TiVo 2005 Annual Report Download - page 71

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Table of Contents
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The Company assesses the likelihood that
deferred tax assets will be recovered from future taxable income. In light of the Company's history of operating losses, the Company recorded a valuation
allowance for substantially all of our net deferred tax assets, as the Company is presently unable to conclude that it is more likely than not that the deferred tax
assets in excess of deferred tax liabilities will be realized. The Company considers future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the amount of the valuation allowance. Adjustments may be required in the future if it is determined that the amount of deferred tax
assets to be realized is greater or less than the amount recorded. The Company has established a 100% valuation allowances on its net deferred tax assets.
Stock Compensation
The Company has stock option plans and an Employee Stock Purchase Plan, under which officers, employees, consultants and non-employee directors
may be granted options to purchase shares of the Company's authorized but un-issued or reacquired common stock, and may also be granted restricted stock
and other stock awards. The Company's stock option plans are accounted for under the intrinsic value recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. During the fiscal year ended January 31, 2006, options to purchase
7,271,500 shares were granted under the Company's stock option plans at exercise prices equal to the market price of the underlying common stock on the
date of grant. During the fiscal year ended January 31, 2006, 38,138 shares of unvested restricted stock that previously had been granted to employees were
retired due to forfeiture resulting in a reversal of $626,000 of deferred compensation on the consolidated balance sheet. This offset an increase of $3.0 million
in deferred compensation that was recognized upon the following:
1. Issuance of 350,000 shares of restricted stock to the Chief Executive Officer, pursuant to his employment contract. The corresponding non-cash
stock compensation expense will be recognized ratably over the 48 month vesting period. These shares of restricted stock had a market value on
the date of issuance of $6.52 per share and vest 25% on each anniversary date of his employment with the first vesting to occur on July 1, 2006.
2. Issuance of a total of 130,000 shares of restricted stock to several of TiVo's executive management team for retention and incentive purposes. The
corresponding non-cash stock compensation expense will be recognized ratably over the 12 month vesting period. These shares of restricted stock
had a market value on the date of issuance of $5.02 per share and vest 100% on the one-year anniversary date of these agreements.
3. Acceleration of existing stock options for the Chief Financial Officer pursuant to his Employment Transition and Separation Agreement. The
corresponding non-cash stock compensation expense of $70,000 will be recognized ratably over the next 6 1/2 months, and will be fully amortized
upon the earlier of his termination date or April 15, 2006.
Pursuant to his employment contract, the Chief Executive Officer also was granted 1,000,000 shares of stock appreciation rights with an exercise price
of $6.52, which was the fair market value on the date of issuance. These stock appreciation rights vest ratably over 48 months. The Company did not record
any deferred compensation or non-cash stock compensation expense as of January 31, 2006, as the market value of the stock on that date was below the
exercise price. Deferred compensation will be re-measured quarterly based on the market value as of the last trading day of the quarter. Non-cash stock
compensation expense will be amortized on an accelerated basis over the vesting period of the individual award consistent with the method described in the
Financial Accounting Standards Board ("FASB") Interpretation 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award
Plans."
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