Symantec 2001 Annual Report Download - page 23

Product Returns We estimate and maintain reserves for product
returns. Product returns principally relate to stock balancing and the
replacement of obsolete products, which are offset by orders of equal or
greater value for the current versions of the products. The mix of prod-
ucts returned from our distributors/resellers as compared to products
sold to our distributors/resellers does not impact our gross margin, as
our gross margin is materially consistent across our various product
families. Changes in the level of product returns and related product
returns provision are generally offset by a change in the level of gross
revenue. As a result, the product returns provision did not have a
material impact on reported net revenues in any period presented.
Gross Margin Gross margin represents net revenues less cost of rev-
enues. Cost of revenues consists primarily of manufacturing expenses,
costs for producing manuals, packaging costs, royalties paid to third
parties under publishing contracts and amortization and write-off of
acquired product rights. Gross margin was 85% of net revenues in
fiscal 2001 and 84% of net revenues in fiscal 2000 and 1999. The
improvement in gross margin in fiscal 2001 was primarily due to
higher margins associated with the increase in enterprise related sales
and cost savings achieved in reduced packaging costs.
Acquired Product Rights As indicated in the overview, during fiscal
2001 we acquired AXENT and recorded approximately $86 million in
acquired product rights. During fiscal 2000, we acquired URLabs, L-3
Network Security’s operations and 20/20 Software and recorded
approximately $11 million in acquired product rights. Amortization of
these intangibles, which are included in cost of revenues, totaled approxi-
mately $17 million, $10 million and $6 million in fiscal 2001, 2000 and
1999, respectively. The amortization of intangible assets from our fiscal
2001 and 2000 acquisitions will occur over the next 5 years.
Research and Development Expenses We charge research and devel-
opment expenditures to operations as incurred. As a percentage of net
revenues, research and development expenses remained flat at 15% for
fiscal 2001 and 2000 and were 17% for fiscal 1999. The overall growth
in our net revenues was the primary reason for the decrease in research
and development expences as a percentage of net revenues in fiscal
2000 as compared to fiscal 1999.
Although research and development expenses remained flat as a
percentage of net revenues, absolute dollars increased 17% to
approximately $127 million in fiscal 2001 from $108 million in fiscal
2000. The increase was a result of Enterprise Security segment hiring,
salary increases and other employee related expenses and AXENT
related research and development expences which were included from
the date of acquisition. This increase was partially offset by the lack of
expenses in fiscal 2001 associated with the divested Visual Café and
ACT! product lines and the patent claim settlements in the Consumer
Products segment.
Research and development expenses increased 7% to approximately
$108 million in fiscal 2000 from $102 million in fiscal 1999. The
increase was a result of increases in software development costs paid to
additional contractors, employee related expenses and additional costs
for settlements related to disputes over technology rights in fiscal 2000,
offset by a reduction of research and development expenses resulting
from our divestitures.
International Net revenues outside of North America represented
45%, 41% and 37% of total net revenues for fiscal 2001, 2000 and
1999, respectively. International net revenues increased by $74 million
in fiscal 2001 to $382 million from $308 million in 2000. This increase
in net revenues was the result of increased sales in Europe and Japan.
Net revenues from sales outside of North America increased by $89
million in fiscal 2000 to $308 million from $219 million in fiscal 1999.
This increase was also largely due to stronger sales in Europe and Japan.
Weaknesses in currencies fixed to the euro during fiscal 2001, slightly
offset by strengths in other currencies, negatively impacted
our international revenue growth by approximately $44 million.
The impact in fiscal 2000 was approximately $15 million.
Pro Forma Revenue Giving Effect to the Acquisition of AXENT and
Divestitures For comparative purposes, the following table displays,
on a pro forma basis, our net revenues as if the acquisition of AXENT
had occurred at the beginning of fiscal 1999 and excluding the divested
Visual Café and ACT! product lines:
Year ended March 31
(In thousands) 2001 2000 1999
Pro forma net revenues $ 944,150 $ 826,587 $ 632,243
Quarterly pro forma net revenues for the year ended March 31, 2001 would have been as follows, for the quarter ended:
Consumer Enterprise Enterprise Total
(In thousands) Products Security Administration Services Other Company
June 2000 $ 75,203 $ 85,998 $ 60,567 $ 2,836 $ 807 $ 225,411
September 2000 78,260 85,816 58,726 2,642 937 226,381
December 2000 93,761 92,005 53,747 1,995 244 241,752
March 2001 85,444 105,354 57,604 1,835 369 250,606
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