iRobot 2005 Annual Report Download - page 69

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 realizability
of its deferred tax assets involve significant judgments and estimates. If the Company continued to generate
taxable income through profitable operations in future years it may be required to recognize these deferred tax
assets through the reduction of the valuation allowance which would result in a material benefit to its results of
operations in the period in which the benefit is determined, excluding the recognition of the portion of the
valuation allowance which relates to stock compensation.
Lease Termination Costs
In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the
Company recorded a charge in 2003 related to the termination of an operating lease for one of its
manufacturing facilities. This charge includes approximately $0.2 million of remaining lease payments in
addition to costs associated with vacating the facility as required by the lease. As of December 31, 2005 and
December 31, 2004, $0.00 million and $0.04 million were included within accrued expenses, respectively
(Note 5) in the accompanying balance sheet.
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of
comprehensive income (loss) and its components in financial statements. The Company's comprehensive
income (loss) is equal to the Company's net income (loss) for all periods presented.
Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS 154, ""Accounting Changes and Error Corrections'', which replaces
APB 20, ""Accounting Changes'', and SFAS 3, ""Reporting Accounting Changes in Interim Financial
Statements Ì An Amendment of APB Opinion No. 28''. SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005 and is therefore required to be adopted by the Company in the first
quarter of fiscal 2006. The adoption of SFAS 154 will not have a material effect on its consolidated results of
operations and financial condition.
In December 2004, the FASB issued SFAS No. 123R, which requires the measurement of all share-
based payments to employees, including grants of employee stock options, using a fair-value-based method
and the recording of such expense in the Company's consolidated statement of operations. The accounting
provisions of SFAS No. 123R are effective for fiscal years beginning after June 15, 2005. The pro forma
disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement
recognition The Company has adopted Statement No. 123R effective January 1, 2006 using the ""modified-
prospective method.'' Under this method, awards that are granted, modified, or settled after the date of
adoption are measured and accounted for in accordance with SFAS No. 123R. Unvested equity-classified
awards that were granted prior to the effective date of SFAS 123R will continue to be accounted for in
accordance with SFAS No. 123, except that amounts must be recognized in the financial statements. The
Company expects to apply the Black-Scholes valuation model in determining the fair value of share-based
payments to employees, which will then be amortized on a straight-line basis.
In November 2004, the FASB issued SFAS 151, ""Inventory Costs'', an amendment of Accounting
Research Bulletin (""ARB'') 43, Chapter 4, ""Inventory Pricing''. SFAS 151 amends previous guidance
regarding treatment of abnormal amounts of idle facility expense, freight, handling costs, and spoilage. This
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