iRobot 2008 Annual Report Download - page 89

grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s
requisite service period (generally the vesting period of the equity grants). Prior to January 1, 2006, we accounted
for share-based compensation to employees in accordance with Accounting Principles Board Opinion, or APB,
No. 25, Accounting for Stock Issued to Employees, and related interpretations. We also followed the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation — Transition and Disclosure. We adopted the prospective transition
method as provided by SFAS No. 123(R) and, accordingly financial statement amounts for the prior periods
presented in this Annual Report on Form 10-K have not been restated to reflect the fair value method of expensing
share-based compensation.
In a review of our stock-based compensation accounting methodology performed in the fiscal quarter ended
June 30, 2007, we determined that a cumulative adjustment of $0.5 million of incremental stock-based compen-
sation 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, we incorrectly valued 259,700 stock options that were granted between
the date that we filed our initial Form S-1 registration statement with the Securities and Exchange Commission, or
SEC, on July 27, 2005 and the date we became a public company (November 8, 2005). We believe, in accordance
with APB No. 28, Interim Financial Reporting, paragraph 29, that this adjustment was not material to our full year
results for 2007. In addition, we do not believe the adjustment is material to the amounts reported by us in previous
periods. This cumulative adjustment was recorded during the three month period ended June 30, 2007 and is
included in the cost of revenue 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 shall 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, we did not record any
cumulative effect of a change in accounting principle associated with the adoption of SFAS No. 123(R). As of
December 27, 2008, the deferred stock-based compensation balance associated with these grants was $0.3 million.
We 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), we recognized $4.7 million of stock-based compensation expense
during the fiscal year ended December 27, 2008 for stock options granted subsequent to our initial filing of our
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.
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 that we have never paid and have 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 our initial public
offering in November 2005 and the resulting short history as a public company, we could not rely solely on company
specific historical data for purposes of establishing expected volatility. Consequently, we 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.
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Form 10-K