Chegg 2013 Annual Report Download - page 96

Sales and Marketing
Our sales and marketing expenses consist of user and advertiser-facing marketing and promotional
expenditures through a number of targeted online marketing channels, sponsored search, display advertising,
email marketing campaigns and other initiatives. We incur salaries, benefits and stock-based compensation
expenses for our employees engaged in marketing, business development and sales and sales support functions
required for enrollment marketing services and amortization of acquired intangible assets and allocated
information technology and facilities costs. Our marketing expenses are largely variable; and we tend to incur
these in the first and third quarters of the year due to our efforts to target students at the beginning of academic
terms. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix
of these channels shifts, we would expect to see a corresponding change in our marketing expense. Sales and
marketing expenses also include lead generation services and sales commissions for our enrollment marketing
services and brand advertising.
General and Administrative
Our general and administrative expenses consist of salaries, benefits and stock-based compensation expense
for certain executives as well as our finance, legal, human resources and other administrative employees. In
addition, general and administrative expenses include outside consulting, legal and accounting services, provision
for doubtful accounts and allocated information technology and facilities costs. We expect to incur additional costs
related to operating as a public company including increased audit, legal, regulatory and other related fees.
Loss (Gain) on Liquidation of Textbooks
Loss (gain) on liquidation of textbooks consists of proceeds we receive from the sale of previously rented
print textbooks, through our website or to wholesalers and other channels, offset by the net book value of such
textbooks. Our loss (gain) on liquidation of textbooks is driven by several factors including age of the books
liquidated, the volume of books liquidated at a given point in time and the channel through which we liquidate.
When the proceeds received exceed the net book value of the textbooks liquidated we record a gain on
liquidation of textbooks.
Interest and Other Expense, Net
Interest and other expense, net consists primarily of interest expense on our debt obligations, changes in the fair
value of our preferred stock warrants and interest income on our cash and cash equivalents and investment balances. At
the time of our IPO in November 2013, the preferred stock warrants were converted into common stock warrants and
will not be revalued in the future. In addition, on November 18, 2013, we repaid our revolving credit facility in full.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists primarily of federal and state income taxes in the United States
and income taxes in foreign jurisdictions in which we conduct business. Due to the uncertainty as to the
realization of the benefits of our domestic deferred tax assets, we have recorded a full valuation allowance
against such assets.
Certain Accounting Effects Resulting from our IPO
The completion of our IPO resulted in certain accounting effects and cash tax payments related to 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 valued at approximately $102.6 million and the stock-based
compensation expense associated with RSUs that we had granted prior to our IPO that will now vest as a result of
the completion of our IPO. These RSUs vest upon satisfaction of both a time-based service component and a
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