Oracle 2011 Annual Report Download - page 97

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2011
Other Revenue Recognition Policies Applicable to Software and Nonsoftware Elements
Many of our software arrangements include consulting implementation services sold separately under consulting
engagement contracts and are included as a part of our services business. Consulting revenues from these
arrangements are generally accounted for separately from new software license revenues because the arrangements
qualify as 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 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.
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