TiVo 2011 Annual Report Download - page 69

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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 statements of operations.
Revenue Recognition
The Company generates service revenues from fees for providing the TiVo service to consumers and television service providers (also referred to as
“MSOs”) and through the sale of advertising and audience research measurement services. The Company also generates technology revenues from licensing
technology (Refer to Note 18. "DISH Network Corporation" and Note 19. "AT&T Inc." of notes to consolidated financial statements included in Part II. Item
8. of this report) and by providing engineering professional services. In addition, the Company generates hardware revenues from the sale of hardware
products that enable the TiVo service. A substantial portion of the Company's revenues is derived from multiple element arrangements.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable,
collectibility is probable, and there are no post-delivery obligations. Service revenue is recognized as the services are performed which generally is ratably
over the term of the service period.
Multiple Element Arrangements
The Company's multiple deliverable revenue arrangements primarily consist of bundled sales of TiVo-enabled DVRs and TiVo service to consumers;
arrangements with MSOs which generally include delivery of software customization and set up services, training, post contract support (“PCS”), TiVo-
enabled DVRs, non-DVR set-top boxes (STBs), and TiVo service; and bundled sales of advertising and audience research measurement services.
In October 2009, the Financial Accounting Standards Board (“FASB”) amended accounting standards for revenue recognition to remove tangible
products containing software components and non-software components that function together to deliver the product's essential functionality from the scope
of industry specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable
revenue arrangements to:
• provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the
consideration should be allocated;
• require an entity to allocate revenue in an arrangement using its best estimated selling price (“BESP”) of deliverables if a vendor does not have
vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence (“TPE”) of selling price; and
• eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
The Company adopted this guidance at the beginning of its first quarter of fiscal year 2012 on a prospective basis for applicable transactions originating
or materially modified after January 31, 2011. The Company applies and will continue to apply the previous applicable accounting guidance for continuing
arrangements that originated prior to the adoption date of February 1, 2011. The adoption of the new guidance did not have a significant impact on the
Company's consolidated financial statements. The Company currently does not expect changes in the Company's products, services, bundled arrangements or
pricing practices that could have a significant impact on the consolidated financial statements in periods post adoption; however, this may change in the
future.
The Company allocates revenue to each element in a multiple-element arrangement based upon their relative selling price. The Company determines the
selling price for each deliverable using VSOE of selling price or TPE of selling price, if it exists. If neither VSOE nor TPE of selling price exists for a
deliverable, the Company uses its BESP for that deliverable. Since the use of the residual method is eliminated under the new accounting standards, any
discounts offered by the Company are allocated to each of the deliverables. Revenue allocated to each
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