Chegg 2015 Annual Report Download - page 108

Table of Contents
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Technology and Development
Technology and development expenses consist primarily of salaries, benefits and share-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 web hosting 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
Advertising
Advertising costs are expensed as incurred and consist primarily of online advertising and marketing promotional
expenditures. During 2015, 2014 and 2013, advertising costs were approximately $25.0 million, $22.4 million, and $16.4
million, respectively
Share-based
Share-based compensation expense for stock options, restricted stock units (RSUs), performance-based restricted stock
units (PSUs) and employee stock purchase plan (ESPP) are accounted for under the fair value method, which requires us to
measure the cost of employee share-based compensation awards based on the grant-date fair value of the award. Share-based
compensation expense for stock options and our ESPP is estimated at the date of grant using the Black-Scholes-Merton option
pricing model while expense for RSUs and PSUs 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 share-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 T
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.
Restructuring Charges
Restructuring charges are primarily comprised of severance costs, contract and program termination costs, asset
impairments and costs of facility consolidation and closure. Restructuring charges are recorded upon approval of a formal
management plan and are included in the operating results of the period in which such plan is approved and the expense
becomes estimable. To estimate restructuring charges, management utilizes assumptions of the number of employees that would
be involuntarily terminated and of future costs to operate and eventually vacate duplicate facilities. Severance and other
employee separation costs are accrued when it is probable that benefits will be paid and the amount is reasonably estimable.
The rates used in determining severance accruals are based on our policies and practices and negotiated settlements.
Restructuring charges for employee workforce reductions are recorded upon employee notification for employees whose
required continuing service period is 60 days or less and ratably over the employee’s continuing service period for employees
whose required continuing service period is greater than 60 days.
Strategic Investments
We have entered into an equity investment in a privately-held business to achieve certain strategic business objectives.
Our investment in equity securities of this privately-held business is accounted for under the cost method. We periodically
review these investments for other-than-temporary declines in fair value based on the specific identification method and write
down investments when an other-than-temporary decline has occurred. Any fair value estimates are made based on
consideration of the current cash position, recent operational performance, and forecasts of the investees.