Support.com 2011 Annual Report Download - page 35

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The fair value of our remaining $1.1 million of ARS, classified as available-for-sale, was based on a discounted cash flow valuation that takes
into account a number of factors including the estimated weighted average remaining term (WART) of the underlying securities, the expected return,
and the discount rate. The WART was estimated based on the servicing report and expectations regarding redemptions. The expected return was
calculated based on the last twelve months’ average for the 91-day U.S. treasury bill, plus a spread. This rate is the typical default rate for ARS held
by us. The discount rate was calculated using the three-month LIBOR rate, plus adjustments for the security type. Changes in any of the above
estimates, especially the WART or the discount rate, could result in a material change to the fair value. At December 31, 2011, our remaining ARS
investment was classified as a Level 3 asset. Presently we have determined the decline in value for the available-for-sale ARS to be temporary because
i) we have no current intent to sell the security, and we believe that we will not be required to sell the security before the recovery of its amortized cost
due to our large cash reserves; ii) through December 31, 2011, this security has maintained a AAA credit rating; and iii) loans made by the issuers are
backed by the Federal government. We have also determined that we do not intend to sell an impaired available-for-sale security and will not be
required to sell such a security before the recovery of our amortized cost basis due to its large cash reserves.
However, if circumstances change, we may be required to record an other-than-temporary impairment charge on the available-for-sale ARS.
We may similarly be required to record other-than-temporary impairment charges if the rating on this security is reduced or if any of the issuers default
on their obligations. In addition to impairment charges, any of these events could cause us to lose part or all of our investment in this security. As of
December 31, 2011, we had investments in ARS with estimated fair values of $1.1 million. Any of these events could materially affect our results of
operations and our financial condition. We currently believe this security is not significantly impaired for the reasons described above; however, it
could take until the final maturity of the underlying notes (up to 30 years) to realize our investments’ recorded value.
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The functional currencies of our international operating subsidiaries are the local currencies. We translate the assets and liabilities of our foreign
subsidiaries at the exchange rates in effect on the balance sheet date. We translate their income and expenses at the average rates of exchange in effect
during the period. We include translation gains and losses in the stockholders’ equity section of our balance sheet. We include net gains and losses
resulting from foreign exchange transactions in interest income and other in our statements of operations. Since we translate foreign currencies
(primarily Canadian dollars, British Pound Sterling, and Indian rupees) into U.S. dollars for a limited number of customers and a small portion of our
operations, currency fluctuations may have an immaterial impact on our financial results. We have both revenue and expenses that are denominated in
foreign currencies. Foreign currency losses are larger than foreign currency gains. A weaker U.S. dollar environment would have an immaterial
negative impact on our statement of operations, while a stronger U.S. dollar environment would have an immaterial positive impact on our statement
of operations. The historical impact of currency fluctuations has generally been immaterial. As of December 31, 2011, we did not engage in foreign
currency hedging activities.
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