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 operating 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; dependence on third-party providers of program guide data, currently Gracenote, Inc. and, in the future, Rovi Corporation; risks in connection with the transition of the TiVo service from Gracenote to Rovi program guide data by the end of the wind-down period in the Company's existing contract with Gracenote which terminated on May 19, 2016; 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 over-the-top (OTT) sources of content; 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 base. 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.
Pending Merger with Rovi Corporation
On April 28, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Rovi Corporation (“Rovi”), Titan Technologies Corporation, a Delaware corporation and wholly owned subsidiary of Rovi (“Parent”), Nova Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Rovi Merger Sub”) and Titan Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“TiVo Merger Sub”), providing for the merger of Rovi Merger Sub with and into Rovi (the “Rovi Merger”), with Rovi as the surviving entity in the Rovi Merger and becoming a wholly owned subsidiary of Parent, the merger of TiVo Merger Sub with and into TiVo (the “TiVo Merger,” and, collectively with the Rovi Merger and the other transactions contemplated by the Merger Agreement, the “Transactions”), with TiVo as the surviving entity in the TiVo Merger and becoming a wholly owned subsidiary of Parent, subject to the terms and conditions set forth therein.
Under the terms of the Merger Agreement, while the average Rovi stock price (based on the volume-weighted average trading price of the Rovi common stock on the NASDAQ over the 15 day period ending on (and including) the third trading day prior to closing) is between
$16.00
and
$25.00
, each share of TiVo common stock will be converted into the right to receive $10.70 in combination of cash and common stock in Parent that will own both TiVo and Rovi, with the cash component being no less than
$2.75
and no more than
$3.90
per share of TiVo common stock. If the average Rovi stock price is less than $16.00, the consideration per each share of TiVo common stock will be valued below
$10.70
, and if the average Rovi stock price exceeds $25.00, the TiVo merger consideration will be valued above $10.70. Rovi stockholders will continue to own one share of common stock in Parent for each share of Rovi common stock owned as of the closing. The Transactions are subject to customary closing conditions, including approval by TiVo's and Rovi's stockholders, and are expected to close in the third calendar quarter of 2016.
The description of the Merger Agreement herein does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on May 4, 2016.
At the closing of the Transactions, each TiVo option and restricted stock unit held by TiVo employees and outside consultants (excluding awards held by members of the TiVo board) will be converted into an option or restricted stock unit award, as applicable, from Parent on the same terms and conditions as were applicable under such TiVo option or restricted stock unit (including with respect to vesting), but appropriately adjusted based on the
Transactions consideration and to preserve the value of the award. Each TiVo option and restricted stock unit held by people who are not TiVo employees or outside consultants (including awards held by members of the TiVo board) will be canceled in exchange for a payment of a combination of cash and Rovi stock to each holder thereof that together equal the sum of the cash and stock consideration described in the merger agreement (in the case of an option, less the exercise price applicable thereto, but not below zero), multiplied by the number of shares of TiVo stock to which the award pertained, less any amount required to be withheld.
In addition, at the closing of the Transactions, each TiVo time-based restricted stock award held by TiVo employees and outside consultants (excluding awards held by members of the TiVo board) will convert into a time-based restricted stock award from Parent on the same terms and conditions as were applicable under such TiVo restricted stock award (including with respect to vesting), but appropriately adjusted based on the Transactions consideration and to preserve the value of the award. TiVo Restricted Stock Awards held by people who are not TiVo employees or outside consultants (including awards held by members of the TiVo board) will be canceled in exchange for a payment of a combination of cash and Rovi stock to each holder of restricted stock that together equal the sum of the cash and stock consideration described in the merger agreement, multiplied by the number of shares of TiVo stock to which the restricted award pertained, less any amount required to be withheld. Performance-based restricted stock awards will be converted on the same basis as time-based restricted stock awards, with deemed achievement of target-level performance, and shall thereafter be subject to only time-based vesting or lapse restrictions deemed to have commenced as of the grant date of the underlying TiVo award and subject to vesting in three equal annual installments commencing on the first anniversary of such grant date.
In connection with the Merger Agreement, Rovi, the Company, and Parent intend to file relevant materials with the SEC, including a Registration Statement on Form S-4 filed by Parent that will contain a joint proxy statement/prospectus. Investors and security holders are urged to read these materials when they become available because they will contain important information about Rovi, TiVo, Parent, and the proposed transactions.
Following completion of the Transactions, the Company’s common stock will be delisted from The NASDAQ Stock Market and deregistered under the Securities Exchange Act of 1934, as amended, and as such, the Company will no longer file periodic reports with the SEC.
TiVo and Rovi may each terminate the Merger Agreement under certain circumstances, and in connection with the termination of the Merger Agreement under specified circumstances, TiVo or Rovi may be required to pay the other party a termination fee of up to $36.6 million.
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
April 30, 2016
and
January 31, 2016
and the results of operations and the statement of other comprehensive income for the
three months ended
April 30, 2016
and
2015
and condensed consolidated statements of cash flows for the
three months ended
April 30, 2016
and
2015
. 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, 2016
. Operating results for the
three months ended
April 30, 2016
are not necessarily indicative of results that may be expected for this fiscal year ending
January 31, 2017
or any other periods.
Foreign Currency Translation
The Company determines the functional currency for its foreign subsidiaries by reviewing the currencies in which their respective operating activities occur. For the Company’s foreign subsidiaries where the local country’s currency is the functional currency, the Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using the average exchange rates during the period. Gains and losses from these translations are credited or charged to foreign currency translation adjustments, included in accumulated other comprehensive income (loss) in stockholders’ equity.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
As of April 30, 2016, the Company has adopted Accounting Standards Update (ASU) No. 2015-03,
Interest-Imputation of Interest
. This standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts. The adoption of this standard is retrospective in that the Company's condensed consolidated balance sheet as of January 31, 2016 has been adjusted to reflect this standard. The adjustment has resulted in a total decrease of prepaid expenses and other, current and long-term assets and a decrease in the carrying amount of the Company's current and long-term convertible senior notes of approximately $4.1 million as of January 31, 2016.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In July 2015, the FASB approved a one year deferral to the effective date of ASU 2014-09 for all entities so that the new standard will be effective for the Company on February 1, 2018. 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.
In July 2015, the FASB issued ASU 2015-11,
Inventory-Simplifying the Measurement of Inventory
,
which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. This ASU is effective for the Company on February 1, 2017. This ASU will be applied prospectively. The Company has not yet determined the effect of the standard on its ongoing financial reporting.
In February 2016, the FASB issued ASU 2016-6,
Leases
, which will require that lessees recognize most leases on-balance sheet. This will increase their reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. This ASU is effective for the Company on February 1, 2019. This ASU will be applied prospectively. The Company has not yet determined the effect of the standard on its ongoing financial reporting.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which is intended to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. The ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company has not yet 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 April 30, 2016
|
|
Adjusted
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|
(in thousands)
|
Cash
|
$
|
23,231
|
|
$
|
—
|
|
$
|
—
|
|
$
|
23,231
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
73,450
|
|
4
|
|
—
|
|
$
|
73,454
|
|
Money market funds
|
$
|
15,351
|
|
—
|
|
—
|
|
$
|
15,351
|
|
Corporate debt securities
|
$
|
5,467
|
|
—
|
|
(1
|
)
|
$
|
5,466
|
|
Total cash and cash equivalents
|
$
|
117,499
|
|
$
|
4
|
|
$
|
(1
|
)
|
$
|
117,502
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
3,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,000
|
|
Commercial paper
|
32,494
|
|
11
|
|
—
|
|
32,505
|
|
Corporate debt securities
|
305,808
|
|
169
|
|
(179
|
)
|
305,798
|
|
Foreign government securities
|
9,417
|
|
—
|
|
(3
|
)
|
9,414
|
|
Variable-rate demand notes
|
215
|
|
—
|
|
—
|
|
215
|
|
Asset and mortgage-backed securities
|
15,964
|
|
2
|
|
(5
|
)
|
15,961
|
|
Municipal bonds
|
18,249
|
|
3
|
|
(9
|
)
|
18,243
|
|
Current marketable debt securities
|
$
|
385,147
|
|
$
|
185
|
|
$
|
(196
|
)
|
$
|
385,136
|
|
Total cash, cash equivalents, and marketable debt securities
|
502,646
|
|
189
|
|
(197
|
)
|
502,638
|
|
|
|
|
|
|
|
As of January 31, 2016
|
|
Adjusted
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|
(in thousands)
|
Cash
|
$
|
14,362
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,362
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
31,576
|
|
$
|
4
|
|
$
|
—
|
|
$
|
31,580
|
|
Money market funds
|
$
|
105,787
|
|
$
|
—
|
|
$
|
—
|
|
$
|
105,787
|
|
Corporate debt securities
|
$
|
7,665
|
|
$
|
1
|
|
$
|
(3
|
)
|
$
|
7,663
|
|
Total cash and cash equivalents
|
$
|
159,390
|
|
$
|
5
|
|
$
|
(3
|
)
|
$
|
159,392
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
$
|
7,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,000
|
|
Commercial paper
|
47,692
|
|
1
|
|
(3
|
)
|
47,690
|
|
Corporate debt securities
|
387,927
|
|
66
|
|
(464
|
)
|
387,529
|
|
Foreign government securities
|
9,458
|
|
2
|
|
(8
|
)
|
9,452
|
|
Variable-rate demand notes
|
215
|
|
—
|
|
—
|
|
215
|
|
Asset and mortgage-backed securities
|
21,002
|
|
2
|
|
(17
|
)
|
20,987
|
|
Municipal bonds
|
13,797
|
|
11
|
|
(4
|
)
|
13,804
|
|
Total
|
$
|
487,091
|
|
$
|
82
|
|
$
|
(496
|
)
|
$
|
486,677
|
|
Total cash, cash equivalents, and marketable debt securities
|
$
|
646,481
|
|
$
|
87
|
|
$
|
(499
|
)
|
$
|
646,069
|
|
None of these investments were in a loss position for greater than twelve months as of
April 30, 2016
and
January 31, 2016
.
Marketable Securities
The Company’s investment securities portfolio consists of various debt instruments, including certificates of deposit, commercial paper, corporate bonds, asset and mortgage-backed securities, foreign government securities, variable-rate demand notes, and municipal bonds, all of which are classified as available-for-sale.
Other investment securities
TiVo has investments in private companies where the Company’s ownership is less than 20% and TiVo does not have significant influence. The investments are accounted for under the cost method and are periodically assessed for other-than-temporary impairment. The Company's cost basis in such investments was
$2.7 million
as of
April 30, 2016
and
January 31, 2016
. Refer to Note 4 "Fair Value" for additional information on the impairment assessment of the investments.
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
|
|
April 30, 2016
|
January 31, 2016
|
|
(in thousands)
|
Due within 1 year
|
$
|
299,313
|
|
$
|
361,365
|
|
Due within 1 year through 5 years
|
85,608
|
|
125,097
|
|
Due after 10 years
|
215
|
|
215
|
|
Total
|
$
|
385,136
|
|
$
|
486,677
|
|
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 senior notes which matured in March 2016 (the "4.0% Notes due 2016") and which mature in October 2021 (the "2.0% Notes due 2021"). The fair values of TiVo's convertible senior notes are influenced by interest rates, TiVo's stock price and stock price volatility and are determined by Level 2 inputs. The carrying value of the 4.0% Notes due 2016 at
January 31, 2016
was
$132.4 million
and the fair value was
$133.0 million
, based on the notes' quoted market price as of
January 31, 2016
. The carrying value of the 2.0% Notes due 2021 at
April 30, 2016
and
January 31, 2016
was
$184.2 million
and
$182.4 million
and the fair value was
$225.7 million
and
$195.5 million
, based on the notes' quoted market price
as of April 30, 2016
and
January 31, 2016
, respectively.
On a quarterly basis, TiVo measures, at fair value, certain financial assets and liabilities. The fair value of those financial assets and liabilities was determined using the following levels of inputs
as of April 30, 2016
and
January 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2016
|
|
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
|
$
|
73,454
|
|
$
|
—
|
|
$
|
73,454
|
|
$
|
—
|
|
Money market funds
|
15,351
|
|
15,351
|
|
—
|
|
—
|
|
Corporate debt securities
|
5,466
|
|
—
|
|
5,466
|
|
—
|
|
Short-term investments:
|
|
|
|
|
Certificates of deposit
|
3,000
|
|
—
|
|
3,000
|
|
—
|
|
Commercial paper
|
32,505
|
|
—
|
|
32,505
|
|
—
|
|
Corporate debt securities
|
305,798
|
|
—
|
|
305,798
|
|
—
|
|
Foreign government securities
|
9,414
|
|
—
|
|
9,414
|
|
—
|
|
Variable-rate demand notes
|
215
|
|
—
|
|
215
|
|
—
|
|
Asset- and mortgage-backed securities
|
15,961
|
|
—
|
|
15,961
|
|
—
|
|
Municipal bonds
|
18,243
|
|
—
|
|
18,243
|
|
—
|
|
Contingent Liabilities
|
|
|
|
|
|
|
|
|
Acquisition purchase consideration
|
$
|
10,419
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,419
|
|
Total
|
$
|
489,826
|
|
$
|
15,351
|
|
$
|
464,056
|
|
$
|
10,419
|
|
|
As of January 31, 2016
|
|
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
|
$
|
31,580
|
|
$
|
—
|
|
$
|
31,580
|
|
$
|
—
|
|
Money market funds
|
105,787
|
|
105,787
|
|
—
|
|
—
|
|
Corporate debt securities
|
7,663
|
|
—
|
|
7,663
|
|
—
|
|
Short-term investments:
|
|
|
|
|
Certificates of deposit
|
7,000
|
|
—
|
|
7,000
|
|
—
|
|
Commercial paper
|
47,690
|
|
—
|
|
47,690
|
|
—
|
|
Corporate debt securities
|
387,529
|
|
—
|
|
387,529
|
|
—
|
|
Foreign government securities
|
9,452
|
|
—
|
|
9,452
|
|
—
|
|
Variable-rate demand notes
|
215
|
|
—
|
|
215
|
|
—
|
|
Asset- and mortgage-backed securities
|
20,987
|
|
—
|
|
20,987
|
|
—
|
|
Municipal bonds
|
13,804
|
|
—
|
|
13,804
|
|
—
|
|
Contingent Liabilities
|
|
|
|
|
Acquisition purchase consideration
|
10,098
|
|
—
|
|
—
|
|
10,098
|
|
Total
|
$
|
641,805
|
|
$
|
105,787
|
|
$
|
525,920
|
|
$
|
10,098
|
|
Level 1 Measurements
TiVo's cash equivalents held in money market funds 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 presented, any material adjustments to such inputs.
Level 3 Measurements
The fair value of contingent purchase consideration arising from the acquisition of Cubiware is determined based on a probability-based approach that includes significant unobservable inputs which include projected revenues and EBITDA, percentage probability of occurrence, and a discount rate to calculate the present value of future cash earn-out payments. A significant change in these inputs could result in a significantly higher or lower fair value measurement. The fair value of contingent purchase consideration is calculated on a quarterly basis. Any change in the fair value is recorded to interest expense and other expense, net of that period. The change in the fair value of the Company’s contingent purchase consideration liability is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
|
(in thousands)
|
Beginning Balance
|
$
|
10,098
|
|
$
|
—
|
|
Add: Change in fair value of contingent purchase consideration
|
321
|
|
—
|
|
Ending Balance
|
$
|
10,419
|
|
$
|
—
|
|
Quantitative information about the Company's Level 3 fair value measurement as of
April 30, 2016
and
January 31, 2016
for contingent purchase consideration is as follows:
|
|
|
|
Unobservable Inputs
|
April 30, 2016
|
January 31, 2016
|
Total expected payments (in thousands)
|
$12,671
|
$12,705
|
Time-to-payments (weighted average years)
|
1.44
|
1.69
|
Discount rate
|
15%
|
15%
|
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 two direct investments in privately-held companies 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 investments 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 investments was
$2.7 million
as of April 30, 2016
and
January 31, 2016
. No events or circumstances indicating a potential impairment were identified
as of April 30, 2016
.
5. INVENTORY
Inventory was as follows:
|
|
|
|
|
|
|
|
|
As of
|
|
April 30, 2016
|
January 31, 2016
|
|
( in thousands)
|
Raw Materials
|
$
|
3,510
|
|
$
|
1,378
|
|
Finished Goods
|
14,118
|
|
16,157
|
|
Total Inventory
|
$
|
17,628
|
|
$
|
17,535
|
|
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 variable charge. The Company also includes a warranty through its Continual Care program to TiVo-Owned customers who use Roamio and BOLT DVRs for as long as they are monthly or annual subscribers to our service. The Company recognizes the cost associated with the Continual Care warranties at the time of the DVR sale.
As of April 30, 2016
and
January 31, 2016
, the accrued warranty reserve was
$316,000
and
$401,000
, respectively. The Company’s accrued warranty reserve is included in accrued liabilities in the accompanying condensed consolidated balance sheets.
The Company also includes a warranty through its Continual Care program to TiVo-Owned customers as long as they are subscribed to our service. The Company also offers its TiVo-Owned customers who purchase a lifetime subscription a 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 the sale of these MSO extended warranties over the second and third year of the warranty period. The extended warranty for MSOs applies through the end of the period of warranty.
As of April 30, 2016
, the extended warranty deferred revenue and cost was
$1.7 million
and
$152,000
, respectively.
As of January 31, 2016
, the extended warranty deferred revenue and cost was
$1.9 million
and
$180,000
, 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 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 April 30, 2016, the Company has not accrued any pre-judgment liability for any lawsuits filed against the Company, 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.
On September 8, 2015, the Company filed a complaint against Samsung Electronics Co., LTD, Samsung Electronics America, Inc., and Samsung Telecommunications America, LLC. (“Samsung”) in the United States District Court for the Eastern District of Texas. The complaint asserts U.S. Patent No. 6,233,389, titled “Multimedia Time Warping System,” U.S. Patent No. 6,792,195, titled “Method And Apparatus Implementing Random Access And Time-Based Functions On A Continuous Stream Of Formatted Digital Data,” U.S. Patent No. 7,558,472, titled “Multimedia Signal Processing System,” and U.S. Patent No. 8,457,476, titled “Multimedia Signal Processing System.” The Complaint claims that Samsung infringes the Company’s patents by making and selling Samsung DVRs and mobile devices, and related software, that fall within the scope of one or more claims of the Company’s patents. The Company's complaint also claims that Samsung’s infringement is willful, and seeks, among other things, an unspecified amount in damages as well as an injunction. On November 17, 2015, Samsung filed an answer denying the Company’s allegations. On February 11, 2016, Samsung amended its answer to assert U.S. Patent No. 5,978,043, titled “TV Graphical User Interface That Provides Customized Lists Of Programming,” U.S. Patent No. 6,181,333, titled “Television Graphical User Interface Having Channel And Program Sorting Capabilities,” U.S. Patent No. 7,231,592, titled “Method And Apparatus For A Home Network Auto-Tree Builder,” and U.S. Patent No. 8,233,090, titled “Method Of Linkage-Viewing TV Broadcasting Program Between Mobile Communication Apparatus And Digital TV, And Mobile Communication Apparatus And Digital TV Thereof” against the Company. In its amended answer, Samsung counterclaims that the Company infringes Samsung’s patents by making and selling TiVo DVRs, and related software, that fall within the scope of one or more claims of Samsung’s patents. Samsung’s complaint claims that the Company’s infringement is willful, and seeks, among other things, damages in an unspecified amount. On February 22, 2016, the Court issued a preliminary scheduling order, setting jury selection for March 6, 2017. The Company expects to incur material expenses in connection with this matter.
On November 24, 2015, Dolby Laboratories Licensing Corporation & Dolby International AB (“Dolby”) formally notified TiVo that TiVo was in material breach of certain provisions in license agreements with Dolby and that TiVo had 30 days to cure the breaches or Dolby would terminate those license agreements. Dolby alleged that TiVo owed Dolby approximately
$1.7 million
in connection with TiVo’s alleged failure to properly report and pay royalties for sales of certain TiVo hardware and software products, including accrued interest. Dolby further alleged that TiVo owed Dolby approximately
$8.7 million
in connection with certain third-party hardware products that run TiVo software. TiVo notified Dolby that it does not agree with the results of its audit nor with its assertions that TiVo’s activities in connection with third-party hardware products in any way breach any of TiVo’s license agreements with Dolby. In late December 2015, in the interest of avoiding termination of those license agreements, TiVo tendered the $1.7 million sum, subject to a reservation of rights. The Company expensed
$1.1 million
as cost of revenues and
$0.4 million
as interest expense and other income (expense) in the fiscal year ended January 31, 2016. The remaining
$0.2 million
was expensed in prior periods. On February 18, 2016, Dolby served a further notice of material breach in which Dolby asserted TiVo continues to be in material breach of the same provisions of Dolby's license agreements with TiVo that Dolby previously notified TiVo in November 2015. TiVo intends to defend against these assertions vigorously; however, TiVo may incur material legal expenses and higher royalty costs if this
contractual dispute results in litigation and in the event there is an adverse outcome, TiVo’s business could be harmed. No additional loss is considered probable at this time and the Company estimates that the range of possible loss could be between
zero
and
$9.0 million
at this time.
7. CONVERTIBLE SENIOR NOTES
The following table reflects the carrying value of the Company's convertible senior notes:
|
|
|
|
|
|
|
|
|
As of
|
|
April 30, 2016
|
January 31, 2016
|
|
( in thousands)
|
4.0% Notes due 2016
|
$
|
—
|
|
$
|
132,500
|
|
Less: Unamortized debt issuance costs
|
—
|
|
(91
|
)
|
Net carrying amount of 4.0% Notes due 2016
|
—
|
|
132,409
|
|
2.0% Notes due 2021
|
230,000
|
|
230,000
|
|
Less: Unamortized debt discount
|
(42,008
|
)
|
(43,638
|
)
|
Less: Unamortized debt issuance costs
|
(3,805
|
)
|
(3,980
|
)
|
Net carrying amount of 2.0% Notes due 2021
|
184,187
|
|
182,382
|
|
Total convertible debt
|
184,187
|
|
314,791
|
|
Less: Convertible short-term debt
|
—
|
|
132,409
|
|
Convertible long-term debt
|
184,187
|
|
$
|
182,382
|
|
4.0% Convertible Notes Due 2016:
In March 2011, the Company issued
$172.5 million
aggregate principal amount of
4.0%
Convertible Senior Notes due March 15, 2016 at par. The
4.0%
Notes due 2016 could be converted under certain circumstances based on an initial conversion rate of
89.6359
shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately
$11.16
per share). The net proceeds to the Company from the sale of the 4.0% Notes due 2016 were approximately
$166.1 million
. The notes do not have cash settlement provisions.
In September 2015, the Company repurchased 4.0% Notes due 2016 with a face value of
$40.0 million
on the open market at the market value of the notes on the date of the repurchase. The Company paid a total of
$41.0 million
in cash comprised of
$40.0 million
in principal and
$1.0 million
in premium and commissions. The Company recognized a loss on the repurchase of
$1.1 million
in Interest expense and other expense, net. The loss consisted of
$1.0 million
in premiums and commissions and
$101,000
in unamortized issuance costs relating to the
$40.0 million
repurchased.
On March 15, 2016, the Company paid
$132.5 million
, the remaining principal on its 4.0% Notes due 2016 in cash. No conversion rights were exercised on the notes.
The Company paid cash interest at an annual rate of 4.00%, payable semi-annually on March 15 and September 15 of each year through maturity. Debt issuance costs were approximately
$6.4 million
and were amortized to interest expense over the term of the 4.0% Notes due 2016. The following table presents the amount of interest cost recognized relating to the contractual interest coupon and amortization of issuance costs of the 4.0% Notes due 2016 (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
|
(In Thousands)
|
Contractual interest coupon
|
$
|
663
|
|
$
|
1,725
|
|
Amortization of debt issuance costs
|
91
|
|
240
|
|
Total interest cost recognized
|
$
|
754
|
|
$
|
1,965
|
|
2.0% Convertible Notes Due 2021.
In September 2014, the Company issued
$230.0 million
in aggregate principal amount of
2.0%
Convertible Senior Notes due October 1, 2021 at par. The 2.0% Notes due 2021 may be converted under certain circumstances described below, based on an initial conversion rate of
56.1073
shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately
$17.82
per share), subject to adjustment pursuant to the indenture governing the 2.0% Convertible Senior Notes due 2021 (the “2.0% Convertible Senior Notes Indenture”). The net proceeds to the Company from the sale of the 2.0% Notes due 2021 were approximately
$223.6 million
. The Company can settle the notes in cash, shares of common stock, or any combination thereof.
The Company separately accounts for the liability and equity components of the 2.0% Notes due 2021. The principal amount of the liability component of
$177.9 million
as of the date of issuance was recognized at fair value based on the present value of its cash flows using a discount rate of
6.0%
; the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The residual
$52.1 million
was allocated to the equity component and accounted for as a discount on the notes. As of
April 30, 2016
, the carrying value of the equity component was unchanged from the date of issuance. The Company initially reduced stockholders' equity by
$19.3 million
due to the deferred tax liability related to the equity component of the notes.
The following table presents the amount of interest cost recognized relating to the contractual interest coupon, amortization of issuance costs and amortization of the discount on the liability component of the 2.0% Notes due 2021 (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
|
(In Thousands)
|
Contractual interest coupon
|
$
|
1,150
|
|
$
|
1,150
|
|
Amortization of debt issuance cost
|
176
|
|
176
|
|
Amortization of debt discount
|
1,629
|
|
1,540
|
|
Total interest cost recognized
|
$
|
2,955
|
|
$
|
2,866
|
|
The effective interest rate on the liability component of the 2.0% Notes due 2021 was
6.0%
. The remaining unamortized debt discount of
$42.0 million
as of
April 30, 2016
will be amortized over the remaining life of the 2.0% Notes due 2021, which is approximately
5.4 years
.
Holders of the 2.0% Notes due 2021 may convert the 2.0% Notes due 2021 at their option on any day prior to the close of business on the business day immediately preceding July 1, 2021 only under the following circumstances: (1) during the
five
business day period after any
10
consecutive trading day period (the “Measurement Period”) in which the trading price per $1,000 principal amount of 2.0% Notes due 2021 for each day of that Measurement Period was less than
98%
of the product of the closing sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter after the calendar quarter ending December 31, 2014 if the last reported sale price of our common stock for
20
or more trading days in a period of
30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds
130%
of the applicable conversion price in effect on each such trading day; or (3) upon the occurrence of specified corporate events. The 2.0% Notes due 2021 will be convertible, regardless of the foregoing circumstances, at any time from, and including, July 1, 2021 until the close of business on the second scheduled trading day immediately preceding the applicable maturity date. The 2.0% Notes due 2021 may not be redeemed by the Company prior to their maturity date.
Upon conversion the Company will pay cash and, if applicable, deliver shares of its common stock, based on a “Daily Conversion Value” calculated on a proportionate basis for each “VWAP Trading Day” (each as defined in the 2.0% Convertible Senior Notes Indenture) of the relevant 20 VWAP Trading Day observation period. The Company intends to settle the principal amount owed with respect to any 2.0% Notes due 2021 in cash and to settle the remaining amount in shares of the Company’s common stock. The initial conversion rate for the 2.0% Notes due 2021 is
56.1073
shares of common stock per $1,000 in principal amount of 2.0% Notes due 2021, equivalent to a conversion price of approximately
$17.82
per share of common stock. The conversion rate is subject to customary anti-dilution adjustments.
Subject to certain exceptions, holders may require the Company to repurchase, for cash, all or part of their 2.0% Notes due 2021 upon a “Fundamental Change” (as defined in the 2.0% Convertible Senior Notes Indenture) at a price equal to 100% of the principal amount of the 2.0% Notes due 2021 being repurchased plus any accrued
and unpaid interest up to, but excluding, the “Fundamental Change Repurchase Date” (as defined in the 2.0% Convertible Senior Notes Indenture). In addition, upon a “Make-Whole Fundamental Change” (as defined in the 2.0% Convertible Senior Notes Indenture) prior to the maturity date of the Notes, the Company will, in some cases, increase the conversion rate for a holder that elects to convert its 2.0% Notes due 2021 in connection with such Make-Whole Fundamental Change. It is expected that the TiVo Merger will constitute a Fundamental Change and a Make-Whole Fundamental Change under the 2.0% Notes due 2021.
The 2.0% Notes due 2021 bear cash interest at an annual rate of 2.00%, payable semi-annually in arrears on April 1 and October 1 of each year beginning April 2015. Debt issuance costs were approximately
$6.4 million
, of which
$1.4 million
was allocated to additional paid-in capital and
$5.0 million
was allocated to deferred issuance costs and is amortized to interest expense over the term of the 2.0% Notes due 2021. As of
April 30, 2016
, unamortized deferred issuance cost was
$3.8 million
.
Concurrently with the issuance of the 2.0% Notes due 2021, the Company purchased convertible note hedges and sold warrants. The convertible note hedge and warrant transactions are structured to reduce the potential future economic dilution associated with the conversion of the 2.0% Notes due 2021. The strike price of the warrant transactions related to the 2.0% Notes due 2021 is initially
$24.00
per share, which is
75%
above the closing price of TiVo's common stock on September 16, 2014.
Convertible Note Hedge Transactions.
Counterparties entered into convertible note hedge transactions with the Company covering approximately
12.9 million
shares of the Company’s common stock, in the aggregate, which is the number of shares initially underlying the 2.0% Notes due 2021. The convertible note hedge transactions, which have an initial strike price of
$17.82
(corresponding to the initial conversion price of the 2.0% Notes due 2021) may be settled through net share settlement (in which case the Company will receive shares of common stock based on the amount by which the market price of the Company’s common stock, as measured under the convertible note hedge transactions, exceeds the strike price of the convertible note hedge transactions), cash settlement (in which case the Company will receive cash in lieu of the shares deliverable upon net share settlement), or a combination thereof, which settlement method will generally correspond to the settlement method elected with respect to the 2.0% Notes due 2021. The convertible note hedge transactions are only exercisable upon conversions of the 2.0% Notes due 2021 and will expire upon the earlier of the maturity date of the 2.0% Notes due 2021 or the date on which the 2.0% Notes due 2021 cease to be outstanding. It is expected that settlement of the convertible note hedge transactions through net share settlement in connection with a conversion of 2.0% Notes due 2021 would result in the Company receiving a number of shares approximately equal to the number of shares issuable by the Company upon net share settlement of the 2.0% Notes due 2021 in connection with any such conversion. The convertible note hedge transactions cost of
$54.0 million
has been accounted for as an equity transaction. The Company initially recorded approximately
$20.0 million
in stockholders’ equity from the deferred tax asset related to the convertible note hedges at inception of the transactions. As of
April 30, 2016
the Company had not received any shares under these convertible note hedge transactions. The convertible note hedge transactions are subject to termination in connection with conversions of the 2.0% Notes due 2021 occurring in connection with a “Make-Whole Fundamental Change” under the indenture governing the 2.0% Notes due 2021 or as a result of a repurchase of the 2.0% Convertible Notes due 2021 (including as a result of a “Fundamental Change” under the 2.0% Notes due 2021). In connection with any such conversion or termination, the Company may receive amounts from the counterparties to the convertible note hedge transactions. Additionally, the Company may seek to unwind the convertible note hedge transactions concurrently with or prior to the consummation of the TiVo Merger.
Warrants.
Concurrently with the purchase of the convertible note hedge transactions, the Company received
$30.2 million
from the sale to the counterparties to the convertible note hedge transactions of warrants to purchase up to approximately
12.9 million
shares of the Company’s common stock at an initial strike price of
$24.00
per share. The warrants expire on various dates between January 1, 2022 and March 29, 2022 and are exercisable on their expiration dates. The warrants may be settled through net share settlement (in which case the Company will be required to deliver to the counterparties a number of shares based on the amount by which the market price of the Company’s common stock, as measured under the warrants, exceeds the strike price of the warrants) or, at the Company’s option, subject to certain conditions, through cash settlement (in which case the Company will owe the counterparties cash in lieu of the shares deliverable upon net share settlement). As of
April 30, 2016
, the warrants had not been exercised and remained outstanding. The value of the warrants was initially recorded in equity and continues to be classified as equity. The warrants allow for certain adjustments to the terms thereof by the counterparties to the warrants in connection with the announcement of certain merger transactions and provide for termination of the warrants upon the consummation of certain merger transactions. The Company may owe amounts to the counterparties to the warrant transactions in connection with any such termination. Additionally, the Company may seek to unwind the warrant transactions concurrently with or prior to the consummation of the TiVo Merger.
8. 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 for the three months ended April 30, 2015 is the diluted effect of the 4.0% Notes due 2016 which is calculated using the if-converted method. The 4.0% Notes due 2016 have an anti-dilutive effect on the three months ended April 30, 2016 and have been excluded from our calculation of net income per common share for the three months ended April 30, 2016.
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
|
(income in thousands)
|
Numerator:
|
|
|
Net income
|
$
|
4,155
|
|
$
|
7,879
|
|
Interest on dilutive notes, net of tax
|
—
|
|
1,251
|
|
Net income for purpose of computing net income per diluted share
|
4,155
|
|
9,130
|
|
Denominator:
|
|
|
Weighted average shares outstanding, excluding unvested restricted stock
|
94,539,000
|
|
91,454,492
|
|
Weighted average effect of dilutive securities:
|
|
|
Stock options, restricted stock, and employee stock purchase plan
|
1,938,034
|
|
3,628,014
|
|
4.0% Notes due 2016
|
—
|
|
15,462,193
|
|
Denominator for diluted net income per common share
|
96,477,034
|
|
110,544,699
|
|
Basic net income per common share
|
$
|
0.04
|
|
$
|
0.09
|
|
Diluted net income per common share
|
$
|
0.04
|
|
$
|
0.08
|
|
The weighted average number of shares outstanding used in the computation of diluted net income per share in the
three months ended April 30, 2016
and
2015
do not include the effect of the following potentially outstanding common stock because the effect would have been anti-dilutive:
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
Unvested restricted stock
|
508,238
|
|
153,529
|
|
Options to purchase common stock
|
1,486,556
|
|
358,502
|
|
4.0% Notes due 2016
|
5,938,378
|
|
—
|
|
2.0% Notes due to 2021
|
12,904,679
|
|
12,904,679
|
|
Common stock warrants
|
12,904,679
|
|
12,904,679
|
|
Total
|
33,742,530
|
|
26,321,389
|
|
Effect of conversion on net income per share.
The 2.0% Notes due 2021 have no impact on diluted net income per share until the average quarterly price of our common stock exceeds the conversion price of
$17.82
per share. Prior to conversion, we will include the effect of the additional shares that may be issued if our common stock price exceeds
$17.82
per share using the treasury stock method. If the average price of our common stock exceeds
$24.00
per share for a quarterly period, we will also include the effect of the additional potential shares that may be issued related to the Warrants using the treasury stock method. Prior to conversion, the convertible note hedges are not considered for purposes of the calculation of net income (loss) per share, as their effect would be anti-
dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect of the 2.0% Notes due 2021 when the stock price is above
$17.82
per share.
9. STOCK-BASED COMPENSATION
Total stock-based compensation for the
three months ended April 30, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
2016
|
2015
|
|
(In thousands)
|
Cost of service and software revenues
|
$
|
508
|
|
$
|
497
|
|
Cost of technology revenues
|
318
|
|
256
|
|
Cost of hardware revenues
|
33
|
|
40
|
|
Research and development
|
1,642
|
|
2,018
|
|
Sales and marketing
|
970
|
|
1,104
|
|
General and administrative
|
2,066
|
|
3,210
|
|
Transition and restructuring
|
108
|
|
—
|
|
Stock-based compensation before income taxes
|
$
|
5,645
|
|
$
|
7,125
|
|
Income tax benefit
|
(1,570
|
)
|
(1,467
|
)
|
Stock-based compensation, net of tax
|
$
|
4,075
|
|
$
|
5,658
|
|
10. TRANSITION AND RESTRUCTURING
During the three months ended April 30, 2016, the Company announced the termination of approximately
58
full-time employees and additional contractors as part of a plan to better align the Company's resources and strategic goals. Restructuring expenses totaled
$3.7 million
and were principally comprised of severance pay expenses and related cash expenditures. The Company also recorded a non-cash expense of
$108,000
before tax related to stock-based compensation expense for modification of restricted stock awards.
Additionally, as previously disclosed in the Company's Form 10-K for the fiscal year ended January 31, 2016, in November 31, 2016, it entered into a Transition Agreement with its former chief executive officer, Thomas Rogers, effective as of January 30, 2016, pursuant to which Mr. Rogers will receive the compensation and benefits under his employment agreement. The total transition and restructuring charge during the twelve months ended January 31, 2016 was
$12.8 million
which was comprised of a cash sum equal to
$5.4 million
, stock-based compensation of
$6.4 million
from full acceleration of the vesting of all unvested equity-related awards held by Mr. Rogers, and legal and other expenses of
$1.0 million
.
As of April 30, 2016, total transition and restructuring liabilities of
$7.2 million
relating to the above transactions—
$6.3 million
of which are payable to Tom Rogers—are included in the accrued liabilities line item in the Company's Condensed Consolidated Balance Sheets. These liabilities will be paid at various dates through December 31, 2016.
11. INCOME TAX
The Company recorded income tax expense of
$2.0 million
for the
three months ended April 30, 2016
as compared to income tax expense of
$6.3 million
for the same prior year period. The effective tax rate for the
three months ended April 30, 2016
was
33%
. The effective tax rate for the
three months ended April 30, 2015
was
44%
.
The provision for income taxes for the
three months ended April 30, 2016
differs from the U.S. statutory tax rate of
35%
primarily due to the benefit from research and development credits and the tax impact of earnings from foreign operations.
The provision for income taxes for the three months ended April 30, 2015 differs from the U.S. statutory tax rate of
35%
primarily due to tax impact of non-deductible compensation, stock based compensation, state taxes
As of
April 30, 2016
, 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.
12. RELATED PARTY TRANSACTIONS
In February 2016, the Company entered into a sub-lease agreement with TRget Media, LLC, a company wholly owned by Tom Rogers, the Company's current chairman of its board of directors and former chief executive officer. The term of the sub-lease is from February 1, 2016 through October 31, 2018. Total payments to be received by the Company over the term of the lease are
$339,000
. During the three months ended April 30, 2016, the Company was paid
$49,000
pursuant to the sub-lease agreement.
13. ACQUISITIONS
On May 22, 2015, the Company acquired all outstanding shares of Cubiware Sp. Z.o.o., a privately-held company based in Warsaw, Poland that is a provider of middleware, UI software, and back-office software solutions for set-top boxes to enable interactive television applications, pursuant to a Share Purchase Agreement dated May 22, 2015. Total purchase consideration was
$29.1 million
.
The acquisition was accounted for using the acquisition method of accounting. There have been no material changes during the measurement period from the acquisition date of May 22, 2015 to the finalization of the purchase price allocation on April 30, 2016. The final purchase price allocation as of the date of the acquisition is set forth in the table below and reflects various fair value estimates.
|
|
|
|
|
Cubiware
|
Purchase Accounting - Opening Balance Sheet
|
(in thousands)
|
|
|
Assets:
|
|
Cash
|
$
|
3,200
|
|
Accounts receivable
|
1,733
|
|
Other current assets
|
73
|
|
Fixed assets
|
355
|
|
Prepaid expenses and other, long-term
|
90
|
|
Deferred tax asset, current
|
47
|
|
Total Assets
|
$
|
5,498
|
|
|
|
Liabilities:
|
|
Accounts payable
|
(155
|
)
|
Accrued liabilities
|
(143
|
)
|
Deferred tax liability, long term
|
(3,173
|
)
|
Other long-term liabilities
|
(106
|
)
|
Total Liabilities
|
$
|
(3,577
|
)
|
|
|
Intangibles
|
$
|
16,700
|
|
Goodwill
|
10,436
|
|
Total Purchase Consideration
|
$
|
29,057
|
|
14. SUBSEQUENT EVENTS
None.