iRobot 2007 Annual Report Download - page 79

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years. There, however, can be no assurance as to the rate at which these net operating loss carry-forwards can be
utilized, or as to whether there will be any other tax incentives available after 2007.
We monitor the realization of our deferred tax assets based on changes in circumstances, for example,
recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax laws
or regulations. Our income tax provision and our assessment of the realizability of our deferred tax assets involve
significant judgments and estimates. In fiscal 2007, we completed an analysis of historical and projected future
profitability which resulted in the full release of the valuation allowance relating to federal deferred tax assets. We
continue to maintain a valuation allowance against state deferred tax assets due to less certainty of their realizability
given the shorter expiration period associated with these state deferred tax assets and the generation of state tax
credits in excess of the state tax liability. At December 29, 2007, we have total deferred tax assets of $12.9 million
and a valuation allowance of $2.7 million resulting in a net deferred tax asset of $10.2 million.
Warranty
We typically provide a one-year warranty against defects in materials and workmanship and will either repair
the goods, provide replacement products at no charge to the customer or refund amounts to the customer for
defective products. We record estimated warranty costs, based on historical experience by product, at the time we
recognize product revenue. As the complexity of our products increases, we could experience higher warranty
claims relative to sales than we have previously experienced, and we may need to increase these estimated warranty
reserves.
Inventory Valuation
We value our inventory at the lower of the actual cost of our inventory or its current estimated market value. We
write down inventory for obsolescence or unmarketable inventories based upon assumptions about future demand
and market conditions. Because of the seasonality of our consumer product sales and inventory levels, obsolescence
of technology and product life cycles, we generally write down inventory to net realizable value based on forecasted
product demand. Actual demand and market conditions may be lower than those that we project and this difference
could have a material adverse effect on our gross profit if inventory write-downs beyond those initially recorded
become necessary. Alternatively, if actual demand and market conditions are more favorable than those we
estimated at the time of such a write-down, our gross profit could be favorably impacted in future periods.
45
Form 10-K