Blackberry 2012 Annual Report Download - page 181

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
H
ardware
Revenue from the sale of BlackBerry wireless hardware products (e.g., BlackBerry handheld devices and BlackBerry PlayBook
tablets) is recognized when title has transferred to the customer and all significant contractual obligations that affect the customer’s
final acceptance have been fulfilled. For hardware products for which the software is deemed essential to the functionality of the
hardware, the Company recognizes revenue in accordance with general revenue recognition accounting guidance.
The Company sells its BlackBerry PlayBook tablet with the right to receive unspecified software upgrade rights on a “when-and-if
available” basis. These upgrade rights are related specifically to the product’s essential operating system software. In these instances,
the amount allocated to the unspecified software upgrade rights are deferred and recognized rateably over the 24-month estimated life
of the BlackBerry PlayBook tablet.
The Company records reductions to revenue for estimated commitments related to price protection, right of return and for customer
incentive programs. Price protection is accrued as a reduction to revenue based on estimates of price reductions, provided the price
reduction can be reliably estimated and all other revenue recognition criteria have been met. The Company also records reductions to
revenue for a right of return based on contractual terms and conditions and, if the expected product returns can be reasonably and
reliably estimated, based on historical experience. Where a general right of return cannot be reasonably and reliably estimated, the
Company recognizes revenue when the product sells through the distribution channel. The estimated cost of the customer incentive
programs is accrued as a reduction to revenue based on historical experience, and is recognized at the later of the date at which the
Company has sold the product or the date at which the program is offered. If historical experience cannot support a breakage rate, the
maximum rebate amount is deferred and adjusted when incentive programs end.
Service
Revenue from service is recognized rateably on a monthly basis when the service is provided. In instances where the Company bills
the customer prior to performing the service, the prebilling is recorded as deferred revenue.
Software
Revenue from licensed software is recognized at the inception of the license term and in accordance with industry-specific software
revenue recognition accounting guidance. When the fair value of a delivered element has not been established, the Company uses the
residual method to recognize revenue if the fair value of undelivered elements is determinable. Revenue from software maintenance,
unspecified upgrades and technical support contracts is recognized over the period that such items are delivered or those services are
provided.
11