Chegg 2014 Annual Report Download - page 104

Table of Contents
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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 statement of operations. Depreciation and amortization expense for 2014,
2013 and 2012 were approximately $6.2 million, $5.7 million and $3.9 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, 2014 and 2013, software development costs, net were approximately $0.5 million and $2.6
million, respectively, which were recorded as software in property and equipment. In 2014, 2013 and 2012, the amortization of
software development costs capitalized totaled approximately $0.5 million, $1.0 million and $1.2 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 2014, 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
goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities.
In the event we determine that the fair value of our single reporting unit is less than the reporting unit’s carrying value, we will
record an impairment charge for the amount of the impairment in the period in which the determination is made.
Acquired Intangible Assets, and Other Long-Lived Assets
Acquired intangible assets with finite useful lives, which include developed technology, customer lists, trade names
and non-compete agreements, are amortized over their estimated useful lives.
We assess the impairment of acquired intangible assets and other long-lived assets when events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. Factors that we consider in determining
when to perform an impairment review include significant negative industry or economic trends or significant changes or
planned changes in the use of the assets. We measure the recoverability of assets that will continue to be used in operations by
comparing the carrying value of the asset grouping to the estimate of the related total future undiscounted net cash flows. If an
asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is measured
for impairment. The impairment is measured by comparing the difference between the asset grouping’s carrying value and its
fair value.
Indefinite-Lived Intangibles
We make judgments about the recoverability of purchased indefinite-lived intangible assets whenever events or
changes in circumstances indicate that an impairment may exist. Recoverability of indefinite-lived intangible assets is
measured by comparing the carrying amount of the asset to the future undiscounted cash flows that the asset is expected to
generate. We perform an annual impairment assessment on October 1 of each year for indefinite-lived intangible assets, or
more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying
value of the assets may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the
carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If we determine that an