TiVo 2006 Annual Report Download - page 32

Table of Contents
The nature of our business requires the application of complex revenue and expense recognition rules and the current legislative and
regulatory environment affecting U.S. Generally Accepted Accounting Principals (GAAP) 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. 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 the timing of recognition of
revenue from our product lifetime subscriptions, our results of operations could be significantly impacted.
We will need to remain compliant with the Payment Card Industry requirements for security and protection of customer credit card
information and an inability to do so will adversely affect our business.
As a merchant who processes credit card payments from its customers, we are required to comply with the payment card industry requirements imposed
on us for the protection and security of our customers' credit card information. If we are unable to successfully remain compliant with the payment card
industry requirements imposed on us as a credit card merchant, our business could be harmed because we could be prevented in the future from transacting
customer subscription payments by means of a credit card.
We need to safeguard the security and privacy of our subscribers' 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
subscribers' 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 the DVR. Currently, we gather anonymous
information about our customers' viewing choices while using the TiVo service, unless a customer affirmatively consents to the collection of personally
identifiable viewing information. This anonymous viewing information does not identify the individual customer. Privacy concerns, however, could create
uncertainty in the marketplace for digital video recording and for our products and services. Changes in our privacy policy could reduce demand for the TiVo
service, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our reputation and business.
We have limited experience in overseeing manufacturing processes, managing inventory, or engaging in the outsourcing of engineering work
and failure to do so effectively may result in supply imbalances or product recalls that could harm our business or the loss of valuable intellectual
property that could harm our business.
We have contracted for the manufacture of certain TiVo-enabled DVRs with a contract manufacturer. We sell these units to retailers and distributors, as
well as through our own online sales efforts. As part of this effort, we expect to maintain some finished goods inventory of the units throughout the year.
Overseeing manufacturing processes and managing inventory are outside of our core business and our experience in these areas is limited. If we fail to
effectively oversee the manufacturing process and manage inventory, we may suffer from insufficient inventory to meet consumer demand or excess
inventory. Ineffective oversight of the manufacturing process could also
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