iRobot 2012 Annual Report Download - page 99

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
49
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out
(FIFO) method. The Company maintains a reserve for inventory items to provide for an estimated amount of excess or obsolete
inventory.
Activity related to the inventory reserve was as follows:
Fiscal Year Ended
December 29,
2012 December 31,
2011 January 1,
2011
(In thousands)
Balance at beginning of period $ 2,568 $ 2,836 $ 3,713
Provision 5,101 411 677
Deduction(*) (1,061) (679) (1,554)
Balance at end of period $ 6,608 $ 2,568 $ 2,836
___________________________
(*) Deductions related to inventory reserve accounts represent amounts written off against the reserve.
Property and Equipment
Property and equipment are recorded at cost and consist primarily of computer equipment, leasehold improvements,
business applications software and machinery. Depreciation is computed using the straight-line method over the estimated
useful lives as follows:
Estimated
Useful Life
Computer and research equipment 3 years
Furniture 5
Machinery 2-5
Tooling 2-5
Business applications software 5-7
Capital leases and leasehold improvements Term of lease
Expenditures for additions, renewals and betterments of plant and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. As assets are retired or sold, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or charged to operations.
Long-Lived Assets, including Purchased Intangible Assets
The Company periodically evaluates the recoverability of long-lived assets, including other purchased intangible assets
whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the
industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present,
the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business.
The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than
book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no impairment
charges recorded during any of the periods presented.
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. The Company evaluates goodwill for impairment at the reporting unit
level (operating segment or one level below an operating segment) annually or more frequently if the Company believes
indicators of impairment exist. In accordance with the guidance, the Company is permitted to first assess qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the
Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a
two-step goodwill impairment test is performed.
The first step of the impairment test involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value,
Form 10-K