iRobot 2011 Annual Report Download - page 119

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Government Contract Contingencies
Several of the Company’s prime contracts with the U.S. federal government do not contain a limitation of
liability provision, creating a risk of responsibility for direct and consequential damages. Several subcontracts
with prime contractors hold the prime contractor harmless against liability that stems from our work and do not
contain a limitation of liability. These provisions could cause substantial liability for the Company. In addition,
the Company is subject to audits by the U.S. federal government as part of routine audits of government
contracts. As part of an audit, these agencies may review the Company’s performance on contracts, cost
structures and compliance with applicable laws, regulations and standards. If any of its costs are found to be
allocated improperly to a specific contract, the costs may not be reimbursed and any costs already reimbursed for
such contract may have to be refunded. Accordingly, an audit could result in a material adjustment to our revenue
and results of operations. Annually, the Company submits final indirect billing rates to DCMA based upon actual
costs incurred throughout the year. These final billing rates are subject to audit by DCAA. As of December 31,
2011, fiscal years 2007, 2008, 2009, 2010 and 2011 are open for audit by DCAA.
Warranty
The Company provides warranties on most products and has established a reserve for warranty based on
identified warranty costs. The reserve is included as part of accrued expenses (Note 6) in the accompanying
consolidated balance sheets.
Activity related to the warranty accrual was as follows:
Fiscal Year Ended
December 31,
2011
January 1,
2011
January 2,
2010
(In thousands)
Balance at beginning of period ......................... $ 9,284 $ 6,105 $ 5,380
Provision .......................................... 4,091 6,402 4,870
Warranty usage(*) ................................... (3,069) (3,223) (4,145)
Balance at end of period .............................. $10,306 $ 9,284 $ 6,105
(*) Warranty usage includes the pro rata expiration of product warranties not utilized.
Sales Taxes
The Company collects and remits sales tax in jurisdictions in which it has a physical presence or it believes
nexus exists, which therefore obligates the Company to collect and remit sales tax. The Company continually
evaluates whether it has established a nexus in new jurisdictions with respect to sales tax. The Company has
recorded a liability for potential exposure in several states where there is uncertainty about the point in time at
which the Company established a sufficient business connection to create nexus. The Company continues to
analyze possible sales tax exposure, but does not currently believe that any individual claim or aggregate claims
that might arise will ultimately have a material effect on its consolidated results of operations, financial position
or cash flows.
12. Employee Benefits
The Company sponsors a retirement plan under Section 401(k) of the Internal Revenue Code (the
“Retirement Plan”). All Company employees, with the exception of temporary, contract and international
employees are eligible to participate in the Retirement Plan after satisfying age and length of service
requirements prescribed by the plan. Under the Retirement Plan, employees may make tax- deferred
72