Support.com 2006 Annual Report Download - page 35

determine current and deferred revenue, we make estimates with regard to the expected amount of future services to be performed and
the appropriate fair value for those services. We also make judgments as to whether future services are essential to the functionality of
other elements of the software arrangement. We do not record revenue on sales transactions when the collection of cash is in doubt at
the time of sale. Rather, revenue is recognized from these transactions as cash is collected. The determination of collectibility requires
significant judgment.
Allowances for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those
invoices not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining
these percentages, we analyze our historical collection experience and current payment trends. If the historical data we use to calculate
the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for
doubtful accounts may be needed and the future results of operations could be materially affected.
Accounting for Income Taxes
We are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves
management’s estimation of our actual current tax exposures together with an assessment of temporary differences determined based
on the difference between the financial statement and tax basis of certain items. These differences result in net deferred tax assets and
liabilities, which are included within the consolidated balance sheet. We must then assess the likelihood that the deferred tax assets
will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or adjust this allowance in a period, we must include a tax expense or
benefit within the tax provision in the statements of operations.
Accounting for Goodwill and Other Intangible Assets
At December 31, 2006, goodwill was $9.8 million, and net identifiable intangible assets were $3.2 million. We assess the
impairment of goodwill and indefinite life intangible assets annually or more often if events or changes in circumstances, indicate that
the carrying value may not be recoverable. We assess potential impairment at the entity level because we have only one reporting unit.
An impairment loss would be recognized if the fair value of the Company is less than the carrying value of the Company’s net assets
on the date of the evaluation. We assess the impairment of finite life 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
undiscounted 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, changes 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, 2006, management concluded its annual evaluation for
impairment of goodwill and no impairment was recognized.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007