Oracle 2015 Annual Report Download - page 51

Table of Contents
When possible, we establish VSOE of selling price for deliverables in software and non-software multiple-element arrangements using the price charged for a
deliverable when sold separately and for software license updates and product support and hardware 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.
Revenue Recognition Policies Applicable to both Software and Non-software Elements
RevenueRecognitionforMultiple-ElementArrangements—ArrangementswithSoftwareandNon-softwareElements
We also enter into multiple-element arrangements that may include a combination of our various software related and non-software related products and services
offerings including new software licenses, software license updates and product support, cloud SaaS, PaaS and IaaS offerings, hardware products, hardware
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 non-software 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Non-software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.
49