Symantec 2007 Annual Report Download - page 39

the full year in fiscal 2007 as compared to only the nine months subsequent to the acquisition date of July 2, 2005 in
fiscal 2006. We believe our revenue growth is also partly attributable to increased awareness of Internet-related
threats around the world and demand for storage solutions. Weakness in the U.S. dollar compared to foreign
currencies positively impacted our international revenue growth by $105 million in fiscal 2007 compared to fiscal
2006. We are unable to predict the extent to which revenues in future periods will be impacted by changes in foreign
currency exchange rates. If international sales become a greater portion of our total sales in the future, changes in
foreign exchange rates may have a potentially greater impact on our revenues and operating results.
Although revenue for fiscal 2007 was higher than revenue for fiscal 2006 and 2005, certain portions of our
business are maturing and our rate of revenue growth is slowing for several reasons. During fiscal 2007, particularly
in the December 2006 and March 2007 quarters, we provided more flexibility in our contract terms and in product
deployments and provided more services in combination with licenses, we experienced an increase in the value of
multi-year arrangements compared to prior periods, particularly within our Data Center Management segment, and
we had a large number of maintenance renewals. These changes resulted in a greater percentage of revenue being
deferred and recognized over an extended period of time. In addition, in the December 2006 quarter we combined
the legacy buying programs of Symantec and Veritas into one buying program for all of our enterprise offerings,
which resulted in a change in the vendor-specific objective evidence, or VSOE, of pricing for our storage and
availability offerings. Additional information regarding factors that we believe impacted net revenue during fiscal
2007 is discussed under “Total Net Revenues” below.
In light of the foregoing factors and our slowing rate of revenue growth, we implemented a cost savings
initiative in the fourth quarter of fiscal 2007 to better align our expenses with our new revenue expectations. The
cost savings initiative included a workforce reduction of approximately five percent worldwide. Once these cost
reductions are fully implemented, we expect to save approximately $200 million in costs on an annualized basis and
to have a lower rate of operating expense growth than in recent periods. The cost savings initiative resulted in a
restructuring charge of $51 million in the fourth quarter of fiscal 2007. We expect that the cost savings initiative will
result in an additional restructuring charge in the first quarter of fiscal 2008 and potentially in other future periods.
We expect our gross margins and operating expenses to be affected in future periods as a result of recent
changes in the terms of some of our key OEM relationships. We have negotiated new contract terms with some of
our OEM partners, which will result in payments to OEM partners being included as Operating expenses rather than
Cost of revenues. In general, payments to OEMs made on a placement fee per unit basis will be treated as Operating
expenses, while payments based on a revenue-sharing model will be amortized as Cost of revenues. As a result, we
expect Cost of revenues to decrease and we expect Operating expenses to increase. The increase in Operating
expenses will more than offset the decrease in Cost of revenues because placement fee arrangements are expensed
on an estimated average cost basis, while revenue-sharing arrangements are amortized ratably over a one-year
period, and because payments to OEMs have increased.
Cash flows were strong in fiscal 2007 as we achieved $1.7 billion in operating cash flow. We ended fiscal 2007
with $3.0 billion in cash, cash equivalents, and short-term investments. In addition, during fiscal 2007 we
repurchased 162 million shares of our common stock at prices ranging from $15.61 to $21.66 per share for an
aggregate amount of $2.8 billion.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements and related notes in accordance with generally
accepted accounting principles requires us to make estimates, which include judgments 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 we believe to be
reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly.
Historically, our critical accounting estimates have not differed materially from actual results; however, actual
results may differ from these estimates under different conditions. If actual results differ from these estimates and
other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting
changes could have a material adverse effect on our Consolidated Statements of Income, and in certain situations,
could have a material adverse effect on liquidity and our financial condition.
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