iRobot 2015 Annual Report Download - page 116

33
Accounting for Stock-Based Awards
We recognized $3.4 million of stock-based compensation expense during the fiscal year ended January 2, 2016 for stock
options. The unamortized fair value as of January 2, 2016 associated with these grants was $6.4 million with a weighted-
average remaining recognition period of 2.83 years.
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which approximates 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. We utilize company-specific historical data
for purposes of establishing expected volatility and expected term.
Based upon the above assumptions, the weighted average fair value of each stock option granted for the fiscal year ended
January 2, 2016 was $13.21.
During the fiscal year ended January 2, 2016, we recognized $10.7 million of stock-based compensation associated with
restricted stock units. Unamortized expense associated with restricted stock units at January 2, 2016, was $24.3 million.
We have assumed a forfeiture rate for all stock options and restricted stock-based units based on our historical data. In the
future, we 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.
Accounting for stock-based awards requires significant judgment and the use of estimates, particularly surrounding
assumptions such as stock price volatility and expected option lives to value equity-based compensation.
Accounting for Income Taxes
We are subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations for
examinations by the Internal Revenue Service is closed for fiscal years prior to 2012. The statute of limitations for
examinations by state tax authorities is closed for fiscal years prior to 2011. Federal carryforward attributes that were generated
prior to fiscal year 2012 and state carryforward attributes that were generated prior to fiscal year 2011 may still be adjusted
upon examination by the federal or state tax authorities if they either have been or will be used in a period for which the statute
of limitations is still open.
Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances
are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
We monitor the realization of our deferred tax assets based on changes in circumstances, for example, recurring periods
of income for tax purposes following historical periods of cumulative losses, generation of tax credits compared to future
utilization of credits, or changes in tax laws or regulations. Our income tax provision and our assessment of the ability to
realize our deferred tax assets involve significant judgments and estimates. We are currently generating state research credits
that exceed the amount being utilized. As a result of this trend, a valuation allowance may be needed in the future related to
these state tax credits.
As of December 28, 2013, we maintained a valuation allowance of $2.1 million related to certain state tax attributes from
the Evolution Robotics, Inc. acquisition. During the year ended December 27, 2014, this valuation allowance was released
when the realization of these state tax attributes became more likely than not. As of January 2, 2016, we did not record a
valuation allowance as all deferred tax assets are considered realizable.
Warranty
We typically provide a one-year warranty (with the exception of European consumer products which typically have a
two-year warranty period, and our defense and security spares and remote presence robots, which typically have a warranty
period of less than one year) against defects in materials and workmanship and will either repair the goods, provide
replacement products at no charge to the customer or refund amounts to the customer for defective products. We record
estimated warranty costs, based on historical experience by product, at the time we recognize product revenue. Actual results
could differ from these estimates, which could cause increases or decreases to our warranty reserves in future periods.