TeleNav 2014 Annual Report Download - page 54

Table of Contents
Operating expenses
We classify our operating expenses into three categories: research and development, sales and marketing and general and administrative. In
addition, in fiscal 2013 and 2014 we incurred restructuring costs primarily related to severance and benefits expense associated with reductions
in workforce and facility exit costs associated with consolidation of facilities. Our operating expenses consist primarily of personnel costs, which
include salaries, bonuses, advertising sales commissions, payroll taxes, employee benefit costs and stock-based compensation expense. Other
expenses include marketing program costs, third party contractor and temporary staffing services, facilities-related costs including rent expense,
legal, audit and tax consulting and other professional service fees. We allocate stock-based compensation expense resulting from the
amortization of the fair value of stock-based awards granted, based on the department in which the award holder works. We allocate overhead,
such as rent and depreciation, to each expense category based on headcount. Our operating expenses have stabilized in absolute dollars in the
past fiscal year, as we have reduced certain headcount and achieved greater operational effectiveness in supporting our traditional mobile
navigation services. Despite our recent restructuring efforts, we expect that certain costs will continue to increase over time, including
compensation and related costs; however, we are continuing to evaluate spending in certain areas and to take actions to create greater
efficiencies. We anticipate continued investment of resources, including the hiring of additional headcount in, or reallocation of employee
personnel into, our growth areas, which include automotive and mobile advertising, with a recent emphasis on hiring advertising sales personnel
and related support functions.
Research and development . Research and development expenses consist primarily of personnel costs for our development employees and
costs of outside consultants and temporary staffing. We have focused our research and development efforts on improving the ease of use and
functionality of our existing services, as well as developing new service and product offerings in our existing markets and in new markets. A
significant number of our research and development employees are located in our development centers in China and, as a result, a portion of our
research and development expense is subject to changes in foreign exchange rates, notably the Chinese Renminbi, or RMB. In addition, with the
January 2014 acquisition of skobbler, we also incur research and development expenses in the Romanian Leu.
Sales and marketing . Sales and marketing expenses consist primarily of personnel costs for our sales, product management and marketing
staff, commissions earned by our sales personnel and the cost of marketing programs, advertising and promotional activities. Historically, a
majority of our revenue has been derived from wireless carriers, which bore much of the expense of marketing and promoting our services to
their subscribers, as well as consumers acquired through open market application stores. More recently, our automotive and advertising revenue
have represented the most rapidly growing components of our revenue, and we have invested in building our advertising sales team. Our sales
and marketing activities supporting our automotive navigation services include product management and business development efforts. Our
automotive manufacturer partners and OEMs also provide primary marketing for our on-board and off-board navigation services at the time a
vehicle is sold to their end customer.
General and administrative . General and administrative expenses consist primarily of personnel costs for our executive, finance, legal,
human resources and administrative personnel, legal, audit and tax consulting and other professional services and corporate expenses.
Other income, net . Other income, net consists primarily of interest we earn on our cash and cash equivalents and short-term investments,
gain or loss on investments and foreign currency transaction gain or loss.
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 (benefit) for income taxes . Our provision (benefit) for income taxes primarily consists of corporate income taxes related to
profits or losses earned in the United States or corporate income tax refunds expected to be derived from losses incurred in the United States that
may be carried back. Our effective tax rate could fluctuate significantly from year to year, particularly in those years in which we incur losses,
due to our ability to benefit from the carryback of net operating losses within the carryback period and the available amount therein, if any.
Furthermore, on a quarterly basis our tax rates can fluctuate 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 or loss projections, changes in the
valuation of our deferred tax assets or liabilities, 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
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