TiVo 2010 Annual Report Download - page 14

excess non-cancelable purchase commitments. As of January 31, 2011, the Company maintained a $365,000 inventory reserve as a result of inventory
impairment charges. Even if our current sales projections exceed our original projections, the inventory reserves are not reversed until the previously impaired
inventory is sold or scrapped.
Property and Equipment
Property and equipment are stated at cost less depreciation. Maintenance and repair expenditures are expensed as incurred.
Depreciation is computed using the straight-line method over estimated useful lives as follows:
Furniture and fixture 3-5 years
Computer and office equipment 3-5 years
Lab equipment 3 years
Leasehold improvements The shorter of 7 years or the term of the lease
Capitalized software for internal use 1-5 years
Capitalized Software
Software development costs are capitalized when a product’s technological feasibility has been established by completion of a working model of the
product and amortization begins when a product is available for general release to customers. The period between the development of a working model and
the release of the final product to customers is short, and, therefore, the development costs incurred during this short period are immaterial and, as such, are
not capitalized.
Software development costs incurred as part of an approved project plan that result in additional functionality to internal use software are capitalized and
amortized on a straight-line basis over the estimated useful life of the software, between one and five years.
Intangible Assets
Purchased intangible assets include intellectual property such as patent rights which are carried at cost less accumulated amortization. Useful lives
generally range from five to seven years.
Sales Taxes
The Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated statement of operations.
Revenue Recognition and Deferred Revenue
The Company generates service revenues from fees for providing the TiVo service to consumers and through the sale of advertising and audience
research measurement services. The Company also generates technology revenues from licensing technology and by providing engineering professional
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 recurring and prepaid subscription plans to the TiVo service and fees received from
the sale of advertising and audience research measurement services. Monthly and prepaid fixed-length subscription revenues are recognized ratably over the
period the service is provided. Subscription revenues from product lifetime subscriptions are recognized ratably over the Company’s estimate of the useful life
of a TiVo-enabled DVR associated with the subscription. Effective November 1, 2008, the Company extended the period it uses to recognize product lifetime
subscription revenues from 54 months to 60 months for the product lifetime subscriptions acquired on or before October 31, 2007 and such change is being
recognized on a prospective basis with no adjustment to previously recognized revenues. The new estimates of expected lives are dependent on assumptions
with regard to future churn of the product lifetime subscriptions. The Company will continue to monitor the useful life of a TiVo-enabled DVR and the impact
of the differences between actual churn and forecasted churn rates. If subsequent actual experience is not in line with the Company’s current assumptions,
including higher churn of product lifetime subscriptions due to the incompatibility of its standard definition TiVo units with high definition programming and
increased competition, the Company may revise the estimated life which could result in the recognition of revenues from this source over a longer or shorter
period.
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