Sun preps for $2bn charge and adjusts Q4 books

Asset impairment

ComputerWire: IT Industry Intelligence

Sun Microsystems Inc says that it could face an acquisition-related charge of $2.2bn for its second quarter ending December 31 if it does not see a drastic improvement in its share price. The warning was given in the company's annual report for fiscal 2002, which also details an adjustment of its earnings for the fourth quarter ended June 30.

A recent decline in Santa Clara, California-based Sun's share price means that it faces possible charges due to the devaluation of acquired assets. In its annual report filing with the Securities and Exchange Commission, the company said it will perform a goodwill impairment analysis at the end of its current second quarter.

According to the filing, this analysis could result in a charge of $2.2bn unless the Unix server vendor's market capitalization recovers to the level of April 2002. The company is currently valued at $8.4bn, well below the $29.1bn it was worth in April. To increase its market capitalization to the desired level, Sun's share price needs to rise to about $9. The company's shares have been trading at under five dollars since late July.

Sun's share price enjoyed a small boost in after-hours trading after the company said that it had over-estimated its vacation and sales commission costs in the fourth quarter by $19m, as well as its related accrual balances by $42m. The resulting adjustment improved the company's previously stated net income for the fourth quarter by $41m, to $61m. As a result, Sun's net loss for the full financial year decreased by the same amount, to $587m.

Sun has also announced two new appointments to its board of directors. The company announced that Lynn Turner, the former chief accountant of the SEC, and Michael Lehman, its own former chief financial officer, are joining its board of directors. Turner and Lehman will join Sun's board on November 7, with Turner also joining Sun's audit committee. Lehman retired as Sun's chief financial officer in July, and resigned from part-time duties in September.

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