Annual Report on Form 10-K

Positions

Alfred J. Amoroso

President and Chief Executive Officer

James Budge

Chief Financial Officer

Thomas Carson

Executive Vice President, Worldwide Sales & Services

Stephen Yu

Executive Vice President, General Counsel and Corporate Secretary

10-K 1 d10k.htm ANNUAL REPORT ON FORM 10-K Annual Report on Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

¨	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: 000-53413

Rovi Corporation

(Exact name of registrant as specified in its charter)


Delaware		26-1739297
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

2830 De La Cruz Boulevard

Santa Clara, California

95050

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(408) 562-8400

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Exchange on Which Registered
Common Stock, $0.001 Par Value		The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes ¨ No þ

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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 “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant was approximately $2.9 billion as of June 30, 2010, based upon the closing price on the NASDAQ Global Select Market reported for such date. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose. The number of shares outstanding of the Registrant’s Common Stock on February 7, 2011, was 107,468,703 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement related to the 2011 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2010, are incorporated by reference into Part III of this Form 10-K.

INDEX


PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	14
ITEM 1B.	UNRESOLVED STAFF COMMENTS	31
ITEM 2.	PROPERTIES	32
ITEM 3.	LEGAL PROCEEDINGS	32
ITEM 4.	[REMOVED AND RESERVED]	34

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	35
ITEM 6.	SELECTED FINANCIAL DATA	38
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	55
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	55
ITEM 9A.	CONTROLS AND PROCEDURES	55
ITEM 9B.	OTHER INFORMATION	59

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	59
ITEM 11.	EXECUTIVE COMPENSATION	59
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	59
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS , AND DIRECTOR INDEPENDENCE	59
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	59

PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	60
	SIGNATURES	64

Discussions of some of the matters contained in this Annual Report on Form 10-K for Rovi Corporation (the “Company,” “we” or “us”) may constitute forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and as such, may involve risks and uncertainties. Some of these discussions are contained under the captions “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have based these forward-looking statements on our current expectations and projections about future events or future financial performance, which include implementing our business strategy, developing and introducing new technologies, obtaining, maintaining and expanding market acceptance of the technologies we offer, and competition in our markets.

In some cases, you can identify these forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “predict,” “potential,” “intend,” or “continue,” and similar expressions. These statements are based on the beliefs and assumptions of our management and on information currently available to our management. Our actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference, see “Item 1A.—Risk Factors” and elsewhere in this Form 10-K. We specifically disclaim any obligation to update such forward-looking statements.

PART I

ITEM 1.

BUSINESS

Overview

In May 2008, we acquired Gemstar-TV Guide International, Inc. (“Gemstar”) and, in April 2009, we acquired substantially all of the operations of Muze, Inc. (“Muze”). Our results of operations include the operations of Gemstar and Muze from those dates forward.

In April 2008, we sold our software and games businesses (referred to as “Software” and “Games”, respectively). In November 2008, we sold our RightCommerce (also known as “eMeta”) business. In December 2008, we sold our TV Guide Magazine business. In January 2009, we sold our TVG Network business and, in February 2009, we sold our TV Guide Network and TV Guide Online businesses. Together TV Guide Magazine, TVG Network, TV Guide Network and TV Guide Online are collectively referred to as the “Media Properties”. In September 2010, we sold our Canadian subsidiary Norpak Corporation (“Norpak”), which manufactured equipment for embedding data in a television signal. The results of operations and cash flows of Software, Games, eMeta, Norpak and the Media Properties have been classified as discontinued operations for all periods presented.

On December 22, 2010, we entered into a definitive agreement to acquire Sonic Solutions (“Sonic”) in a stock and cash transaction. We believe the acquisition of Sonic will enable us to deliver a broader range of solutions to content distributors, service providers, consumer electronics (“CE”) manufacturers and retailers as well as accelerate our advertising opportunity. The transaction is expected to close in the first quarter of 2011 (See Note 18 to the Consolidated Financial Statements).

Industry Background

The entertainment media market is experiencing a major transformation from analog to digital content. The design, distribution, protection and consumption of all forms of digital content continues to experience an unprecedented amount of change. The expansion of network bandwidth, increased availability of devices that allow people to enjoy digital content, availability of digital content and increased mobility are all helping to accelerate the market shift. As part of this change, consumers are demanding high-quality digital content in many formats and places. Users are also seeking flexible means by which to legally acquire and add content to their digital libraries permanently or for a period of time and want to be able to enjoy that content in numerous locations on different devices. They want to easily discover and access content (movies, music, photos and programming) and enjoy it where and when they want.

No matter what content consumers desire or are enjoying, we believe video content such as movies and TV shows remains important. New devices and services are continually being created that bring video content to consumers. Consumers are in an upgrade cycle investing in high-end HDTV’s that maximize video enjoyment. Additionally consumers are investing in new devices, such as tablets and smartphones with the intent to use them to enjoy digital content, among other uses. These devices require the ability to provide information identifying what is available to the viewer in broadcast television (TV listings), stored or packaged video and video on demand (“VOD”). We refer to providing this information as “guidance”. Guidance becomes more complex as more sources of entertainment become available to consumers. Beyond existing pay TV options, consumers can now download or stream Internet-based content to their media devices, accessed via several different business models. In addition, the current home media device infrastructure can be very complex. Setting up such an environment generally requires integrating numerous devices, a deep understanding of the interoperability of media formats and creation of mechanisms for managing and enjoying content. The alternative is to purchase products from a single vendor and sacrifice the ability to integrate all types of media into many devices or have many devices operating in silos, significantly limiting the mobility and flexibility that consumers desire.

These changes are impacting every part of the entertainment supply chain, from content producers, to distribution channels and consumption device manufacturers, causing them each to reevaluate their business models, as well as introducing new competitors at each phase of the supply chain.

In the case of content producers, the industry shift to digital media, PC-based entertainment platforms, portable digital devices (such as tablets and smartphones), networked devices and Internet downloads threatens current revenue models built on tightly controlled distribution “windows”. Consumers seek to enjoy movies and TV shows at their own convenience, not necessarily watching TV at home or going to the theaters. Additionally, inexpensive, easy-to-use in-home copying devices, such as DVD recorders, and PC-based hard drive recorders, enable consumers to make unauthorized copies of video, audio and software content. As a result the existing revenue streams of advertising, theater attendance and sales of packaged media are all threatened. Also, content owners lose billions of dollars every year to casual copying and professional or bootleg piracy and Internet/peer-to-peer (P2P) piracy. As technological advances facilitate digital downloads and digital copying, motion picture studios, music labels, cable television and program distributors have become more concerned with how to protect their intellectual property, make it available to consumers in the manner they wish to receive it, and maintain their revenue streams.

Distribution channels, such as cable and satellite operators, web portals and retailers, and others are all seeking ways to best obtain or maintain competitive advantage in a digital entertainment world. They are requiring highly customizable solutions that aid the consumer experience, such as additional data about the entertainment content, while still allowing the distribution channel to retain its unique identity. They are also seeking to increase their interaction with a consumer and create new revenue opportunities. This requires substantial investment in technology infrastructure to augment their current businesses. Additionally, content producers are exploring new forms of distribution to protect or advance their position in the distribution window chain, which includes experimenting with direct to consumer models and new forms of content licensing, such as exclusive downloads, subscription to a studio’s portfolio, or making a streamed or downloaded movie available

for purchase simultaneous with the home video distribution window. All of this results in increased competition for distributors, leading to their need to create unique distribution arrangements and to integrate with many partners to reach consumers.

The markets for CE manufacturers are also in major flux. Consumers are demanding capabilities to interact with broad ranges of media, such as over-the-top video, not just viewing content that is broadcast to the device. Increased functionality requires extensive software to be embedded into these devices, which is not a core competency for CE manufacturers. New types of devices such as tablets are also competing for consumers’ spending as consumers become more comfortable with new ways of enjoying their entertainment. CE manufacturers also desire an ongoing revenue relationship with their customer, not just to sell them a new device every few years. This leads to a demand for add-on services or advertising that allow the CE manufacturer to profit from the on-going distribution or maintenance of entertainment content.

As traditional media changes, the opportunities for advertisers evolve as well. Currently advertisers spend more heavily on television commercials than any other form of advertising. As television viewership has become more fragmented, advertisers have sought new ways to reach consumers. Additionally, the growth of web advertising has increased the criteria advertisers use to evaluate successful advertising, adding metrics such as personalization and guaranteed views.

Rovi’s Markets

We sell our products into the following market verticals (i) service providers (cable, satellite, telecommunications, mobile and internet service providers among others), (ii) CE manufacturers and (iii) other.

Service Providers

IPGs

An IPG is an interactive listing of television or video program information that enables viewers to navigate through, sort, select and schedule video programming for viewing and recording. We believe that interactive video guidance technology is a necessary tool for television viewers bombarded with an increasing amount of available content and an increasing number of digital cable and satellite television channels, VOD services, and Internet download services. The IPG is evolving from a guide to television to a guide for all the digital content that users have access to in the home or available to them on their TV, including programming delivered over the Internet.

Our service provider licensees either deploy IPGs provided by the Company or, pursuant to an IPG patent license, their own IPG or a third party IPG. For service providers that deploy one of our IPGs, we also offer operational support, content, professional services and data. Our IPGs allow service providers to customize certain elements of the IPGs for their subscribers and also allow these providers to upgrade, over time, the features and services they can offer to their subscribers. Our service provider IPGs are compatible with service providers’ subscription management, pay-per-view (“PPV”) and VOD services. Our IPGs allow service providers to provide their viewers with current and future program information. We currently offer IPGs marketed to service providers under the i-Guide, Passport, Passport Echo and Passport DCT brands.

TotalGuide (see also Consumer Electronics—IPGs below) is a new initiative for service providers and is currently in development. We currently expect to launch it for trials in late 2011 and begin with limited consumer deployments by the end of the year. Additionally, we currently expect to offer service providers TotalGuide xD, an extended version of the product that works on tablets and smartphones allowing service providers to extend the user experience across devices. We currently expect to make TotalGuide xD available for trials in the first half of 2011.

The majority of our service provider IPGs also feature advertising. Additionally, we work with some service providers to sell advertising on a guide that they have developed and package their footprint into the entire

footprint that we offer advertisers. We sell advertisers, often broadcasters, or their agencies the opportunity to promote their products via ads inserted in IPGs. We offer packages to advertisers to provide them nationwide or targeted advertising on a guide for a period of time. Advertisers place ads through a variety of display formats incorporated into the guide screens. Depending on the IPG deployed, advertisements can display additional text information or video when clicked on via the remote control. Our most recent guides even allow an ad for a specific television program to link directly to the TV channel it is on or allow consumers to program a recording or a reminder from the ad. Advertisers can target specific audiences by airing ads at certain times of the day or in specific geographies.

To demonstrate the value of this advertising, we began measuring usage and ad views by consumers for certain service provider guides deployed in the United States (a click stream analysis) in late 2008. This information has increased and we believe will continue to increase, our revenue from advertising by offering the advertiser evidence of the reach of a given ad or time slot. Service providers who have a patent license from us are not required to provide advertising in their IPG. However, our agreements with domestic service providers generally require the sharing of advertising revenue if IPG advertising is provided.

Service providers generally pay us a monthly per subscriber fee. Service providers in the online space generally pay us a fee based on unique users. We have also entered into agreements with certain licensees that enable them to provide an IPG to an unlimited number of subscribers or unique users, provided they pay us a specified flat fee. We also include in service provider revenues any revenue related to an IPG deployed by a service provider in a subscriber household whether the ultimate payment for that IPG comes from the service provider or from a manufacturer of a set-top box. We generally do not receive a license fee from manufacturers for set-top boxes deployed by a cable or satellite provider where that provider has also licensed our IPG technology.

Our service provider customers include British Sky Broadcasting Group, Canal+, Charter, Comcast Corporation (“Comcast”), Cox Communications, DirecTV, EchoStar Communications, Foxtel, MegaCable, Sky Deutschland, Sky Italia, Shaw Communications, Time Warner Cable, UPC, Verizon, Yahoo! and others. We also have license agreements with third party IPG providers such as Motorola, NDS, Scientific-Atlanta and others. The majority of subscribers for which we are paid a license fee are receiving an IPG pursuant to a patent license between us and the service provider or third party IPG provider. As of December 31, 2010, approximately 128 million subscribers worldwide are receiving a licensed or Rovi-provided IPG, including approximately 44 million internationally.

Consumer Electronics

IPGs

We currently offer multiple IPGs to the CE industry, including those marketed under the G-GUIDE brand in Japan and the RoviGuide brand in Europe and North America. These IPGs are generally incorporated into mid- to high-end plasma, DLP and LCD televisions and Blu-ray or DVD hard drive recorder based products. Our IPGs generally deliver continuously updated multi-day program listings to users, regardless of whether they receive their television signal via cable or over-the-air broadcast. We use a variety of terrestrial, satellite and broadband Internet transmission means to deliver listings data to our IPGs.

Our CE IPG products also feature advertising. Some of our CE IPG product agreements require that we share a portion of this IPG advertising revenue with the CE manufacturer. CE manufacturers who have a patent license from us are not required to provide advertising in their IPG.

Our CE IPG licensees include devices distributed under the Apple, Hitachi, LG, Panasonic, Mitsubishi, Philips, Samsung, Sharp, Sony, Vizio and other brands. Generally, our agreements enable our licensees to incorporate our CE IPG technology or utilize our CE IPG patents in specified products in certain territories

provided we receive license fees based on the number of units produced and shipped that incorporate our technology or utilize our patents. We have also entered into agreements with certain licensees that enable them to ship an unlimited number of units, provided they pay us a specified flat fee.

In 2010, the Company launched a new IPG marketed under the TotalGuide brand in North America and Europe. TotalGuide is the Company’s next generation guide, expanding guidance and available content beyond a traditional IPG. We believe TotalGuide allows CE manufacturers to increase customer satisfaction by offering simple and intuitive access to multiple content types: broadcast, premium, Internet-based/over-the-top video and personal. In addition, TotalGuide enhances the consumer experience through the TV guide database, extended multimedia and increased personalization options. With search and recommendations technologies, TotalGuide guides consumers to find favorites and discover new content, no matter if it comes from broadcast TV or is Internet-based/over-the-top. CE manufacturers can elect to deploy a full TotalGuide consisting of the broadcast, broadband and personal guides, or deploy selected components implemented via a professional services agreement. Additionally, a customer can choose to implement the “Web Services” that power TotalGuide, such as data, search, recommendations, advertising, device management and user profiles. These Web Services are sold separately from a fully implemented TotalGuide and are referred to as the Rovi Media Cloud. Customers can choose to implement the Rovi Media Cloud on their own, or can contract with Rovi professional services to custom build a user interface or application unique to that customer. An important element of TotalGuide is its ability to not only provide guidance to Internet-based content, but to also allow the consumer to view the Internet-based content they find. To facilitate this activity, the Company has relationships with online content distributors, such as Blockbuster, Showtime, Rhapsody and Starzz, to make their content available via TotalGuide. We have entered into nearly 50 of these relationships in North America and EMEA. The content is not only integrated with the TotalGuide user interface, but also with our database so that a consumer can search and access the media that the content partner makes available (for free, purchase or rental). Whether these relationships provide us with revenue depends on the content distributor as well as the Company’s agreement with CE manufacturers who then must determine which content distributor’s services they desire to have integrated into their devices.

TotalGuide also provides advertising options for both program promoters and conventional advertisers. Advertisements within TotalGuide are selectable, allowing a more interactive experience, including commerce. Banner advertisements can be clicked on and a consumer can then access trailers, special offers and social media. TotalGuide also offers new forms of in-grid advertising which can be inserted into the grid either in a row or into a cell. Once selected an interactive experience can be triggered.

In Japan, Interactive Program Guide Inc. (“IPG JV”), our joint venture with Dentsu Inc. and Tokyo News Service Limited, is the exclusive provider of program listings and advertising for our IPGs marketed under the G-Guide brand. We own 46% of IPG JV and have certain contractual rights with respect to the ongoing management of IPG JV. We also retain the right to license our technology and intellectual property to third parties in Japan who will receive program listings and advertising from IPG JV, and we retain all rights to the revenue from such licenses. We have entered into licensing agreements with CE manufacturers and other third parties for televisions, digital recorders, personal computers and cell phones that are enabled to receive the G-Guide service.

Content Protection

Our analog video content security, commercially known as ACP, has been used to protect billions of videocassettes since 1985 and billions of DVDs since 1997. CE devices need to protect content in order to prevent playback devices from being used to illegally copy a video. Nearly every DVD player, DVD recorder, DVD drive and PC manufactured with a DVD drive contains software and/or hardware technology licensed by us to ensure that ACP-secured DVDs are properly recognized and thus secured. For additional details on ACP technology see “Content Protection” in the “Other” section below.

We sell directly to CE manufacturers as well as semiconductor companies that supply the CE manufacturers. Semiconductor companies that incorporate our digital pay-per-view (PPV), VOD and DVD content security solutions into their semiconductor chips pay us a one-time service fee to verify correct implementation of our content security technology in their digital-to-analog application-specific integrated circuits (“ASICs”) that are embedded in digital set-top boxes and DVD hardware. They are authorized to sell these Rovi-capable ASICs to Rovi-licensed DVD hardware manufacturers and to Rovi-licensed digital set-top box and DVR manufacturers.

CE device manufacturers license our technology for an up-front fee and annual license fee, as well as per-device fee for shipped devices. Digital set-top box and DVR manufacturers license our video content security solutions typically for an up-front fee and a per-unit royalty, a portion of which may be tied to product activation by system operators. We have also entered into agreements with the majority of large CE and set-top box manufacturers in which they paid us a one-time fee for a perpetual license to our technology.

Our CE content protection customers sell set-top boxes and hardware under the Scientific Atlanta, Fujitsu Limited, Mitsubishi Electronics, Motorola, Pace, Panasonic, Pioneer Electronics, Samsung Electronics, Sharp, Sony Electronics, TiVo, Toshiba and other brands.

Connected Platform

Connected Platform is a standards-compliant software solution embedded in consumer electronics and networking equipment designed to allow consumers to access content such as photos, music, and movies stored remotely on any of their connected devices. The Connected Platform complies with the Digital Living Network Alliance (DLNA) and Universal Plug and Play (UPnP) Forum standards. It is sold to CE manufacturers and is comprised of several different components: Digital Media Server (DMS) software, Digital Media Adapter (DMA) software, and Digital Media Player (DMP) software, each sold as a software development kit (SDK). The SDK is used by developers to build digital home products on top of our software foundation for networked digital media devices. They are able to integrate the SDK into their devices to quickly create custom digital media solutions. The DMA software is built with the SDK and can be installed on PCs, DVRs, network-attached storage devices, or even mobile phones to allow users to stream digital media files from their personal home network or via the Internet. The DMP and DMA software, built with the SDK, enables original equipment manufacturers and original design manufacturers to ship standards-based connected entertainment products that allow consumers to enjoy their personal media (such as music, photos, and video files) on a wide variety of player products. Additionally, the Company provides add-on services that support the Connected Platform, such as the Software Update Service, which enables digital home entertainment products to be configured for automated software updates.

Our Connected Platform customers currently include Buffalo, Pace, Scientific-Atlanta, Samsung and others.

Media Recognition

Our LASSO media recognition solution is embedded in a CE device (including automobiles) or service that reads media and associates it with the correct data from our data solutions database (such as title, artist, and tracks). The data look-up is accomplished either via a remote call to the infrastructure we operate or to a database we provide to embed on the device. The recognition is accomplished via either a table of contents review (for instance, read the table of contents of a CD) or taking a fingerprint of the media (for instance, identify wave formats of the media) and matching it to our database. The recognition technology is sold in conjunction with supporting data services, playlisting and voice recognition. CE manufacturers typically pay us per device royalties for each device within which our media recognition data services are implemented.

Media Manager

The Rovi Media Manager is a product which is sold as a companion to LASSO or Connected Platform creating a solution targeting CE manufacturers. It is a PC application enabling consumers to manage personal

media they have stored throughout their home including music, photos and video files. It is integrated with LASSO enabling a consumer to identify and tag any media they may have on their home storage. It is integrated with Connected Platform allowing consumers to move media between devices. Media Manager is also integrated with the Rovi Media Cloud allowing users to search for video and other entertainment data that is contained in Rovi’s meta data catalog. The Media Manager is an incremental cost to LASSO and/or Connected Platform and will be sold on a per unit basis.

Other

Other includes our data solutions business and our business of licensing our content protection products and services to entertainment companies.

Data Solutions

We offer music, television, movie, book, and video game metadata. In addition, we catalog information on celebrities, awards, sports, and other data necessary to provide a robust set of metadata. Our television guidance information database includes unique data on more than 3.5 million TV programs and 450,000 movies. Our database also has information on approximately 2.4 million music albums, 22 million tracks, 8 million books and 65,000 video games. Our data services are operated with systematic processes that are designed to ensure completeness and quality of the data as well as linking the relationships among the data elements. The data services are broken into levels of data: basic data (such as artist, album), navigational data (such as relationships between actor and other movies or television series), and editorial data (such as actor biographies, television, movie or music reviews).

Besides licensing the data to Web properties or embedding the data in CE devices, the databases are also available via our web sites, specifically allmusic.com, allmovie.com, and allgame.com. Each is a complete view of the database, but not exportable for commercial use by others, and is an advertising-supported business.

Additionally, we license the Rovi Media Cloud to customers of our data. They can choose to gain real time access to the data via our Web Services or to incorporate additional functionality such as media search, recommendations (social, editorial, personalized) or enhanced advertising.

Web properties typically pay us a monthly or annual fee for the rights to use the metadata, receive regular updates and integrate it into their own service. Media Cloud customers generally pay a consumption fee based on the number of database lookups or calls they perform. Our music, movie and video game metadata customers include Amazon, Apple, Best Buy, Barnes and Noble, Comcast, Ebay, MTV Networks and others.

We provide resources for all types of media and businesses in print, on-screen and online formats—as well as through interactive and electronic program guides. Additionally, the data covers multiple geographies including the US, Latin America, and major Western European countries. We license a number of data and service offerings, including schedules, listings, TV supplements, and Web Services. Our data can be sold stand alone or as a complement to an IPG.

Content Protection

Motion pictures typically generate significant revenue from the sales of packaged media, primarily DVDs. Any household that owns a DVD-R, personal video recorder (“PVR”), PC, or a media center, is capable of making unauthorized, high-quality digital and analog copies unless that content is properly copy protected against this variety of threats. As new distribution models evolve, including portability of video across devices, Internet and other electronic distribution and the developing PC-based home theater experience, solutions that protect the DVD from unauthorized copying are critical to preserving motion picture studio revenues.

As discussed above, our ACP technologies allow consumers to view programming stored on prerecorded videocassettes and DVDs or transmitted as digital pay-per-view or video-on-demand programs via cable or satellite, but deter unauthorized consumer copying of such programming on recordable DVD devices. Motion Picture Association of America (“MPAA”) and independent studios can use our video content security technology to protect movie releases on videocassette or DVD. For the protection to work, ACP must be present on both the media (physical or digital) and the hardware device.

Studios are also releasing programming in the Blu-ray high definition DVD format (“Blu-ray”). Blu-ray can include a high level of protection implemented via BD+ technology. For a device to be certified as Blu-ray enabled, it must have BD+ technology embedded within it and MPAA studios can license BD+ to take advantage of that embedded protection. BD+ is designed to be self-renewing, therefore inhibiting rippers from being able to create unauthorized copies of the DVD. It is applied to the DVD at the time of manufacturing and interacts with elements of BD+ embedded in the Blu-ray player through the entire playback of the movie to ensure that it is an authorized copy. This sophisticated protection increases the security of a Blu-ray DVD and is designed to result in a longer protection period for a title.

We sell directly to MPAA and independent studios. Content owners utilize our solutions to secure their content and thus ensure that the end customer pays them for the use of their content. Studios generally pay us an annual license fee to use our ACP technology and generally pay us a per disc fee to license our BD+ technology.

Our content security technology customers include the following companies: Buena Vista Home Video, Paramount Pictures, Twentieth Century Fox Home Entertainment and others.

Rovi’s Growth Strategy

Build Upon Key Customer Relationships. We maintain relationships with customers in various industry and market segments, including:

•

CE manufacturers of digital television, Blu-ray and standard DVD players, CD and DVD drives, PVRs, network attached storage devices (NAS) and digital set-top boxes and other types of devices

•

Service providers such as the leading cable and satellite television system operators and telecommunications operators

•

Large online retailers, music services, advertisers and portal websites

•

Video content providers such as the MPAA and independent movie studios

We intend to grow our business by capitalizing on existing customer relationships and creating new ones. We will target existing customers and seek to expand the technologies we provide them, both now and in the future. Specifically, we will target existing IPG patent licensees and seek to sell them our IPG product. We believe TotalGuide as well as other of our products are the types of products that make this feasible. We also believe that as the TotalGuide installed base increases, we can substantially grow our advertising revenue. If a customer determines that it should build its own guide or consumer facing user interface, we then offer the customer the Rovi Media Cloud to power the experience and speed its time to market. This enables us to offer advertising to a connected device in which a Rovi guide or application may not be present. Additionally, we will focus on non-customer companies seeking to capture a portion of the digital entertainment opportunity. We believe our compelling solutions will help us create new customer relationships.

Introduce New Product Applications and Technologies. We intend to develop additional digital entertainment content solutions to sell to our extensive customer base. We have committed significant resources to expand our technology base, to enhance our existing products, to introduce additional products, and to participate in industry standard-setting efforts and organizations. We intend to pursue opportunities to improve technologies in our current fields of operations as well as in future formats and digital distribution solutions.

Expand and Protect Patent Position. We have built, and continue to add to, a large patent portfolio that helps differentiate our products. We believe that our future success will depend on our ability to continue to introduce proprietary solutions for IPGs, connected devices and data. We have patented many of these proprietary solutions, and our patents underpin our strong competitive position and financial model. We also have acquired patents from others. We intend to continue to obtain patents and to protect and defend our patented technologies aggressively.

Continue to Make Strategic Acquisitions. We may continue to expand our technology portfolio and extend our businesses by pursuing licensing arrangements, joint ventures, and strategic acquisitions of companies whose technologies or proprietary rights complement our technologies. For example, on December 22, 2010, we announced our pending acquisition of Sonic.

Copyrights, Trademarks, and Tradenames

We own or have rights to various copyrights, trademarks and trade names used in our business. For our continuing business units, these include, but are not limited to, Rovi^®, All Game Guide^®, All Music Guide^®, AMG^®, AMG All-Game Guide^®, AMG All-Media Guide^®, AMG All-Movie Guide^®, AMG Sonicguide^®, Explore Movies^®, Explore Music^®, Lasso™, M1 Mediabolic^®, Music Map™, Passport , RipGuard^®, Tapestry™, RoviGuides, G-GUIDE and Gemstar.

Research and Development

Our internal research and development efforts are focused on developing enhancements to existing products and new applications for our current technologies. We have acquired other companies and technologies to supplement our research and development expenditures.

Our primary locations for product development are in Santa Clara/San Francisco (California), Burbank (California), Ann Arbor (Michigan), Radnor (Pennsylvania) and Hong Kong (China).

Operations and Technical Support

We have technical support and certification operations to support our entertainment, CE and system operator products.

We provide a variety of technical support to our customers:

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We provide post-sales training, technical support, and integration services to service provider licensees of our IPG applications software as part of their service offerings.

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We provide post-sales professional services and technical support, training, integration, non-recurring engineering and software development services to CE, set-top box and NAS manufacturers incorporating the Connected Platform in their products.

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We provide pre- and post-sales professional services and technical support to companies incorporating our media recognition data services or media recognition into their products.

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We support the efforts of television, PVR, and DVD hardware manufacturers, digital PPV/VOD system operators and PPV/VOD set-top box manufacturers to design hardware that properly incorporates and is compatible with our video content security solutions or that meet the Blu-ray standards that require incorporation of our BD+ technology.

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We provide broadcast data delivery of television line-up data and advertising to TVs and set-top boxes enabled with our IPGs in North America, major European markets and Japan. This service provides the data that populates the guides with the listings and advertising necessary to make the IPG useful to a consumer. In addition, we deliver, via the Internet or satellite, similar line-up and advertising data to cable and satellite providers in North America.

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We support our customers’ efforts to ensure our IPGs operate properly within their devices, by offering porting services.

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We provide customer care for IPG customers following deployment of our IPGs. This service deals with issues with data and advertising distribution as well as functional issues for a consumer.

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We assist semiconductor manufacturers in incorporating and certifying our video content security solutions into a variety of digital video integrated circuits.

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We regularly test the effectiveness and transparency of our video content protection technologies on representative samples of consumer televisions, DVD players, DVD drives, PVRs, and recorder devices to determine whether modifications or enhancements may be necessary.

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We test for RipGuard compatibility and effectiveness with a variety of CD/DVD drive software and hardware.

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We support our licensed duplicators and replicators with hardware and software installation assistance and quality assurance. In addition, we support licensed duplicator/replicator sales personnel by providing sales training and marketing literature, and by participating in trade shows.

Intellectual Property Rights

We operate in an industry in which innovation, investment in new ideas and protection of our intellectual property rights are critical for success. We protect our innovations and inventions through a variety of means, including but not limited to applying for patent protection domestically and internationally.

As of December 31, 2010, we hold 532 U.S. patents and have 709 U.S. patent applications pending. We also have 2,365 foreign patents issued and 1,169 foreign patent applications pending. Each of our U.S. issued patents will expire at a different time based on the particular filing date of that respective patent, with expiration dates as late as 2029.

Competition

IPGs

There are a number of companies that produce and market IPGs as well as television schedule information in various other formats, that compete or we believe will compete with our IPG products and services. These alternative formats include passive and interactive on-screen electronic guide services, online listings, printed television guides in newspapers and weekly publications, and local cable television guides.

A common competitor we encounter is a customer who chooses to build its own IPG and license our intellectual property. We believe that we provide a strong alternative to “do-it-yourself,” as we have products ready to be implemented and already have data distribution infrastructure and content as well as integration to third party services (such as VOD services for service providers). We intend to build differentiation by integrating our products into a suite of products and services to provide solutions for our customers. We believe our solutions can speed our customers’ time to market, be deployed at a lower cost than internally built products, and are superior to “do-it-yourself” products. For those that choose to do it themselves we have added the Rovi Media Cloud to provide them services that can power their self-developed experience.

We have begun to see activity from Web properties, such as Yahoo! and Google, entering the CE market, namely embedded in TVs in North America. While we today are working with them cooperatively, such Web properties could offer competitive functionality in the future.

We believe improvements in software porting and in software substitutability, together with government mandated introduction of an Open Cable Applications Platform, will increasingly permit the creation of new guides and their quick placement in set-top boxes—both those purchased or leased from service providers and those purchased at retail.

Many of our competitors and other companies and individuals have obtained, and may be expected to obtain in the future, patents that may directly or indirectly affect the products or services offered or under development by us. We are currently developing a variety of enhancements to our IPGs. We cannot assure that any enhancements developed by us would not be found to infringe patents that are currently held or may be issued to others. There can be no assurance that we are or will be aware of all patents containing claims that may pose a risk of infringement by our products and services. In addition, patent applications are generally confidential for a period of 18 months from the filing date, or until a patent is issued in some cases, so we cannot evaluate the extent to which certain products and services may be covered or asserted to be covered by claims contained in pending patent applications prior to their publication. In general, if one or more of our products or services were to infringe patents held by others, we may be required to stop developing or marketing the products or services, to obtain licenses to develop and market the products or services from the holders of the patents or to redesign the products or services in such a way as to avoid infringing the patent claims. This could have an effect on our ability to compete in the IPG marketplace.

Content Security Technology

Our video content security solutions are proprietary and have broad U.S. and international patent coverage. We have an analog content security solution that has been widely deployed on commercial products that significantly distorts or inhibits copying by PVRs, including DVD recorders and hard drive recorders with an analog out. Currently, our video content security technology is embedded in nearly all DVD players and most digital set-top boxes worldwide. While it is possible that a competitive video content security technology could be developed and deployed, we believe it would take years for the competitive technology to be accepted by hardware manufacturers and embedded into the consumer electronic devices. Given the time this would take, it is unlikely any other analog content security technology would displace our content security infrastructure and our extensive video content security “ecosystem.” The greatest competitive threat to our content security technology is content providers choosing not to copy protect their content or CE manufactures ceasing to produce PVRs with an analog out.

With the increase in online content distribution over the Internet, and with the continuing advance of digital content and high-definition formats, our analog video content security solutions that protect standard definition content on optical media and digital PPV/VOD signals are viewed by some of our customers as being less important than the other digital and network content protection solutions. As a result, other Internet-based digital content security or DRM technologies may present significant competition to our video content security business, such as DRM offerings by Intertrust, Microsoft, Apple, RealNetworks, Contentguard, Philips, IBM and Sony.

The two forms of approved copy protection adopted by the Blu-ray Disc Association specification are AACS and BD+. AACS is required on all discs and we believe that BD+ is a stronger and more attractive copy protection option for studios. The success of BD+ will be driven by whether the MPAA studios choose to apply it.

Data Services

In the database and data services area, we compete with other providers of entertainment-related content data such as Tribune Media Services, Internet Movie Database (IMDB) and Gracenote. While we do not believe that our competitors’ data sets are focused on exploration, discovery, and content management in the way that our data is, nor are they tightly tied to a portfolio of software to which they add significant value, they may present competition to our data services business.

Media Recognition Technology

In the recognition technology and CE manufacturer area, our primary competitor is Gracenote, who provides media recognition technology as part of their CDDB data set. Their core technology provides basic album and track metadata when a CD is inserted into a drive. Shazam Entertainment also sells a music media recognition technology.

Connected Platform

The competition for the Connected Platform are CE and set-top box manufacturers developing their own capability and others such as Twonky and Digi-on. However, we believe the integration of standards and DLNA reference status into the Connected Platform provides us with significant competitive advantages. Additional competitors consist of companies that focus on CE middleware and set-top box software companies with CE middleware offerings.

Legislative and Regulatory Actions

A number of government and legislative initiatives have been enacted to encourage development and implementation of technologies that protect the rights and intellectual property of the content owners.

The United States and other countries have adopted certain laws, including the Digital Millennium Copyright Act of 1998, or DMCA, and the European Copyright Directive, which are aimed at the prevention of piracy of content and the manufacture and sale of products that circumvent copy protection technologies, such as those covered by our patents.

VBI and Digital Data Carriage Matters

We use the vertical blanking interval, or VBI, in the analog television signals of the local affiliates of major broadcast networks such as PBS (through National Datacast), ABC, CBS, NBC and Fox to supply updates throughout the day of program listing information to our TV Guide On Screen and GUIDE Plus+ branded consumer electronics devices in the United States. We have agreements with CBS Corporation (“CBS”) and National Datacast, Inc. (“NDI”) which allow for the distribution of our CE IPG data over the digital broadcast signals of both CBS and NDI participating stations, following the installation of necessary equipment. The Federal Communications Commission (“FCC”) has ruled that it is within the discretion of a cable multiple system operator (“MSO”) to retransmit or strip out data transmitted in the VBI lines of broadcast stations carried on that MSO’s system. We have agreements with MSOs which provide for carriage of our program listing information in either the VBI or within the digital signal of broadcast television stations.

Compatibility Between Cable Systems and Consumer Electronic Equipment

The FCC has been working for over a decade to implement a congressional mandate that it create a competitive market for cable television set-top boxes and other devices to access video programming on cable systems (“navigation devices”) and give consumers a choice in the device used to access such programming, while still allowing the cable systems to have control over the secured access to their systems.

To meet its statutory obligation without compromising the security of video services, the Commission required cable systems to make available a security element (now known as a CableCARD) separate from the basic navigation device needed to access video program channels. In 2003, the FCC adopted regulations implementing an agreement between cable television system operators and consumer electronics manufacturers to facilitate the retail availability of so-called “plug and play” devices that utilize unidirectional CableCARDs, including digital televisions and other digital devices that enable subscribers to access cable television programming without the need for a set-top box (but without the ability for consumers to use interactive content).

Due to certain legislative developments in the U.S., cable subscribers may be able to utilize interactive and other two-way services without the need for a set-top box, meaning that consumers could use an IPG built directly into a TV to access and operate their cable subscriptions and not need to purchase or rent a set-top box from the cable operator.

In an effort to ensure that cable operators adequately support CableCARDs, FCC regulations also prohibited multi-channel video service providers (except satellite providers) from deploying after July 1, 2007, navigation

devices with combined security and non-security functions (the “integration ban”). Both cable operators and consumer electronics manufacturers are required to use the same security solution. Further developments with respect to these issues could impact the availability and/or demand for “plug and play” devices, particularly bi-directional devices, and set-top boxes, all of which could affect demand for IPGs incorporated in set-top boxes or CE devices.

Employees

As of December 31, 2010, we had approximately 1,200 full-time employees. Of these employees, approximately 240 were based outside of the United States. None of our employees are covered by a collective bargaining agreement or are represented by a labor union. We have not experienced any organized work stoppages. We believe that our future success will depend in part upon the continued service of our key employees and on our continued ability to hire and retain qualified personnel. We may not be able to retain our key employees and may not be successful in attracting and retaining sufficient numbers of qualified personnel to conduct our business in the future.

Information About Our Executive Officers

The names of our current executive officers, their ages as of February 10, 2011, and their positions are shown below. Biographical summaries of each of our executive officers are included below.

Alfred J. Amoroso. Mr. Amoroso joined Rovi as our President and Chief Executive Officer and member of the Board of Directors in July 2005. From September 2004 to June 2005, Mr. Amoroso served as an advisor to Warburg Pincus, an investment firm. From July 2002 to August 2004, Mr. Amoroso served as the President, Chief Executive Officer and Vice Chairman of META Group, an information technology research and advisory firm. From November 1999 until its merger with IBM in January 2002, Mr. Amoroso served as President, Chief Executive Officer and a director of CrossWorlds Software, Inc. Mr. Amoroso holds a B.S. in systems engineering and M.S. in operations research from Polytechnic Institute of Brooklyn.

James Budge. Mr. Budge has served as our Chief Financial Officer since September 2005. Mr. Budge served as Chief Financial Officer of Trados, Inc., an enterprise management software provider, from January 2004 until its merger with SDL International in August 2005. From August 2002 until joining Trados, Mr. Budge served as Chief Financial Officer of Sendmail, Inc., a secure email provider, and from April 1999 until its merger with IBM in January 2002, Mr. Budge served as Chief Financial Officer of CrossWorlds Software, Inc., a provider of business infrastructure software. Mr. Budge holds a B.S. in Accounting from Brigham Young University and is a Certified Public Accountant.

Thomas Carson. Mr. Carson has served as our Executive Vice President, Worldwide Sales & Services since May 2008 when the acquisition of Gemstar-TV Guide International by the Company was completed. From April 2006 to May 2008, Mr. Carson served in various capacities at Gemstar, including President of the North American IPG business and President for North American CE business. From February 2005 to April 2006, Mr. Carson served as Executive Vice President of Operational Efficiency programs at Thomson Multimedia Corporation and from February 2004 to February 2005, he served as Executive Vice President, Global Sales and Services at Thomson. Mr. Carson holds a B.S in business administration and an MBA from Villanova University.

Stephen Yu. Mr. Yu has served as our Executive Vice President, General Counsel and Corporate Secretary since May 2006. He served as Vice President, General Counsel and Secretary of Aspect Communications Corporation, a provider of contact center solutions, from April 2003 until its acquisition by Concerto Software, Inc. in September 2005. From June 2002 to January 2003, Mr. Yu served as Vice President, General Counsel and Secretary of Riverstone Networks, Inc., a provider of ethernet network solutions, and from September 1999 to May 2002, he served as Vice President, General Counsel and Secretary of Palm, Inc., a provider of mobile computing solutions. Mr. Yu holds a B.S. in electrical engineering from Purdue University and a J.D. cum laude from Georgetown University Law Center. Mr. Yu is a member of the California State Bar.

Available Information

Our Internet website is located at http://www.rovicorp.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or otherwise furnish it to, the Securities and Exchange Commission (the “SEC”). Copies will be provided to any stockholder upon request to Rovi Corporation, Attention: Corporate Secretary, 2830 De La Cruz Boulevard, Santa Clara, California 95050. The reference to our Internet website does not constitute incorporation by reference of the information contained on or hyperlinked from our Internet website and should not be considered part of this document.

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.

ITEM 1A.

RISK FACTORS

In addition to the other information contained in this Annual Report on Form 10-K, you should consider carefully the following risks. This list is not exhaustive and you should carefully consider these risks and uncertainties before investing in our common stock. If any of these risks occur, our business, financial condition or operating results could be adversely affected.

If we fail to develop and timely deliver innovative technologies in response to changes in the technology and entertainment industries, our business could decline.

The markets for our products and technologies are characterized by rapid change and technological evolution. We will need to continue to expend considerable resources on research and development in the future in order to continue to design and deliver enduring, innovative entertainment products and technologies. Despite our efforts, we may not be able to develop timely and effectively market new products, technologies and services that adequately or competitively address the needs of the changing marketplace. In addition, we may not correctly identify new or changing market trends at an early enough stage to capitalize on market opportunities. At times, such changes can be dramatic, such as the shift from VHS videocassettes to DVDs for consumer playback of movies in homes and elsewhere, the anticipated shift to high definition DVD or the transition from packaged media to Internet distribution. The continued decline in worldwide shipments of VCRs has resulted in a decline in our VCR Plus+ revenues over time, causing us to focus on growth in other parts of our business. Our future success depends to a great extent on our ability to develop and timely deliver innovative technologies that are widely adopted in response to changes in the technology and entertainment industries and that are compatible with the technologies or products introduced by other entertainment industry participants. Despite our efforts and investments in developing new products, services and technologies:

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we cannot assure you that the level of funding and significant resources we are committing for investments in new products, services and technologies will be sufficient or result in successful new products, services or technologies;

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we cannot assure you that our newly developed products, services or technologies can be successfully protected as proprietary intellectual property rights or will not infringe the intellectual property rights of others;

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we cannot assure you that any new products or services that we develop will achieve market acceptance;

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our products, services and technologies may become obsolete due to rapid advancements in technology and changes in consumer preferences; and

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our competitors and/or potential customers may develop products, services or technologies similar to those developed by us, resulting in a reduction in the potential demand for our newly developed products, services or technologies.

Our failure to successfully develop new and improved products, services and technologies, including as a result of any of the risks described above, may reduce our future growth and profitability and may adversely affect our business, results and financial condition.

If we are unable to compete effectively with existing or new competitors, we could experience price reductions, fewer customers, reduced margins or loss of market share.

Our IPGs face competition from companies that produce and market program guides as well as television schedule information in a variety of formats, including passive and interactive on-screen electronic guide services, online listings, printed television guides in newspapers and weekly publications, and local cable television guides. Our IPG products also compete against customers who choose to build their own IPG and license our intellectual property. In the connected device middleware and metadata marketplace, there is competition not only from other companies, but also from customer-implemented internally-developed solutions. We believe that our DVD digital-to-analog copy protection and videocassette copy protection systems currently have limited competition. It is possible, however, that alternative copy protection technologies could become competitive. Additionally, new competitors or alliances among competitors may emerge and rapidly acquire significant market share in any of these areas. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we do, which could reduce demand for our products or render them obsolete. Increased competition would be likely to result in price reductions and loss of market share, either of which could harm our business.

Our business may be adversely affected by fluctuations in demand for consumer electronics devices incorporating our technologies.

We derive significant revenues from CE manufacturer license fees for our IPG and analog video content security (“ACP”) technologies based on the number of units shipped. We do not manufacture hardware, but rather depend on the cooperation of CE manufacturers to incorporate our ACP and IPG technologies into their products. Generally, our license agreements do not require manufacturers to include our technology in any specific number or percentage of units, and only a few of these agreements guarantee a minimum aggregate licensing fee. Purchases of new CE devices, including television sets, integrated satellite receiver decoders, DVRs, DVD recorders, personal computers and Internet appliances are largely discretionary and may be adversely impacted by increasing market saturation, durability of products in the marketplace, new competing products, alternate consumer entertainment options and general economic trends in the countries or regions in which these products are offered. Global economic downturns may significantly impact demand for such CE devices. As a result, our future operating results may be adversely impacted by fluctuations in sales of consumer electronics devices employing our technologies.

In addition, the decision by manufacturers to incorporate our IPG technology into their products is a function of what other guide technologies and products are available. Our future operating results may be adversely impacted as a result of consumer electronics manufacturers opting not to incorporate our technology into their devices as a result of other available alternatives.

Dependence on the cooperation of cable multi system operators (“MSOs”) and digital broadcast satellite (“DBS”) providers, television broadcasters, hardware manufacturers, publications, data providers and delivery mechanisms could adversely affect our revenues.

We rely on third party providers to deliver our IPG data to consumer electronics devices that include our IPG. Further, our national data network provides customized and localized listings to our IPG service for MSOs and DBS providers and licensees of our data used in third party IPGs for MSOs and DBS providers. There can be no assurance that these delivery mechanisms will distribute the data without error or that the agreements that govern some of these relationships can be maintained on favorable economic terms.

To deliver our IPG data to consumer electronics devices, we have arrangements to carry our data in a part of the television signal called the vertical blanking interval (“VBI”) or its digital signal equivalent, of television stations included in the public broadcasting network, independently owned stations, and stations owned and operated by various station group owners. We have historically only delivered our IPG data to consumer electronics devices through the VBI in analog broadcast signals.

In anticipation of the 2009 transition to 100% digital transmission in the United States mandated by the FCC, we entered into agreements with CBS and NDI which allow for the distribution of our CE IPG data over the digital broadcast signals of both CBS and NDI participating stations, following the installation of necessary equipment. The FCC has ruled that it is within the discretion of an MSO to retransmit or strip out data transmitted in the VBI lines of broadcast stations carried on that MSO’s system. We have agreements with certain MSOs which provide for carriage of our program listing information in either the analog signal VBI or within the digital signal of broadcast television stations.

We also rely on other arrangements in the United States, which are not long-term, with other broadcasters for secondary carriage of our IPG data to consumer electronics devices. We cannot assure you that we will be able to successfully renew or extend any of our existing carriage arrangements when they expire, or that renewals will be on terms that are as favorable to us as the arrangements currently in effect. Our inability to renew the existing arrangements on terms that are favorable to us, or enter into alternative arrangements that allow us to effectively transmit our IPG data to consumer electronics devices could have a material adverse effect on our CE IPG business.

Our IPG data to CE devices broadcast through the VBI can be, and has been in the past in some markets, deleted or modified by some of the local service providers. Widespread deletion or modification of this data by service providers could have a material adverse impact on our CE IPG business. To mitigate this risk in the United States, we have entered into agreements with many service providers to ensure that our IPG data to CE devices will not be deleted or modified by such systems. Additionally, cable companies in the United States are progressively moving their systems from an analog format to a digital format, which poses certain problems to the passage of our IPG data to CE devices carried in their analog signals. Solving such problems will require the cooperation of third parties such as the MSOs and hardware manufacturers, and may also require additional investment by us. Furthermore, in order for CE devices that incorporate our IPG to receive our data, such data must also be able to pass through any receivers through which such CE devices are receiving television programming signals. Even if our IPG data is passed to cable subscribers through cable networks by the service providers, there is a risk that the cable set-top boxes deployed by such subscribers can impede the passage of our IPG data to CE devices. Widespread impedance of our IPG data to CE devices in any of the manners set forth above could have a material adverse impact on our CE IPG business.

We are currently making significant investments in the United States, Europe and Japan to build the capability to provide our program listings information via digital broadcast signals to support the next generation of products from our manufacturing partners. This involves in some cases deploying equipment to aggregate and insert listings data, and securing bandwidth in digital broadcast streams to deliver that data. If we are unable to complete this digital delivery build-out in each of our regions in time to meet the planned deployment of the next generation of digital broadcast reliant CE devices, this could have a material adverse impact on our CE IPG business.

We deliver our data to our IPG service for MSOs and to licensees of our data used in third party IPGs for MSOs via satellite transmission, among other means. While we have built in certain redundancies in our data delivery operation, a third party provides us with satellite capacity to transmit our data to our IPG service for certain MSOs and to licensees of our data used in third party IPGs for MSOs. Our arrangement with the third party provider may be terminated on little or no notice. In the event that a provider of satellite capacity elects not to provide this capacity to transmit our data, there can be no assurance that all of our customers who currently receive our data via such provider will be able to receive our data via alternative means without significant delay or additional cost to us. In the event that such provider elects not to transmit our data, our business, operating results and financial condition could be adversely affected.

In addition, we purchase some of our program guide information from commercial vendors. The quality, accuracy and timeliness of that data may not continue to meet our standards or be acceptable to consumers.

We are exposed to risks associated with our changing technology base through strategic acquisitions, investments and divestitures.

We have expanded our technology base in the past through strategic acquisitions and investments in companies with complementary technologies or intellectual property and intend to do so in the future. Acquisitions hold special challenges in terms of successful integration of technologies, products and employees. In addition to the pending acquisition of Sonic Solutions, which acquired DivX LLC in October 2010, over the last several years we completed the divestitures of our Software business (April 2008), our Games business (April 2008), our eMeta business (November 2008), our TV Guide Magazine business (December 2008), our TVG Network business (January 2009) and our TV Guide Network and TV Guide Online businesses (February 2009). We also completed the acquisitions of Mediabolic, Inc. (January 2007), All Media Guide Holdings, Inc. (December 2007) and Gemstar (May 2008) and the acquisition of the assets of Cryptography Research, Inc. (November 2007) and Muze, Inc. (April 2009). We may not realize the anticipated benefits of these acquisitions and divestitures or the benefits of any other acquisitions or divestitures we have completed or may complete in the future, and we may not be able to incorporate any acquired services, products or technologies with our existing operations, or integrate personnel from the acquired businesses, in which case our business could be harmed.

Acquisitions, divestitures and other strategic investments involve numerous risks, including:

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problems integrating and divesting the operations, technologies, personnel or products over geographically disparate locations;

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unanticipated costs, litigation and other contingent liabilities;

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continued liability for pre-closing activities of divested businesses or certain post-closing liabilities which we may agree to assume as part of the transaction in which a particular business is divested;

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adverse effects on existing business relationships with suppliers and customers;

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risks associated with entering into markets in which we have no, or limited, prior experience;

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incurrence of significant exit charges if products acquired in business combinations are unsuccessful;

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significant diversion of management’s attention from our core business and diversion of key employees’ time and resources;

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inability to retain key customers, distributors, vendors and other business partners of the acquired business; and

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potential loss of our key employees or the key employees of an acquired organization.

Financing for future acquisitions may not be available on favorable terms, or at all. If we identify an appropriate acquisition candidate for any of our businesses, we may not be able to negotiate the terms of the acquisition successfully, finance the acquisition or integrate the acquired business, products, technologies or

employees into our existing business and operations. Future acquisitions and divestitures may not be well-received by the investment community, which may cause the value of our stock to fall. We cannot ensure that we will be able to identify or complete any acquisition or divestiture in the future. Further, the terms of any future indebtedness we may incur may restrict our ability to make and finance additional acquisitions or divestitures.

If we acquire businesses, new products or technologies in the future, we may incur significant acquisition-related costs. In addition, we may be required to amortize significant amounts of identifiable intangible assets and we may record significant amounts of goodwill that will be subject to annual testing for impairment. We have in the past and may in the future be required to write off all or part of one or more of these investments that could harm our operating results. If we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing stockholders’ ownership could be significantly diluted. If we were to proceed with one or more significant future acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash. Acquisitions could also cause operating margins to fall depending upon the financial models of the businesses acquired.

Our strategic investments may involve joint development, joint marketing, or entry into new business ventures, or new technology licensing. Any joint development efforts may not result in the successful introduction of any new products by us or a third party, and any joint marketing efforts may not result in increased demand for our products. Further, any current or future strategic acquisitions and investments by us may not allow us to enter and compete effectively in new markets or enhance our business in our existing markets and we may have to write off our equity investments in companies as we have done in the past.

The effects of the global recession may impact our business, operating results, financial condition or liquidity.

The global recession has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, an unprecedented level of intervention from the United States federal government and other foreign governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. While the ultimate outcome of these events cannot be predicted, these macroeconomic developments could negatively affect our business, operating results, financial condition or liquidity in a number of ways. For example, if the economic downturn makes it difficult for our customers and suppliers to accurately forecast and plan future business activities, they may delay, decrease or cancel purchases of our solutions or reduce production of their products. As many of our solutions are licensed on a per-unit fee basis, our customers’ decision to decrease production of their products or devices may decrease our licensing revenue and adversely impact our operating results.

Furthermore, as our customers face a weak economy, they may not be able to gain sufficient credit in a timely manner, which could result in an impairment of their ability to place orders with us or to make timely payments to us for previous purchases. If this occurs, our revenue may be reduced, thereby having a negative impact on our results of operations. In addition, we may be forced to increase our allowance for doubtful accounts and our days sales outstanding may increase, which would have a negative impact on our cash position, liquidity and financial condition. We cannot predict the timing or the duration of this or any other economic downturn in the economy and we are not immune to the effects of general worldwide economic conditions.

In addition, financial institution failures may cause us to incur increased expenses or make it more difficult either to utilize our existing debt capacity or otherwise obtain financing for our operations, investing activities (including the financing of any future acquisitions), or financing activities (including an increase in our liability to counterparties under interest rate swap contracts and the timing and amount of any repurchases of our common stock or debt we may make in the future). Our investment portfolio, which includes short-term debt securities, is generally subject to general credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by the recent global financial crisis. If the banking system or the fixed income, credit or equity markets deteriorated or remained volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.

Finally, like other stocks, our stock price can be affected by global economic uncertainties and if investors have concerns that our business, operating results and financial condition will be negatively impacted by a worldwide economic downturn, our stock price could decrease.

If the volatility of credit market conditions continues or increases, it could adversely impact our investments and as a result, our liquidity.

The credit markets have experienced liquidity issues and failed auctions in the auction rate securities market. The auction rate securities we hold have failed to trade at auctions due to insufficient bids from buyers. We have recorded unrealized losses related to our available-for-sale auction rate securities to accumulated other comprehensive income due to temporary declines in fair value and have classified all available-for-sale auction rate securities as long-term marketable investments on our balance sheet. If there are future unsuccessful auctions, the fair value of these auction rate securities may continue to decline. The decline in fair value of our available-for-sale auction rate securities may become other than temporary and we may incur impairment charges in connection with these securities which would adversely impact our earnings and financial condition.

We have indebtedness which could adversely affect our financial position and prevent us from fulfilling our debt obligations.

As of December 31, 2010, we had total debt with a par value of approximately $594.7 million of which $134.7 million of borrowings are under 2011 Convertible Notes issued by one of our subsidiaries and $460 million are under our 2040 Convertible Notes. Subsequent to December 31, 2010, on February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed an additional $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan and a 7-year $300 million term loan. Both term loans are guaranteed by us, our domestic subsidiaries (other than the two co-borrowers) and Index Systems Inc. and are secured by substantially all of our, the subsidiary guarantors and the co-borrowers’ assets. The 5-year term loan requires annual amortization payments and matures on February 7, 2016 and the 7-year term loan requires quarterly amortization payments and matures on February 7, 2018. Our indebtedness may:

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make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on the notes and our other indebtedness;

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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;

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limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;

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require us to use a substantial portion of our cash flow from operations to make debt service payments;

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limit our flexibility to plan for, or react to, changes in our business and industry;

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place us at a competitive disadvantage compared to our less leveraged competitors; and

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increase our vulnerability to the impact of adverse economic and industry conditions.

Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business, and other factors affecting its operations, many of which are beyond our control.

Covenants in our debt agreements restrict our business in many ways and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected.

Subsequent to December 31, 2010, on February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed an additional $750 million under a senior secured credit facility. The senior secured credit facility contains various covenants that limit our ability and/or our restricted subsidiaries’ ability to, among other things:

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incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

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issue redeemable preferred stock;

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pay dividends or distributions or redeem or repurchase capital stock;

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prepay, redeem or repurchase certain debt;

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make loans, investments and capital expenditures;

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enter into agreements that restrict distributions from our subsidiaries;

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sell assets and capital stock of our subsidiaries;

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enter into certain transactions with affiliates; and

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consolidate or merge with or into, or sell substantially all of our assets to, another person.

In addition, our senior secured credit facility contains restrictive covenants and requires us to maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and we may be unable to meet those ratios. A breach of any of these covenants could result in a default under our senior secured credit facility and/or our other indebtedness, which could in turn result in an acceleration of a substantial portion of our indebtedness. In such event, we may be unable to repay all of the amounts that would become due under our indebtedness. If we were unable to repay those amounts, the lenders under our senior secured credit facility could proceed against the collateral granted to them to secure that indebtedness. In any case, if a significant portion of our debt was accelerated, we may be forced to seek bankruptcy protection.

We may not be able to generate sufficient cash to service our debt obligations.

Our ability to make payments on and to refinance our indebtedness will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our credit agreements restrict our ability to dispose of assets, use the proceeds from any disposition of assets and to refinance our indebtedness. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

In addition, our borrowings under our senior secured credit facility are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.

Repayment of our and our subsidiaries’ debt is dependent on cash flow generated by our and their respective subsidiaries.

Rovi Corporation’s subsidiaries, including Rovi Solutions Corporation and Rovi Guides Inc., own a significant portion of our assets and conduct substantially all of our operations. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable

to make required principal and interest payments on the 2040 Convertible Notes or cash payments required to settle conversions of the 2011 Convertible Notes, which were issued by Rovi Solutions Corporation but are convertible into cash and stock of Rovi Corporation. Accordingly, repayment of our indebtedness depends, to a significant extent, on the generation of cash flow by the subsidiaries, including Rovi Solutions Corporation and Rovi Guides Inc., the senior secured position of their bank debt, and their ability to make cash available to us, by dividend, debt repayment or otherwise. Because they are not guarantors or a co-issuer of the 2040 Convertible Notes, our subsidiaries do not have any obligation to pay amounts due on those notes or to make funds available for that purpose. Similarly, Rovi Solutions Corporation, while obligated to repay the 2011 Convertible Notes at maturity, has no obligation to make cash available to us to fund the settlement of our conversion obligations upon conversion of those notes. Conversely, the ability of Rovi Solutions Corporation and Rovi Guides Inc. to repay their indebtedness under the senior secured credit facility and in the case of Rovi Solutions Corporation, the 2011 Convertible Notes depends, in part, on the generation of cash flow by their respective subsidiaries. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us, Rovi Solutions or Rovi Guides Inc. to make payments in respect of our indebtedness.

Despite our current level of indebtedness, we may still be able to incur more indebtedness. This could increase the risks associated with our indebtedness.

We and our subsidiaries may incur additional indebtedness in the future. The terms of our indentures do not prohibit us or our subsidiaries from incurring additional indebtedness. If we incur any additional indebtedness that ranks equally with existing indebtedness, the holders of that indebtedness will be entitled to share ratably with the holders of our existing debt obligations in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. If new indebtedness is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

Changes in, or interpretations of, tax rules and regulations, may adversely affect our effective tax rates.

We are subject to income taxes in the U.S. and foreign tax jurisdictions. Our future effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of tax laws, by changes in the amount of revenue or earnings that we derive from international sources in countries with high or low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. Unanticipated changes in our tax rates could affect our future results of operations.

In addition, federal, state, and foreign tax jurisdictions may examine our income tax returns, including income tax returns of acquired companies and acquired tax attributes included therein. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. In making such assessments, we exercise judgment in estimating our provision for income taxes. While we believe our estimates are reasonable, we cannot assure you that the final determination from these examinations will not be materially different from that reflected in our historical income tax provisions and accruals. Any adverse outcome from these examinations may have a material adverse effect on our business and operating results, which could cause the market price of our stock to decline.

Our success is heavily dependent upon our proprietary technologies.

We believe that our future success will depend on our ability to continue to introduce proprietary solutions for digital content and technologies. We rely on a combination of patent, trademark, copyright and trade secret laws, nondisclosure and other contractual provisions, and technical measures to protect our intellectual property rights. Our patents, trademarks or copyrights may be challenged and invalidated or circumvented. Our patents may not be of sufficient scope or strength or be issued in all countries where products incorporating our technologies can be sold. We have filed applications to expand our patent claims and for improvement patents to extend the current expiration dates, however, expiration of some of our patents may harm our business. If we are not successful in protecting our intellectual property, our business would be harmed.

Others may develop technologies that are similar or superior to our technologies, duplicate our technologies or design around our patents. Effective intellectual property protection may be unavailable or limited in some foreign countries. Despite efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise use aspects of processes and devices that we regard as proprietary. Policing unauthorized use of our proprietary information is difficult, and the steps we have taken may not prevent misappropriation of our technologies. Such competitive threats could harm our business.

We may be subject to legal liability for the provision of third-party products, services or content.

We periodically enter into arrangements to offer third-party products, services, content or advertising under our brands or via distribution on our websites or in our products or service offerings. For example, we license or incorporate certain entertainment metadata into our data offerings. We may be subject to claims concerning these products, services, content or advertising by virtue of our involvement in marketing, branding, broadcasting or providing access to them. Our agreements with these parties may not adequately protect us from these potential liabilities. It is also possible that, if any information provided directly by us contains errors or is otherwise negligently provided to users, third parties could make claims against us, including, for example, claims for intellectual property infringement. Investigating and defending any of these types of claims is expensive, even if the claims do not result in liability. If any of these claims results in liability, we could be required to pay damages or other penalties, which could harm our business and our operating results.

We may initiate patent infringement or patent interference actions or other litigation to protect our intellectual property, which could be costly and harm our business.

We are currently engaged in litigation, and litigation may be necessary in the future, to enforce our patents and other intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others.

We, and many of our current and potential competitors, dedicate substantial resources to protection and enforcement of intellectual property rights. We believe that companies will continue to take steps to protect their technologies, including, but not limited to, seeking patent protection. Companies in the technology and content-related industries have frequently resorted to litigation regarding intellectual property rights. Disputes regarding the ownership of technologies and their associated rights are likely to arise in the future and we may be forced to litigate to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly, could distract our management from focusing on operating our business, and might ultimately be unsuccessful. The existence and/or outcome of such litigation could harm our business.

We may be subject to intellectual property infringement claims or other litigation, which are costly to defend and could limit our ability to use certain technologies in the future.

From time to time we receive claims and inquiries from third parties alleging that our internally developed technology, technology we have acquired or technology we license from third parties may infringe other third parties’ proprietary rights, especially patents. Third parties have also asserted and most likely will continue to assert claims against us alleging infringement of copyrights, trademark rights or other proprietary rights, or alleging unfair competition or violations of privacy rights. We could be required to spend significant amounts of time and money to defend ourselves against such claims. If any of these claims were to prevail, we could be forced to pay damages, comply with injunctions, or stop distributing our products and services while we re-engineer them or seek licenses to necessary technology, which might not be available on reasonable terms or at all. We could also be subject to claims for indemnification resulting from infringement claims made against our customers, strategic partners or the current owners of businesses that we divested, which could increase our defense costs and potential damages. For example, we have received notices and lawsuits from certain customers requesting indemnification in patent-related lawsuits. We evaluate the requests and assess whether we believe we are obligated to provide such indemnification to such customers on a case by case basis. Customers or strategic

partners making such requests could become unwilling or hesitant to do business with us if we decline such requests. An adverse determination with respect to such requests or in any of these events described above could require us to change our business practices and have a material impact on our business and results of operations.

Litigation could harm our business and result in:

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substantial settlement or related costs, including indemnification of customers;

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diversion of management and technical resources;

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either our customers discontinuing to use or ourselves discontinuing to sell infringing products;

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our expending significant resources to develop non-infringing technology; and

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our obtaining licenses to infringed technology, which could be costly.

We are involved in the business of powering the discovery and enjoyment of digital entertainment, including over the Internet. There has been, and we believe that there will continue to be, an increasing level of litigation to determine the applicability of current laws to, and impact of new technologies on, the use and distribution of content over the Internet and through new devices. As we develop products and services that protect, provide or enable the provision of content in such ways, the risk of litigation against us may increase.

For our business to succeed, we need to attract and retain qualified employees and manage our employee base effectively.

Our success depends on our ability to hire and retain qualified employees and to manage our employee base effectively. Because of the specialized nature of our business, our future success will depend upon our continuing ability to identify, attract, train and retain other highly skilled managerial, technical, sales and marketing personnel, particularly as we enter new markets. Competition for people with the skills that we require is intense, particularly in the San Francisco Bay area where our headquarters are located and Los Angeles where we have significant operations, and the high cost of living in these areas makes our recruiting and compensation costs higher. If we are unable to hire and retain qualified employees, our business and operating results could be adversely affected.

Establishing and maintaining licensing relationships with companies are important to build and support a worldwide entertainment technology licensing ecosystem and to expand our business, and failure to do so could harm our business prospects.

Our future success will depend upon our ability to establish and maintain licensing relationships with companies in related business fields, including:

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DVD authoring facilities, mastering houses and replicators;

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DVD authoring tools software companies and replicator test equipment suppliers;

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DVD hardware manufacturers;

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semiconductor and equipment manufacturers;

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operators of entertainment content distributors, including PPV and VOD networks;

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consumer electronics, digital PPV/VOD set-top hardware manufacturers, and PC manufacturers;

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DRM suppliers; and

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Internet portals and other digital distribution companies.

Substantially all of our license agreements are non-exclusive, and therefore our licensees are free to enter into similar agreements with third parties, including our competitors. Our licensees may develop or pursue alternative technologies either on their own or in collaboration with others, including our competitors.

Some of our third party license arrangements require that we license others’ technologies and/or integrate our solutions with others. In addition, we rely on third parties to report usage and volume information to us. Delays, errors or omissions in this information could harm our business. If these third parties choose not to support integration efforts or delay the integration of our solutions, our business could be harmed.

If we fail to maintain and expand our relationships with a broad range of participants throughout the entertainment industry, including motion picture studios, broadcasters and manufacturers of CE products, our business and prospects could be materially harmed. Relationships have historically played an important role in the entertainment industries that we serve. If we fail to maintain and strengthen these relationships, these entertainment industry participants may not purchase and use our technologies, which could materially harm our business and prospects. In addition to directly providing a substantial portion of our revenue, these relationships are also critical to our ability to have our technologies adopted as industry standards. Moreover, if we fail to maintain our relationships, or if we are not able to develop relationships in new markets in which we intend to compete in the future, including markets for new technologies and expanding geographic markets, our business, operating results and prospects could be materially and adversely affected. In addition, if major industry participants form strategic relationships that exclude us, our business and prospects could be materially adversely affected.

It may be more difficult for us, in the future, to have our technologies adopted as individual industry standards if entertainment industry participants collaborate on the development of new or different industry standard technologies.

Increasingly, standards-setting organizations are adopting or establishing technology standards for use in a wide-range of CE products. As a result, it is more difficult for individual companies to have their technologies widely adopted as an informal industry standard. In addition, there are a large number of companies, including companies that typically compete against one another, involved in the development of new technologies for use in consumer entertainment products. As a result, these companies often license their collective intellectual property rights as a group, making it more difficult for any single company to have its technologies adopted widely as a de facto industry standard or to have its technologies adopted as an exclusive, explicit industry standard. Examples of this include MPEG-LA (DRM licensing); Blu-ray DVD (high definition DVD format); and Digital Living Network Alliance (DLNA) and the Universal Plug and Play (UPnP) Forum (interoperability of consumer electronics devices). If our technologies are not supported by these standards bodies or patent pools, it may be more difficult for us to grow our business in the future. Our major customers may have a large influence on industry standards and the widespread adoption of new technologies. The selection of alternative technologies to ours or to those on which our technologies operate would harm our business.

Continued consolidation of the cable and satellite broadcasting industry could adversely affect existing agreements.

We have entered into agreements with a large number of MSOs and DBS providers for the licensing or distribution of our technology, products and services. If consolidation of the cable and satellite broadcasting industry continues, some of these agreements may be affected by mergers, acquisitions or system swaps. We cannot assure you that any measures that we have taken to protect us against any negative consequences resulting from those transactions will be effective. Also, a service provider that files a bankruptcy petition or otherwise restructures or liquidates could avoid its future obligations and discharge its past payment obligations under the agreement in some circumstances. Any such events could have a material adverse effect on the amount of revenue we receive under these agreements.

The markets for our data solutions and IPG advertising may not develop and we may fail in our ability to fully exploit these new opportunities if these markets do not develop as we anticipate.

The market for IPG advertising is at an early stage of development and we cannot assure you that we will succeed in our efforts to develop IPG advertising as an advertising medium widely accepted by consumers and

advertisers. In addition, MSO, DBS and Internet protocol television, or IPTV, providers who have a patent license from us are not required to provide advertising in their IPG. Therefore our ability to derive advertising revenues from IPGs distributed by our patent licensees is also dependent on the implementation of IPG advertising by such licensees. Likewise, the market for our data solutions is at an early stage and we cannot assure you that we will succeed in growing our data business to the levels we anticipate.

Limitations on control of IPG Inc. may adversely impact our operations.

We hold a 46% interest in IPG Inc., as a joint venture with nonaffiliated third parties, which hold the remaining interest. As a result of such arrangement, we may be unable to control the operations, strategies and financial decisions of IPG Inc. which could in turn result in limitations on our ability to implement strategies that we may favor, or to cause dividends or distributions to be paid. In addition, our ability to transfer our interests in IPG Inc. may be limited under the joint venture arrangement.

We have limited control over existing and potential customers’ and licensees’ decisions to include our technology in their product offerings.

In general, we are dependent on our customers and licensees—including producers and distributors of content for films and videos—to incorporate our technology into their products. Although we have license agreements with many of these companies, many of these license agreements do not require any minimum purchase commitments, or are on a non-exclusive basis, or do not require incorporation of our technology in their products. If our customers were to determine that the benefits of our technology do not justify the cost of licensing the technology, then demand for our technology would decline. Furthermore, while we may be successful in having one or more industry standards-setting organizations require that our technology be used in order for a product to be compliant with the standards promulgated by such organizations, there is no guarantee that products associated with these standards will be successful in the market. Our licensees and other manufacturers might not utilize our technology in the future. If this were to occur, our business would be harmed.

Our operating results may fluctuate, which may cause us to not be able to sustain our revenue levels or rate of revenue growth on a quarterly or annual basis which may cause our common stock price to decline.

Our quarterly and annual revenues, expenses and operating results could vary significantly in the future and period-to-period comparisons should not be relied upon as indications of future performance. We may not be able to sustain our revenue levels, or our rate of revenue growth, on a quarterly or annual basis. In addition, we may be required to delay or extend recognition of revenue on more complex licensing arrangements as required under generally accepted accounting principles in the United States. Fluctuations in our operating results have in the past caused, and may in the future cause, the price of our common stock to decline.

Other factors that could affect our operating results include:

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the acceptance of our technologies by system operators and CE manufacturers;

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expenses related to, and the financial impact of, possible acquisitions of other businesses and the integration of such businesses;

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expenses related to, and the financial impact of, the dispositions of businesses, including post-closing indemnification obligations;

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the timing and ability of signing high-value licensing agreements during a specific period;

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the potential that we may not be in a position to anticipate a decline in revenues in any quarter until (i) late in the quarter due to the closing of sales agreements late in the quarter or (ii) after the quarter ends due to the delay inherent in reporting from certain licensees;

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the extent to which new content technologies or formats replace technologies to which our solutions are targeted; and

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adverse changes in the level of economic activity in the United States or other major economies in which we do business as a result of the threat of terrorism, military actions taken by the United States or its allies, or generally weak and uncertain economic and industry conditions.

Our quarterly operating results may also fluctuate depending upon when we receive royalty reports from certain licensees. We recognize a portion of our license revenue only after we receive royalty reports from our licensees regarding the manufacture of their products that incorporate our technologies. As a result, the timing of our revenue is dependent upon the timing of our receipt of those reports, some of which are not delivered until late in the quarter or after the end of the quarter. This may put us in a position of not being able to anticipate a decline in revenues in any given quarter. In addition, it is not uncommon for royalty reports to include corrective or retroactive royalties that cover extended periods of time. Furthermore, there have been times in the past when we have recognized an unusually large amount of licensing revenue from a licensee in a given quarter because not all of our revenue recognition criteria were met in prior periods. This can result in a large amount of licensing revenue from a licensee being recorded in a given quarter that is not necessarily indicative of the amounts of licensing revenue to be received from that licensee in future quarters, thus causing fluctuations in our operating results.

A significant portion of our revenue is derived from international sales. Economic, political, regulatory and other risks associated with our international business could have an adverse effect on our operating results.

We expect that international and export sales will continue to represent a substantial portion of our net revenues for the foreseeable future. Our future growth will depend to a large extent on worldwide acceptance and deployment of our solutions.

To the extent that foreign governments impose restrictions on importation of programming, technology or components from the United States, the demand for our solutions in these markets could diminish. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States, which increases the risk of unauthorized use of our technologies. Such laws also may not be conducive to copyright protection of digital content, which may make our content protection technology less effective and reduce the demand for it.

Because we sell our products worldwide, our business is subject to the risks associated with conducting business internationally, including:

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foreign government regulation;

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changes in diplomatic and trade relationships;

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changes in, or imposition of, foreign laws and regulatory requirements;

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changes in, or weakening of copyright and intellectual property (patent) laws;

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difficulty of effective enforcement of contractual provisions in local jurisdictions;

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tariffs or taxes and other trade barriers and restrictions;

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fluctuations in our net effective income tax rate driven by changes in the percentage of revenues that we derive from international sources;

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changes in a specific country’s or region’s political or economic condition, including changes resulting from the threat of terrorism;

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difficulty in staffing and managing foreign operations; and

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fluctuations in foreign currency exchange rates.

Our business could be materially adversely affected if foreign markets do not continue to develop, if we do not receive additional orders to supply our technologies or products for use by foreign system operators, CE manufacturers and PPV/VOD providers or if regulations governing our international businesses change. Any changes to the statutes or the regulations with respect to export of encryption technologies could require us to redesign our products or technologies or prevent us from selling our products and licensing our technologies internationally.

We have made and expect to make significant investments in infrastructure which, if ineffective, may adversely affect our business results.

We have made and expect to make significant investments in infrastructure, tools, systems, technologies and content, including initiatives relating to digital asset and rights management and data warehouses, aimed to create, assist in the development or operation of, or enhance our ability to deliver innovative products and services across multiple media, digital and emerging platforms. These investments may ultimately cost more than is anticipated, their implementation may take longer than expected and they may not meaningfully contribute to or result in successful new or enhanced products, services or technologies.

Some terms of our agreements with licensees could be interpreted in a manner that could adversely affect licensing revenue payable to us under those agreements.

Some of our license agreements contain “most favored nation” clauses. These clauses typically provide that if we enter into an agreement with another licensee on more favorable terms, we must offer some of those terms to our existing licensees. We have entered into a number of license agreements with terms that differ in some respects from those contained in other agreements. These agreements may obligate us to provide different, more favorable, terms to licensees, which could, if applied, result in lower revenues or otherwise adversely affect our business, financial condition, results of operations or prospects. While we believe that we have appropriately complied with the most favored nation terms included in our license agreements, these contracts are complex and other parties could reach a different conclusion that, if correct, could have an adverse effect on our financial condition or results of operations.

Our products could be susceptible to errors, defects, or unintended performance problems that could result in lost revenues, liability or delayed or limited market acceptance.

We develop and offer complex solutions, which we license to customers. The performance of these products typically involves working with sophisticated software, computing and communications systems. Due to the complexity of these products, and despite our quality assurance testing, the products may contain undetected defects or errors that may affect the proper use or application of such products by the customer. Because our products are embedded in digital content and other software, our solutions’ performance could unintentionally jeopardize our customers’ product performance. Any such defects, errors, or unintended performance problems in existing or new products, and any inability to meet customer expectations in a timely manner, could result in loss of revenue or market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs and increased service costs, any of which could materially harm our business.

In addition, we rely on customers and third party replicators to properly use our products to protect the software and applications to which our technology may be applied. Any improper use or application of the software by customers or third party replicators may render our technologies useless and result in losses from claims arising out of such improper use of the products.

Because customers rely on our products as used in their software and applications, defects or errors in our products may discourage customers from purchasing our products.

These defects or errors could also result in product liability or warranty claims. Although we attempt to reduce the risk of losses resulting from these claims through warranty disclaimers and limitation of liability clauses in our agreements, these contractual provisions may not be enforceable in every instance. Furthermore, although we maintain errors and omissions insurance, this insurance may not adequately cover these claims. If a court refused to enforce the liability-limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, our business could be materially harmed.

In protecting copyrights and other intellectual property rights of our customers, our products affect consumer use of our customers’ products. Consumers may view this negatively and discontinue or threaten to discontinue purchase or use of our customers’ products unless our customers stop using our technologies. This may cause a decline in demand for our products or legal actions against us by our customers or consumers.

Government regulations may adversely affect our business.

The satellite transmission, cable and telecommunications industries are subject to pervasive federal regulation, including FCC licensing and other requirements. These industries are also often subject to extensive regulation by local and state authorities. While these regulations do not apply directly to us, they affect cable television providers and other multi-channel video programming distributors, or MVPDs, which are the primary customers for certain of our products and services. FCC regulations prohibit MVPDs (except DBS providers) from deploying after July 1, 2007 consumer electronic navigation devices (e.g., set-top boxes) with combined security and non-security functions (the “integration ban”). The FCC has granted a number of requests for waiver of the integration ban, and denied several petitions for waivers or deferrals. Petitions for reconsideration of the decisions denying waivers are pending before the FCC. Further developments with respect to these issues or other related FCC action could impact the availability and/or demand for “plug and play” devices, including set-top boxes, all of which could affect demand for IPGs incorporated in set-top boxes or CE devices and correspondingly affect our license fees.

Legislative initiatives seeking to weaken copyright law or new governmental regulation or new interpretation of existing laws that cause resulting legal uncertainties could harm our business.

Consumer rights advocates and other constituencies continuously challenge copyright law, notably the U.S. Digital Millennium Copyright Act of 1998, or DMCA, through both legislative and judicial actions. Legal uncertainties surrounding the application of the DMCA may adversely affect our business. If copyright law is compromised, or devices that can circumvent our technology are permitted by law and become prevalent, this could result in reduced demand for our technologies, and our business would be harmed.

Many laws and regulations are pending and may be adopted in the United States, individual states and local jurisdictions and other countries with respect to the Internet. These laws may relate to many areas that impact our business, including copyright and other intellectual property rights, digital rights management, property ownership and taxation. These types of regulations are likely to differ between countries and other political and geographic divisions. Other countries and political organizations are likely to impose or favor more and different regulation than that which has been proposed in the United States, thus furthering the complexity of regulations. In addition, state and local governments may impose regulations in addition to, inconsistent with, or stricter than federal regulations. Changes to or the interpretation of these laws could increase our costs, expose us to increased litigation risk, substantial defense costs and other liabilities or require us or our customers to change business practices. It is not possible to predict whether or when such legislation may be adopted, and the adoption of such laws or regulations, and uncertainties associated with their validity, interpretation, applicability and enforcement, could materially and adversely affect our business.

Business interruptions could adversely affect our future operating results.

The provision of certain of our products and services depends on the continuing operation of communications and transmission systems and mechanisms, including satellite, cable, wire, over the air

broadcast communications and transmission systems and mechanisms. These communication and transmission systems and mechanisms are subject to significant risks and any damage to or failure of these systems and mechanisms could result in an interruption of the provision of our products and services.

Several of our major business operations are subject to interruption by earthquake, fire, power shortages, terrorist attacks and other hostile acts, and other events beyond our control. The majority of our research and development activities, our corporate headquarters, our principal information technology systems, and other critical business operations are located near major seismic faults. Our operating results and financial condition could be materially harmed in the event of a major earthquake or other natural or man-made disaster that disrupts our business. The communications and transmission systems and mechanisms that we depend on are not fully redundant, and our disaster recovery planning cannot account for all eventualities.

Our telephone and computer networks are subject to security and stability risks that could harm our business and reputation and expose us to litigation or liability.

Online business activities depend on the ability to transmit confidential information and licensed intellectual property securely over private and public networks. Any compromise of our ability to transmit such information and data securely or reliably, and any costs associated with preventing or eliminating such problems, could harm our business. Online transmissions are subject to a number of security and stability risks, including:

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our own or licensed encryption and authentication technology, and access and security procedures, may be compromised, breached or otherwise be insufficient to ensure the security of customer information or intellectual property;

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we could experience unauthorized access, computer viruses, system interference or destruction, “denial of service” attacks and other disruptive problems, whether intentional or accidental, that may inhibit or prevent access to our websites or use of our products and services;

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someone could circumvent our security measures and misappropriate our, our partners’ or our customers’ proprietary information or content or interrupt operations, or jeopardize our licensing arrangements, which are contingent on our sustaining appropriate security protections;

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our computer systems could fail and lead to service interruptions or down-time for our ecommerce web sites; or

•

we may need to grow, reconfigure or relocate our data centers in response to changing business needs, which may be costly and lead to unplanned disruptions of service.

The occurrence of any of these or similar events could damage our business, hurt our ability to distribute products and services and collect revenue, threaten the proprietary or confidential nature of our technology, harm our reputation, and expose us to litigation or liability. Because some of our technologies and businesses are intended to inhibit use of or restrict access to our customers’ intellectual property, we may become the target of hackers or other persons whose use of or access to our customers’ intellectual property is affected by our technologies. We may be required to expend significant capital or other resources to protect against the threat of security breaches, hacker attacks or system malfunctions or to alleviate problems caused by such breaches, attacks or failures.

Our Internet-based product and service offerings rely on a variety of systems, networks and databases, many of which are maintained by us at our data centers. We do not have complete redundancy for all of our systems, and we do not maintain real-time back-up of our data, so in the event of significant system disruption, particularly during peak periods, we could experience loss of data processing capabilities, which could cause us to lose customers and could harm our operating results. Notwithstanding our efforts to protect against “down time” for products and services, we do occasionally experience unplanned outages or technical difficulties. In order to provide our Internet-based products and services, we must protect the security of our systems, networks, databases and software.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could increase our operating costs and affect our ability to operate our business.

We have a complex business that is international in scope. Ensuring that we have adequate internal financial and accounting controls and procedures in place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We are continually in the process of documenting, reviewing and, if appropriate, improving our internal controls and procedures in connection with Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accountants on the effectiveness of our internal controls over financial reporting. If we or our independent registered public accountants identify areas for further attention or improvement, implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. We have in the past identified, and may in the future identify, significant deficiencies in the design and operation of our internal controls, which have been or will in the future need to be remediated. Furthermore, our independent registered public accountants may interpret the Section 404 requirements and the related rules and regulations differently from how we interpret them, or our independent registered public accountants may not be satisfied with our internal control over financial reporting or with the level at which these controls are documented, operated or reviewed in the future. Finally, in the event we make a significant acquisition, or a series of smaller acquisitions, we may face significant challenges in implementing the required processes and procedures in the acquired operations. As a result, our independent registered public accountants may decline or be unable to report on the effectiveness of our internal controls over financial reporting or may issue a qualified report in the future. This could result in an adverse reaction in the financial markets due to investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could affect our operating results.

We have incurred, and will continue to incur, significant legal, accounting and other expenses associated with corporate governance and public company reporting requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and NASDAQ. As long as the SEC requires the current level of compliance for public companies of our size, we expect these rules and regulations to require significant legal and financial compliance costs and to make some activities time-consuming and costly. These rules and regulations may make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage than was previously available. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

We may be subject to assessment of sales and other taxes for the sale of our products, license of technology or provision of services.

We do not currently collect sales or other taxes on the sale of our products, license of technology or provision of services in states and countries other than those in which we have offices or employees. Our business would be harmed if one or more states or any foreign country required us to collect sales or other taxes from past sales of products, licenses of technology or provision of services, particularly because we would be unable to go back to customers to collect sales taxes for past sales and would likely have to pay such taxes out of our own funds.

The price of our common stock may be volatile.

The market price of our common stock has been, and in the future could be, significantly affected by factors such as:

•

actual or anticipated fluctuations in operating results;

•

announcements of technical innovations;

•

new products or new contracts;

•

announcements by competitors or their customers;

•

announcements by our customers;

•

governmental regulatory and copyright action;

•

developments with respect to patents or proprietary rights;

•

announcements regarding acquisitions or divestitures;

•

announcements regarding litigation or regulatory matters;

•

changes in financial estimates or coverage by securities analysts;

•

changes in interest rates which affect the value of our investment portfolio;

•

changes in tax law or the interpretation of tax laws; and

•

general market conditions.

Announcements by satellite television operators, cable television operators, major content providers or others regarding consumer electronics business combinations, evolving industry standards, consumer rights activists’ “wins” in government regulations or the courts, motion picture production or distribution or other developments could cause the market price of our common stock to fluctuate substantially.

There can be no assurance that our historic trading prices, or those of technology companies in general, will be sustained. In the past, following periods of volatility in the market price of a company’s securities, some companies have been named in class action suits.

Further, the general stock market instability and economic uncertainty may adversely affect the global financial markets, which could cause the market price of our common stock to fluctuate substantially.

We utilize non-GAAP reporting in our quarterly earnings press releases.

We publish non-GAAP financial measures in our quarterly earnings press releases along with a reconciliation of non-GAAP financial measures to those measures compiled in accordance with accounting principles generally accepted in the United States (“GAAP”). The reconciling items have adjusted GAAP net income and GAAP earnings per share for certain non-cash, non-operating or non-recurring items and are described in detail in each such quarterly earnings press release. We believe that this presentation may be more meaningful to investors in analyzing the results of operations and income generation as this is how our business is managed. The market price of our stock may fluctuate based on future non-GAAP results if investors base their investment decisions upon such non-GAAP financial measures. If we decide to curtail use of non-GAAP financial measures in our quarterly earnings press releases, the market price of our stock could be affected if investors analyze our performance in a different manner.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The following table lists our principal locations.


Location	Approximate Square Footage		Lease Expiration
Santa Clara, California (Corporate Headquarters)		90,000	January 2017
Radnor, Pennsylvania		64,000	January 2015
Burbank, California		62,000	June 2019
Tulsa, Oklahoma		40,000	June 2014
Ann Arbor, Michigan		34,000	April 2015
Hong Kong		27,000	March 2013
San Francisco, California		20,000	July 2013

Most U.S. sales, marketing and technical personnel for all product divisions are in these locations, with a small number of individuals operating out of their home offices. We believe that our existing facilities are adequate to meet current requirements and that additional or substitute space will be available as needed to accommodate any expansion of operations.

We also lease space for sales, marketing and technical staff in Schaumburg, Illinois, Bedford, Massachusetts, Cambridge, Massachusetts, New York, New York, Maidenhead, United Kingdom; Tokyo, Japan; Seoul, South Korea; Hsinchu, Taiwan and Luxemburg.

ITEM 3.

LEGAL PROCEEDINGS

The Company is involved in legal proceedings related to intellectual property rights and other matters. The following legal proceedings include those of the Company and its subsidiaries.

Indemnifications

DirecTV, Inc. v. Finisar Corporation. In April 2005, Gemstar received a notice of a potential claim for indemnification from DirecTV Group, Inc. (“DirecTV”) as a result of a lawsuit filed by Finisar Corporation (“Finisar”) against DirecTV in the United States District Court for the Eastern District of Texas. Finisar alleged that several aspects of the DirecTV satellite transmission system, including aspects of its advanced electronic program guide (“EPG”) and the storage, scheduling, and transmission of data for the EPG, infringed a Finisar patent. On July 7, 2006, the Court awarded Finisar approximately $117 million. In addition, the Court ordered DirecTV to pay approximately $1.60 per activated set-top box in licensing fees going forward in lieu of an injunction until the expiration of Finisar’s patent in 2012. The parties both filed appeals to the Federal Circuit, which subsequently ruled that the trial court’s construction of certain terms of the patent was too broad, vacated the jury’s verdict of infringement, held that one of the seven patent claims at issue is invalid, and left standing the remaining six claims for reconsideration by the trial court. The appeals court also reversed the jury’s finding that DirecTV’s infringement was willful. The trial court subsequently ruled in DirecTV’s favor on its summary judgment motion that the remaining claims of the subject patent were invalid, and in January 2010 the court of appeals confirmed that ruling. The Company has not established a reserve with respect to this matter in its consolidated financial statements.

Comcast Cable Communications Corp., LLC v. Finisar Corporation, in the United States District Court for the Northern District of California. In support of a potential claim for indemnification, Comcast Cable Communications Corp., LLC (“Comcast”) put the Company on notice that it had received communications from Finisar asserting infringement of U.S. Patent 5,404,505 (the “‘505 patent”). On July 7, 2006, Comcast filed a declaratory judgment action in the Northern District of California asking the Court to rule, among other things, that it does not infringe the ‘505 patent and/or that the patent is invalid. On May 15, 2008, Finisar entered into a

covenant and stipulation with Comcast, filed with the California Court, that it would not assert any claim of the ‘505 patent against Comcast or certain related entities, other than claim 25. On July 11, 2008, the Court ruled on Comcast’s summary judgment motion, finding that claim 25 is invalid, and therefore finding that Comcast’s non-infringement motion is moot. Comcast has not taken any further action insofar as its potential indemnity claim against the Company is concerned.

Litigation

John Burke v. TV Guide Magazine Group, Inc., Open Gate Capital, Rovi Corp., Gemstar—TV Guide International, Inc. On August 11, 2009, plaintiff filed a purported class action lawsuit claiming that the Company’s former subsidiary, TV Guide Magazine, breached agreements with its subscribers and violated consumer protection laws with its practice of counting double issues toward the number of issues in a subscription. On September 10, 2009, the Company filed an answer to the complaint along with a petition to remove the case to federal court. On December 18, 2009, the case was dismissed with prejudice, and plaintiff has filed an appeal of that dismissal.

Sonic Acquisition Litigation

Vassil Vassilev v. Sonic Solutions, et al., Matthew Barnes v. Habinger [sic] et al, Diana Willis v. Sonic Solutions, et al., Mark Chropufka v. Sonic Solutions, et al. and Joann Thompson v. Sonic Solutions, et al., filed in California Superior Court for the County of Marin. On January 3, 2011, a putative class action lawsuit entitled Vassil Vassilev v. Sonic Solutions, et al. was filed in California Superior Court for the County of Marin by an individual purporting to be a shareholder of Sonic Solutions against Sonic Solutions, the members of its board of directors, the Company and Sparta Acquisition Sub, arising out of the proposed transaction between Company and Sonic. On January 10, 14 and 18, 2011, three substantially similar putative class action lawsuits were filed in the same court against the same defendants, entitled Matthew Barnes v. Habinger [sic] et al., Mark Chropufka v. Sonic Solutions, et al. and Diana Willis v. Sonic Solutions, et al., respectively (the “Lawsuits”). The Lawsuits allege that the members of Sonic’s board of directors breached their fiduciary duties of care and loyalty by, inter alia, failing to maximize shareholder value and by approving the merger transaction via an unfair process. The Lawsuits allege that the Company and Sparta Acquisition Sub aided and abetted the breach of fiduciary duties. Plaintiffs seek to enjoin the acquisition of Sonic by the Company, rescission of the transaction in the event it is consummated, imposition of a constructive trust, and monetary damages, fees and costs in an unspecified amount.

On January 21, 2011, plaintiff Mark Chropufka filed an amended class action complaint, which all plaintiffs then designated as the operative complaint, and which adds allegations of omissions in the Schedule 14D-9 Recommendation Statement filed by Sonic on January 14, 2011. On January 27, 2011, the parties to the Lawsuits submitted a stipulation and proposed order consolidating all lawsuits filed in connection with the proposed offer and mergers (the “consolidated action”). On January 25, 2011, another substantially similar putative class action lawsuit was filed in the same court against the same defendants, entitled Joann Thompson v. Sonic Solutions, et al. On January 28, 2011, the parties to the consolidated action reached an agreement in principle to settle. The proposed settlement, which is subject to court approval following notice to the class and a hearing, disposes of all causes of action asserted in the consolidated action and in Thompson v. Sonic Solutions, et. al. on behalf of all class members who do not elect to opt out of the settlement. Class members who elect to opt out, if any, may continue to pursue causes of action against the defendants.

material adverse effect on their financial position or results of operations. At this time, management has not reached a determination that the matters listed above or any other litigation, individually or in the aggregate, are expected to result in liabilities that will have a material adverse effect on our financial position or results of operations or cash flows.

ITEM 4.

[REMOVED AND RESERVED]

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders

The common stock of Rovi Corporation has been listed on the NASDAQ Global Select Market under the symbol “ROVI” since July 16, 2009. Macrovision Solutions Corporation was trading under the symbol “MVSN” prior to changing its name to Rovi Corporation on July 15, 2009. As part of Macrovision Solutions Corporation’s assumption of the ownership on May 2, 2008 of both Gemstar and Macrovision Corporation (See Note 1 to the Consolidated Financial Statements) Macrovision Corporation’s stock was delisted. The following table sets forth, for the periods indicated, the reported high and low sales prices for the common stock of Rovi Corporation:


	High		Low
*2010*
First Quarter	$	38.50	$	27.60
Second Quarter	$	40.06	$	33.17
Third Quarter	$	53.00	$	37.41
Fourth Quarter	$	62.50	$	47.47

*2009*
First Quarter	$	18.22	$	12.39
Second Quarter	$	23.15	$	17.26
Third Quarter	$	33.86	$	20.76
Fourth Quarter	$	34.77	$	27.00

As of February 7, 2011, there were 310 holders of record of our common stock, based upon information furnished by American Stock Transfer & Trust Company, the transfer agent for our securities. The number of beneficial stockholders is substantially greater than the number of holders of record as a large portion of our common stock is held through brokerage firms. As of February 7, 2011, there were 107,468,703 shares of common stock outstanding.

Stock Performance Graph

The graph below shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total return on the NASDAQ Composite Index (the “NASDAQ”), the S&P 500 Composite Index (the “S&P 500”) and the Russell 2000 Index (“Russell 2000”) from May 2, 2008 through December 31, 2010. The graph assumes an investment of $100 in our common stock and in each of the market indices, and further assumes the reinvestment of all dividends. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock.

LOGO


	Rovi Corporation		NASDAQ Composite Index		S&P 500		Russell 2000 Index
May 2, 2008	$	100	$	100	$	100	$	100
December 31, 2008	$	76	$	64	$	64	$	69
December 31, 2009	$	191	$	92	$	79	$	86
December 31, 2010	$	372	$	107	$	89	$	108

Dividend Policy

We have not paid any cash dividends in the last two years and do not anticipate paying any cash dividends on our common stock in the foreseeable future. At this time, we intend to retain all earnings for use in our business operations and to pay down debt.

Stock Repurchase Authorization

In December 2010, the Company’s Board of Directors authorized the repurchase of up to $400.0 million of the Company’s common stock. This $400.0 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. As of December 31, 2010, treasury stock consisted of

5.2 million shares of common stock that had been repurchased, with a cost basis of approximately $134.9 million. As of December 31, 2010, $400.0 million remained available for share repurchases under the Company’s existing repurchase authorization.

In February 2010, the Company’s Board of Directors authorized the repurchase of up to $100.0 million of common stock in connection with the offering of the 2040 Convertible Notes as well as up to an additional $200.0 million of its common stock in the open market from time to time at prevailing market prices or otherwise, as conditions warrant. This $200.0 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. In connection with the 2040 Convertible Note offering the Company repurchased 3.0 million shares of its common stock for $109.9 million. During the fourth quarter of 2008, the Company repurchased 2.3 million shares of common stock for approximately $25.1 million. These repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.

ITEM 6.

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data and other operating information. The financial data does not purport to indicate results of operations as of any future date or for any future period. The financial data is derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein. For further discussion of factors that could affect comparability of these consolidated financial statements, see the notes following the table.

On May 2, 2008, the Company acquired Gemstar-TV Guide International, Inc. (“Gemstar”) in a cash and stock transaction. Upon consummation of this transaction on May 2, 2008, Macrovision Solutions Corporation, a Delaware corporation founded in 2007, assumed ownership of both Gemstar and Macrovision Corporation. On April 30, 2009, the Company acquired substantially all of the assets of Muze, Inc. (“Muze”) in a cash transaction. The Company’s results of operations include the operations of Gemstar and Muze from those dates forward.

On April 1, 2008, the Company closed the sale of its Software and Games businesses. In the fourth quarter of 2008, the Company closed the sale of its TV Guide Magazine and eMeta businesses. On January 27, 2009, the Company closed the sale of its TVG Network business and on February 28, 2009, the Company closed the sale of its TV Guide Network and TV Guide Online businesses. On September 17, 2010, the Company closed the sale of its Canadian subsidiary, Norpak, which manufactured equipment for embedding data in a television signal. The results of operations and cash flows of Software, Games, TV Guide Magazine, TV Guide Network, TV Guide Online, TVG Network, Norpak and eMeta have been classified as discontinued operations, for all periods presented (See Note 5 to the Consolidated Financial Statements).


	Year Ended December 31,
	2010			2009			2008			2007			2006 (1)
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	541,490		$	480,450		$	327,440		$	144,943		$	111,569

Costs and expenses:
Cost of revenues		99,129			65,258			44,304			9,238			9,806
Research and development		95,687			91,984			65,911			13,204			14,565
Selling, general and administrative		142,197			132,939			114,563			55,316			48,027
Depreciation		18,758			18,368			13,797			5,090			5,288
Amortization of intangible assets		80,395			81,934			59,139			5,981			3,256
Restructuring and asset impairment charges		—			53,619			—			4,546			—

Total costs and expenses		436,166			444,102			297,714			93,375			80,942

Operating income from continuing operations		105,324			36,348			29,726			51,568			30,627
Interest expense		(42,935	)		(52,028	)		(54,834	)		(15,446	)		(5,379	)
Interest income and other, net		1,770			4,558			11,242			23,199			12,087
Gain on interest rate swaps and caps, net		34,197			—			—			—			—
Loss on debt redemption		(16,806	)		(8,687	)		—			—			—
Gain on sale of strategic investments		5,895			—			5,238			—			—
Impairment losses on strategic investments		—			—			—			(5,000	)		—

Income (loss) from continuing operations before income taxes		87,445			(19,809	)		(8,628	)		54,321			37,335
Income tax (benefit) expense		(139,213	)		(1,421	)		(23,409	)		14,468			8,854

Income (loss) from continuing operations, net of tax		226,658			(18,388	)		14,781			39,853			28,481
Discontinued operations, net of tax		(13,774	)		(34,563	)		(128,841	)		(14,537	)		2,979

Net income (loss)	$	212,884		$	(52,951	)	$	(114,060	)	$	25,316		$	31,460


	Year Ended December 31,
	2010			2009			2008			2007			2006 (1)
	(in thousands, except per share data)
Basic earnings per common share:
Basic income (loss) per share from continuing operations	$	2.20		$	(0.18	)	$	0.17		$	0.75		$	0.55
Basic (loss) income per share from discontinued operations	$	(0.14	)	$	(0.34	)	$	(1.49	)	$	(0.27	)	$	0.06

Basic net earnings per share	$	2.06		$	(0.52	)	$	(1.32	)	$	0.48		$	0.61

Shares used in computing basic net earnings per common share		102,658			100,860			85,334			52,470			51,349

Diluted earnings per common share:
Diluted income (loss) per share from continuing operations	$	2.07		$	(0.18	)	$	0.17		$	0.74		$	0.54
Diluted (loss) income per share from discontinued operations	$	(0.13	)	$	(0.34	)	$	(1.49	)	$	(0.27	)	$	0.06

Diluted net earnings per share	$	1.94		$	(0.52	)	$	(1.32	)	$	0.47		$	0.60

Shares used in computing diluted net earnings per common share		109,175			100,860			85,357			53,104			52,077


	December 31,
	2010		2009		2008		2007		2006
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, short and long-term investments and restricted cash	$	696,167	$	336,284	$	362,057	$	439,289	$	456,390
Working capital		387,935		289,962		561,313		435,552		292,783
Total assets		2,457,283		2,151,139		2,636,184		922,951		802,981
Long-term liabilities		484,186		514,479		950,068		262,142		200,114
Total stockholders’ equity		1,748,333		1,520,269		1,515,195		576,731		492,953

(1)	On January 1, 2006, the Company adopted updates to the Accounting Standards Codification related to the accounting for Share-Based Payments. The Company adopted these updates using the modified prospective method.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary should be read in conjunction with the Consolidated Financial Statements and related notes contained elsewhere in this Form 10-K.

Overview

We are focused on powering the discovery and enjoyment of digital entertainment by providing a broad set of integrated solutions that are embedded in our customers’ products and services and used by end consumers to simplify and guide their interaction with digital entertainment. Our offerings include interactive program guides (“IPGs”), IPG advertising, embedded licensing technologies (such as recommendations and search capability), media recognition technologies and licensing of our extensive database of descriptive information about television, movie, music, books, and game content and content protection technologies and services. In addition to offering Company developed IPGs, our customers may also license our patents and deploy their own IPG or a third party IPG. We group our revenue into the following categories – (i) service providers, (ii) consumer electronics (“CE”) manufacturers, and (iii) other. We include in service provider revenues any revenue related to an IPG deployed by a service provider in a subscriber household whether the ultimate payment for that IPG comes from the service provider or from a manufacturer of a set-top box. Revenue related to an IPG deployed in a set-top box sold at retail is included in CE manufacturers. Our management feels this classification is preferable as it allows a better association between service provider revenue and digital households deploying a Company-provided IPG or an IPG deployed under a patent license with us. Service providers deploy such Company products and services as Passport Echo, Passport DCT, Passport, i-Guide and web services. CE manufacturers deploy such Company products and services as Connected Platform, RoviGuide, G-GUIDE, VCR Plus+, web services, LASSO, Tapestry and ACP. Other includes our business of licensing our extensive database of descriptive information about television, movie, music and game content and our entertainment company content protection products and services such as ACP, RipGuard, CopyBlock and BD+.

On May 2, 2008, we acquired Gemstar in a cash and stock transaction. On April 30, 2009, we acquired substantially all of the assets of Muze in a cash transaction. Our results of operations include the operations of Gemstar and Muze from those dates forward.

On April 1, 2008, we sold our Software and Games businesses. In the fourth quarter of 2008, we sold our TV Guide Magazine and eMeta businesses. On January 27, 2009, we sold our TVG Network business and on February 28, 2009, we sold our TV Guide Network and TV Guide Online businesses. On September 17, 2010, we sold our Canadian subsidiary, Norpak, which manufactured equipment for embedding data in a television signal. Together TV Guide Magazine, TVG Network, TV Guide Network and TV Guide Online are collectively referred to as the “Media Properties”. The results of operations and cash flows of Software, Games, eMeta, Norpak and the Media Properties have been classified as discontinued operations, for all periods presented.

On February 26, 2010, we sold our 49% interest in the Guideworks LLC joint venture (“Guideworks”) to Comcast Corporation (“Comcast”) and simultaneously purchased Comcast’s interest in the patents which had been developed by Guideworks. Guideworks was a research and development joint venture with Comcast that developed interactive program guide solutions, which are distributed by the Company under the i-Guide brand. Under these agreements, the Company received a net payment of $4.6 million and realized a $1.0 million loss on sale of its interest in Guideworks. The Company had been recording its 49% interest in Guideworks as an operating expense in accordance with Accounting Standards Codification (“ASC”) 730-20, Research and Development Arrangements. Included in research and development expenses for the years ended December 31, 2010, 2009 and 2008, are $1.7 million, $11.7 million and $8.8 million, respectively, in expenses related to Guideworks.

On December 22, 2010, we entered into a definitive agreement to acquire Sonic Solutions (“Sonic”) in a stock and cash transaction. We believe the acquisition of Sonic will enable us to deliver a broader range of solutions to content distributors, service providers, CE manufacturers and retailers as well as accelerate our advertising opportunity. The transaction is expected to close in the first quarter of 2011 (See Note 18 to the Consolidated Financial Statements).

Comparison of Years Ended December 31, 2010 and 2009 from continuing operations

The following tables present our 2010 results from continuing operations compared to the prior year (in thousands):


	Year Ended December 31,
	2010			2009			Change $			Change %
Revenues:
Service providers	$	267,458		$	230,727			36,731			16	%
CE manufacturers		216,625			199,905			16,720			8	%
Other		57,407			49,818			7,589			15	%

Total revenues		541,490			480,450			61,040			13	%

Costs and expenses:
Cost of revenues		99,129			65,258			33,871			52	%
Research and development		95,687			91,984			3,703			4	%
Selling, general and administrative		142,197			132,939			9,258			7	%
Depreciation		18,758			18,368			390			2	%
Amortization of intangible assets		80,395			81,934			(1,539	)		-2	%
Restructuring and asset impairment charges		—			53,619			(53,619	)		-100	%

Total operating expenses		436,166			444,102			(7,936	)		-2	%

Operating income from continuing operations		105,324			36,348			68,976			190	%
Interest expense		(42,935	)		(52,028	)		9,093			-17	%
Interest income and other, net		1,770			4,558			(2,788	)		-61	%
Gain on interest rate swaps and caps, net		34,197			—			34,197			NM
Loss on debt redemption		(16,806	)		(8,687	)		(8,119	)		93	%
Gain on sale of strategic investments		5,895			—			5,895			NM

Income (loss) from continuing operations before taxes		87,445			(19,809	)		107,254			-541	%
Income tax benefit		(139,213	)		(1,421	)		(137,792	)		9697	%

Income (loss) from continuing operations, net of tax		226,658			(18,388	)		245,046			-1333	%
Loss from discontinued operations, net of tax		(13,774	)		(34,563	)		20,789			-60	%

Net income (loss)	$	212,884		$	(52,951	)		265,835			-502	%

Net Revenue

Service Providers Revenue

For the year ended December 31, 2010, revenue from service providers increased by 16% compared to the prior year. This increase is primarily due to a $21.0 million increase in IPG patent licensing revenue and a $13.4 million increase in IPG product revenues. IPG revenues benefited from new international IPG patent licensees as well as from digital subscriber growth both internationally and domestically. We expect revenue from licensing our IPG products and patents to continue to grow in the future from increased international licensing and from continued digital subscriber growth.

CE Manufacturers Revenue

For the year ended December 31, 2010, revenue from the sale of our products and licensing of our patents to CE manufacturers increased by 8% compared to the prior year. This increase was primarily due to an increase in IPG patent and product revenues driven by new IPG license agreements and increased IPG shipments by existing licensees. Also contributing to the increase was a slight increase in ACP revenue. While we experienced a slight increase in ACP revenue in 2010, we do not anticipate this growth to continue and instead believe that ACP revenue will significantly decline in 2011. We anticipate this decline to be offset in the future by our digital offerings, particularly as our Total Guide IPG solution is introduced into CE devices.

Other Revenue

Other revenue consists primarily of licensing of our underlying media content/metadata and licensing of our content protection technologies to entertainment companies. For the year ended December 31, 2010, Other revenue increased compared to the same periods in the prior year primarily due to increased revenue from our data business and the Muze acquisition, which occurred in April 2009.

Cost of Revenues

For the year ended December 31, 2010, cost of revenues increased from the prior year primarily due to an increase in patent litigation and prosecution costs and approximately $28.5 million in costs associated with indemnification and other claims in excess of reserves established in purchase accounting in conjunction with the Gemstar acquisition. These primarily relate to the resolution of the DirecTV and Thomson, Inc. matters (see Note 16 to the Consolidated Financial Statements).

Research and Development

For the year ended December 31, 2010, research and development expenses increased from the prior year primarily due to increased cash and stock related compensation expense driven by increased headcount partially offset by savings from exiting Guideworks (see Note 1 to the Consolidated Financial Statements).

Selling, General and Administrative

For the year ended December 31, 2010, selling, general and administrative expenses increased from the prior year primarily due to increased stock compensation expense and $5.2 million in Sonic transaction costs and other due diligence costs. Stock compensation expense increased primarily due to options and restricted shares granted in the second half of 2009 and in 2010, as well as increased participation in the Company’s employee stock purchase plan.

Restructuring and Asset Impairment Charges

During the second quarter of 2009, we completed extensive consumer research regarding our brands. This consumer research indicated that the brands acquired by us did not represent the future vision of the Company and did not carry a positive connotation in the market. We determined these results to be an indicator of potential impairment of our trademark intangible assets. We determined the fair value of our trademark intangible assets to be $8.3 million and recorded a $43.1 million impairment charge during the second quarter of 2009. In addition, during the second quarter of 2009, we recorded $0.9 million in restructuring charges related to the Muze acquisition and $1.6 million in other asset impairment charges (see Notes 6 and 11 to the Consolidated Financial Statements).

In the first quarter of 2009, in conjunction with the disposition of the Media Properties, management approved several actions resulting in a restructuring and asset impairment charge of $8.4 million. During the first quarter of 2009, we reversed the remaining $0.4 million in liabilities related to the fiscal 2007 restructuring plan (see Note 11 to the Consolidated Financial Statements).

Interest Expense

For the year ended December 31, 2010, interest expense decreased compared to the same period in the prior year due to a decrease in note issuance cost amortization, due to the repayment of the term loan, and lower average outstanding debt balances.

Interest Income and Other, Net

The decrease in interest income for the year ended December 31, 2010, as compared to the prior year, is primarily due to a $1.0 million loss recorded in connection with the sale of our interest in the Guideworks joint venture, a decrease in interest income due to a decline in prevailing interest rates and net foreign exchange losses in the current year versus net foreign exchange gains during the prior year.

Gain on Interest Rate Swaps and Caps, Net

This represents an increase in the fair value of our interest rate swaps partially offset by a decrease in the fair value of our interest rate caps. The increase in the fair value of the interest rate swaps was due to a decrease in the expected forward six month USD—LIBOR rates. We have not designated any of our interest rate swaps and caps as hedges and therefore record the changes in fair value of these instruments in our consolidated statements of operations (see Note 9 to the Consolidated Financial Statements).

Loss on Debt Redemption

During 2010, we spent $207.2 million to pay-off and retire our term loan. We realized a $12.3 million loss on redemption, primarily due to writing off the remaining note issuance costs. In addition, we repurchased $105.0 million in par value of our 2011 Convertible Notes for $160.1 million. In connection with these repurchases, we recorded a $4.5 million loss on debt redemption which represents the difference between the carrying value of the 2011 Convertible Notes retired and the amount allocated to the liability component of the notes and the write-off of the related note issuance costs (see Note 7 to the Consolidated Financial Statements).

On August 5, 2009, we redeemed our $100 million 11% senior notes (“11% Senior Notes”) at par plus accrued interest and a $2.8 million make-whole payment representing the discounted value of interest which the note holders would have received through November 15, 2009, the first date the Senior Notes could be retired without a premium. In connection with the redemption of the Senior Notes, we recorded an $8.7 million loss on debt redemption. This loss is comprised of the $2.8 million make-whole payment discussed above, the write-off of $5.6 million in note issuance costs and $0.3 million in fees associated with the note redemption (see Note 7 to the Consolidated Financial Statements).

Gain on Sale of Strategic Investment

During the year ended December 31, 2010, we sold a strategic investment and realized a $5.9 million gain.

Income Taxes

During the three months ended March 31, 2010, we entered into a closing agreement with the Internal Revenue Service through its Pre-Filing Agreement (PFA) program confirming that the Company recognized an ordinary tax loss of approximately $2.4 billion from the 2008 sale of its TV Guide Magazine business. To account for the PFA closing agreement, we (i) recorded a discrete tax benefit for the release of $576.9 million of reserves for uncertain tax positions previously netted against our deferred tax assets, (ii) reduced the deferred tax asset originally established in connection with the tax loss by $115 million to reflect the PFA closing agreement and (iii) established a valuation allowance of $347 million against our deferred tax assets as a result of determining that it is more likely than not that our deferred tax assets would not be realized (see Note 14 to the Consolidated Financial Statements).

The income tax benefit for the year ended December 31, 2010, of $139.2 million is primarily attributable to the PFA closing agreement described above plus an additional $17.3 million decrease in net tax contingency reserves.

Our income tax benefit in 2009 of $1.4 million was primarily impacted by the geographic source of our profits and an increase in accrued tax contingency reserves.

Discontinued Operations

Discontinued operations for the year ended December 31, 2010, includes expenses and reserves we recorded for indemnification claims related to the Software business which was disposed of in 2008 (see Note 5 to the Consolidated Financial Statements) and the results of our Norpak subsidiary which was disposed of in September 2010.

Discontinued operations for the year ended December 31, 2009, is primarily income tax expense arising from the sale of TVG Network, TV Guide Network and TV Guide Online.

Comparison of Years Ended December 31, 2009 and 2008 from continuing operations

The following tables present our 2009 results from continuing operations compared to the prior year (in thousands):


	Year Ended December 31,
	2009			2008			Change $			Change %
Revenues:
Service providers	$	230,727		$	131,763			98,964			75	%
CE manufacturers		199,905			148,962			50,943			34	%
Other		49,818			46,715			3,103			7	%

Total revenues		480,450			327,440			153,010			47	%

Costs and expenses:
Cost of revenues		65,258			44,304			20,954			47	%
Research and development		91,984			65,911			26,073			40	%
Selling, general and administrative		132,939			114,563			18,376			16	%
Depreciation		18,368			13,797			4,571			33	%
Amortization of intangible assets		81,934			59,139			22,795			39	%
Restructuring and asset impairment charges		53,619			—			53,619			NM

Total operating expenses		444,102			297,714			146,388			49	%

Operating income from continuing operations		36,348			29,726			6,622			22	%
Interest expense		(52,028	)		(54,834	)		2,806			-5	%
Interest income and other, net		4,558			11,242			(6,684	)		-59	%
Loss on debt redemption		(8,687	)		—			(8,687	)		NM
Gain on sale of strategic investment		—			5,238			(5,238	)		-100	%

Loss from continuing operations before taxes		(19,809	)		(8,628	)		(11,181	)		130	%
Income tax benefit		(1,421	)		(23,409	)		21,988			-94	%

(Loss) income from continuing operations, net of tax		(18,388	)		14,781			(33,169	)		-224	%
Loss from discontinued operations, net of tax		(34,563	)		(128,841	)		94,278			-73	%

Net loss	$	(52,951	)	$	(114,060	)		61,109			-54	%

Net Revenue

Service Providers

For the year ended December 31, 2009, revenue from the sale of our products to service providers increased significantly compared to the prior year. This was largely due to 2009 including a full year of revenue from the sale of IPG products and patents that we obtained in the Gemstar acquisition. Revenue from the licensing of our IPG patents and products increased in the second half of 2009, as compared to the same period in 2008, due to new international licensing agreements and domestic digital subscriber growth.

CE Manufacturers

For the year ended December 31, 2009, revenue from the sale of our products and services to CE Manufacturers increased compared to the prior year. This was largely due to 2009 including a full year of revenue from the sale of products and patents that we obtained in the Gemstar acquisition.

Other

Other revenue consists primarily of licensing of our underlying media content/metadata and licensing of our content protection technologies to entertainment companies. For the year ended December 31, 2009, Other revenue increased compared to the prior year, primarily due to increased revenue from our data business, primarily driven by the Muze acquisition. This increase was partially offset by a decline in our content protection revenues from entertainment studios.

Cost of Revenues

For the year ended December 31, 2009, cost of revenues increased from the prior year, primarily due to 2009 including a full year of costs associated with products and services acquired in the Gemstar acquisition.

Research and Development

For the year ended December 31, 2009, research and development expenses increased from the prior year, primarily due to 2009 including a full year of research and development activities related to the Gemstar operations.

Selling, General and Administrative

For the year ended December 31, 2009, selling, general and administrative expenses increased from the prior year, primarily due to 2009 including a full year of costs associated with the Gemstar operations.

Depreciation and Amortization

For the year ended December 31, 2009, depreciation and amortization increased from the prior year, primarily due to 2009 including a full year of depreciation of fixed assets and amortization of intangible assets from the Gemstar acquisition.

Restructuring and Asset Impairment Charges

During the year ended December 31, 2009, we completed extensive consumer research regarding our brands. This consumer research indicated that the brands acquired by us did not represent the future vision of the Company and did not carry a positive connotation in the market. We determined these results to be an indicator of potential impairment of our trademark intangible assets. We determined the fair value of our trademark intangible assets to be $8.3 million and recorded a $43.1 million impairment charge during the year ended

December 31, 2009. In addition, during the year ended December 31, 2009, we recorded $0.9 million in restructuring charges related to the Muze acquisition and $1.6 million in other asset impairment charges.

In conjunction with the disposition of the Media Properties, in the first quarter of 2009, our management approved several actions resulting in a restructuring and asset impairment charge of $8.4 million. Additionally, during the first quarter of 2009, we reversed the remaining $0.4 million in liabilities related to the fiscal 2007 restructuring plans.

Interest Expense

Interest expense decreased in 2009 as compared to 2008 primarily due to the paydown of the debt issued in connection with the Gemstar acquisition. In 2009, we redeemed our $100 million 11% Senior Notes and made $340 million in principal payments on our Term Loan. Interest expense for the year ended December 31, 2009, also included $4.1 million in accelerated amortization of note issuance costs related to the pay-down of principal related to the term loan.

Interest Income and Other, Net

Interest income and other, net decreased as compared to the prior year due to lower prevailing interest rates and lower average cash and investment balances.

Loss on Debt Redemption

On August 5, 2009, we redeemed our $100 million 11% Senior Notes at par plus accrued interest and a $2.8 million make-whole payment representing the discounted value of interest which the note holders would have received through November 15, 2009, the first date the 11% Senior Notes could be retired without a premium. In connection with the redemption of the Senior Notes we have recorded an $8.7 million loss on debt redemption for the year ended December 31, 2009. This loss is comprised of $2.8 million make-whole payment discussed above, the write-off of $5.6 million in note issuance costs and $0.3 million in fees associated with the note redemption.

Gain on Sale of Strategic Investment

During 2008, we recognized a gain of $5.2 million on the sale of our investment in Digimarc Corporation.

Income Taxes

We recorded an income tax benefit from continuing operations of $1.4 million and $23.4 million for 2009 and 2008, respectively. Our income tax benefit for 2009 was primarily impacted by the geographic source of our profits and an increase in accrued tax contingency reserves. Our income tax benefit in 2008 was primarily impacted by the geographic source of our profits and the reversal of accrued tax contingency reserves due to audit settlements and statute of limitations closures.

Loss from Discontinued Operations

Loss from discontinued operations in 2009 is primarily due to income tax expense recorded for the sale of TVG Network, TV Guide Network and TV Guide Online. Loss from discontinued operations in 2008 is primarily due to impairments recorded related to the goodwill and intangible assets of the Media Properties partially offset by the gain on sale recorded when we sold our Software business.

Costs and Expenses

Cost of revenues consists primarily of service costs, patent prosecution, patent maintenance and patent litigation costs. Research and development expenses are comprised primarily of employee compensation and benefits and consulting costs. Selling and marketing expenses are comprised primarily of employee compensation and benefits, travel, advertising and an allocation of overhead and facilities costs. General and administrative expenses are comprised primarily of employee compensation and benefits, travel, accounting, tax and corporate legal fees and an allocation of overhead and facilities costs.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements. These Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, equity-based compensation, goodwill and intangible assets, impairment of long lived assets and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

We have identified the accounting policies below as critical to our continuing business operations and the understanding of our results of operations.

Revenue Recognition

On January 1, 2010, we adopted Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Arrangements, (“ASU 2009-13”) and Accounting Standards Update 2009-14, Software (Topic 985)—Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-13 modifies the requirements for determining whether a deliverable in a multiple element arrangement can be treated as a separate unit of accounting by removing the criteria that objective and reliable evidence of fair value exists for the undelivered elements. The new guidance requires consideration be allocated to all deliverables based on their relative selling price using vendor specific objective evidence (VSOE) of selling price, if it exists; otherwise selling price is determined based on third-party evidence (TPE) of selling price. If neither VSOE nor TPE exist, management must use its best estimate of selling price (ESP) to allocate the arrangement consideration. We adopted this update under the prospective method and have applied the guidance to agreements entered into or materially modified after January 1, 2010.

The adoption of ASU 2009-13 may have a material impact on our revenue in any given period subsequent to adoption. For example, we often enter into IPG patent license agreements in which we provide a licensee a release for past infringement as well as the right to ship an unlimited number of units over a set period for a flat fee. Under the previous multiple element guidance, we generally would not be able to provide objective and reliable evidence of the fair value of the go-forward license arrangement (the undelivered element) and therefore would have recognized all revenue for such agreement ratably over the term of the agreement. Applying the guidance in the update, we would use ESP to allocate the consideration between the release for past infringement and the go-forward patent license. As the revenue recognition criteria for the past infringement would generally be satisfied upon the execution of the agreement, the amount of consideration allocated to the past infringement would be recognized in the quarter the agreement is executed and the amount allocated to the go forward license agreement would be recognized ratably over the term.

For the year ended December 31, 2010, the adoption of ASU 2009-13 increased revenue, income before income taxes and net income by $9.4 million each, and increased diluted EPS by $0.09, as compared to application of the previous guidance.

ASU 2009-14 excludes tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of ASC 985-605, Software-Revenue Recognition. We adopted ASU 2009-14 on a prospective basis and applied the new guidance to revenue arrangements entered into or materially modified after January 1, 2010. The adoption of ASU 2009-14 did not have a material impact on our financial position or results from operations.

We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectability is reasonable assured. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element arrangements, we must: (1) determine whether and when each element has been delivered and whether the delivered element has stand-alone value to the customer (2) determine the fair value of each element using the selling price hierarchy of VSOE, TPE or ESP, as applicable; and (3) allocate the total consideration among the various elements based on the relative selling price method.

We license our proprietary IPG technology to CE manufacturers and to service providers. We generally recognize revenue from IPG product and patent licensing on a per-unit shipped model (with CE manufacturers) or a per-subscriber model (with service providers). Our recognition of revenues from per-unit license fees is based on units reported shipped by the manufacturer. CE manufacturers normally report their unit shipments to us in the quarter immediately following that of actual shipment by the licensee. Revenues from per-subscriber fees are recognized in the period the services are provided by a licensee, as reported to us by the licensee. Revenues from annual or other license fees are recognized based on the specific terms of the license arrangement. For instance, certain IPG licensees enter into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. We record the fees associated with these arrangements on a straight-line basis over the specified term. We often enter into IPG patent license agreements in which we provide a licensee a release for past infringement as well as the right to ship an unlimited number of units over a future period for a flat fee. In this type of arrangement, we generally would use ESP to allocate the consideration between the release for past infringement and the go-forward patent license. As the revenue recognition criteria for the past infringement would generally be satisfied upon the execution of the agreement, the amount of consideration allocated to the past infringement would be recognized in the quarter the agreement is executed and the amount allocated to the go forward license agreement would be recognized ratably over the term.

We also generate advertising revenue through our IPGs. Advertising revenue is recognized when the related advertisement is provided. All advertising revenue is recorded net of agency commissions. Revenue shares with service providers and CE manufacturers are recorded as a reduction in IPG license fees.

Revenues from licensing our ACP technology are often generated from licensing agreements that provide for payment of a per-unit royalty fee for the shipment of DVDs and the shipment of digital set-top boxes. We rely on royalty reports from customers and/or third parties as the basis for revenue recognition, provided there is persuasive evidence of an arrangement and that collection of a fixed and determinable fee is considered probable. We have established significant experience and relationships with certain customers to reasonably estimate current period volume for purposes of making an accurate revenue accrual. Accordingly, royalty revenue from these customers is recognized as earned. Revenue from other customers is recognized as reported until such time that we can establish a basis for making reasonable estimates, in which case revenue is recognized on an as-earned basis. Licensees generally report activity within 30 to 60 days after the end of the month or quarter in which such activity takes place. Any unusual or unanticipated volumes in a particular period can add significant fluctuations on the revenue reported. We have also entered into agreements with certain entertainment studios for which they have the right to ship an unlimited number of DVDs that utilize our ACP technology over a specified term for a flat fee. We record the revenue associated with these arrangements on a straight-line basis over the specified term. In addition, we also enter into agreements with CE manufacturers in which they pay us a one-time fee for a perpetual license to our ACP technology. Provided that collectability is reasonably assured, we record revenue related to these agreements when the agreement is executed as we have no continuing obligation and the amounts are fixed and determinable.

Amounts for fees collected or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized when the applicable revenue recognition criteria are satisfied.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. We specifically analyze accounts receivable and historical bad debts experience, customer creditworthiness, current economic trends, international situations (such as currency devaluation), and changes in our customer payment history when evaluating the adequacy of the allowance for doubtful accounts. We review our trade receivables by aging category to identify significant customers with known disputes or collection issues. For accounts not specifically identified, we provide reserves based on historical bad debt loss experience. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Equity-Based Compensation

We determine the fair value of stock options and employee stock purchase plan shares using the Black-Scholes option pricing model which uses a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

Classification and Fair Value Measurement of Auction Rate Securities

We hold investments in auction rate securities having contractual maturities of greater than one year and interest rate reset features of between 7 and 35 days. These auction rate securities were priced and subsequently traded as short-term investments because of the interest rate reset feature. As a result of adverse conditions in the financial markets, the auction rate securities we hold have failed to trade at recent auctions due to insufficient bids from buyers.

The fair values of these securities are estimated utilizing a discounted cash flow analysis or other type of valuation model rather than at par. These analyses are highly judgmental and consider, among other items, the likelihood of redemption, credit quality, duration, insurance wraps and expected future cash flows. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by us.

Temporary declines in fair value for our available-for-sale auction rate securities, which we attribute to market liquidity issues rather than credit issues, are recorded in accumulated other comprehensive income. Any future fluctuation in fair value related to these instruments that we deem to be temporary, including any recoveries of previous write–downs, would be recorded to accumulated other comprehensive income. If we determine that any future valuation adjustment is other than temporary, we will record a charge to earnings as appropriate.

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over fair value of the net assets of an acquired business. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives.

Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the assets might be impaired. In connection with our impairment analysis performed annually in our fourth quarter, we are required to perform an assessment of whether there is an indication that goodwill is impaired. To accomplish this, we are required to determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit using the discounted cash flow approach and a market based approach. To the extent the carrying amount of a reporting unit exceeds its fair value, we would be required to perform the second step of the impairment analysis, as this is an indication that the reporting unit goodwill may be impaired. In this step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. To the extent the implied fair value of goodwill of each reporting unit is less than its carrying amount we would be required to recognize an impairment loss. The process of evaluating the potential impairment of goodwill is subjective and requires judgment at many points during the test including future revenue forecasts and discount rates.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. From time to time, we enter into transactions in which the tax consequences may be subject to uncertainty. In determining our tax provision for financial reporting purposes, we establish reserves for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their technical merits. We must make significant assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our judgments, assumptions and estimates relative to the current provision take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amount provided for income taxes in our consolidated financial statements.

Liquidity and Capital Resources

We finance our operations primarily from cash generated by operations. Our continuing operating activities provided net cash of $316.3 million and $157.3 million in the years ended December 31, 2010 and 2009, respectively. Cash from operating activities increased from the prior year primarily due to a $128.5 million tax refund for carryback claims (see Note 14 to the Consolidated Financial Statements) and increased sales compared to the same period in the prior year. The availability of cash generated by operations in the future could be affected by other business risks including, but not limited to, those factors set forth under the caption “Risk Factors”.

Net cash used in investing activities from continuing operations was $341.6 million versus net cash provided of $214.8 million in the prior year. During the year ended December 31, 2010, we made $359.5 million in net marketable securities purchases, made $15.4 million in capital expenditures and acquired a business which had developed a recommendation engine for cross-platform multimedia companies for approximately $5.9 million (see Note 4 to the Consolidated Financial Statements). These uses of cash were partially offset by $36.8 million being released from escrow related to the sale of one of the Media Properties. Included in 2009 investing activities were $266.2 million in cash received from the sale of the Media Properties, partially offset by $36.8 million of proceeds being classified as restricted cash, $19.7 million in capital expenditures and $24.0 million used to acquire Muze and a music metadata distribution business in the Asia Pacific region. We anticipate that capital expenditures to support the growth of our business and strengthen our operations infrastructure will be between $15.0 million and $20.0 million in 2011.

Net cash provided by financing activities from continuing operations was $62.2 million versus net cash used of $407.5 million in the prior year. In 2010, we issued $460 million in convertible debt ($446.5 million, net of issuance costs) and paid $207.2 million to pay off and retire our term loan. In addition, we repurchased $105.0 million in par value of our 2011 Convertible Notes for $160.1 million and repurchased $109.9 million of our common stock. We received $84.8 million in cash from the exercise of employee stock options and the purchase of shares through our employee stock purchase plan. Net cash used in 2009, was primarily due to payments made on our debt.

As discussed in Note 7 of the Consolidated Financial Statements, in March 2010, we issued $460.0 million in 2.625% convertible senior notes (the “2040 Convertible Notes”) due in 2040 at par. The 2040 Convertible Notes may be converted, under certain circumstances, based on an initial conversion rate of 21.1149 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $47.36 per share).

Prior to November 15, 2039, holders may convert their 2040 Convertible Notes into cash and our common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending June 30, 2010, if the last reported sale price of our common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price in effect on each applicable trading day; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (iii) upon the occurrence of specified corporate transactions, as described in the indenture, or (iv) if we call any or all of the notes for redemption, at any time prior to the close of business on the third scheduled trading day prior to that redemption date. From November 15, 2039 until the close of business on the scheduled trading day immediately preceding the maturity date of February 15, 2040, holders may convert their 2040 Convertible Notes into cash and shares of our common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances. On or after February 20, 2015, we have the right to call for redemption all, or a portion, of the 2040 Convertible Notes at 100% of the principal amount of notes to be redeemed, plus accrued interest to, but excluding, the redemption date. Holders have the right to require us to repurchase the 2040 Convertible Notes

on February 20, 2015, 2020, 2025, 2030 and 2035 for cash equal to 100% of the principal amount of the notes to be repurchased, plus accrued interest to, but excluding, the repurchase date.

Upon conversion, a holder will receive the conversion value of the 2040 Convertible Notes converted based on the conversion rate multiplied by the volume weighted average price of our common stock over a specified observation period following the conversion date. The conversion value of each 2040 Convertible Note will be paid in cash up to the aggregate principal amount of the 2040 Convertible Notes to be converted and shares of common stock to the extent the conversion value exceeds the principal amount of the converted note. Upon the occurrence of a fundamental change (as defined in the indenture), the holders may require us to repurchase for cash all or a portion of their 2040 Convertible Notes at a price equal to 100% of the principal amount of the 2040 Convertible Notes being repurchased plus accrued interest, if any. In addition, following certain corporate events that occur prior to February 20, 2015, the conversion rate will be increased for holders who elect to convert their notes in connection with such a corporate event in certain circumstances.

In connection with the issuance of the 2040 Convertible Notes, we entered into interest rate swaps with a notional amount of $460.0 million under which we pay a weighted average floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in February 2015. In addition, we also entered into interest rate swaps with a notional amount of $185 million under which we pay a weighted average floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in August 2011. We entered into these swaps as we believed interest rates would increase in the future at a slower pace than the market then anticipated, thus allowing us to reduce our overall interest expense related to our convertible debt. We also purchased interest rate caps for $4.0 million with notional amounts that range from $270 million to $200 million from 2012 to 2015. We will receive payments under these interest rate caps if 6 month USD-LIBOR, on the reset dates, exceeds 6% from February 2012 to February 2013, 5% from February 2013 to February 2014, or 4% from February 2014 to February 2015. In November 2010, after future interest rate expectations decreased, we entered into additional swaps with a notional amount of $460.0 million under which we pay a fixed rate which gradually increases from 0.203% for the six month settlement period ending in February 2011, to 2.619% for the six month settlement period ending in August 2015 and receive a floating rate of 6 month USD – LIBOR minus 0.342%, set in arrears. These swaps expire in August 2015. In November 2010, we also entered into additional swaps with a notional amount of $185.0 million under which we pay a fixed rate which increases from 1.783% for the settlement period ending in February 2011, to 1.875% for the six month settlement period ending in August 2011 and receive a floating rate of 6 month USD – LIBOR plus 1.241%, set in arrears. These swaps expire in August 2011. As future interest rate expectations had declined since March 2010, we entered into these swaps to fix our future interest payments based on the forward LIBOR rates in effect in November 2010 (See Note 9 to the Consolidated Financial Statements).

In August 2006, our wholly-owned subsidiary, Rovi Solutions, issued the 2011 Convertible Notes which may be converted, under certain circumstances described below, based on an initial conversion rate of 35.3571 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $28.28 per share). As of December 31, 2010, $134.7 million par value of the 2011 Convertible Notes remain outstanding.

Prior to June 15, 2011, holders may convert their 2011 Convertible Notes into cash and our common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending September 30, 2006, if the last reported sale price of our common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 120% of the applicable conversion price in effect on the last trading day of the immediately preceding fiscal quarter; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; or (iii) upon the occurrence of specified corporate transactions, as defined in

the indenture. From June 15, 2011, until the close of business on the scheduled trading day immediately preceding the maturity date of August 15, 2011, holders may convert their 2011 Convertible Notes into cash and shares of our common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances. The common stock sales price condition discussed in (i) above has been met and therefore the 2011 Convertible Notes are currently eligible for conversion.

Upon conversion, a holder will receive the conversion value of the 2011 Convertible Notes converted equal to the conversion rate multiplied by the volume weighted average price of our common stock during a specified period following the conversion date. The conversion value of each 2011 Convertible Note will be paid in: (i) cash equal to the lesser of the principal amount of the 2011 Convertible Note or the conversion value, as defined, and (ii) to the extent the conversion value exceeds the principal amount of the 2011 Convertible Note, a combination of common stock and cash. In addition, upon a fundamental change (as defined in the indenture) at any time, the holders may require us to repurchase for cash all or a portion of their 2011 Convertible Notes at a price equal to 100% of the principal amount of the 2011 Convertible Notes being repurchased plus accrued interest, if any.

In December 2010, our Board of Directors authorized the repurchase of up to $400.0 million of our common stock. This $400.0 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. Additionally, in December 2010, our Board of Directors authorized the repurchase of up to $200 million of our convertible notes. This $200.0 million authorization includes any amounts which were outstanding under previously authorized convertible note repurchase programs. As of December 31, 2010, we have not repurchased any of our common stock under the $400.0 million repurchase program. In December 2010, we repurchased $5.6 million (par value $2.7 million) of our 2011 Convertible Notes under the $200.0 million convertible note repurchase program.

In January 2011, we repurchased an additional $113.9 million (par value $50.6 million) of our 2011 Convertible Notes. On February 7, 2011, two of our subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed an additional $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan and a 7-year $300 million term loan. Both term loans are guaranteed by us, our domestic subsidiaries (other than the two co-borrowers) and Index Systems Inc. and are secured by substantially all of our, the subsidiary guarantors and the co-borrowers’ assets. The 5-year term loan requires annual amortization payments and matures on February 7, 2016 and the 7-year term loan requires quarterly amortization payments and matures on February 7, 2018. The $450 million term loan bears interest, at our election, at either prime rate plus 1.5% per annum or 3 month LIBOR plus 2.5% per annum. The $300 million term loan bears interest, at our election, at either prime plus 2.0% per annum or 3 month LIBOR plus 3.0% per annum, with a LIBOR floor of 1.0%.

On December 22, 2010, we signed a definitive agreement to acquire Sonic Solutions in a stock and cash transaction. The acquisition is structured as an exchange offer for all of the outstanding shares of Sonic common stock, to be followed by a merger. Each Sonic shareholder who participates in the offer may elect to receive consideration in the form of $14.00 per share in cash or a fraction of a share of our common stock equal to 0.2489, in each case, subject to adjustment for stock splits, stock dividends and similar events. The aggregate amount of cash and of Rovi common stock available to be paid and issued in the offer will be determined on a 55/45 basis (with shares of Rovi common stock being valued at $56.24 for purposes of such calculation) such that if the holders of more than 55% of the shares of Sonic common stock tendered in the offer elect to receive more than the amount of cash available, or if the holders of more than 45% of the shares of Sonic common stock tendered in the offer elect to receive more than the amount of Rovi common stock available, Sonic shareholders will receive on a pro rata basis the other kind of consideration. The merger is expected to close in the first quarter of 2011 and the cash portion of the consideration is currently estimated at approximately $400 million (See Note 18 to the Consolidated Financial Statements).

We believe that our current cash, cash equivalents and marketable securities and our annual cash flow from operations will be sufficient to meet our working capital, capital expenditure and debt requirements for the foreseeable future.

Contractual Obligations

The following table summarizes Rovi’s contractual obligations at December 31, 2010 (in thousands):


	Payments due by period
Contractual Obligations (3)	Total		Less Than 1 year		1-3 years		3-5 years		More Than 5 years
Long-term debt obligations (1)	$	594,675	$	134,675	$	—	$	460,000	$	—
Interest expense associated with long-term debt obligations		57,873		15,610		24,150		18,113		—
Contractual obligations		24,915		11,125		11,282		2,508		—
Operating lease obligations (2)		77,783		18,154		26,231		20,023		13,375

	$	755,246	$	179,564	$	61,663	$	500,644	$	13,375

(1)	Includes current portion as well. The Convertible Notes may be converted by the note holders prior to their maturity under certain circumstances. See above for additional details.

(2)	Operating leases in the above table have been included on a gross basis. The Company has agreements to receive approximately $20.6 million under operating subleases.

(3)	We are unable to reliably estimate the timing of future payments related to uncertain tax positions, therefore, $56.6 million of income taxes payable has been excluded from the table above.

Recently Issued Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and security investments. Changes in these factors may cause fluctuations in our earnings and cash flows. We evaluate and manage the exposure to these market risks as follows:

Fixed Income Investments. We have an investment portfolio of money market funds and fixed income securities, including those classified as cash equivalents, short-term investments and long-term marketable investment securities of $650.5 million as of December 31, 2010. Most of these securities are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of our fixed income securities while a decrease in interest rates could adversely affect the amount of interest income we receive.

Our investment portfolio consists principally of money market mutual funds, U.S. Treasury and agency securities, corporate bonds, commercial paper and auction rate securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures to manage such risks prudently in accordance with our investment policies.

As a result of adverse conditions in the financial markets, auction rate securities may present risks arising from liquidity and/or credit concerns. At December 31, 2010, the fair value of our auction rate securities portfolio totaled approximately $15.0 million. Our auction rate securities portfolio is comprised solely of AAA rated federally insured student loans, municipal and educational authority bonds. The auction rate securities we hold have failed to trade for over one year due to insufficient bids from buyers. This limits the short-term liquidity of these securities.

We limit our exposure to interest rate and credit risk, however, by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. The primary objective of these policies is to preserve principal while at the same time maximizing yields, without significantly increasing risk. A hypothetical 50 basis point increase in interest rates would result in a $1.7 million decrease in the fair value of our fixed income available-for-sale securities as of December 31, 2010.

While we cannot predict future market conditions or market liquidity, we believe that our investment policies provide an appropriate means to manage the risks in our investment portfolio.

Foreign Currency Exchange Rates. Due to our reliance on international and export sales, we are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international and export revenues, as well as expenses, are typically denominated in U.S. dollars, fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. Many of our subsidiaries operate in their local currency, which mitigates a portion of the exposure related to the respective currency collected.

Indebtedness. We have two debt instruments outstanding: the 2040 Convertible Notes with a par value of $460 million and the 2011 Convertible Notes with a par value of $134.7 million. In February 2011 two of our subsidiaries jointly borrowed an additional $750 million under a senior secured credit facility. Our borrowings under our senior secured credit facility are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same.

The terms of these debt instruments are more fully described in Note 7 and Note 18 to the Consolidated Financial Statements.

Interest Rate Swaps and Caps. In connection with the issuance of the 2040 Convertible Notes, we entered into interest rate swaps with a notional amount of $460.0 million under which we pay a weighted average floating rate of 6 month USD—LIBOR minus 0.342%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in February 2015. In addition, we also entered into interest rate swaps with a notional amount of $185.0 million under which we pay a weighted average floating rate of 6 month USD—LIBOR plus 1.241%, set in arrears, and receive a fixed rate of 2.625%. These swaps expire in August 2011. In November 2010, we entered into additional swaps with a notional amount of $460.0 million under which we pay a fixed rate which gradually increases from 0.203% for the six month settlement period ending in February 2011, to 2.619% for the six month settlement period ending in August 2015 and receive a floating rate of 6 month USD—LIBOR minus 0.342%, set in arrears. These swaps expire in August 2015. In November 2010, we also entered into additional swaps with a notional amount of $185.0 million under which we pay a fixed rate which increases from 1.783% for the settlement period ending in February 2011, to 1.875% for the six month settlement period ending in August 2011 and receive a floating rate of 6 month USD—LIBOR plus 1.241%, set in arrears. These swaps expire in August 2011.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is submitted in a separate section of this report beginning on F-1 of this report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our system of internal control over financial reporting as of December 31, 2010. In making this assessment, we used the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and the criteria set forth by COSO, we believe that Rovi maintained effective internal control over financial reporting as of December 31, 2010.

The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Inherent Limitations on Effectiveness of Controls

Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

All internal control systems, no matter how well designed and operated, can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management does not expect that our disclosure controls and procedures will prevent all error and fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and 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 within the company have been detected, even with respect to those systems of internal control that are determined to be effective. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. The design of any system of controls also is 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our system contains self monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Audit Committee Oversight

The Audit Committee of the Board of Directors, which is comprised solely of independent directors, has oversight responsibility for our financial reporting process and the audits of our consolidated financial statements and internal control over financial reporting. The Audit Committee meets regularly with management and with our internal auditors and independent registered public accounting firm (collectively, the “accountants”) to review matters related to the quality and integrity of our financial reporting, internal control over financial

reporting (including compliance matters related to our Code of Personal and Business Conduct and Ethics), and the nature, extent, and results of internal and external audits. Our accountants have full and free access and report directly to the Audit Committee. The Audit Committee recommended, and the Board of Directors approved, that the audited consolidated financial statements be included in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2010, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Rovi Corporation and subsidiaries

We have audited Rovi Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Rovi Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Rovi Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Rovi Corporation and subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010 of Rovi Corporation and subsidiaries and our report dated February 15, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California

February 15, 2011

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding directors, the Company’s Audit Committee, Corporate Governance and Nominating Committee, stochholder nominations to our Board, and Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2010. The information regarding executive officers appears under the heading “Executive Officers of the Registrant” in Item 1 of this Form 10-K and is also incorporated by reference in this section.

Code of Conduct. In February 2004, we adopted our Code of Personal and Business Conduct and Ethics (the “Code of Conduct”) as required by applicable securities laws, rules of the SEC and the listing standards of Nasdaq. The Code of Conduct applies to all of our directors and employees, including the principal executive officer, principal financial officer and principal accounting officer. A copy of such code of conduct and ethics was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003. If we make any substantive amendments to the code of conduct and ethics or grant any waiver, including implicit waiver, from a provision of the code of conduct and ethics to our principal executive officer, principal financial officer or principal accounting officer, we will disclose the nature of such amendment or waiver on our website at www.rovicorp.com or in a current report on Form 8-K that will be publicly filed.

Corporate Governance Guidelines and Committee Charters. In February 2009, we adopted amended Corporate Governance Guidelines to assist the Board in following corporate practices that serve the best interest of the company and its stockholders. Our Corporate Governance Guidelines and the charters of each of our audit committee, compensation committee and corporate governance and nominating committee are available at our website at www.rovicorp.com.

ITEM 11.

EXECUTIVE COMPENSATION

Information for this item is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2010.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed as part of this report:

Financial Statements


		Page
•	Report of Independent Registered Public Accounting Firm		F-2
•	Consolidated Balance Sheets		F-3
•	Consolidated Statements of Operations		F-4
•	Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)		F-5
•	Consolidated Statements of Cash Flows		F-6
•	Notes to Consolidated Financial Statements		F-7

Financial Statement Schedules

All schedules are either included in the Notes to Consolidated Financial Statements or are omitted because they are not applicable.

Exhibits

Exhibits


Exhibit Number	Exhibit Description	Incorporated by Reference			Filed Herewith
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith

2.01	Agreement and Plan of Merger dated November 5, 2007 by and among Macrovision Corporation, Aspen Acquisition Corp., All Media Guide Holdings, Inc., Digital On-Demand, Inc. (a Delaware corporation), and Digital On-Demand, Inc. (a California corporation) as Representative	8-K	11/9/07	10.1

2.02	Asset Purchase Agreement dated November 17, 2007 by and among Macrovision Corporation, Macrovision International Holding Limited Partnership and Cryptography Research, Inc.	8-K/A	12/18/07	10.1

2.03	Agreement and Plan of Mergers, dated as of December 6, 2007, among Macrovision Corporation, Saturn Holding Corp, Galaxy Merger Sub, Inc., Mars Merger Sub, Inc. and Gemstar-TV Guide International, Inc	8-K	5/5/08	2.1

2.04	Asset Purchase Agreement dated February 13, 2008 by and among Macrovision Corporation and Flexco Holding Company, Inc. (a Delaware corporation later renamed Flexera Software Inc.).	8-K	2/21/08	10.1

2.05	Asset Purchase Agreement dated October 10, 2008 by and among TV Guide Magazine Group, Inc., Sample Media, LLC, and, solely with respect to Sections 2.7, 6.2 and 6.3, Macrovision Solutions Corporation	8-K	10/14/08	10.1


Exhibit Number	Exhibit Description	Incorporated by Reference			Filed Herewith
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith

2.06	Agreement and Plan of Merger and Reorganization dated as of December 22, 2010, among Rovi Corporation, Sparta AcquisitionSub, Inc. and Sonic Solutions	8-K	12/27/10	2.1

2.07	Form of Shareholder Agreement dated as of December 22, 2010, between Rovi Corporation and certain directors and executive officers of Sonic Solutions	8-K	12/27/10	2.2

3.01	Certificate of Incorporation of Rovi Corporation, as amended, on July 15, 2009	8-K	8/6/09	3.01

3.02	Bylaws of Macrovision Solutions Corporation	424B3	4/1/08	Annex G

4.01	Indenture, dated August 23, 2006 among Macrovision Corporation and The Bank of New York Trust Company, N.A.	8-K	8/23/06	4.1

4.02	Global Note representing the Macrovision Corporation 2.625% Convertible Senior Notes due 2011	8-K	8/23/06	4.2

4.03	Call Option Transaction Letter Agreement dated August 23, 2006 from JPMorgan Chase Bank, National Association to Macrovision Corporation.	8-K	5/5/08	4.4

4.04	Warrant Letter Agreement dated August 23, 2006 from JPMorgan Chase Bank, National Association to Macrovision Corporation.	8-K	5/5/08	4.5

4.05	Form of Common Stock Certificate	S-3	7/15/08	4.1

4.06	Indenture, dated as of March 17, 2010, by and between the Company and Bank of New York Mellon Trust Company, N.A. as trustee	8-K	3/18/10	4.1

4.07	Form of Note representing the Rovi Corporation 2.625% Convertible Senior Notes due 2040 (included in the Indenture referenced in Exhibit 4.07)	8-K	3/18/10	4.1

10.03	Registration Rights Agreement, dated August 23, 2006, among Macrovision Corporation, J.P. Morgan Securities Inc. and Cowen and Company, LLC	8-K	8/23/06	10.1

10.04	Rovi Corporation 2008 Equity Incentive Plan**	S-8	7/23/08	10.01

10.05	Rovi Corporation 2008 Employee Stock Purchase Plan**	S-8	7/23/08	10.02

10.06	Rovi Corporation 2000 Equity Incentive Plan**	DEF14A	3/16/06	Annex A

10.07	Form of Notice of Stock Option Grant/Nonstatutory Stock Option Agreement (U.S.) pursuant to 2008 Equity Incentive Plan	10-Q	11/6/08	10.04


Exhibit Number	Exhibit Description	Incorporated by Reference			Filed Herewith
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith

10.08	Form of Notice of Stock Option Grant/Nonstatutory Stock Option Agreement (Director grant form) pursuant to 2008 Equity Incentive Plan	10-Q	11/6/08	10.05

10.09	Form of Notice of Restricted Stock Award/Restricted Stock Award Agreement (U.S.) pursuant to 2008 Equity Incentive Plan	10-Q	11/5/09	10.6

10.10	2010 Senior Executive Company Incentive Plan**	8-K	2/16/10	10.1

10.11	Lease Between WB Airport Technology, L.L.C. (“Landlord”) and Macrovision Corporation (“Tenant”) dated August 2, 2001	10-Q	11/13/01	10.39

10.12	First Amendment to Lease between WB Airport Technology, L.L.C. (“Landlord”) and Macrovision Corporation (“Tenant”) dated December 13, 2004	10-K	3/31/05	10.09

10.13	Second Amendment to Lease between WB Airport Technology, L.L.C. (“Landlord”) and Macrovision Corporation (“Tenant”) dated December 13, 2004	10-K	3/31/05	10.10

10.14	Lease between WB Airport Technology, L.L.C. (“Landlord”) and Macrovision Corporation (“Tenant”) dated December 13, 2004	10-K	3/31/05	10.11

10.15	Form of Indemnification Agreement entered into by Rovi Corporation with each of its directors and executive officers	10-K	3/2/09	10.15

10.16	Executive Severance and Arbitration Agreement with Alfred J. Amoroso dated August 6, 2007**	8-K	8/7/07	10.1

10.17	Executive Severance and Arbitration Agreement with James Budge dated August 6, 2007**	10-Q	8/8/07	10.06

10.18	Form of Executive Severance and Arbitration Agreement**	10-Q	8/8/07	10.05

10.19	Executive Severance and Arbitration Agreement with Thomas Carson dated December 21, 2009**	8-K	12/24/09	10.01

10.20	Charter of the Audit Committee of the Board of Directors				X

14.01	Code of Personal and Business Conduct and Ethics	10-K	3/12/04	14.01

21.01	List of subsidiaries				X

23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm				X

31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X

31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X


Exhibit Number	Exhibit Description	Incorporated by Reference			Filed Herewith
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith

32.01	Section 1350 Certification				X

32.02	Section 1350 Certification				X

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 Document

XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

**	Management contract or compensatory plan or arrangement.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 15th day of February, 2011.


ROVI CORPORATION

By:		/S/ ALFRED J. AMOROSO
		Alfred J. Amoroso
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the date indicated.


Name	Title	Date
Principal Executive Officer:

/S/ ALFRED J. AMOROSO Alfred J. Amoroso	President, Chief Executive Officer and Director	February 15, 2011

Principal Financial Officer:

/S/ JAMES BUDGE James Budge	Chief Financial Officer	February 15, 2011

Principal Accounting Officer:

/S/ PETER C. HALT Peter C. Halt	Chief Accounting Officer	February 15, 2011

Additional Directors:

/S/ ANDREW K. LUDWICK Andrew K. Ludwick	Chairman of the Board of Directors	February 15, 2011

/S/ ALAN L. EARHART Alan L. Earhart	Director	February 15, 2011

/S/ JAMES E. MEYER James E. Meyer	Director	February 15, 2011

/S/ JAMES P. O’SHAUGHNESSY James P. O’Shaughnessy	Director	February 15, 2011

/S/ RUTHANN QUINDLEN Ruthann Quindlen	Director	February 15, 2011

ROVI CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	PAGE

Reports of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations		F-4

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)		F-5

Consolidated Statements of Cash Flows		F-6

Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Rovi Corporation and subsidiaries

We have audited the accompanying consolidated balance sheets of Rovi Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rovi Corporation and subsidiaries at December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

As described in Note 2 to the financial statements, in 2010 the Company changed its method of accounting for multiple element arrangements affecting revenue recognition as required by Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Arrangements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Rovi Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California

February 15, 2011

F-2

ROVI CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	200,195		$	165,410
Short-term investments		295,120			107,362
Restricted cash		—			36,838
Trade accounts receivable, net		78,672			71,875
Taxes receivable		6,811			6,363
Deferred tax assets, net		15,403			7,844
Prepaid expenses and other current assets		12,639			10,661

Total current assets		608,840			406,353
Long-term marketable securities		200,852			26,674
Property and equipment, net		39,205			43,124
Finite-lived intangible assets, net		702,385			779,371
Long-term deferred tax assets, net		—			13,691
Other assets		48,785			27,861
Goodwill		857,216			854,065

Total assets	$	2,457,283		$	2,151,139

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	74,512		$	81,369
Deferred revenue		15,577			16,536
Current portion of long-term debt		130,816			18,486

Total current liabilities		220,905			116,391
Taxes payable, less current portion		56,566			80,675
Long-term debt, less current portion		378,083			411,551
Deferred revenue, less current portion		3,995			4,919
Long-term deferred tax liabilities, net		26,249			—
Other non current liabilities		19,293			17,334

Total liabilities		705,091			630,870

Commitments and contingencies (Note 16)
Redeemable equity component of convertible debt		3,859			—
Stockholders’ equity:
Common stock, $0.001 par value, 250,000,000 shares authorized; 111,315,257 shares issued and 106,081,282 outstanding as of December 31, 2010, and 105,720,821 shares issued and 103,457,846 outstanding as of December 31, 2009, at par		112			106
Treasury stock, 5,233,975 shares at December 31, 2010 and 2,262,975 shares at December 31, 2009, at cost		(134,931	)		(25,068	)
Additional paid-in capital		1,781,986			1,657,888
Accumulated other comprehensive loss		(1,139	)		(2,078	)
Retained earnings (deficit)		102,305			(110,579	)

Total stockholders’ equity		1,748,333			1,520,269

Total liabilities and stockholders’ equity	$	2,457,283		$	2,151,139

See accompanying notes to consolidated financial statements.

F-3

ROVI CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Year ended December 31,
	2010			2009			2008
Revenues	$	541,490		$	480,450		$	327,440
Costs and expenses:
Cost of revenues		99,129			65,258			44,304
Research and development		95,687			91,984			65,911
Selling, general and administrative		142,197			132,939			114,563
Depreciation		18,758			18,368			13,797
Amortization of intangible assets		80,395			81,934			59,139
Restructuring and asset impairment charges		—			53,619			—

Total costs and expenses		436,166			444,102			297,714

Operating income from continuing operations		105,324			36,348			29,726
Interest expense		(42,935	)		(52,028	)		(54,834	)
Interest income and other, net		1,770			4,558			11,242
Gain on interest rate swaps and caps, net		34,197			—			—
Loss on debt redemption		(16,806	)		(8,687	)		—
Gain on sale of strategic investments		5,895			—			5,238

Income (loss) from continuing operations before income taxes		87,445			(19,809	)		(8,628	)
Income tax benefit		(139,213	)		(1,421	)		(23,409	)

Income (loss) from continuing operations, net of tax		226,658			(18,388	)		14,781
Discontinued operations, net of tax		(13,774	)		(34,563	)		(128,841	)

Net income (loss)	$	212,884		$	(52,951	)	$	(114,060	)

Basic earnings per common share:
Basic income (loss) per share from continuing operations	$	2.20		$	(0.18	)	$	0.17
Basic loss per share from discontinued operations	$	(0.14	)	$	(0.34	)	$	(1.49	)

Basic net earnings per share	$	2.06		$	(0.52	)	$	(1.32	)

Shares used in computing basic net earnings per share		102,658			100,860			85,334

Diluted earnings per common share:
Diluted income (loss) per share from continuing operations	$	2.07		$	(0.18	)	$	0.17
Diluted loss per share from discontinued operations	$	(0.13	)	$	(0.34	)	$	(1.49	)

Diluted net earnings per share	$	1.94		$	(0.52	)	$	(1.32	)

Shares used in computing diluted net earnings per share		109,175			100,860			85,357

See accompanying notes to consolidated financial statements.

F-4

ROVI CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share data)


	Common stock						Treasury Stock						Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings (Accumulated deficit)			Total Stockholders’ Equity
	Shares			Amount			Shares			Amount			Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings (Accumulated deficit)			Total Stockholders’ Equity
Balances as of December 31, 2007		61,247,443		$	61			(7,434,519	)	$	(138,448	)	$	507,831		$	12,407		$	194,880		$	576,731
Comprehensive income (loss):
Net income (loss)																				(114,060	)		(114,060	)
Foreign currency translation adjustment, net of tax																	(11,440	)					(11,440	)
Unrealized losses in investments, net of tax																	(5,846	)					(5,846	)

Total comprehensive income (loss)																							(131,346	)
Issuance of common stock upon exercise of options		223,987												3,138									3,138
Issuance of common stock under employee stock purchase plan		347,866												4,825									4,825
Issuance of restricted stock, net		(63,104	)																				—
Equity-based compensation														15,500									15,500
Issuance of common stock in connection with the Gemstar acquisition		48,650,873			49									1,072,427									1,072,476
Cancellation of treasury stock		(7,434,519	)		(7	)		7,434,519			138,448			7						(138,448	)		—
Excess tax benefit associated with stock plans														(1,061	)								(1,061	)
Stock repurchase								(2,262,975	)		(25,068	)											(25,068	)

Balances as of December 31, 2008		102,972,546		$	103			(2,262,975	)	$	(25,068	)	$	1,602,667		$	(4,879	)	$	(57,628	)	$	1,515,195
Comprehensive income (loss):
Net income (loss)																				(52,951	)		(52,951	)
Foreign currency translation adjustment, net of tax																	1,905						1,905
Unrealized losses in investments, net of tax																	896						896

Total comprehensive income (loss)																							(50,150	)
Issuance of common stock upon exercise of options		1,563,001			2									27,485									27,487
Issuance of common stock under employee stock purchase plan		483,838												5,346									5,346
Issuance of restricted stock, net		701,436			1									(1	)								—
Equity-based compensation														22,391									22,391

Balances as of December 31, 2009		105,720,821		$	106			(2,262,975	)	$	(25,068	)	$	1,657,888		$	(2,078	)	$	(110,579	)	$	1,520,269
Comprehensive income (loss):
Net income (loss)																				212,884			212,884
Foreign currency translation adjustment, net of tax																	1,144						1,144
Unrealized losses in investments, net of tax																	(205	)					(205	)

Total comprehensive income (loss)																							213,823
Issuance of common stock upon exercise of options		4,042,549			4									73,873									73,877
Issuance of common stock under employee stock purchase plan		907,608			1									10,922									10,923
Issuance of restricted stock, net		639,615			1									(1	)								—
Equity-based compensation														34,383									34,383
Conversion of convertible debt		4,664												237									237
Equity component of convertible debt, net of tax														56,947									56,947
Convertible debt repurchase														(56,721	)								(56,721	)
Reclass redeemable equity component of convertible debt														(3,859	)								(3,859	)
Repurchase of warrant and sale of call option, net														5,834									5,834
Excess tax benefit associated with stock plans														2,483									2,483
Stock repurchase								(2,971,000	)		(109,863	)											(109,863	)

Balances as of December 31, 2010		111,315,257		$	112			(5,233,975	)	$	(134,931	)	$	1,781,986		$	(1,139	)	$	102,305		$	1,748,333

See accompanying notes to consolidated financial statements.

F-5

ROVI CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year ended December 31
	2010			2009			2008
Cash flows from operating activities:
Net income (loss)	$	212,884		$	(52,951	)	$	(114,060	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Loss from discontinued operations, net of tax		13,774			34,563			128,841
Change in fair value of interest rate swaps and caps, net of premium		(33,160	)		—			—
Depreciation		18,758			18,368			13,797
Amortization of intangible assets		80,395			81,934			59,139
Amortization of note issuance costs and convertible note discount		26,099			20,782			14,161
Equity-based compensation		34,298			22,289			13,610
Restructuring and asset impairment charge		—			48,872			—
Loss on debt redemption		16,494			5,633			—
Deferred taxes		(2,677	)		(20,530	)		(27,035	)
Gain on sale of strategic investments		(5,895	)		—			(5,238	)
Loss on sale of R&D joint venture		990			—			—
Other, net		1,082			—			—
Changes in operating assets and liabilities, net of assets and liabilities acquired:
Accounts receivable, net		(7,057	)		12,364			(10,487	)
Deferred revenue		(1,913	)		1,663			13,342
Prepaid expenses, other current assets and other assets		(6,843	)		2,444			16,622
Income taxes		(17,455	)		(17,440	)		(12,056	)
Accounts payable, accrued expenses, and other long-term liabilities		(13,454	)		(705	)		(36,651	)

Net cash provided by operating activities of continuing operations		316,320			157,286			53,985
Net cash (used in) provided by operating activities of discontinued operations		(2,383	)		1,130			14,089

Net cash provided by operating activities		313,937			158,416			68,074

Cash flows from investing activities:
Purchases of long and short term marketable investment securities		(628,966	)		(84,354	)		(112,741	)
Sales or maturities of long and short term marketable investments		269,457			113,571			254,463
Payments for acquisitions, net of cash acquired		(5,922	)		(23,970	)		(911,164	)
Proceeds from dispositions of businesses, net of costs to sell		—			266,205			195,860
Loan made in conjunction with TV Guide Magazine Sale		—			—			(7,403	)
Purchases of property and equipment		(15,431	)		(19,745	)		(10,324	)
Other investing, net		2,404			(110	)		(1,023	)
Change in restricted cash		36,838			(36,838	)		—

Net cash (used in) provided by investing activities of continuing operations		(341,620	)		214,759			(592,332	)
Net cash used in investing activities of discontinued operations		(5	)		(30	)		(1,633	)

Net cash (used in) provided by investing activities		(341,625	)		214,729			(593,965	)

Cash flows from financing activities:
Purchase of treasury stock		(109,863	)		—			(25,068	)
Debt repayments		(367,576	)		(440,344	)		(4,299	)
Sale of convertible bond call option and repurchase of warrant, net		5,834			—			—
Proceeds from issuance of debt, net of issuance costs		446,517			—			615,353
Excess tax benefit on stock option exercises		2,483			—			—
Proceeds from exercise of options and employee stock purchase plan		84,800			32,833			7,963

Net cash provided by (used in) financing activities of continuing operations		62,195			(407,511	)		593,949
Net cash used in financing activities of discontinued operations		—			(114	)		(442	)

Net cash provided by (used in) financing activities		62,195			(407,625	)		593,507
Effect of exchange rate changes on cash		278			702			(2,498	)

Net increase (decrease) in cash and cash equivalents		34,785			(33,778	)		65,118
Cash and cash equivalents at beginning of year		165,410			199,188			134,070

Cash and cash equivalents at end of year	$	200,195		$	165,410		$	199,188

Supplemental disclosures:
Income taxes paid	$	15,128		$	36,996		$	14,373

Income tax refunds received	$	134,132		$	64		$	7,609

Interest paid	$	13,251		$	37,179		$	34,188

See accompanying notes to consolidated financial statements.

F-6

ROVI CORPORATION

Notes to Consolidated Financial Statements

(1) Basis of Presentation

Description of Business

Rovi Corporation (the “Company”), a Delaware Corporation, was formed in 2007. On May 2, 2008, Macrovision Corporation acquired Gemstar-TV Guide International, Inc. (“Gemstar”). Upon consummation of this transaction, the Company assumed ownership of both Gemstar and Macrovision Corporation. The common stock of Macrovision Corporation and Gemstar were de-registered and Macrovision Corporation stockholders were provided one share in Rovi Corporation for each share of Macrovision Corporation common stock owned as of the closing. In addition, all treasury stock held by Macrovision Corporation was cancelled. Macrovision Corporation is the predecessor registrant to Rovi Corporation and has been determined to be the predecessor for accounting purposes; therefore, for periods prior to May 2, 2008, the consolidated financial statements reflect the financial position and results of operations and cash flows of Macrovision Corporation.

Rovi Corporation and its subsidiaries’ (collectively “Rovi” or the “Company”) offerings include interactive program guides (“IPGs”), embedded licensing technologies (such as recommendations and search capability), media recognition technologies and licensing of the Company’s database of descriptive information about television, movie, music, books, and game content and content protection technologies and services. In addition to offering Company developed IPGs, our customers may also license our patents and deploy their own IPG or a third party IPG. The Company’s solutions are deployed by companies in the consumer electronics, cable and satellite, entertainment and online distribution markets.

On December 22, 2010, the Company signed a definitive agreement to acquire Sonic Solutions (“Sonic”) in a stock and cash transaction. The acquisition is structured as an exchange offer for all of the outstanding shares of Sonic common stock, to be followed by a merger. Each Sonic shareholder who participates in the offer may elect to receive consideration in the form of $14.00 per share in cash or a fraction of a share of Rovi common stock equal to 0.2489, in each case, subject to adjustment for stock splits, stock dividends and similar events. The aggregate amount of cash and of Rovi common stock available to be paid and issued in the offer will be determined on a 55/45 basis (with shares of Rovi common stock being valued at $56.24 for purposes of such calculation) such that if the holders of more than 55% of the shares of Sonic common stock tendered in the offer elect to receive more than the amount of cash available, or if the holders of more than 45% of the shares of Sonic common stock tendered in the offer elect to receive more than the amount of Rovi common stock available, Sonic shareholders will receive on a pro rata basis the other kind of consideration. The merger is expected to close in the first quarter of 2011 (See Note 18).

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Rovi Corporation and its wholly and majority owned subsidiaries after elimination of intercompany accounts and transactions.

On September 17, 2010, the Company sold its Canadian subsidiary, Norpak Corporation (“Norpak”), which manufactured equipment for embedding data in a television signal. On April 1, 2008, the Company sold its software and games businesses (referred to as “Software” and “Games”, respectively). On November 17, 2008, the Company sold its RightCommerce (also known as “eMeta”) business and on December 1, 2008, the Company sold its TV Guide Magazine business. On January 27, 2009, the Company sold its TVG Network business and on February 28, 2009, the Company sold its TV Guide Network and TV Guide Online businesses. Together TV Guide Magazine, TVG Network, TV Guide Network and TV Guide Online are collectively referred to as the “Media Properties”. The results of operations and cash flows of Software, Games, eMeta, Norpak and the Media Properties have been classified as discontinued operations for all periods presented (See Note 5).

F-7

On February 26, 2010, the Company sold its 49% interest in the Guideworks LLC joint venture (“Guideworks”) to Comcast Corporation (“Comcast”) and simultaneously purchased Comcast’s interest in the patents which had been developed by Guideworks. Guideworks was a research and development joint venture with Comcast that developed interactive program guide solutions, which are distributed by the Company under the i-Guide brand. Under these agreements, the Company received a net payment of $4.6 million and realized a $1.0 million loss on sale of its interest in Guideworks. The Company had been recording its 49% interest in Guideworks as an operating expense in accordance with Accounting Standards Codification (“ASC”) 730-20, Research and Development Arrangements. Included in research and development expenses for the years ended December 31, 2010, 2009 and 2008 are $1.7 million, $11.7 million and $8.8 million, respectively, in expenses related to Guideworks.

Reclassifications

Certain financial statement items for prior periods have been reclassified to conform to the 2010 presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported results of operations during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, investments, equity-based compensation, goodwill and other intangible assets, long-lived assets and income taxes. Actual results could differ from those estimates.

(2) Summary of Significant Accounting Policies

Cash, Cash Equivalents and Investments

The Company considers investments with original maturities from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. All other liquid investments with maturities over three months and less than 12 months are classified as short-term investments. All marketable securities with maturities over one year or those for which the Company’s intent is to retain for more than twelve months are classified as long-term marketable investment securities.

Management determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income, as a separate component of stockholders’ equity. Trading securities are carried at fair value, with changes in fair value reported as part of interest and other income, net in the Consolidated Statements of Operations.

Realized gains and losses and declines in value judged to be other-than-temporary for available-for-sale securities are reported in interest income and other, net as incurred. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale and trading are included in interest income and other, net.

In December 2008, the Company entered into an agreement (the “Agreement”) with UBS AG which provides (1) the Company the right (“Put Option”) to sell certain auction rate securities back to UBS AG at par, at the Company’s sole discretion, anytime during the period from June 30, 2010 through July 2, 2012, and (2) UBS AG the right to purchase certain auction rate securities or sell them on the Company’s behalf at par

F-8

anytime through July 2, 2012. The Company elected to measure the Put Option under the fair value option and recorded income of approximately $10.4 million pre-tax, and recorded a corresponding long term investment. Simultaneously, the Company transferred these auction rate securities from available-for-sale to trading investment securities. As a result of this transfer, the Company recognized an other-than-temporary impairment loss of approximately $10.4 million pre-tax, reflecting a reversal of the related temporary valuation allowance that was previously recorded in other comprehensive loss. The recording of the Put Option and the recognition of the other-than-temporary impairment loss resulted in no material impact to the Consolidated Statement of Operations for the year ended December 31, 2008. As of December 31, 2010, UBS AG has repurchased all of the Company’s auction rate securities which were covered by the Put Option. The Company’s auction rate securities which were not purchased from UBS AG continue to be classified as available-for-sale securities.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. The Company reviews its trade receivables by aging category to identify significant customers with known disputes or collection issues. For accounts not specifically identified, the Company provides reserves based on historical bad debt loss experience.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets. Computer equipment and software are depreciated over three years. Furniture and fixtures are depreciated over five years. Leasehold improvements and assets recorded under capital leases are amortized on a straight-line basis over the shorter of the assets’ useful lives or lease terms.

Joint Ventures and Other Investments

Investments of 50% or less in entities in which the Company has the ability to exercise significant influence over operations are accounted for using the equity method.

Deferred Revenue

Deferred revenue represents cash amounts received from customers under certain license agreements for which the revenue earnings process has not been completed.

Comprehensive Income

Comprehensive income includes net income (loss), foreign currency translation adjustments and unrealized gains and losses, net of related taxes, on marketable investment securities that have been excluded from the determination of net income (loss). The Company has reported the components of comprehensive income on its consolidated statements of stockholders’ equity. The change in unrealized gains and losses on investments during the year ended December 31, 2008 includes the reduction of $3.2 million, net of taxes, of unrealized gains which became realized gains when the Company sold its investment in Digimarc Corporation during the first quarter of 2008 (See Note 8). Foreign currency translation adjustments during the year ended December 31, 2008 includes a reduction of $5.0 million arising from the sale of the Software business.

Revenue Recognition

On January 1, 2010, the Company adopted Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Arrangements, (“ASU 2009-13”) and Accounting Standards Update 2009-14, Software (Topic 985)—Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”).

F-9

ASU 2009-13 modifies the requirements for determining whether a deliverable in a multiple element arrangement can be treated as a separate unit of accounting by removing the criteria that objective and reliable evidence of fair value exists for the undelivered elements. The new guidance requires consideration be allocated to all deliverables based on their relative selling price using vendor specific objective evidence (VSOE) of selling price, if it exists; otherwise selling price is determined based on third-party evidence (TPE) of selling price. If neither VSOE nor TPE exist, management must use its best estimate of selling price (ESP) to allocate the arrangement consideration. The Company adopted this update under the prospective method and has applied the new guidance to agreements entered into or materially modified after January 1, 2010.

The adoption of ASU 2009-13 may have a material impact on the Company’s revenue in any given period subsequent to adoption. For example, the Company often enters into IPG patent license agreements in which it provides a licensee a release for past infringement as well as the right to ship an unlimited number of units over a set period for a flat fee. Under the previous multiple element guidance, the Company generally would not be able to provide objective and reliable evidence of the fair value of the go-forward license arrangement (the undelivered element) and therefore would have recognized all revenue for such agreement ratably over the term of the agreement. Applying the guidance in the update, the Company would use ESP to allocate the consideration between the release for past infringement and the go-forward patent license. As the revenue recognition criteria for the past infringement would generally be satisfied upon the execution of the agreement, the amount of consideration allocated to the past infringement would be recognized in the quarter the agreement is executed and the amount allocated to the go forward license agreement would be recognized ratably over the term.

For the year ended December 31, 2010, the adoption of ASU 2009-13 increased revenue, income before income taxes and net income by $9.4 million each, and diluted EPS by $0.09, as compared to application of the previous guidance.

ASU 2009-14 excludes tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of ASC 985-605, Software-Revenue Recognition. The Company adopted ASU 2009-14 on a prospective basis and applied the new guidance to revenue arrangements entered into or materially modified after January 1, 2010. The adoption of ASU 2009-14 did not have a material impact on the Company’s financial position or results from operations.

The Company’s revenue from continuing operations primarily consists of license fees for IPG products and patents, royalty fees on copy-protected products, licenses for its content protection technologies and license fees for its entertainment metadata. The Company recognizes revenue when the following conditions are met (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable and (iv) collection is reasonably assured.

The Company licenses its proprietary IPG technology to consumer electronics (“CE”) manufacturers and to multi-channel video service providers. The Company generally recognizes revenue from IPG product and patent licensing on a per-unit shipped model (with CE manufacturers) or a per-subscriber model (with service providers). The Company’s recognition of revenues from per-unit license fees is based on units reported shipped by the manufacturer. CE manufacturers normally report their unit shipments to the Company in the quarter immediately following that of actual shipment by the manufacturer. Revenues from per-subscriber fees are recognized in the period the services are provided by a licensee, as reported to the Company by the licensee. Revenues from annual or other license fees are recognized based on the specific terms of the license arrangement. For instance, certain IPG licensees enter into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. The Company records the fees associated with these arrangements on a straight-line basis over the specified term.

The Company also generates advertising revenue through its IPGs. Advertising revenue is recognized when the related advertisement is provided. All advertising revenue is recorded net of agency commissions. Revenue shares with service providers and CE manufacturers are recorded as a reduction in license fees.

F-10

The Company’s ACP technology licensing agreements often provide for the payment of a per-unit royalty fee for the shipment of DVDs and the shipment of digital set-top boxes that incorporate its technology. The Company relies on royalty reports from customers and/or third parties as the basis for revenue recognition, provided there is persuasive evidence of an arrangement and that collection of a fixed and determinable fee is considered probable. The Company has established significant experience and relationships with certain customers to reasonably estimate current period volume for purposes of making an accurate revenue accrual. Accordingly, royalty revenue from these customers is recognized as earned. Revenue from other customers is recognized as reported until such time that the Company can establish a basis for making reasonable estimates, in which case revenue is recognized on an as-earned basis. Licensees generally report activity within 30 to 60 days after the end of the month or quarter in which such activity takes place. The Company has also entered into agreements with certain entertainment studios for which they have the right to ship an unlimited number of DVDs that utilize its ACP technology over a specified term for a flat fee. The Company records the revenue associated with these arrangements on a straight-line basis over the specified term. In addition, the Company enters into agreements with CE manufacturers in which they pay the Company a one-time fee for a perpetual license to its ACP technology. Provided that collectability is reasonably assured, the Company records revenue related to these agreements when the agreement is executed as the Company has no continuing obligation and the amounts are fixed and determinable.

In accounting for multiple-element arrangements, one of the key judgments to be made is the accounting value that is attributable to the different contractual elements. Revenue arrangements with multiple deliverables are divided into separate units of accounting when the delivered item has value to the customer on a stand-alone basis. The Company then determines the fair value of each element using the selling price hierarchy of VSOE, TPE or ESP, as applicable; and allocates the total consideration among the various elements based on the relative selling price method. The allocation of value may impact the amount and timing of revenue recorded in the consolidated statement of operations during a given period.

Cost of Revenues

Cost of revenues consists primarily of data costs, patent prosecution, patent maintenance and patent litigation costs.

Equity-Based Compensation

Equity-based compensation cost is measured at the grant date based on the fair value of the award. The Company recognizes compensation costs for shares that are expected to vest, on a straight-line basis, over the requisite service period of the award.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is not evaluated to be more likely than not.

From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of these transactions. In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their technical merits.

F-11

Taxes Collected from Customers

The Company applies the net basis presentation for taxes collected from customers and remitted to governmental authorities.

Foreign Currency Translation

The translation of the accounts of Company subsidiaries with a foreign currency other than the United States Dollar is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenues and expense accounts using an average exchange rate for the respective periods. Adjustments resulting from such translation are included in comprehensive income. Gains or losses resulting from foreign currency transactions included in the consolidated statements of operations were not material in any of the periods presented.

Business and Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, marketable securities, interest rate swaps and caps and trade accounts receivable. The Company places its cash and cash equivalents, marketable securities and money market funds with various high credit quality institutions.

The Company performs ongoing credit evaluations of its customers as necessary. As a percentage of net revenues from continuing operations, the Company did not have any customers that were equal to or greater than 10% of net revenue for the year ended December 31, 2010 or 2008. In 2009, the Company generated revenue from one customer which exceeded 10% of its net revenue from continuing operations. As of December 31, 2010 and 2009, the Company did not have any customers whose receivable exceeded 10% of its net trade accounts receivable.

Earnings Per Share

ASC 260 defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities that should be included in computing EPS using the two-class method. The Company’s non-vested restricted stock awards granted prior to June 30, 2009, qualify as participating securities.

Basic net EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of loss from continuing operations, for which no common share equivalents are included because their effect would be anti-dilutive. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options and non-participating restricted stock using the treasury stock method.

F-12

The calculation of earnings per common share and diluted earnings per common share is presented below (in thousands, except per share data):


	December 31,
	2010			2009			2008
Basic income (loss) per common share
Income (loss) from continuing operations	$	226,658		$	(18,388	)	$	14,781
Income allocated to participating securities		(1,125	)		—			(167	)

Income (loss) allocated to common shareholders from continuing operations	$	225,533		$	(18,388	)	$	14,614

Discontinued operations	$	(13,774	)	$	(34,563	)	$	(128,841	)
Loss allocated to participating securities		68			—			1,457

Discontinued operations allocated to common shareholders	$	(13,706	)	$	(34,563	)	$	(127,384	)

Net income (loss)	$	212,884		$	(52,951	)	$	(114,060	)
(Income) Loss allocated to participating securities		(1,057	)		—			1,290

Net income (loss) allocated to common shareholders	$	211,827		$	(52,951	)	$	(112,770	)

Weighted average basic common shares outstanding		102,658			100,860			85,334

Income (loss) per common share from continuing operations	$	2.20		$	(0.18	)	$	0.17
Loss per common share from discontinued operations		(0.14	)		(0.34	)		(1.49	)

Net earnings per common share	$	2.06		$	(0.52	)	$	(1.32	)

Diluted income (loss) per common share
Income (loss) from continuing operations	$	226,658		$	(18,388	)	$	14,781
Income allocated to participating securities		(1,058	)		—			(167	)

Income (loss) allocated to common shareholders from continuing operations	$	225,600		$	(18,388	)	$	14,614

Discontinued operations	$	(13,774	)	$	(34,563	)	$	(128,841	)
Loss allocated to participating securities		64			—			1,457

Discontinued operations allocated to common shareholders	$	(13,710	)	$	(34,563	)	$	(127,384	)

Net income (loss)	$	212,884		$	(52,951	)	$	(114,060	)
(Income ) loss allocated to participating securities		(994	)		—			1,290

Net income (loss) allocated to common shareholders	$	211,890		$	(52,951	)	$	(112,770	)

Weighted average basic common shares outstanding		102,658			100,860			85,334
Dilutive potential common shares		6,517			—			23

Weighted average diluted common shares outstanding		109,175			100,860			85,357

Income (loss) per common share from continuing operations	$	2.07		$	(0.18	)	$	0.17
Loss per common share from discontinued operations		(0.13	)		(0.34	)		(1.49	)

Net earnings per common share	$	1.94		$	(0.52	)	$	(1.32	)

F-13

The following weighted average potential common shares were excluded from the computation of diluted net earnings per share as their effect would have been anti-dilutive:


	December 31,
	2010		2009		2008
	(In thousands)
Stock options		1,219		7,933		6,332
Restricted stock		213		188		—
Warrants (1)		—		7,955		7,955
Convertible senior notes (1)		9,713		8,486		8,486

Total weighted average potential common shares excluded from diluted net earnings per share		11,145		24,562		22,773

(1)	See Note 7 for additional details.

Goodwill and Other Intangibles from Acquisitions

Goodwill is reviewed for impairment annually, or more frequently, if facts and circumstances warrant a review. The provisions require that a two-step test be performed to assess goodwill for impairment. First, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded.

Intangible assets with definite lives are amortized over their estimated useful life, generally three to twenty years, and reviewed for impairment when events and circumstances indicate that the intangible asset might be impaired.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of, Excluding Goodwill and Indefinite-Lived Intangible Assets

The Company records impairment losses on long-lived assets, excluding goodwill and indefinite-lived intangible assets, used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If required, the impairment recognized is the difference between the fair value of the asset and its carrying amount.

Software Development Costs

Capitalization of software development costs begins upon the establishment of technological feasibility, which is generally the completion of a working prototype that has been certified as having no critical bugs and is a release candidate or when alternative future use exists. To date, software development costs incurred between completion of a working prototype and general availability of the related product have not been material and have not been capitalized.

Research and Development

Expenditures for research and development are expensed as incurred. The Company had no capitalized research and development costs as of December 31, 2010, 2009 or 2008.

Advertising Expenses

The Company expenses all advertising costs as incurred and for its continuing operations classifies these costs under selling, general and administrative expense.

F-14

(3) Financial Statement Details

Property and Equipment, Net (in thousands):


	December 31,
	2010			2009
Computer software and equipment	$	86,670		$	76,336
Leasehold improvements		18,123			15,365
Furniture and fixtures		5,602			5,534

		110,395			97,235
Less accumulated depreciation and amortization		(71,190	)		(54,111	)

Property and equipment, net	$	39,205		$	43,124

Depreciation expense for our continuing operations for the years ended December 31, 2010, 2009 and 2008 were $18.8 million, $18.4 million, and $13.8 million, respectively.

Accounts payable and Accrued Expenses (in thousands):


	December 31,
	2010		2009
Accounts payable	$	3,462	$	2,576
Accrued compensation		30,149		32,914
Interest payable		5,854		2,397
Other accrued liabilities		35,047		43,482

Accounts payable and accrued expenses	$	74,512	$	81,369

Interest Income and Other, Net (in thousands):


	Year ended December 31,
	2010			2009		2008
Interest income	$	2,698		$	3,232	$	10,206
Foreign currency (loss) gains		(640	)		972		1,002
Other (expense) income		(288	)		354		34

Interest income and other, net	$	1,770		$	4,558	$	11,242

Allowance for Doubtful Accounts (in thousands):

Continuing Operations


	Balance at Beginning of Period		Additions			Deductions		Other		Balance at End of Period
2010	$	3,127	$	(545	)	$	441	$	—	$	2,141
2009	$	2,879	$	687		$	439	$	—	$	3,127
2008	$	447	$	2,125		$	199	$	506	$	2,879

(4) Acquisitions

2010 Acquisitions

In March 2010, the Company paid approximately $5.9 million for substantially all of the assets of a business which had developed a recommendation engine for cross-platform multimedia companies offering engaging

F-15

experiences around diverse catalogs of entertainment content. The Company acquired these assets to enhance and expand its media search and recommendations capability.

2009 Acquisitions

Muze Acquisition

On April 30, 2009, the Company acquired substantially all of the assets of Muze for approximately $17.0 million in cash. Muze provides metadata on video, music, games and books to retailers, Internet destinations, software producers, consumer electronics manufacturers and mobile service providers in the United States and Europe. The Company acquired Muze to expand its worldwide entertainment metadata portfolio and enhance its technology platform for delivering metadata.

The Company also paid approximately $8.3 million for a music metadata distribution business in the Asia Pacific region. This transaction closed on July 1, 2009.

2008 Acquisition

Gemstar Acquisition

On May 2, 2008, the Company acquired Gemstar in a cash and stock transaction. Gemstar was a technology, media and entertainment company that developed, licensed, marketed and distributed products and services targeted at the video guidance and entertainment needs of consumers worldwide. The total purchase price for Gemstar was approximately $2.65 billion.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information presented below (in millions, except per share amounts) assumes the acquisition of Gemstar had occurred on January 1, 2008. The unaudited pro forma financial information does not include the results of Software, Games, eMeta, Norpak and the Media Properties as these businesses have been classified as discontinued operations and does not reflect the 2010 and 2009 acquisitions as these acquisitions were immaterial. The unaudited pro forma financial information assumes $275 million of net proceeds from the sale of the Media Properties was used to reduce the amount of debt outstanding as of January 1, 2008. The unaudited pro forma information presented is for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results. The unaudited pro forma financial information does not include any adjustments for operating efficiencies or cost savings.


	Year Ended December 31, 2008 (1)
Net revenue	$	428.0
Operating income	$	71.0
Income from continuing operations	$	45.4
Basic and diluted earnings per share from continuing operations	$	0.44

(1)	The year ended December 31, 2008, includes a $32.5 million pre-tax benefit from a Gemstar insurance settlement.

(5) Discontinued Operations and Assets Held for Sale

On September 17, 2010, the Company sold its Norpak subsidiary for $11.8 million. The sales price was paid entirely out of cash on Norpak’s balance sheet. In connection with the sale, the Company recorded a $1.6 million loss on disposal.

In 2010, the Company recorded $11.7 million in expenses related to indemnification for IP infringement claims relating to the Company’s Software business which was sold in 2008.

F-16

TV Guide Network and TV Guide Online

On February 28, 2009, the Company sold its TV Guide Network and TV Guide Online business units for approximately $242 million in cash, of which $36.8 million was deposited in a 15 month escrow account as a source of recovery in the event the buyer has an indemnifiable claim. The $36.8 million that was in escrow was released to the Company in June of 2010.

TVG Network

On January 27, 2009, the Company sold its TVG Network business unit for approximately $50.7 million. Included in the net assets sold was $11.9 million in cash.

TV Guide Magazine

On December 1, 2008, the Company sold its TV Guide Magazine business unit in exchange for the assumption of its net liabilities. During the third quarter of 2009, the Company made a $2.6 million payment to the buyer of TV Guide Magazine to settle the final working capital adjustment. This payment is recorded in proceeds from disposition of businesses, net of costs to sell on the Consolidated Statement of Cash Flows.

eMeta

On November 17, 2008, the Company sold its eMeta business for $0.8 million in cash.

Software

On April 1, 2008, the Company sold its Software business unit for $191 million and its Games business unit for $4 million in cash.

All Discontinued Operations

The results of operations of the Company’s discontinued operations consist of the following (in thousands):


	Year Ended December 31,
	2010			2009			2008
Net revenue:
Software	$	—		$	—		$	27,503
Games		—			—			1,633
eMeta		—			—			6,222
TV Guide Magazine		—			—			70,072
TV Guide Network / TV Guide Online		—			20,319			85,656
TVG Network		—			2,616			38,145
Norpak		2,600			3,461			2,605

Pre-tax (loss) income
Software	$	(11,732	)	$	—		$	(7,187	)
Games		—			—			(2,551	)
eMeta (1)		—			—			(11,630	)
TV Guide Magazine		—			—			(13,422	)
TV Guide Network / TV Guide Online (2)		—			1,825			(126,610	)
TVG Network (3)		—			(694	)		(67,859	)
Norpak		(617	)		(317	)		942
Pre-tax (loss) gain on disposal of business units		(1,632	)		(3,661	)		153,273
Income tax benefit (expense)		207			(31,716	)		(53,797	)

Loss from discontinued operations, net of tax	$	(13,774	)	$	(34,563	)	$	(128,841	)

F-17

(1)	eMeta pre-tax loss in 2008 included $6.7 million in goodwill and intangible asset impairment charges.

(2)	TV Guide Network / TV Guide Online pre-tax loss in 2008 included $138.3 million in goodwill and intangible asset impairment charges.

(3)	TVG Network pre-tax loss in 2008 included $70.0 million in goodwill and intangible asset impairment charges.

(6) Goodwill and Other Intangible Assets

The Company assesses its goodwill for impairment annually as of October 1, or more frequently if circumstances indicate impairment may have occurred. To accomplish this, the Company determines the fair value of its reporting unit using a discounted cash flow approach and / or a market approach and compares it to the carrying amount of the reporting unit at the date of the impairment analysis. After the disposition of the Media Properties, the Company only has one reporting unit and therefore the Company’s publicly traded equity is a key input in determining the fair value of this reporting unit. When the Company conducted its impairment analysis in 2010, its fair value exceeded its GAAP equity by approximately $3.6 billion. A significant decline in the value of the Company’s publicly traded equity and /or a significant decrease in the Company’s future business prospects could require the Company to record a goodwill and / or intangible asset impairment charge in the future. The Company did not record any goodwill impairment charges to its continuing operations for any of the periods presented. See Note 5 regarding impairment charges for discontinued operations.

Goodwill information is as follows for continuing operations (in thousands):


	Balance at Beginning of Period		Goodwill Acquired		Foreign Currency Translation		Balance at End of Period
2010	$	854,065	$	2,853	$	298	$	857,216
2009	$	828,185	$	22,256	$	3,624	$	854,065

During the second quarter of 2009, the Company completed extensive consumer research regarding its brands. This consumer research indicated that the brands acquired by the Company did not represent the future vision of the Company and did not carry a positive connotation in the market. The Company determined these results to be an indicator of potential impairment of its trademark intangible assets. The Company determined the fair value of its trademark intangible assets using the relief-from-royalty method. The relief-from-royalty method uses Level 3 inputs to estimate the after-tax savings enjoyed by owning the assets as opposed to paying a third party for its use. The Company determined the fair value of its trademark and intangible assets to be $8.3 million and recorded a $43.1 million impairment charge during the second quarter of 2009. This impairment charge is included in restructuring and asset impairment charges on the Consolidated Statements of Operations.

The following tables summarize the Company’s intangible assets for its continuing operations subject to amortization as of December 31, 2010 and 2009 (in thousands):


	December 31, 2010
	Gross Costs		Accumulated Amortization			Net
Developed technology and patents	$	828,923	$	(197,540	)	$	631,383
Existing contracts and customer relationships		47,634		(15,737	)		31,897
Content databases		51,674		(15,849	)		35,825
Trademarks / Tradenames		8,300		(5,020	)		3,280

	$	936,531	$	(234,146	)	$	702,385

F-18


	December 31, 2009
	Gross Costs		Accumulated Amortization			Net
Developed technology and patents	$	827,838	$	(131,201	)	$	696,637
Existing contracts and customer relationships		46,577		(11,323	)		35,254
Content database		50,973		(10,086	)		40,887
Trademarks / Tradenames		8,300		(1,707	)		6,593

	$	933,688	$	(154,317	)	$	779,371

The following table summarizes the Company’s estimated amortization expense through the year 2015 and thereafter (in thousands):


Year ending December 31,	Amortization Expense
2011	$	77,439
2012		73,530
2013		71,475
2014		70,624
2015		66,239
Thereafter		343,078

Total amortization expense	$	702,385

(7) Debt

Convertible Senior Notes Due 2040

In March 2010, the Company issued $460.0 million in 2.625% convertible senior notes (the “2040 Convertible Notes”) due in 2040 at par. The 2040 Convertible Notes may be converted, under the circumstances described below, based on an initial conversion rate of 21.1149 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $47.36 per share).

Prior to November 15, 2039, holders may convert their 2040 Convertible Notes into cash and the Company’s common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending June 30, 2010, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price in effect on each applicable trading day; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; (iii) upon the occurrence of specified corporate transactions, as described in the indenture, or (iv) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the third scheduled trading day prior to that redemption date. From November 15, 2039 until the close of business on the scheduled trading day immediately preceding the maturity date of February 15, 2040, holders may convert their 2040 Convertible Notes into cash and shares of the Company’s common stock at the applicable conversion rate, at any time, regardless of the foregoing circumstances. After February 20, 2015, the Company has the right to call for redemption all, or a portion, of the 2040 Convertible Notes at 100% of the principal amount of notes to be redeemed, plus accrued interest to, but excluding, the redemption date. Holders have the right to require the Company to repurchase the 2040 Convertible Notes on February 20, 2015, 2020, 2025, 2030 and 2035 for cash equal to 100% of the principal amount of the notes to be repurchased, plus accrued interest to, but excluding, the repurchase date.

F-19

Upon conversion, a holder will receive the conversion value of the 2040 Convertible Notes converted based on the conversion rate multiplied by the volume weighted average price of the Company’s common stock over a specified observation period following the conversion date. The conversion value of each 2040 Convertible Note will be paid in cash up to the aggregate principal amount of the 2040 Convertible Notes to be converted and shares of common stock to the extent the conversion value exceeds the principal amount of the converted note. Upon the occurrence of a fundamental change (as defined in the indenture), the holders may require the Company to repurchase for cash all or a portion of their 2040 Convertible Notes at a price equal to 100% of the principal amount of the 2040 Convertible Notes being repurchased plus accrued interest, if any. In addition, following certain corporate events that occur prior to February 20, 2015, the conversion rate will be increased for holders who elect to convert their notes in connection with such a corporate event in certain circumstances.

In accordance with ASC 470, related to accounting for convertible debt instruments that may be settled in cash upon conversion, the Company has separately accounted for the liability and equity components of the 2040 Convertible Notes to reflect its non-convertible debt borrowing rate of 7.75%, at the time the instrument was issued, when interest cost is recognized. The Company allocated $94.8 million to the equity component, which is recorded as additional paid-in-capital, and the remaining $365.2 million of the proceeds to the liability component of the 2040 Convertible Notes. In addition, $2.8 million of the $13.5 million of note issuance costs were allocated to the equity component and recorded to additional paid-in-capital. The Company also recorded a $35.1 million deferred tax liability in conjunction with the 2040 Convertible Notes, with the offsetting amount recorded as a reduction to additional paid-in-capital.

As of December 31, 2010, the principal amount of the Company’s 2040 Convertible Notes was $460 million, the unamortized discount on the 2040 Convertible Notes was $81.9 million and the carrying amount was $378.1 million. During the year ended December 31, 2010, the Company recorded $12.9 million, of interest expense for the 2040 Convertible Notes related to the amortization of the discount.

Convertible Senior Notes Due 2011

In August 2006, Rovi Solutions, a wholly-owned subsidiary of the Company, issued $240.0 million in 2.625% convertible senior notes (the “2011 Convertible Notes”) due in 2011 at par. In connection with the Gemstar acquisition, the Company entered into a supplemental indenture with respect to the 2011 Convertible Notes whereby the 2011 Convertible Notes became convertible into shares of the Company’s common stock. The 2011 Convertible Notes may be converted, under certain circumstances, based on an initial conversion rate of 35.3571 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $28.28 per share). During 2010, the Company repurchased a total of $105.0 million in par value of the 2011 Convertible Notes for $160.1 million. In addition, during 2010 noteholders also elected to convert 2011 Convertible Notes with a par value of $0.3 million. The Company allocated $99.9 million of the purchase price and conversion value to the liability component and the remaining $56.7 million to the equity component of the 2011 Convertible Notes. In connection with the repurchases and conversions, the Company recorded a $4.5 million loss on debt redemption during the year ended December 31, 2010.

Prior to June 15, 2011, holders may convert their Convertible Notes into cash and the Company’s common stock, at the applicable conversion rate, under any of the following circumstances: (i) during any fiscal quarter after the calendar quarter ending September 30, 2006, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 120% of the applicable conversion price in effect on the last trading day of the immediately preceding fiscal quarter; (ii) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; or (iii) upon the occurrence of specified corporate transactions, as defined in the indenture. From June 15, 2011 until the close of business on the scheduled trading day immediately preceding the maturity date of August 15, 2011, holders may convert their

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Convertible Notes into cash and shares of the Company’s common stock, if any, at the applicable conversion rate, at any time, regardless of the foregoing circumstances.

Upon conversion, a holder will receive the conversion value of the Convertible Notes converted equal to the conversion rate multiplied by the volume weighted average price of the Company’s common stock during a specified period following the conversion date. The conversion value of each Convertible Note will be paid in: (i) cash equal to the lesser of the principal amount of the Convertible Note or the conversion value, as defined, and (ii) to the extent the conversion value exceeds the principal amount of the Convertible Note, a combination of common stock and cash. In addition, upon a fundamental change at any time, as defined, the holders may require the Company to repurchase for cash all or a portion of their Convertible Notes upon a “designated event” at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus accrued and unpaid interest, if any.

In accordance with ASC 470, the Company has separately accounted for the liability and equity component of the 2011 Convertible Notes to reflect its non-convertible debt borrowing rate of 7.4%, at the time the instrument was issued, when interest cost is recognized. As of December 31, 2010, and December 31, 2009, the principal amount of the Company’s 2011 Convertible Notes was $134.7 million and $240.0 million, respectively. As of December 31, 2010 and December 31, 2009, the unamortized discount on the 2011 Convertible Notes was $3.9 million and $17.2 million, respectively, resulting in a carrying amount of $130.8 million and $222.8 million, respectively. During the year ended December 31, 2010 and 2009, the Company recorded $7.9 million and $9.4 million of interest expense for the 2011 Convertible Notes related to the amortization of the discount. As of December 31, 2010, the 2011 Convertible Notes were eligible for conversion at the option of the note holders. The Company has therefore reclassified the $3.9 million unamortized discount to temporary equity and recorded the liability component as current on its Consolidated Balance Sheet.

Concurrently with the issuance of the 2011 Convertible Notes, the Company entered into a convertible bond call option whereby the Company has options to purchase up to 7.96 million shares, subject to anti-dilution adjustments similar to those contained in the 2011 Convertible Notes, of the Company’s common stock at a price of approximately $28.28 per share. These options expire on August 15, 2011 and must be settled in net shares. The cost of the convertible bond call option was approximately $46.1 million and has been recorded as a reduction to additional paid-in-capital. In connection with the repurchase of a portion of the 2011 Convertible Notes in 2010, the Company unwound a portion of the convertible bond call option and in the process received $29.0 million. This payment has been recorded as an increase to additional paid-in-capital. As of December 31, 2010, the Company continues to have the option to purchase up to 5.4 million shares of its common stock under the terms described above.

In addition, concurrent with the issuance of 2011 Convertible Notes, the Company sold warrants to purchase up to 7.96 million shares of its common stock at a price of $32.9248 per share. The warrants expire on various dates from August 16, 2011 through the 104^th scheduled trading day following August 16, 2011, and must be settled in net shares. The Company received approximately $30.3 million in cash proceeds for the sales of these warrants which have been recorded as an increase to additional paid-in-capital. In connection with the repurchase of a portion of the 2011 Convertible Notes in 2010, the Company unwound a portion of the warrants for $23.2 million. These payments have been recorded as a decrease to additional paid-in-capital. As of December 31, 2010, warrants to purchase up to 5.4 million shares of the Company’s common stock under the terms described above remained outstanding.

Senior Secured Term Loan

In connection with the Gemstar acquisition, the Company, entered into a $550 million five year senior secured term loan credit facility (“Term Loan”). As of December 31, 2009, the Term Loan balance was $207.2 million. During the first quarter of 2010, the Company paid off and retired the Term Loan. In connection with retiring the Term Loan, the Company recorded a $12.3 million loss on debt redemption, primarily due to writing off the remaining note issuance costs.

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11% Senior Notes

In connection with the Gemstar acquisition, the Company issued $100 million of 11% senior notes (“11% Senior Notes”) due 2013. On August 5, 2009, the Company redeemed the $100 million 11% Senior Notes at par plus accrued interest and a $2.8 million make-whole payment representing the discounted value of interest which the note holders would have received through November 15, 2009, the first date the 11% Senior Notes could be retired without a premium. In addition, the Company paid $0.6 million to the Term Loan holders to obtain their consent to redeem the 11% Senior Notes. In connection with the redemption of the 11% Senior Notes, the Company has recorded an $8.7 million loss on debt redemption on its Consolidated Statement of Operations for the year ended December 31, 2009. This loss is comprised of the $2.8 million make-whole payment discussed above, the write-off of $5.6 million in note issuance costs and $0.3 million in fees associated with the note redemption.

(8) Investments

The following is a summary of available-for-sale and other investment securities (in thousands) as of December 31, 2010:


	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	45,700	$	—	$	—		$	45,700
Cash Equivalents—Money markets		154,495		—		—			154,495

Total cash and cash equivalents	$	200,195	$	—	$	—		$	200,195

Available-for-sale investments:
Auction rate securities	$	16,800	$	—	$	(1,801	)	$	14,999
Corporate debt securities		186,218		263		(191	)		186,290
Foreign government obligations		11,792		10		(52	)		11,750
U.S. Treasury/Agencies		283,073		166		(306	)		282,933

Total available-for-sale investments	$	497,883	$	439	$	(2,350	)	$	495,972

Total cash, cash equivalents and investments								$	696,167

The following is a summary of available-for-sale securities (in thousands) as of December 31, 2009:


	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	36,801	$	—	$	—		$	36,801
Cash Equivalents—Money markets		128,609		—		—			128,609

Total cash and cash equivalents	$	165,410		—		—		$	165,410

Restricted cash	$	36,838	$	—	$	—		$	36,838

Available-for-sale investments:
Auction rate securities	$	17,100	$	—	$	(1,821	)	$	15,279
Corporate debt securities		38,583		189		(24	)		38,748
U.S. Treasury/Agencies		22,300		1		(17	)		22,284

Total available-for-sale investments	$	77,983	$	190	$	(1,862	)	$	76,311

Auction rate securities classified as trading								$	51,952
ARS Put Option								$	5,773

Total cash, cash equivalents, restricted cash and investments								$	336,284

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As of December 31, 2010, the fair value of available-for-sale debt investments, by contractual maturity, was as follows (in thousands):


Due in 1 year or less	$	295,120
Due in 1-2 years		119,476
Due in 2-3 years		66,377
Due greater than 3 years		14,999

Total	$	495,972

The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2010 and 2009 (in thousands):


	December 31, 2010
	Less than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Auction rate securities	$	—	$	—		$	14,999	$	(1,801	)	$	14,999	$	(1,801	)
Corporate securities		89,170		(191	)		—		—			89,170		(191	)
Foreign government obligations		10,483		(52	)		—		—			10,483		(52	)
U.S. Treasuries / Agencies		127,990		(306	)		—		—			127,990		(306	)

	December 31, 2009
	Less than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Auction rate securities	$	—	$	—		$	15,279	$	(1,821	)	$	15,279	$	(1,821	)
Corporate securities		6,173		(24	)		—		—			6,173		(24	)
U.S. Treasuries / Agencies		14,972		(17	)		—		—			14,972		(17	)

Market values were determined for each individual security in the investment portfolio. The Company attributes the unrealized losses in its auction rate securities portfolio to liquidity issues rather than credit issues. The Company’s available-for-sale auction rate securities portfolio at December 31, 2010 is comprised solely of AAA rated investments, in federally insured student loans and municipal and educational authority bonds. Due to the Company’s belief that the market for such securities may take in excess of twelve months to fully recover and because the Company has the ability and intent to hold these investments until the market recovers, the Company has classified these investments as long-term marketable securities on the Consolidated Balance Sheet at December 31, 2010. The Company continues to earn interest on all of its auction rate security instruments.

During 2010, the Company sold a strategic investment and realized a gain of $5.9 million. During 2008, the Company sold its investment in Digimarc and recorded a gain of $5.2 million.

(9) Interest Rate Swaps and Caps

In March 2010 in connection with the issuance of the 2040 Convertible Notes, the Company entered into interest rate swaps with a notional amount of $460.0 million under which it pays a weighted average floating rate of 6 month USD—LIBOR minus 0.342%, set in arrears, and receives a fixed rate of 2.625%. These swaps expire in February 2015. In addition, in connection with the remaining balance of the 2011 Convertible Notes, the Company also entered into interest rate swaps with a notional amount of $185.0 million under which it pays a weighted average floating rate of 6 month USD—LIBOR plus 1.241%, set in arrears, and receives a fixed rate of 2.625%. These swaps expire in August 2011. The Company entered into these swaps as it believed interest rates would increase in the future at a slower pace than the market then anticipated, thus allowing it to reduce its

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overall interest expense related to the convertible debt. The Company also purchased interest rate caps for $4.0 million with notional amounts that range from $270.0 million to $200.0 million from 2012 to 2015. The Company will receive payments under these interest rate caps if 6 month USD-LIBOR, on the reset dates, exceeds 6% from February 2012 to February 2013, 5% from February 2013 to February 2014, or 4% from February 2014 to February 2015.

In November 2010, after future interest rate expectations decreased, the Company entered into additional swaps with a notional amount of $460.0 million under which it pays a fixed rate which gradually increases from 0.203% for the six month settlement period ending in February 2011, to 2.619% for the six month settlement period ending in August 2015 and receives a floating rate of 6 month USD—LIBOR minus 0.342%, set in arrears. These swaps expire in August 2015. In November 2010, the Company also entered into additional swaps with a notional amount of $185.0 million under which it pays a fixed rate which increases from 1.783% for the settlement period ending in February 2011, to 1.875% for the six month settlement period ending August 2011 and receives a floating rate of 6 month USD—LIBOR plus 1.241%, set in arrears. These swaps expire in August 2011. As future interest rate expectations had declined since March 2010, the Company entered into these swaps to fix its future interest payments based on the forward LIBOR rates in effect in November 2010.

The Company has not designated any of its interest rate swaps or caps as hedges. The Company records these interest rate swaps and caps on its balance sheet at fair market value with the changes in fair value recorded as gain on interest rate swaps and caps, net, in its Consolidated Statement of Operations. During the year ended December 31, 2010, the Company recorded a gain of $34.2 million for the change in the fair value of its interest rate swaps and caps and the semi-annual interest settlements. For information on the fair value of the Company’s interest rate swaps and caps see Note 10.

(10) Fair Value

In accordance with ASC 820, the Company uses three levels of inputs to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or valuations in which all significant inputs are observable or can be obtained from observable market data.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The Company values its interest rate swaps using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its interest rate swaps for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

The Company’s auction rate securities are valued using a discounted cash flow analysis or other type of valuation model. These analyses are highly judgmental and consider, among other items, the likelihood of redemption, credit quality, duration, insurance wraps and expected future cash flows. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

F-24

The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period.

As of December 31, 2010, assets and liabilities measured and recorded at fair value on a recurring basis, were as follows (in thousands):


	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Current Assets
Money market funds (1)	$	154,495	$	154,495	$	—	$	—
Corporate debt securities (2)		106,950		—		106,950		—
U.S. agency debt securities (2)		188,170		—		188,170		—

Non-Current Assets
Auction rate securities (3)		14,999		—		—		14,999
Corporate debt securities (3)		79,340		—		79,340		—
Foreign government obligations (3)		11,750		—		11,750		—
U.S. agency debt securities (3)		94,763		—		94,763		—
Interest rate swaps and caps (4)		33,159		—		33,159		—

Total assets	$	683,626	$	154,495	$	514,132	$	14,999

(1)	Included in cash and cash equivalents on the Consolidated Balance Sheet.

(2)	Included in short-term investments on the Consolidated Balance Sheet and classified as available-for-sale securities.

(3)	Included in long-term marketable securities on the Consolidated Balance Sheet and classified available-for-sale securities.

(4)	Included in other assets on the Consolidated Balance Sheet.

As of December 31, 2009, assets and liabilities measured and recorded at fair value on a recurring basis, were as follows (in thousands):


	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Current Assets
Money market funds (1)	$	128,609	$	128,609	$	—	$	—
Money market funds (restricted cash)		36,838		36,838		—		—
Corporate debt securities (2)		27,353		—		27,353		—
U.S. agency debt securities (2)		22,284		—		22,284		—
Auction rate securities (3)		51,952		—		—		51,952
ARS Put Option (3)		5,773		—		—		5,773

Non-Current Assets
Auction rate securities (4)		15,279		—		—		15,279
Corporate debt securities (4)		11,395		—		11,395		—

Total assets	$	299,483	$	165,447	$	61,032	$	73,004

(1)	Included in cash and cash equivalents on the Consolidated Balance Sheet.

(2)	Included in short-term investments on the Consolidated Balance Sheet and classified as available-for-sale securities.

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(3)	Included in short-term investments on the Consolidated Balance Sheet and classified as trading securities.

(4)	Included in long-term marketable securities on the Consolidated Balance Sheet and classified as available-for-sale securities.

The following table provides a summary of changes in the Company’s Level 3 auction rate securities and ARS Put Option (in thousands):


	Year ended December 31,
	2010			2009			2008
Balance at beginning of period	$	73,004		$	76,717		$	89,600
Gain on ARS classified as trading and recorded in other income		5,773			4,597			(10,370	)
Unrealized gain included in accumulated other comprehensive income		20			936			(2,758	)
ARS Put Option loss recorded in other income		(5,773	)		(4,596	)		—
Acquisition of ARS Put Option		—			—			10,370
Settlements		(58,025	)		(4,650	)		(10,125	)

Balance at end of period	$	14,999		$	73,004		$	76,717

The following inputs were used to determine the fair value of the Company’s outstanding debt at December 31, 2010 (in thousands):


	Carrying Value		Significant Other Observable Inputs (Level 2)
2011 Convertible Notes (1)	$	130,816	$	298,841
2040 Convertible Notes (1)		378,083	$	660,468

	$	508,899

(1)	The par value of the 2011 Convertible Notes and 2040 Convertible Notes is $134.7 million and $460 million, respectively. See Note 7 for additional details.

(11) Restructuring and Asset Impairment Charges

Muze Restructuring Plan

In connection with the acquisition of the assets of Muze (see Note 4), management implemented a plan to restructure Muze’s operations resulting in a charge of $0.9 million during the second quarter of 2009. This was done to eliminate redundancies with the Company’s entertainment metadata business. This charge included $0.7 million for employee severance and a $0.2 million liability for the fair value of future lease payments on abandoned office space. The Company paid all of the employee severance costs in 2009.

Q109 Restructuring Plan

In conjunction with the disposition of the Media Properties, the Company’s management approved several actions resulting in a restructuring and asset impairment charge of $8.4 million. This was done to create cost efficiencies for the Company now that it no longer supports the Media Properties. These charges included $1.3 million in severance, a $2.9 million liability for the fair value of future lease payments on abandoned office space and $4.2 million in non–cash asset impairment charges related to the abandoned office space. The Company paid all of the employee severance costs in 2009. As of December 31, 2010, the liability for future lease payments related to the abandoned office space was $1.6 million.

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Additionally, during the first quarter of 2009, the Company reversed the remaining $0.4 million in liabilities related to a fiscal 2007 restructuring plan.

(12) Equity-based Compensation

Stock Options Plans

The Company currently grants stock options and restricted stock awards from the 2008 Equity Incentive Plan (the “2008 Plan”) and the 2000 Equity Incentive Plan (the “2000 Plan”).

As of December 31, 2010, the Company had a total of 29.6 million shares reserved and 11.3 million shares available for issuance under the 2000 and 2008 Plans. The 2000 and 2008 Plans provide for the grant of stock options, restricted stock awards and similar types of equity awards by the Company to employees, officers, directors and consultants of the Company. For options granted during the year ended December 31, 2010, the vesting period was generally four years where one quarter of the grant vests at the end of the first year, and the remainder vests monthly. Options granted during the year ended December 31, 2010 have a contractual term of seven years.

Restricted stock awards generally vest annually over four years. Restricted stock awards are considered outstanding at the time of the grant, as the stockholders are entitled to voting rights. As of December 31, 2010, the number of shares awarded but unvested was 1.4 million.

Employee Stock Purchase Plan

The Company’s 2008 Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a twenty-four month offering period with four six-month purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of the Company’s common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower.

As of December 31, 2010, the Company had reserved, and available for future issuance, 6.1 million shares of common stock under the ESPP.

Valuation and Assumptions

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by an option-pricing model using a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company determines the fair value of its restricted stock awards as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted.

Estimated volatility of the Company’s common stock for new grants is determined by using a combination of historical volatility and implied volatility in market traded options. When historical data is available and relevant, the expected term of options granted is determined by calculating the average term from historical stock option exercise experience. When there is insufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to changes in the terms of option grants, the Company uses the “simplified method” as permitted under Staff Accounting Bulletin No. 110. For options granted after July 15, 2008, the Company changed its standard vesting terms from three to four years and its contractual term from five to seven years. Since the Company did not have sufficient data for options with four year vesting terms and seven year contractual life, the simplified method was used to calculate the expected term. The risk-free interest rate used in

F-27

the option valuation model is from U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. In accordance with ASC Topic 718, Compensation—Stock Compensation, the Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records equity-based compensation expense only for those awards that are expected to vest. The assumptions used to value equity-based payments are as follows:


	Year ended December 31,
	2010			2009			2008
Option Plans:
Dividends		None			None			None
Expected term		4.5 years			4.5 years			3.5 years
Risk free interest rate		2.0	%		2.0	%		2.8	%
Volatility rate		39	%		44	%		43	%

ESPP Plan:
Dividends		None			None			None
Expected term		1.3 years			1.3 years			1.3 years
Risk free interest rate		0.4	%		0.7	%		2.1	%
Volatility rate		35	%		49	%		45	%

The weighted average fair value of equity-based awards are as follows:


	Year ended December 31,
	2010		2009		2008
Weighted average fair value:
Option grants	$	13.27	$	8.57	$	4.96
Restricted stock awards	$	43.57	$	26.95	$	15.50
Employee purchase share rights	$	9.92	$	6.82	$	3.98

As of December 31, 2010, there was $58.3 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested equity-based payments granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of 2.5 years.

F-28

Activity under the Company’s stock option plans are as follows:


	Shares			Weighted-average exercise price		Weighted-average remaining contractual term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2007		4,415,284		$	23.03
Granted		6,046,360		$	14.22
Canceled		(2,104,422	)	$	21.78
Exercised		(223,987	)	$	14.01

Outstanding at December 31, 2008		8,133,235		$	17.05
Granted		2,180,098		$	22.52
Canceled		(1,203,269	)	$	18.65
Exercised		(1,563,001	)	$	17.59

Outstanding at December 31, 2009		7,547,063		$	18.27
Granted		1,963,304		$	37.94
Canceled		(536,265	)	$	22.46
Exercised		(4,042,549	)	$	18.27

Outstanding at December 31, 2010		4,931,553		$	25.64		4.9	$	179,373

Vested and expected to vest at December 31, 2010		3,596,509		$	25.71		4.9	$	130,563

Exercisable at December 31, 2010		891,546		$	19.89		3.8	$	37,567

The total intrinsic value of options exercised, during the years ended December 31, 2010, 2009, and 2008 was $99.4 million, $16.9 million, and $0.6 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

Activity related to the Company’s restricted awards is as follows:


	Shares			Weighted-average Grant-Date Fair Value		Aggregate Fair Value (1) (in thousands)
Outstanding at December 31, 2007		1,241,014		$	23.66
Granted		220,000		$	15.50
Vested		(368,700	)	$	23.03	$	5,436
Forfeited		(283,104	)	$	23.54

Outstanding at December 31, 2008		809,210		$	21.77
Granted		717,055		$	26.95
Vested		(281,046	)	$	22.04	$	6,842
Forfeited		(15,619	)	$	24.10

Outstanding at December 31, 2009		1,229,600		$	24.70
Granted		700,630		$	43.57
Vested		(460,371	)	$	24.87	$	18,592
Forfeited		(61,015	)	$	26.01

Outstanding at December 31, 2010		1,408,844		$	33.97

(1)	Represents the fair value of the restricted award on the day the award vested.

The Company recorded $34.3 million, $22.3 million and $13.6 million in stock compensation expense from continuing operations for the years ended December 31, 2010, 2009 and 2008, respectively.

F-29

(13) Stock Repurchase Program

In December 2010, the Company’s Board of Directors authorized the repurchase of up to $400 million of the Company’s common stock. This $400 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. As of December 31, 2010, the Company has not repurchased any shares of its common stock under this repurchase program.

In February 2010, the Company’s Board of Directors authorized the repurchase of up to $100 million of common stock in connection with the offering of the 2040 Convertible Notes as well as up to an additional $200 million of its common stock in the open market from time to time at prevailing market prices or otherwise, as conditions warrant. This $200 million authorization includes any amounts which were outstanding under previously authorized stock repurchase programs. In connection with the 2040 Convertible Note offering the Company repurchased 3.0 million shares of its common stock for $109.9 million. These repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity. As of December 31, 2010, treasury stock consisted of 5.2 million shares of common stock that had been repurchased, with a cost basis of approximately $134.9 million.

In September 2007, the Board of Directors of Macrovision Corporation authorized a stock repurchase program, which allowed Macrovision Corporation to purchase up to $60.0 million of the Macrovision Corporation’s common stock in the open market from time to time at prevailing market prices or otherwise, as conditions warrant. On May 5, 2008, the Board of Directors of the Company reconfirmed this stock purchase program. During the fourth quarter of 2008, the Company repurchased 2.3 million shares of common stock for $25.1 million. These repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.

(14) Income Taxes

The components of income from continuing operations before income taxes are as follows (in thousands):


	Year Ended December 31,
	2010		2009			2008
Domestic income	$	73,845	$	(47,780	)	$	(65,982	)
Foreign income		13,600		27,971			57,354

Income before provision for income taxes	$	87,445	$	(19,809	)	$	(8,628	)

Income tax expense for the years ended December 31, 2010, 2009 and 2008 consisted of the following (in thousands):


	Year Ended December 31,
	2010			2009			2008
Current:
Federal	$	(134,132	)	$	3,983		$	(57,862	)
State		(15,881	)		4,609			451
Foreign		13,006			11,058			10,559

Total current (benefit) expense		(137,007	)		19,650			(46,852	)

Deferred:
Federal		14,184			(17,471	)		22,251
State		(16,390	)		(3,600	)		1,192

Total deferred tax (benefit) expense		(2,206	)		(21,071	)		23,443

Total tax benefit from continuing operations	$	(139,213	)	$	(1,421	)	$	(23,409	)

Total tax (benefit) expense from discontinued operations	$	(207	)	$	31,716		$	53,797

F-30

Income tax expense for the years ended December 31, 2010, 2009, and 2008 differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income as a result of the following (in thousands):


	Year ended December 31,
	2010			2009			2008
Federal tax statutory rate	$	30,606		$	(7,044	)	$	(2,690	)
State taxes, net of federal benefit		2,082			(1,727	)		84
Tax credits		—			(213	)		(1,368	)
Foreign tax rate differential		1,622			(2,304	)		(8,717	)
Change in uncertain tax positions		(17,295	)		3,578			(8,868	)
Compensation expense		3,620			4,842			529
RTP and true-ups		(9,571	)		2,380			(327	)
State tax rate change, net of federal benefit		(11,453	)		(1,756	)		—
PFA Settlement		(458,353	)		—			—
Change in valuation allowance		320,264			—			(3,648	)
Others		(735	)		823			1,596

Total tax (benefit) expense	$	(139,213	)	$	(1,421	)	$	(23,409	)

The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):


	December 31,
	2010			2009
Deferred tax assets:
Accruals, reserves and others	$	13,323		$	17,455
Impairment losses on investments		8,163			8,415
Equity-based compensation		5,286			8,462
Deferred revenue		4,164			5,467
Credits		45,575			15,247
Others		9,050			18,257
Net operating loss carryforwards		475,603			249,718

Gross deferred tax assets		561,164			323,021
Valuation allowance		(322,548	)		—

Total deferred tax assets		238,616			323,021
Deferred tax liabilities:
Intangible assets		(202,141	)		(293,549	)
Debt Amortization		(29,611	)		—
Others		(17,710	)		(7,937	)

Total deferred tax liabilities		(249,462	)		(301,486	)

Net deferred tax (liabilities) assets	$	(10,846	)	$	21,535

During the three months ended March 31, 2010, the Company entered into a closing agreement with the Internal Revenue Service through its Pre-Filing Agreement (PFA) program confirming that the Company recognized an ordinary tax loss of approximately $2.4 billion from the 2008 sale of its TV Guide Magazine business. To account for the PFA closing agreement, the Company (i) recorded a discrete tax benefit for the release of $576.9 million of reserves for uncertain tax positions previously netted against its deferred tax assets, (ii) reduced the deferred tax asset originally established in connection with the tax loss by $115 million to reflect the PFA closing agreement and (iii) established a valuation allowance of $347 million against its deferred tax assets as a result of determining that it is more likely than not that its deferred tax assets would not be realized.

F-31

At December 31, 2010, the Company reviewed the determination made at March 31, 2010 that it is more likely than not that its deferred tax assets will not be realized. While the Company believes that its fundamental business model is robust, there has not been a change from the March 31, 2010 determination that it is more likely than not that its deferred tax assets will not be realized and as such has maintained a valuation allowance against deferred tax assets at December 31, 2010.

During the second quarter of 2010, the Company received $128.5 million from the Internal Revenue Service resulting from loss carryback claims for taxes paid by Rovi group members during the years 2003 – 2008.

As of December 31, 2010, the Company had federal tax loss carryforwards of approximately $1,467 million, of which $106.6 million related to stock option deductions and are not included in deferred tax assets. The federal loss carryforwards will expire in 2011 through 2028. The Company has state net operating loss carryforwards of approximately $31.6 million as of December 31, 2010. The state loss carryforwards will expire in 2020 through 2032.

The Company has federal research and development and foreign tax credits available to reduce future income tax expense of approximately $10.1 million and $35.4 million, respectively. The federal research credits will expire in 2024 through 2029 and the foreign tax credits will expire in 2014 through 2020.

Utilization of state and federal net operating loss and credit carryforwards may be subject to limitations due to ownership changes.

The Company recognizes a liability for uncertain tax positions. The gross tax-affected unrecognized tax benefits which, if recognized, would affect our tax rate were $48.5 million and $631.9 million as of December 31, 2010 and 2009. The Company recorded interest related to unrecognized tax benefits of approximately $1.0 million and $3.4 million for the years ended December 31, 2010 and 2009 and released interest and penalties of $18.5 million for settlements and statute closures for the year ended December 31, 2010. Total accrued interest and penalties was $6.0 million and $23.5 million at December 31, 2010 and 2009. Interest and penalties are classified in income tax expense. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is (in thousands):


	December 31,
	2010			2009
Balance as of January 1	$	634,020		$	304,789
Additions from acquired companies		—			—
Additions for tax positions related to the current year		188			329,231
Additions for tax provisions of prior years		2,644			—
Reductions for audit settlements		(576,883	)		—
Reductions for statute of limitations closures		(9,376	)		—

Balance as of December 31	$	50,593		$	634,020

The reduction for audit settlements in 2010 is a result of entering into the closing agreement with the Internal Revenue Service described above. We do not expect material change in the next twelve months to the ending balance.

The Company has not provided U.S. Federal or state taxes on approximately $121.2 million of undistributed earnings of non-U.S. subsidiaries as such earnings are considered to be permanently reinvested outside the U.S.

The Company conducts business globally and as a result files U.S. federal, state and foreign income tax returns in various jurisdictions. During 2008, the Internal Revenue Service concluded its examination of the Company’s federal income tax returns for 2003 and 2004. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2007.

F-32

(15) Geographic Information

Information on Revenue by Geographic Areas:


	Year ended December 31,
	2010		2009		2008
	(in thousands)
United States	$	262,236	$	239,389	$	153,563
International		279,254		241,061		173,877

Total Revenue	$	541,490	$	480,450	$	327,440

Information on Long Lived Assets by Geographic Areas:


	December 31,
	2010		2009
	(in thousands)
United States
Property and Equipment, net	$	36,271	$	40,407
Goodwill, net		836,928		825,725
Intangibles, net		691,404		766,660

Total United States		1,564,603		1,632,792

International
Property and Equipment, net		2,934		2,717
Goodwill, net		20,288		28,340
Intangibles, net		10,981		12,711

Total International		34,203		43,768

Total Long Lived Assets	$	1,598,806	$	1,676,560

(16) Commitments and Contingencies

Lease Commitments

The Company leases its facilities and certain equipment pursuant to noncancelable operating lease agreements expiring through 2019. The Company’s corporate headquarters are located in Santa Clara, California and such leases expire in January 2017. The Company also leases office space in Ann Arbor, Bedford, Burbank, New York, Radnor, San Francisco, Tulsa, the United Kingdom, Luxembourg, Canada, Japan and other locations, with various expiration dates through 2019. The Company records rent expense on a straight-line basis based on contractual lease payments. Allowances from lessors for tenant improvements have been included in the straight-line rent expense for applicable locations. Tenant improvements are capitalized and depreciated over the remaining life of the applicable lease.

F-33

Future minimum lease payments pursuant to these leases as of December 31, 2010 were as follows (in thousands):


	Operating Leases
2011	$	18,154
2012		14,308
2013		11,923
2014		10,104
2015		9,919
Thereafter		13,375

Total minimum lease payments	$	77,783
Less sublease revenues		(20,592	)

Net future minimum lease payments	$	57,191

Rent expense from continuing operations was $13.5 million, $17.2 million, and $13.3 million, for the years ended December 31, 2010, 2009, and 2008, respectively.

Indemnifications

In the normal course of business, the Company provides indemnification of varying scopes and amounts to certain of its licensees against claims made by third parties arising out of the use and/or incorporation of the Company’s products, intellectual property, services and/or technologies into the licensee’s products and services, provided the licensee is not in violation of the terms and conditions of the agreement and/or additional performance or other requirements for such indemnification. In some cases, the Company may receive tenders of defense and indemnity arising out of products that are no longer provided by the Company due to having divested certain assets, but which were previously licensed by the Company. The Company’s indemnification obligations are typically limited to the cumulative amount paid to the Company by the licensee under the license agreement, however some license agreements, including those with our largest multiple system operators and digital broadcast satellite providers, have larger limits or do not specify a limit on amounts that may be payable under the indemnity arrangements. The Company cannot estimate the possible range of losses that may affect the Company’s results of operations or cash flows in a given period or the maximum potential impact of these indemnification provisions on its future results of operations.

DirecTV, Inc. v. Finisar Corporation. In April 2005, Gemstar received a notice of a potential claim for indemnification from DirecTV Group, Inc. (“DirecTV”) as a result of a lawsuit filed by Finisar Corporation (“Finisar”) against DirecTV in the United States District Court for the Eastern District of Texas. Finisar alleged that several aspects of the DirecTV satellite transmission system, including aspects of its advanced electronic program guide (“EPG”) and the storage, scheduling, and transmission of data for the EPG, infringed a Finisar patent. On July 7, 2006, the Court awarded Finisar approximately $117 million. In addition, the Court ordered DirecTV to pay approximately $1.60 per activated set-top box in licensing fees going forward in lieu of an injunction until the expiration of Finisar’s patent in 2012. The parties both filed appeals to the Federal Circuit, which subsequently ruled that the trial court’s construction of certain terms of the patent was too broad, vacated the jury’s verdict of infringement, held that one of the seven patent claims at issue is invalid, and left standing the remaining six claims for reconsideration by the trial court. The appeals court also reversed the jury’s finding that DirecTV’s infringement was willful. The trial court subsequently ruled in DirecTV’s favor on its summary judgment motion that the remaining claims of the subject patent were invalid, and in January 2010 the court of appeals confirmed that ruling. The Company has not established a reserve with respect to this matter in its Consolidated Financial Statements.

F-34

Communications Corp., LLC (“Comcast”) put the Company on notice that it had received communications from Finisar asserting infringement of U.S. Patent 5,404,505 (the “‘505 patent”). On July 7, 2006, Comcast filed a declaratory judgment action in the Northern District of California asking the Court to rule, among other things, that it does not infringe the ‘505 patent and/or that the patent is invalid. On May 15, 2008, Finisar entered into a covenant and stipulation with Comcast, filed with the California Court, that it would not assert any claim of the ‘505 patent against Comcast or certain related entities, other than claim 25. On July 11, 2008, the Court ruled on Comcast’s summary judgment motion, finding that claim 25 is invalid, and therefore finding that Comcast’s non-infringement motion is moot. Comcast has not taken any further action insofar as its potential indemnity claim against the Company is concerned.

Legal Proceedings

Thomson, Inc. v. Gemstar-TV Guide International, Inc., in the Superior Court of the State of Indiana for the County of Hamilton. On May 23, 2008, Thomson, Inc. (“Thomson”) initiated this action, seeking, among other things, indemnification from the Company in connection with its settlement of the patent claims against it in SuperGuide Corporation v. DirecTV Enterprises, Inc., et al., in the United States District Court for the Western District of North Carolina. The parties reached a confidential settlement in the matter and the Company paid all amounts due in March 2010.

DIRECTV, Inc. v. Gemstar-TV Guide Interactive, Inc., American Arbitration Association—Los Angeles. On March 20, 2009, DirecTV filed this arbitration demand seeking indemnity for payments made in settlement of two patent infringement lawsuits, including the SuperGuide Corporation v. DirecTV Enterprises, Inc., et al. matter. The Company received the arbitrators’ final ruling on the matter and paid the amount that the arbitrators awarded to DirecTV in the arbitration in March 2010.

John Burke v. TV Guide Magazine Group, Inc., Open Gate Capital, Rovi Corp., Gemstar-TV Guide International, Inc. On August 11, 2009, plaintiff filed a purported class action lawsuit claiming that the Company’s former subsidiary, TV Guide Magazine, breached agreements with its subscribers and violated consumer protection laws with its practice of counting double issues toward the number of issues in a subscription. On September 10, 2009, the Company filed an answer to the complaint along with a petition to remove the case to federal court. On December 18, 2009, the case was dismissed with prejudice, and plaintiff has filed an appeal of that dismissal.

In addition to the items listed above, the Company is party to various legal actions, claims and proceedings as well as other actions, claims and proceedings incidental to its business. The Company has established loss provisions only for matters in which losses are probable and can be reasonably estimated. Some of the matters pending against the Company involve potential compensatory, punitive or treble damage claims, or sanctions, that if granted, could require the Company to pay damages or make other expenditures in amounts that could have a material adverse effect on its financial position or results of operations. At this time, management has not reached a determination that the matters listed above or any other litigation, individually or in the aggregate, are expected to result in liabilities that will have a material adverse effect on our financial position or results of operations or cash flows.

F-35

(17) Quarterly Consolidated Financial Data (Unaudited)


	Quarter
	Q1			Q2			Q3			Q4			Year
	(in thousands, except per share data)
2010 (3)
Revenues	$	129,370		$	133,908		$	138,028		$	140,184		$	541,490
Income from continuing operations, net of taxes (1)	$	79,734		$	41,270		$	37,624		$	68,030		$	226,658
Discontinued operations, net of taxes	$	(11,639	)	$	(84	)	$	(1,206	)	$	(845	)	$	(13,774	)
Net income (1)	$	68,095		$	41,186		$	36,418		$	67,185		$	212,884
Basic income per share from continuing operations	$	0.77		$	0.41		$	0.36		$	0.65		$	2.20
Basic loss per share from discontinued operations		(0.11	)		0.00			(0.01	)		(0.01	)		(0.14	)

Basic net earnings per share	$	0.66		$	0.41		$	0.35		$	0.64		$	2.06

Diluted income per share from continuing operations	$	0.75		$	0.39		$	0.34		$	0.60		$	2.07
Diluted loss per share from discontinued operations		(0.11	)		(0.00	)		(0.01	)		(0.01	)		(0.13	)

Diluted net earnings per share	$	0.64		$	0.39		$	0.33		$	0.59		$	1.94

2009 (3)
Revenues	$	110,288		$	118,548		$	114,514		$	137,100		$	480,450
(Loss) income from continuing operations, net of taxes (2)	$	(5,438	)	$	(1,801	)	$	(11,764	)	$	615		$	(18,388	)
Discontinued operations, net of taxes	$	(36,077	)	$	(341	)	$	(157	)	$	2,012		$	(34,563	)
Net (loss) income (2)	$	(41,515	)	$	(2,142	)	$	(11,921	)	$	2,627		$	(52,951	)
Basic (loss) income per share from continuing operations	$	(0.05	)	$	(0.02	)	$	(0.12	)	$	0.01		$	(0.18	)
Basic (loss) income per share from discontinued operations		(0.36	)		(0.00	)		(0.00	)		0.02			(0.34	)

Basic net earnings per share	$	(0.41	)	$	(0.02	)	$	(0.12	)	$	0.03		$	(0.52	)

Diluted (loss) income per share from continuing operations	$	(0.05	)	$	(0.02	)	$	(0.12	)	$	0.00		$	(0.18	)
Diluted (loss) income per share from discontinued operations		(0.36	)		(0.00	)		(0.00	)		0.02			(0.34	)

Diluted net earnings per share	$	(0.41	)	$	(0.02	)	$	(0.12	)	$	0.02		$	(0.52	)

(1)

During the first quarter of 2010, the Company recorded a $108.5 million income tax benefit from continuing operations primarily due to entering into a closing agreement with the Internal Revenue Service through its PFA program confirming that the Company recognized an ordinary tax loss of approximately $2.4 billion from the 2008 sale of its TV Guide Magazine business (See Note 14). During the fourth quarter of 2010, the Company released $17.3 million of tax contingency reserves (See Note 14).

(2)	During the first quarter of 2009, the Company recorded $8.0 million in restructuring and asset impairment charges (See Note 11). During the second quarter of 2009 the Company recorded $45.6 million in restructuring and asset impairment charges (See Note 6 and Note 11).

(3)	Information included above has been reclassified from amounts previously reported to present the operations of Norpak as discontinued operations (See Note 5).

F-36

(18) Subsequent Events

2011 Convertible Note Repurchase

In January 2011, the Company repurchased an additional $113.9 million (par value $50.6 million) of its 2011 Convertible Notes.

Cryptography Research, Inc. Warrant Exercise

On January 20, 2011, Cryptography Research, Inc. converted its warrant to purchase shares of the Company’s common stock into 426,044 shares of Company common stock. No further obligations exist under the warrant.

Senior Secured Bank Credit Facility

On February 7, 2011, two of the Company’s subsidiaries, Rovi Solutions Corporation and Rovi Guides Inc., jointly borrowed an additional $750 million under a senior secured credit facility consisting of a 5-year $450 million term loan and a 7-year $300 million term loan. Both term loans are guaranteed by the Company, the Company’s domestic subsidiaries (other than the two co-borrowers) and Index Systems Inc. and are secured by substantially all of the Company’s, the subsidiary guarantors and the co-borrowers’ assets. The 5-year term loan requires annual amortization payments and matures on February 7, 2016 and the 7-year term loan requires quarterly amortization payments and matures on February 7, 2018. The $450 million term loan bears interest, at the Company’s election, at either prime rate plus 1.5% per annum or 3 month LIBOR plus 2.5% per annum. The $300 million term loan bears interest, at the Company’s election, at either prime plus 2.0% per annum or 3 month LIBOR plus 3.0% per annum, with a LIBOR floor of 1.0%.

Sonic Acquisition Litigation

F-37

class members who do not elect to opt out of the settlement. Class members who elect to opt out, if any, may continue to pursue causes of action against the defendants. The Company does not believe the above actions will result in liabilities that will have a material adverse effect on its financial position or results of operations or cash flows.

Sonic Acquisition

On February 14, 2011, the Company announced the successful completion of its cash and stock tender offer for all of the outstanding shares of common stock of Sonic. The offer expired as scheduled at one minute following 11:59 p.m., Eastern time (midnight), on February 11, 2011. Based on preliminary information from the depositary for the tender offer, 45,790,080 shares, representing over 89.3 percent of the outstanding shares of common stock of Sonic as of the close of business on February 11, 2011, were validly tendered and not withdrawn prior to the expiration of the tender offer. All of such shares have been accepted for payment in accordance with the terms of the offer, including 6,429,921 of such shares that were tendered pursuant to the tender offer’s guaranteed delivery procedure. The Company expects to cause the merger to be completed within a few days, with Sonic becoming a wholly-owned subsidiary of the Company.

F-38