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Form 10-K
Internal Use Software
The Company capitalizes costs associated with the development and implementation of software obtained for
internal use. At January 2, 2010 and December 27, 2008, the Company had $4.9 million and $5.1 million
respectively, of costs related to enterprise-wide software included in fixed assets. Capitalized costs are being
amortized over the assets’ estimated useful lives. The Company has recorded $0.9 million, $0.8 million and
$0.7 million of amortization expense for the years ended January 2, 2010, December 27, 2008 and December 29,
2007, respectively.
Concentration of Credit Risk and Significant Customers
The Company maintains its cash in bank deposit accounts at high quality financial institutions. The individual
balances, at times, may exceed federally insured limits. At January 2, 2010 and December 27, 2008 the Company
exceeded the insured limit by $79.4 million and $40.4 million, respectively.
Financial instruments which potentially expose the Company to concentrations of credit risk consist of
accounts receivable. Management believes its credit policies are prudent and reflect normal industry terms and
business risk. At January 2, 2010 and December 27, 2008, 35% and 26%, respectively, of the Company’s accounts
receivable were due from the federal government. For the years ended January 2, 2010, December 27, 2008, and
December 29, 2007 revenue from one customer, the federal government, represented 36.9%, 40% and 35% of total
revenue, respectively.
Foreign Currency Forward Contracts
The Company periodically enters into foreign currency forward contracts to sell Canadian dollars for United
States dollars. The Company’s objective in entering into these contracts was to reduce foreign currency exposure to
appreciation or depreciation in the value of its Canadian dollar based accounts receivable balances by partially
offsetting a portion of such exposure with gains or losses on the forward contracts.
These foreign currency contracts did not qualify for hedge accounting. Accordingly, the foreign currency
forward contracts were marked-to-market and recorded at fair value with unrealized gains and losses reported along
with foreign currency gains or losses in the caption “other income (expense), net” on the Company’s consolidated
statements of operations. As of January 2, 2010 the Company did not have any foreign currency forward contracts.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the relevant authoritative guidance which establishes
accounting for equity instruments exchanged for employee services. Under the provisions of this guidance,
share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity
grants). The Company adopted the prospective transition method as provided by this guidance and, accordingly
financial statement amounts for the prior periods presented in this Annual Report on Form 10-K have not been
restated to reflect the fair value method of expensing share-based compensation. Prior to January 1, 2006, the
Company accounted for share-based compensation to employees in accordance with the authoritative guidance in
effect at that time.
In a review of its stock-based compensation accounting methodology performed during the second quarter of
fiscal 2007, the Company determined that a cumulative adjustment of $0.5 million of incremental stock-based
compensation expense, and a balance sheet reclassification of $0.8 million from deferred compensation to
additional paid-in capital, were required due to a correction in the application of the relevant authoritative
guidance. Upon adoption of this guidance on January 1, 2006, the Company incorrectly valued 259,700 stock
options that were granted between the date that it filed its initial Form S-1 registration statement with the Securities
and Exchange Commission on July 27, 2005 and the date it became a public company (November 8, 2005). The
67
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)