Oracle 2010 Annual Report Download - page 168

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 that the services have
been completed. 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.
Our Cloud Services offerings are comprised of Oracle Cloud Services and Advanced
Customer Services and are also a part of our services business. Oracle Cloud Services are
offered as standalone arrangements or as a part of arrangements to customers buying new
software licenses or hardware systems products and services. Oracle Cloud Services are
designed to provide comprehensive software and hardware management and maintenance
services for customers hosted at our Oracle data center facilities, select partner data
centers or physically on-site at customer facilities. Advanced Customer Services provides
support services, both onsite and remote, to Oracle customers to enable increased
performance and higher availability of their products and services. Depending upon the
nature of the arrangement, revenues from Cloud 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 also 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 or are of a specialized nature and generally performed only by Oracle; (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 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
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠