Oracle 2009 Annual Report Download - page 45

Table of Contents
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
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Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠