Support.com 2009 Annual Report Download - page 51

Table of Contents
SUPPORT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Auction-Rate Security Put Option
In November 2008, we signed a Rights Agreement with UBS concerning the disposition of our ARS. The UBS agreement gives us the right to sell our
ARS back to UBS, at par value, from June 30, 2010 through July 2, 2012. Prior to June 30, 2010, UBS has the right to sell our ARS holdings at any time, and
return par value to us. The put option we hold for the period from June 30, 2010 through July 2, 2012 represents a freestanding financial instrument for
accounting purposes. As noted above, we elected to value this put option at fair value. As such, we recognized the value of the put option as an asset with the
corresponding gain recorded in earnings. Fair value was determined using a “with and without” approach based on a discounted cash flow valuation comparing
the value of the ARS with the put option and without it. We took into account the same factors as those used to value the ARS noted above, adjusted to account
for differences in cash flow timing and UBS credit risk. The value of the put option was recorded in interest income and expense, net, on our consolidated
statement of operations in November 2008 when we elected to accept the put option from UBS. The value of the ARS put option on our consolidated balance
sheet at December 31, 2009 and December 31, 2008 was $1.3 million and $7.1 million, respectively. During the year ended December 31, 2009, we recorded a
gain of $5.9 million to adjust the value of the UBS ARS to fair value offset by a recorded loss of $5.9 million to reflect a corresponding decrease in the fair value
of the ARS put option. At December 31, 2008 the ARS put option fully offset the realized loss recorded on the related ARS in our consolidated statement of
operations. Because the ARS put option represents a freestanding financial instrument and is valued separately taking into account adjustments to the factors used
to value the related ARS, its value may not fully offset the realized losses on the related ARS in every reporting period. In any period in which a change in value
of our ARS put option does not fully offset a change in the value of our UBS ARS, or vice versa, our consolidated statement of operations will be impacted.
As of December 31, 2009, our UBS ARS are presented as short-term investments on our consolidated balance sheet, while the value of the ARS put option
is presented separately in current assets. The ARS put option is not a traditional put option in that it is non-transferable, non-assignable and not available for trade
in any financial market. If UBS has insufficient funding to fulfill its obligation to buy back the ARS pursuant to the terms of the Rights Agreement, or if UBS
goes bankrupt or liquidates before it is required to buy back our ARS, then we may never recover any value with respect to the put option or the UBS ARS and
we may incur further losses in our consolidated statement of operations with respect thereto.
The Rights Agreement also includes a right for us to borrow money from UBS at no net cost for up to the amount of the par value of our eligible ARS. The
loan option under the Rights Agreement is available until June 30, 2010. As of December 31, 2009 and 2008, we had not exercised our right to obtain a loan from
UBS.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation which is determined using the straight-line method over the estimated useful lives
of 2 years for computer equipment and software, 3 years for furniture and fixtures, and the shorter of the estimated useful lives or the lease term for leasehold
improvements. Repairs and maintenance costs are expensed as incurred.
Goodwill
Goodwill of $2.9 million resulted from our acquisition of YTO on May 2, 2008 and goodwill of $7.3 million resulted from our acquisition of substantially
all of the assets of Xeriton on December 7, 2009.
We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss would be recognized if the fair value of the
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Source: Support.com, Inc., 10-K, March 12, 2010 Powered by Morningstar® Document Research℠