Oracle 2009 Annual Report Download - page 189

services transactions as defined in ASC 985-605. The more significant factors considered
in determining whether the revenues should be accounted for separately include the
nature of services (i.e. consideration of whether the services are essential to the
functionality of the licensed product), degree of risk, availability of services from other
vendors, timing of payments and impact of milestones or acceptance criteria on the
realizability of the software license fee. Revenues for consulting services are generally
recognized as the services are performed. If there is a significant uncertainty about the
project completion or receipt of payment for the consulting services, revenues are
deferred until the uncertainty is sufficiently resolved. We estimate the proportional
performance on contracts with fixed or “not to exceed” fees on a monthly basis utilizing
hours incurred to date as a percentage of total estimated hours to complete the project. If
we do not have a sufficient basis to measure progress towards completion, revenues are
recognized when we receive final acceptance from the customer. When total cost
estimates exceed revenues, we accrue for the estimated losses immediately using cost
estimates that are based upon an average fully burdened daily rate applicable to the
consulting organization delivering the services. The complexity of the estimation process
and factors relating to the assumptions, risks and uncertainties inherent with the
application of the proportional performance method of accounting affects the amounts of
revenues and related expenses reported in our consolidated financial statements. A
number of internal and external factors can affect our estimates, including labor rates,
utilization and efficiency variances and specification and testing requirement changes.
On Demand is comprised of Oracle On Demand and Advanced Customer Services and is
a part of our services business. Oracle On Demand services are offered as standalone
arrangements or as a part of arrangements to customers buying new software licenses or
hardware systems products and services. Our On Demand services provide multi-featured
software and hardware management and maintenance services for our software and
hardware systems products delivered at our data center facilities, select partner data
centers or customer facilities. Advanced Customer Services provide customers with
services to architect, implement and manage customer IT environments including
software and hardware systems product management services, industry-specific solution
support centers and remote and on-site expert services. Depending upon the nature of the
arrangement, revenues from On Demand services are recognized as services are
performed or ratably over the term of the service period, which is generally one year or
less.
Education revenues are a part of our services business and include instructor-led,
media-based and internet-based training in the use of our software and hardware
products. Education revenues are recognized as the classes or other education offerings
are delivered.
If an arrangement contains multiple elements and does not qualify for separate accounting
for the product and service transactions, then new software license revenues and/or
hardware systems products revenues, including the costs of hardware systems products,
are generally recognized together with the services based on contract accounting using
either the percentage-of-completion or completed-contract method. Contract accounting
is applied to any bundled software, hardware systems and services arrangements: (1) that
include milestones or customer specific acceptance criteria that may affect collection of
the software license or hardware systems product fees; (2) where consulting services
include significant modification or customization of the software or hardware systems
product; (3) where significant consulting services are provided for in the software license
contract or hardware systems product contract without additional charge or are
substantially discounted; or (4) where the software license or hardware systems product
payment is tied to the performance of consulting services. For the purposes of revenue
classification of the elements that are accounted for as a single unit of accounting, we
allocate revenues to software and nonsoftware elements based on a rational and consistent
methodology utilizing our best estimate of fair value of such elements.
We also evaluate arrangements with governmental entities containing “fiscal funding” or
“termination for convenience” provisions, when such provisions are required by law, to
determine the probability of possible cancellation. We consider multiple factors,
including the history with the customer in similar transactions, the “essential use” of the
software or hardware systems products and the planning, budgeting and approval
processes undertaken by the governmental entity. If we determine upon execution of
these arrangements that the likelihood of cancellation is remote, we then recognize
revenues once all of the criteria described above have been met. If such a determination
cannot be made, revenues are recognized upon the earlier of cash receipt or approval of
the applicable funding provision by the governmental entity.
We assess whether fees are fixed or determinable at the time of sale and recognize
revenues if all other revenue recognition requirements are met. Our standard payment
terms are net 30 days. However, payment terms may vary based on the country in which
the agreement is executed. Payments that are due within six months are generally deemed
to be fixed or determinable based on our successful collection history on such
arrangements, and thereby satisfy the required criteria for revenue recognition.
While most of our arrangements for sales within our software and hardware systems
businesses include short-term payment terms, we have a standard practice of providing
long-term financing to creditworthy customers through our financing division. Since
fiscal 1989, when our financing division was formed, we have established a history of
collection, without concessions, on these receivables with payment terms that generally
extend up to five years from the contract date. Provided all other revenue recognition
criteria have been met, we recognize new software license revenues and hardware
systems products revenues for these arrangements upon delivery, net of any payment
discounts from financing transactions. We have generally sold receivables financed
through our financing division on a non-recourse basis to third party financing institutions
Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠