TeleNav 2015 Annual Report Download - page 54

Table of Contents
with our January 2014 acquisition of skobbler, we have a significant number of employees in Romania and incur research and development
expenses in the Romanian Leu.
Sales and marketing . Sales and marketing expenses consist primarily of personnel costs for our sales and marketing staff, commissions
earned by our sales personnel and the cost of marketing programs, advertising and promotional activities. Through June 30, 2014, sales and
marketing expenses also included product management costs, which have been classified as research and development expenses commencing
July 1, 2014. Historically, a majority of our revenue has been derived from wireless carriers, which bore much of the expense of marketing and
promoting our services to their subscribers, as well as consumers acquired through open market application stores. More recently, our
automotive and advertising revenue have represented the most rapidly growing components of our revenue, and we have recently invested
significantly in building our advertising sales team. Our sales and marketing activities supporting our automotive navigation solutions include
the costs of our business development efforts. Our automotive manufacturer partners and OEMs also provide primary marketing for our on-
board and brought-in navigation solutions at the time a vehicle is sold to their end customer.
General and administrative . General and administrative expenses consist primarily of personnel costs for our executive, finance, legal,
human resources and administrative personnel; legal, audit and tax consulting; and other professional services and corporate expenses.
Other income, net . Other income, net consists primarily of interest we earn on our cash and cash equivalents and short-term investments,
gain or loss on investments and foreign currency transaction gains or losses.
Income from discontinued operations, net . Income from discontinued operations, net consists of results of operations of our enterprise
business, which was sold in April 2013.
Provision (benefit) for income taxes . Our provision (benefit) for income taxes primarily consists of corporate income taxes related to
profits earned or losses incurred in the United States or corporate income tax refunds expected to be derived from losses incurred in the United
States that may be carried back to prior fiscal years. Our effective tax rate could fluctuate significantly from year to year, particularly in those
years in which we incur losses, due to our ability to benefit from the carryback of net operating losses within the limited carryback period and
the available amount therein, if any. Furthermore, on a quarterly basis our tax rates can fluctuate and could be adversely affected by increases in
nondeductible stock compensation or other nondeductible expenses, as well as changes in our tax reserves. Our effective tax rate could also
fluctuate due to a change in our earnings or loss projections, changes in the valuation of our deferred tax assets or liabilities, or changes in tax
laws, regulations, or accounting principles, as well as certain discrete items.
Critical accounting policies and estimates
We prepare our consolidated financial statements in accordance with GAAP. In many cases, the accounting treatment of a particular
transaction is specifically dictated by GAAP and does not require our judgment in its application. In other cases, our judgment is required in
selecting among available alternative accounting policies that allow different accounting treatment for similar transactions. The preparation of
consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, costs and expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we
believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some
instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our
future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting
policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas
involving our judgments and estimates.
Revenue recognition . We generate revenue primarily from software licenses, service subscriptions and customized engineering fees. We
also generate revenue from the delivery of search and display advertising impressions. We recognize revenue when persuasive evidence of an
arrangement exists, delivery of the product or service has occurred, the fee is fixed or determinable and collectability is reasonably assured. We
evaluate whether it is appropriate to recognize revenue based on the gross amount billed to our customers or the net amount earned as revenue.
When we are primarily obligated in a transaction, have latitude in establishing prices, are responsible for fulfillment of the transaction, have
credit risk, or have several but not all of these indicators, we record revenue on a gross basis. While none of the factors individually are
considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, we place the most weight on the
analysis of whether or not we are the primary obligor in the arrangement. We report our automotive and advertising revenue on a gross basis.
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