TiVo 2008 Annual Report Download - page 69

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Table of Contents
Beginning
Balance
Provision
for
Estimated
Returns
Actual
Returns
Ending
Balance
(in thousands)
Allowance for expect product returns:
Year Ended:
January 31, 2009 $ 2,193 $ 5,046 $ (6,274) $ 965
January 31, 2008 $ 2,726 $ 7,519 $ (8,052) $ 2,193
January 31, 2007 $ 1,694 $ 9,440 $ (8,408) $ 2,726
In accordance with EITF 01-09, certain payments to retailers and distributors such as market development funds and revenue share are shown as a
reduction of hardware revenues 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 of hardware 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.
The Company terminated its rebate programs on August 30, 2008 and the rebate liability at January 31, 2009 is minimal.
Beginning on March 15, 2006, the Company began selling the DVR and service directly to end-users through bundled sales programs through the TiVo
website. Under these bundled programs, the customer receives a DVR and commits to a minimum subscription period of one to three years or product lifetime
and has the option to either pay a monthly fee over the subscription term (monthly program) or to prepay the subscription fee in advance (prepaid program).
After the initial committed subscription term, the customers have various pricing options at which they can renew the subscription. The VOE of fair value of
the subscription services is established based on standalone sales of the service and varies by pricing plan. Under these bundled programs, revenue is now
allocated between hardware revenue for the DVR and service revenue for the subscription using the residual value method, with the DVR revenue recognized
upon delivery and the subscription revenue being initially deferred and recognized over the term of the service commitment.
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 2008 Equity Incentive
Award 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 1999 Equity Incentive
Plan and 1997 Equity Incentive Plan, from which the Company currently does not grant options. Upon the exercise of options, the Company issues new
common stock from its authorized shares.
The Company adopted the provisions of SFAS 123R, "Share-Based Payment" on February 1, 2006, using the modified prospective transition method.
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.
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