TiVo 2005 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2005 TiVo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

Table of Contents
7. INDEMNIFICATION ARRANGEMENTS AND GUARANTEES
Product Warranties
The Company's minimum warranty period to consumers for TiVo-enabled DVRs is 90 days from the date of consumer purchase. Within the minimum
warranty period, consumers are offered a no-charge exchange for TiVo-enabled DVRs returned due to product defect. After the minimum warranty period,
consumers may exchange a TiVo-enabled DVR with a product defect for a charge. At January 31, 2006 and 2005, the accrued warranty reserve was $166,000
and $675,000, respectively. The Company's accrued warranty reserve is included in accrued liabilities in the accompanying consolidated balance sheets.
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, 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.
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. CONVERTIBLE NOTES PAYABLE
On August 28, 2001, the Company closed a private placement of $51.8 million in face value of 7% convertible notes payable due August 15, 2006 and
warrants and received cash proceeds, net of issuance costs, of approximately $40.1 million from accredited investors. TiVo received gross cash proceeds of
approximately $36.8 million from non-related party noteholders and $6.9 million from existing stockholders for a total of $43.7 million. In addition, the
Company received non-cash proceeds of $8.1 million in the form of advertising and promotional services from Discovery and NBC, who were existing
stockholders. Debt issuance costs were approximately $3.6 million, resulting in net cash proceeds of approximately $40.1 million. Of the total gross proceeds
of $51.8 million, $8.1 million was recorded as prepaid advertising and promotional services.
72