iRobot 2014 Annual Report Download - page 121

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
48
Short Term Investments
The Company’s investments are classified as available-for-sale and are recorded at fair value with any unrealized gain or
loss recorded as an element of stockholders’ equity. The fair value of investments is determined based on quoted market prices
at the reporting date for those instruments. As of December 27, 2014 and December 28, 2013, investments consisted of:
December 27,
2014 December 28, 2013
Cost Fair
Market Value Cost Fair Market Value
(In thousands)
Corporate and government bonds $ 36,659 $ 36,166 $ 22,134 $ 21,954
Total short term investments $ 36,659 $ 36,166 $ 22,134 $ 21,954
As of December 27, 2014, the Company’s investments had maturity dates ranging from July 2015 to March 2018. The
Company invests primarily in investment grade securities and limits the amount of investment in any single issuer.
Revenue Recognition
The Company derives its revenue from product sales and, to a lesser extent, government and commercial research and
development contracts. The Company sells products directly to customers and indirectly through resellers and distributors. The
Company recognizes revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of
loss to the customer, net of estimated returns, provided that collection is determined to be reasonably assured and no significant
obligations remain. Sales to domestic and Canadian resellers of home robots are typically subject to agreements allowing for
limited rights of return, rebates and price protection. The Company also provides limited rights of returns for direct-to-
consumer sales generated through its on-line stores. Accordingly, the Company reduces revenue for its estimates of liabilities
for these rights of return, rebates and price protection at the time the related sale is recorded. The estimates for rights of return
are directly based on specific terms and conditions included in the reseller agreements, historical returns experience and various
other assumptions that the Company believes are reasonable under the circumstances. In the case of new product introductions,
the estimates for returns applied to the new products are based upon the estimates for the most similar predecessor products
until such time that the Company has enough actual returns experience for the new products, which is typically two holiday
return cycles. At that time, the Company incorporates that data into the development of returns estimates for the new products.
The Company updates its analysis of returns on a quarterly basis. If actual returns differ significantly from the Company's
estimates, or if modifications to individual reseller agreements are entered into that impact their rights of returns, such
differences could result in an adjustment to previously established reserves and could have a material impact, either favorably
or unfavorably, on the Company's results of operations for the period in which the actual returns become known or the reseller
agreement is modified. The Company’s 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. 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.
Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognizes revenue based on costs incurred plus a pro rata
portion of the total fixed fee. Costs incurred include labor and material that are directly associated with individual CPFF
contracts plus indirect overhead and general and administrative type costs based upon billing rates submitted by the Company
to the Defense Contract Management Agency (DCMA). Annually, the Company submits final indirect billing rates to DCMA
based upon actual costs incurred throughout the year. In the situation where the Company’s final actual billing rates are greater
than the provisional rates currently in effect, the Company records a cumulative revenue adjustment in the period in which the
rate differential is collected from the customer. These final billing rates are subject to audit by the Defense Contract Audit
Agency (DCAA), which can occur several years after the final billing rates are submitted and may result in material
adjustments to revenue recognized based on estimated final billing rates. As of December 27, 2014, fiscal years 2012 through
2014 are open for audit by DCAA. In the situation where the Company’s anticipated actual billing rates will be lower than the
provisional rates currently in effect, the Company records a cumulative revenue adjustment in the period in which the rate
differential is identified. Revenue on firm fixed price (FFP) contracts is recognized 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. Costs and estimated gross margins on contracts are recorded as revenue as work is performed based on the percentage
that incurred costs compare to estimated total costs utilizing the most recent estimates of costs and funding. Changes in job
performance, job conditions, and estimated profitability, including those arising from final contract settlements and government
audits, may result in revisions to costs and income and are recognized 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
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