Oracle 2011 Annual Report Download - page 94

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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2011
accounting treatment of a particular transaction is specifically dictated by GAAP and does not require
management’s judgment in its application. There are also areas in which management’s judgment in selecting
among available alternatives would not produce a materially different result.
Revenue Recognition
Our sources of revenues include: (1) software, which includes new software license revenues and software
license updates and product support revenues; (2) hardware systems, which includes the sale of hardware systems
products including computer servers and storage products, and hardware systems support revenues; and
(3) services, which include software and hardware related services including consulting, Cloud Services and
education revenues.
Revenue Recognition for Software Products and Software Related Services (Software Elements)
New software license revenues represent fees earned from granting customers licenses to use our database,
middleware and applications software, and exclude revenues derived from software license updates, which are
included in software license updates and 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,
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