Incredimail 2012 Annual Report Download - page 43

Goodwill
Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable
intangible assets acquired less liabilities assumed. We review goodwill for impairment annually in October each year, and whenever events or
changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350 “Intangibles – Goodwill and other”
.
Goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its fair value. If the carrying value of a reporting unit’
s
goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
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, including 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 2012, did not result in impairment. As of
December 31, 2012, our market capitalization was significantly higher than our 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 these estimates 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 2010, 2011, or 2012.
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 .
Recently issued accounting pronouncements.
In June 2011, the FASB issued guidance to require an entity to present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements, thus eliminating the option to present the components of other comprehensive income as part of the statement of equity.
In addition, the guidance requires that the reclassification adjustments for items that are reclassified from other comprehensive income to net
income be presented on the face of the financial statements. However, in December 2011, the FASB indefinitely deferred the requirements
related to the presentation of reclassification adjustments. The guidance became effective for us beginning January 1, 2012, and will only result
in changes in our financial statements presentation.
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