TiVo 2005 Annual Report Download - page 69

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Table of Contents
Intangible Assets
Purchased intangible assets include intellectual property such as patent rights carried at cost less accumulated amortization. Useful lives generally range
from five years to seven years.
Revenue Recognition and Deferred Revenue
The Company generates service revenues from fees for providing the TiVo service to consumers. The Company also generates technology revenues
from providing licensing and engineering services. In addition, the Company generates hardware revenues from the sale of hardware products that enable the
TiVo service.
Service Revenues. Included in service revenues are revenues from monthly, annual, and product lifetime subscription fees for the TiVo service.
Monthly and annual subscription revenues are recognized over the period benefited. Subscription revenues from product lifetime subscriptions are recognized
ratably over a four-year period, which is the Company's estimate of the useful life of a TiVo-enabled DVR. Also included in service revenues are provisioning
fees received from third parties, such as DIRECTV, which are recognized as earned.
Technology Revenues. The Company recognizes technology revenues under technology license and engineering services agreements in accordance
with the SOP, 97-2, "Software Revenue Recognition," as amended. These agreements contain multiple-elements in which vendor specific objective evidence
("VSOE") of fair value is required for all undelivered elements in order to recognize revenue related to the delivered element. Elements included in the
Company's arrangements may include technology licenses and associated maintenance and support, engineering services and other services. The timing of
revenue recognition related to these transactions will depend, in part, on whether the Company can establish VSOE for undelivered elements and on how
these transactions are structured. As such, revenue recognition may not correspond to the timing of related cash flows or the Company's work effort.
In arrangements which include engineering services that are essential to the functionality of the software or involve significant customization or
modification of the software, the Company recognizes revenue using the percentage-of-completion method, as described in SOP 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts," if the Company believes it is able to make reasonably dependable estimates of
the extent of progress toward completion. The Company measures progress toward completion based on the ratio of costs incurred to date to total estimated
costs of the project, an input method. These estimates are assessed continually during the term of the contract, and revisions are reflected when the changed
conditions become known. In some cases, the Company has accepted engineering services 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. Provisions for all losses on contracts are recorded
when estimates indicate that a loss will be incurred on a contract. In some cases, it may be impractical to determine specific amounts of contract revenues due
to a lack of fair value for undelivered elements in the contract. In these situations, the Company recognizes revenues and costs based on a zero profit model,
which results in the recognition of equal amounts of revenues and costs
During the three months ended July 31, 2005, the Company determined that it needed to incur $1.0 million of development costs related to a loss
contract deemed substantially complete in fiscal year 2005. As a result, the Company recorded a total charge of $1.0 million to the statement of operations in
the three months ended July 31, 2005.
Hardware Revenues. For product sales to distributors, revenues are recognized upon product shipment to the distributors or receipt of the products by
the distributor, depending on the shipping terms, provided that all fees are fixed or determinable, evidence of an arrangement exists and collectibility is
probable. End users have the right to return their product within 30 days of the purchase. TiVo establishes allowances for expected product returns in
accordance with SFAS No. 48, "Revenue Recognition When Right of Return Exists" and SAB 104. These allowances are recorded as a direct reduction of
revenues and accounts receivable. For direct product sales to end-users, revenues are recognized upon shipment by TiVo to the end-users provided all
appropriate revenue recognition criteria have been met.
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