Chegg 2014 Annual Report Download - page 103

Table of Contents
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Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash
equivalents, restricted cash, and marketable securities invested in highly liquid instruments in accordance with our investment
policy. We place the majority of our cash and cash equivalents and restricted cash with financial institutions in the United States
that we believe to be of high credit quality, and accordingly minimal credit risk exists with respect to these instruments. Certain
of our cash balances held with financial institutions are in excess of Federal Deposit Insurance Corporation, or FDIC, limits.
Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers. Our
investments are held and managed by recognized financial institutions that follow our investment policy with the main
objective of preserving capital and maintaining liquidity.
Concentrations of credit risk with respect to trade receivables exist to the full extent of amounts presented in the
financial statements. We had two textbook wholesalers that represented 16% and 12% of our net accounts receivable balance as
of December 31, 2014 and one textbook wholesaler that represented 11% of our net accounts receivable balance as of
December 31, 2013, respectively. No customers represented over 10% of net revenues in 2014, 2013 or 2012.
Textbook Library
We consider our textbook library to be a long-term productive asset and, as such, classify it as a non-current asset in
our consolidated balance sheets. Additionally, cash outflows for the acquisition of the textbook library, net of changes in related
accounts payable and accrued liabilities, as well as cash inflows received from the liquidation of textbooks, are classified as
cash flows from investing activities in our consolidated statements of cash flows, consistent with other long-term asset activity.
The gain or loss from the liquidation of textbooks previously rented is recorded as a component of operating expenses in our
consolidated statement of operations and is classified as cash flow from operating activities.
All textbooks in our textbook library are stated at cost, which includes the purchase price less accumulated
depreciation.
We record allowances for lost or damaged textbooks in cost of revenues in our consolidated statements of operations
based on our assessment of our textbook library on a book-by-book basis. Factors considered in the determination of textbook
allowances include historical experience, management’s knowledge of current business conditions and expectations of future
demand. Write-offs result from lost or damaged books, books no longer considered to be rentable, or when books are not
returned to us after the rental period by our customers.
We depreciate our textbooks, less an estimated salvage value, over an estimated useful life of three years using an
accelerated method of depreciation, as we estimate this method most accurately reflects the actual pattern of decline in the
economic value of the assets. The salvage value considers the historical trend and projected liquidation proceeds for textbooks.
The useful life is determined based on the time period in which the textbooks are held and rented before liquidation. In
accordance with our policy, we review the estimated useful lives of our textbook library on an ongoing basis.
Depreciation expense and write-offs of textbooks are recorded in cost of revenues in our consolidated statements of
operations. During 2014, 2013 and 2012, textbook depreciation expense was approximately $70.1 million, $64.8 million and
$57.2 million, respectively, and write-offs were approximately $10.5 million, $5.9 million and $4.6 million, respectively.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 years
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shorter of the remaining lease term or the estimated useful life of 5 years
Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years