Support.com 2006 Annual Report Download - page 62

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
share previously awarded to employees, including executive officers, under our equity compensation plans. The acceleration of
vesting was effective for stock options outstanding as of December 21, 2005. Options to purchase approximately 3.0 million shares of
common stock or 32% of our then outstanding unvested stock options were subject to this acceleration. The weighted average price of
the options that were accelerated was $7.02. The options accelerated excluded options previously granted to Board of Directors,
employees who had terminations pending and foreign employees who opted out of the acceleration for tax reasons. For all officers and
vice−presidents (non−officers) the acceleration was accompanied by restrictions imposed on any shares that may in the future be
purchased through the exercise of accelerated stock options. Those restrictions prevent the sale of any such shares prior to the date
such shares would have originally vested had the optionee been employed on such date (whether or not the optionee is actually an
employee at that time). The purpose of the acceleration was to enable us to avoid recognizing compensation expense associated with
these options in our Consolidated Statements of Operations upon the adoption of SFAS 123R on January 1, 2006. The acceleration of
the vesting of these stock options resulted in an approximate total savings of $12.0 million of future compensation expense that would
have impacted expenses through the third quarter of 2009.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be reversed
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of
operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets, if it is more likely than not, that such assets will not be realized.
Warranties and Indemnifications
The Company generally provides a warranty for its software products and services to its customers and accounts for its warranties
under the FASB’s Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“FAS No. 5”). Our standard
warranty period is 90 days, but warranty periods can sometimes be longer and vary from customer to customer. In the event there is a
breach of such warranties, SupportSoft generally is obligated to correct the product or service to conform to the warranty provision or,
if SupportSoft is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. In certain
contracts a material breach of warranty may involve penalties payable to the customer. SupportSoft did not provide for a warranty
accrual as of December 31, 2006 or December 31, 2005. To date, SupportSoft’s product warranty expense has not been significant.
The Company generally agrees to indemnify its customers against legal claims that its software products infringe certain
third−party intellectual property rights and accounts for its indemnification obligations under FAS No. 5. To date, SupportSoft has not
been required to make any payment resulting from infringement claims asserted against our customers and has not recorded any
related accruals.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007