Incredimail 2011 Annual Report Download - page 39

We operate in one operating segment, and this segment comprises our only reporting unit. In calculating the fair value of the reporting unit, we used our
market equity capitalization.
If the carrying value of a reporting unit exceeds its fair value, we then calculate the goodwill’
s implied fair value by performing a hypothetical allocation of
the reporting unit’
s fair value to the underlying assets and liabilities, with the residual being the implied fair value of goodwill. This allocation process involves using
significant estimates; include estimates of future cash flows, future short-term and long-
term growth rates, weighted average cost of capital and assumptions about the
future deployment of the long-
lived assets of the reporting unit. Other factors we consider are the brand awareness and the market position of the reporting unit and
assumptions about the period of time we will continue to use the brand in our product portfolio. If these estimates or their related assumptions change in the future, we
may be required to record impairment charges for our goodwill.
Our most recent annual goodwill impairment analysis, which was performed during in 2011, did not result in impairment. As of December 31, 2011, the
market capitalization of the Company was significantly higher than the equity book value.
Impairment of Long
-Lived Assets.
We are required to assess the impairment of tangible and intangible long-lived assets subject to amortization, under ASC 360 “
Property, Plant and
Equipment”,
on a periodic basis, when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators include any
significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or economic trends and significant
decline in our share price for a sustained period.
Upon determination that the carrying value of a long-
lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future
cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is recorded for the excess of carrying amount over the fair
value. We measure fair value using discounted projected future cash flows. We base our fair value estimates on assumptions we believe to be reasonable but that are
unpredictable and inherently uncertain. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our
tangible and intangible long-lived assets subject to amortization. No impairment charges were recognized during 2009, 2010 and 2011.
Research and Development Expenses, Net.
Research and development costs incurred in the process of software development before establishment of technological feasibility are charged to expenses as
incurred. Costs of the production of a detailed program design, incurred subsequent to the establishment of technological feasibility are capitalized. Based on our
product development process, technological feasibility is established upon completion of a detailed program design.
Capitalized software development costs are amortized commencing with general product release by the straight-
line method over the estimated useful life of
the software product.
At each balance sheet date, we assess the recoverability of this intangible asset by comparing the unamortized capitalized software costs to the net realizable
value on a product by product basis. Should the amount of the unamortized capitalized costs of a computer software product exceed the net realizable value, these
products will be written down by the excess amount .
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