TiVo 2010 Annual Report Download - page 45

DVR. TiVo is working with DIRECTV to deploy this product in the future. DIRECTV also has certain additional annual obligations to market and promote
the new HD DIRECTV DVR featuring the TiVo Service once it has launched. DIRECTV, upon the deployment of high definition DIRECTV DVRs with
TiVo service, is entitled to recoup, over time, a portion of certain development fees through a reduction in certain subscription fees. The new agreement also
extends the mutual covenant not to sue with respect to each company’s products and services throughout the term of the new agreement.
Under this new agreement, DIRECTV will pay a substantially higher monthly fee for households using the new high definition DIRECTV DVRs with
TiVo (when and if the new version of the TiVo service is deployed) than the fees for previously deployed DIRECTV DVRs with TiVo service. DIRECTV
will continue to pay the current monthly fee for all households using only the previously deployed DIRECTV DVRs with TiVo service. The fees paid by
DIRECTV are subject to monthly minimum payments that escalate during the term of the agreement starting in 2010 and those minimum payments are
substantially higher than in the prior agreement.
Due to uncertainties over the ultimate profit margin on the development work, the Company recognizes revenues and costs for the development of the
TiVo service for DIRECTV’s broadband-enabled HD DVR based on a zero profit model, which results in the recognition of equal amounts of revenues and
costs not to exceed the amount that the Company has the contractual right to bill DIRECTV upon the meeting of certain milestones under TiVo's revenue
recognition policies. During the twelve months ended January 31, 2011 and 2010, the Company recognized $6.5 million and $8.9 million in technology
revenues and $6.5 million and $8.9 million in cost of technology revenues, respectively related to the development of the TiVo service for DIRECTV’s
broadband-enabled HD DVR.
In accordance with TiVo's revenue recognition policies, the Company has deferred costs of approximately $3.7 million related to development work for
DIRECTV. These costs are recorded on TiVo's consolidated balance sheets under deferred cost of technology revenues, current at January 31, 2011. These
costs will be recognized when related revenues are recognized.
20. SUBSEQUENT EVENTS
On March 10, 2011, the Company issued convertible notes with the aggregate principal amount of $150 million and received approximately $145.1
million in proceeds. The notes will pay interest semi-annually at a rate of 4.00% per year and mature on March 15, 2016. TiVo has granted the initial
purchaser of the notes an over-allotment option to purchase up to an additional $22.5 million aggregate principal amount of notes exercisable at any time on
or before April 7, 2011.
The notes will be convertible at any time, at the option of the holders, into shares of TiVo's common stock at an initial conversion rate of 89.6359 shares
per $1,000 principal amount of notes. At the initial conversion rate, the initial conversion price will be approximately $11.16 per share. In addition, following
certain corporate transactions that occur prior to the maturity date, TiVo will, in certain circumstances, increase the conversion rate for a holder that elects to
convert its notes in connection with such a corporate transaction.
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