Oracle 2013 Annual Report Download - page 45

Table of Contents
In many cases, the 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. Our senior management has reviewed our critical accounting policies and related disclosures with the Finance and
Audit Committee of the Board of Directors.
Revenue Recognition
Our sources of revenues include: (1) software and cloud revenues, including new software licenses revenues earned from granting licenses to use
our software products; cloud SaaS and PaaS revenues generated from fees for granting customers access to a broad range of our software and
related support offerings on a subscription basis in a secure, standards-based cloud computing environment; cloud IaaS revenues generated from
fees for deployment and management offerings for our software and hardware and related IT infrastructure generally on a subscription basis; and
software license updates and product support revenues; (2) hardware systems revenues, which include the sale of hardware systems products
including computer servers, storage products, networking and data center fabric products, and hardware systems support revenues; and
(3) services, which includes software and hardware related services including consulting, advanced customer support and education revenues.
Revenues generally are recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
Revenue Recognition for Software Products and Software Related Services (Software Elements)
New software licenses revenues primarily represent fees earned from granting customers licenses to use our database, middleware and
application software and exclude cloud SaaS and PaaS revenues and revenues derived from software license updates, which are included in
software license updates and product support revenues. The basis for our new software licenses 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 software related 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 licenses 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 licenses 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
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