TiVo 2004 Annual Report Download - page 46

Table of Contents
Index to Financial Statements
video recorder market. Therefore, it is difficult to anticipate the impact of current or future laws and regulations on our business. We may have significant
expenses associated with staying appraised of local, state, federal, and international legislation and regulation of our business and in presenting TiVo's
positions on proposed laws and regulations.
The Federal Communications Commission has broad jurisdiction over the telecommunications and cable industries. The majority of FCC regulations,
while not directly affecting us, do affect many of the companies on whom we substantially rely for the marketing and distribution of the DVR and the TiVo
service. As such, the indirect effect of these regulations may adversely affect our business. In addition, the FCC could promulgate new regulations, or
interpret existing regulations in a manner that would cause us to incur significant compliance costs or force us to alter the features or functionality of the TiVo
service.
Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs and may affect our ability to be in
compliance with such new corporate governance provisions in the future.
The existing federal securities laws and regulations impose complex and continually changing regulatory requirements on our operations and reporting.
With the enactment of the Sarbanes-Oxley Act of 2002 in July 2002, a significant number of new corporate governance requirements have been adopted or
proposed. These new requirements impose comprehensive reporting and disclosure requirements, set stricter independence and financial expertise standards
for audit committee members, and impose increased civil and criminal penalties for companies, their chief executive officers, chief financial officers and
directors for securities law violations. We expect these developments to increase our legal compliance costs, increase the difficulty and expense in obtaining
director and officer liability insurance, and make it harder for us to attract and retain qualified members of our board of directors and/or qualified executive
officers. Such developments could harm our results of operations and divert management's attention from business operations.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial
reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors,
misstatements or misrepresentations. While management continues to review the effectiveness of our disclosure controls and procedures and internal control
over financial reporting, we can not assure you that our disclosure controls and procedures over internal control of financial reporting will be effective in
accomplishing all control objectives all of the time. Deficiencies, particularly a material weakness in internal control over financial reporting, which may
occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise
materially adversely affect our business, reputation, results of operation, financial condition or liquidity.
The current legislative and regulatory environment affecting accounting principles generally accepted in the United States of America is
uncertain and volatile, and significant changes in current principles could affect our financial statements going forward.
The accounting rules and regulations that we must comply with are complex and continually changing. Recent actions and public comments from the
Securities Exchange Commission have focused on the integrity of financial reporting generally. Similarly, the U.S. Congress has considered a variety of bills
that could affect certain accounting principles. The FASB has recently introduced several new or proposed accounting standards or are developing new
proposed standards, such as accounting for stock options, which would represent a significant change from current industry practices. In addition, many
companies' accounting policies are being subject to heightened scrutiny by regulators and the public. While we believe that our financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America, we cannot predict the impact of future changes to
accounting principles or our accounting policies on our financial statements going forward. In addition, were we to change our critical accounting estimates,
including with respect to the recognition of revenue from our product lifetime subscriptions, our results of operations could be significantly impacted.
We need to safeguard the security and privacy of our subscriptions' confidential data, and any inability to do so may harm our reputation and
brand and expose us to legal action.
The DVR collects and stores viewer preferences and other data that many of our customers consider confidential. Any compromise or breach of the
encryption and other security measures that we use to protect this data could harm our reputation and expose us to potential liability. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or developments could compromise or breach the systems we use to protect our
subscriptions' confidential information. We may be required to make significant expenditures to protect against security breaches or to remedy problems
caused by any breaches.
Uncertainty in the marketplace regarding the use of data from subscriptions could reduce demand for the TiVo service and result in increased
expenses. Consumers may be concerned about the use of viewing information gathered by the TiVo service and
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