TiVo 2003 Annual Report Download - page 27

Table of Contents
The largest contributor to the reduction of total sales and marketing expenses for the fiscal year ended January 31, 2003, in terms of absolute dollars, was ad
media placement that decreased by 99% or $9.5 million. Other contributors were public relation expense and trade show expense that declined year over year
by 49% or $975,000 and by 75% or $733,000, respectively. We expect our marketing expenses for the fiscal year ending January 31, 2005 to be higher then
the fiscal year ended January 31, 2004 due to increased subscription acquisition activities.
• Sales and marketing—related parties expenses.
Fiscal Year Ended January 31,
2004
2003 2002
(In thousands, except percentages)
Sales and marketing—related parties expenses–cash $ 6,062 $ 16,368 $ 62,213
Sales and marketing—related parties expenses–non cash 1,630 14,120 13,619
Total sales and marketing—related parties expenses $ 7,692 $ 30,488 $ 75,832
Change from prior fiscal year -75% -60% 41%
Percentage of net revenues 5% 32% NM
The cash portion of sales and marketing—related parties expenses was comprised of revenue share and manufacturing subsidy payments to Philips,
Sony, Maxtor, and DIRECTV. Also included were media insertion orders paid to NBC and AOL. During the fiscal year ended January 31, 2004, revenue
share and subsidy expense decreased by 47% or $5.3 million, compared to fiscal year 2003. This decrease was a result of renegotiated contracts with
DIRECTV and lower manufacturing volumes by related party consumer electronic manufacturers. Revenue share is calculated as an agreed upon percentage
of revenue for a specified group of TiVo subscriptions. The non-cash portion is related to the amortization of prepaid marketing expense related to warrants or
common stock issued for services to AOL Time Warner (AOL), Creative Artists Agency, LLC, and DIRECTV. During the fiscal year ended January 31,
2003, $11.6 million was non-cash expense related to the remaining unamortized portion of the prepaid marketing expense associated with the June 2000
Investment Agreement with AOL which was terminated by the Funds Release Agreement in April 2002. The remainder of these prepaid marketing expenses
was fully amortized on a straight-line basis during the fiscal year ended January 31, 2004.
General and administrative expenses.
Fiscal Year Ended January 31,
2004
2003 2002
(In thousands, except percentages)
General and administrative expenses $ 16,296 $ 14,465 $ 18,875
Change from prior fiscal year 13% -23% 21%
Percentage of net revenues 12% 15% NM
General and administrative expenses consist primarily of employee salaries and related expenses for executive, administrative, accounting, information
systems, customer operations personnel, facility costs, and professional fees. General and administrative expenses for the fiscal year 2004 increased compared
to the prior fiscal year primarily due to increased legal expenses of $2.5 million for ongoing and settled lawsuits. A 30% reduction in consulting expenses
largely contributed to the reduction in total expenses for the fiscal year ended January 31, 2003 compared to the prior fiscal year.
Interest income. Interest income resulting from cash and cash equivalents held in interest bearing accounts for the fiscal year ended January 31, 2004
decreased by 89% from the prior fiscal year. The decrease was a result of the receipt of a one-time payment of $3.9 million in interest earned on the restricted
cash from the agreement with AOL that was released from the escrow account to us in April 2002. This same receipt of a one-time interest income payment in
the fiscal year 2003 contributed to double the amount of interest income recognized for the fiscal year 2003 compared to the fiscal year 2002.
Interest expense and other. Interest expense and other consists of cash and non-cash charges related to interest expense paid to related parties and non-
related parties. Interest expense and other for the fiscal year ended January 31, 2004 decreased 65% from the prior fiscal year primarily due to fewer
conversions of the convertible notes payable. Non-cash interest expense for the same period included $4.5 million attributable to the accelerated accretion of
the discount due to the NBC conversion and $3.6 million from the amortization of the discount pertaining to the value of the beneficial conversion feature of
the convertible notes, the amortization of the issuance of warrants to noteholders, and the amortization of debt issuance costs related to the conversion of other
convertible notes, respectively. During fiscal year ended January 31, 2003 non-cash interest expense was $24.2 million attributable to the amortization of the
discount pertaining to the value of the beneficial conversion feature of the convertible notes, the amortization of the issuance of warrants to noteholders, the
value of the additional shares resulting from the temporary incentive conversion price reduction, and the amortization of debt issuance costs for the
convertible notes.
26