iRobot 2008 Annual Report Download - page 90

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During the fiscal year ended December 27, 2008, the Company recognized $0.2 million and $0.7 million of
stock based compensation associated with restricted stock awards and restricted stock units, respectively. Unam-
ortized expense associated with restricted stock awards and restricted stock units at December 27, 2008, was
$0.2 million and $2.4 million, respectively.
We have assumed a forfeiture rate for all stock options, restricted stock awards and restricted stock-based units
granted subsequent to the Company’s initial filing of its Form S-1 with the SEC. In the future, we will record
incremental stock-based compensation expense if the actual forfeiture rates are lower than estimated and will record
a recovery of prior stock-based compensation expense if the actual forfeitures are higher than estimated.
SFAS No. 123(R) requires significant judgment and the use of estimates, particularly surrounding assumptions
such as stock price volatility and expected option lives, as well as expected option forfeiture rates to value equity-
based compensation.
Accounting for Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation
allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
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 27, 2008, we have total deferred tax assets of $15.3 million
and a valuation allowance of $3.5 million resulting in a net deferred tax asset of $11.8 million.
Warranty
We typically provide a one-year warranty (with the exception of European consumer products which typically
have a two-year warranty period) 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 margin 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 margin could be favorably impacted in future periods.
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