Oracle 2012 Annual Report Download - page 48

Revenue Recognition for Software Products and Software Related Services (Software Elements)
New software license revenues primarily 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. The basis for our new 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 software
related 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, Hardware Systems Related Services and Cloud Software
Subscription Offerings (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 and
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