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SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
The fair value of the Company’s stock−based awards was estimated using the following assumptions for the years ended
December 31, 2006, 2005 and 2004:
Stock Option Plan Employee Stock Purchase Plan
2006 2005 2004 2006 2005 2004
Risk−free interest rate 4.8% 4.1% 3.4% 4.7% 3.1% 1.2%
Expected term (in years) 3.9 4.0 4.0 0.5 to 2.0 0.5 to 2.0 0.5 to 2.0
Volatility 53.5% 70.9% 84.0% 54.1% 74.6% 79.5%
Estimated forfeitures 8.0% 0% 0% 8.0% 0% 0%
Expected dividend 0% 0% 0% 0% 0% 0%
Weighted average fair value $ 2.01 $ 2.75 $ 4.48 $ 1.66 $ 2.83 $ 3.16
Tax Effects of Stock−Based Payments
On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. SFAS−123R−3
“Transition Election Related to Accounting for Tax Effects of Share−Based Payment Awards” which provides for an alternative
transition method to calculate the tax effects of stock−based compensation expense pursuant to SFAS 123R. We adopted the
alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock−based compensation pursuant
to SFAS 123(R) in the fourth quarter of fiscal 2006. The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid−in capital pool (APIC pool) related to the tax effects of employee stock−based compensation,
and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee
stock−based compensation awards that are outstanding upon adoption of SFAS 123(R). The adoption did not have a material impact
on our results of operations and financial condition.
Stock Compensation Expense
The Company recorded the following stock−based compensation expense for the fiscal year ended December 31, 2006 (in
thousands):
Fiscal Year
Ended December 31,
2006
Stock option compensation expense recognized in:
Cost of services $ 292
Research and development 316
Sales and marketing 774
General and administrative 1,572
2,954
ESPP compensation expense recognized in:
Cost of services 87
Research and development 106
Sales and marketing 125
General and administrative 66
384
Stock−based compensation expense included in total
costs and expenses $ 3,338
56
Source: SUPPORTSOFT INC, 10−K, March 16, 2007