Chegg 2013 Annual Report Download - page 121

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CHEGG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation
and amortization are computed using the straight-line method over the following estimated useful lives of the
assets:
Classification Useful Life
Computers and equipment ............................. 3years
Software ........................................... 2-3years
Furniture and fixtures ................................. 5years
Leasehold improvements .............................. Shorter of the remaining lease term or
the estimated useful life of 5 years
Content ............................................ 5years
We capitalize costs related to the purchase or development of Chegg Study content and amortize these costs
over a period of five years.
Depreciation and amortization expense are generally classified within the corresponding cost of revenues
and operating expense categories in our consolidated statements of operations. Depreciation and amortization
expense for 2013, 2012 and 2011 were approximately $5.7 million, $3.9 million and $2.7 million, respectively.
The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation and amortization are removed from their respective accounts,
and any gain or loss on such sale or disposal is reflected in loss from operations.
Software Development Costs
We capitalize costs related to software developed or obtained for internal use when certain criteria have
been met. Costs incurred during the application development stage for internal-use software are capitalized in
property and equipment and amortized over the estimated useful life of the software, generally up to three years.
As of December 31, 2013 and 2012, software development costs, net were approximately $2.6 million and
$2.9 million, respectively, which were recorded as software in property and equipment. In 2013, 2012 and 2011,
the amortization of software development costs capitalized totaled approximately $1.0 million, $1.2 million and
$0.7 million, respectively.
Goodwill
Goodwill represents the excess of the fair value of consideration paid over the estimated fair value of assets
acquired and liabilities assumed in a business acquisition. We test goodwill for impairment at least annually, or
more frequently if certain events or indicators of impairment occur between annual impairment tests. We
completed our annual impairment test in our fourth quarter of 2013, which did not result in any impairment. For
our annual goodwill impairment test, we perform a quantitative test of our single reporting unit. In the first step
of this test, goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s
carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit
was estimated using a market approach. If the carrying amount of the reporting unit exceeds its fair value, a
second step is performed to measure the amount of impairment loss, if any. In step two, the implied fair value of
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