Oracle 2013 Annual Report Download - page 48

Table of Contents
Revenue Recognition Policies Applicable to both Software and Nonsoftware Elements
Revenue Recognition for Multiple
-Element Arrangements — Arrangements with Software and Nonsoftware Elements
We also enter into multiple-element arrangements that may include a combination of our various software related and nonsoftware related
products and services offerings including new software licenses, software license updates and product support, cloud SaaS, PaaS and IaaS
offerings, hardware systems products, hardware systems support, consulting, advanced customer support 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 licenses 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 advanced customer support services are offered as standalone arrangements or as a part of arrangements to customers buying other software
and non-software products and services. We offer these advanced 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 these
services are recognized as the 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 licenses 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 and cloud, 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;
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