Symantec 2010 Annual Report Download - page 105

been adversely affected for the last several quarters by the deceleration of demand in the server market.
Additionally, we were also particularly affected by lower new license sales of our storage products on the Solaris
platform. If the economic conditions affecting global markets continue or IT spending remains tight, we may
continue to experience slower or negative revenue growth and our business and operating results might suffer. In
light of these economic conditions, we will continue to align our cost structure with our revenue expectations.
During fiscal 2010, we experienced significantly higher year-over-year OEM placement fee payments resulting
from an increase in PC unit shipments on which our products were bundled. These increased payments had an
adverse impact on our operating income and operating margins during the fiscal 2010 periods, particularly for our
Consumer segment. We expect to see the revenue benefit from these increased placement fees in future periods.
We launched a new, internally-developed and operated eCommerce platform during fiscal 2010 that will
replace the current online store for the company’s Norton-branded consumer products worldwide, excluding Japan.
We believe this will improve our ability to identify and capitalize on emerging customer needs and market trends
and enhance the end-to-end experience our customers have with us. We have been transitioning customers to the
new online store in a phased approach. The new online store is gradually ramping up worldwide coverage and is
expected to reach full capacity by June 30, 2010. The development and roll-out of our new eCommerce platform
adversely affected the operating margins for our Consumer segment during fiscal 2010.
The fees we have paid to Digital River have historically been recorded as an offset to revenue. As a result of
bringing the eCommerce business in-house, our consumer revenue is expected to increase due to the elimination of
this offset to revenue. We expect revenue to increase in the range of $80 to $100 million in fiscal 2011 from this
change. Conversely, the cost of running our own eCommerce platform will be classified primarily in operating
expenses with some amounts flowing through cost of revenue. Therefore, operating expenses and cost of goods sold
will both rise by a corresponding amount in 2011 and we believe the net impact to earnings per share for 2011 will
be neutral. Over time, we expect our new eCommerce strategy to increase consumer operating margins. We expect
to capture the differential between what we have traditionally paid Digital River and the ongoing cost of operating
our own eCommerce platform.
Fluctuations in the U.S. dollar compared to foreign currencies favorably impacted our international revenue by
approximately $14 million for fiscal 2010 as compared to fiscal 2009. Foreign currency fluctuations had relatively
little overall impact on our international revenue growth for fiscal 2009 compared to fiscal 2008. We are unable to
predict the extent to which revenue in future periods will be impacted by changes in foreign currency exchange
rates. If our level of international sales and expenses increase in the future, changes in foreign exchange rates may
have a potentially greater impact on our revenue and operating results.
As discussed above under “Fiscal Calendar,” fiscal 2010 and 2008 consisted of 52 weeks, whereas fiscal 2009
consisted of 53 weeks. The extra week contributed to additional amortization of deferred revenue of approximately
$75 million in fiscal 2009.
Our net income was $714 million for fiscal 2010 and was positively impacted by a decrease of $128 million in
cost of revenue related to certain acquired product rights from our acquisition of Veritas becoming fully amortized
during the first quarter of our fiscal 2010. Net income was also positively impacted by a $78.5 million tax benefit in
the third quarter of fiscal 2010 resulting from the December 2009 Veritas v. Commissioner U.S. Tax Court decision
relating to the Veritas 2000 and 2001 tax years. In addition, net income for fiscal 2010 was positively impacted by
$47 million of net gain from the liquidation of certain foreign legal entities.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Consolidated Financial Statements and related notes included in this annual report in
accordance with generally accepted accounting principles in the United States, 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
29