Oracle 2012 Annual Report Download - page 51

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 managed 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 managed 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-premise at customer
facilities. Additionally, we provide support services, both on-premise 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 managed 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
the relative selling price 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
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