iRobot 2005 Annual Report Download - page 64

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
funds totaling $73.6 million and $12.4 million, respectively. These cash equivalents are carried at cost, which
approximates fair value.
Revenue Recognition
The Company derives its revenue from product sales, government research and development contracts
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 consumer robots
under the terms of the customer agreement upon transfer of title to the customer, net of estimated returns,
provided that collection is determined to be probable and no significant obligations remain. Sales to resellers
are subject to agreements allowing for limited rights of return for defective products only, rebates and price
protection. The Company has historically not taken product returns except for defective products. Accord-
ingly, the Company reduces revenue for its estimates of liabilities for these rights at the time the related sale is
recorded. The Company makes an estimate of sales returns for products sold by resellers directly or through its
distributors based on historical returns experience. The Company has aggregated and analyzed historical
returns from resellers and end users which form the basis of its estimate of future sales returns by resellers or
end users. In accordance with Statement of Financial Accounting Standards No. 48, ""Revenue Recognition
When 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 differ significantly from its estimates, such
differences could have a material impact on the Company's results of operations for the period in which the
returns become known. 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. Through fiscal 2003, the
Company recognized revenue on sales to certain distributors and retail customers upon their sale to the end-
user when an allowance for future returns from the end-user could not be reasonably estimated. In fiscal 2004,
the Company recognized revenue on all sales to distributors and retail customers upon delivery of product and
established a related allowance for future returns based upon historical experience. As a result of this change,
the Company recorded revenue of approximately $5.7 million in fiscal 2004 for products shipped prior to
January 1, 2004.
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. Revenue on firm fixed price (FFP) contracts is
recognized using the percentage-of-completion method. Costs and estimated gross profits on contracts are
recorded as revenue as work is performed based on the percentage that incurred costs bear 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, 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 indicates a loss, provision is made for the total anticipated loss in the current period. Revenue earned
in excess of billings, if any, is recorded as unbilled revenue. Billings in excess of revenue earned, if any, are
recorded as deferred revenue.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to provide for the estimated amount of
accounts receivable that may not be collected. The allowance is based upon an assessment of customer
creditworthiness, historical payment experience and the age of outstanding receivables.
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