Tesla 2014 Annual Report Download - page 104

Table of Contents
Advertising and Promotion Costs
Advertising and sales promotion costs are expensed as incurred. During the years ended December 31, 2013, 2012 and 2011, advertising,
promotion and related marketing expenses were $9.0 million, $3.9 million and $2.9 million, respectively.
Shipping and Handling Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and related shipping and handling costs are
included in cost of revenues.
Income Taxes
Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
We record liabilities related to uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that
it is more likely than not that those positions may not be fully sustained upon review by tax authorities. Accrued interest and penalties related to
unrecognized tax benefits are classified as income tax expense.
Stock-based Compensation
We recognize compensation expense for costs related to all share-based payments, including stock options, restricted stock units (RSUs)
and our employee stock purchase plan (the ESPP). The fair value of stock options and the ESPP are estimated on the grant date and offering date
using an option pricing model, respectively. The fair value of RSUs is measured on the grant date based on the closing fair market value of our
common stock. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, net of estimated
forfeitures.
We account for equity instruments issued to non-employees based on the fair value of the awards. The fair value of the awards granted to
non-employees is re-measured as the awards vest and the resulting change in fair value, if any, is recognized in the consolidated statements of
operations during the period the related services are rendered.
For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of
individual performance milestones when the achievement of each individual performance milestone becomes probable.
For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, the
stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected
achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is
considered probable of being met (see Note 8).
Foreign Currency Remeasurement and Transactions
For each of our foreign subsidiaries, the functional currency is the U.S. Dollar. For these foreign subsidiaries, monetary assets and
liabilities denominated in non-U.S. currencies are re-measured to U.S. Dollars using current exchange rates in effect at the balance sheet date.
Non
-monetary assets and liabilities denominated in non-U.S. currencies are maintained at historical U.S. Dollar exchange rates. Revenues and
expenses are re-measured at average U.S. Dollar monthly rates.
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