Support.com 2008 Annual Report Download - page 35

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Table of Contents
during that period (i.e., a sale is made through to their end-user). Fees from transactions directly with consumers are generally paid with a credit card at the time
of delivery. For incident-based services, revenue is recognized during the period in which the services are delivered. For subscription-based services, revenue is
recognized ratably over the subscription period. Our direct-to-consumer channel generally provides a five-day warranty period during which refunds may be
granted with partners. The warranty period varies across channels, and in some channels our partner bears the cost of refunds. We recognize revenue net of
refunds at the end of the warranty period. Refunds have not been material to date. We also license certain of our Consumer software products to channel partners
who use our software to provide services to their customers. Channel partners are charged a per-use fee for the software and revenue is recognized in the period
usage occurs.
In our Enterprise segment, we recognize revenue in accordance with generally accepted accounting principles that have been prescribed for the software
industry. Our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is based
on complex rules which require us to make judgments. In applying our revenue recognition policy we must determine which portions of our revenue are
recognized currently and which portions must be deferred and recognized later. In order to determine current and deferred revenue, we make estimates with
regard to the expected amount of future services to be performed and the appropriate fair value for those services. We also make judgments as to whether future
services are essential to the functionality of other elements of the software arrangement. We do not record revenue on sales transactions when the collection of
cash is in doubt at the time of sale. Rather, revenue is recognized from these transactions as cash is collected. The determination of collectability requires
significant judgment.
Allowances for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically provided for, provisions are
recorded at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current
payment trends. If the historical data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. If the historical data we use to
calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may
be needed and the future results of operations could be materially affected.
Business Combinations—Purchase Accounting
Under the purchase method of accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. We record the excess of purchase price over the aggregate fair values as goodwill. We engage third-party
appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. These valuations require us to make significant estimates and
assumptions, especially with respect to intangible assets. We have estimated the economic lives of certain acquired assets and these live are used to calculate
depreciation and amortization expenses. We have estimated the future cash flows to be derived from such assets, and these estimates are used to determine the
fair value of the assets. If our estimates of the economic lives or the future cash flows change, depreciation or amortization expenses could be accelerated or
slowed and the value of our intangible assets could be impaired.
Fair Value Measurements
Effective January 1, 2008, SupportSoft adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting
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Source: SUPPORTSOFT INC, 10-K, March 11, 2009