Support.com 2006 Annual Report Download - page 61

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Included above was $238,000, of stock−based compensation expense related to the acceleration of the stock options awarded to
the Company’s former chief executive officer in connection with a transition agreement dated March 12, 2006. Pursuant to the terms
of this agreement, provided the former CEO remained an employee of the Company, on the date the Board of Directors appointed a
new CEO, all then outstanding and unvested options would be immediately vested. A new CEO was appointed on April 6, 2006 and
vesting of 115,625 shares was accelerated.
There was no stock−based compensation expense recognized for the years ended December 31, 2005 and 2004.
As a result of adopting SFAS 123R, the Company’s loss before income taxes and net loss for the year ended December 31, 2006
was $3.3 million higher than if it had continued to account for share−based compensation under APB 25. Basic and diluted loss per
share for the year ended December 31, 2006 would have both been $0.08 lower if the Company had not adopted SFAS 123R.
No income tax benefit was realized from stock option exercises during the year ended December 31, 2006. In accordance with
SFAS 123R, we present excess tax benefits from the exercise of stock options, if any, as cash flow from financing activities in the
accompanying Consolidated Statements of Cash Flows.
The table below reflects the net income (loss) and net income (loss) per share for the year ended December 31, 2006. Pro−forma
information required under SFAS 123R for periods prior to 2006 as if the Company has applied the fair value recognition provision
under SFAS 123R is as follows:
2006 2005 2004
Net income—as reported for the prior
period(1) $ N/A $ 4,425 $ 10,154
Stock−based compensation expense relating
to:
Stock options(2) (2,953) (20,540) (8,478)
ESPP stock purchases(2) (385) (575) (1,042)
Net income (loss), including the effect of
stock−based compensation expense(3) $ (8,235) $ (16,690) $ 634
Basic net income per share—as reported for
the prior period N/A $ 0.10 $ 0.24
Basic net income (loss) per
share—pro−forma, including the effect of
stock−based compensation $ (0.19) $ (0.39) $ 0.01
Diluted net income per share—as reported
for the prior period N/A $ 0.10 $ 0.22
Diluted net income (loss) per
share—pro−forma, including the effect of
stock−based compensation $ (0.19) $ (0.39) $ 0.01
(1) Net income and net income per share prior to January 1, 2006 did not include stock−based compensation expense for stock
options and employee stock purchases under SFAS 123R because the Company had not adopted the recognition provisions of
SFAS 123R.
(2) Stock−based compensation expense, net income (loss) and net income (loss) per share prior to January 1, 2006 is calculated
based on the pro−forma application of SFAS 123R.
(3) Net income and net income (loss) per share prior to fiscal 2006 represents pro−forma information including the effect of
stock−based compensation based on SFAS 123R.
Prior to the adoption of SFAS 123R, our Board of Directors approved the acceleration of vesting of certain unvested and
out−of−money stock options with exercise prices equal to or greater than $5.00 per
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007