Chegg 2013 Annual Report Download - page 124

CHEGG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Technology and Development Costs
Technology and development expenses consist primarily of salaries, benefits and stock-based compensation
expense for employees on our product and web design, engineering and technical teams who are maintaining our
website, developing new products and improving existing products. Technology and development costs also
include webhosting costs, third-party development costs and allocated information technology and facilities
costs. We expense substantially all of our technology and development costs as they are incurred.
Advertising Costs
Advertising costs are expensed as incurred and consist primarily of online advertising and marketing
promotional expenditures. During 2013, 2012 and 2011, advertising costs were approximately $16.4 million,
$21.1 million, and $14.7 million, respectively.
Stock-Based Compensation
Stock-based compensation expense for stock options and employee stock purchase plan, or ESPP, rights are
accounted for under the fair value method, which requires us to measure the cost of employee stock-based
compensation awards based on the grant-date fair value of the award. Stock-based compensation expense for
RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant.
We recognize compensation cost for all employee stock-based compensation awards that are expected to vest on
a straight-line basis over the requisite service period of the awards, which is generally the option vesting period.
These amounts are reduced by estimated forfeitures, which are estimated at the time of the grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
Equity awards issued to non-employees are recorded at their fair value on the measurement date and are
subject to adjustment each period as the underlying awards vest or consulting services are performed.
Income Taxes
We account for income taxes under an asset and liability method whereby deferred tax asset and liability
account balances are determined based on differences between the financial reporting and the tax basis of assets
and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to an
amount that is more-likely-than-not to be realized. We recognize the benefit from a tax position only if it is more-
likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax
position. Our policy is to include interest and penalties related to unrecognized tax benefits as a component of
income tax expense.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the
weighted-average number of shares of common stock outstanding during the period, less the weighted-average
unvested common stock subject to repurchase or forfeiture. Net loss attributable to common stockholders
includes the issuance of 11,667,254 shares of our common stock in the form of a deemed stock dividend to the
holders of our Series D and Series E convertible preferred stock of approximately $102.6 million. Diluted net
loss per share attributable to common stockholders is computed by giving effect to all potential shares of
common stock, including stock options, warrants, RSUs and convertible preferred stock prior to its conversion in
our IPO, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the
inclusion of all potential common shares outstanding would have been anti-dilutive.
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