Tesla 2012 Annual Report Download - page 114

Table of Contents
Long-lived Assets
We evaluate our long-lived assets, including intangible assets, for indicators of possible impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed
the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would
be measured based on the excess carrying value of the asset over the asset’s estimated fair value. As of December 31, 2011, we have not
recorded any impairment losses on our long-lived assets.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses consist primarily of payroll, benefits and
stock-based compensation of those employees engaged in research, design and development activities, costs related to design tools, license
expenses related to intellectual property, supplies and services, depreciation and other occupancy costs. Also included in research and
development are development services costs incurred, if any, prior to the finalization of agreements with our development services customers as
reaching a final agreement and revenue recognition is not assured. Development services costs incurred after the finalization of an agreement are
recorded in cost of revenues.
Advertising and Promotion Costs
Advertising and sales promotion costs are expensed as incurred. During the years ended December 31, 2011, 2010 and 2009, advertising,
promotion and related marketing expenses were $2.9 million, $3.1 million and $1.7 million, respectively.
Income Taxes
Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
We record liabilities related to uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that
it is more likely than not that those positions may not be fully sustained upon review by tax authorities. Accrued interest and penalties related to
unrecognized tax benefits are classified as income tax expense.
Stock-based Compensation
We recognize compensation expense for costs related to all share-based payments, including stock options. The fair value of share-based
payment awards are estimated on the grant date using an option pricing model. Stock-based compensation expense is recognized on a straight-
line basis over the service period, net of estimated forfeitures.
We have elected to use the “with and without” approach in determining the order in which tax attributes are utilized. As a result, we will
only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax
attributes currently available to us have been utilized. In addition, we have elected to account for the indirect effects of stock-based awards on
other tax attributes, such as the research tax credit, through our consolidated statement of operations.
We account for equity instruments issued to non-employees based on the fair value of the awards. The fair value of the awards granted to
non-employees is re-measured as the awards vest and the resulting change in fair value, if any, is recognized in the consolidated statements of
operations during the period the related services are rendered.
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