TiVo 2008 Annual Report Download - page 31

Table of Contents
We and the third party vendors we work with 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 by us or our third party vendors 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 are subject to the Foreign Corrupt Practices Act (FCPA), and our failure to comply with the laws and regulations there under could result
in penalties which could harm our reputation, business, and financial condition.
We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the
purpose of obtaining or keeping business. The FCPA also requires companies to maintain adequate record-keeping and internal accounting practices to
accurately reflect the transactions of the Company. Under the FCPA, U.S. companies may be held liable for actions taken by their strategic or local partners or
representatives. The FCPA and similar laws in other countries can impose civil and criminal penalties for violations.
If we do not properly implement practices and controls with respect to compliance with the FCPA and similar laws, or if we fail to enforce those
practices and controls properly, we may be subject to regulatory sanctions, including administrative costs related to governmental and internal investigations,
civil and criminal penalties, injunctions and restrictions on our business activities, all of which could harm our reputation, business and financial condition.
We face significant risks in overseeing our outsourcing of manufacturing processes as well as in the management of our inventory, and failure
to properly oversee our manufacturing processes or to effectively manage our inventory levels may result in product recalls or supply imbalances
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 channels. Product manufacturing is outside our core business and we face significant risks if our contract manufacturer
does not perform as expected. If we fail to effectively oversee the manufacturing process, including the work performed by our contract manufacturer, we
could suffer from product recalls, poorly performing product, and higher than anticipated warranty costs.
In connection with our manufacturing operations, we maintain a finished goods inventory of the DVR units we produce throughout the year. Due to the
seasonality in our business and our long-lead time product development and manufacturing cycles, we need to make forecasts of demand and commit
significant resources towards manufacturing of our DVR units well in advance of our peak selling periods. As such, we are subject to significant risks in
managing the inventory needs of our business during the year, including estimates of the appropriate mix of demand across our older and newer DVR models.
For example, due to lower than expected sales of standard definition DVRs and the resulting changes in our sales forecast, in the fiscal year ended January 31,
2008 we recorded an inventory related charge of $6.4 million for excess raw materials, finished goods inventory, and non-cancelable purchase commitments.
Subsequently, the actual sales of our standard definition DVRs exceeded our expectations and we utilized approximately $4.9 million of
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