iRobot 2010 Annual Report Download - page 99

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Short Term Investments
The Company’s investments are classified as available-for-sale and are recorded at fair value with any
unrealized gain or loss recorded as an element of stockholders’ equity. The fair value of investments is determined
based on quoted market prices at the reporting date for those instruments. As of January 1, 2011 and January 2,
2010, investments consisted of:
Cost
Fair
Market Value Cost
Fair
Market Value
January 1,
2011
January 2,
2010
(In thousands)
Corporate bond .......................... $11,465 $11,424 $ — $ —
U.S. Government bond .................... 2,498 2,504 5,000 4,959
Total short term investments ................ $13,963 $13,928 $5,000 $4,959
As of January 1, 2011, the Company’s investments had maturity dates ranging from June 2010 to August 2013.
Revenue Recognition
The Company derives its revenue from product sales, government research and development contracts, and
commercial research and development contracts. The Company sells products directly to customers and indirectly
through resellers and distributors. The Company recognizes revenue from sales of home robots under the terms of
the customer agreement upon transfer of title and risk of loss to the customer, net of estimated returns, provided that
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. The Company has typically not taken product returns except for defective products. Accordingly, the
Company reduces revenue for its estimates of liabilities for these rights at the time the related sale is recorded. The
Company makes an estimate of sales returns for products sold by resellers directly based on historical returns
experience and other relevant data. The Company’s 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. The Company has
aggregated and analyzed historical returns from resellers and end users which form the basis of its 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 differ
significantly from its estimates, such differences could have a material impact on the Company’s results of
operations for the period in which the returns become known. 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.
Under cost-plus-fixed-fee (“CPFF”) type contracts, the Company recognizes revenue based on costs incurred
plus a pro rata portion of the total fixed fee. Costs incurred include labor and material that are directly associated
with individual CPFF contracts plus indirect overhead and general and administrative type costs based upon billing
rates submitted by the Company to the Defense Contract Management Agency (“DCMA”). Annually, the Company
submits final indirect billing rates to DCMA based upon actual costs incurred throughout the year. These final
billing rates are subject to audit by the Defense Contract Audit Agency (“DCAA”), which can occur several years
after the final billing rates are submitted and may result in material adjustments to revenue recognized based on
estimated final billing rates. As of January 1, 2011, fiscal years 2007, 2008, 2009 and 2010 are open for audit by
DCAA. In the situation where the Company’s anticipated actual billing rates will be lower than the provisional rates
currently in effect, the Company records a cumulative revenue adjustment in the period in which the rate differential
is identified. Revenue on firm fixed price (“FFP”) contracts is recognized using the percentage-of-completion
method. For government product FFP contracts revenue is recognized as the product is shipped or in accordance
with the contract terms. Costs and estimated gross margins on contracts are recorded as revenue as work is
53
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Form 10-K