Symantec 2014 Annual Report Download - page 113

For software arrangements that include multiple elements, including perpetual software licenses and
maintenance or services, packaged products with content updates, and subscriptions, we allocate and defer
revenue for the undelivered items based on the fair value using vendor specific objective evidence (“VSOE”),
and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items
as revenue. 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, the entire arrangement fee is recognized ratably over the performance period. Our deferred
revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product
content updates, managed security services, subscriptions, and arrangements where VSOE does not exist.
Deferred revenue totaled approximately $3.9 billion as of March 28, 2014, of which $581 million was classified
as long-term deferred revenue in our Consolidated Balance Sheets. 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 arrangements that include both software and non-software elements, we allocate revenue to the software
deliverables as a group and non-software deliverables based on their relative selling prices. In such
circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for
allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and
(iii) best estimate of the selling price (“ESP”). When we are unable to establish a selling price using VSOE or
TPE, we use ESP to allocate the arrangement fees to the deliverables.
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, as the subscription period
commences on the date of sale to the end-user. We defer revenue and cost of revenue amounts for 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 below the expected level of a four or six week supply. We estimate reserves
for product returns as described below. 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.
Arrangements for maintenance, subscriptions, managed security services and SaaS offerings are generally
offered to our customers over a specified period of time, and we recognize the related revenue ratably over the
maintenance, subscription, or service period.
Reserves for product returns. We reserve for estimated product returns as an offset to revenue or deferred
revenue based primarily on historical trends. We fully reserve for obsolete products in the distribution channels
as an offset to deferred revenue. Actual product returns may 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 or deferred revenue. For consumer products that include content updates, rebates are recorded as a
ratable offset to revenue or deferred revenue over the term of the subscription. Our estimated reserves for channel
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