Support.com 2011 Annual Report Download - page 34

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In September 2011, the FASB issued ASU No. 2011-08, “”. This update is to simplify how entities, both
public and nonpublic, test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. The Company expects to adopt this update for its reporting period ending March 31,
2012. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-11, “”. This update is to require an
entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those
arrangements on its financial position. ASU No. 2011-11 will be effective for annual reporting periods beginning on or after January 1, 2013. The
Company does not expect this update will have any significant impact on our financial position.
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There has been significant deterioration and instability in the financial markets since 2008. This extraordinary disruption and readjustment in the
financial markets exposes us to additional investment risk. The value and liquidity of the securities in which we invest could deteriorate rapidly and the
issuers of such securities could be subject to credit rating downgrades. In light of the current market conditions and these additional risks, we actively
monitor market conditions and developments specific to the securities and security classes in which we invest. While we believe we take prudent
measures to mitigate investment related risks, such risks cannot be fully eliminated, as there are circumstances outside of our control.
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. To achieve this objective, we invest our excess cash in a variety of securities, including U.S.
government agency securities, ARS, corporate notes and bonds, commercial paper and money market funds meeting certain criteria. These securities
are classified as available-for-sale. Consequently, our available-for-sale securities are recorded on the balance sheet at fair value with unrealized gains
or losses reported as a separate component of accumulated other comprehensive income (loss). Our holdings of the securities of any one issuer, except
government agencies, do not exceed 10% of our portfolio. We do not utilize derivative financial instruments to manage our interest rate risks.
As of December 31, 2011 and 2010, we held $30.9 million and $55.7 million in investments (excluding cash and cash equivalents),
respectively, which consisted primarily of government debt securities, corporate notes and bonds, commercial paper, and ARS. The weighted average
interest rate, including the impact of amortization of premium/accretion of discounts of our portfolio was approximately 0.43% at December 31, 2011
and 0.64% at December 31, 2010. A decline in interest rates over time would reduce our interest income from our investments. A decrease in interest
rates of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $309,000.
At December 31, 2011 and 2010 we had investments in AAA-rated ARS with various state student loan authorities with estimated fair values
of $1.1 million and $2.7 million, respectively. The student loans made by these authorities are substantially guaranteed by the Federal government
through the Federal Family Education Loan Program (FFELP). ARS are long-term floating rate bonds tied to short-term interest rates. After the initial
issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (e.g., every seven days,
28 days, 35 days, or every six months), based on market demand, if the auctions are successful. ARS are bought and sold in the marketplace through
a competitive bidding process often referred to as a “Dutch auction.” If there is insufficient interest in the securities at the time of an auction, the
auction may not be completed and the ARS then pays a default interest rate. Following such a failed auction, we cannot access our funds that are
invested in the corresponding ARS until a future auction of these investments is successful, new buyers express interest in purchasing these securities
in between reset dates, issuers establish a different form of financing to replace these securities or final payments become due according to contractual
maturities. Commencing in February 2008, conditions in the global credit markets resulted in failed auctions for all of the ARS we held. In the near
term, our ability to liquidate our investments in ARS or fully recover the carrying values may be limited or not exist.
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