TiVo 2008 Annual Report Download - page 48

Table of Contents
Critical Accounting Estimates
Critical accounting estimates are those that reflect significant judgments and uncertainties, and may potentially result in materially different results
under different assumptions and conditions. We base our discussion and analysis on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles as described in Item 8. Note 2. "Summary of Significant Accounting Policies" in the notes to
our consolidated financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect our reported
amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates.
We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. The results of this analysis
form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
materially differ from these estimates under different assumptions or conditions. For a detailed discussion on the application of these and other accounting
estimates, see Item 8. Note 2. "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements.
Recognition Period for Product Lifetime Subscriptions Revenues. From time-to-time TiVo has offered for general sale a product lifetime subscription
option for the life of the DVR for a one-time, prepaid payment. During the first quarter of fiscal year ended January 31, 2007, we discontinued general sale of
the product lifetime service option. During the fourth quarter ended January 31, 2008 we began offering product lifetime service subscriptions only to existing
customers. During the quarter ended April 30, 2008, we began offering product lifetime service subscriptions to all customers. We perform a quarterly
quantitative analysis of the expected life of a product lifetime subscription which incorporates historical and future churn rates. Effective November 1, 2007,
we extended the period we use to recognize product lifetime subscription revenues from 48 months to 54 months for product lifetime subscriptions acquired
on or before October 31, 2007 and such change is being recognized on a prospective basis. This change resulted in a reduction of service revenues of $2.5
million for the quarter and fiscal year ended January 31, 2008. During the quarter ended January 31, 2009, we extended the period used to recognize product
lifetime subscription revenues for the product lifetime subscriptions acquired on or before October 31, 2007 from 54 months to 60 months, resulting in a
reduction of service revenue of $1.7 million. Additionally, in the quarter ended January 31, 2008, we increased the amortization period to 60 months for new
product lifetime subscriptions acquired on or after November 1, 2007. The new estimates of expected lives are dependant on assumptions with regard to future
churn of the product lifetime subscriptions. As of January 31, 2009, 225,000 product lifetime subscriptions have exceeded the period we use to recognize
product lifetime subscription revenues and had made contact with the TiVo service within the prior six month period. This represents approximately 34% of
our cumulative lifetime subscriptions as compared to 26% for the fiscal year ended January 31, 2008. During fiscal year ending January 31, 2010, we will
continue to monitor the useful life of a TiVo-enabled DVR and the impact of the differences between actual churn and forecasted churn rates. If subsequent
actual experience is not in line with our current assumptions, including higher churn of product lifetime subscriptions due to the incompatibility of our
standard definition TiVo units with high definition programming and increased competition, we may revise the estimated life which could result in the
recognition of revenues from this source over a longer or shorter period.
Engineering Services Project Cost Estimates. We recognize revenues for software engineering services that are essential to the functionality of the
software or involve significant customization or modification using the percentage-of-completion method, as described in Statement of Position (SOP) 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type Contracts." We recognize revenue by measuring progress toward
completion based on the ratio of costs incurred, principally labor, to total estimated costs of the project, an input method. In general, these contracts are long-
term and complex. We believe we are able to make reasonably dependable estimates based on historical experience and various other assumptions that we
believe to be reasonable under the circumstances. These estimates include forecasting of costs and schedules, projecting cost to complete, tracking progress of
costs incurred to date, and projecting the remaining effort to complete the project. Costs included in engineering services are labor, materials, and overhead
related to the specific activities that are required for the project. Costs related to general infrastructure or platform development are not included in the
engineering services project cost estimates. These estimates are assessed continually during the term of the contract and revisions are reflected when the
conditions become known. In some cases, we have accepted engineering services contracts that were expected to be losses at the time of acceptance.
Provisions for all losses on contracts are recorded when estimates determine that a loss will be incurred on a contract. Using different cost estimates, or
different methods of measuring progress to completion, engineering services revenues and expenses may produce materially different results. A favorable
change in estimates in a period could result in additional revenue and profit, and an unfavorable change in estimates could result in a reduction of profit or the
recording of a loss that would be borne solely by TiVo. For the fiscal year ended January 31, 2009 the majority of our technology revenues are related to
Comcast and international development agreements.
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