Symantec 1999 Annual Report Download - page 69

SYMANTEC CORPORATION
Summary of Significant Accounting Policies, Continued
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assumed conversion of all of the outstanding convertible subordinated debentures and assumed exercising of options,
if dilutive in the period.
Concentrations of Credit Risk
Symantec’s product revenues are concentrated in the personal computer software industry, which is highly
competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the
emergence of competitive products with new capabilities or technologies, could adversely affect operating results. In
addition, a significant portion of our 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. Our investment
portfolio is diversified and consists of investment grade securities. Symantec 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 our trade
accounts receivable is substantially mitigated by our credit evaluation process, reasonably short collection terms and
the geographical dispersion of sales transactions. We generally do not require collateral and maintain reserves for
potential credit losses and such losses have been within management’s expectations.
Legal Expenses
Symantec accrues estimated legal expenses for lawsuits only when both of the conditions of SFAS No. 5 are met.
Costs for external attorney fees are accrued when the likelihood of the incurrence of the related costs are probable
and management has the ability to estimate such costs. If both of these conditions are not met, management records
the related legal expenses when incurred. This policy has been consistently applied for all periods presented. The
material assumptions used to estimate the amount of legal expenses include:
• The monthly legal expense incurred by our external attorneys on the particular case being evaluated;
• Communication between Symantec and our external attorneys on the expected duration of the lawsuit and
the estimated expenses during that time;
• Management’s intentions regarding these lawsuits, e.g. to defend vigorously, take to trial, minimum
amounts within the estimated range for which we would be willing to settle if settlement discussions were
to occur;
• Deductible amounts under our insurance policies; and
• Past experiences with similar lawsuits.
Amounts accrued by Symantec are not discounted.
Recent Accounting Pronouncements
In October 1997 and March 1998, the Accounting Standards Executive Committee (“AcSEC”) issued SOP 97-2,
“Software Revenue Recognition,” and SOP 98-4, “Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition,” respectively, which provide guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions and were effective for Symantec beginning with the June
30, 1998 quarter. In December 1998, AcSEC issued SOP 98-9, which amends certain provisions of SOP 97-2 and
extends the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 until the beginning of
Symantec’s fiscal 2000. Symantec early adopted SOP 98-9 for its financial statements and related disclosures
beginning in the March 1999 quarter. SOP 98-9 did not have a material affect on our results.
The FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” which establishes
accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 will be effective for
Symantec at the beginning of the June 2000 quarter for both annual and interim reporting periods. Symantec is
evaluating the potential impact of this accounting pronouncement on required disclosures and accounting practices.
AcSec issued its SOP 98-1, Accounting for Costs of Computer Software Developed For or Obtained for Internal-
Use, under which, qualifying computer software costs incurred during the application development stage are required
to be capitalized and amortized to expense over the software’s estimated useful life. Symantec adopted SOP 98-1 for