Oracle 2009 Annual Report Download - page 98

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2010
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 services transactions as defined in ASC 985-605. The more significant factors
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Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠