Motorola 2013 Annual Report Download - page 59

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Motorola Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except as noted)
1. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of Motorola Solutions, Inc.
(the “Company” or “Motorola Solutions”) and all controlled subsidiaries. All intercompany transactions and balances have
been eliminated.
The consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013,
2012 and 2011, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and
reclassifications) necessary to present fairly the Company's consolidated financial position, results of operations, statements of
comprehensive income, statement of stockholder's equity, and cash flows for all periods presented.
The preparation of financial statements in conformity with United States ("U.S.") Generally Accepted Accounting
Principles ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Revenue Recognition: Net sales consist of a wide range of activities including the delivery of stand-alone equipment or
services, custom design and installation over a period of time, and bundled sales of equipment, software and services. The
Company enters into revenue arrangements that may consist of multiple deliverables of its products and services due to the
needs of its customers. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. The Company
recognizes revenue from the sale of equipment, equipment containing both software and nonsoftware components that function
together to deliver the equipment’s essential functionality, and services in accordance with general revenue recognition
accounting principles. The Company recognizes revenue in accordance with software accounting guidance for the following
types of sales transactions: (i) standalone sales of software products or software upgrades, (ii) standalone sales of software
maintenance agreements, and (iii) sales of software bundled with hardware where the software is not essential to the
functionality of that equipment.
Products
For equipment sales, in addition to the criteria mentioned above, revenue recognition occurs when title and risk of loss
has transferred to the customer, objective evidence exists that customer acceptance provisions have been met, no significant
obligations remain and 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 of these allowances on historical
experience taking into consideration the type of products sold, the type of customer, and the specific type of transaction in each
arrangement. Where customer incentives cannot be reliably estimated, the Company defers revenue until the incentive has been
finalized with the customer. The Company includes shipping charges billed to customers in net revenue, and includes the
related shipping costs in cost of sales.
The Company sells software and equipment obtained from other companies. The Company establishes its own pricing
and retains related inventory risk, is the primary obligor in sales transactions with customers, and assumes the credit risk for
amounts billed to customers. Accordingly, the Company generally recognizes revenue for the sale of products obtained from
other companies based on the gross amount billed.
Within the Enterprise segment, products are often sold through distributors to value-added resellers. In addition to
cooperative marketing and other incentive programs, the Company has arrangements with some distributors which allow for
price protection and limited rights of return, generally through stock rotation programs. Under the price protection programs,
the Company gives distributors credits for the difference between the original price paid and the Company’s then current price.
Under the stock rotation programs, distributors are able to exchange certain products based on the number of qualified
purchases made during the period. Where the Company is unable to reliably estimate the final sales price due to the price
protection and stock rotation programs revenue is not recognized until the products are resold by distributors to value-added
resellers using information provided by these distributors.
Long-Term Contracts
For long-term contracts that involve customization of equipment and/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 (“Estimated Costs at Completion”). The components of estimated costs to complete a
contract and management’s process for reviewing Estimated Costs at Completion and progress toward completion is discussed