TiVo 2005 Annual Report Download - page 51

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Table of Contents
• Rebates, revenue share, and other payments to channel. We recognize certain marketing-related payments as a reduction of revenues in our
consolidated statements of operations. These reductions are recorded based on an estimated potential liability for our consumer rebate program,
which is based on the percentage of customers that were reimbursed for the rebate for similar past programs and then we adjust estimates to
consider actual redemptions. Rebates, revenue share, and other payments to channel decreased by $7.7 million for the fiscal year ended January 31,
2006 as compared to the same prior fiscal year period. The primary contributor to the decrease in rebates, revenue share, and other payments to
channel for the fiscal year ended January 31, 2006 as compared to the prior fiscal year was lower than expected rebate expenses due to fewer
programs offered in the first half of fiscal year 2006. In addition, we had a reversal of $7.7 million of rebate expense during the six months ended
July 31, 2005, which was primarily a result of a truing up the rebate accruals established in fiscal year 2005, for certain rebate programs that ended
during the three months ended April 30, 2005. Consumer rebate expenses were $24.7 million for the fiscal year ended January 31, 2006, as
compared to $37.1 million and $2.2 million, respectively, for fiscal years ended January 31, 2005 and 2004. Fiscal year 2004 expenses reflected
the reversal of $3.2 million of the rebate accrual for rebate programs that ended on April 30, 2003. Other significant contributors to the increase
were revenue share and market development funds paid to retailers. These marketing-related payments increased by $5.2 million and $4.3 million,
respectively, for the fiscal year ended January 31, 2005, as compared to the prior-fiscal year.
Cost of service and technology revenues.
Fiscal Year Ended January 31,
2006 2005 2004
(In thousands, except percentages)
Cost of service revenues $ 34,179 $ 29,360 $ 17,705
Cost of technology revenues $ 782 $ 6,575 $ 13,609
Cost of service and technology revenues $ 34,961 $ 35,935 $ 31,314
Change from same prior-year period -3% 15% 24%
Percentage of service and technology revenues 20% 31% 40%
Service gross margin $ 133,015 $ 77,806 $ 43,855
Technology gross margin $ 2,883 $ 1,735 $ 2,188
Service gross margin as a percentage of service revenue 80% 73% 71%
Technology gross margin as a percentage of technology revenue 79% 21% 14%
Costs of service and technology revenues consist primarily of telecommunication and network expenses, employee salaries, call center, credit card
processing fees, and other expenses related to providing the TiVo service. Also included are expenses related to providing engineering services to our
customers, including employee salaries and related costs, as well as prototyping and other material costs. Cost of service and technology revenues for the
fiscal year ended January 31, 2006 decreased by $1.0 million or 3% compared to the prior fiscal year. Cost of service and technology revenues for the fiscal
year ended January 31, 2005 increased by $4.6 million or 15% compared to the prior fiscal year.
Cost of service revenues for the fiscal year ended January 31, 2006 increased by 16% or $4.8 million as compared to the prior fiscal year. The year over
year increase was due to increased customer care center costs of 32% or $3.1 million compared to the prior fiscal year, a 14% or $454,000 increase in credit
card fees, and an 11% or $327,000 increase in salaries and wages expense, as compared to the prior fiscal year. These increases are a direct result of our 45%
or 1.4 million increase in total cumulative subscriptions. Cost of service revenues for the fiscal year ended January 31, 2005 increased 66% or by $11.7
million as compared to the prior fiscal year. Total customer care center expenses increased by 130% or by $5.5 million compared to the same prior-year
period due to an increased level of staffing as a result of TiVo's increased focus on issues of customer care and retention. Additionally, technology license fees
increased by 269% or by $1.6 million for the fiscal year ended January 31, 2005 and, telecommunication and network expenses related to providing the TiVo
service increased by 51% or by $1.6 million for the fiscal year ended January 31, 2005 as compared to the prior fiscal year.
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