Enom 2011 Annual Report Download - page 93

change that would indicate that goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to
a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key
personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business, significant
negative industry or economic trends or significant underperformance relative to expected historical or projected future results of operations.
The testing for a potential impairment of goodwill involves a two-step process. The first step is to identify whether a potential impairment exists by
comparing the estimated fair values of the Company’s reporting units with their respective book values, including goodwill. If the estimated fair value of the
reporting unit exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting
unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The
amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill
is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit but may require valuations of certain internally
generated and unrecognized intangible assets such as the Company’s software, technology, patents and trademarks. If the carrying amount of goodwill
exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
The fair value of each reporting unit exceeded its carrying value in the first step of the Company's fourth quarter of 2011 and 2010 impairment
tests.
Operating Leases
For operating leases that include rent free periods or escalation clauses over the term of the lease, the Company recognizes rent expense on a
straight-line basis and the difference between expense and amounts paid are recorded as deferred rent in current and long-term liabilities.
Advertising Costs
Advertising costs are expensed as incurred and generally consist of Internet based advertising, sponsorships, and trade shows. Such costs are
included in sales and marketing expense in Company's consolidated statements of operations. Advertising expense was $2,230, $2,699 and $2,697 for the
years ended December 31, 2009, 2010 and 2011, respectively.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite
service period, which is the vesting period, on a straight-line basis. The Company uses the Black-Scholes option pricing model to determine the fair value of
stock options that do not include market conditions. Stock-based awards are comprised principally of stock options, restricted stock purchase rights (“RSPR”),
restricted stock awards (“RSA”) and restricted stock units ("RSU").
Under the Company's Employee Stock Purchase Plan (the "ESPP"), eligible officers and employees may purchase a limited amount of our
common stock at a discount to the market price in accordance with the terms of the plan as described in Note 11 - Share-based Compensation Plans and
Awards. The Company uses the Black-Scholes option pricing model to determine the fair value of the ESPP awards granted which is recognized straight-line
over the total offering period.
Some equity awards granted by the Company contain certain performance and/or market conditions. The Company recognizes compensation cost
for awards with performance conditions based upon the probability of that 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. The Company uses a Monte Carlo simulation model or
binomial lattice model to determine the grant date fair value of awards with market conditions. Compensation cost 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.
Stock-based awards issued to non-employees are accounted for at fair value determined using the Black-Scholes option-pricing model.
Management believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of each non-
employee stock-based compensation award is re-measured each period until a commitment date is reached, which is generally the vesting date.
F-14