Incredimail 2008 Annual Report Download - page 83

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F - 16
The expected option term was calculated based on the Company’s assumptions of early exercise multiples which were calculated
based on comparable companies and termination exit rate which was calculated based on actual historical data. The expected option
term represents the period that the Company’s 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 the Company’s stock options granted to
employees and directors was estimated using the following weighted average assumptions:
Year ended December 31,
2006
2007
2008
Risk free interest rate
4.8%
4.1%
2.87%
Dividend yield
0%
0%
0%
Expected volatility
41%
-
71.9%
46.9%
-
59.8%
43.72%
-
74.43%
Weighted average volatility
56.3%
53.4%
59.07%
Expected term (years)
3.95
4.175
4.051
t.
Derivatives instruments:
The Company uses derivatives instruments to protect against foreign currency fluctuations. These instruments were not designated
as cash flow hedge as defined by SFAS No. 133 and therefore the Company recognized the changes in fair value of these
instruments to the statements of operations as financial income or expense, as incurred.
INCREDIMAIL LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:
–
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u.
Fair value of financial instruments:
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short term bank deposits, trade
receivables and trade payables approximate their fair value due to the short
-
term maturities of such instruments.
The Company adopted the provisions of SFAS No. 157, “Fair Value Measurements”(“SFAS No. 157”) and FSP No. SFAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP 157-2 effective January 1, 2008. Under this standard, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. SFAS No. 157 establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the
most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset
or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the
observability of inputs as follows:
—
Level 1 –
Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access.
Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted
prices that are readily and regularly available in an active market, valuation of these products does not entail a significant
degree of judgment.
—
Level 2 – Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly.
—
Level 3
–
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including,
for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that
valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value
requires more judgment, and categorizes as Level 3.
The Company’s marketable securities trade in markets that are not considered to be active, but are valued based on quoted market