DEFERRED REVENUES

3 Months Ended

Aug. 31, 2011

Notes to Condensed Consolidated Financial Statements

DEFERRED REVENUES

8. DEFERRED REVENUES

Deferred revenues consisted of the following:

(in millions)	August 31, 2011		May 31,     2011
Software license updates and product support	$	6,494	$	5,386
Hardware systems support		729		687
Services		410		438
New software licenses		263		263
Hardware systems products		29		28
Deferred revenues, current		7,925		6,802
Deferred revenues, non-current (in other non-current liabilities)		311		316
Total deferred revenues	$	8,236	$	7,118

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 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 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.