TeleNav 2012 Annual Report Download - page 49

Table of Contents
Income from discontinued operations, net . Income from discontinued operations, net consists of results of operations of our enterprise
business, which was sold in April 2013.
Provision for income taxes . Our provision for income taxes primarily consists of corporate income taxes related to profits earned in the United
States. Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected by increases in nondeductible stock
compensation or other nondeductible expenses. Our effective tax rate could also fluctuate due to a change in our earnings projections, changes in the
valuation of our deferred tax assets or liabilities, changes in our ability to benefit from the carryback of net operating losses within the carryback
period, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.
Critical accounting policies and estimates
We prepare our consolidated financial statements in accordance with GAAP. In many cases, the accounting treatment of a particular transaction
is specifically dictated by GAAP and does not require our judgment in its application. In other cases, our judgment is required in selecting among
available alternative accounting policies that allow different accounting treatment for similar transactions. The preparation of consolidated financial
statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and
related disclosures. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the
circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates
are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our
management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial
condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding
our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.
Revenue recognition . We generate revenue primarily from service subscriptions, including premium offerings, fixed fee arrangements and
software licenses. We also generate revenue from the delivery of search and display advertising impressions.
We recognize revenue when persuasive evidence of an arrangement exists, delivery of the service or product has occurred, the fee is fixed or
determinable and collectability is reasonably assured. We derive our revenue primarily from subscriptions to access our mobile navigation services,
which are generally provided through our wireless carrier customers that offer our services to their subscribers or through application stores. Our
wireless carrier customers pay us based on several different revenue models, including (1) a revenue sharing arrangement that may include a
minimum fee per end user, (2) a fixed fee for any number of subscribers (up to specified thresholds) receiving our services as part of bundles with
other voice and data services, (3) a monthly or annual subscription fee per end user, or (4) based on usage. Our end users who subscribe to our
services through application stores pay us a monthly or annual subscription fee.
We recognize monthly fees related to our mobile navigation services in the month we provide the services. We defer amounts received in
advance of the service being provided and recognize the deferred amounts when the monthly service has been provided. We recognize revenue for
fixed fees for any number of subscribers receiving our services as part of bundles monthly on a straight-
line basis over the term of the agreement. Our
agreements do not contain general rights of refund once the service has been provided. We also establish allowances for estimated credits
subsequently issued to end users by our wireless carrier customers.
We recognize as services revenue the amount our wireless carrier customers report to us as we provide our services, which are net of any
revenue sharing or other fees earned and deducted by our wireless carrier customers. We are not the principal provider when selling access to our
mobile navigation services through our wireless carrier customers as the subscribers directly contract with our wireless carrier customers. In addition,
we may earn a fixed fee or fixed percentage of fees charged by our wireless carrier customers and our wireless carrier customers have the sole ability
to set the price charged to their subscribers for our service. Our wireless carrier customers have direct responsibility for billing and collecting those
fees from their subscribers and we and our wireless carrier customers may offer subscribers a 30-day free trial for our service. For end users who
purchase our navigation services through application stores we utilize the application store billing process. We provide tiered pricing to certain of our
wireless carrier customers based on the number of paying end users in a given month, which may result in a discounted fee per end user depending
on the number of end users. Revenue recognized is based on the discounted fees earned for a given period.
43