Symantec 2007 Annual Report Download - page 40

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A critical accounting estimate is based on judgments and assumptions about matters that are 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 included in the Consolidated
Financial Statements in this annual report.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles that have been prescribed
for the software industry. Primarily, we recognize revenue pursuant to the requirements of Statement of Position, or
SOP 97-2, Software Revenue Recognition,, issued by the American Institute of Certified Public Accountants, and
any applicable amendments or modifications. Revenue recognition requirements in the software industry are very
complex and require us to make many estimates.
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 VSOE of the 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, consumer product content updates, and
arrangements where VSOE does not exist. Deferred revenue totaled approximately $2.8 billion as of March 31,
2007, of which $366 million was presented as Long-term deferred revenue in the Consolidated Balance Sheets.
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 or from the stated renewal rate for the undelivered elements. 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, changes to a product’s estimated life cycle, and increasing flexibility in contractual
arrangements could materially impact the amount of recognized and deferred revenue.
For our consumer products that include content updates, we recognize revenue ratably over the term of the
subscription upon sell through to end-users. Associated cost of revenues is also recorded ratably. We record as
deferred revenue and inventory the respective revenue and cost of revenue amounts of unsold product held by our
distributors and resellers.
We expect our distributors and resellers to maintain adequate inventory of consumer packaged products to
meet future customer demand, which is generally four or six weeks of customer demand based on recent buying
trends. We ship product to our distributors and resellers at their request and based on their valid purchase orders. Our
distributors and resellers base the quantity of their orders on their estimates to meet future customer demand, which
may exceed our expected level of a four or six week supply. We offer limited rights of return if the inventory held by
our distributors and resellers is below the expected level of a four or six week supply. We estimate future returns
under these limited rights of return in accordance with SFAS No. 48, Revenue Recognition When Right of Return
Exists. We typically offer liberal rights of return if inventory held by our distributors and resellers exceeds the
expected level. Because we cannot reasonably estimate the amount of excess inventory that will be returned, we
primarily offset Deferred revenue against Trade accounts receivable for the amount of revenue in excess of the
expected inventory levels. 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.
Reserves for product returns
We reserve for estimated product returns as an offset to revenue based primarily on historical trends. We fully
reserve for obsolete products in the distribution channels as an offset to deferred revenue. If we made different
estimates, material differences could result in the amount and timing of our net revenues for any period presented.
More or less product may be returned than what was estimated and/or the amount of inventory in the channel could
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