Support.com 2007 Annual Report Download - page 50

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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 operating cash flows, and our other sources of cash, we do not anticipate the potential
lack of liquidity on these investments will affect our ability to execute our current business plan.
46
Source: SUPPORTSOFT INC, 10-K, March 13, 2008