TiVo 2006 Annual Report Download - page 79

Table of Contents
For the monthly programs introduced on March 15, 2006, the Company concluded it was appropriate to charge the related hardware costs to cost
of hardware revenues upon shipment of the DVR. Effective February 1, 2006, the Company changed its accounting policy for the recognition of DVR costs
for prepaid bundled sales arrangements to charge the entire cost of the hardware to cost of revenues upon shipment. Previously, the Company deferred the
portion of the hardware costs exceeding the recognized revenue allocated to the hardware element and amortized such costs over the period of the
subscription. All prior periods were adjusted to reflect this change in this accounting policy. See Change in Accounting Policy section below.
Rebates, Revenue Share, and Other Payments to Channel. In accordance with EITF 01-09, "Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendors Products)", certain payments to retailers and distributors such as market development funds and revenue
share are shown as a reduction of revenue rather than as a sales and marketing expense. TiVo's policy is to reduce revenue when these payments are incurred
and fixed or determinable. The Company also records rebates offered to consumers as a reduction to revenue. The Company adjusts its rebate liability
periodically for changes in redemption rates, changes in duration and amounts of rebate programs and channel inventory quantities subject to such changes.
Deferred Revenues. Deferred revenues consists of unrecognized service and technology fees that have been collected, but the related service has
not yet been provided or unrecognized fees received under multiple-element arrangements in which VSOE of fair value does not exist for the undelivered
elements of an arrangement.
Change in Accounting Policy
Recognition of Hardware Costs and Bundled Sales Programs
Effective February 1, 2006, the Company changed its method of accounting for the recognition of hardware costs in bundled sales programs
where the customer prepays the arrangement fee. Previously, to the extent that the cost of the DVR exceeded the revenue allocated to the DVR, the excess
costs were deferred and amortized over the period of the subscription. In this prepayment plan, the Company received the cash upfront from consumers,
which allowed the Company to elect deferral of hardware costs over the service period. The Company now expenses all hardware costs upon shipment of the
DVR (direct expense method).
The Company determined that the direct expense method was preferable to the prior accounting method because the Company believes: it is
consistent with the accounting practices of competitors and companies within similar industries; it adds to the clarity and ease of understanding of the
Company's reported results to investors; and it is consistent with the recognition of hardware costs for bundled monthly sales programs. The Company
recorded the change in method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 154, "Accounting Changes and
Error Corrections." SFAS 154 requires that all elective accounting changes be made on a retrospective basis. The impact of adopting the direct expense
method resulted in approximately $700,000 increase to net loss for the fiscal year ended January 31, 2007. The tables below detail the impact of this
accounting policy change on the Company's fiscal year ended January 31, 2006 consolidated financial statements by effected line items, which were filed on
July 21, 2006, on a current report on Form 8-K.
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