01—Abstract
Summary
Summary of the 10-K filed June 25, 2015. Cited figures are marked; the original filing is the authoritative source.
Oracle's fiscal 2015 10-K (fiscal year ended May 31, 2015) shows total revenues essentially flat at $38.2 billiona (down 0.1% as reported, up about 4% in constant currency), while currency headwinds cut revenue growth by 4 points, operating expenses rose 4% and operating income fell 6% to $13.9 billion, with operating margin declining to 36% from 39%.
Net income fell 9% to $9.9 billion and diluted EPS declined to $2.21b from $2.38. The software and cloud business (77% of revenue) was the core driver, with license updates and product support growing to $18.8 billion and carrying a 90% margin, while new software licenses and cloud subscriptions fell 5% in reported terms and cloud SaaS/PaaS grew 32%. Hardware systems revenue declined 3%, and services fell 4%.
Balance sheet and capital allocation changed materially. Oracle issued $20.0 billionc of senior notes, pushing total borrowings to $42.0 billion from $24.1 billion. Cash, cash equivalents and marketable securities rose to $54.4 billion, but Oracle spent $6.2 billion on acquisitions (principally MICROS Systems), $8.1 billion on buybacks and $2.3 billion on dividends.
Free cash flow was $12.9 billiond, down 10%, and capital expenditures rose sharply to $1.4 billion. Management recorded a $186 million goodwill impairment in its hardware systems products unit and noted that the consulting unit's fair value exceeded its carrying amount by only 16%.
For investors, the key tensions are slowing constant-currency license growth, margin compression from higher operating costs, a substantially higher debt load, and the transition toward cloud revenue, which is recognized ratably and therefore builds more slowly than up-front license sales. The company's quarterly dividend was set at $0.15 per share for the coming period.
02—Key points
Key Highlights
- Total revenues of $38.2 billion were flat year over year as reported, and grew about 4% in constant currency; foreign exchange reduced revenue growth by 4 percentage points.
- Operating income declined 6% to $13.9 billion and operating margin fell to 36% from 39%, as operating expenses rose 4% led by sales/marketing and R&D headcount growth.
- Net income fell 9% to $9.9 billion; diluted EPS was $2.21 versus $2.38 a year earlier.
- Software license updates and product support ($18.8 billion, 90% margin) remains the most profitable and largest business, while new software licenses declined 9% and cloud SaaS/PaaS grew 32% to $1.5 billion.
- Total borrowings increased to $42.0 billion from $24.1 billion after $20.0 billion of new senior notes, while cash and marketable securities reached $54.4 billion.
- Capital returns totaled roughly $10.4 billion in fiscal 2015 ($8.1 billion repurchases plus $2.3 billion dividends), with $9.2 billion remaining on the buyback authorization and a $0.15 quarterly dividend declared for July 2015.
- A $186 million goodwill impairment hit the hardware systems products unit, and the consulting unit's goodwill cushion was only 16% above carrying value.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Oracle Corp kept $0.26.
- Revenue$38.23B100.0%
- Cost of revenue−$14.52B38.0%
- Gross profit$23.71B62.0%
- Operating costs−$9.84B25.7%
- Operating income$13.87B36.3%
- Interest, other & tax−$3.93B10.3%
- Net income$9.94B26.0%
Where FY2015 revenue went
$38.23B- Cost of revenue: $14.52B, 38% of revenue
- Net income: $9.94B, 26% of revenue
- R&D: $5.52B, 14% of revenue
- Other operating costs: $4.31B, 11% of revenue
- Interest, other & tax: $3.93B, 10% of revenue
Kept 26% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed June 25, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $38.23B$38.27B | −0.1% |
| Gross Profit | $23.71B— | — |
| R&D Expenses | $5.52B$5.15B | +7.2% |
| Operating Expenses | $24.36B$23.52B | +3.6% |
| Operating Income | $13.87B$14.76B | −6.0% |
| Interest Expense | $1.14B$914.00M | +25.1% |
| Net Income | $9.94B$10.96B | −9.3% |
| EPS (Basic) | $2.26$2.42 | −6.6% |
| EPS (Diluted) | $2.21$2.38 | −7.1% |
| Shares Outstanding (Basic) | 4.40B4.53B | −2.7% |
| Shares Outstanding (Diluted) | 4.50B4.60B | −2.2% |
05—Questions
Frequently Asked Questions
Why did Oracle's operating income and net income decline in fiscal 2015 even though revenue was roughly flat?
Operating expenses rose 4% while reported revenue was flat, so margin compressed. Expense growth was driven by headcount increases in sales, marketing and R&D, higher cloud SaaS/PaaS costs, and acquisition-related charges including a $186 million goodwill impairment. Currency also reduced operating income by about 6 percentage points, and the tax rate rose to 22.6% from 20.1%.
How much debt does Oracle carry, and why did it increase so much?
Total borrowings were $42.0 billion at May 31, 2015, up from $24.1 billion. The increase came from $20.0 billion of senior notes issued in July 2014 and May 2015, used for general corporate purposes including buybacks, dividends and the MICROS acquisition. Interest expense rose 25% to $1.1 billion, and the company reports it was in compliance with its debt covenants.
Is Oracle's cloud business growing fast enough to offset slowing license sales?
Cloud SaaS and PaaS revenue grew 32% to $1.5 billion and cloud IaaS grew 33% to $608 million, but these are still small relative to the company's $38 billion base. New software license revenue fell 9%. Because cloud revenue is recognized ratably over subscription terms, it builds gradually and can initially mask declines in up-front license sales, creating volatility in reported results.
How much cash does Oracle hold abroad, and what would repatriation cost?
Foreign subsidiaries held $42.7 billion of cash, cash equivalents and marketable securities. Oracle considers $38.0 billion of undistributed foreign earnings indefinitely reinvested. If repatriated, the potential deferred U.S. tax liability would be approximately $11.8 billion, assuming full use of foreign tax credits.
06—Continue