Support.com 2007 Annual Report Download - page 66

SUPPORTSOFT, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Expected Term: The Company's expected term represents the period that the Company's stock options are expected to be outstanding and is determined
based on historical experience of similar stock options considering the contractual terms of the stock options, vesting schedules and expectations of future
employee behavior.
Expected Volatility: The Company's expected volatility represents the amount by which the stock price is expected to fluctuate throughout the period that
the stock option is outstanding. The Company bases its expected volatility on a weighted average calculation combining both historical and implied volatilities as
it believes that this combination is more representative of future stock price trends than historical volatility alone. The implied volatility factor included in this
computation is based upon traded options on the Company's stock.
Estimated Forfeitures: SFAS 123R requires that the stock option expense recognized be based on awards that are ultimately expected to vest, and therefore a
forfeiture rate should be applied at the time of grant and revised, if necessary, in subsequent periods when actual forfeitures differ from those estimates. Prior to
January 1, 2006, the Company accounted for forfeitures only as they occurred. Commencing in 2006, the Company has estimated its forfeitures based on
historical experience.
Expected Dividend: The Company uses a dividend yield of zero, as it has never paid cash dividends and does not expect to pay dividends in the future.
The fair value of the Company's stock-based awards was estimated using the following assumptions for the years ended December 31, 2007, 2006 and 2005:
Stock Option Plan Employee Stock Purchase Plan
2007 2006 2005 2007 2006 2005
Risk-free interest rate 4.1% 4.8% 4.1% 4.7% 4.7% 3.1%
Expected term (in years) 4.0 3.9 4.0 0.5 to 2.0 0.5 to 2.0 0.5 to 2.0
Volatility 51.3% 53.5% 70.9% 54.1% 54.1% 74.6%
Estimated forfeitures 8.4% 8.0% 0% 8.0% 8.0% 0%
Expected dividend 0% 0% 0% 0% 0% 0%
Weighted average fair value $ 2.14 $ 2.01 $ 2.75 $ 1.66 $ 1.66 $ 2.83
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.
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Source: SUPPORTSOFT INC, 10-K, March 13, 2008