Oracle 2010 Annual Report Download - page 189

DEFERRED REVENUES
DEFERRED REVENUES
(USD $)
12 Months Ended
05/31/2011
DEFERRED REVENUES 10. DEFERRED REVENUES
Deferred revenues consisted of the following:
May 31,
(in millions) 2011 2010
Software license updates and product support $ 5,386 $ 4,618
Hardware systems support 687 537
Services 438 376
New software licenses 263 330
Hardware systems products 28 39
Deferred revenues, current 6,802 5,900
Deferred revenues, non-current (in other non-current liabilities) 316 388
Total deferred revenues $ 7,118 $ 6,288
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
consulting, Cloud Services and education services. Revenue for these services is recognized as the services are performed. Deferred
new software license revenues typically result from undelivered products or specified enhancements, customer specific acceptance
provisions, time based arrangements and software license transactions that cannot be segmented from undelivered consulting or
other services. Deferred hardware systems products revenues typically result from sales to customers, including channel partners
and resellers, where revenue recognition criteria have not been met and transactions that cannot be segmented from undelivered
consulting or other services.
In connection with the purchase price allocations related to our acquisitions, we have estimated the fair values of the software
license updates and product support obligations and hardware systems support obligations assumed from our acquired companies.
We have estimated the fair values of the support obligations assumed using a cost build-up approach. The cost build-up approach
determines fair value by estimating the costs relating 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
support obligations. Substantially all of the fair value adjustments recorded for support obligations assumed reduce the software
license updates and product support and hardware systems support deferred revenue balances that we record as liabilities and also
reduce the resulting revenues that we recognize over the support contract term of the acquired contracts during the post-combination
periods.
Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠