iRobot 2012 Annual Report Download - page 77

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In addition to our internal research and development activities discussed above, we incur research and development
expenses under funded development arrangements with both governments and other third parties. For the fiscal years ended
December 29, 2012 and December 31, 2011, these expenses amounted to $16.8 million and $26.5 million, respectively. In
accordance with generally accepted accounting principles, these expenses have been classified as cost of revenue rather than
research and development expense. For the years ended December 29, 2012 and December 31, 2011, the combined investment
in future technologies, classified as cost of revenue and research and development expense, was $54.0 million and
$63.0 million, respectively.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of:
• salaries and related costs for sales and marketing personnel;
• salaries and related costs for executives and administrative personnel;
• advertising, marketing and other brand-building costs;
• fulfillment costs associated with direct-to-consumer sales through our on-line store;
• customer service costs;
• professional services costs;
• information systems and infrastructure costs;
• 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
consistent 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 December 29, 2012 and December 31, 2011, selling, general and administrative expense was
$117.3 million and $102.3 million, or 26.9% and 22.0% 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, which is typically upon the delivery of the product, provided the price is fixed or determinable,
collection is determined to be reasonably assured and no significant obligations remain. Sales to domestic resellers are typically
subject to agreements allowing for limited rights of return for defective products only, rebates and price protection.
Accordingly, we reduce revenue for our estimates of 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
Form 10-K