TiVo 2013 Annual Report Download - page 75

Software development costs incurred as part of an approved project plan that result in additional functionality to internal use software are
capitalized and amortized on a straight-line basis over the estimated useful life of the software, between one and five years.
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The Company has goodwill in the amount of $12.3 million which represents the excess of the purchase price of its acquisitions over the
fair value of the identified net tangible and intangible assets. The goodwill recognized in these acquisitions was derived from expected benefits
from future technology, cost synergies, and a knowledgeable and experienced workforce who joined the Company after these acquisitions.
Goodwill is not amortized, but is tested instead for impairment. The majority of goodwill is not expected to be tax deductible for income tax
purposes.
Goodwill is tested for impairment on an annual basis (on December 31) using a two-step model. The first step, identifying a potential
impairment, compares the fair value of the reporting unit with its carrying amount. Management has determined that the Company has one
reporting unit. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no
further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair
value of the goodwill with the carrying amount of that goodwill. Any excess of the goodwill carrying value over the respective implied fair
value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. In each period presented the fair
value of the reporting unit exceeded its carrying value, thus the we were not required to perform the second step of the analysis, and no
goodwill impairment charges were recorded.
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Purchased intangibles are definite-lived intangible assets which are amortized on a straight-line basis over their estimated useful lives.
Useful lives generally range from two to seven years. Purchased intangibles include intangible assets subject to amortization, such as patent
rights and developed technology. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. We measure recoverability of long-lived assets by comparing the carrying amount of
the asset group to the future undiscounted net cash flows expected to be generated by those assets. An asset group is a group of assets and
liabilities including the long lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
assets and liabilities. If such assets are considered to not be recoverable, we recognize an impairment charge for the amount by which the
carrying amounts of the assets exceeds the fair value of the assets. Fair value is estimated based on discounted future cash flows.
The Company recognized non-cash impairment charges of $4.5 million in the three and twelve months ended January 31, 2014 related
to intangible assets acquired as part of the TRA acquisition. The lower than expected profitability indicated that the carrying value of these
assets exceeded their estimated fair values as determined by future discounted cash flow projections. When projecting the stream of future
cash flows associated with TRA for purposes of determining long-lived asset recoverability, management makes assumptions, incorporating
market conditions, sales growth rates, gross profit, and operating expenses.
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The Company makes certain estimates in determining income tax expense for financial statement purposes. These estimates occur in
the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and
financial statement purposes. From time-to-time, TiVo evaluates the expected realization of its deferred tax assets and determine whether a
valuation allowance needs to be established or released. In determining the need for and amount of our valuation allowance, the Company
assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income and estimates of future income.
TiVo's estimates of future income include its internal projections and various internal estimates and certain external sources which it
believes to be reasonable but that are unpredictable and inherently uncertain. Management also considers the jurisdictional mix of income
and loss, changes in tax regulations in the period the changes are enacted and the type of deferred tax assets and liabilities. In assessing
whether a valuation allowance needs to be established or released, management uses judgment in considering the cumulative effect of
negative and positive evidence and the weight given to the potential effect of the evidence. Recent historical income or loss and future
projected operational results have the most influence on the Company's determination of whether a deferred tax valuation allowance is
required or not.
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The Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated statements of operations.
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