Support.com 2008 Annual Report Download - page 65

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Table of Contents
SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all stock-based awards, including employee stock options and employee stock purchases, made to employees and directors based on
estimated fair values. Prior to January 1, 2006, the Company accounted for stock-based payments to employees using the intrinsic value method under APB
Opinion No. 25, as permitted by SFAS 123R, and, as such, generally recognized no compensation cost for employee stock options or employee stock purchases
in its financial statements.
SupportSoft elected the modified prospective transition method for adopting SFAS 123R which required the application of the accounting standard as of
January 1, 2006, the first day of the Company’s 2006 fiscal year. Under this transition method, compensation cost includes the applicable amounts of:
(a) compensation cost for all stock-based payments granted prior to, but not yet vested, as of December 31, 2005 based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123 and previously presented in the pro-forma footnote disclosures, and (b) compensation cost of all
stock-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the new provisions of SFAS 123R.
Prior periods have not been restated to reflect the impact of SFAS 123R.
Determining Fair Value
Valuation and Attribution Method: SupportSoft estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model.
Stock options vest on a graded schedule; however the Company recognizes the expense on a straight-line basis over the requisite service period of the entire
award, net of estimated forfeitures and subject to the minimum expense requirements of SFAS 123R. These limitations require that on any date the compensation
cost recognized is at least equal to the portion of the grant-date fair value of the award that is vested at that date.
Risk-free Interest Rate: The Company bases its risk-free interest rate upon the yield currently available on US Treasury zero coupon issues for the
expected term of the employee stock options.
Expected Term: The Company’s expected term represents the period that the Company’s stock options are expected to be outstanding and is determined
based on historical experience of similar stock options considering the contractual terms of the stock options, vesting schedules and expectations of future
employee behavior.
Expected Volatility: The Company’s expected volatility represents the amount by which the stock price is expected to fluctuate throughout the period
that the stock option is outstanding. The Company bases its expected volatility on historical data.
Estimated Forfeitures: SFAS 123R requires that the stock option expense recognized be based on awards that are ultimately expected to vest, and
therefore a forfeiture rate should be applied at the time of grant and revised, if necessary, in subsequent periods when actual forfeitures differ from those
estimates. Prior to January 1, 2006, the Company accounted for forfeitures only as they occurred. Commencing in 2006, the Company has estimated its
forfeitures based on historical experience.
Expected Dividend: The Company uses a dividend yield of zero, as it has never paid cash dividends and does not expect to pay dividends in the future.
62
Source: SUPPORTSOFT INC, 10-K, March 11, 2009