TiVo 2004 Annual Report Download - page 67

Table of Contents
Index to Financial Statements
convertible notes payable, the Company estimated the fair value of its outstanding convertible notes payable by utilizing the value of the common stock that
the notes were convertible into.
At January 31, 2004, the convertible notes payable long-term, face value of $10,450,000, were convertible (using the conversion price then in effect of
$3.99) into 2,619,048 shares of the Company's common stock. The closing price of the Company's common stock on January 30, 2004, as quoted on the
Nasdaq, was $10.75. If converted, the total fair value of these shares at the closing price would have been $28.2 million.
Business Concentrations and Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents, short-term
investments, and trade receivables. The Company currently invests the majority of its cash in money market funds and maintains them with several financial
institutions with high credit ratings. The Company also invests in debt instruments of the U.S. government and its agencies and corporate issuers with high
credit ratings. As part of its cash management process, the Company performs periodic evaluations of the relative credit ratings of these financial institutions.
The Company has not experienced any credit losses on its cash, cash equivalents, or short-term investments.
The majority of the Company's customers are concentrated in the United States. The Company is subject to a minimal amount of credit risk related to
these customers as service revenue is primarily obtained through credit card sales. DIRECTV generated $20.2 million of service and technology revenues or
approximately 12% of net revenues for the fiscal year ended January 31, 2005. One retail customer generated $49.5 million or 29% of net revenues for the
fiscal years ended January 31, 2005. The Company evaluates its outstanding accounts receivable each period for collectibility. This evaluation involves
assessing the aging of the amounts due to the Company and reviewing the credit-worthiness of each customer. Based on this evaluation, the Company records
an allowance for accounts receivable that are estimated to not be collectible. The allowance for doubtful accounts receivable at January 31, 2005 and 2004
was $104,000 and $17,000, respectively.
The Company is dependent on single suppliers for several key components and services. The Company does not have contracts or arrangements with
such suppliers. Instead, the Company purchases these components and services by submitting purchase orders with these companies. The Company also has
an agreement with Tribune Media Services, its sole supplier of programming guide data for the TiVo service. If these suppliers fail to perform their
obligations, the Company may be unable to find alternative suppliers or deliver its products and services to its customers on time or at all.
Recent Accounting Pronouncements
In June 2004, the FASB ratified Emerging Issues Task Force Issue No. 03-1 (EITF 03-1), The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well
as new disclosure requirements for investments that are deemed to be temporarily impaired. Adoption of the recognition and measurement guidance of EITF
03-1 has been temporarily deferred by the FASB, but the disclosure requirements of EITF 03-1 are effective for the Company's 2005 annual consolidated
financial statements. The Company did not have investments with fair value below costs as of January 31, 2005.
In November 2004, the FASB issued FASB Statement No. 151, Inventory Costs-an Amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151
amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The adoption of the provisions of FAS 151 is not expected to have a material impact on the Company's financial position or results of
operations.
On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No.
123, Accounting for Stock Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends
FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income
statement based upon their fair values. Pro forma disclosure is no longer an alternative. Early adoption will be permitted in periods in which financial
statements have not yet been issued. Statement 123(R) must be adopted in the first interim period beginning after June 15, 2005. The Company expects to
adopt the standard by August 1, 2005, the beginning of its third quarter.
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