Oracle 2013 Annual Report Download - page 47

Table of Contents
into at the customer’s option and are recognized ratably over the contractual term of the arrangements, which are typically one year.
Revenue Recognition for Multiple
-Element Arrangements—Cloud SaaS, PaaS and IaaS Offerings, Hardware Systems Products, Hardware
Systems Support and Related Services (Nonsoftware Arrangements)
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 or in the case
of our cloud offerings, generally over the estimated customer relationship period. For the purposes of revenue classification of the elements that
are accounted for as a single unit of accounting, we allocate revenue to the respective revenue line items within our consolidated statements of
operations based on a rational and consistent methodology utilizing our best estimate of relative selling prices of such elements.
For our nonsoftware multiple-element arrangements, we allocate revenue to each element based on a selling price hierarchy at the arrangement’s
inception. The selling price for each element is based upon the following selling price hierarchy: VSOE if available, third party evidence (TPE)
if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE are 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.
When possible, we establish VSOE of selling price for deliverables in software and 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, contractually stated prices, 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.
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