iRobot 2015 Annual Report Download - page 154

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
71
execution of the agreement. The maximum potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is
minimal. Accordingly, the Company has no liabilities recorded for these agreements as of January 2, 2016 and December 27,
2014, respectively.
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 January 2, 2016, fiscal years 2012 through 2015 are
open for audit by DCAA.
Warranty
The Company provides warranties on most products and has established a reserve for warranty based on estimated
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
January 2,
2016
December 27,
2014
December 28,
2013
(In thousands)
Balance at beginning of period $7,769 $ 6,497 $6,057
Provision 4,598 6,410 1,744
Warranty usage(*) (5,460)(5,138)(1,304)
Balance at end of period $ 6,907 $ 7,769 $6,497
__________________________________
(*) Warranty usage includes costs incurred for warranty obligations.
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 nexus in new jurisdictions with respect to sales tax. The Company has recorded a liability for potential exposure in
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