Blackberry 2013 Annual Report Download - page 124

Research In Motion Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Beginning in January, 2013 the Company introduced its BlackBerry 10 devices which will use the Company’s network
infrastructure in a different manner than BlackBerry 7 or earlier devices. As a result, for arrangements involving multiple
deliverables including the BlackBerry 10 device and the essential operating system software, as well as unspecified upgrade
rights and non-software services for which the Company may not charge for separately, the consideration from the arrangement
is allocated to each respective element based on the relative selling price, using the Company’s BESP as the device, unspecified
upgrade rights and non-software services are no longer sold separately. The consideration for the delivered hardware and the
related essential operating system software are recognized at the time of sale provided that the four general revenue recognition
criteria have been met. The consideration allocated to the unspecified software upgrade rights and non-software services is
deferred and recognized rateably over the 24-month estimated life of the devices.
The BlackBerry PlayBook tablet includes the right to receive free unspecified software upgrade rights on a when-and-if
available basis. This upgrade right to the product’s embedded operating system software is considered an undelivered element at
the time of sale of the tablet and falls within the general revenue recognition guidance. The consideration from the arrangement
is allocated to each respective element based on its relative selling price. As the BlackBerry PlayBook tablet or the upgrade right
are not sold on a standalone basis and no TPE exists for these deliverables, the allocation of revenue is based on the Company’s
BESPs. The consideration for the delivered hardware and the related essential software operating system are recognized at the
time of sale provided that the four revenue recognition criteria have been met. The consideration allocated to the unspecified
software upgrade rights is deferred and recognized rateably over the 24-month estimated life of the tablets.
For arrangements involving multiple deliverables of software with technical support services, the revenue is recognized based on
the industry-specific software revenue recognition accounting guidance. If the Company is not able to determine VSOE for all o
f
the deliverables of the arrangement, but is able to obtain VSOE for all undelivered elements, revenue is allocated using the
residual method. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement
consideration less the aggregate fair value of any undelivered elements. If VSOE of any undelivered software items does not
exist, revenue from the entire arrangement is initially deferred and recognized at the earlier of: (i) delivery of those elements for
which VSOE did not exist; or (ii) when VSOE can be established.
The Company determines BESP for a product or service by considering multiple factors including, but not limited to, historical
pricing practices for similar offerings, market conditions, competitive landscape, internal costs, gross margin objectives and
pricing practices. The determination of BESP is made through consultation with and formal approval by, the Company’s
management, taking into consideration the Company’s marketing strategy. The Company regularly reviews VSOE, TPE and
BESP, and maintains internal controls over the establishment and updates of these estimates. Based on the above factors, the
Company’s BESP for the unspecified software upgrade right is $6 per BlackBerry PlayBook tablet and the Company’s BESP for
the unspecified software upgrade right and non-software services ranges from $10-$20 per BlackBerry 10 device.
Research and development
Research costs are expensed as incurred. Development costs for BlackBerry devices and licensed software to be sold, leased or
otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and
ending when a product is available for general release to customers. The Company’s products are generally released soon after
technological feasibility has been established and therefore costs incurred subsequent to achievement of technological feasibility
are not significant and have been expensed as incurred.
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