Oracle 2010 Annual Report Download - page 210

(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
Arrangements and Accounting Standards Update 2009-14, Software (Topic 985)—Certain
Revenue Arrangements that Include Software Elements to our multiple-element arrangements.
We enter into arrangements with customers that purchase both nonsoftware related products
and services from us at the same time, or within close proximity of one another (referred to as
nonsoftware multiple-element arrangements). Each element within a nonsoftware
multiple-element arrangement is accounted for as a separate unit of accounting provided the
following criteria are met: the delivered products or services have value to the customer on a
standalone basis; and for an arrangement that includes a general right of return relative to the
delivered products or services, delivery or performance of the undelivered product or service
is considered probable and is substantially controlled by us. We consider a deliverable to have
standalone value if the product or service is sold separately by us or another vendor or could
be resold by the customer. Further, our revenue arrangements generally do not include a
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠