Incredimail 2013 Annual Report Download - page 41

The amount of revenues derived from multiple element arrangements is not material to our results of operations.
Stock
-Based Compensation
We account for share-based payment awards made to employees, non-
employees and directors in accordance with ASC 718,
"Compensation –
Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair
values. Determining the fair value of stock-
based awards at the grant date requires the exercise of judgment, as well as the determination of the
amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ from our estimates, stock-
based compensation expense
and our results of operations would be impacted. Expense is generally recognized on a straight-
line basis over the service period during which
awards are expected to vest, except for awards with market or performance conditions, which are recognized using the accelerated method.
Total stock-
based compensation expense recorded during 2013 was $1.5 million, of which $0.2 million was included in research and
development costs, $0.2 million in selling and marketing expenses and $1.1 million in general and administrative expenses.
As of December 31, 2013, the maximum total compensation cost related to options and RSUs granted to employees, non-
employees
and directors not yet recognized amounted to $4.8 million. This cost is expected to be recognized over a weighted average period of 2.4 years.
We estimate the fair value of standard stock options granted using the Binomial method 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. Expected stock price volatility was calculated based upon
actual historical stock price movements over the most recent period ending on the grant date, equal to the expected option term. The expected
option term was calculated based on our assumptions of early exercise multiples, which were calculated based on comparable companies, and a
termination exit rate, which was calculated based on actual historical data. The expected option term represents the period that our 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.
The fair value of restricted stock awards is based on the market value of the underlying shares at the date of grant.
In November 2010, our board of directors changed our dividend policy so that we do not distribute any cash dividends.
Taxes on Income
We are subject to income taxes in Israel and the United States. Significant judgment is required in evaluating our uncertain tax positions
and determining our provision for income taxes. Based on the guidance in ASC 740 "Income Taxes", we use a two-
step approach to recognizing
and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon
settlement.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome
of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the
refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded,
such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate. Interest is recorded within finance income, net.
Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to
utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements.
We record valuation allowances for deferred tax assets that we believe are not more likely than not to be realized in future periods. While we
believe the resulting tax balances as of December 31, 2013 are appropriately accounted for, the ultimate outcome of such matters could result in
favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. See Note 10 of our
consolidated financial statements for further information regarding income taxes. We have filed or are in the process of filing local and foreign
tax returns that are subject to audit by the respective tax authorities. The amount of income tax we pay is subject to ongoing audits by the tax
authorities, which often result in proposed assessments. In November 2013 we reached a settlement with the Israeli Tax Authorities regarding
our corporate tax returns from the years 2009-
2012. See Note 10 of our consolidated financial statements for further information regarding such
settlement. We believe that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our
future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or
resolved, audits are closed or when statutes of limitation on potential assessments expire.
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