Symantec 2003 Annual Report Download - page 34

32 Symantec 2003
Strength in major foreign currencies during fiscal 2003, as compared to
the average major foreign currency rates during fiscal 2002, positively
impacted our international revenue growth by approximately $65.5 mil-
lion. Weakness in major foreign currencies during fiscal 2002, as com-
pared to the average major foreign currency rates during fiscal 2001,
negatively impacted our international revenue growth by approximately
$14.0 million. We are unable to predict the extent to which revenues in
future periods will be impacted by changes in foreign currency rates. If
international sales become a greater proportion of our total sales in the
future, changes in foreign exchange rates may have a potentially greater
impact on our revenues and operating results.
GROSS MARGIN
Gross margin represents net revenues less cost of revenues. Cost of rev-
enues consists primarily of manufacturing expenses, costs for producing
manuals and CDs, packaging costs, royalties paid to third parties under
publishing contracts, costs of services, fee-based technical support
costs and amortization of acquired product rights.
As a percentage of net revenues, gross margin remained flat at approxi-
mately 82% during fiscal year 2003 and 2002 and was 84% during
2001. The decline in gross margins during fiscal 2003 and 2002 as com-
pared to fiscal 2001 was mostly driven by increased amortization of
acquired product rights from our four acquisitions in September 2002
and our acquisition of AXENT in December 2000, along with an increase
in fee-based technical support costs related to increased enterprise
sales. In addition, the costs associated with services increased with the
corresponding increase in services revenue; and our services typically
generate lower gross margins than our software products.
Acquired Product Rights Acquired product rights are comprised of
purchased product rights, technologies, databases and revenue related
order backlog and contracts from acquired companies. During fiscal
2003, we recorded approximately $40.1 million, net in acquired product
rights related primarily to our acquisitions of Riptech, Recourse,
SecurityFocus and Mountain Wave, and during fiscal 2001, we recorded
approximately $86.2 million in acquired product rights in connection
with our acquisition of AXENT.
During fiscal 2003, amortization of acquired product rights totaled
approximately $32.1 million, of which $30.4 million and $1.8 million
was recorded in cost of revenues and income, net of expense, from sale
of technologies and product lines, respectively. During fiscal 2002,
amortization of acquired product rights totaled approximately $32.2
million, of which $31.1 million and $1.1 million was recorded in cost
of revenues and income, net of expense, from sale of technologies
and product lines, respectively. During fiscal 2001, amortization of
acquired product rights totaled $17.3 million and was recorded in cost
of revenues.
RESEARCH AND DEVELOPMENT EXPENSES
We charge research and development expenditures to operations as
incurred. As a percentage of net revenues, research and development
expenses were 14% during fiscal 2003 and remained flat at 15% during
fiscal 2002 and 2001. Research and development expenses increased
20% to approximately $197.3 million during fiscal 2003 from $164.0
million during fiscal 2002 and 29% to $164.0 million during fiscal 2002
from $126.7 million during fiscal 2001. The increase in research and
development expenses during fiscal 2003 as compared to fiscal 2002
was primarily a result of increased headcount, salary increases,
increased infrastructure related expenditures and increased research
and development expenses associated with the companies that we
acquired during fiscal 2003. The increase in research and development
expenses during fiscal 2002 as compared to fiscal 2001 was primarily a
result of salary increases and other employee related expenses, infra-
structure related expenditures and a full year of AXENT related research
and development expenses as compared to approximately three months
during fiscal 2001.
SALES AND MARKETING EXPENSES
Sales and marketing expenses as a percentage of net revenues were
38% during fiscal 2003 and remained flat at 40% during fiscal 2002
and 2001. Sales and marketing expenses increased 23% to approxi-
mately $525.0 million during fiscal 2003 from $426.0 million during
fiscal 2002 and 25% to $426.0 million during fiscal 2002 from $341.5
million during fiscal 2001. The increase in sales and marketing expenses
during fiscal 2003 as compared to fiscal 2002 was primarily a result of
increased headcount, salary increases, higher commission expenses due
to the increase in sales, increased advertising and promotion expenses,
increased travel and entertainment expenses and increased sales and
marketing expenses associated with the companies that we acquired
during fiscal 2003. The increase in sales and marketing expenses during
fiscal 2002 as compared to fiscal 2001 was primarily related to Enter-
prise Security segment hiring, salary and commission increases, outside
services for consultants and contractors, infrastructure related expendi-
tures, and a full year of AXENT related sales and marketing expenses as
compared to approximately three months during fiscal 2001.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses as a percentage of net revenues
remained flat at 5% for each of the fiscal years 2003, 2002 and 2001.
General and administrative expenses increased 35% to approximately
$74.4 million during fiscal 2003 from $55.1 million during fiscal 2002
and 22% to $55.1 million during fiscal 2002 from $45.1 million during
fiscal 2001. The increase in general and administrative expenses
during fiscal 2003 as compared to fiscal 2002 was primarily a result of
increased headcount, salary increases, increased infrastructure related
expenditures, increased legal fees, increased travel and entertainment
expenses and increased general and administrative expenses associated
with the companies that we acquired during fiscal 2003. The increase in