TiVo 2006 Annual Report Download - page 83

Table of Contents
Business Concentrations and Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents, short-term
investments, and trade receivables. The Company currently invests the majority of its cash in money market funds and maintains them with several financial
institutions with high credit ratings. The Company also invests in auction rate securities. As part of its cash management process, the Company performs
periodic evaluations of the relative credit ratings of these financial institutions. The Company has not experienced any credit losses on its cash, cash
equivalents, or short-term investments.
The majority of the Company's customers are concentrated in the United States. The Company is subject to a minimal amount of credit risk related to
service revenue contracts as these are primarily obtained through credit card sales. DIRECTV represented approximately 10%, 14%, and 12% of net revenues
and 22%, 24%, and 13% of net accounts receivable for the fiscal years ended January 31, 2007, 2006, and 2005, respectively. The Company sells its TiVo-
enabled DVR to retailers under customary credit terms and generally requires no collateral. One retailer generated 12%, 29%, and 16% of the Company's net
revenues and 18%, 19%, and 48% of the net accounts receivable for the fiscal years ended January 31, 2007, 2006, and 2005, respectively. The Company is
dependent on sole suppliers for several key components, assemblies, and services. The Company has an agreement with Tribune Media Services, the sole
supplier of the Company's programming guide data for the TiVo service. The Company does not have a long-term written supply agreement with Broadcom,
the sole supplier of the MPEG2 encoder and decoder semiconductor devices. In instances where a supply agreement does not exist and suppliers fail to
perform their obligations, the Company may be unable to find alternative suppliers or deliver its products and services to its customers on time, if at all.
The TiVo service is enabled through the use of a DVR manufactured for TiVo by a third-party contract manufacturer and a limited number of other
third parties. The Company also relies on third parties with whom we outsource supply-chain activities related to inventory warehousing, order fulfillment,
distribution, and other direct sales logistics. The Company cannot be sure that these parties will perform their obligations as expected or that any revenue, cost
savings, or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates their agreement with TiVo or
otherwise fails to perform their obligations in a timely manner, the Company may be delayed or prevented from commercializing our products and services.
Recent Accounting Pronouncements
In September 2006, the SEC released Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 provides interpretive guidance on the SEC's views regarding the process of
quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108
did not have a material impact on the Company's consolidated financial statements.
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a
framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is
currently evaluating the impact of adopting SFAS 157 on its consolidated financial statements.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109." The interpretation contains a two-step approach to recognizing and measuring uncertain tax positions
accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is more
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