Symantec 2012 Annual Report Download - page 149

SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)
circumstances, the accounting principles establish a hierarchy to determine the selling price used for allocating
revenue to the deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and (iii) the
best estimate of the selling price (“ESP”). Our appliance products, SaaS and certain other services are considered
to be non-software elements in our arrangements.
When we are unable to establish a selling price using VSOE or TPE, we use ESP in the allocation of
arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if
the product or service were sold on a stand-alone basis. The determination of ESP is made through consultation
with and formal approval by our management, taking into consideration the go-to-market strategy, pricing
factors, and historical transactions. ESP applies to a small portion of our arrangements with multiple deliverables.
Indirect channel sales
For our Consumer segment, we sell packaged software products through a multi-tiered distribution channel.
For our consumer products that include content updates, we recognize revenue ratably over the term of the
subscription upon sell-through to end-users, as the subscription period commences on the date of sale to the
end-user. For most other consumer products, we recognize packaged product revenue on distributor and reseller
channel inventory that is not in excess of specified inventory levels in these channels. We offer the right of return
of our products under various policies and programs with our distributors, resellers, and end-user customers. We
estimate and record reserves for product returns as an offset to revenue. We fully reserve for obsolete products in
the distribution channel as an offset to deferred revenue for products with content updates and to revenue for all
other products.
For our Security and Compliance and Storage and Server Management segments, we generally recognize
revenue from the licensing of software products through our indirect sales channel upon sell-through or with
evidence of an end-user. For licensing of our software to OEMs, royalty revenue is recognized when the OEM
reports the sale of the software products to an end-user, generally on a quarterly basis. In addition to license
royalties, some OEMs pay an annual flat fee and/or support royalties for the right to sell maintenance and
technical support to the end-user. We recognize revenue from OEM support royalties and fees ratably over the
term of the support agreement.
We offer channel and end-user rebates for our products. 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 program, actual sales during the promotion,
the amount of actual redemptions received, historical redemption trends by product and by type of promotional
program, and the value of the rebate. 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.
Financial instruments
The following methods were used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Cash and cash equivalents. We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are recognized at fair value.
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