Support.com 2011 Annual Report Download - page 27

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Our Level 3 assets consist of auction-rate securities (“ARS”) with various state student loan authorities. Beginning February 2008, all auctions
for our ARS failed. Based on the continued failure of these auctions and the underlying maturities of the securities, we continue to classify our ARS
holdings as long-term assets. The fair value of our ARS holdings was estimated by management using assumptions regarding market volatility and
discount rates. If any of these estimates change, the value of Level 3 assets could change in future periods.
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Under the purchase method of accounting, we record 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 determine 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. Such
estimates include assumptions regarding future revenue streams, market performance, customer base, and various vendor relationships. We estimate
the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expenses. We estimate the future cash
flows to be derived from such assets, and these estimates are used to determine the fair value of the assets. If any of these estimates change,
depreciation or amortization expenses could be changed and the value of our intangible assets could be impaired.
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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. Consistent with our determination that we have only one reporting segment, we have determined that there is only one reporting unit and
goodwill is evaluated for impairment at the entity level. We test goodwill using the two-step process required by ASC 350, 
 In the first step, we compare the carrying amount of the reporting unit to the fair value based on quoted market prices of our common
stock. If the carrying value of the reporting unit exceeds the fair value, goodwill is potentially impaired and the second step of the impairment test
must be performed. In the second step, if such comparison reflects potential impairment, we would compare the implied fair value of the goodwill, as
defined by ASC 350, to its carrying amount to determine the amount of impairment loss, if any. We performed our annual goodwill impairment tests
on September 30, 2011, 2010, and 2009 and concluded that there was no impairment.
We assess the impairment of 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. If our estimates regarding future cash flows derived from such assets were to change, we
may record an impairment to the value of these assets. Such impairment loss would be measured as the difference between the carrying amount of the
asset and its fair value.
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We account for stock-based compensation in accordance with the provisions of ASC 718,. Under the fair
value recognition provisions of ASC 718, 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 change, our stock-based compensation expense could change on our consolidated financial statements.
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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 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 in 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 valuation allowance on certain foreign deferred tax assets that
management determined are not likely to be realized due to cumulative net losses since inception and the difficulty in accurately forecasting the
Company’s results. If any of our estimates change, we may change the likelihood of recovery and our tax expense as well as the value of our deferred
tax assets would change.
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