Symantec 2007 Annual Report Download - page 52

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product rights which are being amortized over their expected useful lives of three months to five years. We amortize
the fair value of all other acquired product rights over their expected useful lives, generally one to eight years. For
further discussion of acquired product rights and related amortization, see Notes 3 and 4 of the Notes to
Consolidated Financial Statements.
Operating Expenses
Sales and marketing expense
2007 2006 2005
Year Ended March 31,
($ in thousands)
Sales and marketing . ............................. $2,007,651 $1,499,904 $845,022
Percentage of total net revenues ..................... 39% 36% 33%
Period over period increase ......................... $ 507,747 $ 654,882
34% 77%
Sales and marketing expense as a percentage of total revenues increased to 39% in fiscal 2007 as compared to
36% in fiscal 2006. The percentage increase and increase in absolute dollars in sales and marketing expenses in
fiscal 2007 as compared to fiscal 2006 is primarily due to higher employee compensation expense of approximately
$335 million resulting from an increase in employee headcount. Higher employee compensation expense includes
the effect of adopting of SFAS No. 123R, which added $56 million of stock-based compensation expense in fiscal
2007 for which there is no comparable expense in fiscal 2006. In addition, approximately $171 million of the
increase is due to an additional three months of sales and marketing expenses related to the Veritas acquisition,
which is included for the full year of fiscal 2007 as compared to nine months in fiscal 2006. Advertising expense
increased by approximately $129 million in fiscal 2007 as compared to fiscal 2006 primarily as a result of changes
in our OEM arrangements discussed below.
Sales and marketing expense as a percentage of total revenues increased to 36% in fiscal 2006 as compared to
33% in fiscal 2005. The percentage increase and increase in absolute dollars in sales and marketing expenses in
fiscal 2006 as compared to fiscal 2005 was due primarily to the Veritas acquisition, which contributed $579 million
in additional sales and marketing expenses for which there were no comparable expenses in fiscal 2005. The
remaining increase in sales and marketing expenses was due primarily to an increase in employee headcount,
resulting in additional employee compensation expense.
We have negotiated new contract terms with some of our OEM partners which will have the effect of moving
our OEM payments from Cost of revenues to Operating expenses, as discussed above under “Financial Results and
Trends.” As a result, we expect our Sales and marketing expenses to increase.
Research and development expense
2007 2006 2005
Year Ended March 31,
($ in thousands)
Research and development ............................ $866,882 $682,125 $334,046
Percentage of total net revenues ........................ 17% 16% 13%
Period over period increase............................ $184,757 $348,079
27%
*
*
Percentage not meaningful
Research and development expense as a percentage of total revenues remained relatively constant in fiscal
2007 and fiscal 2006. The increase in absolute dollars in research and development expenses in fiscal 2007 as
compared to fiscal 2006 was due primarily to higher employee compensation expense of approximately
$108 million resulting from an increase in employee headcount. Higher employee compensation expense includes
the effect of adopting of SFAS No. 123R, which added $57 million of stock-based compensation expense in fiscal
46