TeleNav 2015 Annual Report Download - page 96

Table of Contents TELENAV, INC.
Notes to Consolidated Financial Statements—(Continued)
Leases
We lease our office facilities under operating lease agreements. Office facilities subject to an operating lease and the related lease
payments are not recorded on our consolidated balance sheet. The terms of certain lease agreements provide for rental payments on a graduated
basis; however, we recognize rent expense on a straight-line basis over the lease period in accordance with authoritative accounting guidance.
Any lease incentives or contracted sublease income are recognized as reductions of rental expense on a straight-line basis over the term of the
lease. The lease term begins on the date we become legally obligated for the rent payments or when we take possession of the office space,
whichever is earlier. As of June 30, 2015 and 2014 , we had a total of $5.5 million and $7.5 million , respectively, in deferred rent related to
tenant improvement lease incentives and graduated rent payments recorded as liabilities on our balance sheets. In addition, as of June 30, 2015
and 2014, we had a total of $2.6 million and $2.7 million , respectively, in accrued facility exit costs relating to our operating lease
arrangements. See Note 12 for a discussion of our restructuring actions.
Stock-based compensation
We account for stock-based employee compensation arrangements under the fair value recognition method, which requires us to measure
the stock-based compensation costs of share-based compensation arrangements based on the grant-date fair value, and recognize the costs in the
financial statements over the employees’ requisite service period. We recognize compensation expense for the fair value of these awards with
time-based vesting on a straight-line basis over the employee’s requisite service period of each of these awards, net of estimated forfeitures.
Equity instruments issued to nonemployees are recorded at their fair value on the measurement date and are subject to periodic adjustment
as the underlying equity instruments vest.
Income taxes
We utilize the liability method of accounting for income taxes, whereby deferred tax asset or liability account balances are calculated at the
balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation
allowances are provided when necessary to reduce deferred tax assets to the amount that will more likely than not be realized.
Research and software development costs
We expense research and development costs as incurred. We account for the costs of computer software we develop for internal use by
capitalizing qualifying costs, which are incurred during the application development stage, and amortizing those costs over the application’s
estimated useful life, which generally ranges from 18 to 24 months depending on the type of application. We capitalized none , none and
$948,000 of software development costs during fiscal 2015 , 2014 and 2013 , respectively. Amortization expense related to these costs, which
has been recorded in cost of revenue, totaled $97,000 , $1.0 million and $2.1 million for fiscal 2015 , 2014 and 2013 , respectively. In addition,
we wrote off none , none , and $112,000 of capitalized software development costs in fiscal 2015 , 2014 and 2013 , respectively, due to
impairment. As of June 30, 2015 and 2014 , unamortized capitalized software development costs, which were included in other assets, were
none
and $97,000 , respectively.
We also account for the costs of computer software we develop for customers requiring significant modification or customization by
deferring qualifying costs under the completed contract method. All such development costs incurred are deferred until the related revenue is
recognized. We deferred $802,000 , $943,000 and $1.3 million of software development costs during fiscal 2015 , 2014 and 2013 , respectively.
Development costs expensed to cost of revenue totaled $1.2 million , $922,000 and $4.9 million in fiscal 2015 , 2014 and 2013
, respectively. As
of June 30, 2015 and 2014 , deferred capitalized software development costs, which were included primarily in prepaid expenses and other
current assets, were $44,000 and $500,000 , respectively.
Advertising expense
Advertising costs are expensed as incurred. Advertising expense was $1.1 million , $2.0 million and $3.1 million in fiscal 2015 , 2014 and
2013 , respectively.
Recent accounting pronouncements
F-14