iRobot 2007 Annual Report Download - page 92

From time to time, new accounting pronouncements are issued by FASB that are adopted by us as of the
specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards, which
are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
We maintain sales and business operations in foreign countries. As such, we have exposure to adverse changes
in exchange rates associated with operating expenses of our foreign operations, but we believe this exposure to be
immaterial. In late 2007, we began to accept orders for home robot products in currencies other than the U.S. dollar
and we expect this practice to continue in the future. We regularly monitor the level of non-U.S. dollar accounts
receivable balances to determine if any actions, including possibly entering into foreign currency forward contracts,
should be taken to minimize the impact of fluctuating exchange rates on our results of operations.
Interest Rate Sensitivity
We had unrestricted cash and cash equivalents of $26.7 million and short term investments of $16.6 million at
December 29, 2007. The unrestricted cash and cash equivalents are held for working capital purposes. We do not
enter into investments for trading or speculative purposes. Some of the securities in which we invest, however, may
be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including auction rate securities, commercial paper, money
market funds, debt securities and certificates of deposit. As of December 29, 2007, all of our cash equivalents were
held in money market accounts and our short-term investments were comprised of auction rate securities.
As of February 21, 2008, we held $17.5 million of variable rate bonds or auction rate securities, all of which
were purchased in January or February of 2008. A substantial majority of the underlying assets of these auction rate
securities are student loans which are backed by the federal government under the Federal Family Education Loan
Program. On February 19, 2008 one auction failed for $2.5 million of our auction rate securities and there is no
assurance that auctions on the remaining auction rate securities in our investment portfolio will succeed in the
future. As a result, our ability to liquidate our investments in the near term may be limited, and our ability to fully
recover the carrying value of our investments may be limited or non-existent. An auction failure means that the
parties wishing to sell securities could not carry out the transaction. All of our auction rate securities, including
those subject to the prior failures, are currently rated AAA, the highest rating available by a rating agency. If the
issuers are unable to successfully close future auctions or their credit ratings deteriorate, we may in the future be
required to record an impairment charge on these investments. We believe we will be able to liquidate our
investments without significant loss but the timing of such an outcome is uncertain. We currently believe these
securities are not significantly impaired, primarily due to the government backing of the underlying securities.
However, it could take until the final maturity of the underlying notes (up to 40 years) to realize our investments’
recorded value. Based on our expected operating cash flows, and our other potential sources of cash, including our
available line of credit, we do not anticipate that the potential lack of liquidity on these investments in the near-term
will affect our ability to execute our current business plan.
Our exposure to market risk also relates to the increase or decrease in the amount of interest expense we must
pay on our outstanding debt instruments, primarily certain borrowings under our working capital line of credit and
our equipment financing facility. The advances under the working capital line of credit bear a variable rate of
interest determined as a function of the prime rate or the Eurodollar rate at the time of the borrowing. The advances
under the equipment financing facility bear either a variable or fixed rate of interest, at our election, determined as a
function of the LIBOR rate at the time of borrowing. At December 29, 2007, there were no amounts outstanding
under our working capital line of credit or our equipment financing facility.
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