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Description of Business</b></font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Synchronoss Technologies,&#160;Inc. (the "Company" or "Synchronoss") is a mobile innovation company that provides software-based activation and personal cloud solutions for connected devices across the globe. Such transactions include device and service procurement, provisioning, activation, support, intelligent connectivity management and content synchronization, back-up and sharing that enable communications service providers (CSPs), cable operators/multi-services operators (MSOs), original equipment manufacturers (OEMs) with embedded connectivity (e.g.&#160;smartphones, laptops, tablets and mobile Internet devices, among others), e-Tailers/retailers and other customers to accelerate and monetize their go-to-market strategies for connected devices. This includes automating subscriber activation, order management, upgrades, service provisioning and connectivity and content management from any channel (e.g.,&#160;e-commerce, telesales, enterprise, indirect and other retail outlets, etc.) to any communication service (e.g.,&#160;wireless (3G, (EV-DO and HSPA), 4G, (LTE and WiMAX)), Wi-Fi, high speed access, local access, IPTV, cable, satellite TV, etc.) across any connected device type and content transfer, synchronize and share. The Company's solutions touch all aspects of connected devices on the mobile Internet.</font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company's Activation Services and Personal Cloud platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and "back-office" infrastructure-related systems and processes. The Company's customers rely on its solutions and technology to automate the process of activation and content management for their customers' devices while delivering additional communication services. The Company's platforms also support automated customer care processes through use of highly accurate and effective speech processing technology and enable the Company's customers to offer their subscribers the ability to store in the Cloud their personal content and data which resides on their connected mobile devices, such as personal computers, smartphones and tablets. The Company's platforms are designed to be carrier-grade, high availability, flexible and scalable to enable multiple converged communication services to be managed across multiple distribution channels, including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets, etc., allowing it to meet the rapidly changing and converging services and connected devices offered by its customers. The Company enables its customers to acquire, retain and service subscribers quickly, reliably and cost-effectively by enabling back-up, synchronization and sharing of subscriber content. Through the use of the Company's platforms, its customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, synchronizing and social media sharing connected devices and services. The extensibility, scalability and relevance of the Company's platforms enable new revenue streams and retention opportunities for its customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud, while optimizing their cost of operations and enhancing customer experience.</font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company currently operates in and markets its solutions and services directly through its sales organizations in North America, Europe and Asia-Pacific.</font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company's industry-leading customers include Tier&#160;1 service providers such as AT&amp;T&#160;Inc., Verizon Wireless, Telefonica, Orange and Vodafone, Tier&#160;1 cable operators/MSOs like Cablevision, Comcast, and Time Warner Cable and large OEMs/e-Tailers such as Apple, Microsoft, Dell and Sony. These customers utilize the Company's platforms, technology and services to service both consumer and business customers.</font></p></div> <div style='font-size:10.0pt;FONT-FAMILY: Times New Roman;'> <p style="FONT-FAMILY: times"><font size="2"><b>2. Summary of Significant Accounting Policies</b></font></p> <ul> <li style="list-style: none"> <p style="FONT-FAMILY: times"><font size="2"><b><i>Basis of Presentation and Consolidation</i></b></font></p></li></ul> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation.</font></p> <ul> <li style="list-style: none"> <p style="FONT-FAMILY: times"><font size="2"><b><i>Use of Estimates</i></b></font></p></li></ul> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.</font></p> <ul> <li style="list-style: none"> <p style="FONT-FAMILY: times"><font size="2"><b><i>Revenue Recognition and Deferred Revenue</i></b></font></p></li></ul> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company provides services principally on a transactional or subscription basis or, at times, on a fixed fee basis and recognizes the revenues as the services are performed or delivered as described below:</font></p> <p style="FONT-FAMILY: times"><font size="2"><i>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Transactional and Subscription Service Arrangements:</i></font><font size="2">&#160;&#160;&#160;&#160;Transaction and subscription revenues represented approximately 67%, 77%, and 79% of revenues for the years ended December&#160;31, 2012, 2011 and 2010, respectively. Transaction and subscription revenues consist of revenues derived from the processing of transactions through the Company's service platforms, providing enterprise portal management services on a subscription basis and maintenance agreements on software licenses. Transaction service arrangements include services such as processing equipment orders, new account set-up and activation, number port requests, credit checks and inventory management. Subscription services include hosting and maintenance support services of software products.</font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Transaction revenues are principally based on a contractual price per transaction and are recognized based on the number of transactions processed during each reporting period. Revenues are recorded based on the total number of transactions processed at the applicable price established in the relevant contract. 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Set-up fees for transactional service arrangements are deferred and recognized on a straight-line basis over the life of the contract since these amounts would not have been paid by the customer without the related transactional service arrangement. Revenues are presented net of discounts, which are volume level driven, or credits, which are performance driven, and are determined in the period in which the volume thresholds are met or the services are provided.</font></p> <p style="FONT-FAMILY: times"><font size="2"><i>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Professional Service and Software License Arrangements:</i></font><font size="2">&#160;&#160;&#160;&#160;Professional service and software license revenues represented approximately 33%, 23% and 21% of revenues for the years ended December&#160;31, 2012, 2011 and 2010, respectively. Professional services include process and workflow consulting services and development services. 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("Assurion"), claiming that Assurion has infringed, and continues to infringe, several of the Company's patents. On February&#160;3, 2012, Assurion filed an answer to the Company's complaint and asserted certain counterclaims that the Company's patents at issue are invalid. In addition, on November&#160;21, 2011, the Company filed an amended complaint in the United States District Court for the District of New Jersey (Civ Act. No.&#160;3:11-cv-06713) against OnMobile Global Limited, VoxMobili,&#160;Inc. and VolMobili,&#160;S.A. ("collectively, VoxMobili"), claiming that VoxMobili has infringed, and continues to infringe, several of its patents. On April&#160;2, 2012, VoxMobili filed an answer to the Company's complaint and asserted certain counterclaims that the Company's patents at issue are invalid. 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Set-up fees for transactional service arrangements are deferred and recognized on a straight-line basis over the life of the contract since these amounts would not have been paid by the customer without the related transactional service arrangement. Revenues are presented net of discounts, which are volume level driven, or credits, which are performance driven, and are determined in the period in which the volume thresholds are met or the services are provided.</font></p> <p style="FONT-FAMILY: times"><font size="2"><i>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Professional Service and Software License Arrangements:</i></font><font size="2">&#160;&#160;&#160;&#160;Professional service and software license revenues represented approximately 33%, 23% and 21% of revenues for the years ended December&#160;31, 2012, 2011 and 2010, respectively. Professional services include process and workflow consulting services and development services. 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The selling price used for each deliverable will be based on VSOE if available, third-party evidence ("TPE") if vendor-specific objective evidence is not available, or estimated selling price ("ESP") if neither vendor-specific objective evidence nor third-party evidence is available. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company determines ESP by considering multiple factors, including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. 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Changes in the fair value of the contingent consideration obligation can result from updates in the achievement of financial targets and changes to the weighted probability of achieving those future financial targets. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. 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