iRobot 2011 Annual Report Download - page 79

liabilities for these rights of return at the time the related sale is recorded. We establish a provision for sales
returns for products sold by domestic 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 domestic 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 small increase or decrease in our actual experience of returns could 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 contract terms. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements and government audit, may result in revisions
to costs and income, and are recorded or recognized, as the case may be, in the period in which the revisions are
determined. Since many contracts extend over a long period of time, revisions in cost and funding estimates
during the progress of work have the effect of adjusting earnings applicable to past performance in the current
period. When the current contract estimate indicates a loss, provision is made for the total anticipated loss in the
current period. Revenue earned in excess of billings, if any, is recorded as unbilled revenue. Billings in excess of
revenue earned, if any, are recorded as deferred revenue.
Accounting for Stock-Based Awards
We recognized $5.2 million of stock-based compensation expense during the fiscal year ended
December 31, 2011 for stock options. The unamortized fair value as of December 31, 2011 associated with these
grants was $11.0 million with a weighted-average remaining recognition period of 2.39 years.
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which
approximates the rate in effect at the time of grant, commensurate with the expected life of the instrument. The
dividend yield is zero based upon the fact that we have never paid and have no present intention to pay cash
dividends. Prior to 2010, the expected term calculation was based upon the simplified method provided under the
relevant authoritative guidance. During 2010, we began to rely solely on company specific historical data to
calculate the expected term. Given our initial public offering in November 2005 and the resulting short history as
a public company, we could not rely solely on company specific historical data for purposes of establishing
expected volatility. Consequently, prior to 2010, we performed an analysis that included company specific
historical data combined with data of several peer companies with similar expected option lives to develop
expected volatility assumptions. During 2010, we began to rely solely on company specific historical data for
purposes of establishing expected volatility.
Based upon the above assumptions, the weighted average fair value of each stock option granted for the
fiscal year ended December 31, 2011 was $16.55.
During the fiscal year ended December 31, 2011, the Company recognized $3.6 million of stock-based
compensation associated with restricted stock units. Unamortized expense associated with restricted stock units
at December 31, 2011, was $11.7 million.
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