Support.com 2007 Annual Report Download - page 24

Download and view the complete annual report

Please find page 24 of the 2007 Support.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

otherwise, and our efforts may not be as effective. In addition, we may establish relationships with third-party resellers and other sales partners as we expand
internationally. Our failure to maintain existing relationships, or to establish new relationships with key third parties, could significantly harm our ability to sell
our products and services. In addition, our competitors may have strong alliances with other companies, including hardware providers, which could impact our
ability to obtain greater market share, participate in deals where hardware and software are sold together, or require us to reduce the price of products and
services, which could harm our business, prospects, financial condition and operating results.
Our investments in marketable securities are subject to market risks which may cause losses and affect the liquidity of these investments.
At December 31, 2007, we had $13 million in cash and cash equivalents and $100 million in investments in marketable securities. We have historically
invested these amounts in government debt securities, auction-rate securities, corporate notes and bonds, commercial paper and money market funds meeting
certain criteria. Certain of these investments are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by the U.S. housing
recession that has affected various sectors of the financial markets and caused credit and liquidity issues. During the year-ended December 31, 2007, we
determined that any declines in the fair value of our investments were temporary. There may be further declines in the value of these investments, which we may
determine to be other-than-temporary. These market risks associated with our investment portfolio may have a negative adverse effect on our results of
operations, liquidity and financial condition.
At March 11, 2008 and December 31, 2007 we had investments in AAA-rated auction-rate debt securities with various state student loan authorities of
$25.3 million and $38.9 million, respectively. At the time of our initial investment and through the date of this Report, all of the securities we have invested in
are rated AAA, the highest rating issued by a rating agency, and the student loans made by these authorities are substantially guaranteed by the federal
government through the Federal Family Education Loan Program (FFELP). Auction-rate securities are long-term variable rate bonds tied to short-term interest
rates and are classified as current assets. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at
the time of issuance (e.g., every seven, twenty-eight, or thirty-five days; every six months; etc.), based on market demand for a reset period. Auction-rate
securities are bought and sold in the marketplace through a competitive bidding process often referred to as a "Dutch auction". If there is insufficient interest in
the securities at the time of an auction, the auction may not be completed and the rates may be reset to predetermined higher "penalty" or "maximum" rates.
Following such a failed auction, we would not be able to access our funds that are invested in the corresponding auction-rate securities until a future auction of
these investments is successful, new buyers express interest in purchasing these securities in between reset dates, issuers establish a different form of financing to
replace these securities, or final payments become due according to contractual maturities. Given the current negative liquidity conditions in the global credit
markets, in February and March 2008 auctions failed for all of the $25.3 million of auction-rate securities we held as of March 11, 2008, and as a result our
ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be limited or not exist. If future auctions fail and
we believe we will not hold the security to maturity, we may in the future be required to record an impairment charge on these investments. We may similarly be
required to record impairment charges if the ratings on any of these securities are reduced or if any of the issuers default on their obligations. In addition to
impairment charges, any of these events could cause us to lose part or all of our investment in these securities. Any of these events could materially affect our
results of operations and our financial condition. We currently believe these securities are not significantly impaired, primarily due to the AAA credit rating of
the issuers and the government backing of the loans made by the issuers; however, it could take until the final maturity of the underlying notes (up to 30 years) to
realize our investments' recorded value. Based on our expected
20
Source: SUPPORTSOFT INC, 10-K, March 13, 2008