TiVo 2003 Annual Report Download - page 23

Table of Contents
Critical Accounting Estimates
Critical accounting estimates are those that reflect significant judgments and uncertainties, and 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 Note 1. 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 on-
going 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 Lifetime Subscriptions Revenues
TiVo offers a lifetime subscription option for the life of the DVR for a one-time, upfront payment. We recognize subscription revenues from lifetime
subscriptions ratably over a four-year period, based on our estimate of the useful life of these DVRs. If the useful life of the recorder were shorter or longer
than four-years, we would recognize revenues earlier or later. As of January 31, 2004, approximately 1% of our total installed subscription base was product
lifetime subscriptions that had reached the end of the four-year period we use to recognize lifetime subscription revenues. We continued to incur costs of
services for these subscriptions without corresponding revenue. Our product is still relatively new and as we gather more user information, we might revise
this estimated life.
Engineering Professional Services Project Cost Estimates
For engineering professional services that are essential to the functionality of the software or involve significant customization or modification, we
recognize revenues using the percentage-of-completion method, as described in 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 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 are believed to be reasonable under the circumstances. These estimates include forecasting of
costs and schedules, estimating contract revenue related to contract performance, projecting cost to complete, tracking progress of costs incurred to date, and
projecting the remaining effort to complete the project. Costs included in engineering professional 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
professional services project cost estimates. These estimates are assessed continually during the term of the contract and revisions are reflected when the
conditions become known. Provisions for losses on contracts are recorded when estimates determine that a loss will be incurred on a contract. In some cases,
we have accepted engineering professional service contracts that were expected to be losses at the time of acceptance in order to gain experience in
developing new technology that could be used in future products and services. Using different cost estimates, or different methods of measuring progress to
completion, engineering professional 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 revenue and profit or the recording of a loss
that would be borne solely by TiVo.
Consumer Rebate Redemption Rates
In accordance with Emerging Issues Task Force (EITF) 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller
of the Vendors Products)", we record an estimated potential liability for our consumer rebate program that is based on the percentage of customers that were
reimbursed for the rebate for similar programs and adjust estimates to consider actual redemptions. The consumer rebates are recognized as "rebates, revenue
share, and other payments to channel" in our consolidated financial statements.
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