TiVo 2004 Annual Report Download - page 70

Table of Contents
Index to Financial Statements
The following table details the change in the accrued warranty balance:
Fiscal Year Ended January 31,
2005
2004
(In thousands)
Balance at February 1 $ 616 $ 980
Additional warranties issued 1,036 613
Adjustments to warranty reserve estimates 135 (809)
Settlements during the period (1,112) (168)
Balance at January 31 $ 675 $ 616
Indemnification Arrangements
The Company undertakes indemnification obligations in its ordinary course of business in connection with, among other things, the licensing of its
products, the provision of consulting services and the issuance of securities. Pursuant to these agreements, the Company may indemnify the other party for
certain losses suffered or incurred by the indemnified party, generally its business partners or customers, underwriters or certain investors, in connection with
various types of claims, which may include, without limitation, claims of intellectual property infringement, certain tax liabilities, negligence and intentional
acts in the performance of services and violations of laws, including certain violations of securities laws. The term of these indemnification obligations is
generally perpetual. The Company's obligation to provide indemnification would arise in the event that a third party filed a claim against one of the parties
that was covered by the Company's indemnification obligation. As an example, if a third party sued a customer for intellectual property infringement and the
Company agreed to indemnify that customer against such claims, its obligation would be triggered. In particular, as the Company has disclosed in Note 17, it
is currently indemnifying Sony against a claim of intellectual property infringement brought by Command Audio in connection with Sony's manufacture and
sale of TiVo devices.
The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to its indemnification obligations. A few of
the variables affecting any such assessment include but are not limited to: the nature of the claim asserted, the relative merits of the claim, the financial ability
of the party suing the indemnified party to engage in protracted litigation, the number of parties seeking indemnification, the nature and amount of damages
claimed by the party suing the indemnified party and the willingness of such party to engage in settlement negotiations. Due to the nature of the Company's
potential indemnity liability, its indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its
ability to continue in the ordinary course of business.
Under certain circumstances, the Company may have recourse through its insurance policies that would enable it to recover from its insurance company
some or all amounts paid pursuant to its indemnification obligations. The Company does not have any assets held either as collateral or by third parties that,
upon the occurrence of an event requiring it to indemnify a customer, the Company could obtain and liquidate to recover all or a portion of the amounts paid
pursuant to its indemnification obligations.
8. INCOME TAXES
Under various license agreements, the Company incurred $113,000, $420,000, and $222,000 in withholding taxes to the governments of Japan and
Korea for the fiscal years ended January 31, 2005, 2004, and 2003, respectively. The payment of this withholding tax generates a deferred tax asset. However,
as the Company's ability to realize the benefits of this deferred tax asset is uncertain, a full valuation allowance has been provided. The $113,000, $420,000,
and $222,000 have been accounted for as a provision for income tax. The income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to pretax loss as a result of the following:
Fiscal Year Ended January 31,
2005
2004 2003
(In thousands)
Federal statutory rate of 35% $ (27,898) $ (11,049) $ (28,060)
State taxes 21 29 —
Foreign withholding tax 113 420 222
Foreign rate differential — — 142
Net operating loss and temporary differences for which no tax benefit was realized 26,470 8,457 21,432
Non-deductible expenses and other 1,428 2,592 6,689
Total tax expense $ 134 $ 449 $ 425