Incredimail 2009 Annual Report Download - page 95

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INCREDIMAIL LTD .
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1,205,834 and
789,411 for the years ended December 31, 2008 and 2009, respectively. Because of the loss in 2007, all options were
excluded from the calculation of diluted net loss per share.
The Company accounts for stock-based compensation under ASC 718, "Compensation – Stock Compensation",
(formerly SFAS No. 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.
ASC 718 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.
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:
The Company uses derivatives instruments to protect against foreign currency fluctuations. These instruments were
not designated as cash flow hedge as defined by ASC 815, "Derivative and Hedging", (formerly 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.
NOTE 2:
-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.
Accounting for stock
-
based compensation:
Year ended December 31,
2007
2008
2009
Risk free interest rate
4.13
%
3.18
%
2.73
%
Dividend yield
0
%
0
%
13.01
%
Expected volatility
43.55%
-
59.91
%
50.24%
-
73.13
%
55.41%
-
74.67
%
Weighted average volatility
51.73
%
61.69
%
65.04
%
Expected term (years)
4.651
6.194
3.915
t.
Derivatives instruments:
F-14