TiVo 2003 Annual Report Download - page 24

Table of Contents
Valuation of Inventory
We maintain a finished goods inventory of TiVo-enabled DVRs throughout the year. We value inventory at the lower of cost or net realizable value
with cost determined on the first-in, first-out method. We base write-downs to inventories on changes in selling price of a completed unit. Estimates are based
upon current facts and circumstances and are determined in aggregate and evaluated on total pool basis. We continually monitor inventory valuation and
purchase commitments for potential losses in net realizable value.
Estimates Used in Complex Agreements
We have a number of related party transactions and commitments. Many of these transactions are complex and involve multiple elements and types of
consideration, including cash, debt, equity, and services. For example, our relationship with DIRECTV has historically included subscription revenue share
expense, engineering professional services revenue, common stock and warrants issued for services, and various platform subsidies. Many of our
arrangements require us to make estimations for the valuation of non-cash expenses, such as warrants issued for services, which must be assigned a value
using financial models that require us to estimate certain parameters. We have utilized our best estimate of the value of the various elements in accounting for
these transactions. Had alternative assumptions been used, the values obtained may have been materially different.
Results of Operations
Revenues. Our revenues (before rebates, revenue share, and other payments to the channel) for the fiscal years ended January 31, 2004, 2003, and 2002
as a percentage of total revenues were as follows:
Fiscal Year Ended January 31,
Revenues
2004 2003 2002
(In thousands, except percentages)
Service revenues $ 61,560 41% $ 39,261 37% $ 19,297 99%
Technology revenues 15,797 10% 20,909 20% 100 1%
Hardware revenues 72,882 49% 45,620 43% — —
Total revenues $ 150,239 $ 105,790 $ 19,397
Change from prior fiscal year 42% 445% NM
NM -Not meaningful
Of the total service revenues and technology revenues for the fiscal years ended January 31, 2004, 2003, and 2002, $19.7 million, $22.1 million, and
$100,000, respectively, were generated from related parties.
• Service Revenues. Service revenues for the fiscal year ended January 31, 2004 increased 57% or $22.3 million over the service revenues for the
fiscal year ended January 31, 2003. This increase was primarily due to the growth in our subscription base. Service revenues for the year ended
January 31, 2003 were $39.3 million, double the $19.3 million of service revenues for the year ended January 31, 2002. During the year ended
January 31, 2003, we activated approximately 245,000 new subscriptions to the TiVo service bringing the total installed subscription base to
approximately 624,000 as of January 31, 2003, approximately 65% greater than the installed base as of January 31, 2002. We anticipate fiscal year
2005 will have continued revenue growth as our subscription base grows. Revenues from advertising and research services included in service
revenues, while not material during these periods, were increasing.
• Technology Revenues. In the fiscal year ended January 31, 2004, we derived 10% of our total revenues, or $15.8 million, from licensing and
engineering professional services. Technology revenues for the fiscal year ended January 31, 2004 were approximately 24% lower then the same
period last year due to fewer licensing agreements. Two different related parties customers generated $5.8 million and $12.7 million of technology
revenues, or 4% and 12% of total revenues for the fiscal years ended January 31, 2004 and 2003, respectively. During fiscal year 2004, we
recognized $2.9 million of licensing and engineering professional services revenue with little corresponding costs from two customers due to the
one-time recognition of revenues for two projects for which we have no further obligations. Going forward, in our relationships with manufacturers
and distributors, we are shifting focus from upfront license and engineering professional services payments to recurring royalty and service
payments. We expect future technology revenues to decline from the fiscal years 2004 and 2003 levels as we complete existing contracts.
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