Oracle 2011 Annual Report Download - page 95

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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2011
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 general right of return relative to the delivered products. Where the
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