Symantec 2010 Annual Report Download - page 108

allocate the assets and liabilities, and this allocation affects the carrying value of the respective reporting units.
Similarly, we use judgment to allocate goodwill to the reporting units based on relative fair values. The use of
relative fair values has been necessary for certain reporting units due to changes in our operating structure in prior
years. To determine a reporting unit’s fair value, we use the income approach under which we calculate the fair
value of each reporting unit based on the estimated discounted future cash flows of that unit. We evaluate the
reasonableness of this approach with the market approach, which involves a review of the carrying value of our
assets relative to our market capitalization and to the valuation of publicly traded companies operating in the same
or similar lines of business.
Applying the income approach requires that we make a number of important estimates and assumptions. We
estimate the future cash flows of each reporting unit based on historical and forecasted revenue and operating costs.
This, in turn, involves further estimates, such as estimates of future revenue and expense growth rates and foreign
exchange rates. In addition, we apply a discount rate to the estimated future cash flows for the purpose of the
valuation. This discount rate is based on the estimated weighted-average cost of capital for each reporting unit and
may change from year to year. For example, in our valuation process in the fourth quarter of fiscal 2010 we used a
lower discount rate than in the prior year due to stabilized risk associated with the global economic conditions.
Changes in these key estimates and assumptions, or in other assumptions used in this process, could materially
affect our impairment analysis for a given year.
As of April 2, 2010, our goodwill balance was $4.6 billion. Based on the impairment analysis performed on
January 2, 2010, we determined that the fair value of each of our reporting units exceeded the carrying value of the
unit by more than 20% of the carrying value. While discount rates are only one of several important estimates used
in the analysis, we determined that an increase of one percentage point in the discount rate used for each respective
reporting unit would not have resulted in an impairment indicator for any unit at the time of this analysis.
A number of factors, many of which we have no ability to control, could affect our financial condition,
operating results and business prospects and could cause actual results to differ from the estimates and assumptions
we employed. These factors include:
• a prolonged global economic crisis;
• a significant decrease in the demand for our products;
• the inability to develop new and enhanced products and services in a timely manner;
• a significant adverse change in legal factors or in the business climate;
• an adverse action or assessment by a regulator;
• successful efforts by our competitors to gain market share in our markets;
• a loss of key personnel;
• our determination to dispose of one or more of our reporting units;
• the testing for recoverability of a significant asset group within a reporting unit; and
• recognition of a goodwill impairment loss
Intangible Assets. We assess the impairment of identifiable intangible assets whenever events or changes in
circumstances indicate that an asset group’s carrying amount may not be recoverable. In addition, for intangible
assets with indefinite lives, we review such assets for impairment on an annual basis consistent with the timing of
the annual evaluation for goodwill. An impairment loss would be recognized when the sum of the undiscounted
estimated future cash flows expected to result from the use of the asset group and its eventual disposition is less than
its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the
asset group and its fair value. Our cash flow assumptions are based on historical and forecasted revenue, operating
costs, and other relevant factors. If management’s estimates of future operating results change, or if there are
changes to other assumptions, the estimate of the fair value of our identifiable intangible assets could change
significantly. Such change could result in impairment charges in future periods, which could have a significant
impact on our operating results and financial condition.
32