Symantec 2004 Annual Report Download - page 28

«26»SYMANTEC CORPORATION
Overview
We have a 52/53-week fiscal accounting year. Accordingly, all
references as of and for the periods ended March 31, 2004, 2003
and 2002 reflect amounts as of and for the periods ended
April 2, 2004, March 28, 2003, and March 29, 2002, respectively.
The fiscal accounting year ended April 2, 2004, is comprised
of 53 weeks of operations while the fiscal accounting years
ended March 28, 2003 and March 29, 2002 each is comprised
of 52 weeks of operations. The fiscal accounting year ending
April 1, 2005, will comprise of 52 weeks of operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements and
related notes requires us to make estimates, which include judg-
ments and assumptions, that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure
of contingent assets and liabilities. We have based our estimates
on historical experience and on various assumptions that are
believed to be reasonable under the circumstances and we evaluate
our estimates on a regular basis and make changes accordingly.
Historically, our estimates relative to our critical accounting estimates
have not differed materially from actual results; however, actual
results may differ from these estimates under different conditions.
A critical accounting estimate is based on judgments and
assumptions about matters that are highly uncertain at the time the
estimate is made. Different estimates that reasonably could have
been used, or changes in accounting estimates could materially
impact the financial statements. We believe that the estimates
described below represent our critical accounting estimates, as they
have the greatest potential impact on our consolidated financial
statements. We also refer you to our “Summary of Significant
Accounting Policies” in this report.
Revenue Recognition
We recognize revenue in accordance with generally accepted
accounting principles that have been prescribed for the software
industry. Revenue recognition requirements in the software industry
are very complex and they require us to make many estimates.
In applying our revenue recognition policy, we must determine
which portions of our revenue are recognized currently and which
portions must be deferred. In order to determine current and
deferred revenue, we make estimates with regard to future deliverable
products and services and the appropriate pricing for those products
and services. Our estimates regarding future products and services
could differ from actual events.
We defer revenue relating to products, primarily in our Consumer
Products and Enterprise Administration segments, that we have
shipped into our distribution and reseller channels to the extent
that inventory levels are in excess of certain specified inventory
levels for these channels. We defer this revenue as an offset to
accounts receivable. We estimate the excess inventory in these
channels by analyzing channel inventory levels and distribution
and reseller sell-through trends obtained from our channel partners,
as well as various historical trends on a product basis. In addition,
we consider other factors in assessing these specified inventory
levels, such as product seasonality, current market conditions,
economic trends, existing security threats and timing of new
product releases. On the same basis, we defer the associated
cost of revenues related to this deferred revenue. If we made
different estimates, material differences may result in the amount
and timing of our net revenues and cost of revenues for any
period presented.
In arrangements that include multiple elements, including perpetual
software licenses and maintenance and/or services, and packaged
products with content updates, we allocate and defer revenue for
the undelivered items based on vendor-specific objective evidence,
or VSOE, of fair value of the undelivered elements, and recognize
the difference between the total arrangement fee and the amount
deferred for the undelivered items as revenue. Our deferred
revenue consists primarily of the unamortized balance of enterprise
product maintenance and consumer product content updates and
totaled $971 million as of March 31, 2004, of which $92 million was
represented as long-term deferred revenue, on the Consolidated
Balance Sheet. VSOE of each element is based on the price for
which the undelivered element is sold separately. We determine
fair value of the undelivered elements based on historical evidence
of our stand-alone sales of these elements to third parties. When
VSOE does not exist for undelivered items such as maintenance,
then the entire arrangement fee is recognized ratably over the
performance period. Changes to the elements in a software
arrangement, the ability to identify VSOE for those elements, the
fair value of the respective elements, and changes to a product’s
estimated life cycle could materially impact the amount of earned
and unearned revenue.
Reserves for Product Returns End-users may return our prod-
ucts, primarily within our Consumer Products and Enterprise
Administration segments, through distributors and resellers or to
us directly for a full refund within a reasonably short period from
the date of purchase. Our estimated reserves for such end-user
product returns, which are recorded as an offset to revenue, are
based primarily on historical trends. We also consider other factors
such as the timing of upgrades and new versions of products,
current market conditions, economic trends and changes in tech-
nology. In addition, we fully reserve for obsolete products in the
distribution channels as an offset to revenue. If we made different
2004 Annual Report
NManagement’s Discussion and Analysis of Financial Condition and Results of Operations