iRobot 2012 Annual Report Download - page 100

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
50
the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The
second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill
with the carrying value of that goodwill.
Research and Development
Costs incurred in the research and development of the Company’s products, classified as cost of contract and research
and development, are expensed as incurred.
Internal Use Software
The Company capitalizes costs associated with the development and implementation of software for internal use. At
December 29, 2012 and December 31, 2011, the Company had $8.3 million and $8.3 million, respectively, of costs related to
enterprise-wide software included in fixed assets. Capitalized costs are being amortized over the assets’ estimated useful lives.
The Company has recorded $1.0 million, $0.9 million and $0.9 million of amortization expense for the years ended December
29, 2012, December 31, 2011 and January 1, 2011, respectively.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts
receivable. Management believes its credit policies are prudent and reflect normal industry terms and business risk. At
December 29, 2012, three customers accounted for a total of 55% of the Company's accounts receivable balance, each of which
was greater than 10% of the balance. Two of the customers accounting for 36% of the Company's accounts receivable balance
secured their balance with guaranteed letters of credit. At December 31, 2011 four customers accounted for a total of 63% of
the Company’s accounts receivable balance, each of which was greater than 10% of the balance. Two of the customers
accounting for 29% of the Company’s accounts receivable balance secured their balance with guaranteed letters of credit. For
the years ended December 29, 2012, December 31, 2011 and January 1, 2011, revenue from U.S. federal government orders,
contracts and subcontracts, represented 15.1%, 36.1% and 38.4% of total revenue, respectively. For the fiscal years ended
December 29, 2012 and December 31, 2011, the Company generated an aggregate of 30.6% and 23.6%, respectively, of total
revenue from its home robots distributor in Japan and a network of affiliated European distributors of its home robots.
The Company maintains its cash in bank deposit accounts at high quality financial institutions. The individual balances,
at times, may exceed federally insured limits.
Stock-Based Compensation
The Company accounts for stock-based compensation through recognition of the fair value of the stock-based
compensation as a charge against earnings. Stock-based compensation cost for stock options is estimated at the grant date based
on each option’s fair-value as calculated by the Black-Scholes option-pricing model. Stock-based compensation cost for
restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common
stock on the date of grant. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis
over the requisite service period, net of estimated forfeitures.
Advertising Expense
The Company expenses advertising costs as they are incurred. During the years ended December 29, 2012, December 31,
2011 and January 1, 2011 advertising expense totaled $34.9 million, $20.4 million and $13.8 million, respectively.