Oracle 2012 Annual Report Download - page 96

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
support, new software licenses, software license updates and product support, cloud software subscription,
consulting, managed cloud services and education. In such arrangements, we first allocate the total arrangement
consideration based on the relative selling prices of the software group of elements as a whole and to the
nonsoftware elements. We then further allocate consideration within the software group to the respective
elements within that group following the guidance in ASC 985-605 and our policies as described above. After the
arrangement consideration has been allocated to the elements, we account for each respective element in the
arrangement as described above.
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 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
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