Motorola 2012 Annual Report Download - page 47

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about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. Management believes the following significant accounting
policies require significant judgment and estimates:
—Revenue recognition
—Inventory valuation
—Income taxes
—Valuation of Sigma Fund and investment portfolios
—Restructuring activities
—Retirement-related benefits
—Valuation and recoverability of goodwill
Revenue Recognition
Net sales consist of a wide range of activities including the delivery of stand-alone equipment or services, custom design
and installation over a period of time, and bundled sales of equipment, software and services. We enter into revenue
arrangements that may consist of multiple deliverables of our product and service offerings due to the needs of our customers.
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collectability of the sales price is reasonably assured. We recognize revenue from the sale of equipment,
software bundled with equipment that is essential to the functionality of the equipment, and most services in accordance with
general revenue recognition accounting principles. We recognize revenue in accordance with software accounting guidance for
the following types of sales transactions: (i) standalone sales of software products or software upgrades, (ii) standalone sales of
software maintenance agreements and (iii) sales of software bundled with hardware not essential to the functionality of that
hardware.
Products —For product sales, revenue recognition occurs when products have been shipped, risk of loss has transferred
to the customer, objective evidence exists that customer acceptance provisions have been met, no significant obligations remain
and allowances for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues
are reduced by these allowances. We base our estimates of these allowances on historical experience taking into consideration
the type of products sold, the type of customer, and the specific type of transaction in each arrangement. Where customer
incentives cannot be reliably estimated, we defer revenue until the incentive has been finalized with the customer.
We sell software and equipment obtained from other companies. We establish our own pricing and retain related
inventory risk, are the primary obligor in sales transactions with customers, and assume the credit risk for amounts billed to
customers. Accordingly, we generally recognize revenue for the sale of products obtained from other companies based on the
gross amount billed.
Within our Enterprise segment, products are primarily sold through distributors and value-added resellers (collectively
“channel partners”). Channel partners may provide a service or add componentry in order to resell our products to end
customers. For sales to channel partners where we cannot reliably estimate the final sales price or when a channel partner is
unable to pay for our products without reselling them to their customers, revenue is not recognized until the products are resold
by the channel partner to the end customer.
Long-Term Contracts—For long-term contracts that involve customization of equipment and/or software, we generally
recognize revenue using the percentage of completion method based on the percentage of costs incurred to date compared to
the total estimated costs to complete the contract. In certain instances, when revenues or costs associated with long-term
contracts cannot be reliably estimated or the contract contains other inherent uncertainties, revenues and costs are deferred until
the project is complete and customer acceptance is obtained. When current estimates of total contract revenue and contract
costs indicate a contract loss, the loss is recognized in the period it becomes evident.
Services—Revenue for services is generally recognized ratably over the contract term as services are performed.
Software and Licenses—Revenue from pre-paid perpetual licenses is recognized at the inception of the arrangement,
presuming all other relevant revenue recognition criteria are met. Revenue from non-perpetual licenses or term licenses is
recognized ratably over the period that the licensee uses the license. Revenues from software maintenance, technical support
and unspecified upgrades are recognized over the period that these services are delivered.
Multiple-Element Arrangements—Arrangements with customers may include multiple deliverables, including any
combination of products, services and software. These multiple element arrangements could also include an element accounted
for as a long-term contract coupled with other products, services and software. For multiple-element arrangements that include
products containing software essential to the equipment's functionality, undelivered software elements that relate to the
product's essential software, and undelivered non-software services, deliverables are separated into more than one unit of