Oracle 2010 Annual Report Download - page 166

product support revenues. While the basis for software license revenue recognition is
substantially governed by the accounting guidance contained in ASC 985-605,
Software-Revenue Recognition, we exercise judgment and use estimates in connection
with the determination of the amount of software and services revenues to be recognized
in each accounting period.
For software license arrangements that do not require significant modification or
customization of the underlying software, we recognize new software license revenues
when: (1) we enter into a legally binding arrangement with a customer for the license of
software; (2) we deliver the products; (3) the sale price is fixed or determinable and free
of contingencies or significant uncertainties; and (4) collection is probable. Revenues that
are not recognized at the time of sale because the foregoing conditions are not met are
recognized when those conditions are subsequently met.
Substantially all of our software license arrangements do not include acceptance
provisions. However, if acceptance provisions exist as part of public policy, for example,
in agreements with government entities where acceptance periods are required by law, or
within previously executed terms and conditions that are referenced in the current
agreement and are short-term in nature, we generally recognize revenues upon delivery
provided the acceptance terms are perfunctory and all other revenue recognition criteria
have been met. If acceptance provisions are not perfunctory (for example, acceptance
provisions that are long-term in nature or are not included as standard terms of an
arrangement), revenues are recognized upon the earlier of receipt of written customer
acceptance or expiration of the acceptance period.
The vast majority of our software license arrangements include software license updates
and product support contracts, which are entered into at the customer’s option and are
recognized ratably over the term of the arrangement, typically one year. Software license
updates provide customers with rights to unspecified software product upgrades,
maintenance releases and patches released during the term of the support period. Product
support includes internet access to technical content, as well as internet and telephone
access to technical support personnel. Software license updates and product support
contracts are generally priced as a percentage of the net new software license fees.
Substantially all of our customers renew their software license updates and product
support contracts annually.
Revenue Recognition for Multiple-Element Arrangements – Software Products and
Software Related Services (Software Arrangements)
We often enter into arrangements with customers that purchase both software related
products and services from us at the same time, or within close proximity of one another
(referred to as software related multiple-element arrangements). Such software related
multiple-element arrangements include the sale of our software products,
software license updates and product support contracts and other software related services
whereby software license delivery is followed by the subsequent or contemporaneous
delivery of the other elements. For those software related multiple-element arrangements,
we have applied the residual method to determine the amount of software license
revenues to be recognized pursuant to ASC 985-605. Under the residual method, if fair
value exists for undelivered elements in a multiple-element arrangement, such fair value
of the undelivered elements is deferred with the remaining portion of the arrangement
consideration recognized upon delivery of the software license or services arrangement.
We allocate the fair value of each element of a software related multiple-element
arrangement based upon its fair value as determined by our vendor specific objective
evidence (VSOE – described further below), with any remaining amount allocated to the
software license.
Revenue Recognition for Hardware Systems Products and Hardware Systems Related
Services (Nonsoftware Elements)
Revenues from the sale of hardware systems products represent amounts earned primarily
from the sale of computer servers and storage products. Our revenue recognition policy
for these nonsoftware deliverables is based upon the accounting guidance contained in
ASC 605, Revenue Recognition, and we exercise judgment and use estimates in
connection with the determination of the amount of hardware systems products and
hardware systems related services revenues to be recognized in each accounting period.
Revenues from the sales of hardware products are recognized when: (1) persuasive
evidence of an arrangement exists; (2) we deliver the products and passage of the title to
the buyer occurs; (3) the sale price is fixed or determinable; and (4) collection is
reasonably assured. Revenues that are not recognized at the time of sale because the
foregoing conditions are not met are recognized when those conditions are subsequently
met. When applicable, we reduce revenues for estimated returns or certain other incentive
programs where we have the ability to sufficiently estimate the effects of these items.
Where an arrangement is subject to acceptance criteria and the acceptance provisions are
not perfunctory (for example, acceptance provisions that are long-term in nature or are
not included as standard terms of an arrangement), revenues are recognized upon the
earlier of receipt of written customer acceptance or expiration of the acceptance period.
Our hardware systems support offerings generally provide customers with software
updates for the software components that are essential to the functionality of our systems
and storage products and can also include product repairs, maintenance services, and
technical support services. Hardware systems support contracts are entered into at the
customer’s option and are recognized ratably over the contractual term of the
arrangements.
Revenue Recognition for Multiple-Element Arrangements – Hardware Systems Products
and Hardware Systems Related Services (Nonsoftware Arrangements)
Beginning in fiscal 2010, we have applied the provisions of Accounting Standards
Update No. 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠