e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 30, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file
no. 000-51598
iROBOT CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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77-0259 335
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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63 South Avenue, Burlington,
MA
(Address of principal
executive offices)
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01803
(Zip Code)
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(781) 345-0200
(Registrants telephone number, including area
code)
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, $0.01 par value per
share The NASDAQ Stock Market
LLC
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check-mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check-mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the Common Stock held by
nonaffiliates of the registrant was approximately $292,346,419
based on the last reported sale of the Common Stock on the
NASDAQ Global Market on July 1, 2006.
As of February 23, 2007, there were shares 23,860,330 of
the registrants Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement
pursuant to Regulation 14A within 120 days of the end
of the fiscal year ended December 30, 2006. Portions such
Proxy Statement are incorporated by reference into Part III
of this
Form 10-K.
iROBOT
CORPORATION
ANNUAL REPORT ON
FORM 10-K
Year Ended December 30, 2006
TABLE OF CONTENTS
2
PART I
This Annual Report on
Form 10-K
contains forward-looking statements. All statements other than
statements of historical facts contained in this Annual Report
on
Form 10-K,
including statements regarding our future results of operations
and financial position, business strategy and plans and
objectives of management for future operations, are
forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. We
discuss certain of these risks in greater detail in the
Risk Factors section and elsewhere in this Annual
Report on
Form 10-K.
Also, these forward-looking statements speak only as of the date
of this Annual Report on
Form 10-K,
and we have no plans to update our forward-looking statements to
reflect events or circumstances occurring after the date of this
Annual Report. We caution readers not to place undue reliance
upon any such forward-looking statements.
iRobot, Roomba, Scooba, PackBot and AWARE are trademarks of
iRobot Corporation. Gator, M-Gator and
R-Gator are
trademarks of Deere & Company.
Overview
iRobot Corporation (iRobot or the
Company) provides robots that enable people to
complete complex tasks in a better way. For over 15 years,
we have developed proprietary technology incorporating advanced
concepts in navigation, mobility, manipulation and artificial
intelligence to build industry-leading robots. Our Roomba floor
vacuuming robot and Scooba floor washing robot perform
time-consuming domestic chores, and our PackBot tactical
military robots perform battlefield reconnaissance and bomb
disposal. In addition, we are developing the Small Unmanned
Ground Vehicle reconnaissance robot for the
U.S. Armys transformational Future Combat Systems, or
FCS, program and, in conjunction with Deere & Company,
the R-Gator
unmanned ground vehicle. We sell our robots to consumers through
a variety of distribution channels, including chain stores and
other national retailers, and our on-line store, and to the
U.S. military and other government agencies worldwide.
Since our founding by roboticists who performed research at the
Massachusetts Institute of Technology, we have accumulated
expertise in all the disciplines necessary to build durable,
high-performance and cost-effective robots through the close
integration of software, electronics and hardware. Our core
technologies serve as reusable building blocks that we adapt and
expand to develop next generation and new products, reducing the
time, cost and risk of product development. For example, our
proprietary AWARE Robot Intelligence Systems enable the
behavioral control of robots. Our AWARE systems allow our Roomba
floor vacuuming robot to clean an entire floor while avoiding
obstacles and not falling down stairs, and also allow our
PackBot robots and the
R-Gator
unmanned ground vehicle to accomplish complex missions such as
waypoint navigation and real-time obstacle avoidance.
Our significant expertise in robot design and engineering,
combined with our management teams experience in military
and consumer markets, positions us to capitalize on the growth
we expect in the market for robot-based products. We believe
that the sophisticated technologies in our existing consumer and
military applications are adaptable to a broad array of markets
such as law enforcement, homeland security, commercial cleaning,
elderly care, oil services, home automation, landscaping,
agriculture and construction. Our strategy is to maintain a
leadership position in pursuing new applications for robot
solutions by leveraging our ability to innovate, to bring new
products to market quickly, to reduce costs through design and
outsourcing capabilities, and to commercialize the results of
our research, much of which is government funded.
Over the past five years, we sold more than 2.0 million of
our home floor care robots. We also sold during that time more
than 800 of our PackBot tactical military robots, most of which
have been sold to the U.S. military and deployed on missions in
Afghanistan and Iraq.
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Strategy
Our objective is to rapidly invent, design, market and support
innovative robots that will expand our leadership globally in
our existing and newly addressable markets. Key elements of our
strategy to achieve this objective include:
Deliver Great Products and Continue to Expand Our Existing
Markets. Our success is built upon our ability to
deliver innovative products rapidly at economical price points
and to offer a broad product line to our customers. Within the
consumer market today we offer floor cleaning products for
various surfaces at multiple price points, as well as a number
of product accessories. We are extending our military robot
offerings from small, unmanned ground vehicles (such as our
PackBot line of robots) to full-scale autonomous vehicles such
as R-Gator.
In addition, we intend to leverage our increasing installed base
to expand our revenues from recurring sales of consumables,
services and support.
Innovate to Penetrate New Markets. Our goal is
to develop innovative robots to perform dull, dirty or dangerous
tasks. We develop robots with functionalities that are adaptable
for use in a broad range of applications. We intend to target
new markets, such as law enforcement, homeland security,
commercial cleaning, elderly care, oil services, home
automation, landscaping, agriculture and construction, where
robots can create high value and can provide a better way to
complete complex tasks.
Leverage Research and Development Across Different Products
and Markets. We leverage our research and
development across all our products and markets. For example, we
use technological expertise developed through government-funded
research and development projects across our other product
development efforts. Similarly, expertise developed while
designing consumer products is used in designing products for
government and industrial applications. This strategy helps us
in avoiding the need to start each robot project from scratch,
developing robots in a cost-effective manner and minimizing time
to market.
Continue to Strengthen Our Brand. We intend to
continue to enhance our brand image and corporate identity. The
iRobot brand is designed to communicate innovation, reliability,
safety and value. Our robots performance and uniqueness
have enabled us to obtain strong
word-of-mouth
and extensive press coverage leading to increasing brand
awareness, brand personality and momentum. We intend to continue
to invest in our marketing programs to strengthen our brand
recognition and reinforce our message of innovation,
reliability, safety and value.
Continue to Invest Aggressively in Our Business and Our
People. We believe the best path to maximizing
long-term profit is to continue to invest significant resources
in our business and our people over the next several years. We
plan to invest in research and development and sales
distribution channels to extend and expand our market. We intend
to also continue to hire top talent and invest in our people
through training and
on-the-job
experience. We believe this aggressive reinvestment in our
business and our people will help us maintain our market
leadership.
Complement Core Competencies with Strategic
Alliances. Our core competencies are the design,
development and marketing of robots. We rely on strategic
alliances to provide complementary competencies that we
integrate into our products and to enhance market access. For
example, our alliance with The Clorox Company, through which
Clorox manufactures cleaning fluid, allows us to integrate
world-class cleaning technology and know-how into our Scooba
floor washing robot. Our alliance with Deere & Company
allows us to integrate our robot controls, navigation and
obstacle avoidance systems with rugged vehicles manufactured by
Deere & Company. We outsource other non-core
activities, such as manufacturing and back-office functions,
which helps us focus our resources on our core competencies.
Develop a Community of Third-Party Developers Around Our
Platforms. We have developed products around
which communities of third-party developers can create related
accessories, software and complementary products. We intend to
foster this community by making our products into extensible
platforms with open interfaces designed to carry payloads. For
example, our robots are designed to allow third-party designers
to add sensors and other functionalities, such as acoustic
sniper detection and web-based control.
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Technology
We are focused on behavior-based, artificially-intelligent
systems developed to meet customer requirements in multiple
market segments. In contrast to robotic manufacturing equipment
or entertainment systems that are designed to repeat actions in
specific, known environments, our systems are designed to
complete missions in complex and dynamic real-world environments.
Our robots rely on the interplay among behavior-based
artificially intelligent systems, real-world dynamic sensors,
user-friendly interfaces and tightly-integrated,
electromechanical designs to accomplish their missions
efficiently.
AWARE Robot Intelligence Systems. Our
proprietary AWARE Robot Intelligence Systems are code bases that
enable the behavioral control of robots. Moreover, the AWARE
Systems include modules that control behaviors, sensor fusion,
power management and communication. Our AWARE systems allow our
Roomba floor vacuuming robot and our Scooba floor washing robot
to clean an entire floor while avoiding obstacles and not
falling down stairs, and also allow our PackBot robots and the
R-Gator
unmanned ground vehicle to accomplish complex missions such as
waypoint navigation and real-time obstacle avoidance.
Real-World, Dynamic Sensing. The degree of
intelligence that our robots display is directly attributable to
their ability to perceive or sense the
world around them. Using specialized hardware and signal
processing, iRobot has developed sensors that fit particular
cost-performance criteria. In other cases, we use
off-the-shelf
sensing hardware, such as laser scanners, cameras and optical
sensors.
User-Friendly Interfaces. Our robots require
that users interact and instruct our robots in intuitive ways
without extensive end-user
set-up,
installation, training or instruction. For example, our Roomba
Discovery robot requires only one button to have the robot begin
its mission, determine the size of the room to be cleaned,
thoroughly clean the room and return to its re-charger, right
out of the box without any pre-programmed knowledge of the
users home. Similarly, our PackBot robots use intuitive
controllers, interoperable between systems, which integrate
high-level supervisory commands from the user into the behaviors
of the robot.
Tightly-Integrated, Electromechanical
Design. Our products rely on our ability to build
inherently robust integrated electrical and mechanical
components into required form factors. For instance, the
computer that powers the PackBot tactical military robot must
withstand being dropped from more than ten feet onto concrete.
Such high performance specifications require tight design
integration.
Combining these four components, we have created proprietary,
reusable building blocks of robotics capabilities, including
mobility platforms, manipulators, navigation and control
algorithms and user interfaces. Our technology building blocks
typically allow us to take a known platform and modify it for a
new mission instead of starting from scratch for each
application. We believe this allows us to design and develop
innovative robots rapidly and cost-effectively.
Products
and Development Contracts
We design and sell robots for the consumer and government and
industrial markets.
Consumer
Products
We sell various products that are designed for use in the home.
Our current consumer products are focused on floor cleaning
tasks. We believe our consumer products provide value to our
customers by producing better cleaning results at an affordable
price and by freeing people from repetitive home cleaning tasks.
Home Floor Cleaning Robots. Over the past five
years, we sold more than 2.0 million home floor care
robots. We currently offer eight Roomba models that comprise our
second generation floor vacuuming robots and two models of the
Scooba floor washing robot with varying price points and
performance characteristics.
Our Roomba robots compact disc shape allows it to clean
under beds and other furniture, resulting in cleaner floors
since the Roomba can access more of the floor than standard
upright vacuum cleaners. Roomba is
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programmed to keep operating until the floor is clean. In
addition, Roomba eliminates the need to push a
vacuum it cleans automatically upon the push of a
button.
All of our current Roomba floor vacuuming robots include the
following features:
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the ability to sense a cliff or drop-off point and
to react by reversing course automatically;
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a non-marring bumper to clean up to obstacles without damaging
furniture or walls;
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a wide cleaning path to clean an entire room on a single battery
charge;
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an edging brush to clean along surface edges;
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dirt-sensing, which allows the Roomba robot to detect dirtier
areas in the home and respond by increasing and extending the
intensity of its cleaning efforts in that concentrated
space; and
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improved cleaning and maintenance operations, enhancing the user
friendliness of the Roomba robot.
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Our flagship Roomba Discovery robot also features automatic
self-docking, which enables the robot to return to its Home Base
for battery recharging when its battery runs low or it has
cleaned the room, and an advanced power system that charges
faster and runs longer than many other vacuums. Roomba Discovery
can clean, on average, three rooms on a single charge.
The suggested retail price for Roomba Discovery is $279 per
unit. The suggested retail price for our Roomba Red base product
is $149 per unit.
The iRobot Roomba Scheduler is our floor vacuuming robot that
cleans a room automatically on a user-determined schedule. The
Scheduler robot is available in retail outlets at a suggested
retail price of $300 per unit.
We also offer a Scheduler accessory kit which allows owners of
the Roomba Discovery and Roomba Red to upgrade their robot to
achieve scheduling capability. In addition to the Scheduler
upgrade kit, we offer other accessories that allow users to
upgrade and maintain their Roomba, including virtual wall
sensing devices that direct Roomba to clean specific areas,
batteries and chargers, filters and brushes, and wall mounts. We
plan to continue to develop upgrades to our Roomba product line.
In the third quarter of 2006, we introduced our Dirt Dog
Workshop Robot a floor vacuuming robot designed to
pick up small nails, dirt, sawdust and other debris that
accumulates in garages, basements and workbench zones. The Dirt
Dog is available primarily through the iRobot website at
$129 per unit.
Also in 2006, we introduced the Roomba for Pets and the Roomba
Discovery for Pets, both of which incorporate a specially
designed brush for enhanced performance on pet hair, at retail
prices of $220 and $300, respectively. We also introduced the
Intellibin for Roomba, which alerts the user when the dust bin
is full and needs to be emptied. Intellibin was initially
offered on the Roomba Scheduler platform and has since been
expanded to other Roomba platforms.
iRobot Scooba. Scooba, our second major
consumer product line, is the first floor washing robot
available for home use. Our Scooba robot utilizes the expertise
gained from years of Roomba development to create a robot that
scrubs your floor.
Our Scooba robots innovative cleaning process allows the
robot to simultaneously sweep, wash, scrub and dry hard floors,
all at the touch of a button. Unlike a conventional mop that
spreads dirty water on the floor, Scooba will apply only fresh
water and cleaning solution to the floor from a clean tank.
Scooba will clean wet spills in addition to dirt and grime, and
it is safe for use on all sealed, hard floor surfaces, including
wood and tile.
Scooba has the ability to navigate around the room using a
light-touch bumper and is smart enough to avoid carpets. Scooba
features the most advanced diagnostic system of any of our
consumer robots to provide the user with important maintenance
feedback and improve user experience and product life. The
suggested retail price for Scooba 5800 and Scooba 5900, our
floor washing robots, are $299 and $399, respectively.
With The Clorox Company, we have developed a
specially-engineered cleaning solution for use with the Scooba
floor washing robot. We began collaborating with The Clorox
Company in 2004 to create a cleaning
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solution that, when combined with the Scooba, would clean hard
floor surfaces and assist in the mobility of the robot. We are
currently jointly marketing this specially-engineered cleaning
solution with The Clorox Company.
Government
and Industrial Products
Our current government and industrial product offerings extend
from our PackBot line of small, unmanned ground robots to the
prototype
R-Gator
autonomous vehicle. Our government and industrial robots are
designed for high-performance, durability and ease of use. Our
PackBot family of robots is based on a common platform and is
currently priced from approximately $50,000 to $120,000 per
unit.
iRobot PackBot Scout. PackBot Scout is a
portable, tactical, mobile robot designed for military
operations in urban terrain and other 21st century battle
missions. This lightweight, rugged robot can be hand-carried and
deployed by a single soldier. Deployed in Afghanistan and Iraq
for the past several years, PackBot Scout is designed to search
dangerous or inaccessible areas, providing soldiers with a safe
first look so they know what to expect and how to respond. Less
than 20 centimeters high and only 18 kilograms fully loaded,
PackBot Scout offers five open payload bays for significant
upgrade potential. The PackBot Scout is our most rugged PackBot
configuration, able to sustain a 10-foot drop onto concrete and
still function properly.
iRobot PackBot Explorer. PackBot Explorer is
designed for performing real-time targeting and battle damage
assessment in dangerous or inaccessible areas or other urban
warfare scenarios. PackBot Explorer can enter the danger zone
before responders are exposed to risk and function as the
incident commanders remote information gatherer. PackBot
Explorer can help assess the situation, ensure the appropriate
response, and reduce risk.
iRobot PackBot EOD. PackBot EOD is a rugged,
lightweight robot designed to conduct explosive ordnance
disposal, hazardous materials,
search-and-surveillance
and other vital law enforcement tasks for bomb squads, SWAT
teams, military units and other authorities. PackBot EOD can
handle a full range of improvised explosive devices and
conventional ordnance disposal challenges. Our PackBot EOD
robots lightweight and rugged OmniReach Manipulator System
can extend up to six feet to safely disrupt improvised explosive
devices, military ordnance, land mines and other incendiary
devices.
In 2006, we focused on developing various payloads for the
PackBot platform. In particular, we have teamed with ICx
Technologies to integrate its explosive-detection technology
onto the combat-proven PackBot platform. The payload can detect
explosives vapors emanating from improvised explosive
devices.
R-Gator:
Autonomous Unmanned Ground Vehicle. The
R-Gator
prototype is built on the well-established, rugged
Deere & Company M-Gator military utility vehicle
platform and is enhanced with iRobot robotic controls,
navigation and obstacle avoidance systems. The
R-Gator is
designed to serve numerous important roles, acting as unmanned
scout, point man, perimeter guard, as well as
pack/ammunition/supply carrier for soldiers. In conjunction with
Deere & Company, we expect to produce a number of
R-Gator
prototypes in 2007, some of which will be used for evaluation by
a number of potential government customers. The net proceeds of
R-Gator
sales will be shared between us and Deere & Company,
subject to recoupment of each partys respective
contribution to the project. While early editions of these units
will be targeted exclusively for military use, there are many
potential industrial applications for the technology derived
from the
R-Gator
program, including potential applications in agriculture,
perimeter patrol, above-ground pipeline security and logistics.
Contract
Research and Development Projects
We are involved in several contract development projects with
various U.S. governmental agencies and departments. The
durations of these projects range from a few months to several
years. These projects are usually funded as either cost-plus
arrangements or time and materials contracts. In a cost-plus
contract, we are allowed to recover our actual costs plus a
fixed fee. The total price on a cost-plus contract is based
primarily on allowable costs incurred, but generally is subject
to a maximum contract funding limit. On our time and materials
contracts, we recover a specific amount per hour worked based on
a bill rate schedule, plus the cost of direct materials,
subcontracts, and other non-labor costs, including an
agreed-upon
mark-up. A
time and materials contract may provide for a
not-to-exceed
price ceiling, as well as the potential that we will absorb any
cost overrun.
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Government funding is provided to further the development of
robot technologies to solve various in-field challenges and with
the expectation that if the projects result in the development
of technically viable prototypes, then the government will
purchase multiple production units for future use in the field.
The government funding that we receive allows iRobot to
accelerate the development of multiple technologies. While the
U.S. government retains certain rights to military projects
that it has funded, such as the right to use inventions and
disclose technical data relating to those projects without
constraining the recipients use of that data, we retain
ownership of patents and know-how and are generally free to
develop other commercial products, including consumer and
industrial products, utilizing the technologies developed during
these projects. The rights which the government retains,
however, may allow it to provide use of patent rights and
know-how to others, and some of the know-how might be used by
these third parties for their own development of consumer and
industrial products. The contract development projects that we
are currently undertaking include, but are not limited to:
Small Unmanned Ground Vehicle (SUGV). FCS is a
major program intended to transform the U.S. Army to be
strategically responsive and dominant at every point on the
spectrum of operations, through real-time network centric
communications and systems of a family of manned vehicles and
unmanned platforms by the next decade. The FCS program combines
advanced technologies, organizations, people and processes with
concepts to create new sources of military power that are more
responsive, deployable, agile, versatile, lethal, survivable and
sustainable. The FCS system of systems is designed to provide
increased strategic responsiveness, adaptive modular
organizations, and units of action with three to seven days of
self-sustainment.
Our specific role in the FCS program is to design and develop
the SUGV, which is intended to be the soldiers
robot. The SUGV is expected to be a light-weight,
man-portable robot that will support reconnaissance, remote
sensing and urban warfare. Our involvement in the FCS program
has enabled us to improve various management and control systems
and enhance our engineering capabilities to achieve the Software
Executive Institutes Configuration Maturity Model, or CMM,
certification Level III. The program has also funded the
development of earned value measurement and advanced modeling
and simulation.
Warrior (formerly named NEOMover). Warrior is
a 250-pound tracked vehicle, capable of transporting up to 150
pounds of payload, with a small footprint and extreme mobility.
This effort is sponsored by the Technical Support Working Group,
or TSWG. The Warrior design incorporates a number of concepts
present in other iRobot remote controlled vehicles and
demonstrates many of the advantages that modular payloads and
common interfaces can bring to the explosive ordnance disposal
community. There are two goals of this effort. The first is to
advance the maturity levels of the Warrior hardware, firmware
and software, and to enhance environmental ruggedness to a level
suitable for small quantity manufacturing and evaluation of
Warrior platforms in field trials. The second is to maintain a
level of architectural openness for future component integration
with other TSWG common architecture components to enable
continued future development.
Sentinel. Sentinel is an applied research
project funded by the U.S. Army Tank Automation
and Armaments Command, or TACOM. Unmanned Ground Vehicles, or
UGVs, have taken an increasingly prominent role in the modern
battlespace, whether providing intelligence, surveillance and
reconnaissance, or performing vital force protection functions
such as searching for vehicle-borne improvised explosive
devices. In order for these unmanned systems to realize their
full potential as a force multiplier, they must grow beyond
their one-operator-per-vehicle command and control metaphors.
Sentinel is aimed at developing intuitive user interface
technologies and UGV autonomy allowing a single human operator
to effectively control and coordinate multiple semi-autonomous
UGVs.
Tactical Teams. The Defense Advanced Research
Projects Agency, or DARPA, has funded initial research into how
mixed teams of human and robot agents can best work together
towards achieving a common mission goal. Key features of this
project include the development of more natural methods of
communication between robots and humans (gesture or speech
recognition) and team member identification. Natural
communications will eliminate the need for constant joystick
control of the robotic agents, enabling them to be used in
scenarios without the limitation of dedicated robotic control
personnel, head-down to a console. The ultimate goal of Tactical
Teams is to field a mixed team of humans and robots and to
employ them effectively in a building clearance maneuver.
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The Company is engaged in a number of other research programs
funded by the U.S. Army Research, Development & Engineering
Center, or ARDEC, TACOM, and several other U.S. governmental
agencies.
Strategic
Alliances
Our strategic alliances are an important part of our product
development and distribution strategies. We rely on strategic
alliances to provide technology, complementary product offerings
and increased and quicker access to markets. We seek to form
relationships with those entities that can provide
best-in-class
technology or complementary market advantages for establishing
iRobot technology in new market segments.
Among the strategic alliances we have established with
commercial entities are the following:
Deere & Company. We have entered into
a strategic business agreement with the commercial and consumer
equipment division of Deere & Company to explore and
potentially collaborate on multiple projects involving
technology and product development and commercialization
efforts. We have collaborated with Deere & Company on
the development of the
R-Gator
unmanned ground vehicle. Deere & Company has provided
funded research and development, access to its M-Gator military
utility vehicle platform and certain other technology, and we
have provided robot technologies, including our AWARE Robot
Intelligence Systems. Technology jointly developed under the
agreement will be owned by both Deere & Company and us,
and technology independently developed by either
Deere & Company or us will be owned by the developing
party. We and Deere & Company expect to produce a
limited number of
R-Gator
prototypes for evaluation by potential customers. Net proceeds
from sales of the
R-Gator
generally will be shared equally between us and Deere &
Company, subject to recoupment of each partys respective
contribution to the project.
To facilitate management of the
R-Gator
project and additional collaborative activities, we and
Deere & Company have established a joint management
committee to develop proposals for projects, oversee and report
on the progress and fulfillment of projects, and seek
opportunities to further the goals of the strategic business
relationship through joint demonstration of technology and
products at trade shows, industry days and internal management
reviews. We believe that our strategic alliance with
Deere & Company will lead to technologies, and later
products, that are directly applicable to serving markets such
as agricultural and construction equipment, in which we believe
autonomous vehicles can play a significant role. Under the
agreement, we have agreed not to work with any third party on
projects competitive with certain Deere & Company
products if Deere & Company makes minimum annual
payments to us under the agreement of at least
$2.0 million, or as otherwise mutually agreed.
The Clorox Company. We have entered into a
joint development and license agreement with The Clorox Company,
whereby Clorox is the exclusive provider of the cleaning
solution for the Scooba floor washing robot. Our alliance with
The Clorox Company allows us to integrate their cleaning
technology and know-how into our floor washing robot and
improves consumer perception and awareness of our brand by
association and through joint marketing.
Our strategy of working closely with third parties extends to
the design of our products. By offering extensible platforms
designed to carry payloads, we have designed and manufactured
our products to leverage the work of those individuals and
organizations that offer specialized technological expertise.
The PackBot, the Roomba and the Scooba robots are designed with
open interfaces that allow third-party designers to add sensors
or other functionality to our robots.
Sales and
Distribution Channels
We sell our products through distinct sales channels to the
consumer and government and industrial markets.
Home
Robots
We sell our consumer products through a network of national
retailers. In 2006, this network consisted of more than 20
retailers, representing over 7,000 stores in the United States,
each of which sold some combination of these products. We also
offer our products through the iRobot on-line store on our
website. Internationally, our products
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are sold in over 40 countries, primarily through in-country
distributors who resell to retail stores in their respective
countries.
We have a philosophy to choose supportive channel partners, and
we have grown, and intend to continue to selectively grow our
retail network globally and by product line. We began with four
retailers in 2002, grew to twelve retailers in 2003, 15
retailers in 2004, 19 retailers in 2005 and have continued to
expand our retail network to more than 20 retailers in 2006.
Certain smaller domestic retail operations are supported by
distributors to whom we sell product directly. The table below
represents the breakdown of our home robots product revenue for
the fiscal years ended December 30, 2006 and
December 31, 2005.
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Fiscal Year Ended
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December 30,
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December 31,
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Channel
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2006
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2005
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Domestic
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72.7
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%
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79.6
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%
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International
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11.3
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11.1
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Direct
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16.0
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9.3
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Total
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100.0
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%
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100.0
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%
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Although, our retail network is our primary distribution channel
for our consumer products, the continued investment in our
direct-to-consumer
offerings through the iRobot on-line store has resulted in this
direct channel increasing to 16.0% of home robots division
revenue in fiscal 2006 compared to 9.3% in fiscal 2005. We have
established valuable databases and customer lists that allow us
to target directly those consumers most likely to purchase a new
robot or upgrade. We believe we maintain a close connection with
our customers in each of our markets to provide an enhanced
position from which to improve our distribution and product
offerings.
In the United States, we maintain an in-house sales and product
management team of eleven employees. Outside the United States
and Canada, we sell our consumer products through distributors.
Our consumer distribution strategy is intended to increase our
global penetration and presence while maintaining high quality
standards to ensure end-user satisfaction.
Government
and Industrial
We sell our government and industrial products directly to end
users and indirectly through prime contractors. While the
majority of government and industrial products have been sold to
date to various operations within the U.S. Federal
government, we also sell to state and local government
organizations. Our military products are sold overseas in
compliance with the International Trafficking in Arms
Regulations, or ITAR. We have sold our products to the
governments of various countries in the past several years,
including The United Kingdom, France, Germany, Israel, Singapore
and Sweden.
Customers and sponsors for our government products and contracts
for the year ended December 30, 2006 include:
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Research Support Agencies
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Government Customers
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U.S. Defense
Advanced Research Projects Agency (DARPA)
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U.S. Army
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U.S. Space and
Naval Warfare Systems Command (SPAWAR)
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U.S. Marine
Corps/U.S. Navy
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U.S. Army
Tank-Automotive and Armaments Command (TACOM)
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U.S. Army
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Technical Support
Working Group (TSWG)
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U.S. Air Force
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U.S. Army Armament
Research, Development and Engineering Center (ARDEC)
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U.S. Army
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National Center for
Defense Robotics (NCDR)
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Independent
non-government technical collaborative based in Pennsylvania
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Our government products are sold by a team of 15 government
sales specialists with significant experience in selling to
government and defense agencies. All of these individuals have
years of experience selling military products to government
procurement offices, both in the United States and
internationally. We maintain a single person direct sales and
support presence in Europe.
Customer
Service and Support
We also invest in our ongoing customer service and support.
Consumer customer service representatives, some of whom are
in-house and some of whom are employees of outsourced service
organizations, are extensively trained on the technical
intricacies of our consumer products. Government and industrial
customer representatives are usually former military personnel
who are experienced in logistical and technical support
requirements for military operations.
Marketing
and Brand
iRobot markets its home robots in the United States to end-user
customers directly through our sales and product management team
of 11 employees. We also market our consumer products in the
United States through our retail network of 22 national
retailers and internationally through in-country distributors.
We market our government and industrial products directly
through our team of 15 government sales specialists to end users
and indirectly through prime contractors. We also market our
product offerings through the iRobot website. Our marketing
strategy is to increase our brand awareness and associate the
iRobot brand with innovation, reliability, safety and value. Our
sales and marketing expenses represented 18.0% and 15.3% of our
total revenue in 2006 and 2005, respectively.
We believe that we have built a trusted, recognized brand by
providing high-quality robots. We believe that customer
word-of-mouth
has been a significant driver of our brands success to
date, which can work very well for products that inspire a high
level of user loyalty because users are likely to share their
positive experiences. Our grass-roots marketing efforts focus on
feeding this
word-of-mouth
momentum and we use public relations and advertising to promote
our products.
Our innovative robots and public relations campaigns have
generated extensive press coverage. In addition, iRobot and our
consumer robots have won several awards and our inclusion as the
only small business among the first tier partners on the FCS
program has greatly enhanced our brand and awareness among
government and industrial customers. Through these efforts, we
have been able to build our brand, and we expect that our
reputation for innovative products and customer support will
continue to play a significant role in our growth and success.
We expect to accelerate our investment in national advertising,
consumer and industry trade shows, direct marketing and public
relations to further build brand awareness. We believe that our
significant in-house experience designing direct marketing
campaigns and promotional materials, combined with our
media-targeting expertise, gives us a significant competitive
advantage.
Our website is also playing an increasing role in supporting
brand awareness, addressing customer questions and serving as a
showcase for our products. Our home robots and accessories are
also sold through our online store. In 2006, the online store
was the single largest channel of our home robots division
products.
Manufacturing
Our core competencies are the design, development and marketing
of robots. Our manufacturing strategy is to outsource non-core
activities, such as the production of our robots, to third-party
entities skilled in manufacturing. By relying on the outsourced
manufacture of both our consumer and military robots, we can
focus our engineering expertise on the design of robots.
Using our engineering team, we believe that we can rapidly
prototype design concepts and products to achieve optimal value,
produce products at lower cost points and optimize our designs
for manufacturing requirements, size and functionality.
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Manufacturing a new product requires a close relationship
between our product designers and the manufacturing
organizations. Using multiple engineering techniques, our
products are introduced to the selected production facility at
an early-development stage and the feedback provided by
manufacturing is incorporated into the design before tooling is
finalized and mass production begins. As a result, we believe
that we can significantly reduce the time required to move a
product from its design phase to mass production deliveries,
with improved quality and yields.
Since 2002, we have outsourced the manufacturing of our consumer
products to one contract manufacturer, Jetta Company Limited, at
a single plant in China. Jetta Company Limited has been
manufacturing products since 1977 and brings substantial
experience to our production requirements. Jetta Company Limited
has several manufacturing locations and last year expanded one
of its facilities to increase capacity for the production of our
Roomba and Scooba robots. Combined with our own engineering
operations in India and Hong Kong, this allows us to design our
products in the United States, use our own engineers in India
and Hong Kong as the technical interface with the facilities in
China, and benefit from the experience of Jetta Company Limited
and its engineers.
Our government and industrial products are manufactured by Gem
City Engineering Corporation at one plant in Dayton, Ohio. Gem
City Engineering Corporations location is particularly
important as military products supplied to the
U.S. government must have the majority of their content
manufactured in the United States. Gem City Engineering
Corporation has multiple facilities and relies on other
subcontractors for certain component manufacturing capabilities.
Gem City Engineering Corporation has been in the business of
manufacturing primarily metal-tooled products since 1936, and
has produced numerous products for military contractors. We
believe that their engineers are skilled in the production of
products meeting military specifications, preparing final
products for military inspection and conducting quality reviews.
Research
and Development
We believe that our future success depends upon our ability to
continue to develop new products and product accessories, and
enhancements to and applications for our existing products. For
the years ended December 30, 2006, December 31, 2005
and 2004, our research and development expenses were
$17.0 million, $11.6 million and $5.5 million,
respectively. In addition to our internal research and
development activities, for the years ended December 30,
2006, December 31, 2005 and 2004, we have incurred research
and development expenses under funded development arrangements
with governments and industrial third parties of
$15.6 million, $12.5 million and $8.4 million,
respectively. Of our total research and development spending in
2006 and 2005, approximately 36.4% and 37.2%, respectively was
funded by government-sponsored research and development
contracts. We intend to continue our investment in research and
development to respond to and anticipate customer needs, and to
enable us to introduce new products over the next few years that
will continue to address our existing market sectors.
Team
Organization
Our research and development is conducted by small teams of
individuals dedicated to particular projects, examples of which.
include the Roomba team, Scooba team, Warrior team and PackBot
team. In connection with our FCS SUGV program involving more
than 50 employees, we have instituted a formal integrated
product team structure consisting of integrated System of
Systems, Integrated Logistical Support, Program Operations and
Business Operations teams to work together to deliver a platform
that integrates with the FCS system of systems.
Global
Engineering
Our domestic research and development efforts are primarily
located at our headquarters in Burlington, Massachusetts, and
our special projects engineering office in San Luis Obispo,
California. In addition, we have an engineering design center in
India and a product development team working out of Hong Kong.
Our global engineering development process for consumer products
allows us to leverage the time differences between our United
States operations and our teams in Asia resulting in a fast, low
cost global design and manufacturing cycle. The first stage of
the cycle takes place in our Burlington, Massachusetts office
where we focus on product definition, prototyping, market
research and financial analysis. We then create a design that is
manufacturable, including complete modeling and simulation and
initial validation of the product/market concept. After the
initial
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development of the prototypes, we leverage the teams in India
and Hong Kong for the production stage of the cycle. During this
stage, engineers on two continents work on refining the designs,
preparing the product for manufacturing and working through the
issues for pilot production, including detailed regression
testing. The product is then turned over to the contract
manufacturer for volume production.
Spiral
Development
One of the methods we use to develop military products is a
spiral development process to get field tested
equipment to the troops more quickly. After we develop a new
product or product upgrade that will fulfill the desired
requirements of the user, the product is tested with soldiers in
the field. The user provides performance feedback on the product
to the in-field engineer. Revisions are made quickly to retest
in the field. This method has allowed our research and
development team to not only make revisions on existing products
quickly and efficiently, but also capture feedback for future
upgrades and innovations to meet user needs. An example of our
spiral development process was the introduction of our first
PackBot tactical military robot. When the PackBot was first
deployed by the U.S. Army in Afghanistan, we sent one of
our technical program managers into the field with the robot.
The soldiers gave feedback upon returning from a mission, and
our development team made the desired changes to the software.
These changes were then downloaded to the PackBot in
Afghanistan, sometimes even before the next mission. In
addition, based on design ideas from the soldiers using the
PackBot, our engineers developed the PackBot Explorer, a recent
addition to our PackBot product line. We intend to solicit
similar user feedback in the field for the new prototype
R-Gator
intelligent vehicle to capture the users operational
requirements as the product advances in development.
Leveraged
Model
Our research and development efforts for our next-generation
products are supported by a variety of sources. Our
next-generation military products are predominately supported by
U.S. governmental research organizations such as the
Defense Advanced Research Projects Agency, or DARPA,
U.S. Space and Warfare Command, or SPAWAR, Technical
Support Working Group, or TSWG, U.S. Army Tank-Automotive
and Armaments Command, or TACOM, U.S. Army Armament Research,
Development and Engineering Center, or ARDEC, and the
U.S. Armys FCS program. While the
U.S. government retains certain rights in the research
projects that it has funded, we retain ownership of patents and
know-how and are generally free to develop other commercial
products, including consumer and industrial products, utilizing
the technologies developed during these projects. Similarly,
expertise developed while designing consumer products is used in
designing products for government and industrial applications.
We also work with strategic collaborators to develop
industry-specific technologies. Moreover, we continue to
reinvest in advanced research and development projects to
maintain our technical capability and to enhance our product
offerings.
Competition
The market for robots is highly competitive, rapidly evolving
and subject to changing technologies, shifting customer needs
and expectations and the likely increased introduction of new
products. We believe that a number of established companies have
developed or are developing robots that will compete directly
with our product offerings, and many of our competitors have
significantly more financial and other resources than we
possess. Our current principal competitors include:
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developers of robot floor care products such as AB Electrolux,
Alfred Kärcher GmbH & Co., Samsung Electronics
Co., Ltd., LG Electronics Inc., Infinuvo/Metapo, Inc, Matsutek
Enterprises Co Ltd. and Yujin Robotic Co. Ltd.;
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developers of small unmanned ground vehicles such as
Foster-Miller, Inc. a wholly owned subsidiary of
QinetiQ North America, Inc., Allen-Vanguard Corporation, and
Remotec a division of Northrop Grumman
Corporation; and
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established government contractors working on unmanned systems
such as Lockheed Martin Corporation, BAE Systems, Inc. and
General Dynamics Corporation.
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13
While we believe many of our customers purchase our Roomba floor
cleaning robots as a supplement to, rather than a replacement
for, their traditional vacuum cleaners, we do compete in some
cases with providers of traditional vacuum cleaners.
We believe that the principal competitive factors in the market
for robots include product features, performance for the
intended mission, cost of purchase, total cost of system
operation, including maintenance and support, ease of use,
integration with existing equipment, quality, reliability,
customer support, brand and reputation.
Our ability to remain competitive will depend to a great extent
upon our ongoing performance in the areas of product development
and customer support. We cannot assure you that our products
will continue to compete favorably or that we will be successful
in the face of increasing competition from new products and
enhancements introduced by existing competitors or new companies
entering the markets in which we provide products.
Intellectual
Property
We believe that our continued success depends in large part on
our proprietary technology, the intellectual skills of our
employees and the ability of our employees to continue to
innovate. We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements, to establish and protect our proprietary rights.
As of December 30, 2006, we held 28 U.S. patents and
more than 50 pending U.S. patent applications. Also, we
held 9 foreign patents, additional design registrations, and
more than 30 pending foreign applications. Our first
U.S. patent is set to expire in 2008. We do not expect the
expiration of this patent to adversely affect our intellectual
property position. Our other U.S. patents will begin to
expire in 2019. We will continue to file and prosecute patent
(or design registration, as applicable) applications when and
where appropriate to attempt to protect our rights in our
proprietary technologies. We also encourage our employees to
continue to invent and develop new technologies so as to
maintain our competitiveness in the marketplace. It is possible
that our current patents, or patents which we may later acquire,
may be successfully challenged or invalidated in whole or in
part. It is also possible that we may not obtain issued patents
for our pending patent applications or other inventions we seek
to protect. In that regard, we sometimes permit certain
intellectual property to lapse or go abandoned under appropriate
circumstances and due to uncertainties inherent in prosecuting
patent applications, sometimes patent applications are rejected
and we subsequently abandon them. It is also possible that we
may not develop proprietary products or technologies in the
future that are patentable, or that any patent issued to us may
not provide us with any competitive advantages, or that the
patents of others will harm or altogether preclude our ability
to do business.
Our registered U.S. trademarks include iRobot, Roomba,
PackBot and Virtual Wall. Our marks, iRobot and Roomba, and
certain other trademarks, have also been registered in selected
foreign countries.
Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop
technology that is similar to ours. Legal protections afford
only limited protection for our technology. The laws of many
countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. Despite our efforts
to protect our proprietary rights, unauthorized parties have in
the past attempted, and may in the future attempt, to copy
aspects of our products or to obtain and use information that we
regard as proprietary. Third parties may also design around our
proprietary rights, which may render our protected products less
valuable, if the design around is favorably received in the
marketplace. In addition, if any of our products or the
technology underlying our products is covered by third-party
patents or other intellectual property rights, we could be
subject to various legal actions. We cannot assure you that our
products do not infringe patents held by others or that they
will not in the future. We have received in the past
communications from third parties relating to technologies used
in our Roomba floor vacuuming robots that have alleged
infringement of patents or violation of other intellectual
property rights. In response to these communications, we have
contacted these third parties to convey our good faith belief
that we do not infringe the patents in question or otherwise
violate those parties rights. Although there have been no
additional actions or communications with respect to these
allegations, we cannot assure you that we will not receive
further correspondence from these parties, or not be subject to
additional allegations of infringement from others. Litigation
may be necessary to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others, or to defend against claims
of infringement or
14
invalidity, misappropriation, or other claims. Any such
litigation could result in substantial costs and diversion of
our resources. Moreover, any settlement of or adverse judgment
resulting from such litigation could require us to obtain a
license to continue to use the technology that is the subject of
the claim, or otherwise restrict or prohibit our use of the
technology. Any required licenses may not be available to us on
acceptable terms, if at all. If we attempt to design around the
technology at issue or to find another provider of suitable
alternative technology to permit us to continue offering
applicable software or product solutions, our continued supply
of software or product solutions could be disrupted or our
introduction of new or enhanced software or products could be
significantly delayed.
Regulations
We are subject to various government regulations, including
various U.S. federal government regulations as a contractor
and subcontractor to the U.S. federal government. Among the
most significant U.S. federal government regulations affecting
our business are:
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the Federal Acquisition Regulations and supplemental agency
regulations, which comprehensively regulate the formation and
administration of, and performance under government contracts;
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the Truth in Negotiations Act, which requires certification and
disclosure of all cost and pricing data in connection with
contract negotiations;
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the Cost Accounting Standards, which impose accounting
requirements that govern our right to reimbursement under
cost-based government contracts;
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the Foreign Corrupt Practices Act, which prohibits
U.S. companies from providing anything of value to a
foreign official to help obtain, retain or direct business, or
obtain any unfair advantages;
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the False Claims Act and the False Statements Act, which,
respectively, impose penalties for payments made on the basis of
false facts provided to the government, and impose penalties on
the basis of false statements, even if they do not result in a
payment; and
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laws, regulations and executive orders restricting the use and
dissemination of information classified for national security
purposes and the exportation of certain products and technical
data.
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We also need special security clearances to continue working on
and advancing certain of our projects with the U.S. federal
government. Classified programs generally will require that we
comply with various Executive Orders, federal laws and
regulations and customer security requirements that may include
restrictions on how we develop, store, protect and share
information, and may require our employees to obtain government
clearances.
The nature of the work we do for the federal government may also
limit the parties who may invest in or acquire us. Export laws
may keep us from providing potential foreign acquirers with a
review of the technical data they would be acquiring. In
addition, there are special requirements for foreign parties who
wish to buy or acquire control or influence over companies that
control technology or produce goods in the security interests of
the United States. There may need to be a review under the
Exon-Florio provisions of the Defense Production Act. Finally,
the government may require a prospective foreign owner to
establish intermediaries to actually run that part of the
company that does classified work, and establishing a subsidiary
and its separate operation may make such an acquisition less
appealing to such potential acquirers.
In addition, the export from the United States of many of our
products may require the issuance of a license by the
U.S. Department of Commerce under the Export Administration
Act, as amended, and its implementing Regulations as kept in
force by the International Emergency Economic Powers Act of
1977, as amended. Some of our products may require the issuance
of a license by the U.S. Department of State under the Arms
Export Control Act and its implementing Regulations, which
licenses are generally harder to obtain and take longer to
obtain than do Export Administration Act licenses.
Government
Product Backlog
Our government product backlog consists of written orders or
contracts to purchase our products received from our government
customers. Total backlog of product sales to government
customers as of December 30, 2006 and
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December 31, 2005 amounted to approximately
$7.5 million and $10.9 million, respectively. We do
not have long-term contracts with non-government customers, and
purchases from our non-government customers generally occur on
an
order-by-order
basis, which can be terminated or modified at any time by these
customers. In addition, our funded research and development
contracts may be cancelled or delayed at any time without
significant, if any, penalty. As a result, we believe that
backlog with respect to product sales to our non-government
customers and funded research and development is not meaningful.
There can be no assurance that any of our backlog will result in
revenue.
Employees
As of December 30, 2006, we had 371 full-time
employees located in the United States and abroad, of whom 190
are in research and development, 75 are in operations, 31 are in
sales and marketing and 75 are in general and administration. We
believe that we have a good relationship with our employees.
Available
Information
We were incorporated in California in August 1990 under the name
IS Robotics, Inc. and reincorporated as IS Robotics
Corporation in Massachusetts in June 1994. We reincorporated in
Delaware as iRobot Corporation in December 2000. We conduct
operations and maintain a number of subsidiaries in the United
States and abroad, including operations in Hong Kong and India.
We also maintain iRobot Securities Corporation, a Massachusetts
securities corporation, to invest our cash balances on a
short-term basis. Our website address is www.irobot.com. Our
Annual Report on
Form 10-K,
Quarterly Report on
Form 10-Q,
Current Report on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available through the investor relations page of our
internet website as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
Securities and Exchange Commission.
16
We operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. This
discussion highlights some of the risks which may affect future
operating results. These are the risks and uncertainties we
believe are most important for you to consider. Additional risks
and uncertainties not presently known to us, which we currently
deem immaterial or which are similar to those faced by other
companies in our industry or business in general, may also
impair our business operations. If any of the following risks or
uncertainties actually occurs, our business, financial condition
and operating results would likely suffer.
Risks
Related to Our Business
We
operate in an emerging market, which makes it difficult to
evaluate our business and future prospects.
Robots represent a new and emerging market. Accordingly, our
business and future prospects are difficult to evaluate. We
cannot accurately predict the extent to which demand for
consumer robots will increase, if at all. Moreover, there are
only a limited number of major programs under which the
U.S. federal government is currently funding the
development or purchase of military robots. You should consider
the challenges, risks and uncertainties frequently encountered
by companies using new and unproven business models in rapidly
evolving markets. These challenges include our ability to:
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generate sufficient revenue and gross profit to maintain
profitability;
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acquire and maintain market share in our consumer and military
markets;
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manage growth in our operations;
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attract and retain customers of our consumer robots;
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develop and renew government contracts for our military robots;
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attract and retain additional engineers and other
highly-qualified personnel;
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adapt to new or changing policies and spending priorities of
governments and government agencies; and
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access additional capital when required and on reasonable terms.
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If we fail to successfully address these and other challenges,
risks and uncertainties, our business, results of operations and
financial condition would be materially harmed.
Our
financial results often vary significantly from
quarter-to-quarter
due to a number of factors, which may lead to volatility in our
stock price.
Our quarterly revenue and other operating results have varied in
the past and are likely to continue to vary significantly from
quarter-to-quarter.
For instance, our consumer product revenue is significantly
seasonal. For the fiscal years ended December 30, 2006 and
December 31, 2005, 64.5% and 79.8%, respectively, of our
revenue from sales of consumer products has been generated in
the second half of the year. This variability may lead to
volatility in our stock price as equity research analysts and
investors respond to these quarterly fluctuations. These
fluctuations will be due to numerous factors including:
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seasonality in the sales of our consumer products;
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the size and timing of orders from retail stores for our home
floor care robots;
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the size and timing of orders from military and other government
agencies;
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the mix of products that we sell in the period;
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disruption of supply of our products from our manufacturers;
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the inability to attract and retain qualified,
revenue-generating personnel;
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unanticipated costs incurred in the introduction of new products;
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costs of labor and raw materials;
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changes in our rate of returns for our consumer products;
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our ability to introduce new products and enhancements to our
existing products on a timely basis;
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price reductions;
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the amount of government funding and the political, budgetary
and purchasing constraints of our government agency
customers; and
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cancellations, delays or contract amendments by government
agency customers.
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Revenue for any particular quarter and revenue from sales of our
consumer products are difficult to predict. Chain stores and
other national retailers typically place orders for the holiday
season in the third quarter and early in the fourth quarter. The
timing of these holiday season shipments could materially affect
our third or fourth quarter results in any fiscal year. Because
of quarterly fluctuations, we believe that
quarter-to-quarter
comparisons of our operating results are not necessarily
meaningful. Moreover, our operating results may not meet
expectations of equity research analysts or investors. If this
occurs, the trading price of our common stock could fall
substantially either suddenly or over time.
Our
future profitability is uncertain, and we have a limited
operating history on which you can base your evaluation of our
business.
As a result of historical operating losses, we had an
accumulated deficit of $20.7 million at December 30,
2006. Because we operate in a rapidly evolving industry, we have
difficulty predicting our future operating results, and we
cannot be certain that our revenue will grow at rates that will
allow us to maintain profitability on a quarterly or annual
basis. In addition, we only have a limited operating history on
which you can base your evaluation of our business. If we fail
to maintain profitability, the market price of our common stock
will likely fall.
We
introduced our Scooba home robot product line at multiple price
points. If this product line does not generate significant sales
in the future, our revenue and operating results would be
negatively impacted.
In December 2005, we made our Scooba floor washing robot
available for volume distribution. We have limited experience
with the enhancement, development and introduction of new
product lines. We introduced the Scooba line of robots at a
suggested retail price of $399 per unit, and in 2006 we
introduced a second unit at $299 per unit. For this second
unit, we devoted significant time and incurred significant
expenses in connection with developing the product. The second
unit was introduced toward the end of the second quarter of
2006. We are unable to determine at this time whether any of our
Scooba floor washing robots will attain market acceptance, at
any price, or generate significant sales to consumers. Our
revenues and operating results in 2007 and in the future will
depend in part on the success of this product line, and our
revenues and operating results will be negatively impacted if
this product line does not generate significant sales to
consumers or support pricing that allows us to achieve an
acceptable gross margin.
A
majority of our business currently depends on our consumer
robots, and our sales growth and operating results would be
negatively impacted if we are unable to enhance our current
consumer robots or develop new consumer robots at competitive
prices or in a timely manner.
For the years ended December 30, 2006 and December 31,
2005, we derived 59.5% and 65.4% of our total revenue from our
home floor care robots, respectively. For the foreseeable
future, we expect that a majority of our revenue will continue
to be derived from sales of home floor care products.
Accordingly, our future success depends upon our ability to
further penetrate the consumer home floor care market, to
enhance our current consumer products and develop and introduce
new consumer products offering enhanced performance and
functionality at competitive prices. The development and
application of new technologies involve time, substantial costs
and risks. For example, we have devoted significant time and
incurred significant expenses in connection with the development
of our Scooba robot, which is designed to sweep, wash, scrub and
dry hard floors, and during 2006 we made our Scooba robot
available for volume distribution. Our results in 2007 will
depend in part on the success of this
18
product line, and there can be no assurance that it will
maintain any level of retail or consumer acceptance. Our
inability to achieve significant sales of our Scooba robot, or
to enhance, develop and introduce other products in a timely
manner, or at all, would materially harm our sales growth and
operating results.
We
depend on the U.S. federal government for a significant
portion of our revenue, and any reduction in the amount of
business that we do with the U.S. federal government would
negatively impact our operating results and financial
condition.
For the years ended December 30, 2006 and December 31,
2005, we derived 34.4% and 28.3% of our total revenue,
respectively, directly or indirectly, from the U.S. federal
government and its agencies. Any reduction in the amount of
revenue that we derive from the U.S. federal government
without an offsetting increase in new sales to other customers
would have a material adverse effect on our operating results.
Our participation in specific major U.S. federal government
programs is critical to both the development and sale of our
military robots. For example, in the years ended
December 30, 2006 and December 31, 2005, 59.8% and
59.7% of our contract revenue was derived from our participation
in the U.S. Armys Future Combat Systems program,
respectively. Future sales of our PackBot robots will depend
largely on our ability to secure contracts with the
U.S. military under its robot programs. We expect that
there will continue to be only a limited number of major
programs under which U.S. federal government agencies will
seek to fund the development of, or purchase, robots. Our
business will, therefore, suffer if we are not awarded, either
directly or indirectly through third-party contractors,
government contracts for robots that we are qualified to develop
or build. In addition, if the U.S. federal government or
government agencies terminate or reduce the related prime
contract under which we serve as a subcontractor, revenues that
we derive under that contract could be lost, which would
negatively impact our business and financial results. Moreover,
it is difficult to predict the timing of the award of government
contracts and our revenue could fluctuate significantly based on
the timing of any such awards.
Even if we continue to receive funding for research and
development under these contracts, there can be no assurance
that we will successfully complete the development of robots
pursuant to these contracts or that, if successfully developed,
the U.S. federal government or any other customer will
purchase these robots from us. The U.S. federal government
has the right when it contracts to use the technology developed
by us to have robots supplied by third parties. Any failure by
us to complete the development of these robots, or to achieve
successful sales of these robots, would harm our business and
results of operations.
Our
contracts with the U.S. federal government contain certain
provisions that may be unfavorable to us and subject us to
government audits, which could materially harm our business and
results of operations.
Our contracts and subcontracts with the U.S. federal
government subject us to certain risks and give the
U.S. federal government rights and remedies not typically
found in commercial contracts, including rights that allow the
U.S. federal government to:
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terminate contracts for convenience, in whole or in part, at any
time and for any reason;
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reduce or modify contracts or subcontracts if its requirements
or budgetary constraints change;
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cancel multi-year contracts and related orders if funds for
contract performance for any subsequent year become unavailable;
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exercise production priorities, which allow it to require that
we accept government purchase orders or produce products under
its contracts before we produce products under other contracts,
which may displace or delay production of more profitable orders;
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claim certain rights in products provided by us; and
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control or prohibit the export of certain of our products.
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Several of our prime contracts with the U.S. federal
government do not contain a limitation of liability provision,
creating a risk of responsibility for direct and consequential
damages. Several subcontracts with prime contractors hold the
prime contractor harmless against liability that stems from our
work and do not contain a
19
limitation of liability. These provisions could cause
substantial liability for us, especially given the use to which
our products may be put.
In addition, we are subject to audits by the U.S. federal
government as part of routine audits of government contracts. As
part of an audit, these agencies may review our performance on
contracts, cost structures and compliance with applicable laws,
regulations and standards. If any of our costs are found to be
allocated improperly to a specific contract, the costs may not
be reimbursed and any costs already reimbursed for such contract
may have to be refunded. Accordingly, an audit could result in a
material adjustment to our revenue and results of operations.
Moreover, if an audit uncovers improper or illegal activities,
we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with the government.
If any of the foregoing were to occur, or if the
U.S. federal government otherwise ceased doing business
with us or decreased the amount of business with us, our
business and operating results could be materially harmed and
the value of your investment in our common stock could be
impaired.
Some
of our contracts with the U.S. federal government allow it
to use inventions developed under the contracts and to disclose
technical data to third parties, which could harm our ability to
compete.
Some of our contracts allow the U.S. federal government
rights to use, or have others use, patented inventions developed
under those contracts on behalf of the government. Some of the
contracts allow the federal government to disclose technical
data without constraining the recipient in how that data is
used. The ability of third parties to use patents and technical
data for government purposes creates the possibility that the
government could attempt to establish additional sources for the
products we provide that stem from these contracts. It may also
allow the government the ability to negotiate with us to reduce
our prices for products we provide to it. The potential that the
government may release some of the technical data without
constraint creates the possibility that third parties may be
able to use this data to compete with us in the commercial
sector.
Government
contracts are subject to a competitive bidding process that can
consume significant resources without generating any
revenue.
Government contracts are frequently awarded only after formal
competitive bidding processes, which are protracted. In many
cases, unsuccessful bidders for government agency contracts are
provided the opportunity to protest certain contract awards
through various agency, administrative and judicial channels. If
any of the government contracts awarded to us are protested, we
may be required to expend substantial time, effort and financial
resources without realizing any revenue with respect to the
potential contract. The protest process may substantially delay
our contract performance, distract management and result in
cancellation of the contract award entirely.
We
depend on single source manufacturers, and our reputation and
results of operations would be harmed if these manufacturers
fail to meet our requirements.
We currently depend on one contract manufacturer, Jetta Company
Limited, to manufacture our home robot products at a single
plant in China and rely on one contract manufacturer, Gem City
Engineering Corporation, to manufacture our military products at
a single plant in the United States. Moreover, we do not have a
long-term contract with Jetta Company Limited and the
manufacture of our consumer products is provided on a
purchase-order basis. These manufacturers supply substantially
all of the raw materials and provide all facilities and labor
required to manufacture our products. If these companies were to
terminate their arrangements with us or fail to provide the
required capacity and quality on a timely basis, we would be
unable to manufacture our products until replacement contract
manufacturing services could be obtained. To qualify a new
contract manufacturer, familiarize it with our products, quality
standards and other requirements, and commence volume production
is a costly and time-consuming process. We cannot assure you
that we would be able to establish alternative manufacturing
relationships on acceptable terms.
20
Our reliance on these contract manufacturers involves certain
risks, including the following:
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lack of direct control over production capacity and delivery
schedules;
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lack of direct control over quality assurance, manufacturing
yields and production costs;
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lack of enforceable contractual provisions over the production
and costs of consumer products;
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risk of loss of inventory while in transit from China; and
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risks associated with international commerce with China,
including unexpected changes in legal and regulatory
requirements, changes in tariffs and trade policies, risks
associated with the protection of intellectual property and
political and economic instability.
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Any interruption in the manufacture of our products would be
likely to result in delays in shipment, lost sales and revenue
and damage to our reputation in the market, all of which would
harm our business and results of operations. In addition, while
our contract obligations with our contract manufacturer in China
are typically denominated in U.S. dollars, changes in
currency exchange rates could impact our suppliers and increase
our prices. In particular, the Chinese government announced in
2005 that the Chinese yuan has moved to a managed floating
exchange rate regime, which could lead to our suppliers in China
negotiating increased pricing terms with us.
Any
efforts to expand our product offerings beyond our current
markets may not succeed, which could negatively impact our
operating results.
We have focused on selling our robots in the home floor care and
military markets. We plan to expand into other markets. Efforts
to expand our product offerings beyond the two markets that we
currently serve, however, may divert management resources from
existing operations and require us to commit significant
financial resources to an unproven business, either of which
could significantly impair our operating results. Moreover,
efforts to expand beyond our existing markets may never result
in new products that achieve market acceptance, create
additional revenue or become profitable.
If we
are unable to implement appropriate controls and procedures to
manage our growth, we may not be able to successfully implement
our business plan.
Our headcount and operations are growing rapidly. This rapid
growth has placed, and will continue to place, a significant
strain on our management, administrative, operational and
financial infrastructure. From December 31, 2005 to
December 30, 2006, the number of our employees increased
from 276 to 371. We anticipate further growth will be required
to address increases in our product offerings and the geographic
scope of our customer base. Our success will depend in part upon
the ability of our senior management to manage this growth
effectively. To do so, we must continue to hire, train, manage
and integrate a significant number of qualified managers and
engineers. If our new employees perform poorly, or if we are
unsuccessful in hiring, training, managing and integrating these
new employees, or retaining these or our existing employees, our
business may suffer.
In addition, we face risks associated with managing operations
outside the United States, including operations in Hong Kong,
India and the United Kingdom. To manage the expected continued
growth of our headcount and operations, we will need to continue
to improve our information technology infrastructure,
operational, financial and management controls and reporting
systems and procedures, and manage expanded operations in
geographically distributed locations. Our expected additional
headcount and capital investments will increase our costs, which
will make it more difficult for us to offset any future revenue
shortfalls by offsetting expense reductions in the short term.
If we fail to successfully manage our growth, we will be unable
to successfully execute our business plan, which could have a
negative impact on our business, financial condition or results
of operations.
If the
consumer robot market does not experience significant growth or
if our products do not achieve broad acceptance, we will not be
able to achieve our anticipated level of growth.
We derive a substantial portion of our revenue from sales of our
home floor care robots. For the years ended December 30,
2006 and December 31, 2005, home floor care robots
accounted for 59.5% and 65.4% of total revenue, respectively. We
cannot accurately predict the future growth rate or the size of
the home floor care robot
21
market. Demand for home floor care robots may not increase, or
may decrease, either generally or in specific geographic
markets, for particular types of robots or during particular
time periods. The expansion of the home robot market and the
market for our products depends on a number of factors, such as:
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the cost, performance and reliability of our products and
products offered by our competitors;
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public perceptions regarding the effectiveness and value of
robots;
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customer satisfaction with robots; and
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marketing efforts and publicity regarding robots.
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Even if consumer robots gain wide market acceptance, our robots
may not adequately address market requirements and may not
continue to gain market acceptance. If robots generally, or our
robots specifically, do not gain wide market acceptance, we may
not be able to achieve our anticipated level of growth, and our
revenue and results of operations would suffer.
Our
business and results of operations could be adversely affected
by significant changes in the policies and spending priorities
of governments and government agencies.
We derive a substantial portion of our revenue from sales to and
contracts with U.S. federal, state and local governments
and government agencies, and subcontracts under federal
government prime contracts. For the years ended
December 30, 2006 and December 31, 2005,
U.S. federal government orders, contracts and subcontracts
accounted for 34.4% and 28.3%, of total revenue, respectively.
We believe that the success and growth of our business will
continue to depend on our successful procurement of government
contracts either directly or through prime contractors. Many of
our government customers are subject to stringent budgetary
constraints and our continued performance under these contracts,
or award of additional contracts from these agencies, could be
jeopardized by spending reductions or budget cutbacks at these
agencies. We cannot assure you that future levels of
expenditures and authorizations will continue for governmental
programs in which we provide products and services. A
significant decline in government expenditures generally, or
with respect to programs for which we provide products, could
adversely affect our government product and funded research and
development revenues and prospects, which would harm our
business, financial condition and operating results. Our
operating results may also be negatively impacted by other
developments that affect these governments and government
agencies generally, including:
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changes in government programs that are related to our products
and services;
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adoption of new laws or regulations relating to government
contracting or changes to existing laws or regulations;
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changes in political or public support for security and defense
programs;
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delays or changes in the government appropriations process;
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uncertainties associated with the war on terror and other
geo-political matters; and
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delays in the payment of our invoices by government payment
offices.
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These developments and other factors could cause governments and
governmental agencies, or prime contractors that use us as a
subcontractor, to reduce their purchases under existing
contracts, to exercise their rights to terminate contracts
at-will or to abstain from renewing contracts, any of which
would cause our revenue to decline and could otherwise harm our
business, financial condition and results of operations.
We
face intense competition from other providers of robots,
including diversified technology providers, as well as
competition from providers offering alternative products, which
could negatively impact our results of operations and cause our
market share to decline.
We believe that a number of companies have developed or are
developing robots that will compete directly with our product
offerings. Additionally, large and small companies,
government-sponsored laboratories and universities are
aggressively pursuing contracts for robot-focused research and
development. Many current and
22
potential competitors have substantially greater financial,
marketing, research and manufacturing resources than we possess,
and there can be no assurance that our current and future
competitors will not be more successful than us. Moreover, while
we believe many of our customers purchase our floor vacuuming
robots as a supplement to, rather than a replacement for, their
traditional vacuum cleaners; we also compete in some cases with
providers of traditional vacuum cleaners. Our current principal
competitors include:
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developers of robot floor care products such as AB Electrolux,
Alfred Kärcher GmbH & Co., Samsung Electronics
Co., Ltd., LG Electronics Inc., Infinuvo/Metapo, Inc., Matsutek
Enterprises Co Ltd. and Yujin Robotic Co. Ltd.;
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developers of small unmanned ground vehicles such as
Foster-Miller, Inc. a wholly owned subsidiary of
QinetiQ North America, Inc., Allen-Vanguard Corporation, and
Remotec a division of Northrop Grumman
Corporation; and
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established government contractors working on unmanned systems
such as Lockheed Martin Corporation, BAE Systems, Inc. and
General Dynamics Corporation.
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In the event that the robot market expands, we expect that
competition will intensify as additional competitors enter the
market and current competitors expand their product lines.
Companies competing with us may introduce products that are
competitively priced, have increased performance or
functionality, or incorporate technological advances that we
have not yet developed or implemented. Increased competitive
pressure could result in a loss of sales or market share or
cause us to lower prices for our products, any of which would
harm our business and operating results.
The market for robots is highly competitive, rapidly evolving
and subject to changing technologies, shifting customer needs
and expectations and the likely increased introduction of new
products. Our ability to remain competitive will depend to a
great extent upon our ongoing performance in the areas of
product development and customer support. We cannot assure you
that our products will continue to compete favorably or that we
will be successful in the face of increasing competition from
new products and enhancements introduced by existing competitors
or new companies entering the markets in which we provide
products. Our failure to compete successfully could cause our
revenue and market share to decline, which would negatively
impact our results of operations and financial condition.
Our
business is significantly seasonal and, because many of our
expenses are based on anticipated levels of annual revenue, our
business and operating results will suffer if we do not achieve
revenue consistent with our expectations.
Our home robots revenue is significantly seasonal. For the
fiscal years ended December 30, 2006 and December 31,
2005, 64.5% and 79.8%, respectively, of our revenue from sales
of consumer products has been generated in the second half of
the year. We expect a majority of such revenue will continue to
be generated in the second half of the year for the foreseeable
future. As a result of this seasonality, we believe that
quarter-to-quarter
comparisons of our operating results are not necessarily
meaningful and that these comparisons cannot be relied upon as
indicators of future performance.
We base our current and future expense levels on our internal
operating plans and sales forecasts, including forecasts of
holiday sales for our consumer products. A significant portion
of our operating expenses, such as research and development
expenses, certain marketing and promotional expenses and
employee wages and salaries, do not vary directly with sales and
are difficult to adjust in the short term. As a result, if sales
for a quarter, particularly the final quarter of a fiscal year,
are below our expectations, we might not be able to reduce
operating expenses for that quarter and, therefore, we would not
be able to reduce our operating expenses for the fiscal year.
Accordingly, a sales shortfall during a fiscal quarter, and in
particular the fourth quarter of a fiscal year, could have a
disproportionate effect on our operating results for that
quarter or that year. As a result of these factors, we may
report operating results that do not meet the expectations of
equity research analysts and investors. This could cause the
trading price of our common stock to decline.
23
If
critical components of our products that we currently purchase
from a small number of suppliers become unavailable, we may
incur delays in shipment, which could damage our
business.
We and our outsourced manufacturers obtain hardware components,
various subsystems and raw materials from a limited group of
suppliers. We do not have any long-term agreements with these
suppliers obligating them to continue to sell components or
products to us. Our reliance on these suppliers involves
significant risks and uncertainties, including whether our
suppliers will provide an adequate supply of required components
of sufficient quality, will increase prices for the components
and will perform their obligations on a timely basis. If we or
our outsourced manufacturers are unable to obtain components
from third-party suppliers in the quantities and of the quality
that we require, on a timely basis and at acceptable prices, we
may not be able to deliver our products on a timely or
cost-effective basis to our customers, which could cause
customers to terminate their contracts with us, reduce our gross
profit and seriously harm our business, results of operations
and financial condition. Moreover, if any of our suppliers
become financially unstable, we may have to find new suppliers.
It may take several months to locate alternative suppliers, if
required, or to re-tool our products to accommodate components
from different suppliers. We may experience significant delays
in manufacturing and shipping our products to customers and
incur additional development, manufacturing and other costs to
establish alternative sources of supply if we lose any of these
sources. We cannot predict if we will be able to obtain
replacement components within the time frames that we require at
an affordable cost, or at all. In particular, the prices of ABS
plastic and nickel (for batteries) have recently increased and
we cannot provide assurance that will not materially impact our
results of operations.
Our
products are complex and could have unknown defects or errors,
which may give rise to claims against us, diminish our brand or
divert our resources from other purposes.
Our robots rely on the interplay among behavior-based
artificially intelligent systems, real-world dynamic sensors,
friendly user interfaces and tightly-integrated,
electromechanical designs to accomplish their missions. Despite
testing, our new or existing products have contained defects and
errors and may in the future contain defects, errors or
performance problems when first introduced, when new versions or
enhancements are released, or even after these products have
been used by our customers for a period of time. These problems
could result in expensive and time-consuming design
modifications or warranty charges, delays in the introduction of
new products or enhancements, significant increases in our
service and maintenance costs, exposure to liability for
damages, damaged customer relationships and harm to our
reputation, any of which could materially harm our results of
operations and ability to achieve market acceptance. In
addition, increased development and warranty costs could be
substantial and could reduce our operating margins. Moreover,
because military robots are used in dangerous situations, the
failure or malfunction of any of these robots, including our
own, could significantly damage our reputation and support for
robot solutions in general. The existence of any defects,
errors, or failures in our products could also lead to product
liability claims or lawsuits against us. A successful product
liability claim could result in substantial cost, diminish our
brand and divert managements attention and resources,
which could have a negative impact on our business, financial
condition and results of operations.
The
robot industry is and will likely continue to be characterized
by rapid technological change, which will require us to develop
new products and product enhancements, and could render our
existing products obsolete.
Continuing technological changes in the robot industry and in
the markets in which we sell our robots could undermine our
competitive position or make our robots obsolete, either
generally or for particular types of services. Our future
success will depend upon our ability to develop and introduce a
variety of new capabilities and enhancements to our existing
product offerings, as well as introduce a variety of new product
offerings, to address the changing needs of the markets in which
we offer our robots. Delays in introducing new products and
enhancements, the failure to choose correctly among technical
alternatives or the failure to offer innovative products or
enhancements at competitive prices may cause existing and
potential customers to forego purchases of our products and
purchase our competitors products. Moreover, the
development of new products has required, and will require, that
we expend significant financial and management resources. We
have incurred, and expect to continue to incur, significant
research and development expenses in connection with our efforts
to expand our product offerings. If we are unable to devote
adequate resources to develop new products or cannot otherwise
24
successfully develop new products or enhancements that meet
customer requirements on a timely basis, our products could lose
market share, our revenue and profits could decline, or we could
experience operating losses. Moreover, if we are unable to
offset our product development costs through sales of existing
or new products or product enhancements, our operating results
and gross margins would be negatively impacted.
If we
are unable to attract and retain additional skilled personnel,
we may be unable to grow our business.
To execute our growth plan, we must attract and retain
additional, highly-qualified personnel. Competition for hiring
these employees is intense, especially with regard to engineers
with high levels of experience in designing, developing and
integrating robots. Many of the companies with which we compete
for hiring experienced employees have greater resources than we
have. In addition, in making employment decisions, particularly
in the high-technology industries, job candidates often consider
the value of the equity they are to receive in connection with
their employment. Therefore, significant volatility in the price
of our stock may adversely affect our ability to attract or
retain technical personnel. Furthermore, changes to accounting
principles generally accepted in the United States relating to
the expensing of stock options may discourage us from granting
the sizes or types of stock options that job candidates may
require to accept our offer of employment. If we fail to attract
new technical personnel or fail to retain and motivate our
current employees, our business and future growth prospects
could be severely harmed.
We may
be sued by third parties for alleged infringement of their
proprietary rights, which could be costly, time-consuming and
limit our ability to use certain technologies in the
future.
If the size of our markets increases, we would be more likely to
be subject to claims that our technologies infringe upon the
intellectual property or other proprietary rights of third
parties. In addition, the vendors from which we license
technology used in our products could become subject to similar
infringement claims. Our vendors, or we, may not be able to
withstand third-party infringement claims. Any claims, with or
without merit, could be time-consuming and expensive, and could
divert our managements attention away from the execution
of our business plan. Moreover, any settlement or adverse
judgment resulting from the claim could require us to pay
substantial amounts or obtain a license to continue to use the
technology that is the subject of the claim, or otherwise
restrict or prohibit our use of the technology. There can be no
assurance that we would be able to obtain a license from the
third party asserting the claim on commercially reasonable
terms, if at all, that we would be able to develop alternative
technology on a timely basis, if at all, or that we would be
able to obtain a license to use a suitable alternative
technology to permit us to continue offering, and our customers
to continue using, our affected product. In addition, we may be
required to indemnify our retail and distribution partners for
third-party intellectual property infringement claims, which
would increase the cost to us of an adverse ruling in such a
claim. An adverse determination could also prevent us from
offering our products to others. Infringement claims asserted
against us or our vendors may have a material adverse effect on
our business, results of operations or financial condition.
If we
fail to maintain or increase our consumer robot sales through
our primary distribution channels, which include third-party
retailers, our product sales and results of operations would be
negatively impacted.
Chain stores and other national retailers are the primary
distribution channels for our consumer robots and accounted for
approximately 41.6% and 47.8% of our total revenue for the years
ended December 30, 2006 and December 31, 2005,
respectively. We do not have long-term contracts regarding
purchase volumes with any of our distributors. As a result,
purchases generally occur on an
order-by-order
basis, and the relationships, as well as particular orders, can
generally be terminated or otherwise materially changed at any
time by our distributors. A decision by a major retail
distributor, whether motivated by competitive considerations,
financial difficulties, economic conditions or otherwise, to
decrease its purchases from us, to reduce the shelf space for
our products or to change its manner of doing business with us
could significantly damage our consumer product sales and
negatively impact our business, financial condition and results
of operations. In addition, during recent years, various
retailers, including some of our distributors, have experienced
significant changes and difficulties, including consolidation of
ownership, increased centralization of purchasing decisions,
restructurings, bankruptcies and liquidations. These
25
and other financial problems of some of our retailers increase
the risk of extending credit to these retailers. A significant
adverse change in a retail distributor relationship with us or
in a retail distributors financial position could cause us
to limit or discontinue business with that distributor, require
us to assume more credit risk relating to that
distributors receivables or limit our ability to collect
amounts related to previous purchases by that distributor, all
of which could harm our business and financial condition.
Disruption of the iRobot on-line store could also decrease our
home floor care robot sales.
If we
fail to enhance our brand, our ability to expand our customer
base will be impaired and our operating results may
suffer.
We believe that developing and maintaining awareness of the
iRobot brand is critical to achieving widespread acceptance of
our existing and future products and is an important element in
attracting new customers. Furthermore, we expect the importance
of global brand recognition to increase as competition develops.
Successful promotion of our brand will depend largely on the
effectiveness of our marketing efforts, including our mass media
outreach, in-store training and presentations and public
relations, and our ability to provide customers with reliable
and technically sophisticated robots at competitive prices. If
customers do not perceive our products to be of high quality,
our brand and reputation could be harmed, which could adversely
impact our financial results. In addition, brand promotion
efforts may not yield significant revenue or increased revenue
sufficient to offset the additional expenses incurred in
building our brand. If we incur substantial expenses to promote
and maintain our brand, we may fail to attract sufficient
customers to realize a return on our brand-building efforts, and
our business would suffer.
If our
existing collaborations are unsuccessful or we fail to establish
new collaborations, our ability to develop and commercialize
additional products could be significantly harmed.
If we cannot maintain our existing collaborations or establish
new collaborations, we may not be able to develop additional
products. We anticipate that some of our future products will be
developed and commercialized in collaboration with companies
that have expertise outside the robot field. For example, we are
currently collaborating with Deere & Company on the
development of the
R-Gator
unmanned ground vehicle, and The Clorox Company on the cleaning
solution used in our Scooba floor washing robot. Under these
collaborations, we may be dependent on our collaborators to fund
some portion of development of the product or to manufacture and
market either the primary product that is developed pursuant to
the collaboration or complementary products required in order to
operate our products. In addition, we cannot assure you that we
will be able to establish additional collaborative relationships
on acceptable terms.
Our existing collaborations and any future collaborations with
third parties may not be scientifically or commercially
successful. Factors that may affect the success of our
collaborations include the following:
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our collaborators may not devote the resources necessary or may
otherwise be unable to complete development and
commercialization of these potential products;
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our existing collaborations are and future collaborations may be
subject to termination on short notice;
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our collaborators may be pursuing alternative technologies or
developing alternative products, either on their own or in
collaboration with others, that may be competitive with our
products, which could affect our collaborators commitment
to the collaboration with us;
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reductions in marketing or sales efforts or a discontinuation of
marketing or sales of our products by our collaborators could
reduce our revenue;
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our collaborators may terminate their collaborations with us,
which could make it difficult for us to attract new
collaborators or harm our reputation in the business and
financial communities; and
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our collaborators may pursue higher priority programs or change
the focus of their development programs, which would weaken our
collaborators commitment to us.
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26
We
depend on the experience and expertise of our senior management
team and key technical employees, and the loss of any key
employee may impair our ability to operate
effectively.
Our success depends upon the continued services of our senior
management team and key technical employees, such as our project
management personnel and senior engineers. Moreover, we often
must comply with provisions in government contracts that require
employment of persons with specified levels of education and
work experience. Each of our executive officers, key technical
personnel and other employees could terminate his or her
relationship with us at any time. The loss of any member of our
senior management team might significantly delay or prevent the
achievement of our business objectives and could materially harm
our business and customer relationships. In January 2007,
Gregory F. White resigned his position as the president of the
Home Robots division of the Company, although he is expected to
continue as an employee of the Company through the end of March
2007. Mr. White has been critical to our home robots
division and we may experience difficulties in competing
effectively, developing our home robots division and
implementing our business strategies. We have not identified a
successor to Mr. White to serve as the President of the
Home Robots division in the future. In addition, because of the
highly technical nature of our robots, the loss of any
significant number of our existing engineering and project
management personnel could have a material adverse effect on our
business and operating results.
We are
subject to extensive U.S. federal government regulation,
and our failure to comply with applicable regulations could
subject us to penalties that may restrict our ability to conduct
our business.
As a contractor and subcontractor to the U.S. federal
government, we are subject to and must comply with various
government regulations that impact our operating costs, profit
margins and the internal organization and operation of our
business. Among the most significant regulations affecting our
business are:
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the Federal Acquisition Regulations and supplemental agency
regulations, which comprehensively regulate the formation and
administration of, and performance under government contracts;
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the Truth in Negotiations Act, which requires certification and
disclosure of all cost and pricing data in connection with
contract negotiations;
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the Cost Accounting Standards, which impose accounting
requirements that govern our right to reimbursement under
cost-based government contracts;
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the Foreign Corrupt Practices Act, which prohibits
U.S. companies from providing anything of value to a
foreign official to help obtain, retain or direct business, or
obtain any unfair advantage;
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the False Claims Act and the False Statements Act, which,
respectively, impose penalties for payments made on the basis of
false facts provided to the government, and impose penalties on
the basis of false statements, even if they do not result in a
payment; and
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laws, regulations and executive orders restricting the use and
dissemination of information classified for national security
purposes and the exportation of certain products and technical
data.
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Also, we need special clearances to continue working on and
advancing certain of our projects with the U.S. federal
government. Obtaining and maintaining security clearances for
employees involves a lengthy process, and it is difficult to
identify, recruit and retain employees who already hold security
clearances. If our employees are unable to obtain security
clearances in a timely manner, or at all, or if our employees
who hold security clearances are unable to maintain the
clearances or terminate employment with us, then a customer
requiring classified work could terminate the contract or decide
not to renew it upon its expiration. In addition, we expect that
many of the contracts on which we will bid will require us to
demonstrate our ability to obtain facility security clearances
and employ personnel with specified types of security
clearances. To the extent we are not able to obtain facility
security clearances or engage employees with the required
security clearances for a particular contract, we may not be
able to bid on or win new contracts, or effectively rebid on
expiring contracts. For example, if we were to lose our security
clearance, we would be unable to continue to participate in the
U.S. Armys Future Combat Systems program. Classified
programs generally will require that we comply with various
Executive Orders, federal laws and regulations and customer
security requirements that may include restrictions on how we
develop, store, protect and share information, and may require
our employees to obtain government clearances.
27
Our failure to comply with applicable regulations, rules and
approvals could result in the imposition of penalties, the loss
of our government contracts or our suspension or debarment from
contracting with the federal government generally, any of which
would harm our business, financial condition and results of
operations.
If we
fail to protect, or incur significant costs in defending, our
intellectual property and other proprietary rights, our business
and results of operations could be materially
harmed.
Our success depends on our ability to protect our intellectual
property and other proprietary rights. We rely primarily on
patents, trademarks, copyrights, trade secrets and unfair
competition laws, as well as license agreements and other
contractual provisions, to protect our intellectual property and
other proprietary rights. Significant technology used in our
products, however, is not the subject of any patent protection,
and we may be unable to obtain patent protection on such
technology in the future. Moreover, existing U.S. legal
standards relating to the validity, enforceability and scope of
protection of intellectual property rights offer only limited
protection, may not provide us with any competitive advantages,
and may be challenged by third parties. In addition, the laws of
countries other than the United States in which we market our
products may afford little or no effective protection of our
intellectual property. Accordingly, despite our efforts, we may
be unable to prevent third parties from infringing upon or
misappropriating our intellectual property or otherwise gaining
access to our technology. Unauthorized third parties may try to
copy or reverse engineer our products or portions of our
products or otherwise obtain and use our intellectual property.
Some of our contracts with the U.S. federal government
allow the federal government to disclose technical data
regarding the products developed on behalf of the government
under the contract without constraining the recipient on how it
is used. This ability of the government creates the potential
that third parties may be able to use this data to compete with
us in the commercial sector. If we fail to protect our
intellectual property and other proprietary rights, our
business, results of operations or financial condition could be
materially harmed.
In addition, defending our intellectual property rights may
entail significant expense. We believe that certain products in
the marketplace may infringe our existing intellectual property
rights. We have, from time to time, resorted to legal
proceedings to protect our intellectual property and may
continue to do so in the future. We may be required to expend
significant resources to monitor and protect our intellectual
property rights. Any of our intellectual property rights may be
challenged by others or invalidated through administrative
processes or litigation. If we resort to legal proceedings to
enforce our intellectual property rights or to determine the
validity and scope of the intellectual property or other
proprietary rights of others, the proceedings could result in
significant expense to us and divert the attention and efforts
of our management and technical employees, even if we were to
prevail.
Potential
future acquisitions could be difficult to integrate, divert the
attention of key personnel, disrupt our business, dilute
stockholder value and impair our financial
results.
As part of our business strategy, we intend to consider
acquisitions of companies, technologies and products that we
believe could accelerate our ability to compete in our core
markets or allow us to enter new markets. Acquisitions involve
numerous risks, any of which could harm our business, including:
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difficulties in integrating the operations, technologies,
products, existing contracts, accounting and personnel of the
target company and realizing the anticipated synergies of the
combined businesses;
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difficulties in supporting and transitioning customers, if any,
of the target company;
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diversion of financial and management resources from existing
operations;
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the price we pay or other resources that we devote may exceed
the value we realize, or the value we could have realized if we
had allocated the purchase price or other resources to another
opportunity;
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risks of entering new markets in which we have limited or no
experience;
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potential loss of key employees, customers and strategic
alliances from either our current business or the target
companys business;
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28
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assumption of unanticipated problems or latent liabilities, such
as problems with the quality of the target companys
products; and
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inability to generate sufficient revenue to offset acquisition
costs.
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Acquisitions also frequently result in the recording of goodwill
and other intangible assets which are subject to potential
impairments in the future that could harm our financial results.
In addition, if we finance acquisitions by issuing convertible
debt or equity securities, our existing stockholders may be
diluted, which could lower the market price of our common stock.
As a result, if we fail to properly evaluate acquisitions or
investments, we may not achieve the anticipated benefits of any
such acquisitions, and we may incur costs in excess of what we
anticipate. The failure to successfully evaluate and execute
acquisitions or investments or otherwise adequately address
these risks could materially harm our business and financial
results.
We
will incur significant increased costs as a result of operating
as a public company, and our management will be required to
devote substantial time to new compliance
initiatives.
Prior to November 9, 2005, we were a private company. As a
public company, we will incur significant legal, accounting and
other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the Securities and Exchange
Commission and the NASDAQ Global Market, have imposed various
new requirements on public companies, including requiring
changes in corporate governance practices. Our management and
other personnel will need to devote a substantial amount of time
to these new compliance initiatives. Moreover, these rules and
regulations have and will continue to increase our legal and
financial compliance costs and will make some activities more
time-consuming and costly. For example, these new rules and
regulations have made it more difficult and more expensive for
us to obtain , and will likely make it more difficult to renew,
our director and officer liability insurance, and we may be
required to incur substantial costs to maintain the same or
similar coverage.
In addition, the Sarbanes-Oxley Act requires, among other
things, that we maintain effective internal control over
financial reporting and disclosure controls and procedures. In
particular, we have and must continue to perform system and
process evaluation and testing of our internal control over
financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness
of our internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Our testing, or the
subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal
controls over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 have and will
continue to require that we incur substantial accounting expense
and expend significant management time on compliance-related
issues. We currently do not have an internal audit group, and we
will evaluate the need to hire additional accounting and
financial staff with appropriate public company experience and
technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely
manner, or if we or our independent registered public accounting
firm identifies deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses,
the market price of our stock could decline and we could be
subject to sanctions or investigations by the NASDAQ Global
Market, the Securities and Exchange Commission or other
regulatory authorities, which would require additional financial
and management resources.
We may
not be able to obtain capital when desired on favorable terms,
if at all, or without dilution to our
stockholders.
We anticipate that our current cash, cash equivalents, cash
provided by operating activities and funds available through our
working capital line of credit, will be sufficient to meet our
current and anticipated needs for general corporate purposes. We
operate in an emerging market, however, which makes our
prospects difficult to evaluate. It is possible that we may not
generate sufficient cash flow from operations or otherwise have
the capital resources to meet our future capital needs. If this
occurs, we may need additional financing to execute on our
current or future business strategies, including to:
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hire additional engineers and other personnel;
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develop new, or enhance existing, robots and robot accessories;
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29
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enhance our operating infrastructure;
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acquire complementary businesses or technologies; or
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otherwise respond to competitive pressures.
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If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our
stockholders could be significantly diluted, and these
newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders. We cannot
assure you that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available
or are not available on acceptable terms, if and when needed,
our ability to fund our operations, take advantage of
unanticipated opportunities, develop or enhance our products, or
otherwise respond to competitive pressures would be
significantly limited.
Environmental
laws and regulations and unforeseen costs could negatively
impact our future earnings.
The manufacture and sale of our products in certain states and
countries may subject us to environmental and other regulations.
We also face increasing complexity in our product design as we
adjust to new and upcoming requirements relating to our
products, including the restrictions on lead and certain other
substances in electronics that will apply to specified
electronics products put on the market in the European Union as
of July 1, 2006 (Restriction of Hazardous Substances in
Electrical and Electronic Equipment Directive). Similar laws and
regulations have been or may be enacted in other regions,
including in the United States, Canada, Mexico, China, the
United Kingdom, Germany and Japan. There is no assurance that
such existing laws or future laws will not impair future
earnings or results of operations.
Business
disruptions resulting from international uncertainties could
negatively impact our profitability.
We derive, and expect to continue to derive, a portion of our
revenue from international sales in various European markets,
Canada, Japan, Korea and Singapore. For the fiscal years ended
December 30, 2006 and December 31, 2005, sales to
non-U.S. customers
accounted for 11.0% and 9.9% of total revenue, respectively. Our
international revenue and operations are subject to a number of
material risks, including, but not limited to:
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difficulties in staffing, managing and supporting operations in
multiple countries;
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difficulties in enforcing agreements and collecting receivables
through foreign legal systems and other relevant legal issues;
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fewer legal protections for intellectual property;
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foreign and U.S. taxation issues and international trade
barriers;
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difficulties in obtaining any necessary governmental
authorizations for the export of our products to certain foreign
jurisdictions;
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potential fluctuations in foreign economies;
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government currency control and restrictions on repatriation of
earnings;
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fluctuations in the value of foreign currencies and interest
rates;
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general economic and political conditions in the markets in
which we operate;
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domestic and international economic or political changes,
hostilities and other disruptions in regions where we currently
operate or may operate in the future; and
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different and changing legal and regulatory requirements in the
jurisdictions in which we currently operate or may operate in
the future.
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Negative developments in any of these areas in one or more
countries could result in a reduction in demand for our
products, the cancellation or delay of orders already placed,
threats to our intellectual property, difficulty in collecting
receivables, and a higher cost of doing business, any of which
could negatively impact our business,
30
financial condition or results of operations. Moreover, our
sales, including sales to customers outside the
United States, are primarily denominated in
U.S. dollars, and downward fluctuations in the value of
foreign currencies relative to the U.S. dollar may make our
products more expensive than other products, which could harm
our business.
If we
are unable to continue to obtain U.S. federal government
authorization regarding the export of our products, or if
current or future export laws limit or otherwise restrict our
business, we could be prohibited from shipping our products to
certain countries, which would harm our ability to generate
revenue.
We must comply with U.S. laws regulating the export of our
products. In addition, we are required to obtain a license from
the U.S. federal government to export our PackBot line of
tactical military robots. We cannot be sure of our ability to
obtain any licenses required to export our products or to
receive authorization from the U.S. federal government for
international sales or domestic sales to foreign persons.
Moreover, the export regimes and the governing policies
applicable to our business are subject to change. We cannot
assure you of the extent that such export authorizations will be
available to us, if at all, in the future. In some cases where
we act as a subcontractor, we rely upon the compliance
activities of our prime contractors, and we cannot assure you
that they have taken or will take all measures necessary to
comply with applicable export laws. If we or our prime
contractor partners cannot obtain required government approvals
under applicable regulations in a timely manner or at all, we
would be delayed or prevented from selling our products in
international jurisdictions, which could materially harm our
business, operating results and ability to generate revenue.
Risks
Related to Ownership of Our Common Stock
An
active trading market for our common stock may not be available
on a consistent basis, which could depress the market price of
our common stock.
Prior to November 9, 2005, there was no public market for
our common stock. An active trading market for shares of our
common stock may not be available or be sustained on a
consistent basis. If no trading market is sustained, securities
analysts may not initiate or maintain research coverage of our
company, which could further depress the market for our common
stock.
Our
directors and management will exercise significant control over
our company, which will limit your ability to influence
corporate matters.
As of December 30, 2006, our directors and executive
officers and their affiliates collectively beneficially owned
approximately 37.7% of our outstanding common stock. As a
result, these stockholders, if they act together, will be able
to influence our management and affairs and all matters
requiring stockholder approval, including the election of
directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying
or preventing a change in control of our company and might
negatively affect the market price of our common stock.
Provisions
in our certificate of incorporation and by-laws, our shareholder
rights agreement or Delaware law might discourage, delay or
prevent a change of control of our company or changes in our
management and, therefore, depress the trading price of our
common stock.
Provisions of our certificate of incorporation and by-laws and
Delaware law may discourage, delay or prevent a merger,
acquisition or other change in control that stockholders may
consider favorable, including transactions in which you might
otherwise receive a premium for your shares of our common stock.
These provisions may also prevent or frustrate attempts by our
stockholders to replace or remove our management. These
provisions include:
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limitations on the removal of directors;
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a classified board of directors so that not all members of our
board are elected at one time;
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advance notice requirements for stockholder proposals and
nominations;
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the inability of stockholders to act by written consent or to
call special meetings;
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the ability of our board of directors to make, alter or repeal
our by-laws; and
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the ability of our board of directors to designate the terms of
and issue new series of preferred stock without stockholder
approval.
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The affirmative vote of the holders of at least 75% of our
shares of capital stock entitled to vote is necessary to amend
or repeal the above provisions of our certificate of
incorporation. In addition, absent approval of our board of
directors, our by-laws may only be amended or repealed by the
affirmative vote of the holders of at least 75% of our shares of
capital stock entitled to vote.
We have also adopted a shareholder rights agreement that
entitles our stockholders to acquire shares of our common stock
at a price equal to 50% of the then-current market value in
limited circumstances when a third party acquires or announces
its intention to acquire 15% or more of our outstanding common
stock.
In addition, Section 203 of the Delaware General
Corporation Law prohibits a publicly-held Delaware corporation
from engaging in a business combination with an interested
stockholder, generally a person which together with its
affiliates owns, or within the last three years has owned, 15%
of our voting stock, for a period of three years after the date
of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner.
The existence of the foregoing provisions and anti-takeover
measures could limit the price that investors might be willing
to pay in the future for shares of our common stock. They could
also deter potential acquirers of our company, thereby reducing
the likelihood that you could receive a premium for your common
stock in an acquisition.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Our corporate headquarters are located in Burlington,
Massachusetts, where we lease approximately 82,000 square
feet. Approximately 24,000 square feet of this lease
expires on September 30, 2007 and the remainder expires on
December 31, 2008. We lease 6,150 square feet of space
at an adjacent facility in Burlington for our prototype work on
unmanned ground vehicles. We also lease 7,550 square feet
in Mysore, India and we lease smaller facilities in Hong Kong;
San Luis Obispo, California; and Crystal City, Virginia. We
do not own any real property. We believe that our leased
facilities and additional or alternative space available to us
will be adequate to meet our needs for the foreseeable future.
On February 22, 2007, we entered into a lease agreement for
our new corporate headquarters in Bedford, Massachusetts to
which we expect to relocate on or about May 1, 2008.
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ITEM 3.
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LEGAL
PROCEEDINGS
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From time to time in the ordinary course of our business, we may
be involved in disputes or litigation relating to claims arising
out of our operations. The outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or
proceedings may be disposed of unfavorably to us, which could
materially and adversely affect our financial condition or
results of operations.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
32
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our common stock commenced trading on the NASDAQ Global Market
on November 9, 2005 under the symbol IRBT. The
following table sets forth the high and low sale prices for our
common stock for fiscal 2005 since our initial public offering
and for fiscal year 2006 as reported on the NASDAQ Global Market.
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High
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Low
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Fiscal 2005:
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Fourth quarter*
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$
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37.33
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$
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26.29
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Fiscal 2006:
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First quarter
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$
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37.90
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$
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25.49
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Second quarter
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$
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29.30
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$
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20.50
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Third quarter
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$
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25.50
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$
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16.09
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Fourth quarter
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$
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24.98
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$
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17.55
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* |
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Our common stock began trading on November 9, 2005. |
As of February 23, 2007, there were approximately
23,860,330 shares of our common stock outstanding held by
approximately 164 stockholders of record and the last reported
sale price of our common stock on the NASDAQ Global Market on
February 23, 2007 was $15.03 per share.
Dividend
Policy
We have never declared or paid any cash dividends on our capital
stock. We currently expect to retain future earnings, if any, to
finance the growth and development of our business and we do not
anticipate paying any cash dividends in the foreseeable future.
Equity
Compensation Plan Information
We maintain the following four equity compensation plans under
which our equity securities are authorized for issuance to our
employees
and/or
directors: Amended and Restated 1994 Stock Plan; Amended and
Restated 2001 Special Stock Option Plan; Amended and Restated
2004 Stock Option and Incentive Plan; and 2005 Stock Option and
Incentive Plan. Each of the foregoing compensation plans was
approved by our stockholders. The following table represents
information about these plans as of December 30, 2006:
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(A)
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(B)
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(C)
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Number of Securities
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Remaining Available for
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|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (A))
|
|
|
Equity compensation plans approved
by security holders
|
|
|
3,499,710
|
|
|
$
|
8.340
|
|
|
|
690,629
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,499,710
|
|
|
$
|
8.340
|
|
|
|
690,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No further grants are being made under the Amended and Restated
1994 Stock Plan, the Amended and Restated 2001 Special Stock
Option Plan and the Amended and Restated 2004 Stock Option and
Incentive Plan.
Issuer
Purchases of Equity Securities
During the fiscal quarter ended December 30, 2006, there
were no repurchases made by us or on our behalf, or by any
affiliated purchasers, of shares of our common stock.
33
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected historical financial data set forth below as of
December 30, 2006 and December 31, 2005 and for the
years ended December 30, 2006, December 31, 2005 and
2004 are derived from our financial statements, which have been
audited by PricewaterhouseCoopers LLP, our independent
registered public accounting firm, and which are included
elsewhere in this Annual Report on
Form 10-K.
The selected historical financial data as of December 31,
2004, 2003 and 2002 and for the years ended December 31,
2003 and 2002 are derived from our financial statements which
have been audited by PricewaterhouseCoopers LLP and which are
not included elsewhere in this Annual Report.
The following selected consolidated financial data should be
read in conjunction with our consolidated financial statements,
the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this Annual Report on
Form 10-K.
The historical results are not necessarily indicative of the
results to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except earnings per share amounts)
|
|
|
Consolidated Statement of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue(1)
|
|
$
|
167,687
|
|
|
$
|
124,616
|
|
|
$
|
82,678
|
|
|
$
|
46,655
|
|
|
$
|
7,594
|
|
Contract revenue
|
|
|
21,268
|
|
|
|
17,352
|
|
|
|
12,365
|
|
|
|
7,661
|
|
|
|
7,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
95,043
|
|
|
|
54,316
|
|
|
|
14,817
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
103,651
|
|
|
|
81,855
|
|
|
|
59,321
|
|
|
|
31,194
|
|
|
|
4,896
|
|
Cost of contract revenue
|
|
|
15,569
|
|
|
|
12,534
|
|
|
|
8,371
|
|
|
|
6,143
|
|
|
|
11,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
67,692
|
|
|
|
37,337
|
|
|
|
16,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (Loss)(1)
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
27,351
|
|
|
|
16,979
|
|
|
|
(1,940
|
)
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
17,025
|
|
|
|
11,601
|
|
|
|
5,504
|
|
|
|
3,848
|
|
|
|
1,736
|
|
Selling and marketing
|
|
|
33,969
|
|
|
|
21,796
|
|
|
|
14,106
|
|
|
|
12,757
|
|
|
|
1,911
|
|
General and administrative
|
|
|
18,703
|
|
|
|
12,072
|
|
|
|
7,298
|
|
|
|
7,764
|
|
|
|
5,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
26,908
|
|
|
|
24,369
|
|
|
|
8,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
38
|
|
|
|
2,110
|
|
|
|
443
|
|
|
|
(7,390
|
)
|
|
|
(10,804
|
)
|
Net Income (Loss)
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
$
|
219
|
|
|
$
|
(7,411
|
)
|
|
$
|
(10,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to
Common Stockholders
|
|
$
|
3,565
|
|
|
$
|
1,553
|
|
|
$
|
118
|
|
|
$
|
(7,411
|
)
|
|
$
|
(10,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.01
|
|
|
$
|
(0.79
|
)
|
|
$
|
(2.00
|
)
|
Diluted
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
|
$
|
(0.79
|
)
|
|
$
|
(2.00
|
)
|
Shares Used in Per Common
Share Calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,516
|
|
|
|
12,007
|
|
|
|
9,660
|
|
|
|
9,352
|
|
|
|
5,391
|
|
Diluted
|
|
|
25,601
|
|
|
|
14,331
|
|
|
|
19,183
|
|
|
|
9,352
|
|
|
|
5,391
|
|
|
|
|
(1) |
|
Beginning in the first quarter of 2004, we converted from
recognizing revenue from U.S. consumer product sales on a
sell-through basis (when retail stores sold our
robots) to a sell-in basis (when our robots are |
34
|
|
|
|
|
shipped to retail stores). As a result of this conversion, our
revenue and gross profit in the first quarter of 2004 included
$5.7 million and $2.5 million, respectively, from
robots shipped prior to 2004. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,583
|
|
|
$
|
76,064
|
|
|
$
|
19,441
|
|
|
$
|
4,620
|
|
|
$
|
3,014
|
|
Short term investments
|
|
|
64,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
135,308
|
|
|
|
124,935
|
|
|
|
45,137
|
|
|
|
27,827
|
|
|
|
8,705
|
|
Total liabilities
|
|
|
40,389
|
|
|
|
37,379
|
|
|
|
31,921
|
|
|
|
25,624
|
|
|
|
12,049
|
|
Total redeemable convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
37,506
|
|
|
|
27,562
|
|
|
|
14,639
|
|
Total stockholders equity
(deficit)
|
|
|
94,919
|
|
|
|
87,556
|
|
|
|
(24,290
|
)
|
|
|
(25,359
|
)
|
|
|
(17,983
|
)
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The information contained in this section has been derived from
our consolidated financial statements and should be read
together with our consolidated financial statements and related
notes included elsewhere in this Annual Report on
Form 10-K.
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange act of 1934, as
amended, and are subject to the safe harbor created
by those sections. Some of the forward-looking statements can be
identified by the use of forward-looking terms such as
believes, expects, may,
will, should, seek,
intends, plans, estimates,
anticipates, or other comparable terms.
Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual
results to differ materially from those in the forward-looking
statements. We urge you to consider the risks and uncertainties
discussed in greater detail under the heading Risk
Factors in evaluating our forward-looking statements. We
have no plans to update our forward-looking statements to
reflect events or circumstances after the date of this report.
We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made.
Overview
iRobot provides robots that enable people to complete complex
tasks in a better way. Founded in 1990 by roboticists who
performed research at the Massachusetts Institute of Technology,
we have developed proprietary technology incorporating advanced
concepts in navigation, mobility, manipulation and artificial
intelligence to build industry-leading robots. Our Roomba floor
vacuuming robot and Scooba floor washing robot perform
time-consuming domestic chores, and our PackBot tactical
military robots perform battlefield reconnaissance and bomb
disposal. In addition, we are developing the Small Unmanned
Ground Vehicle reconnaissance robot for the
U.S. Armys FCS program and, in conjunction with
Deere & Company, the
R-Gator
unmanned ground vehicle. We sell our robots to consumers through
a variety of distribution channels, including chain stores and
other national retailers, and our on-line store, and to the
U.S. military and other government agencies worldwide.
As of December 30, 2006, we had 371 full-time
employees. We have developed expertise in all the disciplines
necessary to build durable, high-performance and cost-effective
robots through the close integration of software, electronics
and hardware. Our core technologies serve as reusable building
blocks that we adapt and expand to develop next generation and
new products, reducing the time, cost and risk of product
development. Our significant expertise in robot design and
engineering, combined with our management teams experience
in military and consumer markets, positions us to capitalize on
the expected growth in the market for robots.
Over the past five years, we have sold more than
2.0 million of our home floor care robots. We have also
sold more than 800 of our PackBot tactical military robots, most
of which have been sold to the U.S. military and deployed on
missions in Afghanistan and Iraq.
35
Although we have successfully launched consumer and military
products, our continued success depends upon our ability to
respond to a number of future challenges. We believe the most
significant of these challenges include increasing competition
in the markets for both our consumer and military products, our
ability to obtain U.S. federal government funding for
research and development programs, and our ability to
successfully develop and introduce products and product
enhancements.
Initial
Public Offering
On November 15, 2005, we completed our initial public
offering of 4,945,000 shares of common stock at
$24.00 per share, comprised of 3,260,870 primary shares and
1,684,130 shares offered by selling stockholders, which
includes the exercise of the over-allotment option by the
underwriters of the offering. In connection with the offering,
all of the outstanding shares of our preferred stock were
converted into an equal number of shares of common stock. The
sale of the 3,260,870 shares of common stock in connection
with our initial public offering resulted in net proceeds to us
of approximately $70.4 million after deducting
underwriters discounts and offering-related expenses. A
summary of the terms of the offering can be found in our
Registration Statement
No. 333-126907
on
Form S-1,
as amended, as filed with the Securities and Exchange Commission.
Revenue
We currently derive revenue from product sales and research and
development services. Product revenue is derived from the sale
of our various home floor care and PackBot robots and related
accessories. Research and development revenue is derived from
the execution of contracts awarded by the U.S. federal
government, other governments and a small number of other
partners. In the future, we expect to derive increasing revenue
from product maintenance and support services due to a focused
effort to market these services and the expanding installed base
of our robots.
We currently derive a majority of our product revenue from the
sale of our home floor care robots and our PackBot tactical
military robots. For the fiscal years ended December 30,
2006 and December 31, 2005, product revenues accounted for
88.7% and 87.8% of total revenue, respectively. For the fiscal
years ended December 30, 2006 and December 31, 2005,
our funded research and development contracts accounted for
approximately 11.3% and 12.2% of our total revenue,
respectively. We expect to continue to perform funded research
and development work with the intent of leveraging the
technology developed to advance our new product development
efforts. In the future, however, we expect that revenue from
funded research and development contracts could grow modestly on
an absolute dollar basis and represent a decreasing percentage
of our total revenue due to the anticipated growth in consumer
and military product revenue.
For the fiscal years ended December 30, 2006 and
December 31, 2005 approximately 65.4% and 78.6%,
respectively, of our home robot product revenue resulted from
sales to 15 customers, primarily U.S. retailers.
Direct-to-consumer
revenue generated through our iRobot on-line store accounted for
16.0% of our home robot product revenue for the fiscal year
ended December 30, 2006 compared to 9.3% in the fiscal year
ended December 31, 2005. In addition, 88.4% and 87.5% of
military product revenue, and 76.2% and 71.6% of funded research
and development contract revenue, resulted from orders and
contracts with the U.S. federal government in the fiscal
years ended December 30, 2006 and December 31, 2005,
respectively.
For the fiscal years ended December 30, 2006 and
December 31, 2005, sales to
non-U.S. customers
accounted for 11.0% and 9.9% of total revenue, respectively.
Our revenue from product sales is generated through sales to our
retail distribution channels, our distributor network and to
certain U.S. and foreign governments. In 2002, when our Roomba
robot was first commercially introduced and throughout 2003, we
recognized revenue from our U.S. consumer product sales on
a sell-through basis (when retail stores sold our
Roomba robots to end users). In the first quarter of 2004, we
began recognizing revenue from U.S. consumer product sales
on a sell-in basis (when our robots are shipped by
us to the retail stores). As a result of this change in
accounting treatment, in the first quarter of 2004 we recognized
$5.7 million of product revenue from products shipped prior
to 2004. This one-time increase impacts
period-to-period
comparisons relating to 2004. Revenue from sales of our military
robots is recognized upon the later to occur of shipment or
customer acceptance.
36
Revenue from consumer product sales is significantly seasonal,
with a majority of our consumer product revenue generated in the
second half of the year (in advance of the holiday season). The
timing of holiday season shipments could materially affect our
third or fourth quarter consumer product revenue in any fiscal
year. Revenue from our military robot sales and revenue from
funded research and development contracts are occasionally
influenced by the September 30 fiscal year-end of the
U.S. federal government, but are not otherwise
significantly seasonal. In addition, our revenue can be affected
by the timing of the release of new products and the award of
new contracts.
Cost
of Revenue
Cost of product revenue includes the cost of raw materials and
labor that go into the development and manufacture of our
products as well as manufacturing overhead costs such as
manufacturing engineering, quality assurance, logistics and
warranty costs. For the fiscal years ended December 30,
2006 and December 31, 2005, cost of product revenue was
61.8% and 65.7% of total product revenue, respectively. While
raw material costs, which are our most significant cost items,
generally have not fluctuated materially as a percentage of
revenue since the introduction of our robots in 2002, the cost
for some materials have recently risen, including ABS plastic
and nickel (for batteries). There can be no assurance that our
costs of raw materials will not increase. Labor costs also
comprise a significant portion of our cost of revenue. Compared
to our PackBot tactical military robots, labor costs for our
home floor cleaning robots comprise a greater percentage of the
associated cost of revenue. We outsource the manufacture of our
home floor cleaning robots to a contract manufacturer in China.
While labor costs in China traditionally have been favorable
compared to labor costs elsewhere in the world, including the
United States, we believe that labor in China is becoming more
scarce. Consequently, the labor costs for our home floor
cleaning robots could increase in the future.
Cost of contract revenue includes the direct labor costs of
engineering resources committed to funded research and
development contracts, as well as third-party consulting, travel
and associated direct material costs. Additionally, we include
overhead expenses such as indirect engineering labor, occupancy
costs associated with the project resources, engineering tools
and supplies and program management expenses. For the fiscal
years ended December 30, 2006 and December 31, 2005,
cost of contract revenue was 73.2% and 72.2% of total contract
revenue, respectively.
Gross
Profit
Our gross profit as a percentage of revenue varies according to
the mix of product and contract revenue, the mix of products
sold and the total sales volume. Currently, our consumer robots
typically have a higher gross profit as a percentage of revenue
than our military robots. For the years ended December 30,
2006 and December 31, 2005, gross profit was 36.9% and
33.5% of total revenue, respectively.
As a result of our change in accounting from a
sell-through to sell-in basis in the
first quarter of 2004, we recognized $2.5 million of gross
profit in the first quarter of 2004, which disproportionately
increased our gross profit as a percentage of revenues in that
quarter and in 2004.
Research
and Development Expenses
Research and development expenses consist primarily of:
|
|
|
|
|
salaries and related costs for our engineers;
|
|
|
|
costs for high technology components used in product and
prototype development; and
|
|
|
|
costs of test equipment used during product development.
|
We have significantly expanded our research and development
capabilities and expect to continue to expand these capabilities
in the future. An example of this is the engineering design
center we opened in India late in 2005. A substantial portion of
our research and development is performed in the United States,
although we maintain an increasing number of engineering
personnel in India and Hong Kong to serve as a liaison between
our
U.S.-based
engineering staff and our outsourced manufacturer in China. We
are committed to increasing the level of innovative
37
design and development of new products as we strive to enhance
our ability to serve our existing consumer and military markets
as well as new markets for robots. Accordingly, we anticipate
that research and development expenses will continue to increase
in absolute dollars for the foreseeable future.
For the fiscal years ended December 30, 2006 and
December 31, 2005, research and development expense was
$17.0 million and $11.6 million, or 9.0% and 8.2% of
total revenue, respectively.
In addition to our internal research and development activities
discussed above, we incur research and development expenses
under funded development arrangements with both governments and
other third parties. For the fiscal years ended
December 30, 2006 and December 31, 2005, these
expenses amounted to $15.6 million and $12.5 million,
respectively. In accordance with generally accepted accounting
principles, these expenses have been classified as cost of
revenue rather than research and development expense.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses consist
primarily of:
|
|
|
|
|
salaries and related costs for sales and marketing personnel;
|
|
|
|
salaries and related costs for executives and administrative
personnel;
|
|
|
|
advertising, marketing and other brand-building costs;
|
|
|
|
fulfillment costs associated with
direct-to-consumer
sales through the iRobot on-line store;
|
|
|
|
professional services costs;
|
|
|
|
information systems and infrastructure costs;
|
|
|
|
travel and related costs; and
|
|
|
|
occupancy and other overhead costs.
|
As we focus on increasing our market penetration and continuing
to build brand awareness, we anticipate that selling, general
and administrative expenses will continue to increase both in
absolute dollars and as a percentage of sales for the
foreseeable future, as we intend to continue aggressively
building on the iRobot brand. We also expect our general and
administrative expenses will increase due to the costs
associated with being a public company, including costs
associated with compliance with Section 404 of the
Sarbanes-Oxley Act, directors and officers liability
insurance and increased professional services.
For the fiscal years ended December 30, 2006 and
December 31, 2005, selling, general and administrative
expense was $52.7 million and $33.9 million, or 27.9%
and 23.8% of total revenue, respectively.
Fiscal
Periods
Historically, our fiscal year ended on December 31 and our
fiscal quarters ended on March 31, June 30,
September 30 and December 31. Reference to fiscal
2004, for example, refers to the fiscal year ended
December 31, 2004. Beginning in fiscal 2005, we began to
operate and report using a
52-53 week
fiscal year ending on the Saturday closest to December 31.
Accordingly, each of our fiscal quarters ends on the Saturday
that falls closest to the last day of the third calendar month
of the quarter.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America. The preparation of these consolidated
financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenue, costs and expenses, and related
disclosures. We evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these
estimates.
We believe that of our significant accounting policies, which
are described in the notes to our consolidated financial
statements, the following accounting policies involve a greater
degree of judgment and complexity.
38
Accordingly, we believe that the following accounting policies
are the most critical to aid in fully understanding and
evaluating our consolidated financial condition and results of
operations.
Revenue
Recognition
We recognize revenue from sales of consumer products under the
terms of the customer agreement upon transfer of title to the
customer, provided the price is fixed or determinable,
collection is determined to be probable and no significant
obligations remain. Sales to resellers are subject to agreements
allowing for limited rights of return for defective products
only, rebates and price protection. We have typically not taken
product returns except for defective products. Accordingly, we
reduce revenue for our estimates of liabilities for these rights
at the time the related sale is recorded. We establish a
provision for sales returns for products sold by resellers
directly or through our distributors based on historical return
experience. We have aggregated and analyzed historical returns
from resellers and end users which form the basis of our
estimate of future sales returns by resellers or end users. In
accordance with Statement of Financial Accounting Standards
No. 48 Revenue Recognition When Right of Return
Exists, the provision for these estimated returns is
recorded as a reduction of revenue at the time that the related
revenue is recorded. If actual returns from retailers differ
significantly from our estimates, such differences could have a
material impact on our results of operations for the period in
which the actual returns become known. Our returns reserve is
calculated as a percentage of gross consumer product revenue. A
one percentage point increase or decrease in our actual
experience of returns would have a material impact on our
quarterly and annual results of operations. The estimates for
returns are adjusted periodically based upon historical rates of
returns. The estimates and reserve for rebates and price
protection are based on specific programs, expected usage and
historical experience. Actual results could differ from these
estimates. Through 2003, we recognized revenue on sales to
certain distributors and retail customers upon their sale to the
end user. Starting in the first quarter of 2004, as a result of
our accumulation of sufficient experience to reasonably estimate
allowances for product returns, we adopted the standard industry
practice of recognizing revenue on all sales upon delivery of
product to distributors and retail stores and established a
related allowance for future returns based upon historical
experience. If future trends or our ability to estimate were to
change significantly from those experienced in the past,
incremental reductions or increases to revenue may result based
on this new experience.
Under cost-plus research and development contracts, we recognize
revenue based on costs incurred plus a pro-rata portion of the
total fixed fee. We recognize revenue on fixed-price contracts
using the
percentage-of-
completion method. Costs and estimated gross profits on
contracts are recorded as work is performed based on the
percentage that incurred costs bear to estimated total costs
utilizing the most recent estimates of costs and funding.
Changes in job performance, job conditions and estimated
profitability, including those arising from final contract
settlements, may result in revisions to costs and income, and
are recorded or recognized, as the case may be, in the period in
which the revisions are determined. Since many contracts extend
over a long period of time, revisions in cost and funding
estimates during the progress of work have the effect of
adjusting earnings applicable to past performance in the current
period. When the current contract estimate indicates a loss,
provision is made for the total anticipated loss in the current
period. Revenue earned in excess of billings, if any, is
recorded as unbilled revenue. Billings in excess of revenue
earned, if any, are recorded as deferred revenue.
Accounting
for Stock-Based Awards
Effective January 1, 2006, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment, which establishes
accounting for equity instruments exchanged for employee
services. Under the provisions of SFAS No. 123(R),
share-based compensation cost is measured at the grant date,
based on the calculated fair value of the award, and is
recognized as an expense over the employees 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 (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
elected to adopt the modified prospective transition method as
provided by SFAS No. 123(R) and, accordingly financial
statement amounts
39
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.
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). Additionally, since we valued
options under the minimum value method up to our initial public
offering on November 9, 2005, options granted prior to this
date had a zero expected volatility. Prior to our initial public
offering, we had accounted for certain option grants under
APB 25. As of December 30, 2006, the deferred
stock-based compensation balance associated with these grants
was $2.3 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
$0.7 million, $0.7 million, $0.7 million and
$0.2 million for 2007, 2008, 2009 and 2010, respectively.
Under the provisions of SFAS No. 123(R), we recognized
$1.8 million of stock-based compensation expense during the
fiscal year ended December 30, 2006 for stock options
granted subsequent to the initial public offering. The
unamortized fair value as of December 30, 2006 associated
with these grants was $9.8 million with a weighted average
remaining recognition period of 1.83 years.
The fair value of each option grant for the fiscal year ended
December 30, 2006 was computed on the grant date using the
Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30, 2006
|
|
|
Risk-free interest rate
|
|
|
4.32% 5.11
|
%
|
Expected dividend yield
|
|
|
|
|
Expected life
|
|
|
3.5 6.5 years
|
|
Expected volatility
|
|
|
65
|
%
|
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. The expected term calculation
is based upon the simplified method provided under SEC Staff
Accounting Bulletin (SAB) No. 107. Under
SAB No. 107, 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 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 30, 2006 was $12.771.
We have assumed a forfeiture rate of 5% for all stock options
granted subsequent to the initial public offering with the
exception of those issued to executives and directors for which
a zero forfeiture rate has been assumed. 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.
SFAS No. 123(R) requires significant judgment and the
use of estimates, particularly surrounding assumptions such as
stock price volatility and expected option lives, as well as
expected option forfeiture rates to value equity-based
compensation. There is little experience or guidance with
respect to developing these assumptions and models. There is
also uncertainty as to how the standard will be interpreted and
applied as more companies adopt the standard and companies and
their advisors gain experience with the standard.
SFAS No. 123(R) requires the
40
recognition of the fair value of stock-based compensation in net
income. Refer to Note 2 Summary of Significant
Accounting Policies in our notes to our consolidated financial
statements included elsewhere in this Annual Report on
Form 10-K
for more discussion.
Accounting
for Income Taxes
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 have $8.0 million of gross federal net operating loss
carry-forwards as of December 30, 2006. Of this amount,
$7.5 million relates to stock option deductions for which
the tax effected amount is approximately $3.0 million which
would be credited to additional paid-in capital upon
realization. The use of these net operating loss carry-forwards
may be limited by changes in our ownership. We expect that these
net operating loss carry-forwards will impact our tax liability
over the next several years. There, however, can be no assurance
as to the rate at which these net operating loss carry-forwards
can be utilized, or as to whether there will be any other tax
incentives available after 2006.
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 or changes in tax laws or regulations. Our
income tax provision and our assessment of the realizability of
our deferred tax assets involve significant judgments and
estimates. If we continue to generate taxable income through
profitable operations in future years we may be required to
recognize these deferred tax assets through the reduction of the
valuation allowance which would result in a material benefit to
our results of operations in the period in which the benefit is
determined, excluding the recognition of the portion of the
valuation allowance which relates to stock compensation.
Warranty
We typically provide a one-year warranty 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. As the
complexity of our products increases, we could experience higher
warranty claims relative to sales than we have previously
experienced, and we may need to increase these estimated
warranty reserves.
Inventory
Valuation
We value our inventory at the lower of the actual cost of our
inventory or its current estimated market value. We write down
inventory for obsolescence or unmarketable inventories based
upon assumptions about future demand and market conditions.
Because of the seasonality of our consumer product sales and
inventory levels, obsolescence of technology and product life
cycles, we generally write down inventory to net realizable
value based on forecasted product demand. Actual demand and
market conditions may be lower than those that we project and
this difference could have a material adverse effect on our
gross profit if inventory write-downs beyond those initially
recorded become necessary. Alternatively, if actual demand and
market conditions are more favorable than those we estimated at
the time of such a write-down, our gross profit could be
favorably impacted in future periods.
41
Overview
of Results of Operations
The following table sets forth our results of operations for the
periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue(1)
|
|
$
|
167,687
|
|
|
$
|
124,616
|
|
|
$
|
82,678
|
|
Contract revenue
|
|
|
21,268
|
|
|
|
17,352
|
|
|
|
12,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
95,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(2)
|
|
|
103,651
|
|
|
|
81,855
|
|
|
|
59,321
|
|
Cost of contract revenue(2)
|
|
|
15,569
|
|
|
|
12,534
|
|
|
|
8,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
67,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit(1)
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
27,351
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(2)
|
|
|
17,025
|
|
|
|
11,601
|
|
|
|
5,504
|
|
Selling and marketing(2)
|
|
|
33,969
|
|
|
|
21,796
|
|
|
|
14,106
|
|
General and administrative(2)
|
|
|
18,703
|
|
|
|
12,072
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
26,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
38
|
|
|
|
2,110
|
|
|
|
443
|
|
Other Income (Expense), Net
|
|
|
3,831
|
|
|
|
676
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
3,869
|
|
|
|
2,786
|
|
|
|
363
|
|
Income Tax Expense
|
|
|
304
|
|
|
|
176
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Beginning in the first quarter of 2004, we converted from
recognizing revenue from U.S. consumer product sales on a
sell-through basis (when retail stores sold our
robots) to a sell-in basis (when our robots are
shipped to retail stores). As a result of this conversion, our
revenue and gross profit in the first quarter of 2004 included
$5.7 million and $2.5 million, respectively, from
robots shipped prior to 2004. |
|
(2) |
|
Stock-based compensation recorded in 2006, 2005 and 2004 breaks
down by expense classification as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
326
|
|
|
$
|
33
|
|
|
$
|
|
|
Cost of contract revenue
|
|
|
267
|
|
|
|
58
|
|
|
|
|
|
Research and development
|
|
|
376
|
|
|
|
95
|
|
|
|
|
|
Selling and marketing
|
|
|
389
|
|
|
|
32
|
|
|
|
|
|
General and administrative
|
|
|
1,211
|
|
|
|
380
|
|
|
|
283
|
|
42
The following table sets forth our results of operations as a
percentage of revenue for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
88.7
|
%
|
|
|
87.8
|
%
|
|
|
87.0
|
%
|
Contract revenue
|
|
|
11.3
|
|
|
|
12.2
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
54.9
|
|
|
|
57.7
|
|
|
|
62.4
|
|
Cost of contract revenue
|
|
|
8.2
|
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
63.1
|
|
|
|
66.5
|
|
|
|
71.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36.9
|
|
|
|
33.5
|
|
|
|
28.8
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9.0
|
|
|
|
8.2
|
|
|
|
5.8
|
|
Selling and marketing
|
|
|
18.0
|
|
|
|
15.3
|
|
|
|
14.8
|
|
General and administrative
|
|
|
9.9
|
|
|
|
8.5
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
36.9
|
|
|
|
32.0
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
0.0
|
|
|
|
1.5
|
|
|
|
0.5
|
|
Other Income (Expense), Net
|
|
|
2.0
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
2.0
|
|
|
|
1.9
|
|
|
|
0.4
|
|
Income Tax Expense
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
1.9
|
%
|
|
|
1.8
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended December 30, 2006 and December 31,
2005
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total Revenue
|
|
$
|
188,955
|
|
|
$
|
141,968
|
|
|
$
|
46,987
|
|
|
|
33.1
|
%
|
Our revenue increased 33.1% to $189.0 million in fiscal
2006 from $142.0 million in fiscal 2005. Revenue increased
approximately $18.4 million, or 19.7%, in our home robots
business and $28.6 million, or 59.6%, in our government and
industrial business.
The $18.4 million increase in revenue from our home robots
division was driven primarily by the initial distribution into
the retail channel of our Scooba floor washing robot, which was
released late in 2005, continued demand for our Roomba floor
vacuuming robot and an 8.2% increase in net average selling
prices. Total home floor care robots shipped in fiscal 2006 was
approximately 725,000 units compared to approximately
663,000 units in fiscal 2005. Included in this
$18.4 million growth was an increase of approximately
$9.4 million in sales through our direct on-line store as
compared to $8.6 million of direct revenue in fiscal 2005.
During fiscal 2005, we reduced our home robots products return
reserve accrual rate based on an analysis that indicated that
our actual customer return rates had decreased significantly
and, accordingly, during the third quarter we revised our
returns reserve rate and reduced the returns reserve as of
October 1, 2005. As a result of this decrease, during the
third quarter of 2005, we recognized an additional
$2.7 million of home robots product revenue related to
robots shipped both during the third quarter of 2005 and during
prior periods.
43
The $28.6 million increase in revenue from our government
and industrial business for fiscal 2006 as compared to fiscal
2005 was due to a 52.8% increase in the number of military
robots shipped combined with a 5.5% increase in associated net
average selling prices, a 30.9% increase in recurring contract
revenues generated under funded research and development
contracts and the one-time impact of $2.2 million
associated with the United Kingdom Ministry of Defence
contract modification. Also included in this $28.6 million
growth was an increase of approximately $7.5 million in
product life cycle revenue (robot spares), as compared to
$5.4 million of product life cycle revenue in fiscal 2005,
which was primarily driven by the increased demand for our
military robots,. Total military robot units shipped in fiscal
2006 was 385 compared to 252 in fiscal 2005. This unit increase
was directly related to 229 units shipped under our
contract with the Naval Sea Systems Command for Man
Transportable Robotics Systems.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
119,220
|
|
|
$
|
94,389
|
|
|
$
|
24,831
|
|
|
|
26.3
|
%
|
As a percentage of total revenue
|
|
|
63.1
|
%
|
|
|
66.5
|
%
|
|
|
|
|
|
|
|
|
Total cost of revenue increased to $119.2 million in fiscal
2006, compared to $94.4 million in the fiscal 2005. The
increase is primarily attributable to a 9.4% increase in the
unit sales of our home floor care robots, a 52.8% increase in
the unit sales of our military robots and higher costs
associated with a 30.9% increase in recurring contract revenues
generated under funded research and development contracts in
fiscal 2006 as compared to fiscal 2005.
The home robots division cost of revenue decreased as a percent
of revenue by 1.2 percentage points in fiscal 2006 as
compared to fiscal 2005. This decrease was attributable to the
above-mentioned increase in average selling prices offset by a
6.4% increase in average unit costs as a result of a shift in
the product mix of the home floor care robots that we sold. In
particular, the average unit cost increase was largely
attributable to a significant number of Scooba floor washing
robots shipped in fiscal 2006. Our Scooba floor washing robot
carries a higher per unit cost than our Roomba floor vacuuming
robot which represented nearly 100% of home floor care robots
shipped in fiscal 2005.
The government and industrial robots division cost of revenue
decreased as a percent of revenue by 8.8 percentage points
for fiscal 2006 as compared to fiscal 2005. This decrease was
due primarily to the above-mentioned increase in average selling
prices, a 9.1% reduction in the average unit cost of product
sold, higher margins on increased product life cycle revenue and
lower cost of warranty partially offset by higher manufacturing
overhead.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total gross profit
|
|
$
|
69,735
|
|
|
$
|
47,579
|
|
|
$
|
22,156
|
|
|
|
46.6
|
%
|
As a percentage of total revenue
|
|
|
36.9
|
%
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
Gross profit increased 46.6% to $69.7 million in fiscal
2006, from $47.6 million in fiscal 2005. Gross profit as a
percentage of revenue increased to 36.9% in fiscal 2006 from
33.5% of revenue in fiscal 2005. This 3.4 percentage
increase in gross profit was the result of the home robots
division gross profit increasing 1.2 percentage points and
the government and industrial gross profit increasing
8.8 percentage points. These increases were partially
offset by the fact that the home robots division, which carries
a higher overall gross profit than the government and industrial
division, accounted for 63.6% of total gross profit in fiscal
2006 as compared to 75.5% in the fiscal 2005. Included in the
total gross profit for fiscal 2006 was $2.6 million
associated with the United Kingdom Ministry of Defence
44
contract modification, which accounted for 0.6 percentage
points of the year over year improvement in gross profit as a
percent of revenue.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total research and development
|
|
$
|
17,025
|
|
|
$
|
11,601
|
|
|
$
|
5,424
|
|
|
|
46.8
|
%
|
As a percentage of total revenue
|
|
|
9.0
|
%
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses increased by $5.4 million
or 46.8% to $17.0 million (9.0% percent of revenue) in
fiscal 2006, from $11.6 million (8.2% of revenue) for
fiscal 2005. The increase in research and development expense is
primarily due to an increase of $3.6 million in
compensation and benefit related expenses attributed to
increased headcount. Consulting and related material costs
associated with internal research projects increased by
$1.9 million and $1.3 million, respectively.
Additionally, $0.4 million of the increase related to
increased occupancy and depreciation expenses that include the
addition of the Mysore, India office, which opened in late 2005,
as well as increased depreciation expense on computer equipment
related to increased headcount. These increases were offset by a
reduction of $2.3 million in internally funded research and
development projects primarily related to the Scooba floor
washing robot, which was launched late in the fourth quarter of
2005. In fiscal 2007, we intend to continue to invest in
research and development to respond to and anticipate customer
needs. Accordingly, we anticipate research and development
expenses will continue to increase in absolute dollars, but
decrease as a percentage of total revenue.
Overall research and development headcount increased to 104 at
December 30, 2006 compared to 72 as of December 31,
2005, an increase of 32 employees or 44% growth.
In addition to our internal research and development activities
discussed above, we incur research and development expenses
under funded development arrangements with both governments and
industrial third parties. For fiscal 2006 these expenses
amounted to $15.6 million compared to $12.5 million
for the comparable period in 2005. The increase in these
expenses was primarily due to increased headcount in our
research and development function to 58 employees at
December 30, 2006 from 48 employees at December 31,
2005. In accordance with generally accepted accounting
principles, these expenses have been classified as cost of
revenue rather than research and development expense.
Selling
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
33,969
|
|
|
$
|
21,796
|
|
|
$
|
12,173
|
|
|
|
55.8
|
%
|
As a percentage of total revenue
|
|
|
18.0
|
%
|
|
|
15.4
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $12.2 million
or 55.8% to $34.0 million (18.0% of revenue) in fiscal 2006
from $21.8 million (15.4% of revenue) in fiscal 2005. The
increase in selling and marketing expense was primarily driven
by an increase in home robot division selling and marketing
expense of $9.3 million over fiscal 2005. This increase was
primarily made up of $2.9 million of increased television
advertising and related production costs, $2.9 million
increase in direct fulfillment costs associated with the
$9.4 million increase in our direct on-line store sales,
$1.7 million increased cooperative advertising,
$0.7 million increased compensation and benefit related
expense, $0.7 million increased customer service costs and
$0.5 million increased sales commissions. All of these
increases are attributable to the increase in fiscal 2006 of
$18.4 million of home robot revenue as compared to fiscal
2005. Government and industrial division selling and marketing
expenses were up $1.8 million for fiscal 2006 as compared
to fiscal 2005 due primarily to $0.5 million of increased
bid and proposal activities, $0.4 million of increased
compensation and benefit related expense attributed to
incremental headcount and $0.2 million increased travel
costs. Corporate sales and marketing increased $1.0 million
of which $0.6 million
45
relates to public relations expenses. In fiscal 2007, we expect
to accelerate our investment in sales and marketing to increase
brand awareness. Accordingly, we anticipate selling and
marketing expenses will increase in absolute dollars and as a
percentage of total revenue.
Overall selling and marketing headcount increased to 31 at
December 30, 2006 compared to 24 as of December 31,
2005, an increase of 7 employees or 29% growth.
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
General and administrative
|
|
$
|
18,703
|
|
|
$
|
12,072
|
|
|
$
|
6,631
|
|
|
|
54.9
|
%
|
As a percentage of total revenue
|
|
|
9.9
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by
$6.6 million or 54.9% to $18.7 million (9.9% of
revenue) in fiscal 2006 from $12.1 million (8.5% of
revenue) in fiscal 2005. The increase in general and
administrative expense was primarily driven by an increase of
$2.7 million in compensation, benefits, occupancy,
depreciation and other people related expenses due to increased
headcount over the comparable period and $0.4 million
related to increases in software maintenance and general
liability insurance. Also included in the $6.6 million
increase was $2.2 million relating to costs incurred on
professional accounting, legal and other costs associated with
being a public company, including costs associated with
Section 404 of the Sarbanes-Oxley, all of which were not
required in 2005 as we were a private company for the majority
of the year. SFAS 123R stock-based compensation costs
totaling $0.8 million were recorded, a factor that did not exist
in the comparable period. In fiscal 2007, we anticipate general
and administrative expenses will increase in absolute dollars in
support of expected globalization activities.
Overall general and administrative headcount increased to 72 at
December 30, 2006 compared to 61 as of December 31,
2005, an increase of 11 employees or 18% growth.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Other Income (expense), net
|
|
$
|
3,831
|
|
|
$
|
676
|
|
|
$
|
3,155
|
|
|
|
466.7
|
%
|
As a percentage of total revenue
|
|
|
2.0
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
For fiscal 2006, other income (expense), net amounted to
$3.8 million compared to $0.7 million in fiscal 2005.
The other income (expense), net was directly related to
$4.0 million of interest income resulting from the
investment of net proceeds from our initial public offering that
occurred in November, 2005.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Income tax provision
|
|
$
|
304
|
|
|
$
|
176
|
|
|
$
|
128
|
|
|
|
72.7
|
%
|
As a percentage of total revenue
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
The provision for income taxes for fiscal 2006 consists of
$0.2 million of federal alternative minimum taxes and
$0.1 million of state taxes compared to $0.2 million
of federal alternative minimum taxes in fiscal 2005.
46
Comparison
of Years Ended December 31, 2005 and 2004
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total Revenue
|
|
$
|
141,968
|
|
|
$
|
95,043
|
|
|
$
|
46,925
|
|
|
|
49.4
|
%
|
Our revenue increased 49.4% to $141.9 million in fiscal
2005 from $95.0 million in fiscal 2004. Revenue increased
approximately $22.6 million, or 31.7%, in our consumer
business and $24.7 million, or 106.4%, in our government
and industrial business.
The increase in revenue from our home robots products was
primarily driven by continued demand for our Roomba floor
vacuuming robots and to a lesser degree, for our Scooba floor
washing robot, as it was released late in 2005. During the year
we added four retailers to our retail network, which accounted
for 5% of our total revenue during the period and increased the
total number of retailers offering our products to 19. During
fiscal 2005, we also reduced our consumer products return
reserve accrual rate based on an analysis that indicated that
our actual customer return rates had decreased significantly
and, accordingly, during the third quarter we revised our
returns reserve rate and reduced the returns reserve as of
October 1, 2005. As a result of this decrease, during the
third quarter of 2005, we recognized an additional
$2.7 million of consumer product revenue related to robots
shipped both during the third quarter of 2005 and during prior
periods.
The increase in revenue from our government and industrial
business in fiscal 2005 as compared to fiscal 2004 was due
primarily to increased revenue from sales of our military
robots, including the shipment of 152 of our PackBot tactical
military robots to the U.S. Navy, and a significant
increase in contract revenues generated under funded research
and development contracts, including under the Future Combat
Systems program.
Our revenue in fiscal 2004 was positively impacted by our
conversion in accounting for U.S. consumer product sales
from a sell-through basis (when retail stores sell
our Roomba robots to their customers) to a sell-in
basis (when our robots are shipped by us to the retail stores).
As a result of this conversion, in 2004 we recognized
$5.7 million of product revenue from products shipped by us
prior to fiscal 2004.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
94,389
|
|
|
$
|
67,692
|
|
|
$
|
26,697
|
|
|
|
39.4
|
%
|
As a percentage of total revenue
|
|
|
66.5
|
%
|
|
|
71.2
|
%
|
|
|
|
|
|
|
|
|
Our cost of revenue increased to $94.4 million in fiscal
2005, compared to $67.7 million in fiscal 2004. The
increase is primarily attributable to a 136.8% increase in the
unit sales of our PackBot robots in fiscal 2005 as compared to
fiscal 2004, and a $4.1 million increase in costs
associated with the $5.0 million increase in contract
revenue. Unit sales in our consumer business increased by
approximately 12.0% in fiscal 2005 as compared to fiscal 2004.
After giving effect to the impact of converting to
sell-in accounting in the first quarter of fiscal
2004 as described above, the increase was 2.3%. In addition to
the changes in sales volume, the unit costs of manufacturing our
consumer robots increased by approximately 17.9% over the
comparable period in fiscal 2004 related primarily to an
increase in costs associated with the production of the second
generation Roomba robots and a shift in the mix of the consumer
robots that we sold. The unit costs of manufacturing our PackBot
robots decreased by approximately 12.6% over the comparable
period in fiscal 2004 primarily as a result of manufacturing
economies of scale.
47
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total gross profit
|
|
$
|
47,579
|
|
|
$
|
27,351
|
|
|
$
|
20,228
|
|
|
|
74.0
|
%
|
As a percentage of total revenue
|
|
|
33.5
|
%
|
|
|
28.8
|
%
|
|
|
|
|
|
|
|
|
Gross profit increased 74.0% to $47.6 million in fiscal
2005, from $27.4 million in fiscal 2004. Gross profit as a
percentage of revenue increased to 33.5% in fiscal 2005 from
28.8% of revenue in fiscal 2004. The 4.7% percentage point
increase in gross profit as a percent of revenue in fiscal 2005
was primarily due to improved gross profit of 6.0% on our
consumer and government and industrial robots, including a gross
profit increase resulting from the reduction of our returns
reserve. The favorable impact from improved product gross profit
was offset by approximately 0.7% as the result of lower gross
profit realized on funded research and development contracts
and, to a lesser extent, a decrease in gross profit from royalty
revenue for fiscal 2005. Gross profit in fiscal 2004 included
$2.5 million as a result of the change in accounting from a
sell-through to sell-in basis.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total research and development
|
|
$
|
11,601
|
|
|
$
|
5,504
|
|
|
$
|
6,097
|
|
|
|
110.8
|
%
|
As a percentage of total revenue
|
|
|
8.2
|
%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses increased approximately 110.8%
to $11.6 million (8.2% of revenue) in fiscal 2005 from
$5.5 million (5.8% of revenue) in fiscal 2004. The increase
in research and development expenses was primarily due to
increased headcount in our internal research and development
function to 72 employees at December 31, 2005 from 48
employees at December 31, 2004. For fiscal years 2005 and
2004 we incurred the majority of our internal (non-funded)
research and development expenses to support the development of
enhancements to our Roomba product line as well as our Scooba
floor washing robot development which began in early 2004.
In addition to our internal research and development activities
discussed above, we incur research and development expenses
under funded development arrangements with both governments and
industrial third parties. For fiscal year 2005 these expenses
amounted to $12.5 million compared to $8.4 million for
the comparable period in 2004. The increase in these expenses
was primarily due to increased headcount in our research and
development function to 48 employees at December 31, 2005
from 18 employees at December 31 2004. In accordance with
generally accepted accounting principles, these expenses have
been classified as cost of revenue rather than research and
development expense.
Selling
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
21,796
|
|
|
$
|
14,106
|
|
|
$
|
7,690
|
|
|
|
54.5
|
%
|
As a percentage of total revenue
|
|
|
15.3
|
%
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses increased 54.5% to
$21.8 million (15.3% of revenue) in fiscal 2005 from
$14.1 million (14.8% of revenue) in fiscal 2004. The
increase in selling and marketing expense was primarily due to
an increase in direct marketing and advertising programs and
promotional expenses in support of the Roomba product line,
including our Roomba Scheduler robot, which was launched in the
third quarter of 2005, as well as increased salaries and related
personnel costs associated with the expansion of our selling and
marketing headcount to 24 employees from 13 employees.
48
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
General and administrative
|
|
$
|
12,072
|
|
|
$
|
7,298
|
|
|
$
|
4,774
|
|
|
|
65.4
|
%
|
As a percentage of total revenue
|
|
|
8.5
|
%
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased 65.4% to
$12.1 million (8.5% of revenue) in fiscal 2005 from
$7.3 million (7.7% of revenue) in fiscal 2004. The increase
in general and administrative expenses was primarily due to
increased salaries and related personnel costs associated with
the growth in headcount in our general and administrative
functions to 61 employees from 33 employees, primarily in the
areas of accounting, information technology, human resources,
and legal, and the related expenses associated with our
preparations to become and operate as a public company during
the fiscal year.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Other Income (expense), net
|
|
$
|
676
|
|
|
$
|
(80
|
)
|
|
$
|
756
|
|
|
|
N/M
|
|
As a percentage of total revenue
|
|
|
0.4
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
Other income, net amounted to $0.7 million for fiscal 2005
compared to other expense, net of approximately
$0.1 million for fiscal 2004. The other income (expense),
net was directly related to $0.8 million of interest income
earned offset partially by increased franchise taxes associated
with our increased capitalization after our initial public
offering.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Income tax provision
|
|
$
|
176
|
|
|
$
|
144
|
|
|
$
|
32
|
|
|
|
22.2
|
%
|
As a percentage of total revenue
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
The provision for income taxes of $0.2 million for fiscal
2005, compared with a provision of $0.1 million for fiscal
2004, represents taxes due based on federal alternative minimum
taxes.
Liquidity
and Capital Resources
At December 30, 2006 our principal sources of liquidity
were cash and cash equivalents totaling $5.6 million,
short-term investments of $64.8 million and accounts
receivable of $28.5 million. Prior to our initial public
offering in November 2005, we funded our growth primarily with
proceeds from the issuance of convertible preferred stock for
aggregate net cash proceeds of $37.5 million, occasional
borrowings under a working capital line of credit and cash
generated from operations. In the initial public offering, we
raised $70.4 million net of underwriting and professional
fees associated with this offering.
We manufacture and distribute our products through contract
manufacturers and third-party logistics providers. We believe
that this approach gives us the advantages of relatively low
capital investment and significant flexibility in scheduling
production and managing inventory levels. By leasing our office
facilities, we also minimize the cash needed for expansion.
Accordingly, our capital spending is generally limited to
leasehold improvements, computers, office furniture and
product-specific production tooling, internal use software and
test equipment. In fiscal 2006 and 2005, we spent
$7.5 million and $5.5 million, respectively, on
capital equipment.
49
During 2006, our strategy for delivering product to our retail
customers changed from a model that emphasized container
shipments directly to the retailer from China to a model
emphasizing improved logistics capabilities that allow our
retail partners to take possession of product on a domestic
basis. Accordingly, our home robots product inventory consists
of goods shipped to our domestic third-party logistic providers
for the fulfillment of domestic retail orders and
direct-to-consumer
sales. Our inventory of military products is minimal as they are
generally built to order. Our contract manufacturers are
responsible for purchasing and stocking the components required
for the production of our products, and they invoice us when the
finished goods are shipped.
Our consumer product sales are, and are expected to continue to
be, highly seasonal. This seasonality typically results in a net
use of cash in support of operating needs during the first half
of the year with the low point generally occurring in the middle
of the third quarter, and a favorable cash flow during the
second half of the year. In the past, we have relied on our
working capital line of credit to cover the short-term cash
needs resulting from the seasonality of our consumer business.
Discussion
of Cash Flows
Net cash provided by our operating activities in fiscal 2006 was
$0.6 million compared to net cash used by operating
activities of $9.0 million in fiscal 2005 and net cash
provided by operating activities of $8.9 million in fiscal
2004. The cash provided by our operating activities in fiscal
2006 was primarily due to net income of $3.6 million and an
increase in accounts payable, accrued expenses and accrued
compensation of $8.7 million, offset by an increase in
accounts receivable and unbilled revenue of $6.0 million,
an increase in inventory of $5.0 million, an increase in
other assets of $1.3 million, and a decrease in provision
for contract settlement and deferred revenue of
$5.7 million. In addition, in fiscal 2006, we had
depreciation and amortization of approximately $3.7 million
and amortization of deferred compensation of $2.6 million,
both of which are non-cash expenses. The increase in accounts
receivable, inventory and liabilities in fiscal 2006 are
directly attributable to the 33.1% growth in revenue from the
comparable period in fiscal 2005. The cash used by our operating
activities in fiscal 2005 was primarily due to an increase in
accounts receivable of $9.8 million, an increase in
inventory of $8.2 million, an increase in other current
assets of $1.1 million, and an increase in unbilled revenue
of $0.7 million, offset by net income of $2.6 million,
and an increase in liabilities of approximately
$5.5 million. In addition, in fiscal 2005, we had
depreciation and amortization of approximately $2.1 million
and amortization of deferred compensation of $0.6 million,
both of which are non-cash expenses. The increase in accounts
receivable, inventory and liabilities in fiscal 2005 are
directly attributable to the 49.4% growth in revenue from the
comparable period in fiscal 2004. The cash provided by our
operating activities in fiscal 2004 was primarily due to net
income of approximately $0.2 million, an increase in total
liabilities of $7.6 million, a decrease in inventory of
$3.8 million, a decrease in unbilled revenue of
approximately $0.4 million and a decrease in other assets
of approximately $0.4 million, which were partially offset
by an increase in accounts receivable of $5.1 million. In
addition, in fiscal 2004, we had $1.3 million of
depreciation expense and approximately $0.3 million in
deferred compensation, both of which represent non-cash expenses.
Net cash used in our investing activities was $72.3 million
in fiscal 2006, $5.5 million in fiscal 2005, and
$3.2 million in fiscal 2004. Investment activities in 2006
represent the purchase of short-term investments (net of the
sale of short-term investments) of $64.8 million and the
purchase of capital equipment of $7.5 million. Investment
activities in 2005 and 2004 represent the purchase of capital
equipment in support of our growth, including computer
equipment, internal use software, furniture and fixtures,
engineering and test equipment, and production tooling. The 2006
investment in capital equipment of $7.5 million consisted
primarily of purchases of production tooling, internal use
software and computer equipment.
Net cash provided by our financing activities was approximately
$1.2 million in fiscal 2006, $71.1 million in fiscal
2005, and $9.2 million in fiscal 2004. Net cash provided by
our financing activities in fiscal 2006 consisted primarily of
proceeds from stock option exercises. Net cash provided by our
financing activities in fiscal 2005 consisted primarily of
$70.4 million of proceeds from our initial public offering
and $0.7 million from the exercise of common stock options.
Net cash provided by our financing activities in fiscal 2004
consisted primarily of proceeds of $9.9 million from the
issuance of a series of convertible preferred stock,
approximately $0.3 million from exercises of common stock
options and approximately $0.3 million from the issuance of
restricted stock, offset by $1.3 million for repayment of
borrowings under our working capital line of credit.
50
The majority of our long-lived assets for the years ended
December 30, 2006, December 31, 2005 and 2004 are
located in the United States. However, we have invested in
production tooling for the manufacture of the Roomba and Scooba
product lines in China.
We currently have a $20.7 million accumulated deficit as a
result of significant losses incurred through 2003, largely
attributable to our investment in internally funded research and
development. Based on our historical product development
efforts, we launched our first commercial products, our Roomba
floor vacuuming robot and our PackBot tactical military robot,
in fiscal 2002. Since fiscal 2002, our revenue has significantly
increased, our investment in internally-funded research and
development has declined as a percentage of revenue, and we
achieved profitability in fiscal years 2004, 2005 and 2006. We
have not invested significantly in property, plant and
equipment, primarily as a result of our outsourced approach to
manufacturing that provides significant flexibility in both
managing inventory levels and financing our inventory. Our
consumer revenue has been highly seasonal. This seasonality
tends to result in the net use of cash during the first half of
the year and significant generation of cash in the second half
of the year. Given the recent success of our products and
resulting growth in revenue, we believe that existing cash, cash
equivalents, cash provided by operating activities and funds
available through our bank line of credit will be sufficient to
meet our working capital and capital expenditure needs for the
foreseeable future.
Working
Capital Facility
On May 26, 2005, we obtained a working capital line of
credit with a bank under which we can borrow up to
$20.0 million, including a $2.0 million
sub-limit
for equipment financing. Interest accrues at a variable rate
based on prime or published LIBOR rates. The line expires on
May 26, 2007 at which time all advances will be immediately
due and payable. As of December 30, 2006, we had no amounts
outstanding and $20.0 million available under our working
capital line of credit. Borrowings are secured by substantially
all of our assets other than our intellectual property. The
credit facility restricts our ability to:
|
|
|
|
|
incur or guaranty additional indebtedness;
|
|
|
|
create liens;
|
|
|
|
enter into transactions with affiliates;
|
|
|
|
make loans or investments;
|
|
|
|
sell assets;
|
|
|
|
pay dividends or make distributions on, or repurchase, our
stock; or
|
|
|
|
consolidate or merge with other entities.
|
In addition, we are required to maintain quarterly tangible net
worth thresholds based on our stockholders equity under
the credit facility that vary by quarter based on anticipated
seasonality in our business. These operating and financial
covenants may restrict our ability to finance our operations,
engage in business activities or expand or pursue our business
strategies. At December 30, 2006, we were in compliance
with all covenants under the credit facility. To the extent we
are unable to satisfy those covenants in the future, we will
need to obtain waivers to avoid being in default of the terms of
this credit facility. In addition to a covenant default, other
events of default under our credit facility include the filing
or entry of a tax lien, attachment of funds or material judgment
against us, or other uninsured loss of our material assets. If a
default occurs, the bank may require that we repay all amounts
then outstanding.
Working
Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for
normal recurring trade payables, expense accruals and operating
leases, all of which we anticipate funding through our existing
working capital line of credit, working capital and funds
provided by operating activities. We do anticipate making
significant capital commitments in the next twelve months for
expenditures associated with the planned move to our new
corporate headquarters on or about May 1, 2008. These
expenditures will be jointly funded by the landlord for this
site and by the Company. Other than this project, we do not
currently anticipate significant investment in property and
51
equipment, and we believe that our outsourced approach to
manufacturing provides us with flexibility in both managing
inventory levels and financing our inventory. We believe our
existing cash, cash equivalents, cash provided by operating
activities, and funds available through our working capital line
of credit will be sufficient to meet our working capital and
capital expenditure needs over at least the next twelve months.
In the event that our revenue plan does not meet our
expectations, we may eliminate or curtail expenditures to
mitigate the impact on our working capital. Our future capital
requirements will depend on many factors, including our rate of
revenue growth, the expansion of our marketing and sales
activities, the timing and extent of spending to support product
development efforts, the timing of introductions of new products
and enhancements to existing products, the acquisition of new
capabilities or technologies, and the continuing market
acceptance of our products and services. Moreover, to the extent
that existing cash, cash equivalents, cash from operations, and
cash from short-term borrowing are insufficient to fund our
future activities, we may need to raise additional funds through
public or private equity or debt financing. Although we are
currently not a party to any agreement or letter of intent with
respect to potential investments in, or acquisitions of,
businesses, services or technologies, we may enter into these
types of arrangements in the future, which could also require us
to seek additional equity or debt financing. Additional funds
may not be available on terms favorable to us or at all.
Contractual
Obligations
We generally do not enter into binding purchase commitments. Our
principal commitments consist of obligations under our working
capital line of credit, leases for office space and minimum
contractual obligations for services. The following table
describes our commitments to settle contractual obligations in
cash as of December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Operating leases
|
|
$
|
1,909
|
|
|
$
|
1,726
|
|
|
$
|
75
|
|
|
$
|
|
|
|
$
|
3,710
|
|
Minimum contractual payments
|
|
|
|
|
|
|
1,750
|
|
|
|
1,750
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,909
|
|
|
$
|
3,476
|
|
|
$
|
1,825
|
|
|
$
|
|
|
|
$
|
7,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 22, 2007, we entered into a lease agreement for
our new corporate headquarters in Bedford, Massachusetts to
which we expect to relocate on or about May 1, 2008.
Off-Balance
Sheet Arrangements
As of December 30, 2006, we had no off-balance sheet
arrangements as defined in Item 303(a)(4) of
Regulation S-K.
Recently
Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements which defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. This statement does not require any new fair value
measurements; rather, it applies under other accounting
pronouncements that require or permit fair value measurements.
The provisions of SFAS No. 157 are effective for
fiscal years beginning after November 15, 2007. We are
currently assessing SFAS No. 157 and have not yet
determined the impact, if any, that its adoption will have on
our result of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance
on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the
current years financial statements are materially
misstated. SAB 108 is effective for fiscal years ending on
or after November 15, 2006. The adoption of SAB 108
did not have any impact on our results of operations or
financial condition.
52
In June 2006, FASB issued FASB Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109, which prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 will be effective for fiscal years
beginning after December 15, 2006. We are continuing to
evaluate the impact that the adoption of FIN 48 will have
on our results of operations or financial condition. We do not
expect the adoption to have a material impact on our results of
operations or financial condition.
In May 2005, FASB issued SFAS No. 154, Accounting
Changes and Error Corrections, which replaces APB
No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements An Amendment of APB Opinion
No. 28. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction
of an error. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We adopted SFAS No. 154
effective January 1, 2006 and the adoption did not have an
effect on our consolidated results of operations and financial
condition.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin (ARB) No. 43, Chapter 4,
Inventory Pricing. SFAS No. 151 amends previous
guidance regarding treatment of abnormal amounts of idle
facility expense, freight, handling costs, and spoilage.
SFAS No. 151 requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of so abnormal which was the criterion
specified in ARB No. 43. In addition,
SFAS No. 151 requires that allocation of fixed
production overheads to the cost of the production be based on
normal capacity of the production facilities. We adopted
SFAS No. 151 effective January 1, 2006 and the
adoption did not have an effect on our consolidated results of
operations and financial condition.
From time to time, new accounting pronouncements are issued by
FASB that are adopted by the Company as of the specified
effective date. Unless otherwise discussed, the Company believes
that the impact of recently issued standards, which are not yet
effective, will not have a material impact on the Companys
consolidated financial statements upon adoption.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign
Currency Exchange Risk
Nearly all of our revenue is derived from transactions
denominated in U.S. dollars, even though we maintain sales
and business operations in foreign countries. As such, we have
exposure to adverse changes in exchange rates associated with
operating expenses of our foreign operations, but we believe
this exposure to be immaterial.
Interest
Rate Sensitivity
We had unrestricted cash and cash equivalents of
$5.6 million and short term investments of
$64.8 million at December 30, 2006. The unrestricted
cash and cash equivalents are held for working capital purposes.
We do not enter into investments for trading or speculative
purposes. Some of the securities in which we invest, however,
may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the
investment to fluctuate. To minimize this risk in the future, we
intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including
auction rate securities, commercial paper, money market funds,
debt securities and certificates of deposit. Due to the
short-term nature of these investments, we believe that we do
not have any material exposure to changes in the fair value of
our investment portfolio as a result of changes in interest
rates. As of December 30, 2006, all of our cash equivalents
were held in money market accounts and our short-term
investments were comprised of auction rate securities.
Our exposure to market risk also relates to the increase or
decrease in the amount of interest expense we must pay on our
outstanding debt instruments, primarily certain borrowings under
our bank line of credit. The advances under this line of credit
bear a variable rate of interest determined as a function of the
prime rate or the published LIBOR rate at the time of the
borrowing. At December 30, 2006, there were no amounts
outstanding under our working capital line of credit.
53
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
iROBOT
CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
54
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
iRobot Corporation:
We have completed an integrated audit of iRobot
Corporations 2006 consolidated financial statements and of
its internal control over financial reporting as of
December 30, 2006 and audits of its 2005 and 2004
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated
financial statements
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of iRobot Corporation and its
subsidiaries at December 30, 2006 and December 31,
2005, and the results of their operations and their cash flows
for each of the three years in the period ended
December 30, 2006 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation in 2006.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of December 30, 2006 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 30, 2006,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail,
55
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Boston, Massachusetts
February 28, 2007
56
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,583
|
|
|
$
|
76,064
|
|
Short term investments
|
|
|
64,800
|
|
|
|
|
|
Accounts receivable, net of
allowance of $163 and $117 at December 30, 2006 and
December 31, 2005, respectively
|
|
|
28,510
|
|
|
|
23,045
|
|
Unbilled revenue
|
|
|
1,961
|
|
|
|
1,424
|
|
Inventory, net
|
|
|
20,890
|
|
|
|
15,903
|
|
Other current assets
|
|
|
2,863
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
124,607
|
|
|
|
117,969
|
|
Property and equipment, net
|
|
|
10,701
|
|
|
|
6,966
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
135,308
|
|
|
$
|
124,935
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
27,685
|
|
|
$
|
23,721
|
|
Accrued expenses
|
|
|
7,020
|
|
|
|
3,484
|
|
Accrued compensation
|
|
|
5,227
|
|
|
|
4,002
|
|
Provision for contract settlements
|
|
|
|
|
|
|
5,154
|
|
Deferred revenue
|
|
|
457
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
40,389
|
|
|
|
37,379
|
|
Commitments and contingencies
(Note 12):
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred
stock, 5,000 shares authorized and zero outstanding at
December 30, 2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value, 100,000 and 100,000 shares authorized and 23,791 and
23,406 issued and outstanding at December 30, 2006 and
December 31, 2005, respectively
|
|
|
238
|
|
|
|
234
|
|
Additional paid-in capital
|
|
|
117,718
|
|
|
|
114,808
|
|
Deferred compensation
|
|
|
(2,326
|
)
|
|
|
(3,210
|
)
|
Accumulated deficit
|
|
|
(20,711
|
)
|
|
|
(24,276
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
94,919
|
|
|
|
87,556
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable
convertible preferred stock and stockholders equity
|
|
$
|
135,308
|
|
|
$
|
124,935
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
57
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
167,687
|
|
|
$
|
124,616
|
|
|
$
|
82,678
|
|
Contract revenue
|
|
|
21,268
|
|
|
|
17,352
|
|
|
|
12,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
95,043
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
|
103,651
|
|
|
|
81,855
|
|
|
|
59,321
|
|
Cost of contract revenue(1)
|
|
|
15,569
|
|
|
|
12,534
|
|
|
|
8,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
67,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
27,351
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
17,025
|
|
|
|
11,601
|
|
|
|
5,504
|
|
Selling and marketing(1)
|
|
|
33,969
|
|
|
|
21,796
|
|
|
|
14,106
|
|
General and administrative(1)
|
|
|
18,703
|
|
|
|
12,072
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
26,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
38
|
|
|
|
2,110
|
|
|
|
443
|
|
Other income (expense), net
|
|
|
3,831
|
|
|
|
676
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,869
|
|
|
|
2,786
|
|
|
|
363
|
|
Income tax expense
|
|
|
304
|
|
|
|
176
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
stockholders
|
|
$
|
3,565
|
|
|
$
|
1,553
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
Number of shares used in per share
calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,516
|
|
|
|
12,007
|
|
|
|
9,660
|
|
Diluted
|
|
|
25,601
|
|
|
|
14,331
|
|
|
|
19,183
|
|
|
|
|
(1) |
|
Stock-based compensation recorded in 2006, 2005 and 2004 breaks
down by expense classification as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
326
|
|
|
$
|
33
|
|
|
$
|
|
|
Cost of contract revenue
|
|
|
267
|
|
|
|
58
|
|
|
|
|
|
Research and development
|
|
|
376
|
|
|
|
95
|
|
|
|
|
|
Selling and marketing
|
|
|
389
|
|
|
|
32
|
|
|
|
|
|
General and administrative
|
|
|
1,211
|
|
|
|
380
|
|
|
|
283
|
|
See accompanying Notes to Consolidated Financial Statements
58
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Stockholder
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at December 31,
2003
|
|
|
9,360,750
|
|
|
|
93
|
|
|
|
1,696
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(27,105
|
)
|
|
|
(25,359
|
)
|
Issuance of restricted stock
|
|
|
397,584
|
|
|
|
4
|
|
|
|
967
|
|
|
|
|
|
|
|
(670
|
)
|
|
|
|
|
|
|
301
|
|
Amortization of deferred
compensation relating to restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
283
|
|
Issuance of common stock for
exercise of stock options
|
|
|
371,123
|
|
|
|
4
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2004
|
|
|
10,129,457
|
|
|
|
101
|
|
|
|
2,925
|
|
|
|
(43
|
)
|
|
|
(387
|
)
|
|
|
(26,886
|
)
|
|
|
(24,290
|
)
|
Amortization of deferred
compensation relating to restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
200
|
|
Issuance of common stock for
exercise of stock options
|
|
|
442,204
|
|
|
|
4
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
637
|
|
Repayment of note receivable from
stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Conversion of preferred to common
stock
|
|
|
9,557,246
|
|
|
|
96
|
|
|
|
37,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,507
|
|
Proceeds of initial public
offering, net of costs
|
|
|
3,260,870
|
|
|
|
33
|
|
|
|
70,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,407
|
|
Conversion of warrants to common
stock
|
|
|
16,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation relating to
issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
3,421
|
|
|
|
|
|
|
|
(3,421
|
)
|
|
|
|
|
|
|
|
|
Tax benefit of disqualifying
dispositions
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Amortization of deferred
compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,610
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2005
|
|
|
23,405,932
|
|
|
|
234
|
|
|
|
114,808
|
|
|
|
|
|
|
|
(3,210
|
)
|
|
|
(24,276
|
)
|
|
|
87,556
|
|
Amortization of deferred
compensation relating to restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
101
|
|
Issuance of common stock for
exercise of stock options
|
|
|
384,827
|
|
|
|
4
|
|
|
|
1,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,049
|
|
Tax benefit of disqualifying
dispositions
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Amortization of deferred
compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
1,768
|
|
|
|
|
|
|
|
700
|
|
|
|
|
|
|
|
2,468
|
|
Reversal of deferred compensation
related to cancelled stock options
|
|
|
|
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,565
|
|
|
|
3,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30,
2006
|
|
|
23,790,759
|
|
|
$
|
238
|
|
|
$
|
117,718
|
|
|
$
|
|
|
|
$
|
(2,326
|
)
|
|
$
|
(20,711
|
)
|
|
$
|
94,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
59
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
$
|
219
|
|
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,743
|
|
|
|
2,078
|
|
|
|
1,314
|
|
Loss on disposal of fixed assets
|
|
|
7
|
|
|
|
|
|
|
|
1
|
|
Amortization of deferred
compensation
|
|
|
2,569
|
|
|
|
598
|
|
|
|
283
|
|
Changes in working
capital (use) source
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,465
|
)
|
|
|
(9,786
|
)
|
|
|
(5,122
|
)
|
Unbilled revenue
|
|
|
(537
|
)
|
|
|
(650
|
)
|
|
|
369
|
|
Inventory
|
|
|
(4,987
|
)
|
|
|
(8,235
|
)
|
|
|
3,751
|
|
Other assets
|
|
|
(1,330
|
)
|
|
|
(1,051
|
)
|
|
|
420
|
|
Accounts payable
|
|
|
3,964
|
|
|
|
4,140
|
|
|
|
12,800
|
|
Accrued expenses
|
|
|
3,536
|
|
|
|
842
|
|
|
|
(159
|
)
|
Accrued compensation
|
|
|
1,225
|
|
|
|
851
|
|
|
|
1,118
|
|
Provision for contract settlement
|
|
|
(5,154
|
)
|
|
|
(37
|
)
|
|
|
(143
|
)
|
Deferred revenue
|
|
|
(561
|
)
|
|
|
(270
|
)
|
|
|
(5,913
|
)
|
Change in long-term liabilities
|
|
|
|
|
|
|
(67
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
575
|
|
|
|
(8,977
|
)
|
|
|
8,871
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(7,485
|
)
|
|
|
(5,531
|
)
|
|
|
(3,222
|
)
|
Purchase of investments
|
|
|
(174,100
|
)
|
|
|
|
|
|
|
|
|
Sales of investments
|
|
|
109,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(72,285
|
)
|
|
|
(5,531
|
)
|
|
|
(3,222
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving line of
credit, net
|
|
|
|
|
|
|
|
|
|
|
(1,339
|
)
|
Repayment of note receivable from
stockholder
|
|
|
|
|
|
|
43
|
|
|
|
|
|
Proceeds from stock option
exercises
|
|
|
1,049
|
|
|
|
637
|
|
|
|
266
|
|
Proceeds from initial public
offering, net offering costs
|
|
|
|
|
|
|
70,407
|
|
|
|
|
|
Proceeds from issuance of
restricted stock
|
|
|
|
|
|
|
|
|
|
|
301
|
|
Tax benefit of disqualifying
dispositions
|
|
|
180
|
|
|
|
44
|
|
|
|
|
|
Net proceeds from sale of
preferred stock
|
|
|
|
|
|
|
|
|
|
|
9,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
1,229
|
|
|
|
71,131
|
|
|
|
9,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(70,481
|
)
|
|
|
56,623
|
|
|
|
14,821
|
|
Cash and cash equivalents, at
beginning of period
|
|
|
76,064
|
|
|
|
19,441
|
|
|
|
4,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end
of period
|
|
$
|
5,583
|
|
|
$
|
76,064
|
|
|
$
|
19,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
142
|
|
Cash paid for income taxes
|
|
$
|
155
|
|
|
|
11
|
|
|
|
124
|
|
Supplemental
disclosure of noncash investing and financing activities (in
thousands)
During 2006, 2005 and 2004, the Company transferred $1,260, $327
and $186, respectively, of inventory to fixed assets.
On November 15, 2005, in connection with the Companys
initial public offering of common stock, the Company converted
9,557 shares of outstanding preferred stock into an
equivalent number of shares of common stock.
See accompanying Notes to Consolidated Financial Statements
60
iROBOT
CORPORATION
|
|
1.
|
Nature of
the Business
|
iRobot Corporation, formerly IS Robotics, Inc., was incorporated
in 1990 to develop robotics and artificial intelligence
technologies and apply these technologies in producing and
marketing robots. The majority of the Companys revenue is
generated from product sales, and government and industrial
research and development contracts.
The Company is subject to risks common to companies in high-tech
industries including, but not limited to, uncertainty of
progress in developing technologies, new technological
innovations, dependence on key personnel, protection of
proprietary technology, compliance with government regulations,
uncertainty of market acceptance of products and the need to
obtain financing, if necessary.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include those
of iRobot and our subsidiaries, after elimination of all
intercompany accounts and transactions. iRobot has prepared the
accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America.
Use of
Estimates
The preparation of these financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates these
estimates and judgments, including those related to revenue
recognition, sales returns, bad debts, warranty claims,
inventory reserves, valuation of investments and income taxes.
The Company bases these estimates on historical and anticipated
results and trends and on various other assumptions that the
Company believes are reasonable under the circumstances,
including assumptions as to future events. These estimates form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. By their nature, estimates are subject to an inherent
degree of uncertainty. Actual results may differ from the
Companys estimates.
Reclassification
Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
Fiscal
Year-End
Beginning in fiscal 2005, the Company operates and reports using
a
52-53 week
fiscal year ending on the Saturday closest to December 31.
Accordingly, the Companys fiscal quarters will end on the
Saturday that falls closest to the last day of the third month
of each quarter.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with an
original or remaining maturity of three months or less at the
time of purchase to be cash equivalents. The Company invests its
excess cash primarily in money market funds of major financial
institutions. Accordingly, its investments are subject to
minimal credit and market risk. At December 30, 2006 and
December 31, 2005, cash equivalents were comprised of money
market funds totaling $3.8 million and $73.6 million,
respectively. These cash equivalents are carried at cost, which
approximates fair value.
61
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Short
Term Investments
The Companys investments are classified as
available-for-sale
and are recorded at fair value with any unrealized gain or loss
recorded as an element of stockholders equity. The fair
value of investments is determined based on quoted market prices
at the reporting date for those instruments. As of
December 30, 2006, investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Market Value
|
|
|
|
(In thousands)
|
|
|
Auction Rate Debt Securities
|
|
$
|
64,800
|
|
|
$
|
64,800
|
|
The Company did not hold any investments as of December 31,
2005.
As of December 30, 2006, the Companys investments had
maturity dates ranging from July 2018 to August 2045.
Despite the long-term contractual maturities of the auction rate
securities held at December 30, 2006, all of these
securities are available for immediate sale and it is the
Companys intention to liquidate these securities within
one year.
Revenue
Recognition
The Company derives its revenue from product sales, government
research and development contracts and commercial research and
development contracts. The Company sells products directly to
customers and indirectly through resellers and distributors. The
Company recognizes revenue from sales of consumer robots under
the terms of the customer agreement upon transfer of title to
the customer, net of estimated returns, provided that collection
is determined to be probable and no significant obligations
remain. Sales to resellers are subject to agreements allowing
for limited rights of return for defective products only,
rebates and price protection. The Company has typically not
taken product returns except for defective products.
Accordingly, the Company reduces revenue for its estimates of
liabilities for these rights at the time the related sale is
recorded. The Company makes an estimate of sales returns for
products sold by resellers directly or through its distributors
based on historical returns experience. The Company has
aggregated and analyzed historical returns from resellers and
end users which form the basis of its estimate of future sales
returns by resellers or end users. In accordance with Statement
of Financial Accounting Standards No. 48, Revenue
Recognition When Right of Return Exists, the provision
for these estimated returns is recorded as a reduction of
revenue at the time that the related revenue is recorded. If
actual returns differ significantly from its estimates, such
differences could have a material impact on the Companys
results of operations for the period in which the returns become
known. The estimates for returns are adjusted periodically based
upon historical rates of returns. The estimates and reserve for
rebates and price protection are based on specific programs,
expected usage and historical experience. Actual results could
differ from these estimates. Through fiscal 2003, the Company
recognized revenue on sales to certain distributors and retail
customers upon their sale to the end-user when an allowance for
future returns from the end-user could not be reasonably
estimated. In fiscal 2004, the Company recognized revenue on all
sales to distributors and retail customers upon delivery of
product and established a related allowance for future returns
based upon historical experience. As a result of this change,
the Company recorded revenue of approximately $5.7 million
in fiscal 2004 for products shipped prior to January 1,
2004.
Under cost-plus-fixed-fee (CPFF) type contracts, the Company
recognizes revenue based on costs incurred plus a pro rata
portion of the total fixed fee. Revenue on firm fixed price
(FFP) contracts is recognized using the
percentage-of-completion
method. Costs and estimated gross profits on contracts are
recorded as revenue as work is performed based on the percentage
that incurred costs bear to estimated total costs utilizing the
most recent estimates of costs and funding. Changes in job
performance, job conditions, and estimated profitability,
including those arising from final contract settlements, may
result in revisions to costs and income and are recognized in
the period in which the revisions are determined. Since many
contracts extend over a long period of time, revisions in cost
and funding estimates during the progress of work have the
effect of adjusting earnings applicable to past
62
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance in the current period. When the current contract
estimate indicates a loss, provision is made for the total
anticipated loss in the current period. Revenue earned in excess
of billings, if any, is recorded as unbilled revenue. Billings
in excess of revenue earned, if any, are recorded as deferred
revenue.
Allowance
for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to
provide for the estimated amount of accounts receivable that may
not be collected. The allowance is based upon an assessment of
customer creditworthiness, historical payment experience and the
age of outstanding receivables.
Activity related to the allowance for doubtful accounts was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
117
|
|
|
$
|
50
|
|
|
$
|
248
|
|
Provision
|
|
|
121
|
|
|
|
83
|
|
|
|
(65
|
)
|
Deduction(*)
|
|
|
(75
|
)
|
|
|
(16
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
163
|
|
|
$
|
117
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Deductions related to allowance for doubtful accounts represent
amounts written off against the allowance, less recoveries. |
Inventory
Inventory is stated at the lower of cost or market with cost
being determined using the
first-in,
first-out (FIFO) method. The Company maintains a reserve for
inventory items to provide for an estimated amount of excess or
obsolete inventory.
Activity related to the inventory reserve was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
485
|
|
|
$
|
1,903
|
|
|
$
|
2,369
|
|
Provision
|
|
|
267
|
|
|
|
251
|
|
|
|
|
|
Deduction(*)
|
|
|
(198
|
)
|
|
|
(1,669
|
)
|
|
|
(466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
554
|
|
|
$
|
485
|
|
|
$
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Deductions related to inventory reserve accounts represent
amounts written off against the reserve. |
63
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are recorded at cost and consist
primarily of computer equipment, business applications software
and machinery. Depreciation is computed using the straight-line
method over the estimated useful lives as follows:
|
|
|
|
|
Estimated
|
|
|
Useful Life
|
|
Computer and research equipment
|
|
3 years
|
Furniture
|
|
5
|
Machinery
|
|
2-5
|
Tooling
|
|
2
|
Business applications software
|
|
5
|
Capital leases and leasehold
improvements
|
|
Term of lease
|
Expenditures for additions, renewals and betterments of plant
and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. As assets are
retired or sold, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is
credited or charged to operations.
Impairment
of Long-Lived Assets
The Company periodically evaluates the recoverability of
long-lived assets whenever events and changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. When indicators of impairment are present, the
carrying values of the assets are evaluated in relation to the
operating performance and future undiscounted cash flows of the
underlying business. The net book value of the underlying asset
is adjusted to fair value if the sum of the expected discounted
cash flows is less than book value. Fair values are based on
estimates of market prices and assumptions concerning the amount
and timing of estimated future cash flows and assumed discount
rates, reflecting varying degrees of perceived risk. There were
no impairment charges recorded during any of the periods
presented.
Research
and Development
Costs incurred in the research and development of the
Companys products are expensed as incurred.
Internal
Use Software
The Company capitalizes costs associated with the development
and implementation of software obtained for internal use in
accordance with American Institute of Certified Public
Accountants Statement of Position
98-1,
Accounting for Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
At December 30, 2006 and December 31, 2005, the
Company had $3.6 million and $1.3 million
respectively, of internal costs related to enterprise-wide
software included in fixed assets. Capitalized costs are being
amortized over the assets estimated useful lives. The
Company has recorded $0.6 million, $0.2 million and
$0.2 million of amortization expense for the years ended
December 30, 2006, December 31, 2005 and 2004,
respectively.
Concentration
of Credit Risk and Significant Customers
The Company maintains its cash in bank deposit accounts at high
quality financial institutions. The individual balances, at
times, may exceed federally insured limits. At December 30,
2006 and December 31, 2005, the Company exceeded the
insured limit by $6.1 million and $74.3 million,
respectively.
Financial instruments which potentially expose the Company to
concentrations of credit risk consist of accounts receivable.
Management believes its credit policies are prudent and reflect
normal industry terms and
64
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
business risk. At December 30, 2006 and December 31,
2005, 12% and 24%, respectively, of the Companys accounts
receivable were due from the federal government. At
December 30, 2006, two additional customers each accounted
for 17% of the Companys account receivable balance. At
December 31, 2005, two additional customers each accounted
for 12% of the Companys accounts receivable balance. For
the years ended December 30, 2006, 2005, and 2004 revenue
from one customer, the federal government, represented 34%, 28%
and 20% of total revenue, respectively.
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted the
provisions of SFAS No. 123(R), Share-Based
Payment, which establishes accounting for equity instruments
exchanged for employee services. Under the provisions of
SFAS No. 123(R), share-based compensation cost is
measured at the grant date, based on the calculated fair value
of the award, and is recognized as an expense over the
employees requisite service period (generally the vesting
period of the equity grants). Prior to January 1, 2006, the
Company accounted for share-based compensation to employees in
accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company 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. The
Company elected to adopt the modified 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.
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 Companys 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
Companys 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 under APB
65
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $0.7 million and $0.4 million
for the fiscal years ended December 30, 2006 and
December 31, 2005, respectively. As of December 30,
2006, the deferred stock-based compensation balance associated
with these grants was $2.3 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 $0.7 million, $0.7 million,
$0.7 million and $0.2 million for 2007, 2008, 2009 and
2010, respectively.
Under the provisions of SFAS No. 123(R), the Company
recognized $1.8 million of stock-based compensation expense
during the fiscal year ended December 30, 2006 for stock
options granted subsequent to the initial public offering. The
unamortized fair value as of December 30, 2006 associated
with these grants was $9.8 million with a weighted average
remaining recognition period of 1.83 years.
The fair value of each option grant for the fiscal year ended
December 30, 2006 was computed on the grant date using the
Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30, 2006
|
|
|
Risk-free interest rate
|
|
|
4.32% 5.11
|
%
|
Expected dividend yield
|
|
|
|
|
Expected life
|
|
|
3.5 6.5 years
|
|
Expected volatility
|
|
|
65
|
%
|
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 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. 107.
Under SAB No. 107, 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 Companys 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 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 30, 2006 was $12.771.
The Company has assumed a forfeiture rate of 5% for all stock
options granted subsequent to the initial public offering with
the exception of those issued to executives and directors for
which a zero forfeiture rate has been assumed. 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.
66
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had previously adopted the provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure through disclosure only. The following table
illustrates the effects on net income and earnings per share for
the fiscal years ended December 31, 2005 and 2004 as if the
Company had applied the fair value recognition provisions of
SFAS No. 123 to share-based employee awards.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands except
|
|
|
|
per share data)
|
|
|
Net income as reported
|
|
$
|
2,610
|
|
|
$
|
219
|
|
Add back:
|
|
|
|
|
|
|
|
|
Stock-based employee compensation
expense reported in net income
|
|
|
598
|
|
|
|
283
|
|
Less: Stock-based employee
compensation expense determined under fair-value method for all
awards
|
|
|
(808
|
)
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
2,400
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable
to common stockholders
|
|
$
|
1,428
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
Net income per share, as reported
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
Pro forma net income per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.00
|
|
Number of shares used in per share
calculations
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,007
|
|
|
|
9,660
|
|
Diluted
|
|
|
14,331
|
|
|
|
19,183
|
|
The fair value of each option grant for the fiscal years 2005
and 2004 was estimated on the grant date using the Black-Scholes
option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Risk-free interest rate
|
|
|
4.1
|
%
|
|
|
3.4
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected life
|
|
|
5 years
|
|
|
|
5 years
|
|
Expected volatility
|
|
|
65
|
%
|
|
|
0
|
%
|
The weighted average fair value of options granted during 2005
prior to and subsequent to the initial public offering date of
November 9, 2005 was calculated using 0% and 65%
volatility, respectively. Until the Company went public the use
of the minimum value methodology was acceptable under
SFAS No. 123.
Based upon the above assumptions, the weighted average fair
value of each stock option granted for fiscal years 2005 and
2004 was $4.402 and $0.416, respectively.
67
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes stock option plan activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value(1)
|
|
|
Outstanding at December 31,
2004
|
|
|
2,605,000
|
|
|
$
|
1.770
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,172,475
|
|
|
|
10.811
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(442,204
|
)
|
|
|
1.430
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(63,787
|
)
|
|
|
4.540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
3,271,484
|
|
|
$
|
1.278
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
700,245
|
|
|
|
21.829
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(384,827
|
)
|
|
|
2.726
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(87,192
|
)
|
|
|
16.189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30,
2006
|
|
|
3,499,710
|
|
|
$
|
8.340
|
|
|
|
6.61 years
|
|
|
$
|
37.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of
December 30, 2006
|
|
|
1,209,115
|
|
|
$
|
2.988
|
|
|
|
4.88 years
|
|
|
$
|
18.5 million
|
|
Weighted average fair value of
options granted during the fiscal year ended December 30,
2006
|
|
|
|
|
|
$
|
12.771
|
|
|
|
|
|
|
|
|
|
Options available for future grant
at December 30, 2006
|
|
|
690,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value on the table was calculated based
upon the positive difference between the closing market value of
the Companys stock on December 30, 2006 of $18.06 and
the exercise price of the underlying option. |
During fiscal years 2006 and 2005, the total intrinsic value of
stock options exercised was $7.0 million and
$5.7 million, respectively. No amounts relating to
stock-based compensation have been capitalized.
The table below summarizes activity relating to restricted stock
awards:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares Underlying
|
|
|
Grant Date Fair
|
|
|
|
Restricted Stock
|
|
|
Value
|
|
|
Outstanding at December 31,
2004
|
|
|
297,724
|
|
|
$
|
1.804
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(124,363
|
)
|
|
$
|
1.614
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
173,361
|
|
|
$
|
1.941
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(124,362
|
)
|
|
$
|
1.614
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30,
2006
|
|
|
48,999
|
|
|
$
|
2.770
|
|
|
|
|
|
|
|
|
|
|
68
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 30, 2006, the unamortized fair value of all
restricted stock awards was $85,000. The Company expects to
recognize associated stock-based compensation expense of $68,000
in 2007 and $17,000 in 2008.
The following table summarizes information about stock options
outstanding at December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$0.0002 - $ 0.240
|
|
|
383,930
|
|
|
|
0.63
|
years
|
|
$
|
0.023
|
|
|
|
383,930
|
|
|
$
|
0.023
|
|
0.550
- 1.870
|
|
|
266,685
|
|
|
|
5.07
|
|
|
|
1.156
|
|
|
|
207,858
|
|
|
|
1.327
|
|
2.330
- 2.330
|
|
|
599,484
|
|
|
|
6.96
|
|
|
|
2.330
|
|
|
|
278,791
|
|
|
|
2.330
|
|
2.780
- 2.780
|
|
|
490,396
|
|
|
|
7.57
|
|
|
|
2.780
|
|
|
|
151,125
|
|
|
|
2.780
|
|
4.600
- 4.600
|
|
|
145,655
|
|
|
|
8.05
|
|
|
|
4.600
|
|
|
|
29,930
|
|
|
|
4.600
|
|
4.960
- 4.960
|
|
|
403,550
|
|
|
|
8.16
|
|
|
|
4.960
|
|
|
|
65,700
|
|
|
|
4.960
|
|
5.660 - 16.460
|
|
|
492,665
|
|
|
|
7.64
|
|
|
|
13.453
|
|
|
|
29,485
|
|
|
|
12.228
|
|
17.400 - 22.200
|
|
|
352,850
|
|
|
|
7.52
|
|
|
|
20.572
|
|
|
|
21,796
|
|
|
|
18.733
|
|
24.000 - 33.940
|
|
|
352,995
|
|
|
|
7.58
|
|
|
|
25.925
|
|
|
|
40,500
|
|
|
|
25.348
|
|
34.980 - 34.980
|
|
|
11,500
|
|
|
|
9.07
|
|
|
|
34.980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0002 - $34.980
|
|
|
3,499,710
|
|
|
|
6.61
|
|
|
$
|
8.340
|
|
|
|
1,209,115
|
|
|
$
|
2.988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
Expense
The Company expenses advertising costs as they are incurred.
During the years ended December 30, 2006, December 31,
2005 and 2004, advertising expense totaled $14.3 million,
$10.5 million and $7.8 million, respectively.
Income
Taxes
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.
The Company monitors the realization of its deferred tax assets
based on changes in circumstances, for example recurring periods
of income for tax purposes following historical periods of
cumulative losses or changes in tax laws or regulations. The
Companys income tax provisions and its assessment of the
realizability of its deferred tax assets involve significant
judgments and estimates. If the Company continued to generate
taxable income through profitable operations in future years it
may be required to recognize these deferred tax assets through
the reduction of the valuation allowance which would result in a
material benefit to its results of operations in the period in
which the benefit is determined, excluding the recognition of
the portion of the valuation allowance which relates to stock
compensation.
Comprehensive
Income (Loss)
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for the reporting and display of
comprehensive income (loss) and its components in financial
statements. The Companys comprehensive income (loss) is
equal to the Companys net income (loss) for all periods
presented.
69
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements which defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. This statement does not require any new fair value
measurements; rather, it applies under other accounting
pronouncements that require or permit fair value measurements.
The provisions of SFAS No. 157 are effective for
fiscal years beginning after November 15, 2007. The Company
is currently assessing SFAS No. 157 and has not yet
determined the impact, if any, that its adoption will have on
its result of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance
on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the
current years financial statements are materially
misstated. SAB 108 is effective for fiscal years ending on
or after November 15, 2006. The adoption of SAB 108
did not have any impact on the Companys results of
operations or financial condition.
In June 2006, FASB issued FASB Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109, which prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 will be effective for fiscal years
beginning after December 15, 2006. The Company is
continuing to evaluate the impact that the adoption of
FIN 48 will have on its results of operations or financial
condition. The Company does not expect the adoption to have a
material impact on its results of operations or financial
condition.
In May 2005, FASB issued SFAS No. 154, Accounting
Changes and Error Corrections, which replaces APB
No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements An Amendment of APB Opinion
No. 28. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction
of an error. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company adopted
SFAS No. 154 effective January 1, 2006 and the
adoption did not have an effect on its consolidated results of
operations and financial condition.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin (ARB) No. 43, Chapter 4,
Inventory Pricing. SFAS No. 151 amends previous
guidance regarding treatment of abnormal amounts of idle
facility expense, freight, handling costs, and spoilage.
SFAS No. 151 requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of so abnormal which was the criterion
specified in ARB No. 43. In addition,
SFAS No. 151 requires that allocation of fixed
production overheads to the cost of the production be based on
normal capacity of the production facilities. The Company
adopted SFAS No. 151 effective January 1, 2006
and the adoption did not have an effect on its consolidated
results of operations and financial condition.
From time to time, new accounting pronouncements are issued by
FASB that are adopted by the Company as of the specified
effective date. Unless otherwise discussed, the Company believes
that the impact of recently issued standards, which are not yet
effective, will not have a material impact on the Companys
consolidated financial statements upon adoption.
70
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
1,248
|
|
|
$
|
990
|
|
Work in process
|
|
|
311
|
|
|
|
15
|
|
Finished goods
|
|
|
19,331
|
|
|
|
14,898
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,890
|
|
|
$
|
15,903
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Computer and equipment
|
|
$
|
6,392
|
|
|
$
|
5,333
|
|
Furniture
|
|
|
536
|
|
|
|
442
|
|
Machinery
|
|
|
1,257
|
|
|
|
892
|
|
Tooling
|
|
|
4,445
|
|
|
|
3,485
|
|
Leasehold improvements
|
|
|
1,331
|
|
|
|
777
|
|
Software purchased for internal use
|
|
|
3,563
|
|
|
|
1,326
|
|
Leased equipment
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,524
|
|
|
|
12,400
|
|
Less: accumulated depreciation and
amortization
|
|
|
6,823
|
|
|
|
5,434
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,701
|
|
|
$
|
6,966
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended
December 30, 2006, December 31, 2005 and 2004 was
$3.7 million, $2.1 million, and $1.3 million,
respectively. Accumulated amortization on leased equipment was
$0.1 million at December 31, 2005.
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Accrued warranty
|
|
$
|
2,462
|
|
|
$
|
2,031
|
|
Accrued direct fulfillment costs
|
|
|
2,123
|
|
|
|
|
|
Accrued rent
|
|
|
284
|
|
|
|
323
|
|
Accrued sales commissions
|
|
|
502
|
|
|
|
468
|
|
Accrued accounting fees
|
|
|
332
|
|
|
|
255
|
|
Accrued income taxes
|
|
|
168
|
|
|
|
174
|
|
Accrued other
|
|
|
1,149
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,020
|
|
|
$
|
3,484
|
|
|
|
|
|
|
|
|
|
|
71
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Revolving
Line of Credit
|
In April 2004, the Company entered into an amendment to the
Credit Agreement which further reduced the tangible net worth
(deficit) requirement to ($2.0 million), increased the
amount of the facility to $6.3 million, decreased the
applicable interest rate to the banks prime rate plus
1.00% and extended the maturity date to March 2006. On
May 24, 2005, in connection with the Company obtaining a
new line of credit, the Credit Agreement was terminated.
On May 26, 2005, the Company obtained a working capital
line of credit with a bank under which the Company can borrow up
to $20.0 million, including a $2.0 million
sub-limit
for equipment financing. Interest accrues at a variable rate
based on prime or published LIBOR rates. The line expires on
May 26, 2007 at which time all advances will be immediately
due and payable. Borrowings are secured by substantially all of
the Companys assets other than its intellectual property.
The Company is required to maintain quarterly tangible net worth
thresholds based on its stockholders equity under the
credit facility that vary by quarter based on anticipated
seasonality in the business. These operating and financial
covenants may restrict the Companys ability to finance its
operations, engage in business activities or expand or pursue
its business strategies. At December 30, 2006, the Company
was in compliance with all covenants under the credit facility.
To the extent the Company is unable to satisfy these covenants
in the future, the Company will need to obtain waivers to avoid
being in default of the terms of this credit facility. In
addition to a covenant default, other events of default under
our credit facility include the filing or entry of a tax lien,
attachment of funds or material judgment against the Company, or
other uninsured loss of its material assets. If a default
occurs, the bank may require the Company to repay all amounts
then outstanding. As of December 30, 2006, the Company had
no amounts outstanding and $20.0 million was available
under the working capital line of credit.
Common stockholders are entitled to one vote for each share held
and to receive dividends if and when declared by the Board of
Directors and subject to and qualified by the rights of holders
of the preferred stock. Upon dissolution or liquidation of the
Company, holders of common stock will be entitled to receive all
available assets subject to any preferential rights of any then
outstanding preferred stock.
|
|
8.
|
Note Receivable
from Stockholder
|
In May 1999, the Company issued a note receivable to a
consultant for the purchase of 200,000 common shares at
$0.24 per share. The note accrued interest on June 30
and December 31 at 8% per annum. Interest was payable
semiannually in arrears on June 30 and December 31 of
each year, and the principal was payable in full on the earlier
of May 15, 2005, or immediately prior to an initial public
offering. At December 31, 2004 the remaining note
receivable balance was $43,000 and was included as a reduction
of stockholders equity. This remaining balance was paid in
full in 2005.
Under the Companys 1994 Stock Option Plan (the 1994
Plan), as amended, 8,785,465 shares of the
Companys common stock were reserved for issuance to
directors, officers, employees and consultants of the Company.
Options may be designated and granted as either Incentive
Stock Options or Nonstatutory Stock Options.
Eligibility for Incentive Stock Options (ISOs) is
limited to those individuals whose employment status would
qualify them for the tax treatment associated with ISOs in
accordance with the Internal Revenue Code. The 1994 Plan expired
November 16, 2004.
In October 2001, the Company adopted the 2001 Special Stock
Option Plan (the 2001 Plan). Under the 2001 Plan,
the Board authorized the issuance of options to purchase
642,310 shares of previously authorized common stock under
modified vesting requirements. The 2001 Plan is administered by
a Committee of the Board of
72
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Directors. Options granted to employees under the 2001 Plan may
be designated as ISOs or Nonstatutory Stock Options. In 2004 and
2003, there were 571,405 and 40,000 options granted,
respectively, under the 2001 Plan.
During 2004, the Company issued 25,899 and 371,685 restricted
shares of common stock under the 1994 Plan and 2001 Plan,
respectively, all of which were outstanding at December 31,
2004. Deferred compensation of $0.7 million was recorded in
association with the issuance of these restricted shares, of
which $0.1 million, $0.2 million and $0.3 million
was expensed in fiscal years, 2006, 2005 and 2004, respectively.
The remaining balance of $0.1 million will be expensed in
2007 through 2008. Upon termination of the stockholders
business relationship with the Company, per the terms of the
restricted stock agreements, the Company 1) shall purchase
all unvested shares from the stockholder at the price paid for
them and 2) may purchase all but not less than all of the
stockholders vested shares at the greater of i) the
price paid for them and ii) the product of the Fair Market
Value (as defined in the 2001 Plan) at the time of repurchase
and the number of vested shares to be repurchased.
Immediately upon expiration of the 1994 Plan, the Company
adopted the 2004 Stock Option and Incentive Plan (the 2004
Plan). Under the 2004 Plan, 1,189,423 shares of the
Companys common stock were reserved for issuance to
directors, officers, employees and consultants of the Company.
In addition, stock options returned to the 1994 Plan, in
accordance therewith, after November 16, 2004, as a result
of the expiration, cancellation or termination, are
automatically made available for issuance under the 2004 Plan.
The aggregate number of shares that may be issued pursuant to
the 2004 Plan shall not exceed 3,695,223 shares. Options
may be designated and granted as either Incentive Stock
Options or Nonstatutory Stock Options.
Eligibility for ISOs is limited to those individuals whose
employment status would qualify them for the tax treatment
associated with ISOs in accordance with the Internal Revenue
Code.
Effective October 10, 2005, the Company terminated the 2004
Plan and adopted the 2005 Stock Option and Incentive Plan (the
2005 Plan). Under the 2005 Plan,
1,583,682 shares were reserved for issuance in the form of
incentive stock options, non-qualified stock options, stock
appreciation rights, deferred stock awards and restricted stock
awards. Additionally, the 2005 Plan provides that the number of
shares reserved and available for issuance under the plan will
automatically increase each January 1, beginning in 2007,
by 4.5% of the outstanding number of shares of common stock on
the immediately preceding December 31. Stock options
returned to the 1994 Plan, 2001 Plan, 2004 Plan and 2005 Plan,
as a result of their expiration, cancellation or termination,
are automatically made available for issuance under the 2005
Plan. Eligibility for incentive stock options is limited to
those individuals whose employment status would qualify them for
the tax treatment associated with incentive stock options in
accordance with the Internal Revenue Code. As of
December 30, 2006, there were 690,629 shares available
for future grant under the 2005 Plan.
Options granted under the 1994 Stock Option Plan, the 2001 Plan,
the 2004 Plan and the 2005 Plan (the Plans) are
subject to terms and conditions as determined by the
Compensation Committee of the Board of Directors, including
vesting periods. Options granted under the Plans are exercisable
in full at any time subsequent to vesting, generally vest over
periods from 0 to 5 years, and expire upon the earlier of
10 years from the date of grant or 60 or 90 days from
employee termination. The exercise price for each ISO grant is
determined by the Board of Directors of the Company to be equal
to the fair value of the common stock on the date of grant. In
reaching this determination at the time of each such grant, the
Board considers a broad range of factors, including the illiquid
nature of an investment in the Companys common stock, the
Companys historical financial performance, the
Companys future prospects and the value of preferred stock
based on recent financing activities. Subsequent to the
Companys initial public offering, the exercise price of
stock options granted is equal to the closing price on the
NASDAQ Global Market on the date of grant. The exercise price of
nonstatutory options may be set at a price other than the fair
market value of the common stock.
Effective January 1, 2006, the Company adopted the
provisions of SFAS No. 123(R), in accounting for stock
options used subsequent to this date. Prior to January 1,
2006, the Company utilized the provisions of APB No. 25 and
related interpretations in accounting for options granted.
73
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the terms of the January 30, 2003 Credit Agreement
with a bank (Note 6), the Company issued warrants to the
bank to purchase 18,000 shares of common stock at an
approximate exercise price of $3.74 per share. The warrants
were subject to certain adjustments and could be exercised at
any time until January 29, 2010. The estimated fair value
of the warrants of $22,312 was determined using the
Black-Scholes option-pricing model. For this purpose, the
Company assumed a risk-free rate of return of 3.12%; an expected
life of 2 years; 100% volatility and no dividends. The
Company recorded the estimated fair value of the warrants as
additional
paid-in-capital
and other assets and amortized the fair value to interest
expense over the eleven months outstanding under the Credit
Agreement in 2003.
On November 14, 2005 the bank exercised its warrants and
consistent with the conversion rights contained in the warrant
agreement, the Company issued 16,155 shares of common stock.
The components of income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
169
|
|
|
$
|
129
|
|
|
$
|
90
|
|
State
|
|
|
135
|
|
|
|
47
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
304
|
|
|
$
|
176
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred tax assets are as follows at
December 30, 2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
287
|
|
|
$
|
4,264
|
|
Tax credits
|
|
|
3,212
|
|
|
|
1,336
|
|
Reserves and accruals
|
|
|
7,314
|
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
10,813
|
|
|
|
11,695
|
|
Valuation allowance
|
|
|
(10,813
|
)
|
|
|
(11,695
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a full valuation allowance for the
deferred tax assets since it is more likely than not that these
future benefits will not be realized. If the Company achieves
future profitability, a significant portion of these deferred
tax assets could be available to offset future income taxes.
At December 30, 2006, the Company had available net
operating loss carryforwards for federal and state purposes of
$8.0 million and $9.1 million, respectively.
Approximately $7.5 million of the federal and state net
operating loss carryforwards relate to deductions from stock
option compensation for which the associated tax benefit will be
credited to additional paid in capital when realized. The
federal net operating loss carryforwards expire at various dates
from 2022 through 2025. The state net operating loss
carryforwards will begin to expire in 2007. The Company also had
available research and development credit carryforwards to
offset future federal and state taxes of $1.9 million and
$1.4 million, respectively, which expire at various dates
from 2012 through 2026. Under the Internal Revenue Code, certain
substantial changes in the Companys ownership could result
in an annual limitation of the amount of net operating loss and
tax credit carryforwards which can be utilized in future years.
74
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the expected tax (benefit) expense
(computed by applying the federal statutory rate to income
before income taxes) to actual tax expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Expected federal income tax
|
|
$
|
1,315
|
|
|
$
|
947
|
|
|
$
|
124
|
|
Permanent items
|
|
|
38
|
|
|
|
26
|
|
|
|
45
|
|
State taxes
|
|
|
(236
|
)
|
|
|
133
|
|
|
|
(302
|
)
|
Credits
|
|
|
(742
|
)
|
|
|
(166
|
)
|
|
|
(166
|
)
|
Non deductible stock compensation
|
|
|
234
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
6
|
|
|
|
36
|
|
|
|
57
|
|
Increase (decrease) in valuation
allowance
|
|
|
(311
|
)
|
|
|
(800
|
)
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
304
|
|
|
$
|
176
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Commitments
and Contingencies
|
Legal
The Company received a letter from the United Kingdoms
Ministry of Defence (the Customer) dated
February 9, 2004, attempting to terminate a contract for
the design, development, production and support of a number of
man-portable remote control vehicles for use in explosive
ordnance disposal operations. The Company entered into the
contract with the Customer on May 23, 2001, and
substantially completed the product design and development phase
of the work. The Company received payments based upon achieving
a number of contract milestones and has recognized revenue based
on progress under the
percentage-of-completion
method of accounting. In addition to the milestone payments, the
Customer advanced the Company funds to purchase long-lead
inventory components in advance of the production contemplated
in the contract. On July 27, 2006, the Company signed an
agreement with the United Kingdoms Ministry of Defence
(MoD) Defence Procurement Agency (DPA) to supply 30 iRobot
PackBot EOD robots, spare parts and support in exchange for the
payments received by the Company under the contract. At
December 30, 2006, all obligations, with the exception of
normal warranty and support, resulting from the signing of this
agreement had been satisfied.
Lease
Obligations
The Company leases its facilities. Rental expense under
operating leases for 2006, 2005 and 2004 amounted to
$2.1 million, $1.3 million, and $0.9 million,
respectively. Future minimum rental payments under operating
leases were as follows as of December 30, 2006:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
2007
|
|
$
|
1,909
|
|
2008
|
|
|
1,587
|
|
2009
|
|
|
139
|
|
2010
|
|
|
75
|
|
2011
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
3,710
|
|
|
|
|
|
|
75
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Guarantees
and Indemnification Obligations
The Company enters into standard indemnification agreements in
the ordinary course of business. Pursuant to these agreements,
the Company indemnifies and agrees to reimburse the indemnified
party for losses incurred by the indemnified party, generally
the Companys customers, in connection with any patent,
copyright, trade secret or other proprietary right infringement
claim by any third party with respect to the Companys
software. The term of these indemnification agreements is
generally perpetual any time after execution of the agreement.
The maximum potential amount of future payments the Company
could be required to make under these indemnification agreements
is unlimited. The Company has never incurred costs to defend
lawsuits or settle claims related to these indemnification
agreements. As a result, the Company believes the estimated fair
value of these agreements is minimal. Accordingly, the Company
has no liabilities recorded for these agreements as of
December 30, 2006 and December 31, 2005, respectively.
Warranty
The Company provides warranties on most products and has
established a reserve for warranty based on identified warranty
costs. The reserve is included as part of accrued expenses
(Note 5) in the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
2,031
|
|
|
$
|
1,398
|
|
|
$
|
1,522
|
|
Provision
|
|
|
5,971
|
|
|
|
4,133
|
|
|
|
1,278
|
|
Warranty usage(*)
|
|
|
(5,540
|
)
|
|
|
(3,500
|
)
|
|
|
(1,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,462
|
|
|
$
|
2,031
|
|
|
$
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product
warranties unutilized. |
The Company sponsors a retirement plan under Section 401(k)
of the Internal Revenue Code (the Retirement Plan).
All Company employees, with the exception of temporary and
contract employees are eligible to participate in the Retirement
Plan after satisfying age and length of service requirements
prescribed by the plan. Under the Retirement Plan, employees may
make tax-deferred contributions, and the Company, at its sole
discretion, and subject to the limits prescribed by the IRS, may
make either a nonelective contribution on behalf of all eligible
employees or a matching contribution on behalf of all plan
participants.
The Company elected to make a matching contribution of
approximately $0.7 million, $0.5 million and
$0.3 million for the plan years ended December 30,
2006, December 31, 2005 and 2004 (Plan-Year
2006, Plan-Year 2005 and Plan-Year
2004), respectively. The employer contribution represents
a matching contribution at a rate of 50% of each employees
first six percent contribution. Accordingly, each employee
participating during Plan-Year 2006, Plan-Year 2005 and
Plan-Year 2004 is entitled up to a maximum of three percent of
his or her eligible annual payroll. The employer matching
contribution for Plan-Year 2006 is included in accrued
compensation.
76
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Industry
Segment, Geographic Information and Significant
Customers
|
The Company operates in two reportable segments, the consumer
business and government and industrial business. The nature of
products and types of customers for the two segments vary
significantly. As such, the segments are managed separately.
Home
Robots
The Companys consumer business offers products through a
network of retail businesses throughout the U.S. and to certain
countries through international distributors. The Companys
consumer segment includes mobile robots used in the maintenance
of domestic households sold primarily to retail outlets.
Government
and Industrial
The Companys government and industrial division offers
products through a small U.S. government-focused sales
force, while products are sold to a limited number of countries
other than the United States through international distribution.
The Companys government and industrial products are robots
used by various U.S. and foreign governments, primarily for
reconnaissance and bomb disposal missions.
The table below presents segment information about revenue, cost
of revenue, gross profit and income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December, 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
$
|
112,430
|
|
|
$
|
93,955
|
|
|
$
|
71,333
|
|
Government & Industrial
|
|
|
76,525
|
|
|
|
47,945
|
|
|
|
23,231
|
|
Other
|
|
|
|
|
|
|
68
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
95,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
68,066
|
|
|
|
58,025
|
|
|
|
48,282
|
|
Government & Industrial
|
|
|
51,189
|
|
|
|
36,279
|
|
|
|
19,308
|
|
Other
|
|
|
(35
|
)
|
|
|
85
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
67,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
44,364
|
|
|
|
35,930
|
|
|
|
23,051
|
|
Government & Industrial
|
|
|
25,336
|
|
|
|
11,666
|
|
|
|
3,923
|
|
Other
|
|
|
35
|
|
|
|
(17
|
)
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
27,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
17,025
|
|
|
|
11,601
|
|
|
|
5,504
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
33,969
|
|
|
|
21,796
|
|
|
|
14,106
|
|
General and
administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
18,703
|
|
|
|
12,072
|
|
|
|
7,298
|
|
Other income (expense),
net
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,831
|
|
|
|
676
|
|
|
|
(80
|
)
|
Income (loss) before income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
3,869
|
|
|
$
|
2,786
|
|
|
$
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geographic
Information
For the fiscal years ended December 30, 2006 and
December 31, 2005, sales to
non-U.S. customers
accounted for 11.0% and 9.9% of total revenue, respectively. For
the year ended December 30, 2006, no one country accounted
for more than 10% of total revenue.
Significant
Customers
For the fiscal years ended December 30, 2006 and
December 31, 2005, U.S. federal government orders,
contracts and subcontracts accounted for 34.4% and 28.3% of
total revenue, respectively.
|
|
15.
|
Quarterly
Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
March 31,
|
|
|
July 2,
|
|
|
October 1,
|
|
|
December 31,
|
|
|
April 1,
|
|
|
July 1,
|
|
|
September 30,
|
|
|
December 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue
|
|
$
|
17,132
|
|
|
$
|
25,886
|
|
|
$
|
52,458
|
|
|
$
|
46,492
|
|
|
$
|
38,209
|
|
|
$
|
34,561
|
|
|
$
|
55,047
|
|
|
$
|
61,138
|
|
Gross profit
|
|
|
4,167
|
|
|
|
6,311
|
|
|
|
20,707
|
|
|
|
16,394
|
|
|
|
12,193
|
|
|
|
11,777
|
|
|
|
22,983
|
|
|
|
22,782
|
|
Net income (loss)
|
|
|
(4,101
|
)
|
|
|
(3,056
|
)
|
|
|
9,752
|
|
|
|
15
|
|
|
|
(2,917
|
)
|
|
|
(1,777
|
)
|
|
|
10,042
|
|
|
|
(1,783
|
)
|
Diluted earnings (loss) per share
|
|
$
|
(0.42
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.40
|
|
|
$
|
0.00
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.39
|
|
|
$
|
(0.08
|
)
|
16. Subsequent
Event
On February 22, 2007, the Company and Boston Properties
Limited Partnership entered into a Lease Agreement for the
Companys new corporate headquarters. The lease is for
157,776 square feet space located at 4-18 Crosby Drive, Bedford,
Massachusetts and shall commence, subject to certain conditions,
on May 1, 2008. The term of the lease is 144 months with a
base rent of $2.0 million per year, which shall increase to
$2.1 million per year beginning in the third year of Lease
Agreement. Pursuant to the Lease Agreement, the Company has
rights to renew the Lease Agreement. Under the terms of the
Lease Agreement, the Company is required to provide a security
deposit of $2.0 million, subject to reduction commencing
March 1, 2010 upon the occurrence of certain conditions,
and will be required to pay its pro rata share of any building
operating expenses and real estate taxes.
78
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There have been no changes in or disagreements with accountants
on accounting or financial disclosure matters during our two
most recent fiscal years.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of disclosure controls and procedures.
As required by
Rule 13a-15(b)
under the Exchange Act, we have carried out an evaluation, under
the supervision and with the participation of our management,
including our Chief Executive Officer (CEO) and our
Chief Financial Officer (CFO), of the effectiveness,
as of the end of the period covered by this report, of the
design and operation of our disclosure controls and
procedures as defined in
Rule 13a-15(e)
promulgated by the SEC under the Exchange Act. Based upon that
evaluation, our CEO and our CFO concluded that our disclosure
controls and procedures, as of the end of such period, were
adequate and effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Commissions rules
and forms, and that such information was accumulated and
communicated to management, as appropriate, to allow timely
decisions regarding required disclosure.
Managements
Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined
in
Rules 13a-15(f)
and
15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
Companys principal executive and principal financial
officers and effected by the Companys board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management,
including our principal executive and financial officers, we
assessed the Companys internal control over financial
reporting as of December 30, 2006, based on criteria for
effective internal control over financial reporting established
in Internal Control Integrated Framework,
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this
assessment, management concluded that the Company maintained
effective internal control over financial reporting as of
December 30, 2006 based on the specified criteria.
Our managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 30, 2006 has been audited by
PricewaterhouseCoopers LLC, an independent registered public
accounting firm, as stated in their report which is included
herein.
79
Changes
in Internal Control Over Financial Reporting
During the quarter ended December 30, 2006, there were no
changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting except as
described above.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Our policy governing transactions in our securities by
directors, officers, and employees permits our officers,
directors, funds affiliated with our directors, and certain
other persons to enter into trading plans complying with
Rule 10b5-l
under the Securities Exchange Act of 1934, as amended. We have
been advised that certain officers (including Colin Angle, Chief
Executive Officer; Helen Greiner, Chairman; Dr. Rodney
Brooks, Chief Technology Officer; Geoffrey Clear, Senior Vice
President, Chief Financial Officer & Treasurer;
and Glen Weinstein, Senior Vice President, General
Counsel & Secretary) of the Company have entered into a
trading plan (each a Plan and collectively, the
Plans) covering periods after the date of this
Annual Report on Form 10-K in accordance with
Rule 10b5-l
and our policy governing transactions in our securities.
Generally, under these trading plans, the individual
relinquishes control over the transactions once the trading plan
is put into place. Accordingly, sales under these plans may
occur at any time, including possibly before, simultaneously
with, or immediately after significant events involving our
company.
We anticipate that, as permitted by
Rule 10b5-l
and our policy governing transactions in our securities, some or
all of our officers, directors and employees may establish
trading plans in the future. We intend to disclose the names of
executive officers and directors who establish a trading plan in
compliance with
Rule 10b5-l
and the requirements of our policy governing transactions in our
securities in our future quarterly and annual reports on
Form 10-Q
and 10-K
filed with the Securities and Exchange Commission. However, we
undertake no obligation to update or revise the information
provided herein, including for revision or termination of an
established trading plan, other than in such quarterly and
annual reports.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 30, 2006.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 30, 2006.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 30, 2006.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 30, 2006.
80
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 30, 2006.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) The following are filed as part of this Annual
Report on
Form 10-K:
The following consolidated financial statements are included in
Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 30, 2006 and
December 31, 2005
Consolidated Statements of Operations for the Years ended
December 30, 2006, December 31, 2005 and 2004
Consolidated Statements of Stockholders Equity (Deficit)
for the Years ended December 30, 2006, December 31,
2005 and 2004
Consolidated Statements of Cash Flows for the Years ended
December 30, 2006, December 31, 2005 and 2004
Notes to Consolidated Financial Statements
|
|
2.
|
Financial
Statement Schedules
|
All other schedules have been omitted since the required
information is not present, or not present in amounts sufficient
to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the Notes thereto.
|
|
3.
|
Exhibits
See item 15(b) of this report below
|
The following exhibits are filed as part of and incorporated by
reference into this Annual Report:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1(1)
|
|
Form of Second Amended and
Restated Certificate of Incorporation of the Registrant dated
November 15, 2005
|
|
3
|
.2(1)
|
|
Amended and Restated By-laws of
the Registrant
|
|
4
|
.1(1)
|
|
Specimen Stock Certificate for
shares of the Registrants Common Stock
|
|
4
|
.2(1)
|
|
Shareholder Rights Agreement
between the Registrant and Computershare Trust Company, Inc., as
the Rights Agent dated November 15, 2005
|
|
10
|
.1(1)
|
|
Fifth Amended and Restated
Registration Rights Agreement by and among the Registrant, the
Investors and the Stockholders named therein, dated as of
November 10, 2004
|
|
10
|
.2(1)
|
|
Form of Indemnification Agreement
between the Registrant and its Directors and Executive Officers
|
|
10
|
.3
|
|
Registrants 2006 Incentive
Compensation Plan (filed as Exhibit 10.4 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.4*
|
|
Registrants Senior Executive
Incentive Compensation Plan
|
|
10
|
.5(1)
|
|
Amended and Restated 1994 Stock
Plan and forms of agreements thereunder
|
81
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.6
|
|
Amended and Restated 2001 Special
Stock Option Plan and forms of agreements thereunder (filed as
Exhibit 10.6 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.7(1)
|
|
Amended and Restated 2004 Stock
Option and Incentive Plan and forms of agreements thereunder
|
|
10
|
.8(1)
|
|
Lease Agreement between the
Registrant and Burlington Crossing Office LLC for premises
located at 63 South Avenue, Burlington, Massachusetts, dated as
of October 29, 2002, as amended
|
|
10
|
.9
|
|
Sublease between the Registrant
and Lahey Clinic Hospital, Inc. for premises located at 63 South
Avenue, Burlington, Massachusetts, dated as of
September 20, 2005 (filed as Exhibit 10.9 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.10(1)
|
|
Loan and Security Agreement
between the Registrant and Fleet National Bank, dated as of
May 26, 2005
|
|
10
|
.11
|
|
Form of Executive Agreement
between the Registrant and certain executive officers of the
Registrant, dated as of March 16, 2006 (filed as
Exhibit 10.11 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.12(1)
|
|
Employment Agreement between the
Registrant and Helen Greiner, dated as of January 1, 1997
|
|
10
|
.13(1)
|
|
Employment Agreement between the
Registrant and Colin Angle, dated as of January 1, 1997
|
|
10
|
.14(1)
|
|
Employment Agreement between the
Registrant and Joseph W. Dyer, dated as of February 18, 2004
|
|
10
|
.15(1)
|
|
Independent Contractor Agreement
between the Registrant and Rodney Brooks, dated as of
December 30, 2002
|
|
10
|
.16(1)
|
|
Government Contract
DAAE07-03-9-F001 (Small Unmanned Ground Vehicle)
|
|
10
|
.17(1)
|
|
Government Contract
N00174-03-D-0003
(Man Transportable Robotic System)
|
|
10
|
.18(1)
|
|
2005 Stock Option and Incentive
Plan and forms of agreements thereunder
|
|
10
|
.19#(1)
|
|
Manufacturing and Services
Agreement between the Registrant and Gem City Engineering
Corporation, dated as of July 27, 2004
|
|
10
|
.20(1)
|
|
Non-Employee Directors
Deferred Compensation Program
|
|
10
|
.21*
|
|
Separation Agreement between the
Registrant and Gregory F. White, dated as of January 23,
2007
|
|
10
|
.22*
|
|
Lease Agreement between the
Registrant and Boston Properties Limited Partnership for
premises located at 4-18 Crosby Drive, Bedford, Massachusetts,
dated as of February 22, 2007
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
(filed as Exhibit 21.1 to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
23
|
.1*
|
|
Consent of PricewaterhouseCoopers
LLP
|
|
24
|
.1
|
|
Power of Attorney (incorporated by
reference to the signature page of this report on
Form 10-K)
|
|
31
|
.1*
|
|
Certification Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934
|
|
31
|
.2*
|
|
Certification Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934
|
|
32
|
.1*
|
|
Certification Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Indicates a management contract or any compensatory plan,
contract or arrangement. |
|
# |
|
Confidential treatment requested for portions of this document. |
|
(1) |
|
Incorporated by reference herein to the exhibits to the
Companys Registration Statement on
Form S-1
(File
No. 333-126907) |
|
* |
|
Filed herewith |
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
iROBOT CORPORATION
Colin M. Angle
Chief Executive Officer and Director
Date: March 2, 2007
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Colin M. Angle and
Geoffrey P. Clear, jointly and severally, his or her
attorney-in-fact,
with the power of substitution, for him or her in any and all
capacities, to sign any amendments to this Annual Report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said
attorneys-in-fact,
or his or her substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report on
Form 10-K
has been signed by the following persons in the capacities
indicated on March 2, 2007.
|
|
|
|
|
|
|
Signature
|
|
Title(s)
|
|
|
|
/s/ Helen
Greiner
Helen
Greiner
|
|
Chairman of the Board
|
|
|
|
|
|
|
|
/s/ Colin
M. Angle
Colin
M. Angle
|
|
Chief Executive Officer and
Director
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ Geoffrey
P. Clear
Geoffrey
P. Clear
|
|
Senior Vice President, Chief
Financial Officer and Treasurer (Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ Gerald
C.
Kent, Jr.
Gerald
C. Kent, Jr.
|
|
Vice President and Controller
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Ronald
Chwang
Ronald
Chwang
|
|
Director
|
|
|
|
|
|
|
|
/s/ Jacques
S. Gansler
Jacques
S. Gansler
|
|
Director
|
|
|
|
|
|
|
|
/s/ Rodney
A. Brooks
Rodney
A. Brooks
|
|
Director
|
|
|
83
|
|
|
|
|
|
|
Signature
|
|
Title(s)
|
|
|
|
/s/ Andrea
Geisser
Andrea
Geisser
|
|
Director
|
|
|
|
|
|
|
|
/s/ George
C. McNamee
George
C. McNamee
|
|
Director
|
|
|
|
|
|
|
|
/s/ Peter
Meekin
Peter
Meekin
|
|
Director
|
|
|
|
|
|
|
|
/s/ Paul
J. Kern
Paul
J. Kern
|
|
Director
|
|
|
84
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1(1)
|
|
Form of Second Amended and
Restated Certificate of Incorporation of the Registrant dated
November 15, 2005
|
|
3
|
.2(1)
|
|
Amended and Restated By-laws of
the Registrant
|
|
4
|
.1(1)
|
|
Specimen Stock Certificate for
shares of the Registrants Common Stock
|
|
4
|
.2(1)
|
|
Shareholder Rights Agreement
between the Registrant and Computershare Trust Company, Inc., as
the Rights Agent dated November 15, 2005
|
|
10
|
.1(1)
|
|
Fifth Amended and Restated
Registration Rights Agreement by and among the Registrant, the
Investors and the Stockholders named therein, dated as of
November 10, 2004
|
|
10
|
.2(1)
|
|
Form of Indemnification Agreement
between the Registrant and its Directors and Executive Officers
|
|
10
|
.3
|
|
Registrants 2006 Incentive
Compensation Plan (filed as Exhibit 10.4 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.4*
|
|
Registrants Senior Executive
Incentive Compensation Plan
|
|
10
|
.5(1)
|
|
Amended and Restated 1994 Stock
Plan and forms of agreements thereunder
|
|
10
|
.6
|
|
Amended and Restated 2001 Special
Stock Option Plan and forms of agreements thereunder (filed as
Exhibit 10.6 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.7(1)
|
|
Amended and Restated 2004 Stock
Option and Incentive Plan and forms of agreements thereunder
|
|
10
|
.8(1)
|
|
Lease Agreement between the
Registrant and Burlington Crossing Office LLC for premises
located at 63 South Avenue, Burlington, Massachusetts, dated as
of October 29, 2002, as amended
|
|
10
|
.9
|
|
Sublease between the Registrant
and Lahey Clinic Hospital, Inc. for premises located at 63 South
Avenue, Burlington, Massachusetts, dated as of
September 20, 2005 (filed as Exhibit 10.9 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.10(1)
|
|
Loan and Security Agreement
between the Registrant and Fleet National Bank, dated as of
May 26, 2005
|
|
10
|
.11
|
|
Form of Executive Agreement
between the Registrant and certain executive officers of the
Registrant, dated as of March 16, 2006 (filed as
Exhibit 10.11 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
10
|
.12(1)
|
|
Employment Agreement between the
Registrant and Helen Greiner, dated as of January 1, 1997
|
|
10
|
.13(1)
|
|
Employment Agreement between the
Registrant and Colin Angle, dated as of January 1, 1997
|
|
10
|
.14(1)
|
|
Employment Agreement between the
Registrant and Joseph W. Dyer, dated as of February 18, 2004
|
|
10
|
.15(1)
|
|
Independent Contractor Agreement
between the Registrant and Rodney Brooks, dated as of
December 30, 2002
|
|
10
|
.16(1)
|
|
Government Contract
DAAE07-03-9-F001 (Small Unmanned Ground Vehicle)
|
|
10
|
.17(1)
|
|
Government Contract
N00174-03-D-0003
(Man Transportable Robotic System)
|
|
10
|
.18(1)
|
|
2005 Stock Option and Incentive
Plan and forms of agreements thereunder
|
|
10
|
.19#(1)
|
|
Manufacturing and Services
Agreement between the Registrant and Gem City Engineering
Corporation, dated as of July 27, 2004
|
|
10
|
.20(1)
|
|
Non-Employee Directors
Deferred Compensation Program
|
|
10
|
.21*
|
|
Separation Agreement between the
Registrant and Gregory F. White, dated as of January 23,
2007
|
|
10
|
.22*
|
|
Lease Agreement between the
Registrant and Boston Properties Limited Partnership for
premises located at 4-18 Crosby Drive, Bedford, Massachusetts,
dated as of February 22, 2007
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
(filed as Exhibit 21.1 to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2005 and incorporated by
reference herein)
|
|
23
|
.1*
|
|
Consent of PricewaterhouseCoopers
LLP
|
|
24
|
.1
|
|
Power of Attorney (incorporated by
reference to the signature page of this report on
Form 10-K)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1*
|
|
Certification Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934
|
|
31
|
.2*
|
|
Certification Pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934
|
|
32
|
.1*
|
|
Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Indicates a management contract or any compensatory plan,
contract or arrangement. |
|
# |
|
Confidential treatment requested for portions of this document. |
|
(1) |
|
Incorporated by reference herein to the exhibits to the
Companys Registration Statement on
Form S-1
(File
No. 333-126907) |
|
* |
|
Filed herewith |