Revenue Recognition policies of companies comparison

INTC » 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 Recognition

This 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 Recognition

This 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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customer. 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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terms 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 Recognition

 This 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 Recognition

This 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.