Blackberry 2013 Annual Report Download - page 182

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the Company’s arrangements involving multiple deliverables of BlackBerry 7 or earlier handheld devices with services, the
consideration from the arrangement is allocated to each respective element based on its relative selling price, using vendor-specific
objective evidence of selling price (“VSOE”). In certain limited instances when the Company is unable to establish the selling price
using VSOE, the Company attempts to establish the selling price of each element based on acceptable third party evidence of selling
price (“TPE”); however, the Company is generally unable to reliably determine the selling prices of similar competitor products and
services on a stand-alone basis. In these instances, the Company uses best estimated selling price (“BESP”) in its allocation of
arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product
or service was sold on a stand-alone basis.
Beginning in January, 2013 the Company introduced its BlackBerry 10 devices which 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 of 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.
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