TiVo 2006 Annual Report Download - page 81

Table of Contents
Stock-Based Compensation
The Company has equity incentive plans and an Employee Stock Purchase Plan ("ESPP"), under which officers, employees, consultants, and
non-employee directors may be granted options to purchase shares of the Company's authorized but unissued or reacquired common stock, and may also be
granted restricted stock, performance based stock options and other stock awards. Currently, the Company grants options from (1) the 1999 Equity Incentive
Plan, under which options could be granted to all employees, including executive officers; and (2) the 1999 Non-Employee Directors' Stock Option Plan,
under which options are granted automatically to non-employee directors. In addition, TiVo's stock option program includes the 1997 Equity Incentive Plan,
from which the Company currently does not grant options, but may do so. Upon the exercise of options, the Company issues new common stock from its
authorized shares.
On February 1, 2006, the Company adopted the provisions of SFAS 123R, "Share-Based Payment", requiring TiVo to recognize expense related
to the fair value of the Company's stock-based compensation awards. SFAS No. 123R eliminates the option to account for stock-based compensation
transactions with employees using the intrinsic value method under Accounting Principle Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and instead requires that such transactions be accounted for using a fair-value based method.
TiVo elected to use the modified prospective transition method as permitted by SFAS 123R and therefore has not restated the Company's
financial results for prior periods. Under this transition method, stock-based compensation expense for the year ended January 31, 2007 includes
compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of February 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123. Stock-based compensation expense for all stock-based compensation awards granted or
modified subsequent to February 1, 2006 was based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.
The fair value of TiVo's restricted stock awards is calculated based on the fair market value of the Company's stock at the grant date. The fair
value of TiVo's stock options and ESPP awards is estimated using a Black-Scholes option valuation model. TiVo recognizes compensation expense for stock
option awards on a straight-line basis over the requisite service period of the award.
Research and Development
Research and development expenses, which consist primarily of employee salaries, related expenses, and consulting fees, are expensed as incurred.
Sales and Marketing
Sales and marketing expenses consist primarily of employee salaries and related expenses, media advertising, public relations activities, special
promotions, trade shows, and the production of product related items, including collateral and videos.
Advertising Costs
The Company expenses advertising costs related to its products and service as incurred. Marketing co-op development payments, where the Company
receives, or will receive, an identifiable benefit (goods or services) in exchange for the amount paid to its customer, and the Company can reasonably estimate
the fair value of the benefit it receives, are classified as marketing expense. All other marketing co-op development payments are classified as Rebates,
revenue share, and other payments to the channel. Advertising expenses were $15.9 million, $10.4 million, and $16.1 million for the fiscal years ended
January 31, 2007, 2006, and 2005, respectively. Included in these advertising expenses are $12.8 million, $7.9 million, and $13.7 million, respectively, related
to media placement costs.
Warranty Expense and Liability
The Company accrues for the expected material and labor costs required to provide warranty services on its hardware products. The Company's
warranty reserve liability is calculated as the total volume of unit sales over the warranty period, multiplied by the expected rate of warranty returns (based on
historical experience) multiplied by the estimated cost to replace or repair the customers' product returns under warranty.
Interest Expense and Other
Included in interest expense for the fiscal year ended January 31, 2005, are cash charges for coupon interest expense related to the convertible notes
payable. Also included in interest expense for the fiscal year ended January 31, 2005 is amortization of discount on the convertible notes payable and debt
issuance costs. Other expenses include fees for the bank line of credit and the letter of credit.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The Company considers future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. In light of the Company's history of
operating losses, the Company recorded a valuation allowance for all of its 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. Adjustments may be required in the future if it is
determined that the amount of deferred tax assets to be realized is greater than the amount recorded.
Comprehensive Loss
The Company has no material components of other comprehensive income or loss and, accordingly, the comprehensive loss is the same as the net loss
for all periods presented.