ORACLE CORP | 2013 | FY | 3


10. DEFERRED REVENUES

 

Deferred revenues consisted of the following:

 

 

May 31,

(in millions)

 

2013

 

2012

Software license updates and product support

 

 $

5,705

 

 $

5,565

Hardware systems support and other

 

 

706

 

 

714

Services

 

 

381

 

 

403

New software licenses and cloud software subscriptions

 

 

326

 

 

353

Deferred revenues, current

 

 

7,118

 

 

7,035

Deferred revenues, non-current (in other non-current liabilities)

 

 

312

 

 

296

Total deferred revenues

 

 $

7,430

 

 $

7,331

 

 

 

 

 

 

 

 

Deferred software license updates and product support revenues and deferred hardware systems support revenues represent customer payments made in advance for support contracts that are typically billed on a per annum basis in advance with corresponding revenues being recognized ratably over the support periods. Deferred services revenues include prepayments for our services business and revenues for these services are generally recognized as the services are performed. Deferred new software licenses and cloud software subscriptions revenues typically result from undelivered products or specified enhancements, customer specific acceptance provisions, customer payments made in advance for time-based arrangements including cloud software subscriptions offerings that are typically billed in advance and recognized over the corresponding contractual term, and software license transactions that cannot be segmented from undelivered consulting or other services.

 

In connection with our acquisitions, we have estimated the fair values of the cloud software subscriptions, software license updates and product support, and hardware systems support obligations assumed from our acquired companies. We have estimated the fair values of the obligations assumed using a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the acquired obligations. The aforementioned fair value adjustments recorded for obligations assumed from our acquisitions reduced the new software licenses and cloud software subscriptions, software license updates and product support and hardware systems support deferred revenues balances that we recorded as liabilities from these acquisitions and also reduced the resulting revenues that we recognized or will recognize over the terms of the acquired obligations during the post-combination periods.


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