iRobot 2008 Annual Report Download - page 115

In a review of its stock-based compensation accounting methodology performed during the second quarter of
fiscal 2007, the Company determined that a cumulative adjustment of $0.5 million of incremental stock-based
compensation expense, and a balance sheet reclassification of $0.8 million from deferred compensation to
additional paid-in capital, were required due to a correction in the application of SFAS No. 123(R). Upon adoption
of SFAS No. 123(R) on January 1, 2006, the Company incorrectly valued 259,700 stock options that were granted
between the date that it filed its initial Form S-1 registration statement with the Securities and Exchange
Commission on July 27, 2005 and the date it became a public company (November 8, 2005). The Company
believes, in accordance with APB 28, paragraph 29, that this adjustment did not have a material impact to its full
year results for 2007. In addition, management does not believe the adjustment is material to the amounts reported
by the Company in previous periods. This cumulative adjustment is included in the gross margin and operating
expenses for the fiscal year ended December 29, 2007.
Under SFAS No. 123(R), entities that become public companies after June 15, 2005 and used the minimum
value method of measuring equity share options and similar instruments as a non-public company for either
recognition or pro forma disclosure purposes under SFAS No. 123 must apply the provisions of SFAS No. 123(R)
prospectively to new and/or modified awards after the adoption of SFAS No. 123(R). Companies should continue to
account for any portion of awards outstanding at the date of initial application of SFAS No. 123(R) using the
accounting principles originally applied to those awards — either the minimum value method under SFAS No. 123
or the provisions of APB No. 25 and its related interpretive guidance. Accordingly, the Company did not record any
cumulative effect of a change in accounting principle associated with the adoption of SFAS No. 123(R).
The Company has historically granted stock options at exercise prices that equaled the fair value of its common
stock as estimated by its board of directors, with input from management, as of the date of grant. Because there was no
public market for the Company’s common stock prior to its initial public offering on November 9, 2005, its board of
directors determined the fair value of its common stock by considering a number of objective and subjective factors,
including the Company’s operating and financial performance and 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 reassessed 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 used in granting options for the period
from July 1,2004 to December 31, 2004 wasreasonable and appropriate. Accordingly, no deferred compensation was
recorded for these grants. For the period from January 1, 2005 through November 8, 2005, the Company determined
that the estimated fair 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 of
approximately $3.4 million in the twelve months ended December 31, 2005 under APB No. 25 relating to stock
options with exercise prices below the retrospectively reassessed fair market value on the date of grant. The Company
recognized associated stock-based compensation expense of $0.3 million, $0.2 million and $0.7 million for the fiscal
yearsended December 27, 2008, December 29, 2007 and December 30, 2006, respectively. As of December 27, 2008,
the deferred stock-based compensation balance associated with these grants was $0.3 million. The Company will
continue to recognize the associated stock-based compensation expense, in accordance with the provisions of APB
No. 25, related to these shares of $0.2 million and $0.1 million for 2009 and 2010, respectively.
Under the provisions of SFAS No. 123(R), the Company recognized $4.7 million of stock-based compensation
expense during the fiscal year ended December 27, 2008 for stock options granted subsequent to the Company’s
initial filing of its Form S-1 with the SEC. The unamortized fair value as of December 27, 2008 associated with
these grants was $14.2 million with a weighted average remaining recognition period of 2.49 years.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Form 10-K