iRobot 2010 Annual Report Download - page 77

• travel and related costs; and
• occupancy and other overhead costs.
We anticipate that selling, general and administrative expenses will increase in absolute dollars but remain
relatively flat as a percentage of revenue in the foreseeable future as we continue to build the iRobot brand and also
maintain company profitability.
For the fiscal years ended January 1, 2011 and January 2, 2010, selling, general and administrative expense was
$87.2 million and $71.0 million, or 21.7% and 23.8% of total revenue, respectively.
Fiscal Periods
We operate and report using a 52-53 week fiscal year ending on the Saturday closest to December 31.
Accordingly, our fiscal quarters will end on the Saturday that falls closest to the last day of the third month of each
quarter.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and
expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual
results may differ from these estimates.
We believe that of our significant accounting policies, which are described in the notes to our consolidated
financial statements, the following accounting policies involve a greater degree of judgment and complexity.
Accordingly, we believe that the following accounting policies are the most critical to aid in fully understanding and
evaluating our consolidated financial condition and results of operations.
Revenue Recognition
We recognize revenue from sales of consumer products under the terms of the customer agreement upon
transfer of title and risk of loss to the customer, provided the price is fixed or determinable, collection is determined
to be reasonably assured and no significant obligations remain. Sales to resellers are typically subject to agreements
allowing for limited rights of return for defective products only, rebates and price protection. We have typically not
taken product returns except for defective products. Accordingly, we reduce revenue for our estimates of liabilities
for these rights at the time the related sale is recorded. We establish a provision for sales returns for products sold by
resellers directly based on historical return experience and other relevant data. Our international distributor
agreements do not currently allow for product returns and, as a result, no reserve for returns is established for this
group of customers. We have aggregated and analyzed historical returns from resellers and end users which form the
basis of our estimate of future sales returns by resellers or end users. When a right of return exists, the provision for
these estimated returns is recorded as a reduction of revenue at the time that the related revenue is recorded. If actual
returns from retailers differ significantly from our estimates, such differences could have a material impact on our
results of operations for the period in which the actual returns become known. Our returns reserve is calculated as a
percentage of gross consumer product revenue. A one percentage point increase or decrease in our actual experience
of returns would have a material impact on our quarterly and annual results of operations. The estimates for returns
are adjusted periodically based upon historical rates of returns. The estimates and reserve for rebates and price
protection are based on specific programs, expected usage and historical experience. Actual results could differ
from these estimates. If future trends or our ability to estimate were to change significantly from those experienced
in the past, incremental reductions or increases to revenue may result based on this new experience.
Under cost-plus research and development contracts, we recognize revenue based on costs incurred plus a pro-
rata portion of the total fixed fee. Costs and estimated gross margins on contracts are recorded as work is performed
based on the percentage that incurred costs bear to estimated total costs utilizing the most recent estimates of costs
and funding. We recognize revenue on firm fixed price (FFP) contracts using the percentage-of-completion method.
For government product FFP contracts revenue is recognized as the product is shipped or in accordance with the
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Form 10-K