iRobot 2011 Annual Report Download - page 111

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of each option grant for the fiscal years ended December 31, 2011, January 1, 2011 and
January 2, 2010 (excluding the new options issued in conjunction with the stock option exchange program
described in the preceding paragraph for which no incremental compensation expense was realized) was
computed on the grant date using the Black-Scholes option-pricing model with the following assumptions:
Fiscal Year Ended
December 31,
2011
Fiscal Year Ended
January 1,
2011
Fiscal Year Ended
January 2,
2010
Risk-free interest rate ............ 0.83% — 2.24% 1.27% — 2.28% 1.45% — 2.50%
Expected dividend yield .......... — — —
Expected life ................... 4.11 — 4.31 years 4.00 — 4.75 years 3.50 — 4.75 years
Expected volatility .............. 61.0% — 63.0% 57.0% — 62.0% 55.0% — 56.5%
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which
approximates the rate in effect at the time of grant, commensurate with the expected life of the instrument. The
dividend yield is zero based upon the fact the Company has never paid and has no present intention to pay cash
dividends. The expected term calculation is based upon the simplified method provided under the relevant
authoritative guidance, the expected term is developed by averaging the contractual term of the stock option
grants (7 or 10 years) with the associated vesting term (typically 4 to 5 years). Given the Company’s initial
public offering in November 2005 and the resulting short history as a public company, the Company could not
rely solely on company specific historical data for purposes of establishing expected volatility. Consequently,
prior to 2010, the Company performed an analysis that included company specific historical data combined with
data of several peer companies with similar expected option lives to develop expected volatility assumptions.
During 2010, the Company began to rely solely on company specific historical data for purposes of establishing
expected volatility.
Based upon the above assumptions, the weighted average fair value of each stock option granted for the
fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010 (excluding the new options issued in
conjunction with the stock option exchange program for which no incremental compensation expense was
realized) was $16.55, $8.24 and $4.91, respectively.
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