TiVo 2009 Annual Report Download - page 59

Table of Contents
In addition, we are required to develop an estimate of the number of share-based awards which will be forfeited due to employee turnover. We use
historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
Quarterly changes in the estimated forfeiture rate can affect our gross margin, research and development expenses, sales and marketing expenses, and general
and administrative expenses. The expense we recognize in future periods could also differ from the current period and/or our forecasts due to adjustments in
the assumed forfeiture rates.
Recent Accounting Pronouncements
During the three months ended July 31, 2009, we adopted a new accounting principle that requires a company to recognize the credit component of an
other-than-temporary impairment of a debt security in income and the non-credit component in accumulated other comprehensive income when the Company
does not intend to sell the security and it is more-likely-than not the Company will not be required to sell the security prior to recovery. This principle also
changes the threshold for determining when an other-than-temporary impairment has occurred with respect to intent and ability to hold until recovery and
requires additional disclosures. The adoption of this accounting principle did not have a material impact on our consolidated financial statements.
In October 2009, the FASB issued a new accounting standards update which provides guidance for arrangements with multiple deliverables.
Specifically, the new accounting standards update requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its
deliverables based on their relative selling prices. In addition, the new accounting standards update eliminates the use of the residual method of allocation and
requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. In October
2009, the FASB also issued a new accounting standards update which changes revenue recognition for tangible products containing software and hardware
elements. Specifically, if certain requirements are met, revenue arrangements that contain tangible products with software elements that are essential to the
functionality of the products are scoped out of the existing software revenue recognition accounting guidance and will be accounted for under the multiple-
element arrangements revenue recognition guidance discussed above. Both standards will be effective for TiVo in the first quarter of fiscal year 2012. Early
adoption is permitted. We are currently evaluating the impact of the adoption of these accounting standards updates on our consolidated financial statements.
Results of Operations
Net Revenues. Our net revenues for the fiscal years ended January 31, 2010, 2009, and 2008 as a percentage of total net revenues were as follows:
Twelve Months Ended January 31,
2010 2009 2008
(In thousands, except percentages)
Service revenues $ 159,772 67% $ 188,408 76% $ 211,496 78%
Technology revenues $ 29,907 13% $ 20,126 8% $ 19,382 7%
Hardware are revenues $ 47,907 20% $ 41,133 16% $ 41,798 15%
Net revenues $ 237,586 100% $ 249,667 100% $ 272,676 100%
Change from same prior year period -5% -8% 5%
Service Revenues. The decrease in TiVo-Owned Service revenues of $21.2 million in the fiscal year ended January 31, 2010 from fiscal year 2009 was
due to a lower cumulative subscription base and due to the increased number of fully-amortized product lifetime subscriptions which no longer generate
subscription revenues. This decline in the fiscal year ended January 31, 2010 includes $1.7 million revenue reduction due to extension of the period we use to
recognize product lifetime subscriptions from 54 to 60 months, as described in our Critical Accounting Estimates under "Recognition Period for Product
Lifetime Subscriptions Revenues". We also experienced a decrease in MSOs/Broadcaster service revenues of $7.5 million primarily due to fact that DIRECTV
will not offer new TiVo service subscriptions to its customers until launch of the new High Definition platform and DIRECTV is supporting a competing
DVR offering and therefore, we continue to experience cancellations of our existing DIRECTV subscription base. Additionally, the decline in MSOs/
Broadcaster service revenues includes a one-time reduction of $1.8 million (primarily related to prior quarters) recorded during the quarter ended October 31,
2009, as we were informed by DIRECTV that it had over-reported TiVo subscriptions to us for approximately the past 18 months. Based on our agreed upon
resolution of the discrepancy totaling $2.0 million, using updated reports provided by DIRECTV, we also recorded a $200,000 reduction in deferred revenue.
The decrease in Service revenues of $23.1 million in fiscal year 2009 from fiscal year 2008 was due to declines in both MSOs/Broadcaster revenue and
TiVo-Owned service revenue.
MSOs/Broadcaster Service revenues declined $5.0 million primarily because DIRECTV did not offer new TiVo service subscriptions to its customers
as described above and therefore, we continued to experience cancellations of our existing DIRECTV subscription base. Also, unlike in fiscal year 2008, in
the fiscal year ended January 31, 2009, we did not recognize as revenue $2.3 million of previously deferred DIRECTV revenues which would have expired
unused. We had an understanding with DIRECTV that these deferred revenues would be used to fund the development of the high definition DIRECTV
DVRs with TiVo service.
TiVo-Owned Service revenues decreased by $18.1 million primarily due to lower TiVo-Owned product lifetime service revenue, resulting from the
number of fully-amortized product lifetime subscriptions which no longer generate subscription revenue, increased to 225,000 at January 31, 2009 from
175,000 at January 31, 2008, combined with an increase in the amortization period we used to recognize revenues from the sale of our product lifetime service
subscriptions. Further contributing to the decrease was a decline in the size of our cumulative TiVo-Owned subscription base.
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