WHY do companies issue full-text earnings releases via newswire services? Except for bloating the bottom lines of the newswires, who actually benefits from this practice?
Sun Microsystems Inc.’s CEO Jonathan Schwartz has written to the SEC to ask the same thing. I’ve chimed in with how I think companies could do away with certain types of releases. And Sun’s web technologies director Tim Bray has an idea for an open newswire based on Atom.
But here’s a less radical concept I have for the “perfect” earnings release circa 2006. It still makes use of the wire services to achieve broad dissemination, but it slashes the cost to companies and ultimately their shareholders.
Everybody wins who should win. It’s a before-and-after demonstration.
Sun’s Q4 Earnings Release as sent via PR Newswire on July 25, 2006.
( 2,158 words)
Sun Microsystems Reports Results for Fourth Quarter Fiscal Year 2006
Tuesday July 25, 4:00 pm ET- Total revenues up 29% year over year; up 21% sequentially
- Sequential revenue growth fueled by Solaris 10 Operating System and increasing acceptance of recently introduced products
Revenues for the fourth quarter of fiscal 2006 were $3.828 billion, an increase of 29 percent as compared with $2.974 billion for the fourth quarter of fiscal 2005. Year over year revenue increase resulted from both acquisitions and increasing acceptance of the Solaris(TM) 10 Operating System, as well as recently introduced products. Computer Systems Products revenues increased 15% year over year, the second consecutive quarter of year over year revenue increase.
Net loss for the fourth quarter of fiscal 2006 on a GAAP basis was $301 million or a net loss of ($0.09) per share, as compared with net income of $50 million, or net income per share of $0.01, for the fourth quarter of fiscal 2005.
GAAP net loss for the fourth quarter of fiscal 2006 included: $86 million principally related to intangible asset amortization associated with recent acquisitions, $63 million of stock-based compensation charges relating to the adoption of SFAS 123R, $228 million of restructuring charges and an $8 million benefit for related tax effects, $70 million in impairment of acquisition- related intangible assets, $54 million in settlement income, and a $4 million loss on equity investments. In addition, we incurred a $58 million tax charge and $14 million reduction in other income due to a repatriation of foreign earnings. The net impact of these nine items was approximately ($0.13) per share.
Cash generated from operations for the fourth quarter was $410 million and cash and marketable debt securities balance at the end of the quarter was $4.848 billion.
“We’re making excellent progress returning Sun to growth and profitability. Revenue, bookings and backlog are all up substantially — indicating we’re gaining traction, market confidence and share,” said Jonathan Schwartz, CEO, Sun Microsystems. “Our position is steadily improving — among a few highlights: the Solaris OS exceeded 5 million licenses in Q4, largely on Dell and HP servers, and on Sun. The Java(TM) platform continues to drive demand in the datacenter and on leading consumer devices. And by opening our UltraSPARC® platforms to Ubuntu Linux — we’re proving great products and customer choice matter.”
“Our total revenues grew by more than 20% sequentially in the June quarter, and this was the largest sequential growth from Q3 to Q4 since fiscal 2000. Our revenue growth was fairly broad-based from both a geographic and industry basis. In the former Sun standalone business, more than half of our 15 geographies had double-digit product revenue growth year over year. The company did an outstanding job remaining focused on the fundamentals, including shipping product, controlling inventory, and managing the overall cash conversion cycle. And, we’re starting the new fiscal year with a healthy product backlog of over $1 billion,” said Michael Lehman, chief financial officer and executive vice president, Corporate Resources, Sun Microsystems.
Sun has scheduled a conference call today to discuss its financial results for Q4 fiscal year 2006 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 sun.com.
FOR MORE INFORMATION INVESTOR CONTACT: Bret Schaefer 650-786-0123 firstname.lastname@example.org MEDIA CONTACT: Kristi Rawlinson 650-786-6933 email@example.com INDUSTRY ANALYST CONTACT: Emma Johnson 650-786-3746 firstname.lastname@example.org
This press release contains forward-looking statements regarding the future results and performance of Sun Microsystems, Inc., including statements regarding returning to growth and profitability, increasing share and improving market position. 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: risks associated with Sun’s ability to achieve expected cost reductions within expected time frames; increased competition; failure to rapidly and successfully develop and introduce new products; 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 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; Sun’s dependence on channel partners; and failure to successfully integrate acquired companies. 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, 2005 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 25, 2005, December 25, 2005 and March 26, 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.
NOTE: Sun, Sun Microsystems, the Sun logo, Solaris, Java and The Network Is The Computer are trademarks or registered trademarks of Sun Microsystems, Inc. in the United States and in other countries. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. in the US and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc.
SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in millions, except per share amounts) Three Months Fiscal Years Ended Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 * Net revenues: Products $2,524 $1,927 $8,371 $7,126 Services 1,304 1,047 4,697 3,944 Total net revenues 3,828 2,974 13,068 11,070 Cost of sales: Cost of sales-products (including stock-based compensation expense of $3 and $10) (1) 1,486 1,130 4,827 4,174 Cost of sales-services (including stock-based compensation expense of $8 and $29) (1) 703 613 2,612 2,307 Total cost of sales 2,189 1,743 7,439 6,481 Gross margin 1,639 1,231 5,629 4,589 Operating expenses: Research and development (including stock-based compensation expense of $19 and $74) (1) 543 472 2,046 1,785 Selling, general and administrative (including stock-based compensation expense of $33 and $112) (1) 1,133 788 4,037 2,919 Restructuring charges 228 86 286 262 Impairment of other acquisition- related intangible assets 70 — 70 — Purchased in-process research and development — – 60 — Total operating expenses 1,974 1,346 6,499 4,966 Operating loss (335) (115) (870) (377) Gain (loss) on equity investments, net (4) (1) 27 6 Interest and other income, net 19 32 114 133 Settlement income 54 — 54 54 Loss before income taxes (266) (84) (675) (184) Provision for (benefit from) income taxes 35 (134) 189 (77) Net income (loss) $(301) $50 $(864) $(107) Net income (loss) per common share- basic $(0.09) $0.01 $(0.25) $(0.03) Net income (loss) per common share- diluted $(0.09) $0.01 $(0.25) $(0.03) Shares used in the calculation of net income (loss) per common share-basic 3,475 3,399 3,437 3,368 Shares used in the calculation of net income (loss) per common share- diluted 3,475 3,410 3,437 3,368 (1) For the three months and fiscal year ended June 30, 2006, respectively. * Derived from audited financial statements SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) June 30, June 30, 2006 2005 (unaudited) ASSETS Current assets: Cash and cash equivalents $3,569 $2,051 Short-term marketable debt securities 496 1,345 Accounts receivable, net 2,702 2,231 Inventories 540 431 Deferred and prepaid tax assets 118 255 Prepaid expenses and other current assets 757 878 Total current assets 8,182 7,191 Property, plant and equipment, net 1,806 1,769 Long-term marketable debt securities 783 4,128 Goodwill 2,569 441 Other acquisition-related intangible assets, net 929 113 Other non-current assets, net 657 548 $14,926 $14,190 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt and short-term borrowings $503 $– Accounts payable 1,446 1,167 Accrued payroll-related liabilities 777 713 Accrued liabilities and other 1,185 1,014 Deferred revenues 1,988 1,648 Warranty reserve 261 224 Total current liabilities 6,160 4,766 Long-term debt 575 1,123 Long-term deferred revenues 546 544 Other non-current obligations 1,301 1,083 Total stockholders’ equity 6,344 6,674 $14,926 $14,190 * Derived from audited financial statements SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in millions) Fiscal Years Ended June 30, June 30, 2006 2005 Cash flows from operating activities: Net loss $(864) $(107) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 575 671 Amortization of other acquisition related intangible assets 331 96 Tax benefits from employee stock plan — 25 Deferred taxes 73 (315) Impairment of assets 155 — (Gain) loss on investments, net (10) 9 Stock-based compensation expense 225 — Purchased in-process research and development 60 — Changes in operating assets and liabilities: Accounts receivable, net (163) 111 Inventories 44 32 Prepaid and other assets 246 (19) Accounts payable 130 105 Other liabilities (162) (239) Net cash provided by operating activities 640 369 Cash flows from investing activities: Increase in restricted cash (69) — Purchases of marketable debt securities (1,831) (7,154) Proceeds from sales of marketable debt securities 5,434 6,181 Proceeds from maturities of marketable debt securities 580 941 Proceeds from sales of equity investments, net 15 49 Purchases of property, plant and equipment, net (315) (257) Purchases of spare parts and other assets (73) (90) Payments for acquisitions, net of cash acquired (3,162) (95) Net cash provided by (used in) investing activities 579 (425) Cash flows from financing activities: Proceeds from issuance of common stock, net 249 218 Principal payments on borrowings and other obligations 50 (252) Net cash provided by (used in) financing activities 299 (34) Net increase (decrease) in cash and cash equivalents 1,518 (90) Cash and cash equivalents, beginning of period 2,051 2,141 Cash and cash equivalents, end of period $3,569 $2,051 SUN MICROSYSTEMS, INC. NON-GAAP CALCULATION OF NET INCOME (LOSS) EXCLUDING SPECIAL ITEMS (unaudited) (in millions, except per share amounts) Three Months Fiscal Years Ended Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 Calculation of net income (loss) excluding special items: Net income (loss)**, *** $(301) $50 $(864) $(107) Restructuring charges 228 86 286 262 Impairment of other acquisition-related intangible assets 70 — 70 — Purchased in-process research and development — – 60 — Loss (gain) on equity investments, net 4 1 (27) (6) Settlement income (54) — (54) (54) Settlement of litigation* — – — 55 Valuation allowance on deferred tax assets — – — (34) Related tax effects (8) (6) (19) (26) Net income (loss) excluding special items $(61) $131 $(548) $90 Net income (loss) excluding special items per common share – basic $(0.02) $0.04 $(0.16) $0.03 Net income (loss) excluding special items per common share – diluted $(0.02) $0.04 $(0.16) $0.03 Shares used in the calculation of net income (loss) excluding special items per common share – basic 3,475 3,399 3,437 3,368 Shares used in the calculation of net income (loss) excluding special items per common share – diluted 3,475 3,410 3,437 3,392 * Included in Cost of sales – products ** Net loss for the three months and fiscal year ended June 30, 2006 included $63 million and $225 million of stock-based compensation expense or approximately $0.02 per share and $0.07 per share, respectively. *** Net loss for the three months and fiscal year ended June 30, 2006 included $86 million and $440 million of purchase price accounting adjustments and intangible asset amortization relating to our recent acquisitions or approximately $0.02 per share and $0.13 per share, respectively.
Jonathan Schwartz’s blog post:
(Note: I’d add a link to the conference call lobby page, but it isn’t available as I post this.)
So why isn’t this the normal way companies issue their earnings releases in 2006? What’s the downside? Seems we are just waiting for somebody to say “yes.”
Update October 12, 2006: I had an interesting conversation with Bret Schaefer, Vice President of Investor Relations at Sun, about this idea. Our conversation was focused on trying to figure out why you could not use this idea. The only thing we came up with, and it was his insight, is that some media outlets (Reuters, Thomson Financial and Bloomberg) use computers to write their initial news articles when earnings releases first move over the wire. If the release doesn’t contain the news, the computers are stymied. Unlike people, they can’t click on the links in the release to retrieve the information to write their stories.
Now, having worked in several newsrooms, I can tell you that if your news is important, news organizations will find a way to get it. Also, one has to question whether it makes sense to spend a lot of money each year sending out full text release via a wire service just so that computers can rewrite them into news flashes. Also, this only applies to earnings releases.
One option you have is to put just the headline information from your earnings announcement in the release. That will give the computers something to work from to write their news flashes. While this will add words to your release, it will still be much shorter than usual releases.
This makes sense in another respect. Most wire services charge a flat fee for the first 300-odd words. So you can extend my 25-word sample to 300 words without incurring additional newswire charges.