Oracle 2012 Annual Report Download - page 50

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.
When possible, we establish VSOE of selling price for deliverables in nonsoftware multiple-element
arrangements 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. 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 does not
exist, we determine ESP for the purposes of allocating the arrangement by reviewing historical transactions,
including transactions whereby the deliverable was sold on a standalone basis and considering several other
external and internal factors including, but not limited to, pricing practices including discounting, margin
objectives, competition, the geographies in which we offer our products and services, the type of customer (i.e.
distributor, value added reseller, government agency and direct end user, among others) and the stage of the
product lifecycle. The determination of ESP is made through consultation with and approval by our management,
taking into consideration our pricing model and 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, cloud software subscription,
consulting, managed cloud services 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 as 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
considered in determining whether the revenues should be accounted for separately include the nature of services
(i.e. consideration of whether the services are essential to the functionality of the licensed product), degree of
risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance
criteria on the realizability of the software license fee. Revenues for consulting services are generally recognized
as the services are performed. If there is a significant uncertainty about the project completion or receipt of
payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. We
estimate the proportional performance on contracts with fixed or “not to exceed” fees on a monthly basis
utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If we do not have
a sufficient basis to measure progress towards completion, revenues are recognized when we receive final
acceptance from the customer that the services have been completed. When total cost estimates exceed revenues,
we accrue for the estimated losses immediately using cost estimates that are based upon an average fully
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