Support.com 2006 Annual Report Download - page 56

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
• The fees are fixed or determinable.
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 perpetual and term licenses of our software. Perpetual license revenue is recognized using
the residual method, in compliance with 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 including 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. In perpetual arrangements that include contractual obligations
such as rights to unspecified future products, license revenue is recognized ratably over the contract period.
Term licenses are sold with maintenance for which SupportSoft does not have VSOE to determine fair value for maintenance fees.
As a result, license revenue for term licenses is recognized ratably over the duration of the agreement. License revenue in the
accompanying financial statements includes maintenance for term licenses. We do not allocate maintenance revenue from term
licenses to maintenance revenue, as we do not believe there is an allocation methodology that provides a meaningful and supportable
allocation between license and maintenance revenues. Services revenue associated with the term licenses are recognized ratably over
the period associated with the initial payment, generally one year.
We provide resellers with the right to sublicense our software to end user customers. Generally, we recognize revenue from our
arrangements with resellers when we receive persuasive evidence that the reseller has actually sublicensed the software to a named
end user (sell−through), assuming all other criteria for revenue recognition have been met. The forms of sell−through acceptable to us
include one or more of the following: i) a copy of the agreement or license between the reseller and the end user, ii) a purchase order
from the end user to the reseller, iii) a written communication from the reseller specifically identifying the end user, or iv) delivery
made directly by SupportSoft to the end user. Whether the license revenue is then recognized immediately or ratably depends upon the
terms of the arrangements with the reseller regarding the sublicense (i.e. perpetual license or term license). If a reseller is not deemed
creditworthy, revenue otherwise recognizable is deferred until cash is received. When licensing arrangements with resellers include
guaranteed minimum amounts due, revenue is recognized ratably over the term of the arrangement commencing when payments are
made or become due.
Maintenance revenue is primarily comprised of revenue from post−contract technical support services, which includes software
product updates. Maintenance revenue is recognized ratably over the term of the maintenance period, which is generally one year. We
invoice customers who elect to renew their maintenance agreements. An equal amount is recorded as accounts receivable and deferred
revenue.
Services revenue is primarily comprised of revenue from professional services such as consulting, training and hosting fees.
Arrangements are evaluated to determine whether those services are essential to
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007