Incredimail 2010 Annual Report Download - page 98

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INCREDIMAIL LTD AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic net earnings per Ordinary shares are computed based on the weighted average number of Ordinary shares
outstanding during each year. Diluted net earnings 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 ASC 260, "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 1,205,834, 789,411 and 922,069 for
the years ended December 31, 2008, 2009 and 2010, respectively.
The Company accounts for stock-based compensation under ASC 718, "Compensation –
Stock Compensation", 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 income.
The Company recognizes compensation expenses for the value of its awards, which have graded vesting based on service
conditions, using the straight line method, over the requisite service period of each of the awards, net of estimated
forfeitures. For awards containing multiple service, and market conditions the Company recognizes compensation
expenses over the longest derived service period, based on the accelerated attribution method, net of estimated forfeitures.
Estimated forfeitures are based on actual historical pre-vesting forfeitures.
The Company estimates the fair value of standard stock options granted using the Binomial method option-
pricing model
and options which exercise is subject to a stock price target, using the Monte Carlo simulations. The option-
pricing
models require 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.
NOTE 2:
-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p.
Net earnings per Ordinary share:
q.
Accounting for stock
-
based compensation:
F
-
15