Carbonite 2011 Annual Report Download - page 45

Table of Contents
are summarized below. See Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information about
these critical accounting policies, as well as a description of our other significant accounting policies.
Revenue recognition
We derive revenue from online backup subscription services. These services are stand-alone independent service solutions, which are generally
contracted for a one- to three-year term. Subscription agreements include access to use our solutions via the internet. We recognize revenue in
accordance with the Financial Accounting Standards Codification (ASC) 605-10, Overall Revenue Recognition. Subscription revenue is recognized
ratably on a daily basis upon activation over the subscription period, when persuasive evidence of an arrangement with a customer exists, the
subscription period has been activated, the price is fixed or determinable, and collection is reasonably assured. Deferred revenue represents payments
received from customers for subscription services prior to recognizing the revenue related to those payments.
Goodwill and acquired intangible assets
We record goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible
assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review.
We perform our assessment for impairment of goodwill on an annual basis and we have determined that there is a single reporting unit for the purpose of
conducting this annual goodwill impairment assessment. For purposes of assessing potential impairment, we annually estimate the fair value of the
reporting unit (based on our market capitalization) and compare this amount to the carrying value of the reporting unit (as reflected by our total
stockholders’ equity). If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. Our
annual goodwill impairment test is at November 30 of each year.
Income taxes
We provide for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization. We account for uncertain
tax positions recognized in our consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
Due to a history of losses, we have provided a full valuation allowance against our deferred tax assets as more fully described in Note 10 of our
consolidated financial statements. The ability to utilize these losses, any future losses, and any other tax credits or attributes may be restricted or
eliminated by changes in our ownership, changes in legislation and other rules affecting the ability to offset future taxable income with losses from prior
periods. Future determinations on the need for a valuation allowance on our net deferred tax assets will be made on a quarterly basis, and our assessment
at December 31, 2011 reflects a continued need for a full valuation allowance.
Stock-based compensation
Accounting guidance requires employee stock-based payments to be accounted for under the fair value method. Under this method, we are
required to record compensation cost based on the estimated fair value for stock-based awards granted amortized over the requisite service periods for
the individual awards, which generally equals the vesting periods. We use the straight-line amortization method for recognizing stock-based
compensation expenses.
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