Support.com 2008 Annual Report Download - page 37

Table of Contents
Accounting for Income Taxes
We are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves management’s estimation of our
actual current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax
basis of certain items. These differences result in net deferred tax assets and liabilities, which are included within our Consolidated Balance Sheet. We must
assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a
valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We currently have provided a full valuation allowance on
our U.S deferred tax assets and a full or partial valuation allowance on certain foreign deferred tax assets. At December 31, 2008, our net deferred tax asset was
$44.3 million and our valuation allowance was $(43.8) million.
Accounting for Goodwill and Other Intangible Assets
At December 31, 2008, our recorded goodwill was $12.6 million. 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 reporting unit is less than
the carrying value of the reporting unit’s net assets on the date of the evaluation. The estimate of cash flow is based upon, among other things, certain
assumptions about expected future operating performance and an appropriate discount rate determined by our management. Our estimates of discounted cash
flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance. If
we made different estimates, material differences may result in write-downs of net long-lived and intangible assets, which would be reflected by charges to our
operating results for any period presented. Furthermore, we evaluate cash flows at the lowest operating segment level. If the number of reporting segments
increases in the future, as it has in 2008, this may make impairment more probable than it would be with fewer reporting segments. As of September 30, 2008,
we concluded our annual evaluation for impairment of goodwill and no impairment was recognized. We evaluate our goodwill for impairment during the third
quarter of each year, or more frequently if indicators of impairment exist.
At December 31, 2008, our recorded net identifiable intangible assets were $417,000. We assess the impairment of finite lived identifiable intangible
assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized when the
sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss
would be measured as the difference between the carrying amount of the asset and its fair value.
Stock-based compensation
We account for stock-based compensation in accordance with the provisions of SFAS 123R. Under the fair value recognition provisions of SFAS 123R,
stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service
period of the award. We estimate the fair value of stock-based awards on the grant date using the Black-Scholes-Merton option-pricing model. Determining the
appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates
and expected life. If any of these assumptions used in the option-pricing models changes significantly, stock-based compensation may differ materially in the
future from that record.
34
Source: SUPPORTSOFT INC, 10-K, March 11, 2009