iRobot 2005 Annual Report Download - page 75

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
corporate milestones, the prices at which it sold shares of convertible preferred stock, the superior rights and
preferences of securities senior to its common stock at the time of each grant, and the risk and non-liquid
nature of its common stock. The Company has not historically obtained contemporaneous valuations by an
unrelated valuation specialist because, at the time of the issuances of stock options, the Company believed its
estimates of the fair value of its common stock to be reasonable based on the foregoing factors.
In connection with the initial public offering, the Company retrospectively assessed the fair value of its
common stock for options granted during the period from July 1, 2004 to November 8, 2005. As a result of this
reassessment, the Company determined that the estimated fair market value of its common stock increased
from $4.60 to $21.60 due to a number of factors such as, among other things, the likelihood of an initial public
offering, its improving operating results and the achievement of other corporate milestones in 2005. Based
upon this determination, the Company recorded deferred compensation expense of approximately $3.4 million
in the twelve months ended December 31, 2005. The Company recorded $0.4 million of aggregate
amortization of stock-based compensation expense in the fiscal year ended December 31, 2005 and expects to
record aggregate amortization of stock-based compensation expense of $0.7 million, $0.7 million, $0.7 million,
$0.7 million and $0.2 million for 2006, 2007, 2008, 2009 and 2010, respectively.
11. Warrants
Under the terms of the January 30, 2003 Credit Agreement with a bank (Note 6), the Company issued
warrants to the bank to purchase 18,000 shares of common stock at an approximate exercise price of $3.74 per
share. The warrants were subject to certain adjustments and could be exercised at any time until January 29,
2010. The estimated fair value of the warrants of $22,312 was determined using the Black-Scholes option-
pricing model. For this purpose, the Company assumed a risk-free rate of return of 3.12%; an expected life of
2 years; 100% volatility and no dividends. The Company recorded the estimated fair value of the warrants as
additional paid-in-capital and other assets and amortized the fair value to interest expense over the eleven
months outstanding under the Credit Agreement in 2003.
On November 14, 2005 the bank exercised its warrants and consistent with the conversion rights
contained in the warrant agreement, the Company issued 16,155 shares of common stock.
12. Income Taxes
The components of income tax expense were as follows:
2005 2004 2003
(In thousands)
Current
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $129 $ 90 $33
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47 54 3
$176 $144 $36
71