TeleNav 2013 Annual Report Download - page 50

Table of Contents
We also derive services revenue from the delivery of search and display advertising impressions. We recognize revenue when the related
advertising services are delivered based on the specific terms of the advertising contract, which are commonly based on the number of ad impressions
delivered, or clicks, drives or actions by users on mobile advertisements.
We derive product revenue from the delivery of customized software and royalties earned from the distribution of this customized software in
certain automotive navigation applications. We generally recognize software customization revenue using the completed contract method of contract
accounting under which revenue is recognized upon delivery to, and acceptance by, the automobile manufacturer of our on-board navigation
solutions. We generally recognize royalty revenue as the software is reproduced for installation in vehicles, assuming all other conditions for revenue
recognition have been met.
In certain instances, due to the nature and timing of monthly revenue and reporting from our customers, we may be required to make estimates
of the amount of revenue to recognize from a customer for the current period. For example, certain of our wireless carrier customers do not provide
us with sufficient monthly individual subscriber billing period details to allow us to compute the allocation of monthly service fees to the individual
end user’s service period, and in such cases we make estimates of any required service period revenue cutoff. In addition, if we fail to receive an
accurate revenue report from a wireless carrier customer for the month, we will need to estimate the amount of revenue that should be recorded for
that month. These estimates may require judgment, and we consider certain factors and information in making these estimates such as:
If we are unable to reasonably estimate recognizable revenue from a customer for a given period, we defer recognition of revenue to the period
in which we receive and validate the customer’s revenue report and all of our revenue recognition criteria have been met. If we have recorded an
estimated revenue amount, we record any difference between the estimated revenue and actual revenue in the period when we receive the final
revenue reports from our customer, which typically occurs within the following month. To date, actual amounts have not differed materially from our
estimates.
Software development costs
. We account for the costs of computer software we develop for internal use by capitalizing qualifying costs, which
are incurred during the application development stage, and amortizing those costs over the application’s estimated useful life, which generally ranges
from 18 months to 24 months depending on the type of application. Costs incurred and capitalized during the application development stage
generally include the costs of software configuration, coding, installation and testing. Such costs primarily include payroll and payroll related
expenses for employees directly involved in the application development, as well as third party developer fees. We expense preliminary evaluation
costs as they are incurred before the application development stage, as well as post development implementation and operation costs, such as
training, maintenance and minor upgrades. We begin amortizing capitalized costs when a project is ready for its intended use, and we periodically
reassess the estimated useful life of a project considering the effects of obsolescence, technology, competition and other economic factors which may
result in a shorter remaining life.
We capitalized $0.9 million, $2.4 million and $1.2 million of software development costs during fiscal 2013 , 2012 and 2011 , respectively.
Amortization expense related to these costs, which was recorded in cost of revenue, totaled $2.1 million, $1.8 million and $2.0 million for fiscal
2013 , 2012 and 2011 , respectively.
We also account for the costs of computer software we develop for customers requiring significant modification or customization by deferring
qualifying costs under the completed contract method. All such development costs incurred are deferred until the related revenue is recognized. We
deferred $1.3 million, $2.4 million and $2.1 million of software development costs during fiscal 2013 , 2012 and 2011 , respectively. Development
costs expensed to cost of revenue totaled $4.9 million, $0.4 million and $1.8 million for fiscal 2013 , 2012 and 2011 , respectively.
Impairment of long-lived assets . We evaluate long-lived assets held and used for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. We continually evaluate whether events and circumstances have occurred that indicate the
balance of our property and equipment, long-term investments and intangible assets with definite lives may not be recoverable. Our evaluation is
significantly impacted by our estimates and assumptions of future revenue, costs, and expenses and other factors. If an event occurs that would cause
us to revise our estimates and assumptions used in analyzing the value of our property and equipment, that revision could result in a non-cash
impairment charge that could have a material impact on our financial results. When these factors and circumstances exist, we compare the projected
undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying
amounts. We base the impairment, if any, on the excess of the carrying amount over the fair value, based on market value when available, or
discounted expected cash flows of those assets, and record it in the period in
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subscriber data supplied by our wireless carrier customers;
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customer specific historical subscription and revenue reporting trends;
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end user subscription data from our internal systems; and
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data from comparable distribution channels of our other customers.