F-11
held by us in a rabbi trust which include fixed income funds, equity securities, and money market accounts, or other investments for
which there is an active quoted market, and are classified as trading securities. At December 31, 2013 and 2012, funds of $1,003 and
$690, respectively, were included in Other assets and the deferred compensation liability of $637 and $394, respectively, were
included in Other long-term liabilities on the Consolidated Balance Sheets.
Revenue Recognition.
We recognize revenue when all of the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) the fee is probable of collection.
Revenue is reported as described below:
Services Revenue.
Revenue from hosted and subscriber services consists of monthly recurring service fees and is recognized in
the month earned. Maintenance fees are generally collected in advance and recognized ratably over the maintenance period. Services
revenue for consulting, training and the design, development, deployment, field support and maintenance of communication systems is
generated under time and materials contracts, cost plus fee contracts, or fixed price contracts. Revenue is recognized under time and
materials contracts and cost plus fee contracts as billable costs are incurred. Fixed-price service contracts are accounted for using the
proportional performance method. These contracts generally allow for monthly billing or billing upon achieving certain specified
milestones.
Systems Revenue.
We design, develop, and deploy custom communications products, components, and systems. Custom systems
typically contain multiple elements, which may include hardware, installation, integration, and product licenses, which are either
incidental or provide essential functionality.
We allocate the fees in a multi-element arrangement to each element based on the relative fair value of each element, using
vendor-specific objective evidence (“VSOE”) of the fair value of each of the elements, if available. VSOE is generally determined
based on the price charged when an element is sold separately. In the absence of VSOE of fair value, the fee is allocated among each
element based on third-party evidence (“TPE”) of fair value, which is determined based on competitor pricing for similar deliverables
when sold separately. When we are unable to establish fair value using VSOE or TPE, we use estimated selling price (“ESP”) to
allocate value to each element. The objective of ESP is to determine the price at which we would transact a sale if the product or
service were sold separately. We determine ESP for deliverables by considering multiple factors including, but not limited to, prices it
charges for similar offerings, market conditions, competitive landscape, and pricing practices.
Fees from the development and implementation of custom systems are generally performed under time and materials and fixed
fee contracts. Revenue is recognized under time and materials contracts and cost plus fee contracts as billable costs are incurred.
Fixed-price product delivery contracts are accounted for using the percentage-of-completion or proportional performance method,
measured either by total costs incurred as a percentage of total estimated costs at the completion of the contract, or direct labor costs
incurred compared to estimated total direct labor costs for projects for which third-party hardware represents a significant portion of
the total estimated costs. These contracts generally allow for monthly billing or billing upon achieving certain specified milestones.
Any estimated losses under long-term contracts are recognized in their entirety at the date that it becomes probable of occurring.
Revenue from hardware sales to monthly subscriber customers is recognized as systems revenue. We have contracts and purchase
orders where revenue is recognized at the time products or services are delivered, or when the product is shipped and the risk of the
loss is transferred to the buyer, net of discounts.
Software licenses are generally perpetual licenses for a specified number of users that allow for the purchase of annual
maintenance at a specified rate. All fees are recognized as revenue when the four criteria described above are met. For multiple
element arrangements that contain only software and software-related elements, we allocate the fees to each element based on the
VSOE of fair value of each element. Systems containing software licenses include a 90-day warranty for defects. We have not
incurred significant warranty costs on any software product to date, and no costs are currently accrued upon recording the related
revenue.
Revenue generated from our intellectual property consists of patent infringement liabilities, upfront and non-refundable license
fees, royalty fees, and sales of our patents. Revenue from upfront and non-refundable payments is recognized when the arrangement is
executed. When patent licensing arrangements include royalties for future sales of products using our licensed patented technology,
revenue is recognized when earned during the applicable period. Due to the nature of some of the agreements it may be difficult to
establish VSOE of separate elements of an agreement, in these circumstances the appropriate recognition of revenue may require the
use of judgment based on the particular facts and circumstances. In all cases, revenue from the licensing of our intellectual property is
recognized when all of four of the revenue recognition criteria are met, and included in Commercial systems revenue.
When a customer is billed or we receive payment and we have not met all of the criteria for revenue recognition, the billed or
paid amount is recorded as deferred revenue on our consolidated balance sheet. As the revenue recognition criteria are met, the
deferred amounts are recognized as revenue. We defer direct project costs incurred in certain situations as dictated by authoritative
accounting literature. We classify deferred revenue and deferred project costs on the consolidated balance sheet as either current or
