iRobot 2012 Annual Report Download - page 98

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
48
Revenue Recognition
The Company derives its revenue from product sales, government research and development contracts, and commercial
research and development contracts. The Company sells products directly to customers and indirectly through resellers and
distributors. The Company recognizes revenue from sales of home robots under the terms of the customer agreement upon
transfer of title and risk of loss to the customer, net of estimated returns, provided that collection is determined to be reasonably
assured and no significant obligations remain. Sales to domestic resellers are typically subject to agreements allowing for
limited rights of return, rebates and price protection. Accordingly, the Company reduces revenue for its estimates of liabilities
for these rights of return at the time the related sale is recorded. The Company makes an estimate of sales returns for products
sold by domestic resellers directly based on historical returns experience and other relevant data. The Company’s international
distributor agreements do not currently allow for product returns and, as a result, no reserve for returns is established for this
group of customers. The Company has aggregated and analyzed historical returns from domestic resellers and end users which
form the basis of its estimate of future sales returns by resellers or end users. When a right of return exists, the provision for
these estimated returns is recorded as a reduction of revenue at the time that the related revenue is recorded. If actual returns
differ significantly from its estimates, such differences could have a material impact on the Company’s results of operations for
the period in which the returns become known. The estimates for returns are adjusted periodically based upon historical rates of
returns. The estimates and reserve for rebates and price protection are based on specific programs, expected usage and
historical experience. Actual results could differ from these estimates.
Under cost-plus-fixed-fee (“CPFF”) type contracts, the Company recognizes revenue based on costs incurred plus a pro
rata portion of the total fixed fee. Costs incurred include labor and material that are directly associated with individual CPFF
contracts plus indirect overhead and general and administrative type costs based upon billing rates submitted by the Company
to the Defense Contract Management Agency (“DCMA”). Annually, the Company submits final indirect billing rates to
DCMA based upon actual costs incurred throughout the year. In the situation where the Company’s final actual billing rates are
greater than the provisional rates currently in effect, the Company records a cumulative revenue adjustment in the period in
which the rate differential is collected from the customer. These final billing rates are subject to audit by the Defense Contract
Audit Agency (“DCAA”), which can occur several years after the final billing rates are submitted and may result in material
adjustments to revenue recognized based on estimated final billing rates. As of December 29, 2012, fiscal years 2007 through
2012 are open for audit by DCAA. In the situation where the Company’s anticipated actual billing rates will be lower than the
provisional rates currently in effect, the Company records a cumulative revenue adjustment in the period in which the rate
differential is identified. Revenue on firm fixed price (“FFP”) contracts is recognized using the percentage-of-completion
method. For government product FFP contracts, revenue is recognized as the product is shipped or in accordance with the
contract terms. Costs and estimated gross margins on contracts are recorded as revenue as work is performed based on the
percentage that incurred costs compare to estimated total costs utilizing the most recent estimates of costs and funding.
Changes in job performance, job conditions, and estimated profitability, including those arising from final contract settlements
and government audits, may result in revisions to costs and income and are recognized in the period in which the revisions are
determined. Since many contracts extend over a long period of time, revisions in cost and funding estimates during the progress
of work have the effect of adjusting earnings applicable to past performance in the current period. When the current contract
estimate indicates a loss, a provision is made for the total anticipated loss in the current period. Revenue earned in excess of
billings, if any, is recorded as unbilled revenue. Billings in excess of revenue earned, if any, are recorded as deferred revenue.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable
that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment
experience and the age of outstanding receivables.
Activity related to the allowance for doubtful accounts was as follows:
Fiscal Year Ended
December 29,
2012 December 31,
2011 January 1,
2011
(In thousands)
Balance at beginning of period $ 87 $ 88 $ 90
Provision 37 —
—
Deduction(*) (13) (1) (2)
Balance at end of period $ 111 $ 87 $ 88
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(*) Deductions related to allowance for doubtful accounts represent amounts written off against the allowance, less
recoveries.