iRobot 2010 Annual Report Download - page 115

The reconciliation of the expected tax (benefit) expense (computed by applying the federal statutory rate to
income before income taxes) to actual tax expense was as follows:
2010 2009 2008
(In thousands)
Expected federal income tax .............................................. $11,891 $1,991 $ 382
Miscellaneous permanent items............................................. 164 125 127
State taxes . . ........................................................ 1,545 94 (690)
Credits ............................................................ (997) (367) (494)
Non deductible stock compensation . ......................................... — 259 189
Conversion of incentive stock options(1) . . . .................................... — (346) —
Other ............................................................. (275) 111 16
Increase (decrease) in valuation allowance . .................................... (3,868) 159 839
$ 8,460 $2,026 $ 369
(1) The Company recorded a discrete benefit from the conversion of incentive stock options to non-qualified stock
options as a result of its stock option exchange program which concluded in the second fiscal quarter of 2009.
At January 1, 2011, the Company had no material unrecognized tax benefits. Additionally, there were no
accrued interest or penalties as of January 1, 2011, January 2, 2010 or December 27, 2008.
We follow the with and without approach for direct and indirect effects of the windfall tax deductions.
11. Commitments and Contingencies
Legal
On August 17, 2007, the Company filed a lawsuit in Massachusetts Superior Court against Robotic FX, Inc.
and Jameel Ahed alleging, among other things, misappropriation of trade secrets and breach of contract, and
seeking both injunctive and monetary relief. The case was subsequently removed to the United States District Court
for the District of Massachusetts. On November 2, 2007, the court issued a preliminary injunction, and on
December 21, 2007 issued a permanent injunction, against Robotic FX, Inc. and Mr. Ahed preventing the sale of
products using certain of the Company’s trade secrets, including the Robotic FX Negotiator product.
In addition, on August 17, 2007, the Company filed a lawsuit in the United States District Court for the
Northern District of Alabama against Robotic FX, Inc. alleging willful infringement of two patents owned by the
Company, and seeking both injunctive and monetary relief. On December 21, 2007, the court entered a judgment
that Robotic FX, Inc. knowingly infringed on both asserted patents.
In a related settlement, Robotic FX, Inc. was dissolved and certain residual assets were retained by the
Company at its election. Mr. Ahed is prohibited from participating in competitive activities in the robotics industry
for five years.
The cumulative litigation and settlement-related expenditures associated with this dispute are expected to total
approximately $3.0 million, including an obligation to make cash payments up to $0.4 million through 2012,
contingent upon Mr. Ahed and Robotic FX, Inc. continuing to meet obligations pursuant to various agreements,
including but not limited to certain non-competition provisions. The Company paid $0.1 million to Mr. Ahed during
the fiscal year ended January 1, 2011. These contingent payments will continue to be expensed, when and if earned.
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for fiscal 2010, 2009 and 2008
amounted to $3.7 million, $3.9 million, and $3.8 million, respectively. The Company recorded $0.7 million of
expense in the fiscal year ended December 27, 2008 for remaining lease commitments, net of estimated sublease
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Form 10-K