Oracle 2008 Annual Report Download - page 86

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2009
software license contract without additional charge or are substantially discounted; or (4) where the software
license payment is tied to the performance of consulting services.
On Demand is comprised of Oracle On Demand and Advanced Customer Services. Oracle On Demand
provides multi-featured software and hardware management and maintenance services for our database,
middleware and applications software. Advanced Customer Services consists of solution lifecycle
management services, database and application management services, industry-specific solution support
centers and remote and on-site expert services. Revenues from On Demand services are recognized over the
term of the service period, which is generally one year or less.
Education revenues include instructor-led, media-based and internet-based training in the use of our products.
Education revenues are recognized as the classes or other education offerings are delivered.
For arrangements with multiple elements, we allocate revenues to each element of a transaction based upon
its fair value as determined by “vendor specific objective evidence.” Vendor specific objective evidence of
fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for
those products and services when sold separately and for software license updates and product support
services is also measured by the renewal rate offered to the customer. We may modify our pricing practices in
the future, which could result in changes in our vendor specific objective evidence of fair value for these
undelivered elements. As a result, our future revenue recognition for multiple element arrangements could
differ significantly from our historical results.
For software license arrangements that include hardware, software and services, and the software is more than
incidental to the multiple element arrangement, but not essential to the functionality of the hardware, we
apply the guidance of Emerging Issues Task Force (EITF) Issue No. 03-5, Applicability of AICPA Statement
of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental
Software, which allows the non-software elements and related services to be accounted for pursuant to SEC
Staff Accounting Bulletin No. 104, Revenue Recognition (Topic 13), and EITF 00-21, Revenue Arrangements
with Multiple Deliverables, and the software license and related services to be accounted for pursuant to
SOP 97-2.
We defer revenues for any undelivered elements, and recognize revenues when the product is delivered or
over the period in which the service is performed, in accordance with our revenue recognition policy for such
element. If we cannot objectively determine the fair value of any undelivered element included in bundled
software and service arrangements, we defer revenue until all elements are delivered and services have been
performed, or until fair value can objectively be determined for any remaining undelivered elements. When
the fair value of a delivered element has not been established, we use the residual method to record revenue if
the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered
elements and is recognized as revenues.
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 when
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.
We also evaluate arrangements with governmental entities containing “fiscal funding” or “termination for
convenience” provisions, when such provisions are required by law, to determine the probability of possible
cancellation. We consider multiple factors, including the history with the customer in similar transactions, the
“essential use” of the software licenses and the planning, budgeting and approval processes undertaken by the
governmental entity. If we determine upon execution of these arrangements that the likelihood of cancellation
is
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Source: ORACLE CORP, 10-K, June 29, 2009 Powered by Morningstar® Document Research℠