Incredimail 2008 Annual Report Download - page 82

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F - 15
q.
Severance pay:
The Company’s liability for severance pay is calculated pursuant to Israeli Severance Pay Law based on its employees’ most recent
monthly salaries, multiplied by the number of years of their employment, or a portion thereof, as of the balance sheet date. This
liability is fully provided for by monthly deposits in insurance policies and by an accrual.
The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only
upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements.
The Company’s agreements with employees in Israel, joining the Company since February 2, 2008, are in accordance with section
14 of the Severance Pay Law -1963, whereas, the Company’s contributions for severance pay shall be instead of its severance
liability. Upon contribution of the full amount of the employee’s monthly salary, and release of the policy to the employee, no
additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments
shall be made by the Company to the employee. Further, the related obligation and amounts deposits on behalf of such obligation
are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts have been
paid.
Severance expenses for the years ended December 31, 2006, 2007 and 2008 amounted to $405,000, $499,000 and $715,000,
respectively.
r.
Net earnings (loss) per Ordinary share:
In 2006, the Company applied the two-class method as required by Emerging Issues Task Force (“EITF”) No. 03-6, “Participating
Securities and the Two-Class Method under FASB Statement No. 128, “Earnings per Share” (SFAS 128). EITF No. 03-6 requires
the income per share for each class of shares (Ordinary shares and Preferred shares) to be calculated assuming 100% of the
Company’s earnings are distributed as dividends to each class of shares based on their contractual rights. In 2007 and 2008, the
Company had only one class of shares.
INCREDIMAIL LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:
–
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Basic net earnings (loss) per Ordinary shares are computed based on the weighted average number of Ordinary shares outstanding
during each year. Diluted net earnings (loss) per Ordinary share are computed based on the weighted average number of Ordinary
shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance
with SFAS No. 128,
“
Earnings per Share
”
.
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 539,609 and 1,205,834 for the years ended
December 31, 2006 and 2008. Because of the loss in 2007, all options were excluded from the calculation of diluted net loss per
share.
s.
Accounting for stock
-
based compensation:
The Company accounts for stock-based compensation under SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) 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.
SFAS 123(R) 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 statements of operations.
The Company recognizes compensation expenses for the value of its awards, which have graded vesting based on the straight line
method over the requisite service period of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on
actual historical pre
-
vesting forfeitures.
The Company estimates the fair value of stock options granted using the Binomial method option-pricing model. The option-
pricing model requires a number of assumptions, of which the most significant are expected stock price volatility and the expected
option term. 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 does not have sufficient company specific data.