Motorola 2005 Annual Report Download - page 90

83
1. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. The Company's investments in non-controlled entities in which it has the ability to
exercise significant influence over operating and financial policies are accounted for by the equity method. The
Company's investments in other entities are accounted for using the cost method.
Revenue Recognition: The Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, and collectibility of the sales price is reasonably
assured. In addition to these general revenue recognition criteria, the following specific revenue recognition policies
are followed:
Products and Equipment Ì For product and equipment sales, delivery generally does not occur until the
products or equipment have been shipped, risk of loss has transferred to the customer, and objective evidence exists
that customer acceptance provisions have been met. The Company records revenue when allowances for discounts,
price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these
allowances. The Company bases its estimates on historical experience taking into consideration the type of products
sold, the type of customer, and the type of transaction specific in each arrangement.
Long-Term Contracts Ì For long-term contracts that involve customization or modification of the Company's
equipment or software, the Company generally recognizes revenue using the percentage of completion method
based on the percentage of costs incurred to date compared to the total estimated costs to complete the contract.
In certain instances, when revenues or costs associated with long-term contracts cannot be reliably estimated or the
contract involves unproven technologies or other inherent hazards, revenues and margin are deferred until the
project is complete and customer acceptance is obtained.
Services Ì Revenue for services is generally recognized ratably over the contract term as services are
performed.
Software and Licenses Ì Revenue from pre-paid perpetual licenses is recognized at the inception of the
arrangement. Revenue from non-perpetual licenses or term licenses is recognized ratably over the period that the
licensee uses the license. Revenue from software maintenance, technical support and unspecified upgrades is
generally recognized over the period that these services are delivered.
Multiple Element Arrangements Ì Arrangements with customers may include multiple deliverables, including
any combination of products, equipment, services and software. If multiple element arrangements include software
or software related elements, the Company applies the provisions of AICPA Statement of Position (SOP) No. 97-2,
""Software Revenue Recognition'', to determine separate units of accounting and the amount of the arrangement fee
to be allocated to those separate units of accounting. Multiple element arrangements that include software are
separated into more than one unit of accounting if the functionality of the delivered element(s) is not dependent
on the undelivered element(s), there is vendor-specific objective evidence of the fair value of the undelivered
element(s), and general revenue recognition criteria related to the delivered elements have been met. For all other
deliverables, elements are separated into more than one unit accounting if the delivered element(s) have value to
the customer on a stand-alone basis, objective and reliable evidence of fair value exists for the undelivered
element(s), and delivery of the undelivered element(s) is probable and substantially in control of the Company.
Revenue is allocated to each unit of accounting based on the relative fair value of each accounting unit or using the
residual method if objective evidence of fair value does not exist for the delivered element(s). The revenue
recognition criteria described above are applied to each separate unit of accounting. If these criteria are not met,
revenue is deferred until the criteria are met or the last element has been delivered.
Cash Equivalents: The Company considers all highly-liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Sigma Funds: The Company and its wholly-owned subsidiaries invest most of their excess cash in two Sigma
Reserve funds (the ""Sigma Funds''), which are funds similar to a money market fund. Until the first quarter of
2005, the Sigma Funds marketable securities balances were classified together with other money-market type cash
investments as cash and cash equivalents.
The Sigma Funds portfolios are managed by five major outside investment management firms and include
investments in high quality (rated at least A/A-1 by S&P or A2/P-1 by Moody's at purchase date), U.S.
dollar-denominated debt obligations including certificates of deposit, bankers' acceptances and fixed time deposits,