Enom 2012 Annual Report Download - page 98

F-15
Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating
segment. As of December 31, 2012, the Company determined that it has three reporting units. When testing goodwill for
impairment, the Company first performs a qualitative assessment whether it is necessary to perform step one of a two-step
annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that
it is more likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of
the two-step process 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.
For 2012, in accordance with amended FASB guidance for goodwill impairment testing, the Company performed a
qualitative assessment for its reporting units which management estimates each have fair values significantly in excess of their
respective carrying values. For each of its reporting units, the Company considered the relative impact of factors that are
specific to the reporting unit as well as industry and macroeconomic factors. The reporting unit specific factors that were
considered included financial performance and changes to the reporting units' carrying amounts since the most recent
impairment tests. For each reporting unit, the Company considered assumptions about sales, operating margins, and growth
rates which are based on its forecasts, business plans, economic projections, anticipated future cash flows and marketplace data.
The Company also determined that the impact of macroeconomic factors on the discount rates and growth rates used for the
most recent impairment tests would not significantly affect the fair value of the reporting units. Based on this qualitative
assessment and considering the aggregation of these factors, the Company concluded that for each of its three reporting units, it
is more likely than not that the fair value of each reporting unit exceeds its carrying amount and that therefore it was
unnecessary to perform the two-step impairment test.
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 $2,699, $2,697 and $2,808 for the years ended December 31, 2010, 2011 and 2012, 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.