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Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2011
Summary of Significant Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany accounts and transactions. In addition, certain prior year amounts have been reclassified to conform with the current year presentation. iRobot has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.

Use of Estimates

Use of Estimates

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates and judgments, including those related to revenue recognition, sales returns, bad debts, warranty claims, inventory reserves, valuation of investments, assumptions used in valuing stock-based compensation instruments and income taxes. The Company bases these estimates on historical and anticipated results, and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from the Company’s estimates.

Fiscal Year-End

Fiscal Year-End

The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, the Company’s fiscal quarters will end on the Saturday that falls closest to the last day of the third month of each quarter.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. The Company invests its excess cash primarily in money market funds or savings accounts of major financial institutions. Accordingly, its cash equivalents are subject to minimal credit and market risk. At December 31, 2011 and January 1, 2011, cash equivalents were comprised of money market funds totaling $117.2 million and $5.1 million, respectively. These cash equivalents are carried at cost, which approximates fair value.

Short Term Investments

Short Term Investments

The Company’s investments are classified as available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders’ equity. The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. As of December 31, 2011 and January 1, 2011, investments consisted of:

 

                                 
    December 31,
2011		     January 1,
2011		  
    Cost     Fair
Market Value		     Cost     Fair
Market Value		  
    (In thousands)  

Corporate bond

   $ 15,654     $ 15,309     $ 11,465     $ 11,424  

U.S. Government bond

     2,500       2,502       2,498       2,504  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total short term investments

   $ 18,154     $ 17,811     $ 13,963     $ 13,928  
   

 

 

    

 

 

    

 

 

    

 

 

  

As of December 31, 2011, the Company’s investments had maturity dates ranging from October 2012 to November 2014.

Revenue Recognition

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 31, 2011, fiscal years 2007, 2008, 2009, 2010 and 2011 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

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 31,
2011		     January 1,
2011		     January 2,
2010		  
    (In thousands)  

Balance at beginning of period

   $ 88     $ 90     $ 65  

Provision

     —       —       32  

Deduction(*)

     (1 )      (2 )      (7 ) 
   

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 87     $ 88     $ 90  
   

 

 

    

 

 

    

 

 

  

  

 

 

  (*) Deductions related to allowance for doubtful accounts represent amounts written off against the allowance, less recoveries.
Inventory

Inventory

Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out (FIFO) method. The Company maintains a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory.

Activity related to the inventory reserve was as follows:

 

                         
    Fiscal Year Ended  
    December 31,
2011		     January 1,
2011		     January 2,
2010		  
    (In thousands)  

Balance at beginning of period

   $ 2,836     $ 3,713     $ 2,770  

Provision

     411       677       2,117  

Deduction(*)

     (679 )      (1,554 )      (1,174 ) 
   

 

 

    

 

 

    

 

 

  

Balance at end of period

   $ 2,568     $ 2,836     $ 3,713  
   

 

 

    

 

 

    

 

 

  

 

 

  (*) Deductions related to inventory reserve accounts represent amounts written off against the reserve.
Property and Equipment

Property and Equipment

Property and equipment are recorded at cost and consist primarily of computer equipment, leasehold improvements, business applications software and machinery. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

 

     
    Estimated
Useful Life

Computer and research equipment

   3 years

Furniture

   5

Machinery

   2-5

Tooling

   2-5

Business applications software

   5-7

Capital leases and leasehold improvements

   Term of lease

Expenditures for additions, renewals and betterments of plant and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Long-Lived Assets Including Purchased Intangible Assets

Long-Lived Assets, including Purchased Intangible Assets

The Company periodically evaluates 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. There were no impairment charges recorded during any of the periods presented.

Goodwill

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. The Company evaluates goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) annually or more frequently if the Company believes indicators of impairment exist. In 2011, the Company early adopted the new provisions issued by the Financial Accounting Standards Board (“FASB”) that intended to simplify goodwill impairment testing. The updated guidance permits the Company 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 the Company concludes 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, the Company performs 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.

Research and Development

Research and Development

Costs incurred in the research and development of the Company’s products, classified as cost of contract and research and development, are expensed as incurred.

Internal Use Software

Internal Use Software

The Company capitalizes costs associated with the development and implementation of software obtained for internal use. At December 31, 2011 and January 1, 2011, the Company had $8.3 million and $5.8 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, $0.9 million and $0.9 million of amortization expense for the years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively.

Concentration of Credit Risk and Significant Customers

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 December 31, 2011 and January 1, 2011 the Company exceeded the insured limit by $187.5 million and $125.4 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 December 31, 2011 four customers accounted for a total of 63% of the Company’s accounts receivable balance, each of which was greater than 10% of the balance. Two of the customers accounting for 29% of the Company’s accounts receivable balance secured their balance with guaranteed letters of credit. At January 1, 2011, two customers accounted for 22% and 19% of the Company’s accounts receivable balance. The customer accounting for 22% of the Company’s accounts receivable balance secured their balance with guaranteed letters of credit. For the years ended December 31, 2011, January 1, 2011, and January 2, 2010, revenue from U.S. federal government orders, contracts and subcontracts, represented 36.1%, 38.4% and 36.9% of total revenue, respectively. For the fiscal year ended December 31, 2011 and January 1, 2011, the Company generated 9.4% and 17.4%, respectively of total revenue from The Boeing Company as a subcontractor under U.S. federal government contracts. For the fiscal year ended December 31, 2011, the Company generated 23.6% of total revenue from two of its international distributors of home robots products.

Foreign Currency Forward Contracts

Foreign Currency Forward Contracts

The Company periodically enters into foreign currency forward contracts to sell foreign currencies 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 foreign currency 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 income. As of December 31, 2011, the Company did not have any foreign currency forward contracts.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock on the date of grant. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period, net of estimated forfeitures.

Advertising Expense

Advertising Expense

The Company expenses advertising costs as they are incurred. During the years ended December 31, 2011, January 1, 2011 and January 2, 2010 advertising expense totaled $20.4 million, $13.8 million and $7.0 million, respectively.

Net Income Per Share

Net Income Per Share

The following table presents the calculation of both basic and diluted net income per share:

 

                         
    Fiscal Year Ended  
    December 31,
2011		     January 1,
2011		     January 2,
2010		  

Net income

   $ 40,191     $ 25,514     $ 3,330  
   

 

 

    

 

 

    

 

 

  

Weighted-average shares outstanding

     26,712       25,394       24,998  

Dilutive effect of employee stock options and restricted shares

     1,212       1,074       642  
   

 

 

    

 

 

    

 

 

  

Diluted weighted average shares outstanding

     27,924       26,468       25,640  
   

 

 

    

 

 

    

 

 

  

Basic income per share

   $ 1.50     $ 1.00     $ 0.13  

Diluted income per share

   $ 1.44     $ 0.96     $ 0.13  

Potentially dilutive securities representing approximately 0.4 million, 1.0 million and 2.3 million shares of common stock for the fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively, were excluded from the computation of diluted earnings per share for these periods because their effect would have been antidilutive.

Income Taxes

Income Taxes

The Company is subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations for assessment by the IRS and state tax authorities is closed for fiscal years prior to December 31, 2008, although carryforward attributes that were generated prior to fiscal year 2008 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The IRS is currently beginning to examine the Company’s tax returns for the years 2009 and 2010.

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company monitors the realization of its deferred tax assets based on changes in circumstances, for example recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax laws or regulations. The Company’s income tax provisions and its assessment of the ability to realize its deferred tax assets involve significant judgments and estimates.

In fiscal 2007, the Company completed an analysis of historical and projected future profitability which resulted in the full release of the valuation allowance relating to federal deferred tax assets. In fiscal 2010, based on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets. At December 31, 2011, the Company has total deferred tax assets of $21.5 million with no valuation allowance.

Comprehensive Income

Comprehensive Income

Accumulated other comprehensive income includes unrealized gains and losses on certain investments. The differences between net income and comprehensive income were related to unrealized gains (losses) on investments, net of tax.

Fair Value Measurements

Fair Value Measurements

The authoritative guidance for fair value establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s assets measured at fair value on a recurring basis at December 31, 2011, were as follows:

 

                         
    Fair Value Measurements as of
December 31, 2011		  

Description

   Level 1     Level 2     Level 3  
    (In thousands)  

Assets:

                        

Money Market Funds

   $ 117,196     $ —     $ —  

U.S. Government bonds

     —       2,502       —  

Corporate bonds

     —       15,309       —  
   

 

 

    

 

 

    

 

 

  

Total assets measured at fair value

   $ 117,196     $ 17,811     $ —  
   

 

 

    

 

 

    

 

 

  

The bond investments are valued based on observable market values as of the Company’s reporting date and are included in Level 2. The bond investments are recorded at fair value and marked-to-market at the end of each reporting period and realized and unrealized gains and losses are included in comprehensive income for that period. The fair value of the Company’s bond investments are included in short term investments in its consolidated balance sheet.

The Company’s assets measured at fair value on a recurring basis at January 1, 2011, were as follows:

 

                         
    Fair Value Measurements as of
January 1, 2011		  

Description

   Level 1     Level 2     Level 3  
    (In thousands)  

Assets:

                        

Money Market Funds

   $ 5,090     $ —     $ —  

U.S. Government bonds

     —       2,504       —  

Corporate bonds

     —       11,424       —  
   

 

 

    

 

 

    

 

 

  

Total assets measured at fair value

   $ 5,090     $ 13,928     $ —  
   

 

 

    

 

 

    

 

 

  

The bond investments are valued based on observable market values as of the Company’s reporting date and is included in Level 2. The bond investment is recorded at fair value and marked-to-market at the end of each reporting period and realized and unrealized gains and losses are included in comprehensive income for that period. The fair value of the Company’s bond investment is included in short term investments in its consolidated balance sheet.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarifies the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance will be effective for reporting periods beginning after December 15, 2011, and will be applied prospectively. The Company does not anticipate a material impact on its consolidated financial statements as a result of the adoption of this amended guidance.

In June 2011, the FASB amended its accounting guidance on the presentation of other comprehensive income (OCI) in an entity’s financial statements. The amended guidance eliminates the option to present the components of OCI as part of the statement of changes in shareholders equity and provides two options for presenting OCI: in a statement included in the income statement or in a separate statement immediately following the income statement. The amendments do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not anticipate that its adoption of this guidance will have a material impact on its consolidated results.

In September 2011, the FASB issued updated guidance on the periodic testing of goodwill for impairment. The updated guidance gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The updated accounting guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company elected to adopt the updated guidance in 2011. The adoption of this guidance did not impact its consolidated financial statements.

From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.