iRobot 2008 Annual Report Download - page 116

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The fair value of each option grant for the fiscal years ended December 27, 2008, December 29, 2007 and
December 30, 2006 was computed on the grant date using the Black-Scholes option-pricing model with the
following assumptions:
Fiscal Year Ended
December 27, 2008 Fiscal Year Ended
December 29, 2007 Fiscal Year Ended
December 30, 2006
Risk-free interest rate ............ 2.24% — 3.45% 3.23% — 4.90% 4.32% — 5.11%
Expected dividend yield .......... — — —
Expected life . . ................ 3.50 — 4.75 years 3.50 — 4.75 years 3.50 — 6.50 years
Expected volatility .............. 55% 50%—55% 65%
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which approx-
imates 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 SEC Staff Accounting Bulletin
(“SAB”) No. 110. Under SAB No. 110, 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, 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 an expected volatility assumption.
Based upon the above assumptions, the weighted average fair value of each stock option granted for the fiscal
year ended December 27, 2008 was $7.12.
The Company has assumed a forfeiture rate for all stock options granted subsequent to the Company’s initial
filing of its Form S-1 with the SEC. In the future, the Company will record incremental stock-based compensation
expense if the actual forfeiture rates are lower than estimated and will record a recovery of prior stock-based
compensation expense if the actual forfeitures are higher than estimated.
68
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)