Incredimail 2011 Annual Report Download - page 106

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PERION NETWORK LTD. AND ITS SUBSIDIARIES
(Formerly: Incredimail Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:
-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The total weighted average number of Ordinary shares related to the outstanding options excluded from the calculations of diluted net earnings
per Ordinary share because these securities are anti-
dilutive was 789,411, 922,069 and 1,266,919 for the years ended December 31, 2009, 2010
and 2011, respectively.
q.
Accounting for stock
-
based compensation:
The Company accounts for stock
-
based compensation under ASC 718, "Compensation
-
Stock Compensation", which requires the
measurement and recognition of compensation expense based on estimated fair values for all share-
based payment awards made to employees
and directors.
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an
expense over the requisite service periods in the Company's consolidated statement of income.
The Company recognizes compensation expenses for the value of its awards, which have graded vesting based on
service conditions, using the straight line method, over the requisite service period of each of the awards, net of
estimated forfeitures. For awards containing multiple service and market conditions, all the conditions must be
satisfied in order for the award to vest, the Company recognizes compensation expenses over the longest derived
service period, based on the accelerated attribution method, net of estimated forfeitures. Estimated forfeitures are
based on actual historical pre
-
vesting forfeitures.
The Company estimates the fair value of standard stock options granted using the Binomial option-
pricing model and options with exercise that
is subject to a stock price target, using the Monte Carlo simulations. The option-
pricing models require a number of assumptions, of which the
most significant are; expected stock price, volatility and the expected option term. In 2009 and 2010, expected volatility was calculated based
upon an average between historical volatilities of the Company, similar entities and industry sector index similar to the Company's
characteristics, since it did not have sufficient company specific data. In 2011, expected volatility was calculated based upon actual historical
stock price movements. The expected option term was calculated based on the Company’
s assumptions of early exercise multiples which were
calculated based on comparable companies and termination exit rate which was calculated based on actual historical data. The expected option
term represents the period that the Company’s stock options are expected to be outstanding. The risk-
free interest rate is based on the yield
from U.S. Treasury zero
-
coupon bonds with an equivalent term.
F
-
19