TiVo 2008 Annual Report Download - page 43

Table of Contents
(7) The results of operations for the quarter ended July 31, 2007 included an $11.2 million charge to cost of hardware sales which were recorded as a result
of slower than expected sales of standard definition DVRs and the resulting changes in our sales forecast.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the consolidated financial statements and the notes included elsewhere in
this annual report and the section "Risk Factors" in Item 1A, as well as other cautionary statements and risks described elsewhere in this report, before
deciding to purchase, sell or hold our common stock.
Executive Overview and Outlook of Financial Results
In the fiscal year ended January 31, 2009 TiVo recorded net income of $103.6 million, which included a receipt of $103.3 million, net of tax, in
litigation proceeds and interest from EchoStar. The net income for the fiscal year ended January 31, 2009 reflects $104.6 million in litigation proceeds
received from EchoStar. This amount was recorded as $(87.8) million in litigation proceeds within the operating expenses section of the consolidated
statement of operations and $16.8 million in interest income. Additionally, we recorded $1.3 million in tax expense related to the receipt of these monies.
There is no similar transaction recorded in the consolidated statement of operations for the fiscal year ended January 31, 2008. As of January 31, 2009, the
Company had over $200 million in cash, cash equivalents, and short-term investments and no debt.
During the fiscal year ended January 31, 2009, our service revenues decreased by 11% or $23.1 million over the prior fiscal year due to a decrease of
91,000 TiVo-Owned subscriptions combined with an increase in the number of months over which we recognize product lifetime subscription revenues.
Additionally, we continue to experience a decline in our MSOs/Broadcaster installed subscription base resulting in a decrease to our total cumulative
subscription base. The loss of MSOs/Broadcaster subscriptions is a result of DIRECTV not currently deploying new TiVo boxes and our mass distribution
deals with Comcast, Cox, and DIRECTV being still in development and/or the early phases of deployment.
Due to current economic conditions, on November 18, 2008, we reduced our operational expenses, primarily through a reduction in headcount of
approximately 7% or 37 employees. We incurred pre-tax charges of approximately $1.0 million, for employee-related severance benefits and out-placement
costs in the quarter and fiscal year ended January 31, 2009. We expect annual savings of approximately $5.1 million as a result of this reduction in headcount.
In this fiscal year ending January 31, 2010, we expect to continue our efforts to add new subscriptions through our mass distribution partnerships such
as Comcast and through our TiVo-Owned direct and retail sales. However, we expect continued losses in our installed base of MSOs/Broadcasters
subscriptions as DIRECTV will not deploy new TiVo boxes prior to the launch of the new HD platform described in the Significant Relationships section of
Item 1. Business, and our mass distribution deals with Comcast, Cox, and Seven (Australia and in the future New Zealand) are still in development and/or the
early phases of deployment.
Service revenues may well be lower in the fiscal year ending January 31, 2010 than in fiscal year 2009 as revenues from new TiVo-Owned
subscriptions are expected to be more than offset by the continued decline of product lifetime subscription related revenues as such revenues become fully
recognized. Additionally, mass distribution partnerships including Comcast, Cox, Seven (Australia and in the future New Zealand), and others are in the early
phases of development or deployment and will be more than offset by our continued subscription losses from our DIRECTV subscriptions, as the HD
DIRECTV DVR with TiVo service will not be available until calendar year 2010.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial performance
in our business. Management monitors these metrics together and not individually as it does not make business decisions based upon any single metric.
Subscriptions. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our relative position in the marketplace
and to forecast future potential service revenues. Below is a table that details the change in our subscription base during the last three fiscal years. The TiVo-
Owned lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled DVRs and for which TiVo incurs acquisition
costs. The MSOs/Broadcasters lines refer to subscriptions sold to consumers by MSOs/Broadcasters such as DIRECTV, Cablevision Mexico, and Comcast
and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the percent of TiVo-Owned subscriptions for
which consumers pay recurring fees, including on a monthly and a prepaid one, two, or three year basis, as opposed to a one-time prepaid product lifetime fee.
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