TiVo 2006 Annual Report Download - page 75

Table of Contents
TIVO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
TiVo Inc. (together with its subsidiaries the "Company" or "TiVo") was incorporated in August 1997 as a Delaware corporation and is located in
Alviso, California. On August 21, 2000, TiVo (UK) Limited, a wholly owned subsidiary of TiVo Inc., was incorporated in the United Kingdom. On
October 9, 2001, the Company formed a subsidiary, TiVo International, Inc., also a Delaware corporation. On July 16, 2004, TiVo Intl. II, Inc., a wholly
owned subsidiary of TiVo Inc., was incorporated in the Cayman Islands. On March 22, 2005, TiVo Brands LLC, a wholly owned subsidiary of TiVo Inc., was
incorporated in the State of Delaware as a holding entity for all of the Company's trademarks. The Company conducts its operations through one reportable
segment. TiVo is a provider of technology and services for digital video recorders (DVRs). The subscription-based TiVo service (the "TiVo service")
improves home entertainment by providing consumers with an easy way to record, watch, and control television. TiVo also provides a unique platform for the
television industry, including for advertisers and audience research measurement.
The Company continues to be subject to a number of risks, including delays in product and service developments; competitive service offerings; lack of
market acceptance; uncertainty of future profitability; the dependence on third parties for manufacturing, marketing, and sales support; the intellectual
property claims against the Company; and dependence on its relationships with third parties such as Comcast, and Cox for subscription growth. The Company
anticipates that its business will continue to be seasonal and expects to generate a significant number of its annual new subscriptions during and immediately
after the holiday shopping season.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and
transactions have been eliminated in consolidation.
In June 2004, the DIRECTV's representative on the Company's board of directors resigned from the board and soon thereafter, DIRECTV
notified the Company that it sold its equity position in the Company so it no longer held an equity position of 5% or more. Thus, the Company determined
DIRECTV no longer met its definition of a related party relationship. Therefore, the Company classified DIRECTV's activities from June 2004 forward as
non-related party activities. The Company determined that no change to DIRECTV's related party classification for prior periods was required as during that
time DIRECTV was in a position to significantly influence the Company's management and operation expenses. For the period from February 1, 2004 to
May 31, 2004, $6.8 million of the total service revenues and technology revenues was generated from DIRECTV.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and judgments affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to customer programs and incentives, product returns, inventories and related reserves, warranty obligations, contingencies,
stock compensation and litigation. The Company bases estimates on historical experience and on other assumptions that its management believes are
reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when those values
are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with insignificant interest rate risk and original maturities of three months or less.
The carrying value of the cash and cash equivalents approximates fair value.
Short-term Investments
Short-term investments are classified as available-for-sale and are carried at fair value. The Company's short-term investments are reviewed each
reporting period for declines in value that are
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