Oracle 2015 Annual Report Download - page 95

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2016
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, application and industry-specific
software products 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 the related fees 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 and are generally invoiced in full at the beginning of the support term. 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 new 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 generally recognized upon delivery of the software license. 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.
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