Symantec 2008 Annual Report Download - page 113

described below represent our critical accounting estimates, as they have the greatest potential impact on our
consolidated financial statements. See also Note 1 of the Notes to the Consolidated Financial Statements included in
this annual report.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles that have been prescribed
for the software industry. We recognize revenue primarily pursuant to the requirements of Statement of Position
97-2, Software Revenue Recognition, 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 vendor specific objective evidence, or 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
$3.1 billion as of March 28, 2008, of which $415 million was classified 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, and increasing flexibility in contractual arrangements could
materially impact the amount recognized in the current period and deferred over time.
For our consumer products that include content updates, we recognize revenue and the associated cost of revenue
ratably over the term of the subscription upon sell-through to end-users. We recognize deferred revenue and inventory
for 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 valid purchase orders. Our
distributors and resellers base the quantity of orders on their estimates to meet future customer demand, which may
exceed the 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 above the expected level of a four or six week supply. We estimate future returns under
these limited rights of return in accordance with Statement of Financial Standard (“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.
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 be different than what was estimated. These factors and unanticipated
changes in the economic and industry environment could make actual results differ from our return estimates.
Reserves for rebates. We estimate and record reserves for channel and end-user rebates as an offset to
revenue. For consumer products that include content updates, rebates are recorded as a ratable offset to revenue over
the term of the subscription. Our estimated reserves for channel volume incentive rebates are based on distributors’
and resellers’ actual performance against the terms and conditions of volume incentive rebate programs, which are
typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of
the promotional programs, actual sales during the promotion, amount of actual redemptions received, historical
redemption trends by product and by type of promotional program, and the value of the rebate. We also consider
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