Support.com 2007 Annual Report Download - page 40

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Accounting for Goodwill and Other Intangible Assets
At December 31, 2007, goodwill was $9.8 million, and net identifiable intangible assets were $340,000. We assess the impairment of goodwill and
indefinite life intangible assets annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. We assess
potential impairment at the entity level because we have only one reporting unit. An impairment loss would be recognized if the fair value of the Company is less
than the carrying value of the Company's net assets on the date of the evaluation. We assess the impairment of finite life identifiable intangible assets whenever
events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss would be recognized when the sum of the
future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be
measured as the difference between the carrying amount of the asset and its fair value. The estimate of cash flow is based upon, among other things, certain
assumptions about expected future operating performance and an appropriate discount rate determined by our management. Our estimates of discounted cash
flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance.
We evaluate cash flows at the lowest operating level. If we made different estimates, material differences may result in write-downs of net long-lived and
intangible assets, which would be reflected by charges to our operating results for any period presented. Furthermore, if the number of reporting units increases in
the future, as it has in 2008, this may make impairment more probable than it would be with fewer reporting units.
Stock-based compensation
We account for stock-based compensation in accordance with the provisions of SFAS 123R. We adopted SFAS 123R using the modified prospective
transition method which requires the application of the accounting standard starting from January 1, 2006. Under the fair value recognition provisions of
SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the
requisite service period of the award. We estimate the fair value of stock-based awards on the grant date using the Black-Scholes-Merton option-pricing model.
Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility,
forfeiture rates and expected life. If any of these assumptions used in the option-pricing models changes significantly, stock-based compensation may differ
materially in the future from that recorded in the accompanying financial statements.
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 employee stock purchases in its financial
statements.
36
Source: SUPPORTSOFT INC, 10-K, March 13, 2008