01—Abstract
Summary
Summary of the 10-K filed June 29, 2009. Cited figures are marked; the original filing is the authoritative source.
Oracle's fiscal 2009 10-K (year ended May 31, 2009) shows a company that grew total revenue 4% in reported dollars (10% in constant currency) to $23.25 billiona, with operating income up 6% to $8.32 billion and net income up 1% to $5.59 billion.
Diluted EPS was $1.09b versus $1.06. Software revenue, which is roughly 81% of the total, grew 6% reported and 12% constant currency. Software license updates and product support, the highest-margin line at 84%, grew 14% reported and drove most of the recurring revenue base.
New software license revenue fell 5% reported to $7.12 billionc, and applications license revenue dropped 16%, while database and middleware held flat. Services revenue declined 5%, with consulting down 7% and education down 16%. The reported figures were hurt by a roughly 6-point currency drag from the strong U.S. dollar.
Balance sheet and cash flow remain strong. Cash, cash equivalents and marketable securities totaled $12.6 billiond, operating cash flow rose 12% to $8.26 billion, and free cash flow reached $7.73 billion. Total borrowings were $10.2 billion against $25.1 billion of stockholders' equity.
Oracle repurchased $4.0 billion of stock and declared its first-ever quarterly dividend of $0.05 per share. Acquisition-related amortization of intangibles rose 41% to $1.71 billion, which weighs on reported margins. Operating margin was 36%, up from 35%.
The dominant forward-looking item is the pending $7.4 billion cash acquisition of Sun Microsystems at $9.50 per share, announced April 19, 2009 and subject to Sun stockholder approval and regulatory clearance. Management also warned of continued macroeconomic pressure on license demand, and the company disclosed material ongoing litigation, including the SAP IP case and the Parallel Networks patent matter.
02—Key points
Key Highlights
- Total revenue of $23.25B rose 4% reported (10% constant currency); a roughly 6-point currency headwind offset much of the underlying growth.
- Software license updates and product support revenue grew 14% to $11.75B and represented 50% of revenue at an 84% margin, providing a large recurring base.
- New software license revenue declined 5% to $7.12B, with applications license revenue down 16%, reflecting weaker enterprise IT spending.
- Operating income rose 6% to $8.32B (36% margin), and net income was $5.59B, up 1%; diluted EPS was $1.09 versus $1.06 a year earlier.
- Operating cash flow of $8.26B and free cash flow of $7.73B (138% of net income) support capital returns and acquisitions.
- Oracle repurchased $4.0B of stock and initiated its first quarterly dividend of $0.05 per share, with $6.3B remaining under the buyback authorization.
- A pending $7.4B cash acquisition of Sun Microsystems at $9.50 per share is subject to Sun shareholder approval and regulatory clearance and is expected to add significant intangible amortization and integration costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Oracle Corp kept $0.24.
- Revenue$23.25B100.0%
- Cost of revenue$-00.0%
- Gross profit$23.25B100.0%
- Operating costs−$14.93B64.2%
- Operating income$8.32B35.8%
- Interest, other & tax−$2.73B11.7%
- Net income$5.59B24.1%
Where FY2009 revenue went
$23.25B- Other operating costs: $12.16B, 52% of revenue
- Net income: $5.59B, 24% of revenue
- Cost of revenue: $0, 0.0% of revenue
- R&D: $2.77B, 12% of revenue
- Interest, other & tax: $2.73B, 12% of revenue
Kept 24% as net incomeCost of revenue $0 · 0.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed June 29, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $23.25B$22.43B | +3.7% |
| Cost of Revenue | $0$0 | — |
| Gross Profit | $23.25B$22.43B | +3.7% |
| R&D Expenses | $2.77B— | — |
| Operating Expenses | $14.93B$14.59B | +2.4% |
| Operating Income | $8.32B$7.84B | +6.1% |
| Interest Expense | $630.00M-$394.00M | +259.9% |
| Net Income | $5.59B$5.58B | +0.2% |
| EPS (Basic) | $1.10$1.08 | +1.9% |
| EPS (Diluted) | $1.09$1.06 | +2.8% |
| Shares Outstanding (Basic) | 5.07B5.13B | −1.2% |
| Shares Outstanding (Diluted) | 5.13B5.23B | −1.9% |
05—Questions
Frequently Asked Questions
What drove Oracle's revenue growth in fiscal 2009, and why was reported growth so much lower than constant currency growth?
Constant currency revenue grew 10%, driven mainly by software license updates and product support (up 19% constant currency) and by acquisitions such as BEA Systems. Reported growth was only 4% because the strengthening U.S. dollar reduced revenue by about 6 percentage points. New software license revenue was essentially flat in constant currency, with database and middleware up 7% and applications down 10%.
Is Oracle's recurring support revenue at risk given the weak economy?
Support revenue is the most resilient part of the business. Substantially all customers renew support contracts annually, and most purchase support with new licenses, so the base grows even when new license sales are flat. Management noted, however, that economic weakness can reduce renewal and attachment rates over time, and that support renewals for acquired companies are subject to fair value adjustments that reduce recognized revenue ($243 million in fiscal 2009).
What are the main risks of the proposed Sun Microsystems acquisition?
The $7.4 billion cash deal depends on Sun shareholder approval and antitrust and merger-control clearances in the U.S. and EU. Oracle could face integration challenges, overlapping product lines, and charges that will reduce earnings, since under the new accounting rules (SFAS 141R, effective fiscal 2010) acquisition costs and restructuring are expensed rather than capitalized. The deal would also add more intangible amortization and reduce cash available for buybacks and dividends. Sun would pay Oracle a $260 million termination fee in certain circumstances.
How leveraged is Oracle, and can it meet its debt obligations?
Oracle had $10.2 billion of senior notes outstanding at May 31, 2009, against $12.6 billion of cash and marketable securities, so it was in a net cash position. Scheduled maturities are $1.0 billion in fiscal 2010, $2.25 billion in fiscal 2011 and $1.25 billion in fiscal 2013. Oracle also has $4.9 billion of available revolving credit capacity. Debt rises if the Sun acquisition is financed with borrowings, and rating agency actions could increase borrowing costs.
Are there material legal or tax exposures that investors should monitor?
Yes. The securities class action was dismissed on June 16, 2009, but plaintiffs are expected to appeal. Oracle is also pursuing the SAP IP litigation and defending the Parallel Networks patent appeal. Unrecognized tax benefits total $2.3 billion, and the IRS and foreign tax authorities are reviewing intercompany transfer pricing. Management believes these matters will not have a material adverse effect, but outcomes are uncertain.
06—Continue