Support.com 2008 Annual Report Download - page 23

Table of Contents
• Dependence on local vendors, consultants and business partners;
• Potential adverse tax consequences;
• Licenses, tariffs and other trade barriers;
• Difficulties in maintaining effective internal control over financial reporting and compliance as a result of a geographically-dispersed workforce and
customers;
• Longer collection cycles for accounts receivable; and
• The effects of external events such as terrorist acts and any related conflicts or similar events worldwide.
Each of these risks could materially increase our costs, and unless the revenue from our international operations offsets the costs of establishing and
operating our business outside the U.S., our operating results could be significantly harmed.
Our investments in marketable securities are subject to market risks which may cause losses and affect the liquidity of these investments.
We have historically invested our portfolio in government debt securities, municipal debt securities with an auction reset feature (“auction-rate securities”),
corporate notes and bonds, commercial paper and money market funds meeting certain criteria. At December 31, 2008, we had $64.3 million in cash and cash
equivalents and $23.6 million in short-term and long-term investments. Certain of these investments are subject to general credit, liquidity, market and interest
rate risks, which may be exacerbated by the global macroeconomic downturn that, among other things, has caused credit and liquidity issues.
Commencing in February 2008, illiquidity conditions in the global credit markets resulted in failed auctions for all of our auction-rate securities held. In
the near term, our ability to liquidate our investments or fully recover the carrying values may be limited or not exist. In addition, adverse market events could
cause us to lose part or all of our investment in our portfolio. The market risks associated with our investment portfolio may have a negative adverse effect on our
results of operations, liquidity and financial condition. Financing arrangements that are available to us include the right to a loan from UBS at no net cost for up
to the amount of the par value of our eligible auction-rate securities. This loan option is part of the rights offer we signed with UBS in November, 2008, and is
available until June 30, 2010. As of December 31, 2008, we had not exercised our right to obtain this loan.
We may realize losses on our investments in auction rate securities or be unable to liquidate these investments at desired times in desired amounts.
At December 31, 2008, we held $24.5 million, par value, of auction rate securities (ARS). Historically, our ARS were highly liquid, and used a Dutch
auction process that resets the applicable interest rate at predetermined intervals, typically every 28 to 35 days, to provide liquidity at par. However, as a result of
disruption in the global credit and capital markets, the auctions for all of our ARS failed beginning in February 2008 when sell orders exceeded buy orders.
Accordingly, we were unable to sell any of our ARS. Of the $24.5 million of ARS as of December 31, 2008, approximately $20.9 million is held by UBS AG
(UBS) and have been classified as trading securities because of the put option described below. Accordingly, the decline in fair value of these ARS during the
year ended December 31, 2008 of approximately $7.1 million has been recorded as a charge to earnings and has been off-set by the value of the ARS Put Option
as described below.
In November 2008, we accepted an offer from UBS, entitling UBS, at any time during a two-year period from June 30, 2010 through July 2, 2012, to buy
our auction-rate securities originally purchased from UBS at par value. In accepting the offer, we granted UBS the authority to sell or auction the ARS at par at
any time up until
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Source: SUPPORTSOFT INC, 10-K, March 11, 2009