Symantec 2016 Annual Report Download - page 121

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
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, the 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 current market conditions and economic
trends when estimating our reserves for rebates. If actual redemptions differ from our estimates, material
differences may result in the amount and timing of our net revenues for any period presented.
Valuation of goodwill, intangible assets and long-lived assets
Business combinations. We allocate the purchase price of acquired businesses to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the
acquisition date. Any residual purchase price is recorded as goodwill. Goodwill is allocated to reporting units
expected to benefit from the business combination. The allocation of purchase price requires management to
make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities
assumed especially with respect to intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, future cash flows from
customer relationships, developed technology, trade names and acquired patents; and discount rates.
Management estimates of fair value are based upon assumptions believed to be reasonable, but which are
inherently uncertain and unpredictable. Unanticipated events and circumstances may occur which may affect the
accuracy or validity of such assumptions, estimates or actual results.
Goodwill impairment. Goodwill is allocated to our reporting units expected to benefit from the business
combination based on the relative fair values at the acquisition date. We evaluate our reporting units which are
the same as our operating segments when changes in our operating structure occur, and if necessary, reassign
goodwill using a relative fair value allocation approach. We test goodwill for impairment at the reporting unit
level at least annually on the first day of the fourth quarter of each fiscal year, or more frequently if events or
changes in circumstances indicate that the asset may be impaired. The accounting guidance gives us the option to
perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative
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