iRobot 2011 Annual Report Download - page 80

Form 10-K
We have assumed a forfeiture rate for all stock options, restricted stock awards and restricted stock-based
units granted subsequent to the Company’s initial filing of its Form S-1 with the SEC. In the future, we will
record incremental stock-based compensation expense if the actual forfeiture rates are lower than estimated and
will record a recovery of prior stock-based compensation expense if the actual forfeitures are higher than
estimated.
Accounting for stock-based awards requires significant judgment and the use of estimates, particularly
surrounding assumptions such as stock price volatility and expected option lives to value equity-based
compensation.
Accounting for Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
We monitor the realization of our deferred tax assets based on changes in circumstances, for example,
recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax
laws or regulations. Our income tax provision and our assessment of the ability to realize our deferred tax assets
involve significant judgments and estimates. In fiscal 2007, we completed an analysis of historical and projected
future profitability which resulted in the full release of the valuation allowance relating to federal deferred tax
assets. In fiscal 2010, based on recent and expected increased future profitability the valuation allowance relating
to state deferred tax assets was released. At December 31, 2011, we have total deferred tax assets of
$21.5 million with no valuation allowance.
Warranty
We typically provide a one-year warranty (with the exception of European consumer products which
typically have a two-year warranty period and our government and industrial spares which typically have a
warranty period of less than one year) against defects in materials and workmanship and will either repair the
goods, provide replacement products at no charge to the customer or refund amounts to the customer for
defective products. We record estimated warranty costs, based on historical experience by product, at the time we
recognize product revenue. As the complexity of our products increases, we could experience higher warranty
claims relative to sales than we have previously experienced, and we may need to increase these estimated
warranty reserves.
Inventory Valuation
We value our inventory at the lower of the actual cost of our inventory or its current estimated market value.
We write down inventory for obsolescence or unmarketable inventories based upon assumptions about future
demand and market conditions. Actual demand and market conditions may be lower than those that we project
and this difference could have a material adverse effect on our gross margin if inventory write-downs beyond
those initially recorded become necessary. Alternatively, if actual demand and market conditions are more
favorable than those we estimated at the time of such a write-down, our gross margin could be favorably
impacted in future periods.
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