Oracle 2013 Annual Report Download - page 118

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2014
Deferred revenues consisted of the following:
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 cloud SaaS, PaaS and IaaS revenues typically result from our cloud-
based offerings
that are typically billed in advance and recognized over the corresponding contractual term. Deferred new software licenses revenues typically
result from undelivered products or specified enhancements, customer specific acceptance provisions, customer payments made in advance for
time-based license arrangements 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 SaaS and PaaS, software license updates and product support,
and hardware systems support obligations, amongst others, assumed from our acquired companies. We generally have estimated the fair values
of these 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 these acquired obligations. These aforementioned fair value adjustments recorded for
obligations assumed from our acquisitions reduced the cloud SaaS and PaaS, 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.
Fair Value Hedges — Interest Rate Swap Agreements
In July 2013, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed interest obligations
associated with our January 2019 Notes so that the interest payable on these senior notes effectively became variable based on LIBOR. In
September 2009, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed interest obligations
associated with our 2014 Notes so that the interest payable on these notes effectively became variable based on LIBOR. The critical terms of the
interest rate swap agreements and the January 2019 Notes and 2014 Notes that the interest rate swap agreements pertain to match, including the
notional amounts and maturity dates.
We have designated the aforementioned interest rate swap agreements as qualifying hedging instruments and are accounting for them as fair
value hedges pursuant to ASC 815. These transactions are characterized as fair value
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10.
DEFERRED REVENUES
May 31,
(in millions)
2014
2013
Software license updates and product support
$
5,909
$
5,705
Hardware systems support and other
664
706
Services
364
355
Cloud SaaS, PaaS and IaaS
248
223
New software licenses
84
129
Deferred revenues, current
7,269
7,118
Deferred revenues, non
-
current (in other non
-
current liabilities)
404
312
Total deferred revenues
$
7,673
$
7,430
11.
DERIVATIVE FINANCIAL INSTRUMENTS