Oracle 2013 Annual Report Download - page 98

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2014
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; (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 primarily through our financing
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