iRobot 2009 Annual Report Download - page 102

Company believes 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.
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 previous authoritative guidance must apply the provisions of the current authoritative guidance
prospectively to new and/or modified awards after the adoption of this current guidance. Companies should
continue to account for any portion of awards outstanding at the date of initial application of the current
authoritative guidance using the accounting principles originally applied to those awards. Accordingly, the
Company did not record any cumulative effect of a change in accounting principle associated with the adoption
of the current authoritative guidance on January 1, 2006.
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 was reasonable 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 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 $0.2 million, $0.3 million and $0.2 million
for the fiscal years ended January 2, 2010, December 27, 2008 and December 29, 2007, respectively. As of
January 2, 2010, the deferred stock-based compensation balance associated with these grants was $0.1 million,
which the Company expects to recognize as stock-based compensation expense in 2010.
Under the provisions of the relevant authoritative guidance, the Company recognized $6.3 million of stock-
based compensation expense during the fiscal year ended January 2, 2010 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 January 2, 2010
associated with these grants was $10.3 million with a weighted average remaining recognition period of 2.31 years.
On May 29, 2009, the Company completed a one-time stock option exchange program as approved by its
stockholders on May 28, 2009. In accordance with the terms and conditions of the stock option exchange program,
the Company issued new options to purchase an aggregate of 310,607 shares of the Company’s common stock in
exchange for the cancellation of options to purchase an aggregate of 678,850 of the Company’s common stock. The
exchange ratios were designed to result in the fair value, for accounting purposes, of the new options being
approximately equal to the fair value of the exchanged eligible options to ensure the Company minimized any
68
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)