Support.com 2006 Annual Report Download - page 59

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
employee stock purchases from employee stock purchase plan. Prior to January 1, 2006, the Company accounted for stock−based
payments to employees using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS 123R, and, as such,
generally recognized no compensation cost for employee stock options or employees stock purchases.
SupportSoft elected the modified prospective transition method for adopting SFAS 123R which required the application of the
accounting standard as of January 1, 2006, the first day of the Company’s 2006 fiscal year. Under this transition method,
compensation cost recognized includes the applicable amounts of: (a) compensation cost for all stock−based payments granted prior
to, but not yet vested, as of December 31, 2005 based on the grant−date fair value estimated in accordance with the original provisions
of SFAS 123R and previously presented in the pro−forma footnote disclosures, and (b) compensation cost of all stock−based
payments granted subsequent to January 1, 2006 based on the grant−date fair value estimated in accordance with the new provisions
of SFAS 123R. Prior periods have not been restated to reflect the impact of SFAS 123R.
Determining Fair Value
Valuation and Attribution Method: SupportSoft estimates the fair value of stock options granted using the Black−Scholes option
pricing model. Stock options vest on a graded schedule; however the Company recognizes the expense on a straight−line basis over
the requisite service period of the entire award, net of estimated forfeitures and subject to the minimum expense requirements of SFAS
123R. Compensation cost recognized is at least equal to the portion of the grant−date fair value of the award that is vested at that date.
Risk−free Interest Rate: The Company bases its risk−free interest rate upon the yield currently available on US Treasury zero
coupon issues for the expected term of the employee stock options.
Expected Term: The Company’s expected term represents the period that the Company’s stock options are expected to be
outstanding and is determined based on historical experience of similar stock options considering the contractual terms of the stock
options, vesting schedules and expectations of future employee behavior.
Expected Volatility: The Company’s expected volatility represents the amount by which the stock price is expected to fluctuate
throughout the period that the stock option is outstanding. The Company bases its expected volatility on a weighted average
calculation combining both historical and implied volatilities as it believes that this combination is more representative of future stock
price trends than historical volatility alone. The implied volatility factor included in this computation is based upon traded options on
the Company’s stock.
Estimated Forfeitures: SFAS 123R requires that the stock option expense recognized be based on awards that are ultimately
expected to vest, and therefore a forfeiture rate should be applied at the time of grant and revised, if necessary, in subsequent periods
when actual forfeitures differ from those estimates. Prior to January 1, 2006, the Company accounted for forfeitures only as they
occurred. Commencing in 2006, the Company has estimated its forfeitures based on historical experience.
Expected Dividend: The Company uses a dividend yield of zero, as it has never paid cash dividends and does not expect to pay
dividends in the future.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007