TiVo 2005 Annual Report Download - page 70

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Table of Contents
Under certain marketing and pricing programs offered to consumers through its website or otherwise, the Company may offer DVRs for no cost or
DVRs at a discounted price when bundled with a pre-paid subscription. These are multiple element arrangements under Emerging Issues Task Force (EITF)
00-21, "Revenue Arrangements with Multiple Deliverables," and the prepaid fee is allocated to the DVR and subscription based on their relative fair values.
To the extent that the cost of the DVR exceeds the revenue allocated to the DVR, the excess costs are deferred and amortized over the period of the
subscription. In this prepayment plan, the Company receives the cash upfront from consumers, which allows the Company to elect deferral of hardware costs
over the service period. If the direct costs associated with the total arrangement (including the cost of the DVR and incremental service costs) exceed the
prepaid fee, then the loss is expensed at the time of shipment of the DVR. As of January 31, 2006, the Company deferred $2.6 million in hardware costs for
these programs. The Company did not defer any hardware costs as of January 31, 2005.
Rebates, Revenue Share, and Other Payments to Channel. In accordance with EITF 01-09, "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors Products)", certain payments to retailers and distributors such as market development funds and revenue share
are shown as a reduction to revenue rather than as a sales and marketing expense. TiVo's policy is to expense these payments when they are incurred and fixed
or determinable. The Company also records rebates offered to consumers as a reduction to revenue. The Company records a liability for estimated future
rebate redemption at the later of the delivery of the hardware or announcement of the rebate program.
Deferred Revenues. Deferred revenues consists of unrecognized service and technology fees that have been collected, but the related service has not yet
been provided or VSOE of fair value does not exist for the undelivered elements of an arrangement.
Research and Development
Research and development expenses, which consist primarily of employee salaries, related expenses, and consulting fees, are expensed as incurred.
Sales and Marketing
Sales and marketing expenses consist primarily of employee salaries and related expenses, media advertising, public relations activities, special
promotions, trade shows, and the production of product related items, including collateral and videos.
Advertising
The Company expenses advertising costs as the services are provided. Advertising expenses were $10.4 million, $16.1 million and $455,000 for the
fiscal years ended January 31, 2006, 2005 and 2004, respectively.
Warranty Expense and Liability
The Company accrues warranty costs for the expected material and labor required to provide warranty services on its hardware products. The
methodology used in determining the liability for product warranty services is based upon historical information and experience. The Company's warranty
reserve liability is calculated as the total volume of unit sales over the warranty period, multiplied by the expected rate of warranty returns multiplied by the
estimated cost to replace or repair the customers' product returns under warranty.
Interest Expense and Other
Included in interest expense for the fiscal years ended January 31, 2005, and 2004 are cash charges for coupon interest expense related to the
convertible notes payable. Included in non-cash interest expense for the fiscal years ended January 31, 2005 and 2004 is amortization of discount on the
convertible notes payable and debt issuance costs. Other expenses include fees for the bank line of credit and the letter of credit.
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