Oracle 2012 Annual Report Download - page 94

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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
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
other nonsoftware deliverables including hardware systems related services and cloud software subscription
offerings 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,
hardware systems related services revenues and cloud software subscription revenues to be recognized in each
accounting period.
Revenues from the sales of our nonsoftware elements 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 server and storage products and can also include product
repairs, maintenance services and technical support services. Hardware systems support contracts are generally
priced as a percentage of the net hardware systems products fees. Hardware systems support contracts are entered
into at the customer’s option and are recognized ratably over the contractual term of the arrangements, which are
typically one year.
Our cloud software subscription offerings generally provide customers access to certain of our software within a
cloud-based IT environment that we manage and offer to customers on a subscription basis. Revenues for our
cloud software subscription offerings are recognized ratably over the contract term commencing with the date
our service is made available to customers and all other revenue recognition criteria have been satisfied.
Revenue Recognition for Multiple-Element Arrangements—Hardware Systems Products and Hardware Systems
Related Services (Nonsoftware 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
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