Symantec 1998 Annual Report Download - page 28

43
SYMANTEC CORPORATION
42 SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business
Symantec Corporation (“Symantec” or
the “Company”) develops, markets and
supports utility software for business and
personal computing. Symantec’s products
are currently organized into the following
three business units: Security and
Assistance; Remote Productivity Solutions;
and Internet Tools, Royalties and Other.
Customers consist primarily of individ-
ual users, corporations, higher education
institutions and government agencies,
which are mainly located in North
America, Europe, Asia/Pacific, Latin
America and South America.
Principles of Consolidation
The accompanying consolidated finan-
cial statements include the accounts of
Symantec Corporation and its wholly-
owned subsidiaries. All significant
intercompany accounts and transactions
have been eliminated.
Basis of Presentation
During fiscal year 1998, no companies
were acquired by Symantec. During
fiscal 1997 and 1996, Symantec acquired
Delrina Corporation (“Delrina”) and
Fast Track, Inc. (“Fast Track”) in trans-
actions accounted for as poolings of
interests. All financial information has
been restated to reflect the combined
operations of Symantec. The results of
operations of Fast Track were not mater-
ial to Symantec’s consolidated financial
statements, and therefore, amounts prior
to the year of acquisition were not com-
bined with Symantec’s financial statements.
Symantec has a 52/53-week fiscal
accounting year. Accordingly, all refer-
ences as of and for the periods ended
March 31, 1998, 1997 and 1996 reflect
amounts as of and for the periods ended
April 3, 1998, March 28, 1997 and
March 29, 1996, respectively. The fiscal
year ending on April 3, 1998 is comprised
of a 53-week period.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the amounts reported in the financial
statements and accompanying notes. Actual
results could differ from those estimates.
Foreign Currency Translation
The functional currency of the
Company’s foreign subsidiaries is the
local currency. Assets and liabilities
denominated in foreign currencies are
translated using the exchange rate on the
balance sheet dates. The cumulative
translation adjustments resulting from
this process are shown separately as a
component of stockholders’ equity.
Revenues and expenses are translated
using average exchange rates prevailing
during the year. Foreign currency trans-
action gains and losses are included in
the determination of net income (loss).
Revenue Recognition
Symantec recognizes revenue upon ship-
ment when no significant vendor
obligations remain and collection of the
receivable, net of provisions for estimated
future returns, is probable. Symantec
offers the right of return of its products
under various programs. The Company
estimates and maintains reserves for
product returns.
Revenues related to significant post-
contract support agreements (generally
product maintenance agreements) are
deferred and recognized over the period
of the agreements. The estimated cost of
providing insignificant post-contract
support (generally telephone support) is
accrued at the time of the sale and is
included in sales and marketing expense.
Royalty revenues are recognized as
earned unless collection of such revenues
is not assured. When collection is not
assured, revenues are recognized as pay-
ments are received.
Cash Equivalents, Investments and
Restricted Investments
Symantec considers investments in highly
liquid instruments purchased with an
original maturity of 90 days or less to be
cash equivalents. All of the Company’s
cash equivalents, short-term investments,
long-term investments and restricted
investments are classified as available-for-
sale as of the balance sheet date. These
securities are reported at fair market
value and any unrealized gains and losses
are included in stockholders’ equity.
Realized gains and losses and declines in
value judged to be other-than-temporary
are included in interest income. The cost
of securities sold is based upon the spe-
cific identification method.
Derivative Financial Instruments
Symantec utilizes natural hedging to
mitigate the Company’s foreign currency
exposures and hedges certain residual
exposures through the use of one-month
foreign exchange forward contracts. The
Company enters into foreign exchange
forward contracts with financial institu-
tions primarily to minimize currency
exchange risks associated with certain
balance sheet positions. Gains and losses
on the contracts are included in other
income (loss) in the period as gains and
losses on the underlying transactions are
recognized and generally offset. The fair
value of foreign currency exchange for-
ward contracts approximates cost due to
the short maturity periods.
Inventories
Inventories are valued at the lower of
cost or market. Cost is principally deter-
mined using currently adjusted
standards, which approximate actual cost
on a first-in, first-out basis.
Equipment and Leasehold
Improvements
Equipment and leasehold improvements
are stated at cost, net of accumulated
depreciation and amortization.
Depreciation and amortization is pro-
vided on a straight-line basis over the
estimated useful lives of the respective
assets, generally the shorter of the lease
term or three to seven years.
Capitalized Software
Purchased product rights are comprised
of acquired software (“product rights”)
and are stated at cost less accumulated
amortization. Amortization is provided
on the greater of the straight-line basis
over the estimated useful lives of the
respective assets, generally three to five
years, or on the basis of the ratio of cur-
rent revenues to current revenues plus
anticipated future revenues.
Income Taxes
Income taxes are computed in accordance
with Statement of Financial Accounting
Standards No. 109, “Accounting for
Income Taxes.”
Net Income (Loss) Per Share
In 1997, the Financial Accounting
Standards Board issued Statement No. 128,
“Accounting for Earnings Per Share,”
(“SFAS 128”). SFAS 128 replaced the
calculation of primary and fully diluted
net income (loss) per share with basic
and diluted net income (loss) per share.
Accordingly, prior period net income
(loss) per share have been restated in
accordance with SFAS 128.
Basic net income (loss) per share is
computed using the weighted average
number of common shares outstanding
during the periods. Diluted net income
(loss) per share is computed using the
weighted average number of common
shares outstanding and potentially dilu-
tive common shares during the periods.
Diluted earnings per share includes the
assumed conversion of all of the out-
standing convertible subordinated
debentures, if dilutive in the period.
Concentrations of Credit Risk
The Company’s product revenues are
concentrated in the personal computer
software industry, which is highly com-
petitive and rapidly changing. Significant
technological changes in the industry or
customer requirements, or the emergence
of competitive products with new capa-
bilities or technologies, could adversely
affect operating results. In addition, a
significant portion of the Company’s
revenue and net income is derived from
international sales and independent agents
and distributors. Fluctuations of the
U.S. dollar against foreign currencies,
changes in local regulatory or economic
conditions, piracy or nonperformance by
independent agents or distributors could
adversely affect operating results.
Financial instruments that potentially
subject the Company to concentrations
of credit risk consist principally of short-
term and long-term investments,
restricted investments and trade accounts
receivable. The Company’s investment
portfolio is diversified and consists of
investment grade securities. The
Company is exposed to credit risks in the
event of default by these institutions to
the extent of the amount recorded on the
balance sheet. The credit risk in the
Company’s trade accounts receivable is
substantially mitigated by the Company’s
credit evaluation process, reasonably
short collection terms and the geographi-
cal dispersion of sales transactions. The
Company generally does not require col-
lateral and maintains reserves for potential
credit losses and such losses have been
within management’s expectations.
Impairment of Long-Lived Assets
Statement of Financial Accounting
Standards (SFAS) No. 121, “Accounting
for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be
Disposed of,” applicable for the fiscal
year beginning April 1, 1996, did not
have a material affect on the Company’s
consolidated financial condition or
results of operations.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130,
“Reporting Comprehensive Income,” which
establishes standards for reporting and
displaying comprehensive income and its
components in a full set of general-purpose
financial statements and is required to be
adopted by Symantec beginning in fiscal
1999. Symantec is evaluating the potential
impact of this accounting pronouncement
on required disclosures. The Company
anticipates that its unrealized gain and loss
on investments and cumulative translation
adjustment balances will be included as
components of comprehensive income.
Additionally, the Financial Accounting
Standards Board issued SFAS No. 131,
“Disclosures about Segments of an
Enterprise and Related Information,”
which establishes standards for the way that
public business enterprises report infor-
mation in annual statements and interim
financial reports regarding operating seg-
ments, products and services, geographic
areas and major customers. SFAS 131 will
be effective for Symantec for fiscal 1999
year-end and will apply to both annual
and interim financial reporting subsequent