Blackberry 2015 Annual Report Download - page 81

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
6
execute on sell-through programs and reduced the price on new shipments of BlackBerry 10 smartphones during fiscal
2014 and fiscal 2015. During fiscal 2015, the Company was not able to reasonably estimate the amount of the potential
sell-through programs that may be offered on certain BlackBerry devices in future periods, resulting in revenues for
BlackBerry 10 devices, and BlackBerry 7 devices in certain regions, being recognized only when the devices sold through
to end customers.
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. Service
revenue also includes the recognition of previously deferred revenue related to multi-element arrangements for non-
software services and software upgrade rights related to BlackBerry 10 devices.
Software
Revenue from licensed software is recognized upon delivery or rateably over 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.
Other
Other revenue consists of the sale of accessories and repair and maintenance contracts. Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and
collection is probable.
Shipping and handling Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and
handling costs are included in cost of sales. Shipping and handling costs that cannot be reasonably attributed to certain
customers are included in selling, marketing and administration.
Multiple-element arrangements
The Company enters into revenue arrangements that may consist of multiple deliverables of its product and service
offerings. The Company’s typical multiple-element arrangements involve: (i) BlackBerry 7 or earlier handheld devices
with services, (ii) BlackBerry 10 handheld devices with unspecified software upgrades on a when-and-if available basis
along with undelivered non-software services, and (iii) software with technical support services.
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 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 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
software 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.
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