Revenue Recognition policies of companies comparisonINTC » Topics » Revenue Recognition

These excerpts taken from the INTC 10-K filed Feb 23, 2009.Revenue Recognition 

We recognize net revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title, and acceptance, if applicable, as well as fixed pricing and probable collectibility. We record pricing allowances, including discounts based on contractual arrangements with customers, when we recognize revenue as a reduction to both accounts receivable and net revenue. Because of frequent sales price reductions and rapid technology obsolescence in the industry, we defer the revenue and related costs of sales from sales made to distributors under agreements allowing price protection and/or right of return until the distributors sell the merchandise. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor. Under the price protection program, we give distributors credits for the difference between the original price paid and the current price that we offer. We record the net deferred income from sales to distributors on our balance sheet as deferred income on shipments to distributors. We include shipping charges billed to customers in net revenue, and include the related shipping costs in cost of sales.

Revenue Recognition

We account for the licensing of software in accordance with American Institute of Certified Public

Accountants Statement of Position (“SOP”) 97-2, Software Revenue Recognition. The application

of SOP 97-2 requires judgment, including whether a software arrangement includes multiple

elements, and if so, whether vendor-specific objective evidence (“VSOE”) of fair value exists for

those elements.

A portion of the revenue related to Windows XP is recorded as unearned due to undelivered

elements including, in some cases, free post-delivery telephone support and the right to receive

unspecified upgrades/enhancements of Microsoft Internet Explorer on a when-and-if-available

basis. The amount of revenue allocated to undelivered elements is based on the VSOE of fair

value for those elements using the residual method or relative fair value method. Unearned

revenue due to undelivered elements is recognized ratably on a straight-line basis over the

related products’ life cycles. Revenue related to Windows Vista is not subject to a similar deferral

because there are no significant undelivered elements. However, Windows Vista revenue is

subject to deferral as a result of the Windows 7 Upgrade Option program which started June 26,

2009. The program allows customers who purchase PCs from participating computer makers or

retailers with certain versions of Windows Vista to receive an upgrade to the corresponding

version of Windows 7 at minimal or no cost. In addition, purchasers of retail packaged Windows

Vista may also qualify for a free or discounted upgrade to the equivalent Windows 7 product with

participating retailers in participating markets when the product becomes generally available.

Accordingly, estimated revenue related to the undelivered Windows 7 product is deferred until the

product is delivered.

Changes to the elements in a software arrangement, the ability to identify VSOE for those

elements, the fair value of the respective elements, and changes to a product’s estimated life

cycle could materially impact the amount of earned and unearned revenue. Judgment is also

required to assess whether future releases of certain software represent new products or

upgrades and enhancements to existing products.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has

occurred, the fee is fixed or determinable, and collectibility is probable. We enter into certain

arrangements where we are obligated to deliver multiple products and/or services (multiple

elements). In these arrangements, we generally allocate the total revenue among the elements

based on the sales price of each element when sold separately (vendor-specific objective

evidence).

Revenue for retail packaged products, products licensed to original equipment manufacturers

(“OEMs”), and perpetual licenses for current products under our Open and Select volume

licensing programs generally is recognized as products are shipped. A portion of the revenue

related to Windows XP is recorded as unearned due to undelivered elements including, in some

cases, free post-delivery telephone support and the right to receive unspecified

upgrades/enhancements of Microsoft Internet Explorer on a when-and-if-available basis. The

amount of revenue allocated to undelivered elements is based on the vendor-specific objective

evidence of fair value for those elements using the residual method or relative fair value method.

Unearned revenue due to undelivered elements is recognized

 

 

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ratably on a straight-line basis over the related products’ life cycles. Revenue related to Windows

Vista is not subject to a similar deferral because there are no significant undelivered elements.

However, Windows Vista revenue is subject to deferral as a result of the Windows 7 Upgrade

Option program which started June 26, 2009. The program allows customers who purchase PCs

from participating computer makers or retailers with certain versions of Windows Vista to receive

an upgrade to the corresponding version of Windows 7 at minimal or no cost. In addition,

purchasers of retail packaged Windows Vista may also qualify for a free or discounted upgrade to

the equivalent Windows 7 product with participating retailers in participating markets when the

product becomes generally available. Accordingly, estimated revenue related to the undelivered

Windows 7 product is deferred until the product is delivered.

Revenue from multi-year licensing arrangements are accounted for as subscriptions, with

billings recorded as unearned revenue and recognized as revenue ratably over the billing

coverage period. Certain multi-year licensing arrangements include rights to receive future

versions of software product on a when-and-if-available basis under Open and Select volume

licensing programs (software assurance). In addition, other multi-year licensing arrangements

include a perpetual license for current products combined with rights to receive future versions of

software products on a when-and-if-available basis under Open, Select, and Enterprise

Agreement volume licensing programs. Premier support services agreements, MSN Internet

Access subscriptions, Xbox Live, and Microsoft Developer Network subscriptions are also

accounted for as subscriptions.

Revenue related to our Xbox 360 game console, games published by us, and other hardware

components is generally recognized when ownership is transferred to the retailers. Revenue

related to games published by third parties for use on the Xbox 360 platform is recognized when

games are manufactured by the game publishers. Display advertising revenue is recognized as

advertisements are displayed. Search advertising revenue is recognized when the ad appears in

the search results or when the action necessary to earn the revenue has been completed.

Consulting services revenue is recognized as services are rendered, generally based on the

negotiated hourly rate in the consulting arrangement and the number of hours worked during the

period. Consulting revenue for fixed-price services arrangements is recognized as services are

provided.

Revenue generally is recognized net of any taxes collected from customers and subsequently

remitted to governmental authorities.

GOOG » Topics » Revenue RecognitionThis excerpt taken from the GOOG 10-K filed Feb 12, 2010.

Revenue Recognition

The following table presents our revenues by revenue source (in thousands):

 

     Year Ended December 31,     2007    2008    2009

Advertising revenues:        

Google web sites   $10,624,705   $14,413,826   $15,722,486

Google Network web sites     5,787,938     6,714,688     7,166,318                    

Total advertising revenues     16,412,643     21,128,514     22,888,804

Licensing and other revenues     181,343     667,036     761,759                    

Revenues   $16,593,986   $21,795,550   $23,650,563                    

Google AdWords is our automated online program that enables advertisers to place

targeted text-based and display ads on our web sites and our Google Network members’ web

sites. Display advertising includes static or animated images as well as interactive audio or video

media, such as the banner ads on the tops or sides of many popular web sites. Most of our

AdWords customers pay us on a cost-per-click basis, which means that an advertiser pays us

only when a user clicks on one of its ads. We also offer AdWords on a cost-per-impression basis

that enables advertisers to pay us based on the number of times their ads appear on our web

sites and our Google Network members’ web sites as specified by the advertiser.

Google AdSense refers to the online programs through which we distribute our advertisers’

AdWords ads for display on the web sites of our Google Network members as well as programs

to deliver ads on television broadcasts.

 

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Google Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

We recognize as revenues the fees charged advertisers each time a user clicks on one of

the text-based ads that are displayed next to the search results pages on our site or on the

search results pages or content pages of our Google Network members’ web sites and, for those

advertisers who use our cost-per impression pricing, the fees charged advertisers each time an

ad is displayed on our members’ sites. We report our Google AdSense revenues on a gross basis

principally because we are the primary obligor to our advertisers.

Google TV Ads enable advertisers, operators, and programmers to buy, schedule, deliver,

and measure ads on television. We recognize as revenue the fees charged advertisers each time

an ad is displayed on television in accordance with the terms of the related agreements.

We also offer display advertising management services such as media planning, buying,

implementation, and measurement tools for advertisers and agencies and forecasting and

reporting tools for publishers. We recognize the related fees as licensing and other revenues in

the period advertising impressions are delivered.

Google Checkout is our online shopping payment processing system for both consumers

and merchants. We recognize as revenues any fees charged to merchants on transactions

processed through Google Checkout. Further, cash ultimately paid to merchants under Google

Checkout promotions, including cash paid to merchants as a result of discounts provided to

consumers on certain transactions processed through Google Checkout, are accounted for as an

offset to revenues.

We generate fees from search services on a per-query basis. Our policy is to recognize

revenues from per-query search fees in the period we provide the search results.

We also generate fees from the sale and license of our Search Appliance products, which

include hardware, software, and post-contract support primarily for two years. As the deliverables

are not sold separately, sufficient vendor-specific objective evidence does not exist for the

allocation of revenue. As a result, we recognized the entire fee for the sale and license of these

products ratably over the term of the post-contract support arrangement. Beginning the first

quarter of 2010, we adopted the new accounting guidance which requires us to allocate the

consideration of the arrangement to each of the deliverables based on our best estimate of their

selling prices as there is no vendor-specific objective or third-party evidence of the selling prices.

As a result, we now recognize revenue allocated to the hardware and software at the time of sale

and revenue allocated to post-contract support ratably over the term of the service arrangement.

In addition, we generate fees through the license of our Google Apps products. We

recognize as revenue the fees we charge customers for hosting the related enterprise

applications and services ratably over the term of the service arrangement.

Revenues realized through display advertising management services, Google TV Ads,

Google Checkout, search services, Search Appliance, and Google Apps were not material in any

of the years presented.

We recognize revenues as described above because the services have been provided, the

fees we charge are fixed or determinable, we and our advertisers or other customers understand

the specific nature and terms of the agreed-upon transactions and collectability is reasonably

assured.

We record deferred revenue when payments are received in advance of our performance in

the underlying agreement on the accompanying Consolidated Balance Sheets.

 

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Google Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

ORCL » Topics » Revenue RecognitionThis excerpt taken from the ORCL 10-K filed Jun 29, 2009.

Revenue Recognition 

We derive revenues from the following sources: (1) software, which includes new software license and software license updates and product support revenues, and (2) services, which include consulting, On Demand and education revenues. 

New software license revenues represent fees earned from granting customers licenses to use our database, middleware and applications software, and exclude revenues derived from software license updates, which are included in software license updates and product support. While the basis for software license revenue recognition is substantially governed by the provisions of Statement of Position (SOP) No. 97-2, Software Revenue Recognition, issued by the American Institute of Certified Public Accountants, we exercise judgment and use estimates in connection with the determination of the amount of software and services revenues to be recognized in each accounting period. 

For software license arrangements that do not require significant modification or customization of the underlying software, we recognize new software license revenue when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Substantially all of our new software license revenues are recognized in this manner. 

The vast majority of our software license arrangements include software license updates and product support, which are recognized ratably over the term of the arrangement, typically one year. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period. Product support includes internet access to technical content, as well as internet and telephone access to technical support personnel located in our global support centers. Software license updates and product support are generally priced as a percentage of the net new software license fees. Substantially all of our customers purchase both software license updates and product support when they acquire new software licenses. In addition, substantially all of our customers renew their software license updates and product support contracts annually. 

Many of our software arrangements include consulting implementation services sold separately under consulting engagement contracts. Consulting revenues from these arrangements are generally accounted for separately from new software license revenues because the arrangements qualify as service transactions as defined in SOP 97-2. The more significant factors considered in determining whether the revenue 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, revenue is recognized when we receive final acceptance from the

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Table of Contentscustomer. 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. 

If an arrangement does not qualify for separate accounting of the software license and consulting transactions, then new software license revenues are generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion or completed-contract method. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees; (2) where services include significant modification or customization of the software; (3) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted; or (4) where the software license payment is tied to the performance of consulting services. 

On Demand is comprised of Oracle On Demand and Advanced Customer Services. Oracle On Demand provides multi-featured software and hardware management and maintenance services for our database, middleware and applications software delivered at our data center facilities, select partner data centers or customer facilities. Advanced Customer Services provide customers with solution lifecycle management services, database and application management services, industry-specific solution support centers and remote and on-site expert services. Revenues from On Demand services are recognized over the term of the service period, which is generally one year. 

Education revenues include instructor-led, media-based and internet-based training in the use of our products. Education revenues are recognized as the classes or other education offerings are delivered. 

For arrangements with multiple elements, we allocate revenue to each element of a transaction based upon its fair value as determined by “vendor specific objective evidence.” Vendor specific objective evidence of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those products and services when sold separately, and for software license updates and product support services is also measured by the renewal rate offered to the customer. We may modify our pricing practices in the future, which could result in changes in our vendor specific objective evidence of fair value for these undelivered elements. As a result, our future revenue recognition for multiple element arrangements could differ significantly from our historical results. 

For software license arrangements that include hardware, software and services, and the software is more than incidental to the multiple element arrangement, but not essential to the functionality of the hardware, we apply the guidance of Emerging Issues Task Force (EITF) Issue No. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software, which allows the non-software elements and related services to be accounted for pursuant to SEC Staff Accounting Bulletin No. 104, Revenue Recognition (Topic 13), and EITF 00-21, Revenue Arrangements with Multiple Deliverables, and the software license and related services to be accounted for pursuant toSOP 97-2. 

We defer revenues for any undelivered elements, and recognize revenues when the product is delivered or over the period in which the service is performed, in accordance with our revenue recognition policy for each such element. If we cannot objectively determine the fair value of any undelivered element included in bundled software and service arrangements, we defer revenues until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, we use the residual method to record revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. 

Substantially all of our software license arrangements do not include acceptance provisions. However, if acceptance provisions exist as part of public policy, for example in agreements with government entities when acceptance periods are required by law, or within previously executed terms and conditions that are referenced in the current agreement and are short-term in nature, we generally recognize revenues upon delivery provided the acceptance

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Table of Contentsterms are perfunctory and all other revenue recognition criteria have been met. If acceptance provisions are not perfunctory (for example, acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement), revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period. 

We also evaluate arrangements with governmental entities containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. We consider multiple factors, including the history with the customer in similar transactions, the “essential use” of the software licenses and the planning, budgeting and approval processes undertaken by the governmental entity. If we determine upon execution of these arrangements that the likelihood of cancellation is remote, we then recognize revenues once all of the criteria described above have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity. 

We assess whether fees are fixed or determinable at the time of sale and recognize revenues if all other revenue recognition requirements are met. Our standard payment terms are net 30 days. However, payment terms may vary based on the country in which the agreement is executed. Payments that are due within six months are generally deemed to be fixed or determinable based on our successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition. 

While most of our arrangements include short-term payment terms, we have a standard practice of providing long-term financing to credit worthy customers through our financing division. Since fiscal 1989, when our financing division was formed, we have established a history of collection, without concessions, on these receivables with payment terms that generally extend up to five years from the contract date. Provided all other revenue recognition criteria have been met, we recognize new software license revenues for these arrangements upon delivery, net of any payment discounts from financing transactions. We have generally sold receivables financed through our financing division on a non-recourse basis to third party financing institutions. We account for the sale of these receivables as “true sales” as defined in FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. 

Our customers include several of our suppliers and on rare occasion, we have purchased goods or services for our operations from these vendors at or about the same time that we have licensed our software to these same companies (Concurrent Transaction). Software license agreements that occur within a three-month time period from the date we have purchased goods or services from that same customer are reviewed for appropriate accounting treatment and disclosure. When we acquire goods or services from a customer, we negotiate the purchase separately from any software license transaction, at terms we consider to be at arm’s length, and settle the purchase in cash. We recognize new software license revenues from Concurrent Transactions if all of our revenue recognition criteria are met and the goods and services acquired are necessary for our current operations.

(h) Revenue Recognition

MicroStrategy’s software revenue recognition policies are in accordance with the American Institute

of Certified Public Accountants’ Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as

amended. In the case of software arrangements that require significant production, modification or

customization of software, the Company follows the guidance in SOP 81-1, “Accounting for Performance

of Construction-Type and Certain Production-Type Contracts.” The Company also follows the guidance

provided by Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101,

“Revenue Recognition in Financial Statements,” and SAB No. 104, “Revenue Recognition” where

applicable.

The Company recognizes revenue from sales of software licenses to end users upon:

 

 

1)persuasive evidence of an arrangement, as provided by agreements, contracts, purchase orders, or

other arrangements, generally executed by both parties (other than certain customer specific

instances in

 

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MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 which the Company has a customary and historical business practice of accepting orders without

signed agreements);

   2) existence of a fixed or determinable fee;

   3) delivery of the software; and

   4) determination that collection of a fixed or determinable fee is reasonably assured.

For reseller transactions, we generally require evidence of sell-through to the end-user prior to

recognition of revenue, in addition to the four criteria listed above.

When the fees for software upgrades and enhancements, technical support, consulting and education

are bundled with the license fee, they are unbundled for revenue recognition purposes, using the vendor

specific objective evidence of the fair value (“VSOE”) of the elements.

Product support or post-contract support (PCS) revenue is derived from providing technical software

support and software updates and upgrades to customers. PCS revenue is recognized ratably over the term

of the contract, which in most cases is one year. The Company’s VSOE for PCS, which includes updates,

upgrades, and enhancements, is determined based upon the optional stated renewal fee for PCS in the

contract, which is the price the customer is required to pay when PCS is renewed (sold separately) from

software. Additionally, the optional stated renewal fee used to establish VSOE for PCS in a software

transaction must be above the Company’s minimum substantive VSOE rate for PCS. If a stated renewal

rate is non-substantive, VSOE of PCS has not been established and the Company recognizes all revenue

elements under the arrangement ratably over the PCS period. A minimum substantive VSOE rate is

determined based upon an analysis of historical sales of PCS. For a renewal rate to be non-substantive, the

Company believes it must be significantly lower than its minimum VSOE rate.

Revenue from consulting, education and other services is recognized as the services are performed.

The Company’s VSOE for services other than PCS is determined based upon an analysis of its historical

sales of each element when sold separately from software. For example, it sells various levels of consulting

services such as associate, consultant, senior consultant, manager, and senior manager.

In accordance with SOP 97-2, for new offerings of services other than PCS or service offerings that

have not had a sufficient history of sales activity, the Company initially establishes VSOE based on the list

price as determined by management with the relevant authority. Each service offering has a single list price

in each country where sold.

If VSOE exists for all undelivered elements and there is no such evidence of fair value established for

delivered elements, the arrangement fee is first allocated to the elements where evidence of fair value has

been established and the residual amount is allocated to the delivered elements. If evidence of fair value for

any undelivered element of an arrangement does not exist, all revenue from the arrangement is deferred

until such time that evidence of fair value exists for undelivered elements or until all elements of the

arrangement are delivered, subject to certain limited exceptions set forth in SOP 97-2.

When a software license arrangement requires the Company to provide significant production,

customization or modification of the software, or when the customer considers these services essential to

the functionality of the software product, both the product licenses revenue and consulting services revenue

are recognized using the percentage of completion method. Under percentage of completion accounting,

both product licenses and consulting services revenue are recognized as work progresses based on labor

hours

 

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MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

incurred. Any expected losses on contracts in progress are expensed in the period in which the losses

become probable and reasonably estimable. There were no contracts accounted for under the percentage of

completion method for the years ended December 31, 2008, 2007 and 2006.

If an arrangement includes acceptance criteria, revenue is not recognized until the Company can

objectively demonstrate that the software or service can meet the acceptance criteria, or the acceptance

period lapses, whichever occurs earlier. If a software license arrangement obligates the Company to deliver

specified future products or upgrades, revenue is recognized when the specified future product or upgrades

are delivered, or when the obligation to deliver specified future products expires, whichever occurs earlier.

If a software license arrangement obligates the Company to deliver unspecified future products, then

revenue is recognized on the subscription basis, ratably over the term of the contract.

License revenue derived from sales to resellers or original equipment manufacturers (“OEM”) who

purchase the Company’s products for future resale is recognized upon sufficient evidence that the products

have been sold to the ultimate end users provided all other revenue recognition criteria have been met. The

Company’s standard software license and reseller agreements do not include any return rights other than

the right to return non-conforming products for repair or replacement under its standard product warranties,

which the Company accounts for in accordance with Statement of Financial Accounting Standards

(“SFAS”) No. 5. During the last three fiscal years, the Company has not experienced any product returns

related to warranty claims.

The Company’s standard software license agreements do not include any price protection or similar

rights. The Company offers price protection to certain government agencies as required by applicable laws

and regulations. For example, transactions under its General Services Administration Federal Supply

Schedule contract must comply with the Price Reductions clause. In addition, certain government agencies

have the right to cancel contracts for “convenience”. During the last three fiscal years, contracts cancelled

for convenience were not significant.

During the last three fiscal years, the Company has not paid any amounts with regards to a return,

price protection or similar rights clause. Therefore no allowance for returns, price protection or similar

rights has been recorded in the Company’s financial statements from continuing operations for the last

three fiscal years.

Amounts collected prior to satisfying the above revenue recognition criteria are included in deferred

revenue and advance payments in the accompanying consolidated balance sheets.

The application of SOP 97-2, as amended, requires judgment, including a determination that

collectibility is reasonably assured, the fee is fixed and determinable, whether a software arrangement

includes multiple elements, and if so, whether VSOE exists for those elements. Judgment is also required to

assess whether future releases of certain software represent new products or upgrades and enhancements to

existing products.

ADBE » Topics » Revenue RecognitionThis excerpt taken from the ADBE 8-K filed Jan 4, 2010.

Revenue Recognition

 

The Company derives its revenues from three primary sources: (1) subscription fees from customers

implementing and utilizing the Company’s on-demand online business optimization services; (2) license

revenue from selling software licenses; and (3) related professional and other services, consisting primarily

of consulting and training.

 

The Company recognizes revenue when all of the following conditions are met:

 

                  there is persuasive evidence of an arrangement;

 

                  the service has been provided to the customer;

 

                  the collection of the fees is reasonably assured; and

 

                  the amount of fees to be paid by the customer is fixed or determinable.

 

The Company recognizes subscription revenues, including implementation and set-up fees, on a

monthly basis, beginning on the date the customer commences use of the Company’s services and ending

on the final day of the contract term. The Company records amounts that have been invoiced in accounts

receivable and in deferred revenues or revenues, depending on whether the revenue recognition criteria

have been met.

 

The Company recognizes revenue resulting from professional services sold with subscription offerings

(generally considered to be at the time of, or within 45 days of, sale of the subscription offering) over the

term of the related subscription contract as these services are considered to be inseparable from the

subscription service, and the Company has not yet established objective and reliable evidence of fair value

for the undelivered element. The Company recognizes revenues resulting from professional services sold

separately from the subscription services as those professional services are performed.

 

Although the Company’s subscription contracts are generally noncancelable, a limited number of

customers have the right to cancel their contracts by providing prior written notice to the Company of their

intent to cancel the remainder of the contract term. In the event a customer cancels its contract, it is not

entitled to a refund for prior services provided to it by the Company.

 

All software license arrangements include post-contract support services for the initial term, which are

recognized ratably over the term of the post-contract service period, typically one year. License

arrangements may also include installation and training services as well. As such, a combination of these

products and services represent a “multiple-element” arrangement for revenue recognition purposes.

 

8

 

Omniture, Inc.

Notes to Consolidated Financial Statements—(Continued)

 

For contracts with multiple elements, the Company recognizes revenue using the residual method.

Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion

of the arrangement fee is allocated to the delivered elements and recognized as revenue, assuming all other

revenue recognition criteria have been met. If evidence of fair value for each undelivered element of the

arrangement does not exist, all revenue from the arrangement is recognized when evidence of fair value is

determined or when all elements of the arrangement are delivered.

 

Post-contract support services provide customers with rights to, when and if available, updates,

maintenance releases and patches released during the term of the support period. The Company does not

provide custom software development services or create tailored products to sell to specific customers.

 

AMZN » Topics » Revenue RecognitionThis excerpt taken from the AMZN 10-Q filed Apr 24, 2009.

Revenue Recognition

We recognize revenue from product sales or services rendered when the following four revenue

recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services

have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured.

Additionally, revenue arrangements with multiple deliverables are divided into separate units of accounting

if the deliverables in the arrangement meet the following criteria: the delivered item has value to the

customer on a standalone basis; there is objective and reliable evidence of the fair value of undelivered

items; and delivery of any undelivered item is probable.

We evaluate the criteria of EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus

Net as an Agent, in determining whether it is appropriate to record the gross amount of product sales and

related costs or

 

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the net amount earned as commissions. Generally, when we are the primary party obligated in a transaction,

are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but

not all of these indicators, revenue is recorded gross. If we are not primarily obligated and amounts earned

are determined using a percentage, a fixed-payment schedule, or a combination of the two, we generally

record the net amounts as commissions earned.

Product sales and shipping revenues, net of promotional discounts, rebates and return allowances, are

recorded when the products are shipped and title passes to customers. Retail items sold to customers are

made pursuant to sales contracts that generally provide for transfer of both title and risk of loss upon our

delivery to the carrier. Return allowances, which reduce product revenue by our best estimate of expected

product returns, are estimated using historical experience. Revenue from product sales and services

rendered is recorded net of sales taxes. Amounts paid in advance for subscription services, including

amounts received for Amazon Prime and other membership programs, are deferred and recognized as

revenue over the subscription term. For our products with multiple elements, where a standalone value for

each element cannot be established, we recognize the revenue and related cost over the estimated economic

life of the product.

We periodically provide incentive offers to our customers to encourage purchases. Such offers

include current discount offers, such as percentage discounts off current purchases, inducement offers, such

as offers for future discounts subject to a minimum current purchase, and other similar offers. Current

discount offers, when accepted by our customers, are treated as a reduction to the purchase price of the

related transaction, while inducement offers, when accepted by our customers, are treated as a reduction to

purchase price based on estimated future redemption rates. Redemption rates are estimated using our

historical experience for similar inducement offers. Current discount offers and inducement offers are

classified as an offsetting amount in “Net sales.”

Commissions and per-unit fees received from sellers and similar amounts earned through other seller

sites are recognized when the item is sold by the seller and our collectability is reasonably assured. When

we are responsible for fulfillment-related services, commissions are recognized when risk of loss and title

transfer to the customer. We record an allowance for estimated refunds on such commissions using

historical experience.