TiVo 2015 Annual Report Download - page 52

Table of Contents
Metadata Licensing
We license Metadata to service providers, CE manufacturers and online portals among others. We generally receive a monthly or quarterly fee
from our licensees for the right to use the Metadata, receive regular updates to the Metadata and integrate the Metadata into their own service. We
recognize revenue on a straight
- line basis over the period the licensee has the right to receive the Metadata service.
Goodwill
Goodwill represents the excess of cost over fair value of the net assets of an acquired business. Goodwill is evaluated for potential impairment
annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not
be recoverable. Goodwill is evaluated for potential impairment at the reporting unit level, which is either the operating segment or one level below.
Qualitative factors are first assessed to determine whether events or changes in circumstances indicate it is more
- likely - than - not that the fair value
of a reporting unit is less than its carrying amount. Qualitative factors which could trigger an interim impairment review, include, but are not limited to a:
If, based on the qualitative assessment, it is considered more
- likely - than - not that the fair value of a reporting unit is less than its carrying amount,
then a quantitative two
- step impairment test is performed. In the first step of the quantitative impairment test, the fair value of each reporting unit is
compared to its carrying amount. The fair value of the Intellectual Property Licensing reporting unit is estimated using an income approach and the fair
value of the Product reporting unit is estimated by weighting the fair values derived from an income approach and a market approach. Under the income
approach, the fair value of a reporting unit is estimated based on the present value of estimated future cash flows and considers estimated revenue growth
rates, future operating margins and risk - adjusted discount rates. Under the market approach, fair value is estimated based on market multiples of revenue or
earnings derived from comparable publicly - traded companies. The carrying amount of a reporting unit is determined by assigning the assets and liabilities,
including goodwill and intangible assets, to the reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not impaired and
no further testing is performed.
If the fair value of a reporting unit is less than its carrying amount, the second step of the quantitative goodwill impairment test is performed to
measure the amount of impairment loss, if any. In the second step, the reporting unit's assets, including any unrecognized intangible assets, liabilities and
non - controlling interests are measured at fair value in a hypothetical analysis to calculate the implied fair value of goodwill for the reporting unit in the same
manner as if the reporting unit was being acquired in a business combination. If the carrying amount of a reporting unit
’ s goodwill exceeds its implied fair
value, an impairment loss equal to the difference is recognized.
The process of evaluating goodwill for potential impairment is subjective and requires significant estimates, assumptions and judgments
particularly related to the identification of reporting units, the assignment of assets and liabilities to reporting units and estimating the fair value of each
reporting unit. Estimating the fair value of a reporting unit considers future revenue growth rates, operating margins, income tax rates and economic and
market conditions, as well as risk - adjusted discount rates and the identification of appropriate market comparable data.
During the three months ended September 30, 2015, the extent and duration of the decline in our stock price, among other factors, indicated that it
was more - likely - than - not that the fair value of our reporting units was less than their carrying amount and, as a result, a quantitative interim goodwill
impairment test was performed.
The results of the quantitative interim goodwill impairment test performed during the three months ended September 30, 2015 indicated that the
estimated fair value exceeded the carrying amount by 10% and 37% for the Intellectual Property Licensing and Product reporting units, respectively. While
the quantitative interim goodwill impairment test indicated that the fair value of each reporting unit exceeded its respective carrying amount, if we fail to
renew licenses, or renew licenses with materially different terms than those assumed, particularly with Comcast, EchoStar or Time Warner Cable, if there is a
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significant deterioration in general economic, industry or market conditions;
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significant adverse developments in cost factors;
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significant deterioration in actual or expected financial performance or operating results;
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significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments; and
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significant sustained decrease in share price.