iRobot 2007 Annual Report Download - page 114

The net change in valuation allowance from the prior year is primarily due to the realization in 2007 that the
deferred tax assets related to certain temporary differences will more likely than not be realized based on future
projections of taxable income. The valuation allowance as of December 29, 2007 relates to all state deferred tax
assets, including state credits, and state net operating losses.
At December 29, 2007, the Company had available net operating loss carryforwards for federal and state
purposes of $8.6 million and $3.1 million respectively. All of the federal and state net operating loss carryforwards
relate to deductions from stock option compensation for which the associated tax benefit will be credited to
additional paid in capital when realized. The federal net operating loss carryforwards expire at various dates from
2022 through 2026. The state net operating loss carryforwards will begin to expire in the current year. The Company
also had available research and development credits carryforwards to offset future federal and state taxes of
$1.4 million and $1.8 million respectively, which expire at various dates from 2012 to 2027, and investment tax
credit carryforwards to offset future state taxes of $0.2 million, which expire from 2011 to 2012. Under the Internal
Revenue Service Code, certain substantial changes in the Company’s ownership could result in an annual limitation
on the amount of net operating losses and tax credit carryforwards which can be utilized in future years.
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:
2007 2006 2005
(In thousands)
Expected federal income tax ................................ $ 171 $1,315 $ 947
Permanent items ......................................... 91 38 26
State taxes ............................................. 301 (236) 133
Credits ................................................ (1,148) (742) (166)
Non deductible stock compensation ........................... 276 234 —
Other ................................................. (115) 6 36
Increase (decrease) in valuation allowance ...................... (8,134) (311) (800)
$(8,558) $ 304 $ 176
As disclosed in Note 2, the Company adopted the provisions of FIN 48 as of December 31, 2006. At
December 29, 2007, the Company had no material unrecognized tax benefits. Additionally, there were no accrued
interest or penalties as of December 29, 2007, December 30, 2006 or December 31, 2005.
13. Commitments and Contingencies
Legal
The Company received a letter from the United Kingdom’s Ministry of Defence (the “Customer”) dated
February 9, 2004, attempting to terminate a contract for the design, development, production and support of a
number of man-portable remote control vehicles for use in explosive ordnance disposal operations. The Company
entered into the contract with the Customer on May 23, 2001, and substantially completed the product design and
development phase of the work. The Company received payments based upon achieving a number of contract
milestones and has recognized revenue based on progress under the percentage-of-completion method of account-
ing. In addition to the milestone payments, the Customer advanced the Company funds to purchase long-lead
inventory components in advance of the production contemplated in the contract. On July 27, 2006, the Company
signed an agreement with the United Kingdom’s Ministry of Defence (MoD) Defence Procurement Agency (DPA)
to supply 30 iRobot PackBot EOD robots, spare parts and support in exchange for the payments received by the
Company under the contract. At December 30, 2006, all obligations, with the exception of normal warranty and
support, resulting from the signing of this agreement had been satisfied.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)