Oracle 2012 Annual Report Download - page 97

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
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
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 2012
and fiscal 2011, $1.6 billion and $1.5 billion of our financing receivables were sold to financial institutions,
respectively.
In addition, we enter into arrangements with leasing companies for the 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 systems product revenues from
Concurrent Transactions if all of our revenue recognition criteria are met and the goods and services acquired are
necessary for our current operations.
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