Motorola 2012 Annual Report Download - page 64

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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
accounting when (i) the delivered element(s) have value to the customer on a stand-alone basis, and (ii) delivery of the
undelivered element(s) is probable and substantially in the control of the Company. In these arrangements, the Company
allocates revenue to all deliverables based on their relative selling prices. The Company uses the following hierarchy to
determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value
(“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of selling price (“ESP”).
• VSOE—In many instances, products are sold separately in stand-alone arrangements as customers may support the
products themselves or purchase support on a time and materials basis. Additionally, advanced services such as
general consulting, network management or advisory projects are often sold in stand-alone engagements. Technical
support services are also often sold separately through renewals of annual contracts. The Company determines VSOE
based on its normal pricing and discounting practices for the specific product or service when sold separately. In
determining VSOE, the Company requires that a substantial majority of the selling prices for a product or service fall
within a reasonably narrow pricing range, generally evidenced by the pricing rates of approximately 80% of such
historical stand-alone transactions falling within plus or minus 15% of the median rate. In addition, the Company
considers the geographies in which the products or services are sold, major product and service groups, customer
classification, and other environmental or marketing variables in determining VSOE.
• TPE—VSOE exists only when the Company sells the deliverable separately. When VSOE does not exist, the
Company attempts to determine TPE based on competitor prices for similar deliverables when sold separately.
Generally, the Company's go-to-market strategy for many of its products differs from that of its peers and its offerings
contain a significant level of customization and differentiation such that the comparable pricing of products with
similar functionality sold by other companies cannot be obtained. Furthermore, the Company is unable to reliably
determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, the Company is
typically not able to determine TPE.
• ESP—The objective of ESP is to determine the price at which the Company would transact a sale if the product or
service were sold on a stand-alone basis. When both VSOE and TPE do not exist, the Company determines ESP by
first collecting all reasonably available data points including sales, cost and margin analysis of the product, and other
inputs based on its normal pricing practices. Second, the Company makes any reasonably required adjustments to the
data based on market and Company-specific factors. Third, the Company stratifies the data points, when appropriate,
based on customer, magnitude of the transaction and sales volume.
Once elements of an arrangement are separated into more than one unit of accounting, revenue is recognized for each
separate unit of accounting based on the nature of the revenue as described above.
The Company's arrangements with multiple deliverables may also contain a stand-alone software deliverable that is
subject to software revenue recognition guidance. The revenue for these multiple-element arrangements is allocated to the
software deliverable and the non-software deliverable(s) based on the relative selling prices of all of the deliverables in the
arrangement using the fair value hierarchy outlined above. In circumstances where the Company cannot determine VSOE or
TPE of the selling price for any of the deliverables in the arrangement, ESP is used for the purpose of allocating the
arrangement consideration between software and non software deliverables.
The Company accounts for multiple-element arrangements that consist entirely of software or software-related products,
including the sale of software upgrades or software support agreements to previously sold software, in accordance with
software accounting guidance. For such arrangements, revenue is allocated to the deliverables based on the relative fair value
of each element, and fair value is determined using VSOE. Where VSOE does not exist for the undelivered software element,
revenue is deferred until either the undelivered element is delivered or VSOE is established, whichever occurs first. When
VSOE of a delivered element has not been established, but VSOE exists for the undelivered elements, the Company uses the
residual method to recognize revenue when the fair value of all undelivered elements is determinable. Under the residual