Oracle 2015 Annual Report Download - page 101

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2016
Allowances for Doubtful Accounts
We record allowances for doubtful accounts based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed,
provisions are provided at differing rates, based upon the age of the receivable, the collection history associated with the geographic region that the receivable was
recorded in and current economic trends. We write-off a receivable and charge it against its recorded allowance when we have exhausted our collection efforts
without success.
Concentrations of Risk
Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, derivatives
and trade receivables. Our cash and cash equivalents are generally held with large, diverse financial institutions worldwide to reduce the amount of exposure to any
single financial institution. Investment policies have been implemented that limit purchases of marketable debt securities to investment-grade securities. Our
derivative contracts are transacted with various financial institutions with high credit standings. We generally do not require collateral to secure accounts
receivable. The risk with respect to trade receivables is mitigated by credit evaluations we perform on our customers, the short duration of our payment terms for
the significant majority of our customer contracts and by the diversification of our customer base. No single customer accounted for 10% or more of our total
revenues in fiscal 2016, 2015 or 2014.
We outsource the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside
the United States. Further, we have simplified our supply chain processes by reducing the number of third-party manufacturing partners and the number of
locations where these third-party manufacturers build our hardware products. Any inability of these third-party manufacturing partners to fulfill orders for our
hardware products could adversely impact future operating results of our hardware business.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis.
We evaluate our ending inventories for estimated excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of
future demand within specific time horizons (generally six to nine months). Inventories in excess of future demand are written down and charged to hardware
products expenses. In addition, we assess the impact of changing technology to our inventories and we write down inventories that are considered obsolete. At the
point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration
or increase in that newly established cost basis.
Other Receivables
Other receivables represent value-added tax and sales tax receivables associated with the sale of our products and services to third parties. Other receivables are
included in prepaid expenses and other current assets in our consolidated balance sheets and totaled $816 million and $817 million at May 31, 2016 and 2015,
respectively.
Deferred Sales Commissions
We defer sales commission expenses associated with our cloud SaaS, PaaS and IaaS offerings, and recognize the related expenses over the non-cancelable term of
the related contracts, which are typically one to three years. Amortization of deferred sales commissions is included as a component of sales and marketing
expenses in our consolidated statements of operations.
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