Oracle 2009 Annual Report Download - page 188

exclude tangible products containing software components and nonsoftware components
that function together to deliver the product's essential functionality. In addition, ASU
2009-14 provides guidance on how a vendor should allocate arrangement consideration to
nonsoftware and software deliverables in an arrangement where the vendor sells tangible
products containing software components that are essential in delivering the tangible
product's functionality.
As a result of our early adoption of ASU 2009-13 and ASU 2009-14, we applied the
provisions of these accounting standards updates as of the beginning of fiscal 2010. The
impact of our adoption of ASU 2009-13 and ASU 2009-14 was not material to our results
of operations for fiscal 2010.
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 unit of
accounting provided the following criteria are met: the delivered products or services
have value to the customer on a standalone basis; and for an arrangement that includes a
general right of return relative to the delivered products or services, delivery or
performance of the undelivered product or service is considered probable and is
substantially controlled by us. We consider a deliverable to have standalone value if the
product or service is sold separately by us or another vendor or could be resold by the
customer. Further, our revenue arrangements generally do not include a general right of
return relative to the delivered products. Where the aforementioned criteria for a separate
unit of accounting are not met, the deliverable is combined with the undelivered
element(s) and treated as a single unit of accounting for the purposes of allocation of the
arrangement consideration and revenue recognition. For those units of accounting that
include more than one deliverable but are treated as a single unit of accounting, we
generally recognize revenues over the delivery period. For the purposes of revenue
classification of the elements that are accounted for as a single unit of accounting, we
allocate revenue to hardware systems and services based on a rational and consistent
methodology utilizing our best estimate of fair value of such elements.
For our nonsoftware multiple-element arrangements, we allocate revenue to each element
based on a selling price hierarchy at the arrangement inception. The selling price for each
element is based upon the following selling price hierarchy: VSOE if available, TPE if
VSOE is not available, or ESP if neither VSOE nor TPE is available (a description as to
how we determine VSOE, TPE and ESP is provided below). If a tangible hardware
systems product includes software, we determine whether the tangible hardware systems
product and the software work together to deliver the product's essential functionality
and, if so, the entire product is treated as a nonsoftware deliverable. The total
arrangement consideration is allocated to each separate unit of accounting for each of the
nonsoftware deliverables using the relative selling prices of each unit based on the
aforementioned selling price hierarchy. We limit the amount of revenue recognized for
delivered elements to an amount that is not contingent upon future delivery of additional
products or services or meeting of any specified performance conditions.
To determine the selling price in multiple-element arrangements, we establish VSOE of
selling price using the price charged for a deliverable when sold separately and for
software license updates and product support and hardware systems support, based on the
renewal rates offered to customers. For nonsoftware multiple element arrangements, TPE
is established by evaluating similar and interchangeable competitor products or services
in standalone arrangements with similarly situated customers. If we are unable to
determine the selling price because VSOE or TPE doesn't exist, we determine ESP for the
purposes of allocating the arrangement by considering several external and internal
factors including, but not limited to, pricing practices, margin objectives, competition,
geographies in which we offer our products and services, internal costs and stage of the
product lifecycle. The determination of ESP is made through consultation with and
approval by our management, taking into consideration our go-to-market strategy. As our,
or our competitors', pricing and go-to-market strategies evolve, we may modify our
pricing practices in the future, which could result in changes to our determination of
VSOE, TPE and ESP. As a result, our future revenue recognition for multiple-element
arrangements could differ materially from our results in the current period. Selling prices
are analyzed on an annual basis or more frequently if we experience significant changes
in our selling prices.
Revenue Recognition Policies Applicable to both Software and Nonsoftware Elements
Revenue Recognition for Multiple-Element Arrangements -Arrangements with Software
and Nonsoftware Elements
We also enter into multiple-element arrangements that may include a combination of our
various software related and nonsoftware related products and services offerings
including hardware systems products, hardware systems support, new software licenses,
software license updates and product support, consulting, On Demand and education. In
such arrangements, we first allocate the total arrangement consideration based on the
relative selling prices of the software group of elements as a whole and to the
nonsoftware elements. We then further allocate consideration within the software group
to the respective elements within that group following the guidance in ASC 985-605 and
our policies described above. After the arrangement consideration has been allocated to
the elements, we account for each respective element in the arrangement as described
above.
Other Revenue Recognition Policies Applicable to Software and Nonsoftware Elements
Many of our software arrangements include consulting implementation services sold
separately under consulting engagement contracts and are included as a part of our
services business. Consulting revenues from these arrangements are generally accounted
for separately from new software license revenues because the arrangements qualify as
Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠