Oracle 2014 Annual Report Download - page 50

Table of Contents
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.
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 new software licenses, software license updates and product support, cloud SaaS, PaaS and IaaS
offerings, hardware systems products, hardware systems support, consulting, advanced customer support 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 licenses 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 burdened daily rate applicable to the consulting organization delivering
the services. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the
application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our
consolidated financial statements. A number of internal and external factors can affect our estimates, including labor rates, utilization and
efficiency variances and specification and testing requirement changes.
Our advanced customer support services are offered as standalone arrangements or as a part of arrangements to customers buying other software
and non-software products and services. We offer these advanced support
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