TiVo 2008 Annual Report Download - page 70

Table of Contents
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. For the fiscal years ended January 31, 2009, 2008, and 2007, this amount was
immaterial. All other marketing co-op development payments are classified as a reduction of hardware revenues. Advertising expenses were 11%, 34%, and
17%, or $2.5 million, $27.9 million, and $15.9 million, of total acquisition costs for the fiscal years ended January 31, 2009, 2008, and 2007, respectively.
Included in these advertising expenses are $1.8 million, $21.0 million, and $12.8 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.
Income Taxes
The Company accounts for income taxes under the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." Effective
February 1, 2007, the Company adopted FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes—an Interpretation of FASB
Statement No. 109." Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting
bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.
Upon adoption of FIN 48, there was no cumulative effect from the adoption of FIN 48, which would be accounted for through retained earnings. FIN
48 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50%
likely of being realized upon ultimate settlement.
The Company's policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated
statements of operations.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments including accounts receivable, accounts payable, and accrued expenses
approximate their fair value because of their short maturities. Cash equivalents and available-for-sale marketable securities are reported at their fair value.
Business Concentrations and Credit Risk
The Company's business is concentrated in the United States and is dependant on discretionary consumer spending. Uncertainty or adverse changes in
the economy could lead to a significant decline in discretionary consumer spending, which, in turn, could result in a decline in the demand for the TiVo
service and TiVo-enabled DVRs. As a result of the recent national and global economic downturn, overall consumer spending has declined. Retailers in North
America appear to be taking a more conservative stance in ordering electronics inventory and consumers as well appear to be taking a more conservative
stance in discretionary purchases, including TiVo DVRs and service subscriptions. Any decrease in demand for the Company's products and services,
particularly during the critical holiday selling season, could have an adverse impact on our operating results and financial condition. Uncertainty and adverse
changes in the economy could also increase the risk of losses on the Company's investments, increase costs associated with developing and producing its
products, increase TiVo's churn rate per month, increase the cost and decrease the availability of potential sources of financing, and increase the Company's
exposure to losses from bad debts, any of which could have an adverse impact on the Company's financial condition and operating results.
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents, short-term and
long-term investments, and trade receivables. The Company currently invests the majority of its cash in U.S. Treasury Bills, U.S. Treasury funds, and money
market funds and maintains them with two financial institutions with a high credit rating. As of January 31, 2009, the Company also had $5.0 million of par
value investments with an auction reset feature (auction rate securities), of which $3.9 million in classified as long-term assets, as the Company recorded an
unrealized loss of marketable securities of $1.1 million. As part of its cash management
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