Support.com 2005 Annual Report Download - page 51

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill and Other Intangible Assets
Goodwill resulted from the Company’s acquisition of Core Networks Incorporated on September 2, 2004. The Company applies
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangibles Assets,” which
prohibits the amortization of goodwill. Instead, goodwill is tested for impairment on an annual basis, or more often if events or
circumstances indicate a potential impairment exists.
We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying
value may not be recoverable. We assess the impairment of acquired product rights and other identifiable intangible assets whenever
events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss would be
recognized when the sum of the discounted future net cash flows expected to result from the use of the asset 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 and its fair value. The estimate of cash flow is based upon, among other things, certain assumptions about expected future
operating performance and an appropriate discount rate determined by our management. Our estimates of discounted cash flows may
differ from actual cash flows due to, among other things, economic conditions, change to the business model or changes in operating
performance. If we made different estimates, material differences may result in write-downs of net long-lived and intangible assets,
which would be reflected by charges to our operating results for any period presented. At September 30, 2005, we concluded our
annual evaluation for impairment of goodwill and identifiable intangible assets and no impairment was recognized. We will continue
to test for impairment during the third quarter of each year, or earlier if indicators of impairment exist.
Revenue Recognition
We recognize revenue in accordance with the American Institute of Certified Public Accountants’ (AICPA) Statement of
Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. License revenue is recognized when
all of the following criteria are met:
• Persuasive evidence of an arrangement exists;
• Delivery has occurred;
• Collection is considered probable; and
SupportSoft considers all arrangements with payment terms longer than 90 days, not to be fixed or determinable. If the fee is
determined not to be fixed or determinable, revenue is recognized as payments become due from the customer.
License revenue is comprised of fees for term and perpetual licenses of our software. Perpetual license revenue is recognized
using the residual method described in SOP 98-9 for arrangements in which licenses are sold with multiple elements. We allocate
revenues on these licenses based upon the fair value of each undelivered element (for example, undelivered maintenance, consulting
and training). The determination of fair value is based upon vendor specific objective evidence (VSOE). VSOE for maintenance is
based upon separate renewals of maintenance from customers. VSOE for consulting or training is based upon separate sales of these
services to customers. Assuming all other revenue recognition criteria are met, the difference between the total arrangement fee and
the amount deferred for each undelivered element is recognized as license revenue. Our
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• The fees are fixed or determinable.