TiVo 2006 Annual Report Download - page 52

Table of Contents
base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. The results of this analysis
form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
materially differ from these estimates under different assumptions or conditions. For a detailed discussion on the application of these and other accounting
estimates, see Item 8. Note 2. "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements.
Recognition Period for Product Lifetime Subscriptions Revenues. TiVo previously offered a product lifetime subscription option for general sale for
the life of the DVR for a one-time, prepaid payment. During the first quarter of fiscal year 2007, we discontinued general sale of the product lifetime service
option. We recognize subscription revenues from product lifetime subscriptions ratably over a four-year period, based on our estimate of the useful life of
these DVRs. As of January 31, 2007, 165,000 product lifetime subscriptions had exceeded the four-year period we use to recognize product lifetime
subscription revenues and had made contact with the TiVo service within the prior six month period. This represents approximately 23% of our cumulative
lifetime subscriptions as compared to 13% for the fiscal year ended January 31, 2006. During fiscal year 2008, we will continue to monitor the useful life of a
TiVo-enabled DVR and the impact of higher churn, increased competition and compatibility of our existing TiVo units with high definition programming.
Further analysis will allow us to determine if our useful life is shorter or longer than four-years, in which case we may revise the estimated life and we would
recognize revenues from this source over a shorter or longer period.
Engineering Services Project Cost Estimates. For engineering services that are essential to the functionality of the software or involve significant
customization or modification, we recognize revenues using the percentage-of-completion method, as described in Statement of Position (SOP) 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type Contracts." We recognize revenue by measuring progress toward
completion based on the ratio of costs, principally labor, incurred to total estimated costs of the project, an input method. In general, these contracts are long-
term and complex. We believe we are able to make reasonably dependable estimates based on historical experience and various other assumptions that we
believe to be reasonable under the circumstances. These estimates include forecasting of costs and schedules, estimating contract revenue related to contract
performance, projecting cost to complete, tracking progress of costs incurred to date, and projecting the remaining effort to complete the project. Costs
included in engineering services are labor, materials, and overhead related to the specific activities that are required for the project. Costs related to general
infrastructure or platform development are not included in the engineering services project cost estimates. These estimates are assessed continually during the
term of the contract and revisions are reflected when the conditions become known. In some cases, we have accepted engineering services contracts that were
expected to be losses at the time of acceptance. Provisions for all losses on contracts are recorded when estimates determine that a loss will be incurred on a
contract. Using different cost estimates, or different methods of measuring progress to completion, engineering services revenues and expenses may produce
materially different results. A favorable change in estimates in a period could result in additional revenue and profit, and an unfavorable change in estimates
could result in a reduction of revenue and profit or the recording of a loss that would be borne solely by TiVo. For the fiscal year ended January 31, 2007 the
majority of our technology revenues are related to the Comcast development agreement and are offset by an equal amount of development cost recognized as
cost of technology revenues.
Consumer Rebate Redemption Rate. In accordance with Emerging Issues Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given by
a Vendor to a Customer (Including a Reseller of the Vendor's Products)," we record an estimated potential liability for our consumer rebate program that is
based on the percentage of customers that were reimbursed for the rebate for similar past programs and adjust estimates to consider actual redemptions.
Currently, the estimated redemption rate for the $150 rebate program is 64% based on historical redemptions for previous $150 rebate programs. Starting
November 5, 2006, the Company had new rebate programs which offer a rebate of $180 for a dual tuner DVR unit and $220 for a single tuner DVR unit. The
estimated weighted average redemption rate for these programs is 74%. Starting February 18, 2007, the rebate
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