Intel, Sun's focus on growth, and increased momentum in the fourth quarter fueled by the continued rise of Java^TM, the increased adoption of Solaris and the competitiveness of Sun's core systems and storage innovations. These forward-looking statements involve risks and uncertainties and actual results could differ materially from those predicted in any such forward-looking statements. Factors that could cause Sun’s actual results to differ materially from those contained in such forward-looking statements include: risks associated with developing, designing, manufacturing and distributing new products; lack of success in technological advancements; pricing pressures; lack of customer acceptance of new products; the possibility of errors or defects in new products; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; the cancellation of or delay in implementation of the alliance with Intel; Sun's reliance on single-source suppliers; risks associated with Sun's ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with Sun's international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; Sun's dependence on significant customers and specific industries; and Sun's dependence on channel partners. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended October 1, 2006 and December 31, 2006. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.

To supplement Sun's consolidated financial statements presented in accordance with GAAP, Sun provides non-GAAP net income (loss) and non-GAAP net income (loss) per share data. The presentation of these non-GAAP financial measures should be considered in addition to Sun's GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Sun's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain charges, gains and tax effects that may not be indicative of Sun's core business operating results. Sun believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Sun's performance. These non-GAAP financial measures also facilitate comparisons to Sun's historical performance and its competitors' operating results. Sun includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Non-GAAP measures are reconciled to comparable GAAP measures in the table entitled “Non-GAAP Calculation of Net Income (Loss) Excluding Special Items “ following the text of this press release.

# # #

Sun, Sun Microsystems, the Sun logo, Solaris, Java^TM and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and other countries.

Investor Contact:

Bret Schaefer

650-786-0123

bret.schaefer@sun.com

Press Contact:

Kathy Engle

415-294-4368

kathy.engle@sun.com

Industry Analyst Contact:

Melissa Selcher

650-787-1807

melissa.selcher@sun.com

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)


	Three Months Ended						Nine Months Ended
	April 1, 2007			March 26, 2006			April 1, 2007			March 26, 2006
Net revenues:
Products	$	2,060		$	2,035		$	6,279		$	5,847
Services		1,223			1,142			3,759			3,393

Total net revenues		3,283			3,177			10,038			9,240
Cost of sales:
Cost of sales-products (including stock-based compensation expense of $3, $3, $10 and $8) ⁽¹⁾		1,148			1,152			3,499			3,341
Cost of sales-services (including stock-based compensation expense of $8, $7, $24 and $21) ⁽¹⁾		674			658			2,086			1,909

Total cost of sales		1,822			1,810			5,585			5,250

Gross margin		1,461			1,367			4,453			3,990
Operating expenses:
Research and development (including stock-based compensation expense of $15, $19, $49 and $54) ⁽¹⁾		514			523			1,494			1,503
Selling, general and administrative (including stock-based compensation expense of $24, $28, $83 and $79) ⁽¹⁾		957			1,020			2,893			2,904
Restructuring and related impairment of long-lived assets		35			36			82			58
Purchased in-process research and development		—			—			—			60

Total operating expenses		1,506			1,579			4,469			4,525

Operating loss		(45	)		(212	)		(16	)		(535	)
Gain on equity investments, net		5			4			5			31
Interest and other income, net		50			26			155			95
Settlement income		54			—			54			—

Income (loss) before income taxes		64			(182	)		198			(409	)
Provision (benefit) for income taxes		(3	)		35			54			154

Net income (loss)	$	67		$	(217	)	$	144		$	(563	)

Net income (loss) per common share-basic	$	0.02		$	(0.06	)	$	0.04		$	(0.16	)

Net income (loss) per common share-diluted	$	0.02		$	(0.06	)	$	0.04		$	(0.16	)

Shares used in the calculation of net income (loss) per common share-basic		3,548			3,443			3,523			3,425

Shares used in the calculation of net income (loss) per common share-diluted		3,661			3,443			3,598			3,425

(1)	For the three months ended April 1, 2007 and March 26, 2006 and the nine months ended April 1, 2007 and March 26, 2006, respectively.

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)


	April 1, 2007		June 30, 2006*
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,292	$	3,569
Short-term marketable debt securities		822		496
Accounts receivable, net		2,458		2,702
Inventories		567		540
Deferred and prepaid tax assets		230		209
Prepaid expenses and other current assets		793		757

Total current assets		8,162		8,273

Property, plant and equipment, net		1,586		1,812
Long-term marketable debt securities		1,372		783
Goodwill		2,571		2,610
Other acquisition-related intangible assets, net		694		929
Other non-current assets, net		665		675

	$	15,050	$	15,082

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	1	$	503
Accounts payable		1,214		1,446
Accrued payroll-related liabilities		759		777
Accrued liabilities and other		941		1,190
Deferred revenues		1,895		1,988
Warranty reserve		225		261

Total current liabilities		5,035		6,165

Long-term debt		1,270		575
Long-term deferred revenues		589		506
Other non-current obligations		1,264		1,492
Total stockholders’ equity		6,892		6,344

	$	15,050	$	15,082

*	Derived from audited financial statements

SUN MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)


	Nine Months Ended
	April 1, 2007			March 26, 2006
Cash flows from operating activities:
Net income (loss)	$	144		$	(563	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		388			440
Amortization of other acquisition related intangible assets		239			242
Deferred taxes		(20	)		(9	)
Impairment of assets		16			—
Gain on investments, net		—			(31	)
Stock-based compensation expense		166			162
Purchased in-process research and development		—			60
Changes in operating assets and liabilities:
Accounts receivable, net		265			229
Inventories		(51	)		30
Prepaid and other assets		(13	)		264
Accounts payable		(222	)		(6	)
Other liabilities		(427	)		(588	)

Net cash provided by operating activities		485			230

Cash flows from investing activities:
Increase in restricted cash		(4	)		(63	)
Purchases of marketable debt securities		(2,465	)		(1,652	)
Proceeds from sales of marketable debt securities		1,041			4,038
Proceeds from maturities of marketable debt securities		523			289
Proceeds from sales of equity investments, net		8			17
Purchases of property, plant and equipment, net		(73	)		(193	)
Acquisition of spare parts and other assets		(91	)		(53	)
Payments for acquisitions, net of cash acquired		(10	)		(3,150	)

Net cash used in investing activities		(1,071	)		(767	)

Cash flows from financing activities:
Purchase of hedge on convertible notes		(83	)		—
Proceeds from issuance of common stock, net		176			127
Proceeds from (principal payments on) borrowings and other obligations, net		216			—

Net cash provided by financing activities		309			127

Net decrease in cash and cash equivalents		(277	)		(410	)
Cash and cash equivalents, beginning of period		3,569			2,051

Cash and cash equivalents, end of period	$	3,292		$	1,641

SUN MICROSYSTEMS, INC.

NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS

(unaudited)

(in millions, except per share amounts)


	Three Months Ended						Nine Months Ended
	April 1, 2007			March 26, 2006			April 1, 2007			March 26, 2006
Calculation of net income (loss) excluding special items:
Net income (loss), *	$	67		$	(217	)	$	144		$	(563	)
Restructuring and related impairment of long-lived assets		35			36			82			58
Purchased in-process research and development		—			—			—			60
Gain on equity investments, net		(5	)		(4	)		(5	)		(31	)
Settlement income		(54	)		—			(54	)		—
Related tax effects		(8	)		(4	)		(19	)		(11	)

Net income (loss) excluding special items	$	35		$	(189	)	$	148		$	(487	)

Net income (loss) excluding special items per common share – basic	$	0.01		$	(0.06	)	$	0.04		$	(0.14	)

Net income (loss) excluding special items per common share – diluted	$	0.01		$	(0.06	)	$	0.04		$	(0.14	)

Shares used in the calculation of net income (loss) excluding special items per common share – basic		3,548			3,443			3,523			3,425

Shares used in the calculation of net income (loss) excluding special items per common share – diluted		3,661			3,443			3,598			3,425

Net income for the three and nine months ended April 1, 2007 included $50 million and $166 million of stock-based compensation expense or approximately $0.01 per share and $0.05 per share, respectively. 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 income for the three and nine months ended April 1, 2007 included $75 million and $233 million of purchase price accounting adjustments and intangible asset amortization relating to our fiscal 2006 acquisitions or approximately $0.02 per share and $0.07 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 fiscal 2006 acquisitions or approximately $0.03 per share and $0.10 per share, respectively.

SUN MICROSYSTEMS, INC.

OPERATIONS ANALYSIS – CONSOLIDATED (UNAUDITED)


STATEMENTS OF OPERATIONS	FY 2007								FY 2006										FY 2005
(in millions except per share amounts)	Q1		Q2		Q3		FY07		Q1		Q2		Q3		Q4		FY06		Q3		Q4		FY05
																			(Restated)
NET REVENUES
Products	1,959		2,260		2,060		6,279		1,704		2,108		2,035		2,524		8,371		1,683		1,927		7,126
Services	1,230		1,306		1,223		3,759		1,022		1,229		1,142		1,304		4,697		944		1,047		3,944

TOTAL	3,189		3,566		3,283		10,038		2,726		3,337		3,177		3,828		13,068		2,627		2,974		11,070
Growth vs. prior year (%)	17.0	%	6.9	%	3.3	%	8.6	%	3.7	%	17.5	%	20.9	%	28.7	%	18.0	%	-0.9	%	-4.4	%	-1.0	%
Growth vs. prior quarter (%)	-16.7	%	11.8	%	-7.9	%			-8.3	%	22.4	%	-4.8	%	20.5	%			-7.5	%	13.2	%

COST OF SALES
Products	1,123		1,228		1,148		3,499		966		1,223		1,152		1,486		4,827		975		1,130		4,119
Cost of settlement	0		0		0		0		0		0		0		0		0		0		0		55

Total	1,123		1,228		1,148		3,499		966		1,223		1,152		1,486		4,827		975		1,130		4,174
Services	678		734		674		2,086		558		693		658		703		2,612		565		613		2,307

TOTAL	1,801		1,962		1,822		5,585		1,524		1,916		1,810		2,189		7,439		1,540		1,743		6,481
% of revenue	56.5	%	55.0	%	55.5	%	55.6	%	55.9	%	57.4	%	57.0	%	57.2	%	56.9	%	58.6	%	58.6	%	58.5	%

GROSS MARGIN
Products	836		1,032		912		2,780		738		885		883		1,038		3,544		708		797		3,007
% of product revenue	42.7	%	45.7	%	44.3	%	44.3	%	43.3	%	42.0	%	43.4	%	41.1	%	42.3	%	42.1	%	41.4	%	42.2	%
Cost of settlement	0		0		0		0		0		0		0		0		0		0		0		(55	)
% of product revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	-0.8	%

Total product margin	836		1,032		912		2,780		738		885		883		1,038		3,544		708		797		2,952
% of product revenue	42.7	%	45.7	%	44.3	%	44.3	%	43.3	%	42.0	%	43.4	%	41.1	%	42.3	%	42.1	%	41.4	%	41.4	%

Services gross margin	552		572		549		1,673		464		536		484		601		2,085		379		434		1,637
% of service revenue	44.9	%	43.8	%	44.9	%	44.5	%	45.4	%	43.6	%	42.4	%	46.1	%	44.4	%	40.1	%	41.5	%	41.5	%

Total excluding settlement	1,388		1,604		1,461		4,453		1,202		1,421		1,367		1,639		5,629		1,087		1,231		4,644
% of revenue	43.5	%	45.0	%	44.5	%	44.4	%	44.1	%	42.6	%	43.0	%	42.8	%	43.1	%	41.4	%	41.4	%	42.0	%
Cost of settlement	0		0		0		0		0		0		0		0		0		0		0		(55	)
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	-0.5	%

TOTAL GROSS MARGIN	1,388		1,604		1,461		4,453		1,202		1,421		1,367		1,639		5,629		1,087		1,231		4,589
% of revenue	43.5	%	45.0	%	44.5	%	44.4	%	44.1	%	42.6	%	43.0	%	42.8	%	43.1	%	41.4	%	41.4	%	41.5	%

R&D	473		507		514		1,494		439		541		523		543		2,046		450		472		1,785
% of revenue	14.8	%	14.2	%	15.7	%	14.9	%	16.1	%	16.2	%	16.5	%	14.2	%	15.7	%	17.1	%	15.9	%	16.1	%
PURCHASED IN PROCESS R&D	0		0		0		0		60		0		0		0		60		0		0		0
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	2.2	%	0.0	%	0.0	%	0.0	%	0.5	%	0.0	%	0.0	%	0.0	%
SG&A	958		978		957		2,893		828		1,056		1,020		1,133		4,037		735		788		2,919
% of revenue	30.0	%	27.4	%	29.2	%	28.8	%	30.4	%	31.6	%	32.1	%	29.6	%	30.9	%	28.0	%	26.5	%	26.4	%
RESTRUCTURING CHARGES	21		26		35		82		12		10		36		228		286		44		86		262
% of revenue	0.7	%	0.7	%	1.1	%	0.8	%	0.4	%	0.3	%	1.1	%	6.0	%	2.2	%	1.7	%	2.9	%	2.4	%
IMPAIRMENT EXPENSE	0		0		0		0		0		0		0		70		70		0		0		0
% of revenue	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	1.8	%	0.5	%	0.0	%	0.0	%	0.0	%

TOTAL OPERATING EXPENSES	1,452		1,511		1,506		4,469		1,339		1,607		1,579		1,974		6,499		1,229		1,346		4,966
% of revenue	45.5	%	42.4	%	45.9	%	44.5	%	49.1	%	48.2	%	49.7	%	51.6	%	49.7	%	46.8	%	45.3	%	44.9	%

OPERATING INCOME (LOSS)	(64	)	93		(45	)	(16	)	(137	)	(186	)	(212	)	(335	)	(870	)	(142	)	(115	)	(377	)
Operating margin	-2.0	%	2.6	%	-1.4	%	-0.2	%	-5.0	%	-5.6	%	-6.7	%	-8.8	%	-6.7	%	-5.4	%	-3.9	%	-3.4	%

Interest and other income, net	42		63		50		155		44		25		26		19		114		37		32		133
Gain (loss) on equity investments, net	0		0		5		5		13		14		4		(4	)	27		2		(1	)	6
Settlement income	0		0		54		54		0		0		0		54		54		54		0		54
PRETAX INCOME (LOSS)	(22	)	156		64		198		(80	)	(147	)	(182	)	(266	)	(675	)	(49	)	(84	)	(184	)
Pretax income (loss) margin	-0.7	%	4.4	%	1.9	%	2.0	%	-2.9	%	-4.4	%	-5.7	%	-6.9	%	-5.2	%	-1.9	%	-2.8	%	-1.7	%

INCOME TAX PROVISION (BENEFIT)	34		23		(3	)	54		43		76		35		35		189		(21	)	(134	)	(77	)
TAX RATE (%)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A		N/A

NET INCOME (LOSS) (Reported)*****	(56	)	133		67		144		(123	)	(223	)	(217	)	(301	)	(864	)	(28	)	50		(107	)
Growth vs. prior year (%)	54.5	%	159.6	%	130.9	%	125.6	%	7.5	%	-5675.0	%	-675.0	%	-702.0	%	-707.5	%	96.3	%	-93.6	%	72.4	%
Growth vs. prior quarter (%)	81.4	%	337.5	%	-49.6	%			-346.0	%	-81.3	%	2.7	%	-38.7	%			-800.0	%	278.6	%
Net income (loss) margin	-1.8	%	3.7	%	2.0	%	1.4	%	-4.5	%	-6.7	%	-6.8	%	-7.9	%	-6.6	%	-1.1	%	1.7	%	-1.0	%

EPS (Diluted) (Reported)	(0.02	)	0.04		0.02		0.04		(0.04	)	(0.07	)	(0.06	)	(0.09	)	(0.25	)	(0.01	)	0.01		(0.03	)
Growth vs. prior year (%)	50.0	%	157.1	%	133.3	%	125.0	%	0.0	%	-100.0	%	-500.0	%	-1000.0	%	-733.3	%	95.7	%	-95.7	%	75.0	%
Growth vs. prior quarter (%)	77.8	%	300.0	%	-50.0	%			-500.0	%	-75.0	%	14.3	%	-50.0	%			N/A		100.0	%

SHARES (CSE)(Diluted)	3,497		3,626		3,661		3,598		3,407		3,424		3,443		3,475		3,437		3,376		3,410		3,368
OUTSTANDING SHARES	3,512		3,540		3,554		3,554		3,409		3,458		3,470		3,505		3,505		3,381		3,408		3,408

The information above for the fiscal year ended June 30, 2005 has been restated to reflect the adjustments that are further discussed in our Annual Report on Form 10-K, filed with the SEC on September 13, 2005.


	FY 2007								FY 2006										FY 2005
(in millions)	Q1		Q2		Q3		FY07		Q1		Q2		Q3		Q4		FY06		Q3		Q4		FY05
REVENUE BY GEOGRAPHY***
UNITED STATES ($M)	1,361		1,415		1,283		4,059		1,168		1,400		1,357		1,610		5,535		982		1,175		4,392
Growth vs. prior year (%)	16.5	%	1.1	%	-5.5	%	3.4	%	5.7	%	23.9	%	38.2	%	37.0	%	26.0	%	-5.3	%	-13.3	%	-7.9	%
Growth vs. prior quarter (%)	-15.5	%	4.0	%	-9.3	%			-0.6	%	19.9	%	-3.1	%	18.6	%			-13.1	%	19.7	%
INTERNATIONAL AMERICAS ($M)	197		230		195		622		138		190		185		242		755		144		171		590
Growth vs. prior year (%)	42.8	%	21.1	%	5.4	%	21.2	%	25.5	%	15.2	%	28.5	%	41.5	%	28.0	%	5.9	%	8.2	%	5.0	%
Growth vs. prior quarter (%)	-18.6	%	16.8	%	-15.2	%			-19.3	%	37.7	%	-2.6	%	30.8	%			-12.7	%	18.8	%
EMEA ($M)	1,109		1,311		1,212		3,632		966		1,224		1,115		1,341		4,646		1,009		1,133		4,152
Growth vs. prior year (%)	14.8	%	7.1	%	8.7	%	9.9	%	-0.7	%	18.0	%	10.5	%	18.4	%	11.9	%	0.7	%	4.2	%	5.3	%
Growth vs. prior quarter (%)	-17.3	%	18.2	%	-7.6	%			-14.7	%	26.7	%	-8.9	%	20.3	%			-2.7	%	12.3	%
APAC ($M)	522		610		593		1,725		454		523		520		635		2,132		492		495		1,936
Growth vs. prior year (%)	15.0	%	16.6	%	14.0	%	15.2	%	3.2	%	2.8	%	5.7	%	28.3	%	10.1	%	3.4	%	-2.9	%	1.2	%
Growth vs. prior quarter (%)	-17.8	%	16.9	%	-2.8	%			-8.3	%	15.2	%	-0.6	%	22.1	%			-3.3	%	0.6	%
% of Total Revenue
UNITED STATES (%)	42.7	%	39.7	%	39.1	%	40.4	%	42.8	%	42.0	%	42.7	%	42.1	%	42.4	%	37.4	%	39.6	%	39.7	%
INTERNATIONAL AMERICAS (%)	6.2	%	6.4	%	5.9	%	6.2	%	5.1	%	5.7	%	5.8	%	6.3	%	5.8	%	5.5	%	5.7	%	5.3	%
EMEA (%)	34.7	%	36.8	%	36.9	%	36.2	%	35.4	%	36.6	%	35.1	%	35.0	%	35.5	%	38.4	%	38.1	%	37.5	%
APAC (%)	16.4	%	17.1	%	18.1	%	17.2	%	16.7	%	15.7	%	16.4	%	16.6	%	16.3	%	18.7	%	16.6	%	17.5	%

PRODUCTS AND SERVICES REVENUE
COMPUTER SYSTEMS PRODUCTS ($M)	1,468		1,634		1,500		4,602		1,274		1,438		1,474		1,811		5,997		1,391		1,576		5,826
Growth vs. prior year (%)	15.2	%	13.6	%	1.8	%	9.9	%	-5.9	%	-4.5	%	6.0	%	14.9	%	2.9	%	1.9	%	-3.8	%	-0.5	%
Growth vs. prior quarter (%)	-18.9	%	11.3	%	-8.2	%			-19.2	%	12.9	%	2.5	%	22.9	%			-7.6	%	13.3	%
DATA MANAGEMENT PRODUCTS ($M)	491		626		560		1,677		430		670		561		713		2,374		292		351		1,300
Growth vs. prior year (%)	14.2	%	-6.6	%	-0.2	%	1.0	%	33.5	%	100.0	%	92.1	%	103.1	%	82.6	%	-15.6	%	-17.8	%	-13.4	%
Growth vs. prior quarter (%)	-31.1	%	27.5	%	-10.5	%			22.5	%	55.8	%	-16.3	%	27.1	%			-12.8	%	20.2	%
SUPPORT SERVICES ($M)	987		1,001		950		2,938		835		953		904		986		3,678		734		778		3,031
Growth vs. prior year (%)	18.2	%	5.0	%	5.1	%	9.1	%	12.1	%	23.1	%	23.2	%	26.7	%	21.3	%	0.4	%	-1.8	%	1.1	%
Growth vs. prior quarter (%)	0.1	%	1.4	%	-5.1	%			7.3	%	14.1	%	-5.1	%	9.1	%			-5.2	%	6.0	%
PROFESSIONAL SERVICES & EDUCATIONAL SERVICES ($M)	243		305		273		821		187		276		238		318		1,019		210		269		913
Growth vs. prior year (%)	29.9	%	10.5	%	14.7	%	17.1	%	-9.7	%	21.6	%	13.3	%	18.2	%	11.6	%	0.5	%	6.7	%	9.9	%
Growth vs. prior quarter (%)	-23.6	%	25.5	%	-10.5	%			-30.5	%	47.6	%	-13.8	%	33.6	%			-7.5	%	28.1	%

NET BOOKINGS ($M)**	3,036		3,603		3,238		9,877		2,413		3,018		2,680		3,376		11,487		2,536		3,078		11,043
Growth vs. prior year (%)	25.8	%	19.4	%	20.8	%	21.8	%	-1.6	%	1.4	%	5.7	%	9.7	%	4.0	%	-3.1	%	-3.2	%	-2.4	%
Growth vs. prior quarter (%)	-10.1	%	18.7	%	-10.1	%			-21.6	%	25.1	%	-11.2	%	26.0	%			-14.8	%	21.4	%
PRODUCT BACKLOG ($M), *	994		1,021		975				718		1,021		980		1,099				701		805

*	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.

**	The numbers presented prior to Q1 fiscal 2007 did not contain StorageTek information and should not be viewed as comparable.

***	Geographic revenue reported for FY06, Q1FY07 and Q2FY07 has been adjusted to reflect a correction in intercompany revenue to properly report country of origin.


BALANCE SHEETS	FY 2007								FY 2006									FY 2005
(in millions)	Q1		Q2		Q3				Q1		Q2		Q3		Q4			Q3		Q4
																		(Restated)
CASH & ST INVESTMENTS	3,971		3,456		4,114				2,501		2,449		2,872		4,065			3,135		3,396
ACCOUNTS RECEIVABLE, NET	2,036		2,331		2,458				2,087		2,289		2,301		2,702			2,020		2,231
RAW MATERIALS	119		126		106				82		95		49		68			75		48
WORK IN PROCESS	92		106		101				183		134		125		97			121		121
FINISHED GOODS	373		373		360				286		321		400		375			192		262

TOTAL INVENTORIES	584		605		567				551		550		574		540			388		431
OTHER CURRENT ASSETS	961		970		1,023				998		933		966		966			1,419		1,133

TOTAL CURRENT ASSETS	7,552		7,362		8,162				6,137		6,221		6,713		8,273			6,962		7,191
PP&E, NET	1,583		1,579		1,586				1,901		1,914		1,880		1,812			1,851		1,769
GOODWILL	2,566		2,571		2,571				2,466		2,472		2,487		2,610			441		441
LT MARKETABLE DEBT SECURITIES	700		1,381		1,372				2,032		1,827		1,557		783			4,222		4,128
OTHER NON-CURRENT ASSETS, NET	1,493		1,409		1,359				1,938		1,874		1,733		1,604			704		661

TOTAL ASSETS	13,894		14,302		15,050				14,474		14,308		14,370		15,082			14,180		14,190

SHORT TERM BORROWINGS	2		1		1				512		508		505		503			0		0
ACCOUNTS PAYABLE	1,292		1,331		1,214				1,091		1,214		1,315		1,446			1,071		1,167
ACCRUED LIABILITIES & OTHER	1,968		2,026		1,925				2,147		1,905		1,918		2,228			2,090		1,951
DEFERRED REVENUES	1,695		1,631		1,895				1,507		1,541		1,684		1,988			1,399		1,648

TOTAL CURRENT LIABILITIES	4,957		4,989		5,035				5,257		5,168		5,422		6,165			4,560		4,766
LT DEBT	582		579		1,270				603		593		585		575			1,116		1,123
LT DEFERRED REVENUES	558		567		589				549		469		472		506			519		544
OTHER NON-CURRENT OBLIGATIONS	1,388		1,396		1,264				1,410		1,585		1,504		1,492			1,429		1,083
STOCKHOLDERS’ EQUITY	6,409		6,771		6,892				6,655		6,493		6,387		6,344			6,556		6,674

TOTAL LIABILITIES & SE	13,894		14,302		15,050				14,474		14,308		14,370		15,082			14,180		14,190


CASH FLOW	Q1		Q2		Q3		FY07		Q1		Q2		Q3		Q4		FY06	Q3		Q4		FY05
OPERATING ACTIVITIES	157		153		175		485		224		(191	)	197		410		640	(2	)	195		369
INVESTING ACTIVITIES	109		(1,037	)	(143	)	(1,071	)	(770	)	(214	)	217		1,346		579	(345	)	238		(425	)
FINANCING ACTIVITIES	(473	)	135		647		309		3		90		34		172		299	18		84		(34	)


KEY METRICS	Q1		Q2		Q3				Q1		Q2		Q3		Q4			Q3		Q4
INVENTORY TURNS (hist.)	13.6		13.4		13.6				13.4		13.7		10.8		15.3			15.0		14.5
INVENTORY TURNS-PRODUCT ONLY (hist.)	8.8		8.6		8.7				8.6		8.8		6.9		9.9			9.7		9.3
DAYS SALES OUTSTANDING	57		59		67				69		62		65		64			69		68
DAYS PAYABLES OUTSTANDING	(65	)	(61	)	(60	)			(64	)	(57	)	(65	)	(59	)		(63	)	(60	)
DAYS OF SUPPLY ON HAND	29		28		28				33		26		29		22			23		22
L-T DEBT/EQUITY (%)	9.1	%	8.6	%	18.4	%			9.1	%	9.1	%	9.2	%	9.1	%		17.0	%	16.8	%
ROE (12 mo. avg.)(%)	-12.4	%	-6.8	%	-2.4	%			-1.5	%	-4.9	%	-7.8	%	-13.4	%		9.6	%	-1.6	%
BOOK VALUE PER SHARE ($)	1.82		1.91		1.94				1.95		1.89		1.84		1.81			1.94		1.96
PRICE PER SHARE @ CLOSE	4.95		5.42		6.01				3.87		4.36		4.97		4.15			4.03		3.73
ROA (12 mo. avg.)(%)	-5.5	%	-3.1	%	-1.1	%			-0.7	%	-2.3	%	-3.6	%	-5.9	%		4.4	%	-0.8	%
DEPREC. & AMORT. ($M)	204		214		209				189		265		228		224			191		198
CAPITAL INVESTMENTS, NET ($M)*	(160	)	81		152				48		82		63		122			58		58
SPARES INVESTMENTS ($M)	34		24		33				20		20		13		20			26		22
NUMBER OF EMPLOYEES	36,250		34,667		34,494				38,588		38,802		38,312		38,061			31,999		31,117
REV. PER EMP. (12 mo.)($K)	373.3		397.3		402.0				289.4		300.6		314.8		343.3			350.2		355.8
GM PER EMP. (12mo.)($K)	160.4		173.2		176.6				122.3		127.3		134.6		147.9			143.2		147.5
OP EXP AS % OF REV (12mo.)	48.9	%	47.4	%	46.5	%			45.8	%	47.3	%	48.1	%	49.7	%		46.9	%	44.9	%
NET INCOME (LOSS) PER EMP. (12mo.)($K)	(22.0	)	(12.7	)	(4.6	)			(2.5	)	(8.4	)	(13.2	)	(22.7	)		19.5		(3.4	)

The information above has been restated to reflect the adjustments that are further discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the SEC on September 13, 2005.

*	Included in the Q1 fiscal 2007 capital investments, net, are the cash proceeds of approximately $214 million from the sale of our Newark, California facility.


NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS	FY2007								FY 2006										FY 2005
(in millions except per share amounts)	Q1		Q2		Q3		FY07		Q1		Q2		Q3		Q4		FY06		Q3*		Q4***		FY05*
																			(Restated)
GAAP net income (loss)**, ***	(56	)	133		67		144		(123	)	(223	)	(217	)	(301	)	(864	)	(28	)	50		(107	)
Purchased in-process research and development	0		0		0		0		60		0		0		0		60		0		0		0
Restructuring and related impairment of long-lived assets	21		26		35		82		12		10		36		228		286		44		86		262
Loss (gain) on equity investments, net	0		0		(5	)	(5	)	(13	)	(14	)	(4	)	4		(27	)	(2	)	1		(6	)
Impairment expense	0		0		0		0		0		0		0		70		70		0		0		0
Settlement income	0		0		(54	)	(54	)	0		0		0		(54	)	(54	)	(54	)	0		(54	)
Settlement of litigation**	0		0		0		0		0		0		0		0		0		0		0		55
Valuation allowance on deferred tax assets	0		0		0		0		0		0		0		0		0		(34	)	0		(34	)
Related tax effects	(7	)	(4	)	(8	)	(19	)	(4	)	(3	)	(4	)	(8	)	(19	)	(7	)	(6	)	(26	)

Net income (loss) excluding special items	(42	)	155		35		148		(68	)	(230	)	(189	)	(61	)	(548	)	(81	)	131		90
Growth vs. prior year (%)	38.2	%	167.4	%	118.5	%	130.4	%	-351.9	%	-1869.2	%	133.3	%	-146.6	%	-708.9	%	68.1	%	174.4	%	111.4	%
EPS (Diluted) excluding special items	(0.01	)	0.04		0.01		0.04		(0.02	)	(0.07	)	(0.06	)	(0.02	)	(0.16	)	(0.02	)	0.04		0.03
Growth vs. prior year (%)	50.0	%	157.1	%	116.7	%	126.7	%	-300.0	%	-100.0	%	-200.0	%	-150.0	%	633.3	%	75.0	%	180.0	%	112.5	%

SHARES (CSE)(Diluted)	3,497		3,626		3,661		3,598		3,407		3,424		3,443		3,475		3,437		3,376		3,410		3,368
OUTSTANDING SHARES	3,512		3,540		3,554		3,554		3,409		3,458		3,470		3,505		3,505		3,381		3,408		3,408

The non-GAAP calculation of Net income (loss) excluding special items for the three month period ended March 27, 2005 and year ended June 30, 2005 includes a $69 million benefit for the impact of the change in Dutch withholding tax legislation which was effected in the third quarter of fiscal 2005 and a $213 million benefit arising from adjustments to our income tax reserves resulting from the conclusion of a U.S. and foreign income tax audit.

**	Included in Cost of sales – products

***	The non-GAAP calculation of net income excluding special items for the three months ended June 30, 2005 includes a $213 million benefit arising from adjustments to our income tax reserves resulting from the conclusion of a U.S. and foreign income tax audit.

****	Net income (loss) for the three months ended April 1, 2007, December 31, 2006, and October 1, 2006 included $50 million, $58 million, and $58 million of stock-based compensation expense or approximately $0.01 per share, $0.02 per share and and $0.02 per share, respectively.

Net income (loss) for the three months ended March 26, 2006, three months ended December 25, 2005 and three months ended September 25, 2005 included $57 million, $55 million and $50 million of stock-based compensation expense or approximately $0.02 per share, $0.02 per share and $0.01 per share, respectively.

*****

Net income (loss) for the three months ended April 1, 2007, December 31, 2006 and October 1, 2006, included $75 million, $79 million, $79 million of purchase price accounting adjustments and intangible asset amortization relating to our fiscal 2006 acquisitions or approximately $0.02 per share, $0.02 per share and $0.02 per share, respectively. Net loss for the three months ended March 26, 2006, three month ended December 25, 2005 and three months ended September 25, 2005 included $87 million, $145 million and $122 million of purchase price accounting adjustments and intangible asset amortization relating to our fiscal 2006 acquisitions or approximately $0.03 per share, $0.04 per share and $0.04 per share, respectively.