Oracle 2010 Annual Report Download - page 212

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 financing transactions. We have generally sold receivables financed
through our financing division on a non-recourse basis to third party financing institutions
within 90 days of the contracts’ dates of execution and we classify the proceeds from these
sales as cash flows from operating activities in our consolidated statements of cash flows. We
account for the sales of these receivables as “true sales” as defined in ASC 860, Transfers and
Servicing, as we are considered to have surrendered control of these financing receivables.
During fiscal 2011, $1.5 billion of our financing receivables were sold to financial
institutions.
In addition, we enter into arrangements with leasing companies for sale of our hardware
systems products. These leasing companies, in turn, lease our products to end-users. The
leasing companies generally have no recourse to us in the event of default by the end-user and
we recognize revenue upon delivery, if all the other revenue recognition criteria have been
met.
Our customers include several of our suppliers and occasionally, we have purchased goods or
services for our operations from these vendors at or about the same time that we have sold our
products to these same companies (Concurrent Transactions). Software license agreements or
sales of hardware systems that occur within a three-month time period from the date we have
purchased goods or services from that same customer are reviewed for appropriate accounting
treatment and disclosure. When we acquire goods or services from a customer, we negotiate
the purchase separately from any sales transaction, at terms we consider to be at arm’s length,
and settle the purchase in cash. We recognize new software license revenues or hardware
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠