Enom 2011 Annual Report Download - page 57

value. If an asset is considered impaired, the impairment loss is measured as the amount by which the carrying value of the asset group exceeds its estimated
fair value. Fair value is determined based upon estimated discounted future cash flows. The key estimates applied when preparing cash flow projections relate
to revenues, operating margins, economic life of assets, overheads, taxation and discount rates. To date, we have not recognized any such impairment loss
associated with our long-lived assets.
Income Taxes
We account for our income taxes using the liability and asset method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in our financial statements or in our tax returns. In estimating future tax consequences,
generally all expected future events other than enactments or changes in the tax law or rates are considered. Deferred income taxes are recognized for
differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in effect for the years in which the temporary
differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
We evaluate the realizability of our deferred tax assets and valuation allowances are provided when necessary to reduce deferred tax assets to the amounts
expected to be realized.
We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide tax contingencies whenever it is deemed
probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are
based upon their technical merits, and relevant tax law and the specific facts and circumstances as of each reporting period. Changes in facts and
circumstances could result in material changes to the amounts recorded for such tax contingencies.
We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are
then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties
accrued related to unrecognized tax benefits in our income tax (benefit) provision in the accompanying statements of operations.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax
returns filed in subsequent years. Adjustments based on filed returns are recorded when identified. The amount of income taxes we pay is subject to ongoing
audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management's assessment of
relevant risks, facts, and circumstances existing at that time. To the extent that our assessment of such tax positions changes, the change in estimate is
recorded in the period in which the determination is made.
Stock-based Compensation
We measure and recognize compensation expense for all share-based payment awards made to employees and directors based on the grant date fair
values of the awards. For stock option awards to employees with service and/or performance based vesting conditions, the fair value is estimated using the
Black-Scholes option pricing model. The value of an award that is ultimately expected to vest is recognized as expense over the requisite service periods in
our consolidated statements of operations. We elected to treat share-based payment awards, other than performance awards, with graded vesting schedules and
time-based service conditions as a single award and recognize stock-based compensation expense on a straight-line basis (net of estimated forfeitures) over
the requisite service period. Stock-based compensation expenses are classified in the statement of operations based on the department to which the related
employee reports. Our stock-based awards are comprised principally of stock options restricted stock units, restricted stock awards and restricted stock
purchase rights.
Some employee award grants contain certain performance and/or market conditions. We recognize compensation cost for awards with performance
conditions based upon the probability of the performance condition being met, net of an estimate of pre-vesting forfeitures. Awards granted with performance
and/or market conditions are amortized using the graded vesting method. The effect of a market condition is reflected in the award's fair value on the grant
date. We use a Monte Carlo simulation model or a binomial lattice model to determine the grant date fair value of awards with market conditions. All
compensation expense for an award that has a market condition is recognized as the requisite service period is fulfilled, even if the market condition is never
satisfied.
We account for stock options issued to non-employees in accordance with the guidance for equity-based payments to non-employees. Stock option
awards to non-employees are accounted for at fair value using the Black-Scholes option pricing model. Our management believes that the fair value of stock
options is more reliably measured than the fair value of the services received. The fair value of the unvested portion of the options granted to non-employees
is re-measured each period. The resulting increase in value, if any, is recognized as expense during the period the related services are rendered.
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