Chegg 2013 Annual Report Download - page 102

Interest expense, net increased by $0.8 million in 2012 primarily due to the interest associated with two
outstanding credit facilities in 2012, compared to only one in 2011, as well as the accrual of an end-of-term fee
and an increase in the amortization of issuance costs associated with a term loan facility we entered into in May
2012.
Other income, net decreased in 2012 due to a smaller change in the fair value of our preferred stock
warrants compared to the decrease in the fair value of the preferred stock warrants in 2011.
Provision (Benefit) for Income Taxes
The following table sets forth our provision (benefit) for income taxes for the periods shown (dollars in
thousands):
Year Ended December 31, Change in 2013 Change in 2012
2013 2012 2011 $ % $ %
Provision (benefit) for income taxes ............... $642 $29 $(200) $613 n/m $229 115%
We recognized income tax expense of $0.6 million, in 2013 that was comprised of state and foreign income
tax expense. We recognized income tax expense of $29,000 in 2012, which was comprised of state and foreign
income tax expense, partially offset by the release of certain income tax benefits. We recognized an income tax
benefit of $0.2 million in 2011, due to the release of valuation allowances as a result of our acquisitions, partially
offset by state and foreign income tax expense.
Liquidity and Capital Resources
As of December 31, 2013, our principal sources of liquidity were cash, cash equivalents and investments
totaling $138.3 million, which were held for working capital purposes. Our cash equivalents and investments are
composed primarily of commercial paper, corporate securities and money market funds. We have $50.0 million
available for draw down under our revolving credit facility with an accordion feature subject to certain financial
criteria that would allow us to draw down to $75.0 million in total, which expires in August 2016. At
December 31, 2013, there were no amounts drawn down on our revolving credit facility which carries, at our
election, (1) a base interest rate of the greater of the Federal Funds Rate plus 0.5% or one-month LIBOR plus
1%, or Prime, or (2) a LIBOR based interest rate plus additional interest of up to 4.5% depending on our leverage
ratio. The revolving credit facility requires us to repay the outstanding balance at expiration, or to prepay the
outstanding balance if certain reporting and financial covenants are not maintained. These financial covenants are
as follows: (1) maintain specified quarterly levels of consolidated EBITDA, which is defined as net income (loss)
before tax plus interest expense, provision for income taxes, depreciation and amortization expense, non-cash
stock-based compensation expense and costs and expenses not to exceed $2.0 million in closing fees related to
the revolving credit facility; and (2) maintain a leverage ratio greater than 1.5 to 1.0 as of the end of each quarter,
based on the ratio of the consolidated outstanding debt balance to consolidated EBITDA for the period of the
four fiscal quarters most recently ended. As of December 31, 2013, we were in compliance with these financial
covenants.
Our print textbook business is highly capital intensive, and we typically use cash for our investing activities
while we generate positive cash flows from operations. We capitalize the investment in our print textbook library
and depreciate the value of our textbooks over their useful life as cost of revenues. In 2013, 2012 and 2011, our
investment in print textbooks, net of proceeds from textbook liquidations, was $84.3 million, $70.4 million and
$43.2 million, respectively. To the extent our business continues to grow, or as new textbook versions are published,
we anticipate we will continue to purchase additional textbooks, resulting in a use of cash from investing activities.
As of December 31, 2013, we have incurred cumulative losses of $205.1 million from our operations, and we
expect to incur additional losses in the future. Our operations have been financed primarily by net proceeds from the
sales of shares of our convertible preferred stock, through various debt financing activities and our IPO.
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