TiVo 2015 Annual Report Download - page 51

Table of Contents
incorporated herein by reference. An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used or if changes to the estimate that
are reasonably possible could materially affect the financial statements. Of our significant accounting policies, the following are considered critical to
understanding our Consolidated Financial Statements and evaluating our results as they are inherently uncertain, involve the most subjective or complex
judgments, include areas where different estimates reasonably could have been used and the use of an alternative estimate that is reasonably possible
could materially affect the financial statements.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed
or determinable and collectability is reasonably assured. However, determining whether and when some of these criteria have been satisfied often involves
assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element
arrangements, we must: (1) determine whether and when each element has been delivered and whether the delivered element has stand
- alone value to the
customer and (2) allocate the total consideration among the various elements based on their relative selling price using vendor specific objective evidence
("VSOE") of selling price, if it exists; otherwise selling price is determined based on third - party evidence ("TPE") of selling price. If neither VSOE nor TPE
exist, management must use its best estimate of selling price ("BESP") to allocate the arrangement consideration.
We account for cash consideration (such as sales incentives) given to our customers or resellers as a reduction of revenue, rather than as an
operating expense unless we receive a benefit that is separate from the customer
’ s purchase and for which we can reasonably estimate the fair value of the
benefit.
Amounts for fees collected relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue
and recognized when the applicable revenue recognition criteria are satisfied.
CE and Service Provider Licensing
We license our proprietary IPG and ACP technologies to CE manufacturers, integrated circuit makers, service providers and others. For agreements
where license fees are based on the number of units shipped or number of subscribers, we generally recognize revenue from licensing technology on a per
-
unit shipped model with CE manufacturers or a per - subscriber model with service providers. The recognition of revenues from per - unit license fees is based
on units reported shipped by the manufacturer. CE manufacturers normally report their unit shipments to us in the quarter immediately following that of
actual shipment by the manufacturer. Our significant experience and established relationships with certain ACP technology licensing customers enable us
to reasonably estimate current period volume for purposes of recognizing revenue. Accordingly, revenue from these customers is recognized in the period
the customer is estimated to have shipped the units. Revenues from per - subscriber fees are recognized in the period the services are provided by a licensee,
as reported to us by the licensee. Revenues from annual or other license fees are recognized based on the specific terms of the license. For instance, major
CE IPG licensees have entered into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. We
record the fees associated with these arrangements on a straight - line basis over the specified term. At times we enter into IPG patent license agreements in
which we provide a licensee a release for past infringement as well as the right to ship an unlimited number of units over a future period for a flat fee. In this
type of arrangement, we generally use BESP to allocate the consideration between the release for past infringement and the go
- forward patent license. In
determining BESP of the past infringement component and the go - forward license agreement, we consider such factors as the number of units shipped in
the past and in what territories these units where shipped, the number of units expected to be shipped in the future and in what territories these units are
expected to be shipped, as well as the licensing rate we generally receive for units shipped in these territories. As the revenue recognition criteria for the
past infringement is generally satisfied on the execution of the agreement, the amount of consideration allocated to the past infringement is generally
recognized in the period the agreement is executed and the consideration allocated to the go
- forward license agreement is recognized ratably over the future
license term. In addition, we have entered into agreements in which a licensee pays us a one - time fee for a perpetual license to our ACP technology.
Provided that collectability is reasonably assured, we record revenue related to these agreements when the agreement is executed as we have no significant
continuing obligations and the amounts are fixed and determinable.
We also generate advertising revenue through our IPGs. Advertising revenue is recognized when the related advertisement is provided. All
advertising revenue is recorded net of agency commissions and revenue shares with service providers and CE manufacturers.
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