Sun’s surprise?

Sun Microsystems (SUNW) surprised investors late Monday when it filed its 10-K and noted that it would take a $1.05 billion non-cash charge to write-off a deferred tax asset it said it could no longer carry. But a quick skim of the company’s tax footnote in its 2002 10-K clearly showed a big spike in Sun’s deferred tax assets between 2002 and 2001, which should have raised some questions for investors. In addition, Sun’s tax footnote showed that its effective tax rate (ETR) in 2002 was 44 percent. As noted in Chapter 9, many professional investors start paying closer attention any time the ETR goes above 40 percent (or falls below 30 percent).