Chegg 2015 Annual Report Download - page 93

Table of Contents
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Depreciation expense and write-offs of print textbooks are recorded in cost of revenues in our consolidated statements of
operations. During the years ended December 31, 2015, 2014 and 2013, our print textbook library depreciation expense was
approximately $43.6 million, $70.1 million and $64.8 million, respectively, and write-offs were approximately $5.3 million,
$10.5 million and $5.9 million, respectively.
Impairment of Acquired Intangible Assets and Other Long-Lived Assets
We assess the impairment of acquired intangible assets and other long-lived assets at least annually and whenever 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. When measuring the recoverability of these assets, we will make
assumptions regarding our estimated future cash flows expected to be generated by the assets. If our estimates or related
assumptions change in the future, we may be required to impair these assets. During the fourth quarter of 2014, we determined
that we would not continue to support or look to expand our print coupon business, resulting in a significant decrease in the
expected future cash flows. As a result an impairment analysis was performed based on a discounted cash flow analysis with
key assumptions based on the future revenues expected until the services were removed from our website. The analysis
indicated that the carrying amounts of the intangible assets acquired will not be fully recoverable, resulting in an impairment
charge totaling $1.6 million, which is included in sales and marketing operating expenses on our consolidated statements of
operations. As of December 31, 2015 and 2014, we had intangible assets, net, of $8.9 million and $13.6 million, respectively.
Goodwill
Goodwill is tested for impairment at least annually or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. We first assess qualitative factors to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test. In our qualitative assessment, we consider factors including economic
conditions, industry and market conditions and developments, overall financial performance and other relevant entity-specific
events in determining whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount.
Our qualitative assessment requires management to make a judgment based on the factors listed above in our determination.
Should we conclude that it is more likely than not that our recorded goodwill amounts have been impaired, we would perform a
two-step impairment test. The two-step impairment test requires us to perform a valuation of our goodwill. When performing
the valuation of our goodwill, we make assumptions regarding our estimated future cash flows to determine the fair value of
our business. If our estimates or related assumptions change in the future, we may be required to record impairment loss related
to our goodwill. We have not recognized any impairment of goodwill since our inception. As of each of December 31, 2015 and
2014, we have goodwill of $91.3 million.
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. 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. The assumptions and estimates used to
determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective.
They can be affected by various factors, including external factors such as industry and economic trends, and internal factors
such as changes in our business strategy and our forecasts for specific product lines.
Share-based Compensation
We measure and recognize share-based compensation expense for all awards made to employees, directors and
consultants, including stock options, RSUs, performance-based RSUs (PSUs) and our employee stock purchase plan (ESPP)
based on estimated fair values.
The fair value of stock options and shares to be purchased under our ESPP is estimated at the date of grant using the
Black-Scholes-Merton option pricing model which includes assumptions for the expected term, risk-free interest rate, expected
volatility and expected dividends.
The Black-Scholes-Merton option pricing model utilizes the fair value of our common stock based on an active market
and requires the input of subjective assumptions, including the expected term and the price volatility of the underlying stock.