iRobot 2015 Annual Report Download - page 117

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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. 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.
Long-Lived Assets, including Purchased Intangible Assets
We periodically evaluate the recoverability of long-lived assets, including other purchased intangible assets whenever
events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the industry, indicate
that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying
values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business. The net
book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book
value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. We evaluate goodwill for impairment at the reporting unit level
(operating segment or one level below an operating segment) annually or more frequently if we believe indicators of
impairment exist. In accordance with guidance, we are permitted to first assess qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, then a two-step goodwill impairment test is
performed.
The first step of the impairment test involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value,
we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the
goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying
value of that goodwill. We complete the annual impairment evaluation during the fourth quarter each year.
Form 10-K