UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
_________________________
FORM 10-Q
  _________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2014
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-27141
 _________________________
TIVO INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
 
77-0463167
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2160 Gold Street, P.O. Box 2160, San Jose, CA 95002
(Address of principal executive offices including zip code)
(408) 519-9100
(Registrant's telephone number, including area code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act) (Check One)
Large Accelerated Filer  x     Accelerated Filer   o     Non-Accelerated Filer   o     Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x.
The number of shares outstanding of the registrant's common stock, $0.001 par value, was 115,570,392 as of August 29, 2014.
 



TIVO INC.
FORM 10-Q
For the Fiscal Quarter Ended July 31, 2014

TABLE OF CONTENTS
 
 
 
PART I.
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
© 2014 TiVo Inc. All Rights Reserved.
Except as the context otherwise requires, the terms “TiVo,” “Registrant,” “Company,” “we,” “us,” or “our” as used herein are references to TiVo Inc. and its consolidated subsidiaries.


2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to, among other things: 
•
our financial results, our expectations of future revenues, and profitability;
•
our intention and ability to protect our intellectual property in the future and the strength and future value of our intellectual property;
•
our TiVo-Owned retail subscriptions, our future investments in subscription acquisition activities, future advertising expenditures, hardware costs and associated hardware subsidies, and other sales and marketing activities, including our sales and marketing, subscription acquisition costs (SAC), average revenue per subscription (ARPU), and subscription churn;
•
our TiVo-Owned retail subscriptions, our estimates of the useful life of TiVo-enabled digital video recorders (DVRs) and Minis in connection with the recognition of revenue received from product lifetime subscriptions and the expected future increase in the number of fully-amortized TiVo-Owned product lifetime subscriptions, and our estimates of the effects of product lifetime subscriptions on churn;
•
our expectations regarding the seasonality of our business and subscription additions to the TiVo service;
•
our expectations regarding future growth in subscriptions to the TiVo service, including future increases in the number of television service operator (MSO) subscriptions and households through international expansion and the possibility of future decreases in the TiVo-Owned subscription base as well as future changes in our TiVo-Owned ARPU, including decreases in TiVo-Owned ARPUs as a result of increased sales of non-DVR devices such as TiVo Mini which have a lower monthly or product lifetime service fee than for DVRs;
•
our expectations regarding future media services and other revenues;
•
our future service and hardware revenues from TiVo-Owned subscriptions and future service, technology, and hardware revenues from MSOs;
•
our expectations regarding growth in the future advanced television services market for our services, software, and technology for both our hardware and in-home and outside-of-the-home cloud-based solutions, which will be impacted by alternatives to and competitors with our products, such as broadband content delivered by MSOs to their customers' computers and mobile devices (TV Everywhere), video delivered on demand to an MSO customers' set-top box (VOD), and network DVRs;
•
our expectations regarding continued regulatory required access to and installation and operational issues surrounding cable-operator provided CableCARDs™ and switched digital devices essential for TiVo consumer devices in cable homes;
•
our expectations that in the future we may also offer services for additional non-DVR products beyond TiVo Preview and Mini, for example, that may or may not incorporate the TiVo user interface and non-DVR software including a network DVR service;
•
our expectations of the future decrease in hardware revenues and hardware margin as our U.S. MSO customers transition their hardware purchases to third-party hardware manufacturers such as Pace and our belief that this will enable us to gain additional MSO subscriptions;
•
our expectations of the growth of the TiVo service and technology revenues outside the United States;
•
our expectations regarding a future decrease in the amount of our research and development spending and our associated ability to remain a competitive technology innovator and invest significant resources in advanced television solutions;
•
our expectation that annual research and development spending in fiscal year 2015 will continue to be significant but to be at lower levels than the fiscal year ended January 31, 2014;
•
our expectations regarding future increases in the amount of deferred expenses in costs of technology revenues related to development work for our television distribution partners and our ability to receive revenues equal to or greater than such deferred expenses from such television distribution partners;

3

•
our expectations regarding future changes in our operating expenses, including changes in general and administrative expenses, litigation expenses, sales and marketing, and subscription acquisition costs;
•
our expectations regarding our ability to oversee outsourcing of our manufacturing processes and engineering work and our ability to support the hardware, inventory, and hardware customization needs of our MSO customers;
•
our expectations regarding the usability of our finished goods inventory of DVRs and non-DVR products and the risks that hardware forecasts of our MSO customers may be reduced or delayed after we have committed manufacturing resources due to long lead times, which may require us to record additional write-downs if such inventory exceeds forecasted demand;
•
our expectations that in the future we may offer streaming content to Android devices;
•
our expectations regarding our ability to perform or comply with laws, regulations, and requirements different than those in the United States;
•
our expectations regarding future capital allocation activities including share buy-backs, mergers and acquisitions, issuance of debt, and other alternative capital distribution activities;
•
our expectations and estimates related to long-term investments and their associated carrying value; and
•
our expectations of growth from our acquisition of Digitalsmiths
.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “intend,” “estimate,” “continue,” “ongoing,” “predict,” “potential,” and “anticipate” or similar expressions or the negative of those terms or expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. Such factors include, among others, the information contained under the caption Part I, Item 1A. “Risk Factors” in our most recent annual report on Form 10-K and our subsequent current reports on Form 10-Q and Form 8-K. The reader is cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this quarterly report and we undertake no obligation to publicly update or revise any forward-looking statements in this quarterly report. The reader is strongly urged to read the information set forth under the caption Part I, Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A, “Risk Factors” for a more detailed description of these significant risks and uncertainties.

4
Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
TIVO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
(unaudited)
 
July 31, 2014
January 31, 2014
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
$
113,627

$
253,713

Short-term investments
669,016

748,759

Accounts receivable, net of allowance for doubtful accounts of $465 and $429, respectively
35,307

35,151

Inventories
16,515

22,316

Deferred cost of technology revenues, current
6,134

9,103

Deferred tax asset, current
120,862

113,621

Prepaid expenses and other, current
13,519

10,922

Total current assets
974,980

1,193,585

LONG-TERM ASSETS


Property and equipment, net of accumulated depreciation of $49,160 and $52,819, respectively
10,956

10,687

Developed technology and intangible assets, net of accumulated amortization of $27,043 and $23,059, respectively
56,044

7,328

Deferred cost of technology revenues, long-term
16,510

18,108

Deferred tax asset, long-term
47,507

57,492

Goodwill
99,340

12,266

Prepaid expenses and other, long-term
3,735

2,325

Total long-term assets
234,092

108,206

Total assets
$
1,209,072

$
1,301,791

LIABILITIES AND STOCKHOLDERS’ EQUITY


LIABILITIES


CURRENT LIABILITIES


Accounts payable
$
19,913

$
22,918

Accrued liabilities
39,888

50,204

Deferred revenue, current
174,530

174,739

Total current liabilities
234,331

247,861

LONG-TERM LIABILITIES


Deferred revenue, long-term
309,089

331,534

Convertible senior notes
172,500

172,500

Other long-term liabilities
3,934

811

Total long-term liabilities
485,523

504,845

Total liabilities
719,854

752,706

COMMITMENTS AND CONTINGENCIES (see Note 6)




STOCKHOLDERS’ EQUITY


Preferred stock, par value $0.001: Authorized shares are 10,000,000; Issued and outstanding shares - none
—

—

Common stock, par value $0.001: Authorized shares are 275,000,000; Issued shares are 137,794,278 and 134,588,456, respectively, and outstanding shares are 115,407,011 and 120,617,939, respectively
138

134

Treasury stock, at cost: 22,387,267 and 13,970,517 shares, respectively
(264,821
)
(154,071
)
Additional paid-in capital
1,146,817

1,112,957

Accumulated deficit
(393,081
)
(410,512
)
Accumulated other comprehensive income
165

577

Total stockholders’ equity
489,218

549,085

Total liabilities and stockholders’ equity
$
1,209,072

$
1,301,791

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share and share amounts)
(unaudited)
 
Three Months Ended July 31,
Six Months ended July 31,
 
2014
2013
2014
2013
Revenues
 
 
 
 
Service revenues
$
36,909

$
34,930

$
72,804

$
68,992

Technology revenues
49,717

42,056

99,823

69,781

Hardware revenues
25,232

23,104

46,290

43,890

Net revenues
111,858

100,090

218,917

182,663

Cost of revenues




Cost of service revenues
13,750

11,408

27,600

22,213

Cost of technology revenues
5,669

11,867

10,213

15,578

Cost of hardware revenues
22,524

21,957

42,288

40,453

Total cost of revenues
41,943

45,232

80,101

78,244

Gross margin
69,915

54,858

138,816

104,419

Research and development
25,051

26,305

51,398

52,767

Sales and marketing
10,284

9,069

20,599

17,576

Sales and marketing, subscription acquisition costs
1,212

1,996

2,717

3,855

General and administrative
15,760

23,225

31,114

45,011

Litigation proceeds
—

(108,102
)
—

(108,102
)
Total operating expenses
52,307

(47,507
)
105,828

11,107

Income from operations
17,608

102,365

32,988

93,312

Interest income
964

1,499

2,108

2,322

Interest expense and other expense, net
(1,966
)
(1,965
)
(3,942
)
(3,939
)
Income before income taxes
16,606

101,899

31,154

91,695

Benefit (provision) for income taxes
(7,299
)
167,039

(13,723
)
166,924

Net income
$
9,307

$
268,938

$
17,431

$
258,619

 




Net income per common share




Basic
$
0.08

$
2.27

$
0.16

$
2.16

Diluted
$
0.08

$
1.96

$
0.15

$
1.86

 




Income for purposes of computing net income per share:




Basic
$
9,307

$
268,938

$
17,431

$
258,619

Diluted
$
10,545

$
270,190

$
19,907

$
261,123

 








Weighted average common and common equivalent shares:




Basic
110,036,235

118,601,346

111,708,956

119,990,949

Diluted
129,249,175

137,992,699

131,533,268

140,043,209



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
 
Three Months Ended July 31,
Six Months ended July 31,
 
2014
2013
2014
2013
 
 
Net income
$
9,307

$
268,938

$
17,431

$
258,619

Other comprehensive income (loss):




Available-for-sale securities:








Unrealized loss on marketable securities, net of tax
(135
)
(208
)
(412
)
(144
)
Total comprehensive income, net of tax
$
9,172

$
268,730

$
17,019

$
258,475

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


7
Table of Contents

TIVO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
Six Months Ended July 31,
 
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES


Net income
$
17,431

$
258,619

Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization of property and equipment and intangibles
6,760

5,320

Stock-based compensation expense
17,029

17,610

Amortization of discounts and premiums on investments
5,903

2,766

Deferred income taxes
(1,189
)
(169,364
)
Amortization of deferred debt issuance costs
480

480

Excess tax benefits from employee stock-based compensation
(7,468
)
(498
)
Allowance for doubtful accounts
131

88

Changes in assets and liabilities:


Accounts receivable
2,956

1,962

Inventories
5,801

1,851

Deferred cost of technology revenues
4,299

230

Prepaid expenses and other
(631
)
(1,584
)
Accounts payable
(4,654
)
2,685

Accrued liabilities
(9,014
)
(5,805
)
Deferred revenue
(23,624
)
382,218

Other long-term liabilities
(110
)
(116
)
Net cash provided by operating activities
$
14,100

$
496,462

CASH FLOWS FROM INVESTING ACTIVITIES


Purchases of short-term investments
(348,720
)
(381,162
)
Sales or maturities of short-term investments
421,493

264,852

Acquisition of business, net of cash acquired
(128,387
)
—

Acquisition of property and equipment
(2,519
)
(3,069
)
Net cash used in investing activities
$
(58,133
)
$
(119,379
)
CASH FLOWS FROM FINANCING ACTIVITIES


Proceeds from issuance of common stock related to exercise of common stock options
3,580

3,997

Proceeds from issuance of common stock related to employee stock purchase plan
3,649

3,791

Excess tax benefits from employee stock-based compensation
7,468

498

Treasury stock - repurchase of stock
(110,750
)
(91,059
)
Net cash used in financing activities
$
(96,053
)
$
(82,773
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
(140,086
)
$
294,310

CASH AND CASH EQUIVALENTS:


Balance at beginning of period
253,713

157,104

Balance at end of period
$
113,627

$
451,414

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


TIVO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 San Jose, California. The unaudited interim condensed 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. The Company conducts its operations through one reportable segment.
The Company is subject to a number of risks, including delays in product and service developments; competitive product and service offerings; lack of market acceptance; the dependence on third-parties for manufacturing, marketing, and sales support, as well as third-party rollout schedules, software development issues for third-party products which contain its technology; intellectual property claims by and against the Company; access to television programming including digital cable signals in connection with CableCARD and switched digital Internet Protocol, downloadable conditional access, and other new signal delivery and encryption technologies; dependence on its relationships with third-party service providers for subscription growth; and the Company’s ability to sustain and grow both its TiVo-Owned and MSO subscription bases. The Company anticipates that its retail business will continue to be seasonal and expects to generate a significant portion of its new subscriptions during and immediately after the holiday shopping season.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited interim condensed consolidated financial statements do not contain all of the information and footnotes required by generally accepted accounting principles for complete audited annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of July 31, 2014 and January 31, 2014 and the results of operations and the statement of other comprehensive income for the three and six months ended July 31, 2014 and 2013 and condensed consolidated statements of cash flows for the six months ended July 31, 2014 and 2013. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, including the notes thereto, included in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2014. Operating results for the three and six months ended July 31, 2014 are not necessarily indicative of results that may be expected for this fiscal year ending January 31, 2015 or any other periods.
Business Combinations
The Company applies the acquisition method of accounting for business combinations, including its acquisition of Digitalsmiths on February 14, 2014. Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the completion of the transaction. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. As a result, the Company may have been required to value the acquired assets at fair value measures that do not reflect its intended use of those assets. Use of different estimates and judgments could yield different results. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. Although the Company believes the assumptions and estimates it has made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained from the management of the acquired company and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.

9

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on February 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

3. CASH AND INVESTMENTS
Cash, cash equivalents, and short-term investments, consisted of the following:
 
As of
 
July 31, 2014
January 31, 2014
 
(in thousands)
Cash and cash equivalents:
 
 
Cash
$
20,247

$
16,718

Cash equivalents:


Commercial paper
32,296

72,268

Certificates of deposit
2,000

—

Money market funds
59,084

164,727

Total cash and cash equivalents
$
113,627

$
253,713

Marketable securities:


Certificates of deposit
$
22,950

$
11,424

Commercial paper
138,876

176,205

Corporate debt securities
470,874

492,765

Foreign government securities
7,851

—

U.S. Treasury securities
—

20,024

Variable-rate demand notes
285

350

Asset and mortgage-backed securities
28,180

43,111

Municipal bonds
—

4,880

Current marketable debt securities
$
669,016

$
748,759

Other investment securities:



                   Other investment securities - cost method
$
250

$
250

                               Total other investment securities
$
250

$
250

Total cash, cash equivalents, marketable securities, and other investment securities
$
782,893

$
1,002,722

Marketable Securities
The Company’s investment securities portfolio consists of various debt instruments, including corporate and government bonds, asset and mortgage-backed securities, government securities, and municipal bonds, all of which are classified as available-for-sale.
Other investment securities

10
Table of Contents

TiVo has an investment in a private company where the Company’s ownership is less than 20% and TiVo does not have significant influence. The investment is accounted for under the cost method and is periodically assessed for other-than-temporary impairment. Refer to Note 4 "Fair Value" for additional information on the impairment assessment of the investment.
Contractual Maturity Date
The following table summarizes the estimated fair value of the Company’s debt investments, designated as available-for-sale, classified by the contractual maturity date of the security:
 
As of
 
July 31, 2014
January 31, 2014
 
(in thousands)
Due within 1 year
$
474,262

$
662,299

Due within 1 year through 5 years
194,469

86,110

Due after 10 years
285

350

Total
$
669,016

$
748,759

Unrealized Gains (Losses) on Marketable Investment Securities
The following tables summarize unrealized gains and losses related to the Company’s investments in marketable securities designated as available-for-sale:
 
As of July 31, 2014
 
Adjusted
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(in thousands)
Certificates of deposit
$
22,950

$
—

$
—

$
22,950

Commercial paper
138,818

58

—

138,876

Corporate debt securities
470,820

217

(163
)
470,874

Foreign government securities
7,852

—

(1
)
7,851

Variable-rate demand notes
285

—

—

285

Asset and mortgage-backed securities
28,172

8

—

28,180

Total
$
668,897

$
283

$
(164
)
$
669,016

 
 
 
 
 
 
As of January 31, 2014
 
Adjusted
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(in thousands)
Certificates of deposit
$
11,424

$
—

$
—

$
11,424

Commercial paper
176,120

85

—

176,205

Corporate debt securities
492,295

532

(62
)
492,765

U.S. Treasury securities
20,023

1

—

20,024

Variable-rate demand notes
350

—

—

350

Asset and mortgage-backed securities
43,105

10

(4
)
43,111

Municipal bonds
4,875

5

—

4,880

Total
$
748,192

$
633

$
(66
)
$
748,759

None of these investments were in a loss position for greater than twelve months as of July 31, 2014 and January 31, 2014.

11
Table of Contents

4. FAIR VALUE
Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect TiVo's market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1 - Quoted prices for identical instruments in active markets;
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires TiVo to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. TiVo recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred.
Cash equivalents and available-for-sale marketable securities (including asset- and mortgage-backed securities) are reported at their fair value. Additionally, carrying amounts of certain of the Company’s financial instruments including accounts receivable, accounts payable, and accrued expenses approximate their fair value because of their short maturities. The Company has financial liabilities for which it is obligated to repay the carrying value, unless the holder agrees to a lesser amount. These financial liabilities include TiVo's convertible debt. The fair values of TiVo's convertible debt are influenced by interest rates, TiVo's stock price and stock price volatility and are determined by Level 2 inputs. The carrying value of these financial liabilities at July 31, 2014 and January 31, 2014 was $172.5 million (for both periods) and the fair value was $233.8 million and $228.5 million, based on the convertible debts' quoted market price as of July 31, 2014 and January 31, 2014, respectively. On a quarterly basis, TiVo measures at fair value certain financial assets and liabilities. The fair value of those financial assets and

12
Table of Contents

liabilities was determined using the following levels of inputs as of July 31, 2014 and January 31, 2014:
 
As of July 31, 2014
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
Cash equivalents:
 
 
 
 
Commercial paper
$
32,296

$
—

$
32,296

$
—

Certificates of deposit
2,000

—

2,000

—

Money market funds
59,084

59,084

—

—

Short-term investments:




Certificates of deposit
22,950

—

22,950

—

Commercial paper
138,876

—

138,876

—

Corporate debt securities
470,874

—

470,874

—

Foreign government securities
7,851

—

7,851

—

Variable-rate demand notes
285

—

285

—

Asset- and mortgage-backed securities
28,180

—

28,180

—

     Total
$
762,396

$
59,084

$
703,312

$
—

 
As of January 31, 2014
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
Cash equivalents:
 
 
 
 
Commercial paper
$
72,268

$
—

$
72,268

$
—

Money market funds
164,727

164,727

—

—

Short-term investments:




Certificates of deposit
11,424

—

11,424

—

Commercial paper
176,205

—

176,205

—

Corporate debt securities
492,765

—

492,765

—

U.S. Treasury securities
20,024

20,024

—

—

Variable-rate demand notes
350

—

350

—

Asset- and mortgage-backed securities
43,111

—

43,111

—

Municipal bonds
4,880

—

4,880

—

     Total
$
985,754

$
184,751

$
801,003

$
—

    
Level 1 Measurements
TiVo's cash equivalents held in money market funds, TiVo's available-for-sale securities and the trading securities are measured at fair value using Level 1 inputs.
Level 2 Measurements
The Company uses inputs such as broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods

13
Table of Contents

presented, any material adjustments to such inputs. The Company is ultimately responsible for the financial statements and underlying estimates.
Level 3 Measurements
As of July 31, 2014, TiVo had no Level 3 instruments.
The Company did not have any transfers between Level 1, Level 2, and Level 3 fair value measurements during the periods presented as there were no changes in the composition of Level 1, 2, or 3 securities.
TiVo also has a direct investment in a privately-held company accounted for under the cost method, which is periodically assessed for other-than-temporary impairment. If the Company determines that an other-than-temporary impairment has occurred, TiVo will write-down the investment to its fair value. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if such a significant adverse events were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as pricing in recent rounds of financing, current cash position, earnings and cash flow forecasts, recent operational performance, and any other readily available data. The carrying amount of the Company's cost method investment was $250,000 as of July 31, 2014 and January 31, 2014. No events or circumstances indicating a potential impairment were identified as of as of July 31, 2014.
5. INVENTORY
Inventory was as follows:

As of

July 31, 2014
January 31, 2014
 
( in thousands)
Raw Materials
$
1,267

$
1,858

Finished Goods
15,248

20,458

Total Inventory
$
16,515

$
22,316

6. COMMITMENTS AND CONTINGENCIES
Product Warranties
The Company’s standard manufacturer's warranty period to consumers for TiVo-enabled DVRs is 90 days for parts and labor from the date of consumer purchase, and from 91-365 days for parts only. Within the limited warranty period, consumers are offered a no-charge exchange for TiVo-enabled DVRs returned due to product defect, within 90 days from the date of consumer purchase. Thereafter, consumers may exchange a TiVo-enabled DVR with a product defect for a charge. As of July 31, 2014 and January 31, 2014, the accrued warranty reserve was $412,000 and $621,000, respectively. The Company’s accrued warranty reserve is included in accrued liabilities in the accompanying condensed consolidated balance sheets.
The Company also offers its TiVo-Owned customers separately priced optional 2-year and 3-year extended warranties. The Company defers and amortizes cost and revenue associated with the sales of these extended warranties over the warranty period or until a warranty is redeemed. Additionally, the Company offers its MSO customers separately priced optional 3-year extended warranties. The Company recognizes the revenues associated with sale of these extended warranties over the second and third year of the warranty period. As of July 31, 2014, the extended warranty deferred revenue and cost was $2.1 million and $280,000, respectively. As of January 31, 2014, the extended warranty deferred revenue and cost was $2.0 million and $287,000, respectively.
Indemnification Arrangements
The Company undertakes indemnification obligations in its ordinary course of business. For instance, the Company has undertaken to indemnify its underwriters and certain investors in connection with the issuance and sale of its securities and the Company provides indemnification for its directors and officers in accordance with Delaware law. The Company has also undertaken to indemnify certain customers and business partners for, among other things, the licensing of its products, the sale of its DVRs, and the provision of engineering and consulting services. Pursuant to these agreements, the Company may indemnify the other party for certain losses suffered or

14
Table of Contents

incurred by the indemnified party in connection with various types of claims, which may include, without limitation, intellectual property infringement, advertising and consumer disclosure laws, certain tax liabilities, negligence and intentional acts in the performance of services and violations of laws, including certain violations of securities laws with respect to underwriters and investors. The term of these indemnification obligations is generally perpetual. The Company’s obligation to provide indemnification under its agreements with customer and business partners 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, if any. 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 operation 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.
Legal Matters
From time to time, the Company is involved in numerous lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. The Company assesses potential liabilities in connection with each lawsuit and threatened lawsuits and accrues an estimated loss for these loss contingencies if both of the following conditions are met: information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While certain matters to which the Company is a party specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of the litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated. As of July 31, 2014, the Company has not accrued any pre-judgment liability for any lawsuits filed against the Company (except for $1.0 million for an arbitration proceeding related to a contractual dispute), as the Company has neither determined that it is probable that a liability has been incurred at the date of the financial statements nor that the amount of any loss can be reasonably estimated. The Company expenses legal costs as they are incurred.
7. NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, excluding unvested restricted stock.
Diluted net income per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Dilutive potential common shares include outstanding stock options, stock awards, and performance stock awards and are calculated using the treasury stock method. Also included in the weighted average effect of dilutive securities is the diluted effect of the convertible senior notes which is calculated using the if-converted method.
The following table sets forth the computation of basic and diluted earnings per common share:

15
Table of Contents

 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(income in thousands)
Numerator:
 
 
 
 
Net income
$
9,307

$
268,938

$
17,431

$
258,619

 Interest on dilutive notes, net of tax
1,238

1,252

2,476

2,504

Net income for purpose of computing net income per diluted share
10,545

270,190

19,907

261,123

Denominator:




Weighted average shares outstanding, excluding unvested restricted stock
110,036,235

118,601,346

111,708,956

119,990,949

Weighted average effect of dilutive securities:




Stock options, restricted stock, and employee stock purchase plan
3,750,747

3,929,160

4,362,119

4,590,067

Convertible senior notes
15,462,193

15,462,193

15,462,193

15,462,193

Denominator for diluted net income per common share
129,249,175

137,992,699

131,533,268

140,043,209

Basic net income per common share
$
0.08

$
2.27

$
0.16

$
2.16

Diluted net income per common share
$
0.08

$
1.96

$
0.15

$
1.86

The weighted average number of shares outstanding used in the computation of diluted net income per share in the three and six months ended July 31, 2014 and 2013 do not include the effect of the following potentially outstanding common shares because the effect would have been anti-dilutive:
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
Unvested restricted stock
3,998

83,340

2,281

—

Options to purchase common stock
356,675

739,358

403,979

716,601

Potential shares to be issued from employee stock purchase plan
—

—

—

—

Convertible senior notes
—

—

—

—

Total
360,673

822,698

406,260

716,601

8. STOCK-BASED COMPENSATION
Total stock-based compensation for the three and six months ended July 31, 2014 and 2013 is as follows:
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands)
Cost of service revenues
$
477

$
536

$
903

$
932

Cost of technology revenues
297

693

602

955

Cost of hardware revenues
57

74

138

157

Research and development
3,040

3,508

6,028

6,420

Sales and marketing
1,245

1,524

2,559

2,609

General and administrative
3,606

4,129

6,801

6,537

Stock-based compensation before income taxes
$
8,722

$
10,464

$
17,031

$
17,610

Income tax benefit
(2,316
)
(2,302
)
(4,275
)
(3,792
)
Total stock-based compensation
$
6,406

$
8,162

$
12,756

$
13,818

9. ACQUISITIONS
On February 14, 2014, the Company completed its acquisition of Digitalsmiths Corporation, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated January 29, 2014 for $133.3 million in cash. Digitalsmiths Corporation was a privately-held cloud-based content discovery and recommendation service

16
Table of Contents

company headquartered in Durham, North Carolina. The acquisition of Digitalsmiths accelerates TiVo's evolution to a device and user interface cloud-based Software-as-a-Service company. Digitalsmiths' results of operations and the estimated fair value of assets acquired and liabilities assumed were included in the Company's unaudited consolidated financial statements beginning February 14, 2014. A total of $756,000 of acquisition costs were expensed as incurred of which $709,000 were expensed in fiscal year 2014 and the remainder during the six months ended July 31, 2014. During the three months ended July 31, 2014, we accrued an incremental $139,000 related to commission liabilities. This incremental accrual increased our accrued liabilities and our goodwill as of July 31, 2014.
The purchase consideration was preliminarily allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. TiVo will continue to evaluate certain current liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date). The Company's preliminary allocation of the total purchase price is as follows:
Digitalsmiths
Purchase Accounting - Opening Balance Sheet
(in thousands)
 
 
Assets:
 
Cash
$
4,882

Accounts receivable
3,243

Other current assets
3,201

Deferred tax assets, current
3,831

Fixed assets
143

Total Assets
$
15,300

 

Liabilities:

Accounts payable
$
(1,266
)
Other current liabilities
(8,572
)
Deferred revenue
(970
)
Deferred tax liability, long term
(9,985
)
Other long-term liabilities
(1,012
)
Total Liabilities
$
(21,805
)
 

Intangibles
52,700

Goodwill
87,074

Total purchase consideration
$
133,269

The following table presents details of the intangible assets acquired through this business combination (in thousands, except years):
Description
Asset Life in years
Fair Value
Software technology
6
$
14,100

Customer relationships
10
$
37,000

Trade name
6
$
1,400

In process research and development
N/A
$
200

Total identifiable intangible assets

$
52,700

The Company does not believe there is any significant residual value associated with these intangible assets. The Company's management determined the fair values of the intangible assets with the assistance of a valuation firm. The estimation of the fair value of the intangible assets required the use of valuation techniques and entailed

17
Table of Contents

consideration of all the relevant factors that might affect the fair value, such as present value factors, estimates of future revenues, and costs. The estimated fair values of the intangibles acquired were determined based on the relief-from-royalty method for software technology and trade name and multi-period excess earnings method for customer relationships with key assumptions including: 1) forecasted revenue and operating results; 2) royalty rates; 3) discount rates ranging from 12% to 14%; and 4) customer attrition rates. The Company expects to amortize the fair value of these intangible assets on a straight-line basis over their respective estimated useful lives.
Goodwill
The goodwill amount of $87.1 million represents the excess of the purchase price over the fair value of the identified net tangible and intangible assets. The goodwill recognized in this acquisition was derived from expected benefits from future technology, cost synergies, and knowledgeable and experienced workforce who joined the Company after the acquisition. Goodwill will not be amortized, but will be tested instead for impairment annually or more frequently if certain indicators of impairment are present. Goodwill is not expected to be tax deductible for income tax purposes.
10. INCOME TAX
The Company recorded income tax expense of $7.3 million and $13.7 million, respectively for the three months and six months ended July 31, 2014 as compared to an income tax benefit of $167.0 million and $166.9 million, respectively for the same prior year periods. The effective tax rate for the three and six months ended July 31, 2014 was 44%. The effective tax rate for the three and six months ended July 31, 2013 was (164)% and (182)%, respectively.
The provision for income taxes for the three and six months ended July 31, 2014 differs from the U.S. statutory tax rate of 35% primarily due to the tax impact of non-deductible executive based compensation, stock based compensation, and state taxes. The higher effective tax rate for the three and six months ended July 31, 2014, compared to the same periods in fiscal year 2014, is primarily attributable to the release of Company’s valuation allowance on its deferred tax assets as of July 31, 2013. .
As of July 31, 2014, the Company believes that its deferred tax assets are more likely than not to be realized, with the exception of California deferred tax assets. The Company continues to maintain a valuation allowance on its California deferred tax assets as it is not more likely than not that these deferred tax assets will be realized. Income tax benefits attributable to the exercise of employee stock options of $5.0 million and $9.9 million during the three and six months ended July 31, 2014, respectively were recorded directly to “Additional paid-in capital” on the unaudited Condensed Consolidated Balance Sheets.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and the accompanying notes included in this report and our most recent annual report on Form 10-K filed on March 14, 2014, the sections entitled “Risk Factors” in Item 1A of our most recent annual report on Form 10-K and Part II, Item 1A of this quarterly report, as well as other cautionary statements and risks described elsewhere in this report and our most recent annual report on Form 10-K filed on March 14, 2014 before deciding to purchase, sell or hold our common stock.
Company Overview
We are a global leader in next-generation television software services and innovative cloud-based Software-as-a-Service solutions that enable viewers to consume content across all screens in-home and outside-of-the home. The TiVo experience provides an all-in-one approach for navigating the ‘content chaos’ by seamlessly combining live, recorded, on-demand, and over-the-top (e.g. NetFlix, Hulu, YouTube) television into one intuitive user interface with simple universal search, discovery, viewing and recording from any device, creating the ultimate viewing experience. We distribute our software, technology, and services through an increasing variety of consumer electronic applications and devices, such as television set-top boxes with and without DVR functionality, smartphones, and tablets. We offer a full whole-home solution that includes 4-Tuner and 6-Tuner DVRs/gateways, non-DVR IP set-top boxes (STBs), and software to enable streaming to mobile and tablet iOS devices (with Android devices coming in the future) through features such as What to Watch Now, Season Pass® recordings, integrated search (including content from both traditional linear television, cable VOD, and broadband sources in one user interface), access to broadband video content, TiVo Online/Mobile Scheduling and applications on third-party devices such as tablet computers and smartphones. As of July 31, 2014, there were approximately 4.8

18
Table of Contents

million subscriptions to the TiVo service through our TiVo-Owned and MSO businesses. In our TiVo-Owned business, we distribute the TiVo DVR through consumer electronics retailers and through our on-line store at TiVo.com. Additionally, in our MSO business, we generate service, and, in some cases hardware revenues by providing the TiVo service through agreements with leading satellite and cable television service providers and broadcasters on MSO provisioned STBs (both through TiVo supplied and third-party supplied STBs) and other devices. We also generate technology revenues through engineering professional services in connection with the development and deployment of the TiVo service to our MSO customers.
On February 14, 2014, we acquired Digitalsmiths Corporation, one of the Pay TV industry's most broadly adopted cloud-based search and recommendation services. We believe this acquisition will broaden our product and service portfolio and increase our opportunities among Pay TV operators, consumer electronics manufacturers, and content providers. Additionally, we generate advertising and audience research and measurement revenues by providing innovative advertising and audience measurement solutions for the television industry.
We are focused on enhancing long-term shareholder value, and will continue to evaluate opportunities to grow our business organically and/or through acquisitions. On August 26, 2014, we announced that our board of directors had authorized a new $350 million share repurchase program to replace the prior authorization that had $85.8 million remaining. This new $350 million share repurchase program expires on January 31, 2017, with $100 million in initial share repurchases under this new program intended to be completed in the fiscal year ending January, 31, 2015. As of July 31, 2014 we had purchased a total of 17,939,094 shares of common stock under the prior program at a weighted average price of $11.94 per share for an aggregate purchase price of $214.2 million.
We have engaged in significant intellectual property litigation with certain television service and technology providers in the United States to protect our technology from infringement. To date, we have received cash and future technology revenue payment commitments totaling over $1.6 billion from intellectual property litigation.
Executive Overview
Fiscal year 2015
In the fiscal year ending January 31, 2015, we plan to continue to be focused on our efforts to build leading advanced television products, enter into new distribution agreements, engage in development work for existing distribution customers, and continue deployment activities for our existing distribution customers. Additionally, we have been and plan to continue to actively protect our intellectual property. We will continue to focus on the following priorities: 
•We expect to continue our efforts to increase our subscription base by adding new subscriptions through our mass distribution relationships both in the U.S. and internationally as well as our TiVo-Owned direct and retail sales with the roll out of new products, such as our TiVo Roamio product line (an all-in-one approach to live, recorded, on demand, and over-the-top television). We expect to further grow our MSO subscription base during the fiscal year ending January 31, 2015. However, we expect that net subscription growth in our installed base of MSO subscriptions will likely be slightly offset by further declines in our net TiVo-Owned subscriptions.
•We believe giving operators a choice of hardware platforms is critical to attracting new MSO customers, and driving increased penetration in current MSO customers to increase our MSO service revenues in the long term. As a result, we expect MSO hardware revenues and margins to likely decline in future quarters as U.S. MSO customers transition to third-party hardware such as Pace and other products which can support our TiVo service. Although we lose hardware margin in the short term from decreased hardware sales, we believe we gain additional subscribers through MSOs that would not otherwise be willing to sell the TiVo service.
•We expect to see revenue growth from our acquisition of Digitalsmiths. Digitalsmiths currently has business relationships with seven of the top ten U.S. Pay TV operators as well as various consumer electronics manufacturers and content providers. Most of these relationships are at the early stages of deployment and we expect increased penetration will drive further growth. Additionally, we are focused on signing additional distribution customers for Digitalsmiths both in the U.S. and internationally as well as launching new Digitalsmiths' products and services in the future.
•We believe that our investment in research and development is critical to remaining competitive and being a leader in advanced television solutions. Therefore, we expect our annual research and development spending in fiscal year 2015 to continue to be significant but to be at lower levels than the fiscal year ended January 31, 2014 as we continue to launch and pursue new product developments

19
Table of Contents

including enhanced cloud-based services such as network DVR, a more personalized user experience, expanded mobile applications, out-of-home and expanded multi-room streaming capabilities, data analytics, and a variety of back-office enhancements which increase our operational capacity to handle more operator deployments.
•We will continue our efforts to protect our technological innovations and intellectual property. However, we expect our litigation expenses to be significantly lower during the fiscal year ending January 31, 2015 as we have no material ongoing patent enforcement actions.
•We expect to continue our development efforts under our existing MSO deployment arrangements. As part of these arrangements, we typically receive some payments upfront and a portion over time that is a recoupment of costs to develop. As such, to the extent that our development costs exceed upfront development fees from such arrangements, but the recovery of such development costs through future service fees from these MSOs is reasonably assured, we will defer such development costs and start expensing them in our Statement of Operations later upon deployment with the MSO. As of July 31, 2014 we had deferred costs of approximately $22.6 million related to development work, largely related to Com Hem, ONO, and Charter Communications Operating, LLC (Charter). However, despite the deferral of these development costs, we do incur cash outflows associated with these development efforts resulting in potentially higher cash usage in the near term. Also for international MSOs, when related revenues from service fees are received, they are first recognized as technology revenues until the previously deferred costs of development of such arrangements are expensed. Based on the contractual commitments or recent MSO activities, full recovery of the deferred costs must be reasonably assured. However, we face the risk of unexpected losses if we are forced to recognize these deferred costs early if we don't successfully complete the developments and deployments with the MSO partners or these partners default on future guaranteed service fees or are otherwise able to terminate their contracts with us.
Key Business Metrics
Management periodically reviews certain key business metrics in order to evaluate our operations, allocate resources, and drive financial performance in our business. Management monitors these metrics together and not individually as it does not make business decisions based upon any single metric.
Subscriptions and Households. Management reviews these metrics, and believes they may be useful to investors, in order to evaluate our relative position in the marketplace and to forecast future potential service revenues. Below is a table that details the change in our subscription base during the last eight quarters. The TiVo-Owned Subscription lines refer to subscriptions sold directly or indirectly by TiVo to consumers who have TiVo-enabled devices (such as a DVR or TiVo Mini) and for which TiVo incurs acquisition costs. The MSO Subscription lines refer to subscriptions sold to consumers by MSOs such as Com Hem, ONO, RCN, Suddenlink, Virgin,
among others, and for which TiVo expects to incur little or no acquisition costs. Additionally, we provide a breakdown of the average subscriptions for the quarter, the total MSO households and the MSO average households for the quarter, the number of fully amortized active lifetime subscriptions, and percent of TiVo-Owned

20
Table of Contents

Subscriptions for which consumers pay recurring fees as opposed to a one-time prepaid product lifetime fee.
 
Three Months Ended
(Subscriptions and Households in thousands)
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
TiVo-Owned Gross Additions:
27

32

49

33

20

24

35

30

Net Additions/(Losses):








TiVo-Owned
(20
)
(9
)
6

(21
)
(26
)
(22
)
(13
)
(15
)
MSOs
283

341

313

295

238

277

222

240

Total Net Additions/(Losses)
263

332

319

274

212

255

209

225

Cumulative Subscriptions:








TiVo-Owned
937

957

966

960

981

1,007

1,029

1,042

MSOs
3,867

3,584

3,243

2,930

2,635

2,397

2,120

1,898

Total Cumulative Subscriptions
4,804

4,541

4,209

3,890

3,616

3,404

3,149

2,940

Average Subscriptions:










TiVo-Owned Average Subscriptions
946

961

962

974

994

1,018

1,035

1,050

MSO Average Subscriptions
3,727

3,420

3,072

2,775

2,514

2,261

2,011

1,771

Total Average Subscriptions:
4,673

4,381

4,034

3,749

3,508

3,279

3,046

2,821

Total MSO Households
3,391

3,172

2,912

2,664

2,410

2,222

1,980

1,782

MSO Average Households
3,283

3,036

2,785

2,535

2,318

2,104

1,884

1,668

TiVo-Owned Fully Amortized Active Lifetime Subscriptions
159

161

171

169

176

181

194

208

% of TiVo-Owned Cumulative Subscriptions paying recurring fees
49
%
50
%
50
%
51
%
52
%
52
%
53
%
54
%
We define a “subscription” as a contract referencing a TiVo-enabled device such as a DVR or TiVo Mini for which (i) a consumer has committed to pay for the TiVo service and (ii) service is not canceled. Each TiVo-Owned Subscription represents a single TiVo-enabled device (as defined above) and therefore one or more TiVo-Owned Subscriptions may be present in a single household. MSO Subscriptions are a count of the number of devices that connect to the TiVo service and one or more devices may be present in a single household. Subscriptions do not include soft-clients (i.e. iPad application or web portal) or digital tuning adapter users. We count product lifetime subscriptions in our subscription base until both of the following conditions are met: (i) the period we use to recognize product lifetime subscription revenues ends; and (ii) the related TiVo-enabled device has not made contact to the TiVo service within the prior six month period. Product lifetime subscriptions past this period which have not called into the TiVo service for six months are not counted in this total.
We define a "household" as one or more devices associated with the same contract or customer number. We currently do not report TiVo-Owned households as we currently receive incremental revenue for each new TiVo-Owned Subscription in the TiVo-Owned business whereas, in some cases, our MSO customers pay us on a per household basis.
We calculate average subscriptions for the period by adding the average subscriptions for each month and dividing by the number of months in the period. We calculate the average subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We calculate Average MSO Households for the period by adding the average households for each month and dividing by the number of months in the period. We calculate the average households for each month by adding the beginning and ending households for the month and dividing by two. We are not aware of any uniform standards for defining subscriptions or households and caution that our presentation may not be consistent with that of other companies. Additionally, the fees that our MSOs pay us are typically based upon a specific contractual definition of a subscriber, subscription, household or a TiVo-enabled device which may not be consistent with how we define a subscription or household for our reporting purposes nor be representative of how such fees are calculated and paid to us by our MSOs. Our MSOs Subscription and MSO Household data is dependent in part on reporting from our third-party MSO partners.
TiVo-Owned Subscriptions declined by 20,000 subscriptions during the three months ended July 31, 2014, as compared to a decrease of 26,000 in the same prior year period. The improvement in net TiVo-Owned Subscription losses of 6,000 subscriptions was largely related to increased gross subscription additions. The TiVo-Owned installed subscription base decreased to 937,000 subscriptions as of July 31, 2014 as compared to 981,000 as of July 31, 2013. We believe the year over year decrease in total TiVo-Owned Subscriptions was largely due to continued pressure on subscription gross additions resulting from increased competition from DVRs

21
Table of Contents

distributed by cable and satellite companies as we continued to have fewer TiVo-Owned Subscription gross additions than TiVo-Owned Subscription cancellations.
Our MSO installed subscription base increased by 283,000 subscriptions during the three months ended July 31, 2014, to approximately 3.9 million subscriptions as of July 31, 2014. The increase in cumulative MSO Subscriptions of 1.2 million subscriptions as of July 31, 2013 is due to subscription growth from a variety of partners including Com Hem, ONO, RCN, Suddenlink, Virgin, and others. This subscription growth is largely related to international MSO subscriptions though domestic MSO subscription growth has increased as a contributer. We expect continued growth in our MSO installed subscription base through continued growth from existing distribition and as additional MSO distribution deals launch.
TiVo-Owned Churn Rate per Month. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our ability to retain existing TiVo-Owned Subscriptions (including both monthly and product lifetime subscriptions) by providing services that are competitive in the market. Management believes factors such as service enhancements, service commitments, higher customer satisfaction, and improved customer support may improve this metric. Conversely, management believes factors such as increased competition, lack of competitive service features such as high definition television recording capabilities in our older model DVRs or access to certain digital television channels or MSO Video On Demand services, as well as increased price sensitivity, CableCARDTM installation issues, and CableCARDTM technology limitations, may cause our TiVo-Owned Churn Rate per month to increase.
We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned Subscription cancellations in the period divided by the Average TiVo-Owned subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period. We calculate Average TiVo-Owned subscriptions for the period by adding the average TiVo-Owned Subscriptions for each month and dividing by the number of months in the period. We calculate the average TiVo-Owned Subscriptions for each month by adding the beginning and ending subscriptions for the month and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of other companies.
The following table presents our TiVo-Owned Churn Rate per month information:
 
Three Months Ended
(Subscriptions in thousands)
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
Average TiVo-Owned subscriptions
946

961

962

974

994

1,018

1,035

1,050

TiVo-Owned subscription cancellations
(47
)
(41
)
(43
)
(54
)
(46
)
(46
)
(48
)
(45
)
TiVo-Owned Churn Rate per month
(1.6
)%
(1.4
)%
(1.5
)%
(1.8
)%
(1.5
)%
(1.5
)%
(1.5
)%
(1.4
)%
TiVo-Owned Churn Rate per month was 1.6% and 1.5% for the quarters ended July 31, 2014 and 2013, respectively. The increase in our Churn Rate per month is a result of slightly higher number of subscription cancellations combined with a lower average TiVo-Owned subscription base, as compared to the same prior year period. Included in our TiVo-Owned Churn Rate per month are those product lifetime subscriptions that have both reached the end of the revenue recognition period and whose DVRs have not contacted the TiVo service within the prior six months. Conversely, we do not count as churn product lifetime subscriptions that have not reached the end of the revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service.
Subscription Acquisition Cost or SAC. Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total TiVo-Owned acquisition costs for a given period divided by TiVo-Owned subscription gross additions for the same period. We define total acquisition costs as sales and marketing, subscription acquisition costs less net TiVo-Owned related hardware revenues (defined as TiVo-Owned related gross hardware revenues less rebates, revenue share and market development funds paid to retailers) plus TiVo-Owned related cost of hardware revenues. The sales and marketing, subscription acquisition costs line item includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities, but does not include expenses related to advertising sales. We do not include third-parties’ subscription gross additions, such as MSOs' gross additions with TiVo subscriptions, in our calculation of SAC because we typically incur limited or no acquisition costs for these new subscriptions, and so we also do not include MSOs’ sales and marketing, subscription acquisition costs, hardware revenues, or cost of hardware revenues in our

22
Table of Contents

calculation of TiVo-Owned SAC. We are not aware of any uniform standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
 
Three Months Ended
  
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
 
(In thousands, except SAC)
Subscription Acquisition Costs








Sales and marketing, subscription acquisition costs
$
1,212

$
1,505

$
6,038

$
2,628

$
1,996

$
1,859

$
3,471

$
1,560

Hardware revenues
(25,232
)
(21,058
)
(22,301
)
(35,597
)
(23,104
)
(20,786
)
(23,129
)
(21,072
)
Less: MSOs-related hardware revenues
20,234

15,896

12,634

25,759

20,103

16,002

16,834

13,051

Cost of hardware revenues
22,524

19,764

23,163

33,017

21,957

18,496

21,847

23,434

Less: MSOs-related cost of hardware revenues
(14,805
)
(11,961
)
(9,650
)
(20,530
)
(15,384
)
(11,079
)
(11,036
)
(11,841
)
Total Acquisition Costs
$
3,933

$
4,146

$
9,884

$
5,277

$
5,568

$
4,492

$
7,987

$
5,132

TiVo-Owned Subscription Gross Additions
27

32

49

33

20

24

35

30

Subscription Acquisition Costs (SAC)
$
146

$
130

$
202

$
160

$
278

$
187

$
228

$
171



 
Twelve Months Ended
  
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
 
(In thousands, except SAC)
Subscription Acquisition Costs








Sales and marketing, subscription acquisition costs
$
11,383

$
12,167

$
12,521

$
9,954

$
8,886

$
9,262

$
8,660

$
6,509

Hardware revenues
(104,188
)
(102,060
)
(101,788
)
(102,616
)
(88,091
)
(76,116
)
(68,591
)
(61,890
)
Less: MSOs-related hardware revenues
74,523

74,392

74,498

78,698

65,990

52,583

45,849

40,656

Cost of hardware revenues
98,468

97,901

96,633

95,317

85,734

78,208

78,183

76,704

Less: MSOs-related cost of hardware revenues
(56,946
)
(57,525
)
(56,643
)
(58,029
)
(49,340
)
(39,355
)
(38,435
)
(36,811
)
Total Acquisition Costs
$
23,240

$
24,875

$
25,221

$
23,324

$
23,179

$
24,582

$
25,666

$
25,168

TiVo-Owned Subscription Gross Additions
141

134

126

112

109

117

117

114

Subscription Acquisition Costs (SAC)
$
165

$
186

$
200

$
208

$
213

$
210

$
219

$
221

As a result of the seasonal nature of our subscription growth in the past, total acquisition costs have varied significantly during the year. Management primarily reviews the SAC metric on an annual basis due to the timing difference between our recognition of promotional program expense and the subsequent addition of the related subscriptions. For example, we have historically experienced increased TiVo-Owned subscription gross additions during the fourth quarter; however, sales and marketing, subscription acquisition activities occur throughout the year.
During the three months ended July 31, 2014, our total acquisition costs were $3.9 million, a decrease of $1.6 million, as compared to the same prior year period. This decrease was primarily due to decreased sales and marketing subscription acquisition costs of $784,000. This decreases in sales and marketing subscription acquisition costs was the result of significant promotions in the prior year period that were not present in the current period. Also reducing the total acquisition costs was the decrease in the hardware gross margin loss of $851,000 which is a result of the better margins attained on our current product offerings.
During the three months ended July 31, 2014 our SAC decreased by $132 to $146 from $278 in the same prior year period. This decrease in SAC was largely a result of the decreased total acquisition costs combined with the increased subscription gross additions for the three months ended July 31, 2014 as compared to the same prior year period.
During the twelve months ended July 31, 2014 our total acquisition costs were $23.2 million, an increase of $61,000 compared to the same prior year period. This increase was largely related to a decrease in the hardware gross margin loss of $2.4 million offset by an increase in TiVo's sales and marketing, subscription acquisition costs of $2.5 million, as compared to the same prior year period. The lower hardware gross margin loss was largely driven by increased hardware unit sales with improved economic margins on the Roamio DVRs.
The decrease in SAC of $48 for the twelve months ended July 31, 2014 as compared to the same prior year period was largely a result of an increase in the number of TiVo-Owned Subscription gross additions.

23
Table of Contents

TiVo-Owned Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors in order to evaluate the potential of our subscription base to generate service revenues. Investors should not use ARPU as a substitute for measures of financial performance calculated in accordance with GAAP. Management believes it is useful to consider this metric excluding the costs associated with rebates, revenue share, and other payments to channel because of the discretionary and varying nature of these expenses and because management believes these expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC. We are not aware of any uniform standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies.
We calculate TiVo-Owned service revenues by subtracting MSOs'-related service revenues and Media services and other service revenues (includes Advertising, Research, and Digitalsmiths revenues), from our total reported net Service revenues. The table below provides a more detailed breakdown of our Service revenues, and reconciles to our total Service revenues in our Statement of Operations as reported:
 
Three Months Ended
Service Revenues
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
 
(in thousands)
TiVo-Owned-related service revenues
$22,388
$22,510
$22,975
$23,462
$24,120
$24,280
$25,116
$25,412
MSOs'-related service revenues
10,328

9,950

10,498

7,734

7,555

7,279

7,429

6,767

Media services and other service revenues
4,193

3,435

2,844

2,330

3,255

2,503

3,029

3,049

Total Service Revenues
$36,909
$35,895
$36,317
$33,526
$34,930
$34,062
$35,574
$35,228
We calculate ARPU per month for TiVo-Owned Subscriptions by taking total reported net TiVo-Owned service revenues and dividing the result by the number of months in the period. We then divide the resulting average service revenue by Average TiVo-Owned subscriptions for the period, calculated as described above for churn rate. The following table shows this calculation:
 
Three Months Ended
TiVo-Owned Average Revenue per Subscription
Jul 31,
2014
Apr 30,
2014
Jan 31,
2014
Oct 31,
2013
Jul 31,
2013
Apr 30,
2013
Jan 31,
2013
Oct 31,
2012
 
(In thousands, except ARPU)
 
TiVo-Owned-related service revenues
$
22,388

$
22,510

$
22,975

$
23,462

$
24,120

$
24,280

$
25,116

$
25,412

Average TiVo-Owned revenues per month
7,463

7,503

7,658

7,821

8,040

8,093

8,372

8,471

Average TiVo-Owned subscriptions per month
946

961

962

974

994

1,018

1,035

1,050

TiVo-Owned ARPU per month
$
7.89

$
7.81

$
7.96

$
8.03

$
8.09

$
7.95

$
8.09

$
8.07

The decrease in TiVo-Owned ARPU per month for the three months ended July 31, 2014 as compared to the same prior year period was due primarily to a percentage increase in sales of service for TiVo Mini, which typically has a lower monthly fee or amortized payments than for DVRs.
Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income (loss) and net income (loss), as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. Other than the critical accounting estimates noted below there have been no other changes to our critical accounting estimates from our Form 10-K for the fiscal year ended January 31, 2014.
Business Combinations

24
Table of Contents

We apply the acquisition method of accounting for business combinations, including our acquisition of Digitalsmiths on February 14, 2014. Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the completion of the transaction. Determining the fair value of assets acquired and liabilities assumed requires our management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. As a result, we may have been required to value the acquired assets at fair value measures that do not reflect our intended use of those assets. Use of different estimates and judgments could yield different results. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained from the management of the acquired company and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on February 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

Results of Operations
Net Revenues.
Our net revenues for the three and six months ended July 31, 2014 and 2013 as a percentage of total net revenues were as follows:
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Service revenues
$
36,909

33
%
$
34,930

35
%
$
72,804

33
%
$
68,992

38
%
Technology revenues
49,717

44
%
$
42,056

42
%
$
99,823

46
%
$
69,781

38
%
Hardware revenues
25,232

23
%
$
23,104

23
%
$
46,290

21
%
$
43,890

24
%
Net revenues
$
111,858

100
%
$
100,090

100
%
$
218,917

100
%
$
182,663

100
%
Change from same prior year period
12
%

53
%

20
%


37
%


Service Revenues. The increase in Service revenues of $2.0 million and $3.8 million for the three and six months ended July 31, 2014, as compared to the same prior year periods was related to an increase in MSO-related service revenues of $2.8 million and $5.4 million, respectively due to the increased subscription base. This increase was combined with an increase in Media service and other revenues of $938,000 and $1.9 million, respectively, largely related to the acquisition of Digitalsmiths. These increases were partially offset by decreases in TiVo-Owned subscription revenues of $1.7 million and $3.5 million, respectively.
Technology Revenues. Technology revenues for the three and six months ended July 31, 2014 increased by $7.7 million and $30.0 million, respectively, as compared to the same prior year periods primarily due to the settlement and license agreements with Verizon and Google/Motorola Mobility and Cisco, additional licensing

25
Table of Contents

revenues in excess of contractual minimums, and to a lesser extent the timing of revenue recognition related to various technology related projects.
Revenue and cash from the contractual minimums (i.e. the following amounts do not include any additional revenues from our AT&T agreement) under our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Google/Motorola Mobility through July 31, 2014 have been:
 
Technology Revenues
Cash Receipts
Fiscal Year Ended January 31,
(in thousands)
2012
$
35,275

$
117,679

2013
76,841

86,356

2014
136,532

464,725

Six month period from February 1, 2014 to July 31, 2014
84,740

58,456

Total
$
333,388

$
727,216

Based on current GAAP, revenue and cash from the contractual minimums under all our licensing agreements with EchoStar, AT&T, Verizon, and Cisco and Motorola is expected to be recognized (revenues) and received (cash) for the remainder of the fiscal year 2015 and on an annual basis for the fiscal years thereafter as follows:
 
Technology Revenues
Cash Receipts
 
(in thousands)
Six month period from August 1, 2014 to January 31, 2015
$
84,902

$
25,123

Fiscal Year Ending January 31,
 
 
2016
171,563

83,579

2017
173,129

83,579

2018
174,411

83,579

2019
88,629

31,139

2020 - 2024
8,193

—

Total
$
700,827

$
306,999

Hardware Revenues. Hardware revenues, net of allowance for sales returns and net of revenue share and marketing development fund payments for the three and six months ended July 31, 2014 increased by $2.1 million and $2.4 million, respectively as compared to the same prior year periods. While the majority of our hardware revenues related to our MSO business, the increases in net hardware revenues during the three and six months ended July 31, 2014 were largely related to the increased number of hardware units sold in our consumer business.
Cost of service revenues.

Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Cost of service revenues
$
13,750

$
11,408

$
27,600

$
22,213

Change from same prior year period
21
%
29
%
24
%
29
%
Percentage of service revenues
37
%
33
%
38
%
32
%
Service gross margin
$
23,159

$
23,522

$
45,204

$
46,779

Service gross margin as a percentage of service revenues
63
%
67
%
62
%
68
%
Cost of service revenues consists primarily of telecommunication and network expenses, employee salaries, service center, credit card processing fees, and other expenses related to providing the TiVo service and amortization of acquired developed technology associated with our acquisitions. Cost of service revenues increased by $2.3 million and $5.4 million for the three and six months ended July 31, 2014, as compared to the same prior year periods. These increases were largely comprised of headcount related costs and amortization of developed technology, a portion of which is associated with the acquisition of Digitalsmiths.

26
Table of Contents

Service gross margin as a percent of service revenues decline by 4% and 6% for the three and six months ended July 31, 2014, respectively. These declines are largely related to the Digitalsmiths revenues which currently provide little to no gross margins.


Cost of technology revenues.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Cost of technology revenues
$
5,669

$
11,867

$
10,213

$
15,578

Change from same prior year period
(52
)%
213
%
(34
)%
55
%
Percentage of technology revenues
11
 %
28
%
10
 %
22
%
Technology gross margin
$
44,048

$
30,189

$
89,610

$
54,203

Technology gross margin as a percentage of technology revenues
89
 %
72
%
90
 %
78
%
Cost of technology revenues includes costs associated with our development work primarily for Virgin, Com Hem, ONO, and our other international and domestic projects. Cost of technology revenues decreased by $6.2 million and $5.4 million, respectively for the three and six months ended July 31, 2014, as compared to the same prior year periods. This decrease in cost of technology revenues for the three and six months ended July 31, 2014 was related primarily to the lower number of ongoing technology projects and the timing of recognition of revenues for those projects during the period. The three and six months ended July 31, 2013 included $6.9 million of costs associated with the completion of our ONO development work during the prior year periods.
In certain of our distribution deals, TiVo is not being paid in full for the upfront development cost. However, in exchange, TiVo is receiving guaranteed financial commitments over the duration of the distribution deal. If we are reasonably assured that these arrangements as a whole will be profitable (assuming successful completion of development), we do not expense the development costs that exceed cash payable for the development work as incurred but rather we defer those costs and recognize these costs later when we receive service fees. However, despite the deferral of these development costs, we do incur cash outflows associated with these development efforts resulting in potentially higher cash usage in the near term. As a result, a portion of service fees used to recover the initial development costs would be classified as technology revenues and timing of recognition of these costs and revenues may differ from when these costs are actually incurred.
In accordance with our revenue recognition policies, we have deferred costs of approximately $22.6 million related to development work, largely related to Com Hem, ONO, and Charter and these costs are recorded on our Condensed Consolidated Balance Sheets under deferred cost of technology revenues, current and deferred cost of technology revenues, long-term at July 31, 2014. In instances where TiVo does not host the TiVo service, these costs (up to the amount billed) will be recognized when related revenues are recognized upon billing our customers, as specified in the agreement. In instances where TiVo hosts the TiVo service, starting upon deployment, these costs will be amortized to cost of revenues over the longer of the contractual or customer relationship period.
Cost of hardware revenues.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Cost of hardware revenues
$
22,524

$
21,957

$
42,288

$
40,453

Change from same prior year period
3
%
52
%
5
%
23
%
Percentage of hardware revenues
89
%
95
%
91
%
92
%
Hardware gross margin
$
2,708

$
1,147

$
4,002

$
3,437

Hardware gross margin as a percentage of hardware revenue
11
%
5
%
9
%
8
%
Cost of hardware revenues include all product costs associated with the TiVo-enabled DVRs and non-DVRs we distribute and sell, including manufacturing-related overhead and personnel, warranty, certain licensing, order

27
Table of Contents

fulfillment, and freight costs. We sell this hardware primarily as a means to grow our service revenues and, as a result, generating positive gross margins from hardware sales that are linked with the sale of TiVo-Owned service is not the primary goal of the consumer business. Our cost of hardware revenues for the three and six months ended July 31, 2014 increased as compared to the same prior year periods as we sold more units into both our MSO and Consumer channels as compared to the same prior year periods.
Hardware gross margin for the three and six months ended July 31, 2014 increased by $1.6 million and $600,000, respectively as compared to the same prior year periods largely due to mix units sold and the channel in which they were sold during the period as compared to the same prior year periods.
Our MSO partner margins are likely to decline in future quarters as MSO partners continue to transition to third-party hardware such as the Pace DVR and non-DVR product.

Research and development expenses.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Research and development expenses
$
25,051

$
26,305

$
51,398

$
52,767

Change from same prior year period
(5
)%
(11
)%
(3
)%
(12
)%
Percentage of net revenues
22
 %
26
 %
23
 %
29
 %
Our research and development expenses consist primarily of employee salaries, related expenses, and consulting expenses related to our development of new technologies and products, such as whole home DVR technology and new features and functionality as well as investments in creating an integrated software code base across our product lines to increase the efficiency of our product development efforts in the future. Our research and development expenses decreased by $1.3 million and $1.4 million for the three and six months ended July 31, 2014 as compared to the same prior year period. These decreases were largely related to decreased headcount and headcount related costs. We expect our annual research and development spending in fiscal year 2015 to continue to be significant but to be at lower levels than the fiscal year 2014.
Sales and marketing expenses.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Sales and marketing expenses
$
10,284

$
9,069

$
20,599

$
17,576

Change from same prior year period
13
%
25
%
17
%
31
%
Percentage of net revenues
9
%
9
%
9
%
10
%
Sales and marketing expenses consist primarily of employee salaries related expenses, consulting expenses and amortization of acquired intangibles. Sales and marketing expenses for the three and six months ended July 31, 2014 increased by $1.2 million and $3.0 million as compared to the same prior year periods. These increases are largely related our acquisition of Digitalsmiths. Amortization of acquired customer relationship intangibles was $1.0 million and $1.9 million for the three and six months ended July 31, 2014, respectively, as compared to $117,000 and $235,000, respectively for the same prior year periods.
Sales and marketing, subscription acquisition costs.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Sales and marketing, subscription acquisition costs
$
1,212

$
1,996

$
2,717

$
3,855

Change from same prior year period
(39
)%
(16
)%
(30
)%
6
%
Percentage of net revenues
1
 %
2
 %
1
 %
2
%
Sales and marketing, subscription acquisition costs include advertising expenses and promotional expenses directly related to our efforts to acquire new TiVo-Owned subscriptions to the TiVo service. Sales and marketing, subscription acquisition expenses for the three and six months ended July 31, 2014 decreased by $784,000 and

28
Table of Contents

$1.1 million, respectively, as compared to the same prior year periods due to decreased advertising spending during the current periods.
General and administrative expenses.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
General and administrative
$
15,760

$
23,225

$
31,114

$
45,011

Change from same prior year period
(32
)%
(9
)%
(31
)%
8
%
Percentage of net revenues
14
 %
23
 %
14
 %
25
%
Litigation expense (included in total general and administrative costs above)
$
1,235

$
10,667

$
2,310

$
21,545

Change from same prior year period
(88
)%
(16
)%
(89
)%
19
%
Percentage of net revenues
1
 %
11
 %
1
 %
12
%
General and administrative, net of litigation expense
$
14,525

$
12,558

$
28,804

$
23,466

Change from same prior year period
16
 %
(1
)%
23
 %
—
%
Percentage of net revenues
13
 %
13
 %
13
 %
13
%
General and administrative expenses consist primarily of employee salaries and related expenses for executive, administrative, accounting, and legal and professional fees. During the three and six months ended July 31, 2014, general and administrative expenses decreased by $7.5 million and $13.9 million, respectively, as compared to the same prior year periods. These decreases for the three and six months ended July 31, 2014 were primarily related to decreased legal fees of $9.4 million and $19.2 million, respectively, and were associated with litigation expenses related to our patent enforcement cases. These were offset by increases in G&A expenses, net of litigation, in the amount of $2.0 million and $5.3 during the three and six months ended July 31, 2014 as compared to the same prior year periods. These increases were related largely to headcount related expenses.
Interest income. Interest income for the three and six months ended July 31, 2014 decreased by $535,000 and $214,000, respectively as compared to the same prior year periods. During the three and six months ended July 31, 2013 interest income included $752,000 of interest related our settlement of Google/Motorola Mobility settlement and the interest associated with their past infringement. These decreases were offset by interest that was largely attributed to a higher average cash and short-term investment balance held during the three and six months ended July 31, 2014 as compared to the same prior year periods.
Interest expense and other. Interest expense and other income for the three and six months ended July 31, 2014 was relatively flat as compared to the same prior year periods and consists primarily of interest expense associated with our convertible senior notes.
Benefit (provision) for income taxes.
 
Three Months Ended July 31,
Six Months Ended July 31,
 
2014
2013
2014
2013
 
(In thousands, except percentages)
Benefit (provision) for income taxes
(7,299
)
167,039

(13,723
)
166,924

Effective tax rate
44
%
(164
)%
44
%
(182
)%
The provision for income taxes for the three and six months ended July 31, 2014 differs from the U.S. statutory tax rate of 35% primarily due to the tax impact of non-deductible executive based compensation, stock based compensation and state taxes.
The provision for income taxes for the three and six months ended July 31, 2013 differs from the U.S. statutory tax rate of 35% primarily due a release of valuation allowance against our deferred tax assets.
Liquidity and Capital Resources
We have financed our operations and met our capital expenditure requirements primarily from the proceeds from the sale of equity securities, issuance of convertible senior notes, litigation proceeds, and cash flows from operations. Our cash resources are subject, in part, to the amount and timing of cash received from our license agreements, subscriptions, deployment agreements, and hardware customers. As of July 31, 2014, we had over $782.6 million of cash, cash equivalents, and short-term investments. We also have $172.5 million in outstanding

29
Table of Contents

convertible senior subordinated notes, which are due on March 15, 2016. The notes are unsecured senior obligations of the Company and the Company may not redeem these notes prior to their maturity date although investors may convert the notes into TiVo common stock at any time until March 14, 2016 at their option.  
We believe our cash, cash equivalents and short-term investments, provide sufficient resources to fund operations, capital expenditures, future repurchases of TiVo shares in connection with our previously announced share repurchase authorization, and working capital needs through the next twelve months. 
Statement of Cash Flows Discussion
The following table summarizes our cash flow activities: 
 
Six Months Ended July 31,
 
2014
2013
 
(in thousands)
Net cash provided by operating activities
$
14,100

496,462

Net cash used in investing activities
$
(58,133
)
$
(119,379
)
Net cash used in financing activities
$
(96,053
)
$
(82,773
)
Net Cash Provided by Operating Activities
During the six months ended July 31, 2014 our net cash provided by operating activities was $14.1 million as compared to net cash provided of $496.5 million during the same prior year period. This decrease of $482.4 million in operating cash flow as compared to the same prior year period was largely related our settlement with Google/Motorola Mobility that occurred during the six months ended July 31, 2013. During the six months ended July 31, 2014 we had no such similar transaction.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended July 31, 2014 was approximately $58.1 million as and was largely related to usage of $128.4 million for our acquisition of Digitalsmiths and was partially offset by a net cash inflow of $72.8 million related to our cash management process, and the purchase and sales of short-term investments. Additionally we acquired property and equipment of $2.5 million which is used to support our business.
Net cash used in investing activities for the six months ended July 31, 2013 was approximately $119.4 million and was largely related to TiVo's cash management process, and the purchase and sales of short-term investments resulting in a net decrease of cash and cash equivalents of $116.3 (this resulted in a corresponding increase in short-term investments of $116.3 million). Additionally we acquired property and equipment of $3.1 million which was used to support our business.
Net Cash Used in Financing Activities
Net cash used in financing activities for the six months ended July 31, 2014 was approximately $96.1 million as compared to net used in financing activities of $82.8 million for the same prior year period.
For the six months ended July 31, 2014 the principal uses of cash for financing activities were repurchases of TiVo stock pursuant to a 10b5-1 plan and repurchase of restricted stock to satisfy employee tax withholdings on stock-based awards of $110.8 million offset by proceeds from the issuance of common stock upon exercise of stock options which generated $3.6 million combined with proceeds from the issuance of common stock pursuant to the employee stock purchase plan of $3.6 million.
For the six months ended July 31, 2013 the principal uses of cash for financing activities were related to repurchase of TiVo stock pursuant to a 10b5-1 plan and repurchase of restricted stock to satisfy employee tax withholdings on stock-based awards of $91.1 million offset by the issuance of common stock upon exercise of stock options which generated $4.0 million combined with the issuance of common stock pursuant to the employee stock purchase plan of $3.8 million.
Financing Agreements
Share Repurchases. On August 11, 2011, our board of directors authorized a $100 million discretionary share repurchase program that became effective on August 29, 2011; on June 9, 2013 we announced that the Board had increased the amount of the discretionary share repurchase program to $200 million and extended the program's termination date from August 29, 2013 to August 29, 2015. On January 29, 2014 we announced that the Board had

30
Table of Contents

increased the amount of the discretionary share repurchase program to $300 million. As of July 31, 2014 we had purchased 17,939,094 shares of common stock under this program at a weighted average price of $11.94 per share for an aggregate purchase price of $214.2 million and the remaining authorized amount for stock repurchases under this program was $85.8 million with a termination date of August 29, 2015.
On August 26, 2014, we announced our board of directors had authorized a new $350 million discretionary share repurchase program to replace the prior authorization that had $85.8 million remaining. This new $350 million share repurchase program will expire on January 31, 2017, with an initial $100 million in share repurchases intended to be completed by the end of the fiscal year ending January 31, 2015.
Universal Shelf Registration Statement. We are a well known seasoned issuer and are eligible to file a registration statement on Form S-3 which would be immediately effective upon filing with the SEC under which we may issue an unlimited amount of securities, including debt securities, common stock, preferred stock, and warrants. Depending on market conditions, we may issue securities under future registration statements or in private offerings exempt from registration requirements.
Contractual Obligations
 
Payments due by Period
Contractual Obligations
Total
Less
than 1
year
1-3 years
3-5 years
More than 5
years
 
(In thousands)
Long-Term Debt Obligations
$
172,500

$
—

$
172,500

$
—

$
—

Interest on Long-Term Debt Obligations
13,704

6,900

6,804

—

—

Operating leases
8,448

3,752

4,696

—

—

Purchase obligations
30,320

30,320

—

—

—

Total contractual cash obligations
$
224,972

$
40,972

$
184,000

$
—

$
—

Purchase Commitments with Contract Manufacturers and Suppliers. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help assure adequate component supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by us or to establish the parameters defining our requirements. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed. The table above displays that portion of our purchase commitments arising from these agreements that is firm, non-cancelable, and unconditional. If there are unexpected changes to anticipated demand for our products or in the sales mix of our products, some of the firm, non-cancelable, and unconditional purchase commitments may result in TiVo being committed to purchase excess inventory.
Off-Balance Sheet Arrangements
As part of our ongoing business, we generally do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. Accordingly, our operating results, financial condition, and cash flows are not generally subject to off-balance sheet risks associated with these types of arrangements. We did not have any material off-balance sheet arrangements as of July 31, 2014.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio and we conduct transactions in U.S. dollars. We maintain our investments with two financial institutions with high credit ratings. We currently invest the majority of our cash in money market funds, investment-grade government and corporate debt, and investment-grade foreign government securities. As part of our cash management process, we perform periodic evaluations of the relative credit ratings of issuers of these securities. We have not experienced any credit losses on our cash, cash equivalents, or short and long-term investments. Our investment portfolio only includes instruments with original effective maturities of less than two years held for investment purposes, not trading purposes. Due to the short-term

31
Table of Contents

nature of our cash equivalents and short-term investments we do not anticipate any material effect on our portfolio due to fluctuations in interest rates.
Our convertible debt has a fixed interest rate and therefore we are not exposed to fluctuations in interest rates on this debt.
ITEM 4.
CONTROLS AND PROCEDURES
We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures and implementing controls and procedures based on the application of management's judgment.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act.
Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, as defined above, were effective in reaching a reasonable level of assurance as of July 31, 2014 (the end of the period covered by this quarterly report).
There have been no changes in our internal control over financial reporting during the three months ended July 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented or over-ridden by the individual acts of some persons, by the collusion of two or more people, or by management. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements or omissions due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The information under the heading “Legal Matters” set forth under Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, is incorporated herein by reference.
ITEM 1A.
RISK FACTORS
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risk factors described in our annual report on Form 10-K for the year ended January 31, 2014 in the section entitled “Risk Factors”, in addition to the other cautionary statements and risks described elsewhere, and the other information contained in this report and in our other filings with the SEC, including our annual report on Form 10-K for the year ended January 31, 2014, and subsequent reports on Form 10-Q and Form 8-K.
Breaches of our cybersecurity systems could degrade our ability to conduct our business operations and deliver products and services to our MSO and retail customers, delay our ability to recognize

32
Table of Contents

revenue, compromise the integrity of our products and services, result in significant data losses and the theft of our intellectual property, damage our reputation, result in the breach and termination of our agreements with our MSO customers, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
We increasingly depend upon our IT systems to conduct virtually all of our business operations, ranging from our internal operations and product development activities to the provision of the TiVo service to our MSO and retail customers to our marketing and sales efforts as well as communications with our MSO and retail customers and business partners. Computer programmers have attempted to penetrate our network security and our website. Such cyberattacks threaten to misappropriate our proprietary information and cause interruption of our ability to provide the TiVo service to our MSO and retail customers and disrupt our back-end IT services. Because the techniques used by such computer programmers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. In addition, sophisticated hardware and operating system software, services, and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems, that could unexpectedly interfere with the operation of such systems, services and technologies. We have also outsourced a number of our business functions, including manufacturing, software development, and other activities, to third party contractors, and our business operations also depend, in part, on the success of our contractors’ own cybersecurity measures. Similarly, we rely upon distributors, resellers, and third party manufacturers and licensees to sell our products and our sales operations depend, in part, on the reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential data and deploy our IT resources in safe and secure fashion that does not expose our network systems to security breaches and the loss of data. Accordingly, if our cybersecurity systems and those of our contractors fail to protect against unauthorized access, sophisticated cyberattacks and the mishandling of data by our employees and contractors, our ability to conduct our business effectively could be damaged in a number of ways, including:
•
sensitive data regarding our business and our customers’ businesses, including intellectual property and other proprietary data, could be stolen;
•
our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored and secured;
•
our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;
•
defects and security vulnerabilities could be exploited or introduced into our software products, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data loss and cyberincidents; and
•
personally identifiable data of our customers, employees and business partners could be stolen or lost.
Should any of the above events occur, we could be subject to significant claims for liability from our customers, regulatory actions from governmental agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. Also, the regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to data breaches that result in losses of personally identifiable or credit card information of users of our services can be significant in terms of fines and reputational impact and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and remediate damages. Consequently, our financial performance and results of operations could be adversely affected.
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 Principles ("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. Recent actions and public comments from the Securities Exchange Commission and the Financial Accounting Standards Board (the "FASB") 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. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. For example, in May 2014, the FASB issued a new accounting guidance on revenue recognition, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), that becomes effective for us in the first quarter of fiscal year 2018. The standard permits the use of either the retrospective or cumulative effect transition method.

33
Table of Contents

We have not yet selected a transition method and continue to evaluate the impact that this guidance will have on our financial condition and results of operations. Regardless of the transition method, the application of this new guidance may result in exclusion of certain future licensing revenues in the statement of operations after the adoption date, which, despite no change in associated cash flows, could have a material adverse effect on our net income.
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 and other revenue sources, our results of operations could be significantly impacted.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities
We have reacquired shares of stock through our share repurchase program and from employees upon the vesting of restricted stock that was granted under our Amended & Restated 1999 Employee Incentive Plan and our Amended & Restated 2008 Equity Incentive Award Plan. The shares that were forfeited by the employees and reacquired by us were to satisfy the employees’ minimum statutory tax withholding which is required on restricted stock once they become vested and those share amounts are included in the following table: 
Period
(a) Total Number of
Shares Purchased
 
(b) Average Price
Paid per share
(c) Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (4)
(d) Maximum
Number (or
Approximate Dollar
Value) of Shares
that May Yet be
Purchased Under
the Plans or
Programs (4)
May 1, 2014 through May 31, 2014
2,506

(1)
$
11.75

—

$
85,787,006

June 1, 2014 through June 30, 2014
2,560

(2)
$
12.39

—

$
85,787,006

July 1, 2014 through July 31, 2014
8,586

(3)
$
13.07

—

$
85,787,006

(1) During the month of May 2014 TiVo acquired 2,506 shares at a weighted average price of $11.75 from employees upon the vesting of restricted stock.
(2) During the month of June 2014 TiVo acquired 2,560 shares at a weighted average price of $12.39 from employees upon the vesting of restricted stock.
(3) During the month of July 2014 TiVo acquired 8,586 shares at a weighted average price of $13.07 from employees upon the vesting of restricted stock.
(4) On August 11, 2011, our board of directors authorized a $100 million discretionary share repurchase program that became effective on August 29, 2011; on June 9, 2013 we announced that the Board had increased the amount of the discretionary share repurchase program to $200 million and extended the program's termination date from August 29, 2013 to August 29, 2015. On January 29, 2014 we announced that the Board had increased the amount of the discretionary share repurchase program to $300 million. As of July 31, 2014 we had purchased 17,939,094 shares of common stock under this program at a weighted average price of $11.94 per share for an aggregate purchase price of $214.2 million and the remaining authorized amount for stock repurchases under this program was $85.8 million with a termination date of August 29, 2015. On August 26, 2014, we announced our board of directors had authorized a new $350 million discretionary share repurchase program to replace the prior authorization that had $85.8 million remaining. This new $350 million share repurchase program will expire on January 31, 2017, with an initial $100 million in share repurchases intended to be completed by the end of the fiscal year ending January 31, 2015.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
OTHER INFORMATION
None.

34
Table of Contents

ITEM 6.
EXHIBITS
 
EXHIBIT
NUMBER
DESCRIPTION
3.1
Amended and Restated Certification of Incorporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on September 10, 2007).
3.2
Amended and Restated Bylaws, dated as of February 21, 2012 (filed as Exhibit 3.1 to the Current Report Form 8-K filed on February 24, 2012).
4.1
Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (filed as Exhibit 4.1 to the Current Report on Form 8-K/A filed on January 19, 2011).
4.2
Certificate of Correction to the Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (filed as Exhibit 4.2 to the Current Report on Form 8-K/A filed on January 19, 2011).
10.1
Eight Amendment to Lease Agreement, dated June 17, 2014, between TiVo Inc. and ECI Four Gold Street, LLC (filed herewith).
10.2
Notice by DIRECTV to Extend the Amended and Restated Development Agreement between TiVo Inc. and DIRECTV, LLC (formerly DIRECTV, Inc.) dated July 28, 2014 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on July 31, 2014).

10.3
TiVo Inc. Amended & Restated 2008 Equity Incentive Award Plan (filed herewith).
31.1
Certification of Thomas S. Rogers, President and Chief Executive Officer of TiVo Inc. dated September 4, 2014 pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Naveen Chopra, Chief Financial Officer of TiVo Inc. dated September 4, 2014 pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1*
Certification of Thomas S. Rogers, President and Chief Executive Officer of TiVo Inc. dated September 4, 2014 in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2*
Certification of Naveen Chopra, Chief Financial Officer of TiVo Inc. dated September 4, 2014 in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
             
+
Confidential treatment has been requested as to portions of this exhibit.
*
The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of TiVo Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
**
Management contract or compensatory plan or arrangement.


 


35
Table of Contents

SIGNATURES AND OFFICER CERTIFICATIONS
Pursuant to the requirements the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
 
 
 
 
 
 
 
TIVO INC.
 
 
 
 
Date:
9/2/2014
 
 
By:
 
/S/    THOMAS S. ROGERS        
 
 
 
 
 
 
Thomas S. Rogers
 
 
 
 
 
 
President and Chief Executive
(Principal Executive Officer)
 
 
 
 
Date:
9/2/2014
 
 
By:
 
/S/    NAVEEN CHOPRA   
 
 
 
 
 
 
Naveen Chopra
 
 
 
 
 
 
Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
Date:
9/2/2014
 
 
By:
 
/S/    PAVEL KOVAR
 
 
 
 
 
 
Pavel Kovar
 
 
 
 
 
 
Chief Accounting Officer
(Principal Accounting Officer)


36
Exhibit 10.1 - Lease

EXHIBIT 10.1
EIGHTH AMENDMENT TO LEASE AGREEMENT
THIS EIGHTH AMENDMENT TO LEASE AGREEMENT (the “Amendment”) is made and entered into as of June 17, 2014, by and between ECI FOUR GOLD STREET LLC, a California limited liability company (“Landlord”), and TIVO INC., a Delaware corporation (“Tenant”).
RECITALS
A.
Landlord (as successor in interest to Bixby Technology Center, LLC, a Delaware limited liability company, and WIX/NSJ Real Estate Limited Partnership, a Delaware limited partnership) and Tenant are parties to that certain lease dated October 6, 1999 (the “Original Lease”), which Original Lease has been previously amended by that certain First Amendment to Lease Agreement dated February 1, 2006 (the “First Amendment”), that certain Second Amendment to Lease Agreement dated May 15, 2009 (the “Second Amendment”), that certain Third Amendment to Lease Agreement dated February 17, 2010, that certain Fourth Amendment to Lease Agreement dated January 25, 2011 (the “Fourth Amendment”), that certain Fifth Amendment to Lease Agreement dated March 26, 2012, that certain Sixth Amendment to Lease Agreement dated March 26, 2013, and that certain Seventh Amendment to Lease Agreement dated October 24, 2013 (collectively, the “Lease”). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 164,269 rentable square feet (collectively, the “Premises”) consisting of: (i) approximately 127,124 rentable square feet in the buildings located at 2160 Gold Street, San Jose, California (“Building D”) and 2190 Gold Street, San Jose, California (“Building E”) and (ii) approximately 37,145 rentable square feet in the building located at 2100 Gold Street, San Jose, California (“Building A”). Building A, Building D and Building E are collectively referred to herein as the “Building”.
B.
Tenant and Landlord mutually desire that the Lease be amended on and subject to the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
1.
Amendment. Effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), Landlord and Tenant agree that the Lease shall be amended in accordance with the following terms and conditions:
1.1
Building A Lobby Use.
1.1.1
Pursuant to Section 12(a) of the Fourth Amendment, Tenant has placed a reception desk and phone (the “Reception Desk”) in the lobby of Building A (the “Building A Lobby”). Notwithstanding anything to the contrary contained in Section 12(a) of the Fourth Amendment, following Landlord’s commencement of the Conference Room Construction Work (defined below), Landlord shall remove, at Landlord’s sole cost and expense, the Reception Desk and any related cabling or data communication wiring from the Building A Lobby (the “Reception Desk Removal”), and Tenant shall have no further restoration or removal obligations related to the Reception Desk.
1.1.2
Upon the Reception Desk Removal, Tenant shall have the non-exclusive right to install an electronic receptionist (phone), including relating cabling or data


communication wiring and signage (the “Reception Phone”) on the wall of the Building A Lobby, in the location more particularly shown on Exhibit A attached hereto. The design, size, color and location of the Reception Phone and the manner in which it is attached shall be subject to Landlord’s prior approval (which approval shall not be unreasonably withheld, conditioned or delayed) and shall be in compliance with all Laws. Landlord shall provide, at Landlord’s sole cost and expense, the “ring and string” data box, and Tenant shall provide, at its sole cost and expense, the phone and cabling to the Reception Phone. Tenant, at its sole cost and expense, shall be responsible for the maintenance, repair and replacement of the Reception Phone. The Reception Phone shall at all times remain the property of Tenant and Tenant must remove the Reception Phone at the expiration or earlier termination of the Lease or, if applicable, prior to the commencement of the Conference Room Term (defined below). Tenant shall repair any damage caused by the removal of the Reception Phone and restore the Building A Lobby to its condition prior to the installation of the Reception Phone.
1.1.3
The first two (2) sentences of Section 12(a) of the Fourth Amendment are hereby deleted in their entireties and are of no further force or effect.
1.2
Conference Room.
1.2.1
Landlord shall construct a conference room (the “Conference Room”) in the Building A Lobby in the location shown on Exhibit A attached hereto (the “Conference Room Construction Work”). Following Landlord’s completion of the Conference Room Construction Work, Tenant shall have the option (the “Tenant’s Conference Room Option”), with sixty (60) days prior written notice to Landlord (the “Conference Room Option Notice”), to lease and convert, at Tenant’s sole cost and expense, the Conference Room into an exclusive and staffed reception area for Tenant’s sole and exclusive use (the “Reception Improvements”).
1.2.2
Tenant shall have the right to exercise Tenant’s Conference Room Option if: (i) Landlord elects to construct the Conference Room; (ii) Landlord receives the Conference Room Option Notice from Tenant on or before December 31, 2015; (iii) Tenant is not in default under the Lease beyond any applicable cure periods at the time that Landlord receives the Conference Room Option Notice; and (iv) the Lease has not been assigned at the time Landlord receives the Conference Room Option Notice.
1.2.3
The term for the Conference Room (the “Conference Room Term”) shall commence on the date that is sixty (60) days following Landlord’s receipt of the Conference Room Option Notice (the “Conference Room Commencement Date”), and shall end, unless sooner terminated pursuant to the terms of the Lease, on the Expiration Date of the Lease, it being the intention of the parties hereto that the term for the Conference Room and the Term for the Premises shall be coterminous. Exclusive possession of the Conference Room (including improvements) shall be delivered to Tenant as of the Conference Room Commencement Date and the Conference Room (including improvements and personalty, if any) shall be accepted by Tenant in its “as-built” and “as is” condition and configuration existing on the date of Landlord’s receipt of the Conference Room


Option Notice (reasonable wear and tear excepted) and Landlord makes no representation or warranty that the Conference Room shall be adequate for Tenant’s use. During the Conference Room Term, the Conference Room shall be considered part of the “Premises”, subject to all the terms and conditions of this Lease, including, without limitation, Sections 11, 12 (and Tenant shall provide Landlord with a certificate of insurance evidencing Tenant’s inclusion of the Conference Room on or before the Conference Room Commencement Date) and 13 of the Original Lease, except that no allowances, credits, abatements or other concessions (if any) set forth in the Lease for the initial Premises shall apply to the Conference Room.
1.2.4
Landlord shall not be responsible for Tenant’s furniture, furnishings or equipment and other trade fixtures and personal property placed in the Conference Room (collectively, “Personalty”), and Tenant shall be responsible for maintaining the Conference Room in good condition and repair at Tenant’s sole cost and expense.
1.2.5
Following delivery of the Conference Room to Tenant, Tenant shall have the right to perform the Reception Improvements. Notwithstanding the foregoing, Tenant and its contractors shall not have the right to perform Reception Improvements in the Conference Room unless and until Tenant has complied with all of the terms and conditions of Section 10.1 of the Original Lease, including, without limitation, approval by Landlord of the final plans for the Reception Improvements and the contractors to be retained by Tenant to perform such Reception Improvements. Tenant shall be responsible for all elements of the design of Tenant’s plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the Conference Room and the placement of Tenant’s furniture, appliances and equipment) and Landlord’s approval of Tenant’s plans shall in no event relieve Tenant of the responsibility for such design. Notwithstanding the foregoing, Tenant shall not be responsible for any legal compliance requirements arising outside of the Conference Room, including, without limitation, the Building A Lobby,arising from the initial Reception Improvements. Any other alterations or improvements to the Conference Room performed by or on behalf of Tenant following the Conference Room Commencement Date shall be subject to the terms and conditions of the Lease, including, without limitation, Section 10.1 of the Original Lease, and Tenant shall be responsible for any legal compliance requirements arising outside the Conference Room caused by such alterations or improvements. Tenant shall use commercially reasonable efforts to (i) minimize any disturbance to any other tenants, occupants, licensees or visitors of Building A during the performance of the Reception Improvements and (ii) complete the Reception Improvements in a diligent manner once Tenant commences the construction of the Reception Improvements.
1.2.6
The Reception Improvements shall be and remain the property of Tenant during the Conference Room Term. Upon the expiration or sooner termination of the Conference Room Term, the Reception Improvements shall become a part of the realty and shall belong to Landlord without compensation, and title shall pass to Landlord under this Lease as by a bill of sale. At the end of the Conference Room Term or other sooner termination of the Lease, Tenant will peaceably deliver up to Landlord possession of the Conference Room, together with the Reception Improvements in the same conditions received or first installed, broom clean and


free of all debris, excepting only ordinary wear and tear and damage by fire or other casualty. Tenant must, at Tenant’s sole cost, remove upon expiration of the Conference Room Term, any and all of Tenant’s Personalty. Personalty not so removed shall be deemed abandoned by the Tenant and title to the same shall thereupon pass to Landlord under the Lease as by a bill of sale, but Tenant shall remain responsible for the cost of removal and disposal thereof, as well as any damage caused by such removal.
1.3
Landlord’s Address. Landlord’s address set forth in the Basic Lease Information of the Original Lease, as amended by Section 5 of the Second Amendment and Section 10 of the Fourth Amendment, is hereby deleted in its entirety and replaced with the following:
“ECI FOUR GOLD STREET LLC
c/o Embarcadero Capital Partners
1301 Shoreway Road, Suite 250
Belmont, CA 94002
Attention: John Hamilton

with a copy to:

Mr. Gregory B. Shean
Farella Braun + Martel LLP
The Russ Building, 30th Floor
235 Montgomery Street
San Francisco, CA 94104”
1.4
Rent Payment Address. Notwithstanding anything to the contrary set forth in the Lease, Landlord’ address for payment of Rent shall be following:
“ECI Four Gold Street LLC
P.O. Box 396098
San Francisco, CA 94139-6098”
1.5
Deletions. Tenant’s Right of First Offer set forth on Exhibit “D” of the First Amendment, as amended by Section 11 of the Fourth Amendment, is hereby deleted in its entirety and is of no further force of effect.
1.6
Tenant Entity Name Correction. References to Tenant in the Lease as “TiVo, Inc., a Delaware corporation” are in error and the parties hereto acknowledge and agree that the definition of Tenant is as is stated in this Amendment. TiVo Inc., a Delaware corporation hereby ratifies the Lease and agrees that it is bound by all terms and conditions of the Lease as of the original lease execution date, in the same manner and to the same extent as though the correct tenant name had been reflected therein.
2.
Miscellaneous.
2.1
This Amendment (including Exhibit A – Location of Reception Phone and Conference Room) sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic


incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment.
2.2
Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.
2.3
This Amendment may be executed and delivered by facsimile in one or more counterparts, each of which shall constitute one and the same Amendment. If this Amendment is signed and delivered in such manner, Landlord and Tenant shall promptly deliver an original signed version to the other. Any digital image copy of this Amendment (to the extent fully executed and delivered) shall be treated by the parties as a true and correct original of the same and admissible as best evidence to the extent permitted by a court of proper jurisdiction.
2.4
Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant.
2.5
Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment. Tenant agrees to indemnify and hold Landlord and the Indemnities harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment. Landlord agrees to indemnify and hold Tenant harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment
2.6
Each signatory of this Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting. Tenant hereby represents and warrants that Tenant is not (i) the target of any sanctions program that is established by Executive Order of the President or published by the Office of Foreign Assets Control, U.S. Department of the Treasury (“OFAC”); (ii) designated by the President or OFAC pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any Executive Order of the President issued pursuant to such statutes; or (iii) named on the following list that is published by OFAC: “List of Specially Designated Nationals and Blocked Persons.” If the foregoing representation is untrue at any time during the Term, an event of default will be deemed to have occurred, provided, however, that notwithstanding the foregoing, as long as Tenant is taking reasonable and diligent steps to remedy such situation, and as long as there is no governmental enforcement action against the Building or the Landlord, then the same shall not be an event of default unless sixty (60) days shall have elapsed without remedy of such situation.
2.7
Pursuant to California Civil Code Section 1938, Landlord hereby notifies Tenant that as of the date of this Amendment, the Premises have not undergone inspection by a “Certified Access Specialist” to determine whether the Premises meet all applicable construction-related accessibility standards under California Civil Code Section 55.53.


2.8
Redress for any claim against Landlord under the Lease and this Amendment shall be limited to and enforceable only against and to the extent of Landlord’s interest in the Building. The obligations of Landlord under the Lease are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any beneficiaries, stockholders, employees, or agents of Landlord or the investment manager, and in no case shall Landlord be liable to Tenant hereunder for any lost profits, damage to business, or any form of special, indirect or consequential damage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this Amendment as of the date first written above.
 
TENANT:
 
LANDLORD:
 
TIVO INC.,
 
ECI FOUR GOLD STREET LLC,
 
a Delaware corporation
 
a Delaware limited liability company
By:
 /s/ Pavel Kovar
By:
ECI Four GRE Gold Street LLC,
a Delaware limited liability company,
sole member
Name:
Pavel Koaver
 
 
Title:
CAO
By:
Embarcadero Capital Investors Four LP,  
a Delaware limited partnership,  
managing member
 
 
By:
ECP Four LLC,
a Delaware limited liability company, general partner
 
 
By:
/s/ John Hamilton
 
 
 
John Hamilton, manager




EXHIBIT A
LOCATION OF RECEPTION PHONE
AND CONFERENCE ROOM

A-


A-
Exhibit 10.3 - EIP


EXHIBIT 10.3
                                                
TIVO INC.
AMENDED AND RESTATED 2008 EQUITY INCENTIVE AWARD PLAN
ARTICLE 1
PURPOSE
The purpose of the TiVo Inc. 2008 Equity Incentive Award Plan, as amended and restated herein (the “Plan”), is to promote the success and enhance the value of TiVo Inc. (the “Company”) by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent. This Plan amends and restates in its entirety the TiVo Inc. 2008 Equity Incentive Award Plan most recently adopted by the Board on June 1, 2014 and shall become effective upon approval of the Company’s stockholders.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, a Performance Bonus Award, or a Performance-Based Award granted to a Participant pursuant to the Plan.
2.2 “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.
2.3 “Board” means the Board of Directors of the Company.
2.4 “Cause” means (a) conviction of, a guilty plea with respect to, or a plea of nolo contendere to a charge that a Participant has committed a felony under the laws of the United States, of any applicable foreign jurisdiction or of any state or a crime involving moral turpitude, including, but not limited to, fraud, theft, embezzlement or any crime that results in or is intended to result in personal enrichment at the expense of the Company or a Subsidiary; (b) material breach of any agreement entered into between the Participant and the Company or a Subsidiary that impairs the Company’s or the Subsidiary’s interest therein; (c) willful misconduct, significant failure of the Participant to perform the Participant’s duties, or gross neglect by the Participant of the Participant’s duties; or (d) engagement in any activity that constitutes a material conflict of interest with the Company or any Subsidiary.
2.5 “Change in Control” means: (a) a dissolution or liquidation of the Company; (b) a sale of all or substantially all of the assets of the Company; (c) a sale by the stockholders of the Company of the voting stock of the Company to another corporation or its subsidiaries that results in the ownership by such corporation and/or its subsidiaries of eighty percent (80%) or more of the combined voting power of all classes of the voting stock of the Company entitled to vote; (d) a merger or consolidation involving the Company in which the Company is not the surviving corporation or a merger or consolidation of a Subsidiary of the Company and in which, in either case, beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors has changed; (e) a reverse merger in which the Company is the

1


surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, and in which beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors has changed or (f) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or subsidiary of the Company or other entity controlled by the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors; or (g) for any reason during any period of two (2) consecutive years a majority of the Board is constituted by individuals other than (1) individuals who were directors immediately prior to the beginning of such period, and (2) new directors whose election or appointment by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors immediately prior to the beginning of the period or whose election or nomination for election was previously so approved.
In addition, if a Change in Control constitutes a payment event with respect to any Award which provides for the deferral of compensation and is subject to Section 409A of the Code, the transaction or event described in this Section 2.5 with respect to such Award must also constitute a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5) to the extent required by Section 409A of the Code.
2.6 “Code” means the Internal Revenue Code of 1986, as amended.
2.7 “Committee” means the committee of the Board described in Article 13.
2.8 “Constructive Termination” means the occurrence of any of the following events or conditions: (a) (i) a change in the Participant’s status, title, position or responsibilities (including reporting responsibilities) which represents an adverse change from the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (ii) the assignment to the Participant of any duties or responsibilities which are inconsistent with the Participant’s status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; or (iii) any removal of the Participant from or failure to reappoint or reelect the Participant to any of such offices or positions, except in connection with the termination of the Participant’s Continuous Service for Cause, as a result of the Participant’s Disability or death or by the Participant other than as a result of Constructive Termination; (b) a reduction in the Participant’s annual base compensation or any failure to pay the Participant any compensation or benefits to which the Participant is entitled within five (5) days of the date due; (c) the Company’s requiring the Participant to relocate to any place outside a fifty (50) mile radius of the Participant’s current work site, except for reasonably required travel on the business of the Company or its Subsidiaries which is not materially greater than such travel requirements prior to the Change in Control; (d) the failure by the Company to (i) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Participant was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Participant, or (ii) provide the Participant with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Participant was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; (e) any material breach by the Company of any provision of an agreement between the Company and the Participant, whether pursuant to this Plan or otherwise, other than a breach which is cured by the Company within fifteen (15) days following notice by the Participant of such breach; or (f) the failure of the Company to obtain an agreement, satisfactory to the Participant, from any successors and assigns to assume and agree to perform the obligations created under this Plan.

2


2.9 “Consultant” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to the Company or any Subsidiary; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person.
2.10 “Continuous Service” means that the Participant’s service with the Company or a Subsidiary, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or a Subsidiary as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of a Subsidiary or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.
2.11 “Covered Employee” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.
2.12 “Deferred Stock” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Section 8.5.
2.13 “Designated Participant” means (a) an Employee with the title of Vice President or higher or (b) a Director.
2.14 “Director” means a member of the Board, or as applicable, a member of the board of directors of a Subsidiary.
2.15 “Disability” means that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, as it may be amended from time to time.
2.16 “Dividend Equivalents” means a right granted to a Participant pursuant to Section 8.3 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.
2.17 “Effective Date” shall have the meaning set forth in Section 14.1.
2.18 “Eligible Individual” means any person who is an Employee, a Consultant or an Independent Director, as determined by the Committee.
2.19 “Employee” means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.
2.20 “Equity Restructuring” shall mean a nonreciprocal transaction between the company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares of Stock (or other securities of the Company) or the share price of Stock (or other securities) and causes a change in the per share value of the Stock underlying outstanding Awards.
2.21 “Exchange Act” means the Securities Exchange Act of 1934, as amended.
2.22 “Fair Market Value” means, as of any given date, (a) if Stock is traded on any established stock exchange, the closing price of a share of Stock as reported in the Wall Street Journal (or such other source as the Company may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first trading date immediately prior to such date during which a sale occurred; or (b) if Stock is not traded on an exchange but is quoted on a national market or other quotation system, the last sales price on such date, or if no sales occurred on

3


such date, then on the date immediately prior to such date on which sales prices are reported; or (c) if Stock is not publicly traded, the fair market value established by the Committee acting in good faith.
2.23 “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
2.24 “Independent Director” means a Director of the Company who is not an Employee.
2.25 “Non-Employee Director” means a Director of the Company who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) under the Exchange Act, or any successor rule.
2.26 “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.
2.27 “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
2.28 “Participant” means any Eligible Individual who, as a member of the Board, Consultant or Employee, has been granted an Award pursuant to the Plan.
2.29 “Performance-Based Award” means an Award granted to selected Covered Employees pursuant to Section 8.7, but which is subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation.
2.30 “Performance Bonus Award” has the meaning set forth in Section 8.7.
2.31 “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added, sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price per share of Stock, market share, subscription gross additions, subscription net additions, cumulative subscriptions, churn rate, subscription acquisition cost and revenue per subscription, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.
2.32 “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.
2.33 “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

4


2.34 “Performance Share” means a right granted to a Participant pursuant to Section 8.1, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.35 “Performance Stock Unit” means a right granted to a Participant pursuant to Section 8.2, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.36 “Plan” means this TiVo Inc. Amended and Restated 2008 Equity Incentive Award Plan, as it may be amended from time to time.
2.37 “Prior Plan” means the TiVo Inc. Amended and Restated 1999 Equity Incentive Plan, as it may be amended from time to time.
2.38 “Qualified Performance-Based Compensation” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4)(C) of the Code.
2.39 “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.
2.40 “Restricted Stock Unit” means an Award granted pursuant to Section 8.6.
2.41 “Securities Act” shall mean the Securities Act of 1933, as amended.
2.42 “Stock” means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 12.
2.43 “Stock Appreciation Right” or “SAR” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.
2.44 “Stock Payment” means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Section 8.4.
2.45 “Subsidiary” means any “subsidiary corporation” as defined in Section 424(f) of the Code and any applicable regulations promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
a.
Subject to Article 12, the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan is (i) 33,900,000 plus (ii) that number of shares that are subject to equity awards granted under the Prior Plan which are outstanding as of May 12, 2008 and thereafter terminate, expire, lapse or are forfeited for any reason and which following the termination, expiration, lapse or forfeiture of such awards do not again become available for issuance under the Prior Plan; provided, that no more than 57,434,415 shares of Stock may be issued upon the exercise of Incentive Stock Options. The aggregate number of shares of Stock subject to outstanding awards under the Prior Plan as of May 12, 2008 was 23,534,415, accordingly, the total number of shares of Stock in the preceding sentence shall not exceed 57,434,415.

5


b.
To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1, no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code, and the following shares of Stock shall not be added back to the shares authorized for grant under this Section 3.1: (i) shares of Stock tendered by the Participant or withheld by the Company in payment of the exercise price of an Option, (ii) shares of Stock tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award, and (iii) shares of Stock that were subject to a stock-settled Stock Appreciation Right and were not issued upon the net settlement or net exercise of such Stock Appreciation Right.
3.2 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.
3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject to Article 12, the maximum number of shares of Stock with respect to one or more Awards of Options and Stock Appreciation Rights that may be granted to any one Participant during any calendar year shall be 3,000,000 and the maximum amount that may be paid in cash during any calendar year with respect to any Performance-Based Award (including, without limitation, any Performance Bonus Award) shall be $5,000,000.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan.
4.2 Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Eligible Individual shall have any right to be granted an Award pursuant to this Plan.
4.3 Foreign Participants. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have Eligible Individuals, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law.

6



ARTICLE 5
STOCK OPTIONS
5.1 General. The Committee is authorized to grant Options to Eligible Individuals on the following terms and conditions:
a.
Exercise Price. The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided, that the exercise price for any Option shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant.
b.
Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed seven years. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. Except as limited by the requirements of Section 409A of the Code or Section 422 of the Code and the regulations and rulings thereunder, the Committee may extend the term of any outstanding Option, and may extend the time during which vested Options may be exercised, in connection with any termination of Continuous Service of the Participant, and may amend any other term or condition of such Option relating to such a termination of Continuous Service.
c.
Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation: (i) cash, (ii) shares of Stock held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or (iii) other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale). The Committee shall also determine the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant shall be permitted to pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company or a loan arranged by the Company.
d.
Evidence of Grant. All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.
5.2 Incentive Stock Options. Incentive Stock Options shall be granted only to Employees and the terms of any Incentive Stock Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the provisions of this Section 5.2.
a.
Expiration. Subject to Section 5.2(c), an Incentive Stock Option shall expire and may not be exercised to any extent by anyone after the first to occur of the following events:
i.
Seven years from the date it is granted, unless an earlier time is set in the Award Agreement;
ii.
Three months after the Participant’s termination of employment as an Employee;
and
iii.
One year after the date of the Participant’s termination of employment or service on account of Disability or death. Upon the Participant’s Disability or death, any Incentive

7


Stock Options exercisable at the Participant’s Disability or death may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.
b.
Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.
c.
Ten Percent Owners. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.
d.
Notice of Disposition. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant.
e.
Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.
f.
Failure to Meet Requirements. Any Option (or portion thereof) purported to be an Incentive Stock Option, which, for any reason, fails to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option.
ARTICLE 6
RESTRICTED STOCK AWARDS
6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to any Eligible Individual selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by an Award Agreement.
6.2 Issuance and Restrictions. Subject to Section 11.6, Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that, except as otherwise provided by Section 11.6, the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.
6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms,

8


conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights.
a.
A Stock Appreciation Right may be granted to any Eligible Individual selected by the Committee. The exercise price per share of Stock subject to each Stock Appreciation Right shall be set by the Committee, but shall not be less than 100% of the per share Fair Market Value on the date the Stock Appreciation Right is granted. The term of each Stock Appreciation Right shall be no more than seven years from the date of grant thereof. A Stock Appreciation Right shall be subject to such other terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.
b.
A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the product of (i) the excess of (A) the Fair Market Value of the Stock on the date the Stock Appreciation Right is exercised over (B) the Fair Market Value of the Stock on the date the Stock Appreciation Right was granted and (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised, subject to any limitations the Committee may impose.
7.2 Payment and Limitations on Exercise.
a.
Subject to Sections 7.2(b) payment of the amounts determined under Sections 7.1(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee in the Award Agreement.
b.
To the extent any payment under Section 7.1(b) is effected in Stock, it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options.
ARTICLE 8
OTHER TYPES OF AWARDS
8.1 Performance Share Awards. Any Eligible Individual selected by the Committee may be granted one or more Performance Share awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.2 Performance Stock Units. Any Eligible Individual selected by the Committee may be granted one or more Performance Stock Unit awards which shall be denominated in unit equivalent of shares of Stock and/or units of value including dollar value of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.3 Dividend Equivalents. Any Eligible Individual selected by the Committee may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award other than an

9


Option or Stock Appreciation Right, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Any Dividend Equivalents provided with respect to Awards that are subject to the attainment of specified performance goals will be subject to the same terms, conditions and risk of forfeiture as the underlying Awards. For the avoidance of doubt, Dividend Equivalents shall not be granted with respect to Options or Stock Appreciation Rights.
8.4 Stock Payments. Any Eligible Individual selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.
8.5 Deferred Stock. Any Eligible Individual selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee subject to Section 11.6. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock award has vested and the Stock underlying the Deferred Stock award has been issued.
8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock Units to any Eligible Individual selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate subject to Section 11.6. At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee; provided, that such dates and such election shall be subject to compliance with Section 409A of the Code. On the maturity date, the Company shall, subject to Section 11.5(b), transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited.
8.7 Performance Bonus Awards. Any Eligible Individual selected by the Committee may be granted one or more Performance-Based Awards in the form of a cash bonus (a “Performance Bonus Award”) payable upon the attainment of Performance Goals that are established by the Committee and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee subject to Section 11.6. Any such Performance Bonus Award paid to a Covered Employee shall be based upon objectively determinable bonus formulas established in accordance with Article 9.
8.8 Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock or Restricted Stock Units shall be set by the Committee in its discretion.
8.9 Exercise or Purchase Price. The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance Stock Units, Deferred Stock, Stock Payments or Restricted Stock Units; provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable state law.
8.10 Exercise upon Termination of Employment or Service. An Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments and Restricted Stock Units shall only be exercisable or payable while the Participant is an Employee, Consultant or Director, as applicable; provided,

10


however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock or Restricted Stock Units may be exercised or paid subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise; provided, however, that any such provision with respect to Performance Shares or Performance Stock Units shall be subject to the requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation.
8.11 Form of Payment. Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee.
8.12 Award Agreement. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by an Award Agreement.
ARTICLE 9
PERFORMANCE-BASED AWARDS
9.1 Purpose. The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.
9.2 Applicability. This Article 9 shall apply only to those Covered Employees selected by the Committee to receive Performance-Based Awards. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period.
9.3 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 or 8 which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Covered Employees, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.
9.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved. In determining the amount earned under a Performance-Based Award, the Committee may

11


reduce or eliminate the amount of the Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate.
9.5 Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.
ARTICLE 10
INDEPENDENT DIRECTOR AWARDS
The Committee may grant Awards to Independent Directors, subject to the limitations of the Plan, pursuant to a written non-discretionary formula established by the Committee, or any successor committee thereto carrying out its responsibilities on the date of grant of any such Award (the “Independent Director Equity Compensation Policy”). The Independent Director Equity Compensation Policy shall set forth the type of Award(s) to be granted to Independent Directors, the number of shares of Stock to be subject to Independent Director Awards, the conditions on which such Awards shall be granted, become exercisable and/or payable and expire, and such other terms and conditions as the Committee (or such other successor committee as described above) shall determine in its discretion. For the avoidance of doubt, Awards granted to Independent Directors shall be subject to all of the limitations set forth in the Plan.
ARTICLE 11
PROVISIONS APPLICABLE TO AWARDS
11.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
11.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
11.3 Limits on Transfer. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved from time to time by the Committee (or the Board in the case of Awards granted to Independent Directors). The Committee by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of

12


employment or service with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities. Notwithstanding anything herein to the contrary, no Award may be transferred by a Participant to a third-party for consideration absent stockholder approval.
11.4 Beneficiaries. Notwithstanding Section 11.3, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
11.5 Stock Certificates; Book Entry Procedures.
a.
Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
b.
Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award and instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).
11.6 Vesting and Acceleration Terms.
Following the grant of an Award, the Committee, in its discretion and on whatever terms and conditions it selects, may provide that the period during which an Award vests or becomes exercisable will accelerate, in whole or in part, in connection with a change in ownership or control of the Company or a holder’s termination of employment or service by reason of the holder’s retirement, death or disability. Except as permitted under this Section 11.6, the Committee shall not exercise any discretion to accelerate the vesting or exercisability of any Award after the grant date of such Award. Nothing in this Section 11.6 shall be construed to limit or restrict the Committee’s authority to establish the terms of an Award at the time of grant, including the events or conditions upon which the vesting or exercisability of an Award may accelerate.

13


11.7 Paperless Administration. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.
ARTICLE 12
CHANGES IN CAPITAL STRUCTURE
12.1 Adjustments.
a.
In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock other than an Equity Restructuring, the Committee shall make such equitable adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.
b.
In the event of any transaction or event described in Section 12.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
i.
To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 12.1(b) the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;
ii.
To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
iii.
To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;

14


iv.
To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and
v.
To provide that the Award cannot vest, be exercised or become payable after such event.
c.
In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 12.1(a) and 12.1(b):
i.
The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, will be equitably adjusted. The adjustments provided under this Section 12.1(c)(i) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.
ii.
The Committee shall make such equitable adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3).
12.2 Change in Control.
a.
In the event of a dissolution or liquidation of the Company, then all outstanding Awards shall terminate immediately prior to such event.
b.
In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a sale by the stockholders of the Company of the voting stock of the Company to another corporation and/or its subsidiaries that results in the ownership by such corporation and/or its subsidiaries of eighty percent (80%) or more of the combined voting power of all classes of the voting stock of the Company entitled to vote; (iii) a merger or consolidation in which the Company is not the surviving corporation or (iv) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Awards outstanding under the Plan or shall substitute similar awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 12.2) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Awards or to substitute similar awards for those outstanding under the Plan, then with respect to Awards held by Participants whose Continuous Service has not terminated, the vesting of such Awards (and, if applicable, the time during which such Awards may be exercised) shall be accelerated in full, and the Awards shall terminate if not exercised (if applicable) at or prior to such event. With respect to any other Awards outstanding under the Plan, such Awards shall terminate if not exercised (if applicable) prior to such event.
c.
Notwithstanding any other provisions of this Plan to the contrary other than Section 12.3 or 12.4 below, in the event of a Change in Control and if within thirteen (13) months after the date of such Change in Control the Continuous Service of a Participant terminates due to an involuntary termination (not including death or Disability) without Cause or a voluntary termination by the Participant due to a Constructive Termination, then the vesting and exercisability of all Awards held by such Participant shall be accelerated, or any reacquisition or repurchase rights held by the Company with respect to an Award shall lapse, as follows. With respect to those Awards held by a Participant who is a Designated Participant at the time of such termination, fifty percent (50%) of the unvested shares covered by such Awards shall vest and become exercisable (or reacquisition or repurchase rights held by the Company shall lapse with respect to fifty percent (50%) of the shares still subject to such rights, as appropriate) as of the date of such termination. With respect to those Awards held by all other Participants, twenty-five percent (25%) of the unvested shares covered by such Awards shall vest and become exercisable (or reacquisition or repurchase rights

15


held by the Company shall lapse with respect to twenty-five percent (25%) of the unvested shares still subject to such rights, as appropriate) as of the date of such termination.
12.3 Qualified Performance-Based Compensation. With respect to Awards which are granted to Covered Employees and are intended to qualify as Qualified Performance-Based Compensation, no adjustment or action described in Section 12.1 or 12.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Qualified Performance-Based Compensation, unless the Committee determines that the Award should not so qualify. No adjustment or action described in Section 12.1 or 12.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 under the Exchange Act unless the Committee determines that the Award is not to comply with such exemptive conditions.
12.4 Section 409A. No action shall be taken under Section 12.1 or 12.2 which shall cause an Award to fail to comply with Section 409A of the Code or the Treasury Regulations thereunder, to the extent applicable to such Award.
12.5 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.
12.6 Restrictions on Exercise. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.
ARTICLE 13
ADMINISTRATION
13.1 Committee. Unless and until the Board delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered by the full Board, and for such purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The Board, at its discretion or as otherwise necessary to comply with the requirements of Section 162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any other applicable rule or regulation, may delegate administration of the Plan to a Committee consisting of two or more members of the Board. Unless otherwise determined by the Board, the Committee shall consist solely of two or more members of the Board each of whom is an “outside director,” within the meaning of Section 162(m) of the Code, a Non-Employee Director and an “independent director” under the rules of the Nasdaq Stock Market (or other principal securities market on which shares of Stock are traded); provided that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 13.1 or otherwise provided in any charter of the Committee. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its independent members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Independent Directors and for purposes of such Awards the term “Committee” as used in this Plan shall be deemed to refer to the independent members of the Board and (b) the Committee may delegate its authority hereunder to the extent permitted by Section 13.5. In its sole discretion, the Board may at any time and

16


from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment; Committee members may resign at any time by delivering written notice to the Board; and vacancies in the Committee may only be filled by the Board.
13.2 Action by the Committee. Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
13.3 Authority of Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:
a.
Designate Participants to receive Awards;
b.
Determine the type or types of Awards to be granted to each Participant;
c.
Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;
d.
Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based Awards;
e.
Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
f.
Prescribe the form of each Award Agreement, which need not be identical for each Participant;
g.
Decide all other matters that must be determined in connection with an Award;
h.
Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
i.
Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
j.
Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
13.4 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.
13.5 Delegation of Authority. To the extent permitted by applicable law, the Board may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than (a) Employees who are subject to Section 16 of the Exchange

17


Act, (b) Covered Employees, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Board specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 13.5 shall serve in such capacity at the pleasure of the Board.
ARTICLE 14
EFFECTIVE AND EXPIRATION DATE
14.1 Effective Date. The Plan was effective as of the date first approved by the Company’s stockholders on August 6, 2008 (the “Effective Date”). The Plan is deemed to be approved by the stockholders if it is approved either:
a.
By a majority of the votes cast at a duly held stockholder’s meeting at which a quorum representing a representing a majority of outstanding voting stock is, either in person or by proxy, present and voting on the plan; or
b.
By a method and in a degree that would be treated as adequate under Delaware law in the case of an action requiring stockholder approval.
14.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after the tenth anniversary of the Effective Date, except that no Incentive Stock Options may be granted under the Plan after the earlier of the tenth anniversary of (a) the date the Plan was first approved by the Board or (b) the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.
ARTICLE 15
AMENDMENT, MODIFICATION, AND TERMINATION
15.1 Amendment, Modification, and Termination. Subject to Section 16.14, with the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval shall be required for any amendment to the Plan that (i) increases the number of shares available under the Plan (other than any adjustment as provided by Article 12), (ii) permits the Committee to grant Options with an exercise price that is below Fair Market Value on the date of grant, or (iii) permits the Committee to extend the exercise period for an Option or Stock Appreciation Right beyond seven years from the date of grant. Notwithstanding any provision in this Plan to the contrary, absent approval of the stockholders of the Company, no Option or Stock Appreciation Right may be amended to reduce the per share exercise price of the shares subject to such Option or Stock Appreciation Right below the per share exercise price as of the date the Option or Stock Appreciation Right is granted and, except as permitted by Article 12, no Option or Stock Appreciation Right may be granted in exchange for, or in connection with, the cancellation or surrender of an Option, Stock Appreciation Right or other Award. Further notwithstanding any provision in this Plan to the contrary, except as permitted by Article 12, absent the approval of the stockholders of the Company, the Committee shall not offer to buyout for a payment in cash, an Option or Stock Appreciation Right previously granted.
15.2 Awards Previously Granted. Except with respect to amendments made pursuant to Section 16.14, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

18


ARTICLE 16
GENERAL PROVISIONS
16.1 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly.
16.2 No Stockholders Rights. Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock.
16.3 Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months (or such other period as may be determined by the Committee) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.
16.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary.
16.5 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
16.6 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
16.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

19


16.8 Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
16.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
16.10 Fractional Shares. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
16.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
16.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.
16.13 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware.
16.14 Section 409A. To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.
* * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of TiVo Inc. on June 1, 2014.
* * * * *
I hereby certify that the foregoing Plan was approved by the stockholders of TiVo Inc. on August 7, 2014.
Executed on this 7th day of  August, 2014.
_/s/ Matt Zinn__________________    
Corporate Secretary


20
Tivo 07/31/2014 EX 31.1


Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas S. Rogers, certify that:
1) I have reviewed this quarterly report on Form 10-Q of TiVo Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 2, 2014
 
/s/    THOMAS S. ROGERS
Thomas S. Rogers
President and Chief Executive Officer
(Principal Executive Officer)




Tivo 07/31/2014 EX 31.2


Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Naveen Chopra, certify that:
1) I have reviewed this quarterly report on Form 10-Q of TiVo Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 2, 2014
 
/s/   NAVEEN CHOPRA
Naveen Chopra
Chief Financial Officer
(Principal Financial Officer)




Tivo 07/31/2014 EX 32.1


Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the TiVo Inc. (the “Company”) Quarterly Report on Form 10-Q for the quarter ending July 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas S. Rogers, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: September 2, 2014
 
/s/    THOMAS S. ROGERS
Thomas S. Rogers
President and Chief Executive Officer
(Principal Executive Officer)




Tivo 07/31/14 EX 32.2


Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the TiVo Inc. (the “Company”) Quarterly Report on Form 10-Q for the quarter ending July 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Naveen Chopra, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: September 2, 2014
 
/s/    NAVEEN CHOPRA
Naveen Chopra
Chief Financial Officer
(Principal Financial Officer)




tivo-20140731.xml
Attachment: XBRL INSTANCE DOCUMENT

tivo-20140731.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

tivo-20140731_cal.xml
Attachment: XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

tivo-20140731_def.xml
Attachment: XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

tivo-20140731_lab.xml
Attachment: XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

tivo-20140731_pre.xml
Attachment: XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT