Motorola 2011 Annual Report Download - page 55

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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 recognized over the period that these services are
delivered.
Multiple-Element Arrangements—Arrangements with customers may include multiple deliverables, including
any combination of product, services and software. These multiple element arrangements could also include an
element accounted for as a long-term contract coupled with other product, services and software. For multiple-
element arrangements that include product containing software essential to the equipment’s functionality,
undelivered software elements that relate to the product’s essential software, and undelivered non-software services,
deliverables are separated into more than one unit of accounting when (i) the delivered element(s) have value to the
customer on a stand-alone basis, and (ii) delivery of the undelivered element(s) is probable and substantially in the
control of the Company. In these arrangements, we allocate revenue to all deliverables based on their relative selling
prices. We use a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-
specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best
estimate of selling price (“ESP”).
• VSOE—In many instances, products are sold separately in stand-alone arrangements as customers may
support the products themselves or purchase support on a time and materials basis. Additionally, advanced
services such as general consulting, network management or advisory projects are often sold in stand-alone
engagements. Technical support services are also often sold separately through renewals of annual contracts.
We determine VSOE based on our normal pricing and discounting practices for the specific product or
service when sold separately. In determining VSOE, we require that a substantial majority of the selling
prices for a product or service fall within a reasonably narrow pricing range, generally evidenced by the
pricing rates of approximately 80% of such historical stand-alone transactions falling within plus or minus
15% of the median rate. In addition, we consider the geographies in which the products or services are sold,
major product and service groups, customer classification, and other environmental or marketing variables in
determining VSOE.
• TPE—VSOE exists only when we sell the deliverable separately. When VSOE does not exist, we attempt to
determine TPE based on competitor prices for similar deliverables when sold separately. Generally, our
go-to-market strategy for many of our products differs from that of our peers and our offerings contain a
significant level of customization and differentiation such that the comparable pricing of products with
similar functionality sold by other companies cannot be obtained. Furthermore, we are unable to reliably
determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we are
typically not able to determine TPE.
• ESP—The objective of ESP is to determine the price at which we would transact a sale if the product or
service were sold on a stand-alone basis. When both VSOE and TPE do not exist, we determine ESP by first
collecting all reasonably available data points including sales, cost and margin analysis of the product, and
other inputs based on our normal pricing practices. Second, we make any reasonably required adjustments to
the data based on market and Company-specific factors. Third, we stratify the data points, when
appropriate, based on customer, magnitude of the transaction and sales volume.
Once elements of an arrangement are separated into more than one unit of accounting, revenue is recognized
for each separate unit of accounting based on the nature of the revenue as described above.
Our arrangements with multiple deliverables may also contain a stand-alone software deliverable that is subject
to the existing software revenue recognition guidance. The revenue for these multiple-element arrangements is
allocated to the software deliverable and the non-software deliverable(s) based on the relative selling prices of all of
the deliverables in the arrangement using the hierarchy in the revenue accounting guidance. In circumstances where
we cannot determine VSOE or TPE of the selling price for all of the deliverables in the arrangement, including the
software deliverable, ESP is used for the purpose of allocating the arrangement consideration.
We account for multiple element arrangements that consist entirely of software or software-related products,
including the sale of software upgrades or software support agreements to previously sold software, in accordance
with software accounting guidance. For such arrangements, revenue is allocated to the deliverables based on the
relative fair value of each element, and fair value is determined by VSOE. Where VSOE does not exist for the
undelivered software element, revenue is deferred until either the undelivered element is delivered or VSOE is
established, whichever occurs first. When VSOE of a delivered element has not been established, but VSOE exists