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 29, 2007
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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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a
smaller reporting company)
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Smaller reporting
company o
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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 $325,453,593
based on the last reported sale of the Common Stock on the
NASDAQ Global Market on June 29, 2007.
As of February 22, 2008, there were shares 24,511,800 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 29, 2007. 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 29, 2007
TABLE OF CONTENTS
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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, Warrior, Looj, Verro,
Create, ConnectR 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 18 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 robots, Scooba floor washing robot and Looj gutter
cleaning 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. 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 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,
elder care, oil services, home automation, landscaping,
agriculture, construction and other vertical markets. 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 3 million of
our home care robots. We also sold during that time more than
1,200 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 a broad range of 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,
a gutter cleaning product, a pool cleaning product, and 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 of 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 Boeing Company allows us to
accelerate product development of the SUGV, through extensive
use of Commercial Off The Shelf (COTS) components, our alliance
with Advanced Scientific Concepts, Inc. (ASC) allows us to
integrate LADAR technology for navigation and mapping
applications into our autonomous vehicles, our alliance with
TASER International, Inc. allows us to integrate TASER
electronic control devices built on our PackBot robot platforms,
our alliance with Deere & Company allows us to
integrate our robot controls, navigation and obstacle avoidance
systems with rugged vehicles manufactured by Deere &
Company, 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. 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
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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.
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 our
unmanned ground vehicles 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. We have recently entered into an agreement with
Advanced Scientifics Concepts, Inc. for exclusive rights to use
its patented 3D Flash Laser Radar, or LADAR, technology for
unmanned ground vehicles and robots. This Flash LADAR technology
is a next-generation solid state sensor that marks an important
advancement for navigation and mapping applications for all
autonomous vehicles. Additionally, we have an agreement with ICx
Technologies to integrate its explosive-detecting technology
into our Packbot platform. The payload, called the ICx Fido for
iRobot PackBot 500, can detect explosive vapors emanating from
Improvised Explosive Devices (IEDs).
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
robots require 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, that 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 cost-effectively.
Products
and Development Contracts
We design and sell robots for the consumer and government and
industrial markets.
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Consumer
Products
We sell various products that are designed for use in and around
the home. Our current consumer products are focused on both
indoor and outdoor cleaning applications. We believe our
consumer products provide value to our customers by delivering
better cleaning solutions 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 3 million home floor cleaning
robots. We currently offer multiple Roomba floor vacuuming
robots and Scooba floor washing robots 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 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 self adjusting cleaning head;
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a wide cleaning path to clean an entire room on a single battery
charge;
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a spinning side 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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Select Roomba models also feature 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 in approximately three
hours. These Roombas can clean, on average, three rooms on a
single charge.
In 2007, we introduced our new Roomba 500 series, which features
more powerful and efficient vacuuming performance. These robots
can free themselves from almost any household jam, minimizing
the need to prep rooms before Roomba begins cleaning. Using
wireless technology, the robots now know when they have finished
cleaning one room and then move on to the next.
The Roomba 500 series includes the following new features:
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a solid, heavy-duty design featuring modular components for
enhanced durability and easy servicing;
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anti-tangle technology so Roomba can extract itself from tassels
and cord tangles;
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our proprietary built-in, light-touch intelligent sensing system
that can detect when Roomba is approaching a wall or obstacle
and automatically slow the robot for a gentler impact and
quieter operation;
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one-button activation, simply press clean and go;
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a built-in voice tutorial for new users that demonstrates
Roombas features right out of the box;
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a new mobility platform that allows Roomba to travel on thicker
carpets, climb higher thresholds, and transition easily between
floor surfaces;
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new dustbin holds significantly more debris; and
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colorful faceplates in white, steel blue, champagne, burnt
orange, silver, charcoal, and chestnut so people can personalize
Roomba to match their style.
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The Roomba 530 includes all of these features and cleans up to
three standard rooms before returning to its Home Base to
recharge. Roomba 530 also comes with two standard Virtual Walls
that confine the robot to certain areas using an infrared beam.
The suggested retail price for the Roomba 530 is $299.
The iRobot Roomba 560 includes Virtual Wall Lighthouses. These
mini-towers just 4.25 inches tall by
3.5 inches wide help orient Roomba via radio
frequency communications and guide Roomba systematically through
the home. The Virtual Wall Lighthouses confine the Roomba to one
room until that room is thoroughly cleaned, and then guide
Roomba into the next room. Once Roomba 560 is finished cleaning,
or when its battery is running low, the Virtual Wall Lighthouses
direct the robot to its Home Base to dock and recharge. Roomba
560 also includes an on-board scheduling function, so it can be
programmed to automatically clean up to seven days a week, even
when owners are away. The suggested retail price for the Roomba
560 is $349.
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 an advanced diagnostic system to provide the user with
important maintenance feedback and improve user experience and
product life. The suggested retail price for the Scooba robots
range from $249 to $499.
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 solution that, when
combined with the Scooba, would clean hard floor surfaces and
assist in the mobility of the robot.
Pool
Cleaning Robots
In 2007, we introduced our Verro Pool Cleaning Robot, which is
used to clean a standard size pool in about an hour while
removing debris as small as two microns from the pool floor,
walls and stairs. Verro is brought to market under the iRobot
brand through a relationship with the Aqua Products Group
companies including AquaJet LLC and Aquatron, Inc., which
developed the pool-cleaning robots. There are two models
available with suggested retail prices of $799 and $1,199,
respectively.
Gutter
Cleaning Robots
In 2007, we introduced our Looj Gutter Cleaning Robot, which is
designed to simplify the difficult and dangerous job of gutter
cleaning. The Looj cleans an entire stretch of gutter from one
location, reducing the number of times a ladder must be
repositioned and climbed during gutter cleaning. The 2.25-inch
high Looj drives easily under gutter straps propelled by a
three-stage auger that dislodges and sweeps out dirt, leaves and
other debris that can cause costly water damage, overspills and
ice dams.
The Looj also features a detachable handle that doubles as a
wireless remote control, providing full control of the robot
while cleaning. The suggested retail price for the Looj ranges
from $99 to $129.
Virtual
Visiting Robot
In 2007, we announced our ConnectR Virtual Visiting Robot to be
released at a future date. The ConnectR marks our entry into a
new category of virtual communication and interaction, a
significant step beyond our traditional universe of cleaning and
maintenance. ConnectR is a new kind of communications system
designed for todays busy families and individuals seeking
greater connection and involvement with kids, grandchildren,
friends and pets. Product development is ongoing and the
ConnectR is not yet available to the consumer market.
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Programmable
Robot
In 2007, we introduced the Create Programmable Robot, which is a
fully assembled programmable robot. The Create has 10 built in
demos and 32 sensors that allow users to experiment with
robotics. An open cargo bay allows the user to add their own
grippers, wireless connections, computers or other hardware. The
Create is based on the iRobot Roomba technology and is
compatible with Roombas re-chargeable batteries, remote
control and other accessories. The suggested retail price for
the Create ranges from $129 to $299.
Government
and Industrial Products
Our current government and industrial product offerings include
our PackBot and PackBot 510 line of small, unmanned ground
robots and the prototype
R-Gator
unmanned ground 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 $185,000 per
unit. As of December 2007, more than 1,200 PackBot robots had
been delivered worldwide.
In 2007 we brought to market the next generation PackBot, the
PackBot 510. The PackBot 510 was designed specifically to
address evolving end-user requirements for a stronger, faster
and
easier-to-use
robot. Thirty percent faster than its predecessor, the robot
features greater top-end speed to reduce deployment time. It
also features increased torque, resulting in greater load
pull/load capacity. Its rounded cleats reduce detracking and
optical fiber entanglement. The robots new hand controller
is modeled after video-game controllers, making PackBot 510
easier to use, and resulting in less training time and more
rapid operations in the field. The PackBot 510 currently is
offered in 2 main kit configurations:
iRobot PackBot 510 with EOD Kit. This advanced
robot quickly adapts to different Improvised Explosive Devises
or IEDs, conventional ordnance and SWAT missions
keeping EOD personnel at safe stand-off distances. It features
an enhanced chassis, improved manipulator, simplified hand
controller and four cameras, making it faster, stronger and
easier to-use. Relative to the standard PackBot EOD, the more
powerful manipulator doubles lifting, carrying and manipulation
capacity.
iRobot PackBot 510 with FasTac Kit. This robot
investigates suspicious objects and identifies roadside bombs
and other IEDs, as well as unexploded ordnance, while keeping
troops at safe standoff distances. As a lighter-weight
alternative to other EOD robots, PackBot 510 with FasTac Kit is
practical for infantry use.
We also offer more than 45 accessories of the PackBot that
constitute additional capabilities for the robot, expanding its
range and scope of missions.
We continue to sell and support our original PackBot line.
Popular configurations include those listed below.
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. Only
40 lbs (18 kg) 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.
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iRobot PackBot with ICx Fido Explosives Detection
Kit. This explosives-sniffing robot screens
packages and other potentially dangerous items while the
operator remains at a safe distance. With all-terrain capability
that enables it to go virtually anywhere, the robot places
ultra-sensitive detectors close to suspicious items and
determines within seconds if they are hazardous or harmless. The
iRobot PackBot with ICx Fido Explosives Detection Kit is an
advanced security solution that also pinpoints people involved
in the construction and deployment of explosive devices.
R-Gator
Unmanned Ground Vehicle. The
R-Gator
combines the field-proven technologies of the Deere &
Company M-Gator and our PackBot with
state-of-the-art
robot controls, navigation and obstacle detection technologies
jointly developed for
R-Gators
critical missions. The iRobot-John Deere
R-Gator is a
versatile and rugged platform capable of taking on a wide
variety of critical unmanned missions, such as a perimeter
guard, unmanned scout, point man, supply carrier and
more. In conjunction with Deere & Company, we have
made available a limited number of
R-Gator
prototypes for evaluation by a number of potential government
customers. The net future proceeds of
R-Gator
sales, if any, will be shared between us and Deere &
Company, subject to recoupment of each partys respective
contribution to the project.
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, firm fixed price, 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. Under a firm fixed
price contract, we receive a fixed amount upon satisfying
contractually defined deliverables. 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.
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 us 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) and Centralized
Controller Device (CCD). Future Combat Systems
(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. In addition, we have been selected by
Lockheed Martin Corporation, the provider of the CCD for the FCS
program, to be a key supplier of design and development for the
CCDs controls and display through its estimated delivery
in 2015. The CCD is a handheld device that will allow an
individual soldier to remotely control or query the systems in
an FCS brigade from a Class I
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Unmanned Aerial Vehicle to an unmanned ground system. 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 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.
UGV/UAV Collaborative Engagement. In
coordination with researchers from Carnegie Mellon University,
the goal of this U.S. Army Armament Research, Development
and Engineering Center (ARDEC)-funded project is to develop a
collaborative engagement tool for mission planning and task
allocation for the command and control of multiple unmanned air
and ground vehicles. The primary project objective of this
effort is to design an automated software tool that facilitates
the dynamic collaboration of unmanned air and ground vehicles to
enable effective joint operations. This capability will be
demonstrated in a mission scenario using a UAV to find,
identify, and locate a target of interest on the ground, for
example a suspicious vehicle, and then automatically engaging a
UGV to navigate to the designated target to provide precise
location and ground-based tracking.
We are 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:
The Boeing Company. We have entered into a
strategic business agreement with The Boeing Company to develop
and market a commercial version of the SUGV that is being
developed under the Armys FCS program. This collaboration
will accelerate product development, though extensive use of
Commercial Off The Shelf (COTS) components, to produce a
commercial version of the SUGV robots several years earlier than
previously planned for use by our U.S. military, domestic
and international customers. In addition to cooperative
development, we will be working jointly with The Boeing Company,
leveraging its extensive, domestic and international marketing
network, to market the new commercial SUGV product.
Advanced Scientific Concepts, Inc. (ASC). We
have entered into an agreement, in fiscal 2007, for exclusive
rights to use ASCs patented 3D Flash Laser Radar, or
LADAR, technology for unmanned ground vehicles in exchange for
future commitments to purchase units. ASCs patented Flash
LADAR technology is a
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next-generation solid state sensor that marks an important
advancement for navigation and mapping applications for all
autonomous vehicles. Flash LADAR sensors have no moving parts
and can be compact, light and rugged, making them highly
suitable for military and industrial uses. We will assist ASC in
designing versions of its LADAR technology for use on our
military robots ranging from the SUGV to Intelligent Vehicles
such as
R-Gator. We
expect to demonstrate the technology to military customers
starting in 2008, with delivery of a product expected in 2009.
TASER International, Inc. We have entered into
a strategic business agreement, in fiscal 2007, to develop new
robots that can remotely engage, incapacitate and control
dangerous suspects with integrated TASER electronic control
devices, built on our PackBot robot platforms.
Deere & Company. We have a strategic
business agreement with the commercial and consumer equipment
division of Deere & Company to explore 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. Technology independently
developed by either Deere & Company or us will be
owned by the developing party. We and Deere & Company
have produced a limited number of
R-Gator
prototypes for evaluation by potential customers.
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 2007, this network consisted of more than 30
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 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 expanded to more
than 30 retailers in 2007 from 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 29, 2007 and December 30, 2006.
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Fiscal Year Ended
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December 29,
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December 30,
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Channel
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2007
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2006
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Domestic
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61.6
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%
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72.7
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%
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International
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15.0
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11.3
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Direct
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23.4
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16.0
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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 23.4% of home robots division
revenue in fiscal 2007 compared to 16.0% in fiscal 2006. 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 14 employees, and we have an international
sales force of 3 employees. Outside of 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 and distributors.
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 as
well as to international government organizations. Our military
products are sold overseas in compliance with the International
Traffic 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, Sweden,
Norway, Israel, Australia, Republic of Korea, Singapore and
others.
Customers for our government products, and research &
development contracts for the year ended December 29, 2007,
include:
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Robot Product Customers
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Research and Development Contracts
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U.S. Army
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U.S. Army Future Combat Systems (FCS) Program
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U.S. Marine Corp
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U.S. Defense Advanced Research Projects Agency
(DARPA)
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U.S. Army and Marine Corp Robotic Systems Joint
Program Office
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U.S. Space and Naval Warfare Systems Command
(SPAWAR)
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U.S. Navy EOD Technical Division (Joint Services
Explosive Ordnance Disposal Procurement Agency)
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U.S. Army Tank-Automotive and Armaments Command
(TACOM)
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U.S. Air Force
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Technical Support Working Group (TSWG)
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Domestic Police and First Responders
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U.S. Army Armament Research, Development and
Engineering Center (ARDEC)
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Foreign governments, including the United Kingdom,
France, Germany, Sweden, Norway,
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National Center for Defense Robotics (NCDR)
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Israel, Australia, Republic of Korea, Singapore
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Office of Naval Research (ONR)
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Our government products are sold by a team of 12 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, the majority 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.
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Marketing
and Brand
We market our home robots in the United States to end-user
customers directly through our sales and product management team
of 14 employees. We also market our consumer products in
the United States through our retail network of more than 30
national retailers and internationally through in-country
distributors and our international sales team of
3 employees. We market our government and industrial
products directly through our team of 12 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% of our total revenue in both 2007 and 2006.
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 as well as 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 2007, the online store
was the single largest outlet 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.
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.
We outsource the manufacturing of our consumer products to two
contract manufacturers, Jetta Company Limited and Kin Yat
Industrial Co. Ltd., each of which manufactures our consumer
products 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 recently expanded one of
its facilities to increase capacity for the production of our
Roomba 400 series and Scooba robots. Kin Yat Industrial Co.
Ltd. has been in business since 1981, has several manufacturing
locations in China, and began manufacturing our Roomba 500
series in 2007. Combined with our own engineering operations in
India and Hong Kong, this
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allows us to design our products in both the United States and
India, use our own engineers in the United States, India and
Hong Kong as technical interfaces with the facilities in China,
and benefit from the experience of Jetta Company Limited, Kin
Yat Industrial Co. Ltd. and their 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 its 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 29, 2007, December 30, 2006
and December 31, 2005, our research and development
expenses were $17.1 million, $17.0 million and
$11.6 million, respectively. In addition to our internal
research and development activities, for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005, we have incurred research and
development expenses under funded development arrangements with
governments and industrial third parties of $18.8 million,
$15.6 million and $12.5 million, respectively. Of our
total research and development spending in 2007 and 2006,
approximately 37.9% and 36.4%, 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
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 both our Burlington,
Massachusetts and Mysore, India offices 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
development of the prototypes, we leverage the team in 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.
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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. Periodically we
send engineers in the field with our PackBot tactical military
robots to solicit feedback from users which is often times
incorporated into future product development and product
enhancements. We intend to solicit similar user feedback in the
field for the prototype intelligent vehicles.
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., Microrobot CO., Ltd., ACE ROBOT 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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While we believe many of our customers purchase our Roomba floor
vacuuming robots and Scooba floor washing robots as a supplement
to, rather than a replacement for, their traditional vacuum
cleaners and wet floor cleaning methods, we do compete in some
cases with providers of traditional cleaning products.
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
15
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 29, 2007, we held 33 U.S. patents
and more than 100 pending U.S. patent applications.
Also, we held 11 foreign patents, additional design
registrations, and more than 40 pending foreign applications.
Our first U.S. patent is set to expire on April 19,
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,
Scooba, iRobot Dirt Dog, Create, PackBot, Home Base and Virtual
Wall. Our marks, iRobot, Roomba, Scooba, 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 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.
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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 29, 2007 and December 30,
2006 amounted to approximately $26.1 million and
$7.5 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.
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Employees
As of December 29, 2007, we had 423 full-time
employees located in the United States and abroad, of whom 202
are in research and development, 95 are in operations, 36 are in
sales and marketing and 90 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, the United Kingdom,
China 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 Reports on
Form 10-Q,
Current Reports 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 free of charge 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.
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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 29, 2007 and
December 30, 2006, we generated 74.6% and 64.5%,
respectively, of our revenue from sales of consumer products 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
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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warranty costs associated with our consumer products;
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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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Predicting revenue for any particular quarter and from sales of
our consumer products includes many challenges. 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 may fluctuate, and we have a limited
operating history on which you can base your evaluation of our
business.
As of December 29, 2007, we had an accumulated deficit of
$11.6 million. Over the past four years, our accumulated
deficit has decreased by $15.5 million due to annual
operating profitability. Because we operate in a rapidly
evolving industry, there are challenges to predicting our future
operating results, and we cannot be certain that our revenues
will grow at rates that will allow us to maintain profitability
during every fiscal quarter, or even every fiscal year. In
addition, we only have limited operating history on which you
can base your evaluation of our business.
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 29, 2007 and December 30,
2006, we derived 58.0% and 59.5% of our total revenue from our
consumer robots, respectively. For the foreseeable future, we
expect that a significant portion of our revenue will continue
to be derived from sales of consumer robots in general and home
floor care products in particular. Accordingly, our future
success depends upon our ability to further penetrate the
consumer home 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. Our results in 2008
will depend in part on the success of product lines introduced
during 2007, such as the Roomba 500 series robot, Verro pool
cleaning robot and the Looj gutter cleaning robot, and there can
be no assurance that these new products will achieve or maintain
any level of retail or consumer acceptance. Our inability to
achieve significant sales of our newly introduced robots, 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 29, 2007 and December 30,
2006, we derived 34.9% and 34.4% 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 a limited number of
U.S. federal government agencies without an offsetting
increase in new sales to other customers would have a material
adverse effect on our operating results.
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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 29, 2007 and December 30, 2006, 45.0% and
59.8% 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 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.
21
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 manufacturers, Jetta Company
Limited, to manufacture our Roomba 400 series and Scooba series
of home robot products at a single plant in China, and one
contract manufacturer, Kin Yat Industrial Co Limited, to
manufacture our Roomba 500 series of home robot products at
plants in China. Moreover, we rely on one contract manufacturer,
Gem City Engineering Corporation, to manufacture our military
products at a single plant in the United States. 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.
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 manufacturers in
China are typically denominated in U.S. dollars, changes in
currency exchange rates could impact our suppliers and increase
our prices.
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. For
example, we have devoted significant time and incurred expenses
in connection with the development of our Looj gutter cleaning
robot and ConnectR virtual visiting robot. 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 30, 2006 to
December 29, 2007, the number of our employees increased
from 371 to 423. 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
employees. 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,
China, 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
consumer robots, including our home care robots. For the years
ended December 29, 2007 and December 30, 2006,
consumer robots accounted for 58.0% and 59.5%, respectively, of
our total revenue. We face challenges in predicting the future
growth rate or the size of the consumer robot market in general
or the home care robot market in particular. Demand for home
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 29, 2007 and December 30, 2006,
U.S. federal government orders, contracts and subcontracts
accounted for 34.9% and 34.4%, respectively, of our total
revenue. 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 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., Microrobot CO., Ltd., ACE ROBOT 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 29, 2007 and December 30,
2006, we generated 74.6% and 64.5%, respectively, of our revenue
from sales of consumer products 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.
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, raw materials and batteries from a limited
group of suppliers, some of which are sole 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
25
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 fluctuated greatly and
we cannot provide assurance that the prices of these components
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,
user-friendly 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. Our quality
control procedures relating to the raw materials and components
that it receives from third-party suppliers as well as our
quality control procedures relating to its products after those
products are designed, manufactured and packaged may not be
sufficient. In addition, increased development and warranty
costs, including the costs of any mandatory or voluntary recall
or product upgrades, 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
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.
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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 31.4% and 41.6% of our total revenue for the
fiscal years ended December 29, 2007 and December 30,
2006, 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 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,
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all of which could harm our business and financial condition.
Disruption of the iRobot on-line store could also decrease our
home 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: The Boeing Company, acting by and
through its Integrated Defense Systems Combat Systems business
unit, on the development of the PackBot SUGV-Early;
Deere & Company on the development of the
R-Gator
unmanned ground vehicle; TASER International, Inc. on the
development of robots that can remotely engage, incapacitate and
control dangerous suspects; 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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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 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.
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.
29
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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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 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. For
example in fiscal 2007 we consumed $27 million of our cash
and short term investments. If similar consumptions of cash were
to continue, 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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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 apply to specified electronics
products put on the market in the European Union (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 29, 2007 and December 30, 2006, sales to
non-U.S. customers
accounted for 13.1% and 11.0% 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, 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.
We
invest in auction rate securities that are subject to market
risk and the recent problems in the financial markets could
adversely affect the value and liquidity of our
assets.
As of December 29, 2007, our $16.6 million of
short-term investments consisted of auction rate securities.
Recent uncertainties in the credit markets may result in certain
of our investments in auction rate securities becoming subject
to liquidity risk. Subsequent to December 29, 2007, the
$16.6 million of auction rate securities held at
December 29, 2007 have been liquidated.
As of February 21, 2008, we held $17.5 million of
variable rate bonds or auction rate securities, all of which
were purchased in January or February of 2008. A substantial
majority of the underlying assets of these auction rate
securities are student loans which are backed by the federal
government under the Federal Family Education Loan
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Program. On February 19, 2008 one auction failed for
$2.5 million of our auction rate securities and there is no
assurance that auctions on the remaining auction rate securities
in our investment portfolio will succeed in the future. As a
result, our ability to liquidate our investments in the near
term may be limited, and our ability to fully recover the
carrying value of our investments may be limited or
non-existent. An auction failure means that the parties wishing
to sell securities could not carry out the transaction. All of
our auction rate securities, including those subject to the
prior failures, are currently rated AAA, the highest rating
available by a rating agency. If the issuers are unable to
successfully close future auctions or their credit ratings
deteriorate, we may in the future be required to record an
impairment charge on these investments. We believe we will be
able to liquidate our investments without significant loss but
the timing of such an outcome is uncertain. We currently believe
these securities are not significantly impaired, primarily due
to the government backing of the underlying securities. However,
it could take until the final maturity of the underlying notes
(up to 40 years) to realize our investments recorded
value. Based on our expected operating cash flows, and our other
potential sources of cash, including our available line of
credit, we do not anticipate that the potential lack of
liquidity on these investments in the near-term will affect our
ability to execute our current business plan.
State
and local taxing authorities may determine that we are required
to collect and remit sales tax in additional
jurisdictions.
We collect and remit sales tax in states in which we have a
physical presence or in which we believe nexus exists, which
obligates us to collect sales tax. Other states may, from time
to time, claim that we have state-related activities
constituting a sufficient nexus to require such collection.
Additionally, many other states seek to impose sales tax
collection obligations on companies that sell goods to customers
in their state, or directly to the state and its political
subdivisions, even without a physical presence. A successful
assertion by one or more states that we should collect sales tax
on the sale of merchandise could result in substantial tax
liabilities related to past sales.
Currently, U.S. Supreme Court decisions restrict the
imposition of obligations to collect state and local sales and
use taxes with respect to sales made over the Internet. However,
a number of states, as well as the U.S. Congress, have been
considering initiatives that could limit or supersede the
Supreme Courts position regarding sales and use taxes on
Internet sales. If any of these initiatives were successful, we
could be required to collect sales and use taxes in additional
states, which could result in substantial tax liabilities and
penalties in connection with past sales.
Our
income tax provision and other tax liabilities may be
insufficient if taxing authorities are successful in asserting
tax positions that are contrary to our position. Additionally,
there is no guarantee that we will realize our deferred tax
assets.
From time to time, we are audited by various federal, state and
local authorities regarding income tax matters. Significant
judgment is required to determine our provision for income taxes
and our liabilities for federal, state, local and other taxes.
Although we believe our approach to determining the appropriate
tax treatment is supportable and in accordance with Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, and FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, it is
possible that the final tax authority will take a tax position
that is materially different than that which is reflected in our
income tax provision. Such differences could have a material
adverse effect on our income tax provision or benefit, in the
reporting period in which such determination is made and,
consequently, on our results of operations, financial position
and/or cash
flows for such period.
At December 29, 2007 we had gross deferred tax assets of
$12.9 million and a valuation allowance of
$2.7 million resulting in net deferred tax asset of
$10.2 million. Future adjustments, either increases or
decreases, to our deferred tax asset valuation allowance will be
determined based upon changes in the expected realization of our
net deferred tax assets. The realization of our deferred tax
assets ultimately depends on the existence of sufficient taxable
income in either the carryback or carryforward periods under the
tax law. Due to significant estimates utilized in establishing
the valuation allowance and the potential for changes in facts
and circumstances, it is possible that we will be required to
record adjustments to the valuation allowance in future
reporting periods. Our results of operations would be impacted
negatively if we determine that increases to our deferred tax
asset valuation allowance are required in a future reporting
period.
33
Our
directors and management will exercise significant control over
our company, which will limit your ability to influence
corporate matters.
As of December 29, 2007, our directors and executive
officers and their affiliates collectively beneficially owned
approximately 27.6% 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:
|
|
|
|
|
limitations on the removal of directors;
|
|
|
|
a classified board of directors so that not all members of our
board are elected at one time;
|
|
|
|
advance notice requirements for stockholder proposals and
nominations;
|
|
|
|
the inability of stockholders to act by written consent or to
call special meetings;
|
|
|
|
the ability of our board of directors to make, alter or repeal
our by-laws; and
|
|
|
|
the ability of our board of directors to designate the terms of
and issue new series of preferred stock without stockholder
approval.
|
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.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
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 April 30, 2008 and the remainder
34
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; Shenzhen, China; 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 an agreement to lease
approximately 157,000 square feet for our new corporate
headquarters in Bedford, Massachusetts to which we expect to
relocate on or about May 1, 2008.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
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.
On August 17, 2007, we filed a lawsuit in Massachusetts
Superior Court against Robotic FX, Inc. and Jameel Ahed
alleging, among other things, misappropriation of trade secrets
and breach of contract, and seeking both injunctive and monetary
relief. The case was subsequently removed to the United States
District Court for the District of Massachusetts. On
November 2, 2007, the court issued a preliminary
injunction, and on December 21, 2007 issued a permanent
injunction, against Robotic FX, Inc. and Mr. Ahed
preventing the sale of products using certain of our trade
secrets, including the Robotic FX Negotiator product.
In addition, on August 17, 2007, we filed a lawsuit in the
United States District Court for the Northern District of
Alabama against Robotic FX, Inc. alleging willful infringement
of two patents owned by us, and seeking both injunctive and
monetary relief. On December 21, 2007, the court entered a
judgment that Robotic FX, Inc. knowingly infringed on both
asserted patents.
In a related settlement, Robotic FX, Inc. will be dissolved and
certain residual assets will be retained by us at our election.
Mr. Ahed is prohibited from participating in competitive
activities in the robotics industry for five years.
Our cumulative litigation and settlement-related expenditures
associated with this dispute are expected to total approximately
$3.0 million, including an obligation to make cash payments
up to $0.7 million through 2012, contingent upon
Mr. Ahed and Robotic FX, Inc. continuing to meet
obligations pursuant to various agreements, including but not
limited to certain non-competition provisions. These contingent
payments will be expensed, when and if earned.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
35
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is listed on the NASDAQ Global Market under the
symbol IRBT. The following table sets forth, for the
periods indicated, the high and low sales prices per share for
our common stock as reported on the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal 2006:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
37.90
|
|
|
$
|
25.49
|
|
Second quarter
|
|
$
|
29.30
|
|
|
$
|
20.50
|
|
Third quarter
|
|
$
|
25.50
|
|
|
$
|
16.09
|
|
Fourth quarter
|
|
$
|
24.98
|
|
|
$
|
17.55
|
|
Fiscal 2007:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
19.48
|
|
|
$
|
12.76
|
|
Second quarter
|
|
$
|
20.74
|
|
|
$
|
13.12
|
|
Third quarter
|
|
$
|
24.30
|
|
|
$
|
16.20
|
|
Fourth quarter
|
|
$
|
20.70
|
|
|
$
|
14.51
|
|
As of February 22, 2008, there were approximately
24,511,800 shares of our common stock outstanding held by
approximately 143 stockholders of record and the last
reported sale price of our common stock on the NASDAQ Global
Market on February 22, 2008 was $18.03 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 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
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
|
|
|
3,246,088
|
|
|
$
|
12.29
|
|
|
|
1,170,440
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,246,088
|
|
|
$
|
12.29
|
|
|
|
1,170,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 29, 2007, there
were no repurchases made by us or on our behalf, or by any
affiliated purchasers, of shares of our common stock.
36
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected historical financial data set forth below as of
December 29, 2007 and December 30, 2006 and for the
years ended December 29, 2007, December 30, 2006 and
December 31, 2005 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,
2005, 2004 and 2003 and for the years ended December 31,
2004 and 2003 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 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except earnings per share amounts)
|
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue(1)
|
|
$
|
227,457
|
|
|
$
|
167,687
|
|
|
$
|
124,616
|
|
|
$
|
82,678
|
|
|
$
|
46,655
|
|
Contract revenue
|
|
|
21,624
|
|
|
|
21,268
|
|
|
|
17,352
|
|
|
|
12,365
|
|
|
|
7,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
249,081
|
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
95,043
|
|
|
|
54,316
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
147,689
|
|
|
|
103,651
|
|
|
|
81,855
|
|
|
|
59,321
|
|
|
|
31,194
|
|
Cost of contract revenue
|
|
|
18,805
|
|
|
|
15,569
|
|
|
|
12,534
|
|
|
|
8,371
|
|
|
|
6,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
166,494
|
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
67,692
|
|
|
|
37,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit(1)
|
|
|
82,587
|
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
27,351
|
|
|
|
16,979
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
17,082
|
|
|
|
17,025
|
|
|
|
11,601
|
|
|
|
5,504
|
|
|
|
3,848
|
|
Selling and marketing
|
|
|
44,894
|
|
|
|
33,969
|
|
|
|
21,796
|
|
|
|
14,106
|
|
|
|
12,757
|
|
General and administrative
|
|
|
20,919
|
|
|
|
18,703
|
|
|
|
12,072
|
|
|
|
7,298
|
|
|
|
7,764
|
|
Litigation and related expenses(2)
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
85,236
|
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
26,908
|
|
|
|
24,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
(2,649
|
)
|
|
|
38
|
|
|
|
2,110
|
|
|
|
443
|
|
|
|
(7,390
|
)
|
Net Income (Loss)
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
$
|
219
|
|
|
$
|
(7,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Stockholders
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
1,553
|
|
|
$
|
118
|
|
|
$
|
(7,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.01
|
|
|
$
|
(0.79
|
)
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
|
$
|
(0.79
|
)
|
Shares Used in Per Common Share Calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,229
|
|
|
|
23,516
|
|
|
|
12,007
|
|
|
|
9,660
|
|
|
|
9,352
|
|
Diluted
|
|
|
25,501
|
|
|
|
25,601
|
|
|
|
14,331
|
|
|
|
19,183
|
|
|
|
9,352
|
|
37
|
|
|
(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) |
|
Consists of costs for litigation relating to lawsuits filed
against Robotic FX, Inc. and Jameel Ahed, as well as settlement
costs related to ending the litigation. See
Item 3 Legal Proceedings included elsewhere in
this Annual Report on Form 10-K for a more detailed
discussion of this litigation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,735
|
|
|
$
|
5,583
|
|
|
$
|
76,064
|
|
|
$
|
19,441
|
|
|
$
|
4,620
|
|
Short term investments
|
|
|
16,550
|
|
|
|
64,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
169,092
|
|
|
|
135,308
|
|
|
|
124,935
|
|
|
|
45,137
|
|
|
|
27,827
|
|
Total liabilities
|
|
|
58,865
|
|
|
|
40,389
|
|
|
|
37,379
|
|
|
|
31,921
|
|
|
|
25,624
|
|
Total redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,506
|
|
|
|
27,562
|
|
Total stockholders equity (deficit)
|
|
|
110,227
|
|
|
|
94,919
|
|
|
|
87,556
|
|
|
|
(24,290
|
)
|
|
|
(25,359
|
)
|
|
|
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. In particular, statements contained in this
Annual Report on
Form 10-K
that are not historical facts, including, but not limited to
statements concerning new product sales, product development and
offerings, Roomba, Scooba, Looj, Verro and ConnectR products,
PackBot tactical military robots, our home robot and government
and industrial robot divisions, competition and strategy and our
market position, market acceptance of our products, seasonal
factors, revenue recognition, profits, growth of revenues,
composition of revenues, cost of revenues, operating expenses,
sales, marketing and support expenses, general and
administrative expenses, research and development expenses,
compensation costs, our ability to attract and retain qualified
personnel, credit facility and equipment facility, valuations of
investments, valuation and composition of stock-based awards,
SFAS No. 123(R), and liquidity, constitute
forward-looking statements and are made under these safe harbor
provisions. Some of the forward-looking statements can be
identified by the use of forward-looking terms such as
believes, expects, may,
will, should, could,
seek, intends, plans,
estimates, anticipates, or other
comparable terms. Forward-looking statements involve inherent
risks and uncertainties that 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-
38
consuming domestic chores, in the home, while our Looj gutter
cleaning robot and Verro pool cleaning robot perform tasks
outside the home, 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.
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 29, 2007, we had 423 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 3 million
of our home care robots. We have also sold more than 1,200 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.
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 programs. Product revenue is derived from the sale
of our various home care robots 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 to the expanding installed base
of our robots.
We currently derive a majority of our product revenue from the
sale of our home care robots and our PackBot tactical military
robots. For the fiscal years ended December 29, 2007 and
December 30, 2006, product revenues accounted for 91.3% and
88.7% of total revenue, respectively. For the fiscal years ended
December 29, 2007 and December 30, 2006, our funded
research and development contracts accounted for approximately
8.7% and 11.3% 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 29, 2007 and
December 30, 2006 approximately 59.3% and 65.4%,
respectively, of our home robot product revenue resulted from
sales to 15 customers, primarily U.S. retailers.
39
Direct-to-consumer
revenue generated through our iRobot on-line store accounted for
23.4% of our home robot product revenue for the fiscal year
ended December 29, 2007 compared to 16.0% in the fiscal
year ended December 30, 2006. In addition, 86.0% and 88.4%
of military product revenue, and 72.4% and 76.2% of funded
research and development contract revenue, resulted from orders
and contracts with the U.S. federal government in the
fiscal years ended December 29, 2007 and December 30,
2006, respectively.
For the fiscal years ended December 29, 2007 and
December 30, 2006, sales to
non-U.S. customers
accounted for 13.1% and 11.0% 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.
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 29,
2007 and December 30, 2006, cost of product revenue was
64.9% and 61.8% of total product revenue, respectively. Raw
material costs, which are our most significant cost items, can
fluctuate materially on a periodic basis, although many
components have been historically stable. Additionally, unit
costs can vary significantly depending on the mix of products
sold. During 2007 in particular, the cost of some materials
increased significantly, especially nickel (for batteries). The
aggregate cost of batteries for our home robots was especially
impacted in 2007, as nickel prices more than doubled on a per
ton basis. 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
robots comprise a greater percentage of the associated cost of
revenue. We outsource the manufacture of our home robots to
contract manufacturers 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 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 29, 2007 and December 30, 2006,
cost of contract revenue was 87.0% and 73.2% 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, total sales volume, and levels of other product costs such
as warranty, scrap, re-work and
40
manufacturing overhead. For the years ended December 29,
2007 and December 30, 2006, gross profit was 33.2% and
36.9% 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:
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salaries and related costs for our engineers;
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costs for high technology components used in product and
prototype development; and
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costs of test equipment used during product development.
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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 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 29, 2007 and
December 30, 2006, research and development expense was
$17.1 million and $17.0 million, or 6.9% and 9.0% 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 29, 2007 and December 30, 2006, these
expenses amounted to $18.8 million and $15.6 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:
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salaries and related costs for sales and marketing personnel;
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salaries and related costs for executives and administrative
personnel;
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advertising, marketing and other brand-building costs;
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fulfillment costs associated with
direct-to-consumer
sales through the iRobot on-line store;
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customer service costs;
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professional services costs;
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information systems and infrastructure costs;
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travel and related costs; and
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occupancy and other overhead costs.
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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 in
absolute dollars for the foreseeable future, as we intend to
continue aggressively building on the iRobot brand.
For the fiscal years ended December 29, 2007 and
December 30, 2006, selling, general and administrative
expense was $65.8 million and $52.7 million, or 26.4%
and 27.9% of total revenue, respectively.
41
Litigation
and Related Expenses
In fiscal 2007, we incurred $2.3 million of litigation and
settlement-related costs associated with two related lawsuits
filed by us in August 2007. The first of these lawsuits was
filed in Massachusetts Superior Court, and subsequently
transferred to the United States District Court for the District
of Massachusetts, against Robotic FX, Inc. and Jameel Ahed
alleging, among other things, misappropriation of trade secrets
and breach of contract. The second lawsuit was filed in the
United States District Court for the Northern District of
Alabama against Robotic FX, Inc. alleging willful infringement
of two patents owned by us. See Item 3 Legal
Proceedings included elsewhere in the Annual Report on
Form 10-K
for a more detailed discussion of this litigation and related
settlement.
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. 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
42
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, or 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, or APB, No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. We also followed the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure. We 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.
In a review of our stock-based compensation accounting
methodology performed in the fiscal quarter ended June 30,
2007, we determined that a cumulative adjustment of
$0.5 million of incremental stock-based compensation
expense, and a balance sheet reclassification of
$0.8 million from deferred compensation to additional
paid-in capital, were required due to a correction in the
application of SFAS No. 123(R). Upon adoption of
SFAS No. 123(R) on January 1, 2006, we
incorrectly valued 259,700 stock options that were granted
between the date that we filed our initial
Form S-1
registration statement with the Securities and Exchange
Commission, or SEC, on July 27, 2005 and the date we became
a public company (November 8, 2005). We believe, in
accordance with APB No. 28, Interim Financial Reporting,
paragraph 29, that this adjustment was not material to
our full year results for 2007. In addition, we do not believe
the adjustment is material to the amounts reported by us in
previous periods. This cumulative adjustment was recorded during
the three month period ended June 30, 2007 and is included
in the cost of revenue and operating expenses for the fiscal
year ended December 29, 2007.
Under SFAS No. 123(R), entities that become public
companies after June 15, 2005 and used the minimum value
method of measuring equity share options and similar instruments
as a non-public company for either recognition or pro forma
disclosure purposes under SFAS No. 123 shall apply the
provisions of SFAS No. 123(R) prospectively to new
and/or
modified awards after the adoption of SFAS No. 123(R).
Companies should continue to account for any portion of awards
outstanding at the date of initial application of
SFAS No. 123(R) using the accounting principles
originally applied to those awards either the
minimum value method under SFAS No. 123 or the
provisions of APB No. 25 and its related interpretive
guidance. Accordingly, we did not record any cumulative effect
of a change in accounting principle associated with the adoption
of SFAS No. 123(R). As of December 29, 2007, the
deferred stock-based compensation balance associated with these
grants was $0.7 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
$0.3 million, $0.3 million and $0.1 million for
2008, 2009 and 2010, respectively.
43
Under the provisions of SFAS No. 123(R), we recognized
$4.5 million of stock-based compensation expense during the
fiscal year ended December 29, 2007 for stock options
granted subsequent to our initial filing of our
Form S-1
with the SEC. The unamortized fair value as of December 29,
2007 associated with these grants was $15.8 million with a
weighted average remaining recognition period of 2.68 years.
The fair value of each option grant for the fiscal year ended
December 29, 2007 was computed on the grant date using the
Black-Scholes option-pricing model with the following
assumptions:
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Fiscal Year Ended
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December 29, 2007
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Risk-free interest rate
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3.23% 4.90%
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Expected dividend yield
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Expected life
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3.50 4.75 years
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Expected volatility
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50% 55%
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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 that included company specific historical
data combined with data of several peer companies with similar
expected option lives to develop an expected volatility
assumption.
Based upon the above assumptions, the weighted average fair
value of each stock option granted for the fiscal year ended
December 29, 2007 was $8.64.
During the fiscal year ended December 29, 2007, the Company
recognized $116,000 and $43,000 of stock based compensation
associated with restricted stock awards and restricted stock
units, respectively. Unamortized expense associated with
restricted stock awards and restricted stock units at
December 29, 2007, was $363,000 and $429,000, respectively.
We have assumed a forfeiture rate of 5% for all stock options,
restricted stock awards and restricted stock-based units granted
subsequent to the Companys initial filing of its
Form S-1
with the SEC with the exception of those issued to executives
and directors for which forfeiture rates of 0% and 2.5% were
assumed for fiscal years 2006 and 2007, respectively. 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.
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 $8.6 million of federal net operating loss
carry-forwards as of December 29, 2007 relating to stock
option deductions for which the tax effected amount of
approximately $2.9 million 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
44
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 2007.
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. In fiscal 2007, we completed an analysis of
historical and projected future profitability which resulted in
the full release of the valuation allowance relating to federal
deferred tax assets. We continue to maintain a valuation
allowance against state deferred tax assets due to less
certainty of their realizability given the shorter expiration
period associated with these state deferred tax assets and the
generation of state tax credits in excess of the state tax
liability. At December 29, 2007, we have total deferred tax
assets of $12.9 million and a valuation allowance of
$2.7 million resulting in a net deferred tax asset of
$10.2 million.
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.
45
Overview
of Results of Operations
The following table sets forth our results of operations for the
periods shown:
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Fiscal Year Ended
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December 29,
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December 30,
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December 31,
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2007
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2006
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2005
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(In thousands)
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Revenue
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Product revenue
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$
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227,457
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$
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167,687
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$
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124,616
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Contract revenue
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21,624
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21,268
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17,352
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Total revenue
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249,081
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|
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188,955
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141,968
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Cost of Revenue
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Cost of product revenue(1)
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147,689
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|
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103,651
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|
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|
81,855
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Cost of contract revenue(1)
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18,805
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|
|
|
15,569
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|
|
|
12,534
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|
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|
|
|
|
|
Total cost of revenue
|
|
|
166,494
|
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,587
|
|
|
|
69,735
|
|
|
|
47,579
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
17,082
|
|
|
|
17,025
|
|
|
|
11,601
|
|
Selling and marketing(1)
|
|
|
44,894
|
|
|
|
33,969
|
|
|
|
21,796
|
|
General and administrative(1)
|
|
|
20,919
|
|
|
|
18,703
|
|
|
|
12,072
|
|
Litigation and related expenses(2)
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
85,236
|
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(2,649
|
)
|
|
|
38
|
|
|
|
2,110
|
|
Other Income (Expense), Net
|
|
|
3,151
|
|
|
|
3,831
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
502
|
|
|
|
3,869
|
|
|
|
2,786
|
|
Income Tax Expense (Benefit)
|
|
|
(8,558
|
)
|
|
|
304
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock-based compensation recorded in 2007, 2006 and 2005 breaks
down by expense classification as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
692
|
|
|
$
|
326
|
|
|
$
|
33
|
|
Cost of contract revenue
|
|
|
386
|
|
|
|
267
|
|
|
|
58
|
|
Research and development
|
|
|
377
|
|
|
|
376
|
|
|
|
95
|
|
Selling and marketing
|
|
|
1,074
|
|
|
|
389
|
|
|
|
32
|
|
General and administrative
|
|
|
2,182
|
|
|
|
1,211
|
|
|
|
380
|
|
|
|
|
(2) |
|
Consists of costs for litigation relating to lawsuits filed
against Robotic FX, Inc. and Jameel Ahed, as well as settlement
costs related to ending the litigation. See
Item 3 Legal Proceedings included elsewhere in
this Annual Report on Form 10-K for a more detailed
discussion of this litigation. |
46
The following table sets forth our results of operations as a
percentage of revenue for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
91.3
|
%
|
|
|
88.7
|
%
|
|
|
87.8
|
%
|
Contract revenue
|
|
|
8.7
|
|
|
|
11.3
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
59.3
|
|
|
|
54.9
|
|
|
|
57.7
|
|
Cost of contract revenue
|
|
|
7.5
|
|
|
|
8.2
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
66.8
|
|
|
|
63.1
|
|
|
|
66.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
33.2
|
|
|
|
36.9
|
|
|
|
33.5
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6.9
|
|
|
|
9.0
|
|
|
|
8.2
|
|
Selling and marketing
|
|
|
18.0
|
|
|
|
18.0
|
|
|
|
15.3
|
|
General and administrative
|
|
|
8.4
|
|
|
|
9.9
|
|
|
|
8.5
|
|
Litigation and related expenses
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34.3
|
|
|
|
36.9
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(1.1
|
)
|
|
|
0.0
|
|
|
|
1.5
|
|
Other Income (Expense), Net
|
|
|
1.3
|
|
|
|
2.0
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
0.2
|
|
|
|
2.0
|
|
|
|
1.9
|
|
Income Tax Expense (Benefit)
|
|
|
(3.4
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
3.6
|
%
|
|
|
1.9
|
%
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended December 29, 2007 and December 30,
2006
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total Revenue
|
|
$
|
249,081
|
|
|
$
|
188,955
|
|
|
$
|
60,126
|
|
|
|
31.8
|
%
|
Our revenue increased 31.8% to $249.1 million in fiscal
2007 from $189.0 million in fiscal 2006. Revenue increased
approximately $32.1 million, or 28.5%, in our home robots
business and $28.1 million, or 36.7%, in our government and
industrial business.
The $32.1 million increase in revenue from our home robots
division was driven by a $28.2 million increase in robot
revenue due to a 23.9% increase in units shipped and a 2.1%
increase in average selling prices, along with a
$3.8 million increase in product life cycle revenue (spares
and accessories). Total home care robots shipped in fiscal 2007
totalled approximately 899,000 units compared to
approximately 725,000 units in fiscal 2006.
The $28.1 million increase in revenue from our government
and industrial business was driven by a $20.0 million
increase in military robots revenue due to a 22.3% increase in
units shipped and a 20.4% increase in net average selling
prices, and a $7.7 million increase in product life cycle
revenue (robot spares, services and training). Total military
robots shipped in fiscal 2007 was 471 units compared to
385 units in fiscal 2006.
47
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
166,494
|
|
|
$
|
119,220
|
|
|
$
|
47,274
|
|
|
|
39.7
|
%
|
As a percentage of total revenue
|
|
|
66.8
|
%
|
|
|
63.1
|
%
|
|
|
|
|
|
|
|
|
Total cost of revenue increased to $166.5 million in fiscal
2007, compared to $119.2 million in fiscal 2006. The
increase is primarily due to a 23.9% increase in the unit sales
of our home care robots, and a 22.3% increase in the unit sales
of our military robots in fiscal 2007 as compared to fiscal 2006.
The home robots division cost of revenue increased as a percent
of revenue by 7.2 percentage points in fiscal 2007 as
compared to fiscal 2006. This increase was primarily
attributable to a 15.4% increase in average unit costs driven
primarily by the mix of higher cost products and increased
battery costs due to the increased cost of nickel.
The government and industrial robots division cost of revenue
decreased as a percent of revenue by 1.3 percentage points
for fiscal 2007 as compared to fiscal 2006. This decrease was
due to the above-mentioned increase in average selling prices
and higher margins on increased product life cycle revenue,
partially offset by a 3.1% increase in the average unit cost of
products sold.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total gross profit
|
|
$
|
82,587
|
|
|
$
|
69,735
|
|
|
$
|
12,852
|
|
|
|
18.4
|
%
|
As a percentage of total revenue
|
|
|
33.2
|
%
|
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
Gross profit increased 18.4% to $82.6 million in fiscal
2007, from $69.7 million in fiscal 2006. Gross profit as a
percentage of revenue decreased to 33.2% in fiscal 2007 from
36.9% of revenue in fiscal 2006. This 3.7 percentage
decrease in gross profit was the result of the home robots
division gross profit decreasing 7.2 percentage points
partially offset by the government and industrial gross profit
increasing 1.3 percentage points, and the higher mix of
government and industrial revenue in fiscal 2007 as compared to
fiscal 2006. The home robots division decrease was driven
primarily by higher average unit costs due to the mix of higher
cost products and increased battery costs, while the government
and industrial increase was driven by the mix of higher margin
products and a higher percentage of product revenue as compared
to contract revenue in fiscal 2007 as compared to fiscal 2006.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total research and development
|
|
$
|
17,082
|
|
|
$
|
17,025
|
|
|
$
|
57
|
|
|
|
0.3
|
%
|
As a percentage of total revenue
|
|
|
6.9
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses increased by $0.1 million
or 0.3% to $17.1 million (6.9% percent of revenue) in
fiscal 2007, from $17.0 million (9.0% of revenue) for
fiscal 2006. The home robots division research and development
expenses increased in fiscal 2007 as compared to fiscal 2006 due
to hiring, depreciation and costs associated with the India
design center, offset by reductions in the government and
industrial division. This reduction in government and industrial
expenses was largely attributable to the fact that 2006 expenses
included accelerated spending as a result of our decision to
invest higher than planned earnings in research and development
activities, a strategy that was not repeated in 2007.
Overall internal research and development headcount increased to
105 at December 29, 2007 compared to 104 as of
December 30, 2006, an increase of 1 employee.
48
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 2007 these expenses
amounted to $18.8 million compared to $15.6 million
for the comparable period in 2006. The increase in these
expenses was primarily due to increased headcount in our
contract research and development function to 64 employees
at December 29, 2007 from 58 employees at
December 30, 2006. In accordance with generally accepted
accounting principles, these expenses have been classified as
cost of revenue rather than research and development expense as
they are executed under funded research contracts.
Selling
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
44,894
|
|
|
$
|
33,969
|
|
|
$
|
10,925
|
|
|
|
32.2
|
%
|
As a percentage of total revenue
|
|
|
18.0
|
%
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $10.9 million
or 32.2% to $44.9 million (18.0% of revenue) in fiscal 2007
from $34.0 million (18.0% of revenue) in fiscal 2006.
The $8.7 million increase in the home robot division
selling and marketing expense was primarily driven by a
$12 million increase in costs associated with our increased
direct business, including both website sales and infomercial
programs which were run earlier in the year, offset by lower
television media expenses. Additionally, trade shows and other
marketing related activities increased by $1.3 million,
people related costs increased by $0.7 million and sales
commissions increased by $0.6 million.
Government and industrial division selling and marketing
expenses were up $2.4 million for fiscal 2007 as compared
to fiscal 2006 due primarily to $0.9 million of increased
compensation and benefit related expense resulting from the
expansion of our sales team, $0.3 million increased travel
costs, $0.5 million in increased sales commission due to a
new commissions program and $0.4 million increase in stock
compensation expense.
In fiscal 2008, we expect to continue to invest in sales and
marketing to increase brand awareness. Accordingly, we
anticipate selling and marketing expenses will increase in
absolute dollars.
Overall selling and marketing headcount increased to 36 at
December 29, 2007 compared to 31 as of December 30,
2006, an increase of 5 employees or 16% growth.
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
General and administrative
|
|
$
|
20,919
|
|
|
$
|
18,703
|
|
|
$
|
2,216
|
|
|
|
11.8
|
%
|
As a percentage of total revenue
|
|
|
8.4
|
%
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by
$2.2 million or 11.8% to $20.9 million (8.4% of
revenue) in fiscal 2007 from $18.7 million (9.9% of
revenue) in fiscal 2006. The increase in general and
administrative expense was primarily driven by an increase of
$1.1 million in compensation and benefits expenses due to
increased headcount, and an increase of $1.0 million in
stock compensation expense for fiscal 2007 as compared to fiscal
2006. In fiscal 2008, we anticipate general and administrative
expenses will increase in absolute dollars in support of efforts
to improve scalability, attend to new business complexity, and
expand operations globally.
Overall general and administrative headcount increased to 88 at
December 29, 2007 compared to 72 as of December 30,
2006, an increase of 16 employees or 22% growth.
49
Litigation
and Related Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
Litigation and related expenses
|
|
$
|
2,341
|
|
|
|
|
|
|
$
|
2,341
|
|
|
|
N/A
|
|
As a percentage of total revenue
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation and related expenses consist of costs for trade
secret misappropriation, breach of contract and patent
infringement litigation relating to lawsuits filed against
Robotic FX, Inc. and Jameel Ahed as well as settlement costs
related to ending the litigation.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Other Income (expense), net
|
|
$
|
3,151
|
|
|
$
|
3,831
|
|
|
$
|
(680
|
)
|
|
|
(17.7
|
)%
|
As a percentage of total revenue
|
|
|
1.3
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
For fiscal 2007, other income (expense), net amounted to
$3.2 million compared to $3.8 million in fiscal 2006.
The other income (expense), net was directly related to interest
income resulting from our cash and investments in auction rate
securities and money market accounts.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Dollar Change
|
|
|
Percent Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(8,558
|
)
|
|
$
|
304
|
|
|
$
|
(8,862
|
)
|
|
|
N/A
|
|
As a percentage of total revenue
|
|
|
(3.4
|
)%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
In fiscal 2007, we recorded an $8.6 million tax benefit,
which was primarily attributable to the full release of the
valuation allowance relating to federal deferred tax assets. 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.
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,
50
we recognized an additional $2.7 million of home robot
product revenue related to robots shipped both during the third
quarter of 2005 and during prior periods.
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 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 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 fiscal 2005. Included in
51
the total gross profit for fiscal 2006 was $2.6 million
associated with the United Kingdom Ministry of Defence 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.
Overall internal 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
contract 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 relates to public relations expenses.
52
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 No. 123(R) stock-based compensation costs
totaling $0.8 million were recorded, a factor that did not
exist in the comparable period.
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.
Liquidity
and Capital Resources
At December 29, 2007 our principal sources of liquidity
were cash and cash equivalents totaling $26.7 million,
short-term investments of $16.6 million and accounts
receivable of $47.7 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.
53
As of February 21, 2008, we held $17.5 million of
variable rate bonds or auction rate securities, all of which
were purchased in January or February of 2008. A substantial
majority of the underlying assets of these auction rate
securities are student loans which are backed by the federal
government under the Federal Family Education Loan Program. On
February 19, 2008 one auction failed for $2.5 million
of our auction rate securities and there is no assurance that
auctions on the remaining auction rate securities in our
investment portfolio will succeed in the future. See
Item 7A Quantitative And Qualitative
Disclosures About Market Risk, included elsewhere in this Annual
Report on
Form 10-K
for a more detailed discussion of these auction rate securities.
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 2007 and 2006, we spent
$10.4 million and $7.5 million, respectively, on
capital equipment.
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 third-party logistic providers for the
fulfillment of 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 used by our operating activities in fiscal 2007 was
$15.7 million compared to net cash provided by operating
activities of $0.6 million in fiscal 2006 and net cash used
by operating activities of $9.0 million in fiscal 2005. The
cash used by our operating activities in fiscal 2007 was
primarily due to an increase in accounts receivable (including
unbilled revenue) of $19.5 million and an increase in
inventory of $24.3 million, offset by net income of
$9.1 million, a decrease in other current other assets of
$0.6 million, an increase in accounts payable and accrued
expenses of $17.4 million and an increase in deferred
revenue of $1.1 million. In addition, in fiscal 2007, we
had depreciation and amortization of approximately
$5.3 million and amortization of deferred compensation of
$4.7 million, offset by a $10.2 million benefit from
deferred tax assets which are non-cash items. The increase in
accounts receivable, inventory and liabilities in fiscal 2007
are directly attributable to the 31.9% growth in revenue from
the comparable period in fiscal 2006. 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.
54
Net cash provided by our investing activities was
$35.4 million in fiscal 2007 compared to net cash used by
investing activities of $72.3 million in fiscal 2006 and
$5.5 million in fiscal 2005. Investment activities in 2007
represent the sale of short-term investments (net of the
purchase of short-term investments) of $48.3 million, the
purchase of capital equipment of $10.4 million and an
investment in Advanced Scientific Concepts, Inc. of
$2.5 million. 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 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 2007 investment in
capital equipment of $10.4 million consisted primarily of
purchases of production tooling, internal use demonstration
units, internal use software and computer equipment.
Net cash provided by our financing activities was approximately
$1.4 million in fiscal 2007, $1.2 million in fiscal
2006, and $71.1 million in fiscal 2005. Net cash provided
by our financing activities in fiscal 2007 consisted primarily
of proceeds from stock option exercises and the tax benefit
associated with excess stock-based compensation deductions,
partially offset by a tax payment associated with exercise of
stock options by our Chief Executive Officer. 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.
The majority of our long-lived assets for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005 are located in the United States.
However, we have invested in production tooling for the
manufacture of the Roomba, Scooba and Looj product lines in
China.
We currently have a $11.6 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 annual profitability since fiscal 2004. 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 second and
third quarters and significant generation of cash in the fourth
and first quarters 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 next twelve months and the foreseeable
future.
Working
Capital Facility
On June 5, 2007, we entered into a $35 million
unsecured revolving credit facility with Bank of America, N.A.
to replace our expired working capital line of credit with Bank
of America. The credit facility will be available to fund
working capital and other corporate purposes. The interest on
loans under our working capital line of credit will accrue, at
our election, at either (i) Bank of Americas prime
rate minus 1% or (ii) the Eurodollar rate plus 1.25%. The
credit facility will terminate and all amounts outstanding
thereunder will be due and payable in full on June 5, 2010.
As of December 29, 2007, we had letters of credit
outstanding of $2.1 million and $32.9 million
available under our working capital line of credit. This credit
facility contains customary terms and conditions for credit
facilities of this type, including restrictions on our ability
to incur or guarantee 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, and consolidate or merge with
other entities.
In addition, we are required to meet certain financial covenants
customary with this type of agreement, including maintaining a
minimum specified tangible net worth, a minimum specified ratio
of current assets to current liabilities and a minimum specified
annual net income.
55
This credit facility contains customary events of default,
including for payment defaults, breaches of representations,
breaches of affirmative or negative covenants, cross defaults to
other material indebtedness,bankruptcy and failure to discharge
certain judgments. If a default occurs and is not cured within
any applicable cure period or is not waived, our obligations
under the credit facility may be accelerated. At
December 29, 2007, we were in compliance with all covenants
under the credit facility.
Equipment
Financing Facility
On June 5, 2007, we entered into a $15 million secured
equipment facility with Banc of America Leasing and Capital, LLC
under which we can finance the acquisition of equipment,
furniture and leasehold improvements. We may borrow amounts
under the equipment facility until July 1, 2008 and any
amounts borrowed during that period will accrue interest at
30-day LIBOR
plus 1%. After July 1, 2008, all amounts then outstanding
under the equipment line will be repaid in 60 equal monthly
installments commencing in July 2008 and will accrue interest,
at our election, at either a fixed or variable rate of interest.
Our obligations under the equipment facility will be secured by
any financed equipment. As of December 29, 2007, we had no
amounts outstanding and $15.0 million available under our
equipment financing line of credit.
This equipment facility contains customary terms and conditions
for equipment facilities of this type, including, without
limitation, restrictions on our ability to transfer, encumber or
dispose of the financed equipment. In addition, we are required
to meet certain financial covenants customary to this type of
agreement, including maintaining a minimum specified tangible
net worth, a minimum specified ratio of current assets to
current liabilities and a minimum specified annual net income.
This equipment facility contains customary events of default,
including for payment defaults, breaches of representations,
breaches of affirmative or negative covenants, cross defaults to
other material indebtedness, bankruptcy and failure to discharge
certain judgments. If a default occurs and is not cured within
any applicable cure period or is not waived, or if we repay all
of our indebtedness under our credit facility with Bank of
America, N.A., our obligations under this equipment facility may
be accelerated. At December 29, 2007, we were in compliance
with all covenants under the equipment facility.
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 four 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 us. Other than this project, we do not currently
anticipate significant investment in property and 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.
56
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 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
3,295
|
|
|
$
|
4,563
|
|
|
$
|
4,372
|
|
|
$
|
15,333
|
|
|
$
|
27,563
|
|
Minimum contractual payments
|
|
|
125
|
|
|
|
8,500
|
|
|
|
10,500
|
|
|
|
1,500
|
|
|
|
20,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,420
|
|
|
$
|
13,063
|
|
|
$
|
14,872
|
|
|
$
|
16,833
|
|
|
$
|
48,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 29, 2007, 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, or
FASB issued SFAS No. 157, Fair Value Measurements
which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair
value measurements. SFAS 157 does not require any new fair
value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements.
SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, on February 12, 2008, the
FASB issued FSP
FAS 157-2
which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). This FSP
partially defers the effective date of Statement 157 to fiscal
years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
this FSP. Effective for fiscal 2008, we will adopt SFAS 157
except as it applies to those nonfinancial assets and
nonfinancial liabilities as noted in FSP
FAS 157-2.
The partial adoption of SFAS 157 is not expected to have a
material impact on our results of operations or financial
condition.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115, or SFAS 159. SFAS 159 permits
entities to choose fair value measurement for many financial
instruments and certain other items as of specified election
dates. Business entities will thereafter report in earnings the
unrealized gains and losses on items for which the fair value
option has been chosen. The fair value option may be applied
instrument by instrument, may not be applied to portions of
instruments and is irrevocable unless a new election date
occurs. SFAS 159 is effective for an entitys first
fiscal year beginning after November 15, 2007. We are
currently evaluating the potential impact of adoption of
SFAS 159 and have not yet determined the impact, if any,
that its adoption will have on our results of operations or
financial condition.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), or SFAS 141R, Business Combinations
and SFAS No. 160 or SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research
Bulletin No. 51. SFAS 141R will change how
business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of
equity. The provisions of SFAS 141R and SFAS 160 are
effective for fiscal years beginning on or after
December 15, 2008. We are currently evaluating the impact
that SFAS 141R and SFAS 160 will have on our results
of operations or financial condition.
57
From time to time, new accounting pronouncements are issued by
FASB that are adopted by us as of the specified effective date.
Unless otherwise discussed, we believe that the impact of
recently issued standards, which are not yet effective, will not
have a material impact on our consolidated financial statements
upon adoption.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign
Currency Exchange Risk
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. In late 2007, we
began to accept orders for home robot products in currencies
other than the U.S. dollar and we expect this practice to
continue in the future. We regularly monitor the level of
non-U.S. dollar
accounts receivable balances to determine if any actions,
including possibly entering into foreign currency forward
contracts, should be taken to minimize the impact of fluctuating
exchange rates on our results of operations.
Interest
Rate Sensitivity
We had unrestricted cash and cash equivalents of
$26.7 million and short term investments of
$16.6 million at December 29, 2007. 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. As of
December 29, 2007, all of our cash equivalents were held in
money market accounts and our short-term investments were
comprised of auction rate securities.
As of February 21, 2008, we held $17.5 million of
variable rate bonds or auction rate securities, all of which
were purchased in January or February of 2008. A substantial
majority of the underlying assets of these auction rate
securities are student loans which are backed by the federal
government under the Federal Family Education Loan Program. On
February 19, 2008 one auction failed for $2.5 million
of our auction rate securities and there is no assurance that
auctions on the remaining auction rate securities in our
investment portfolio will succeed in the future. As a result,
our ability to liquidate our investments in the near term may be
limited, and our ability to fully recover the carrying value of
our investments may be limited or non-existent. An auction
failure means that the parties wishing to sell securities could
not carry out the transaction. All of our auction rate
securities, including those subject to the prior failures, are
currently rated AAA, the highest rating available by a rating
agency. If the issuers are unable to successfully close future
auctions or their credit ratings deteriorate, we may in the
future be required to record an impairment charge on these
investments. We believe we will be able to liquidate our
investments without significant loss but the timing of such an
outcome is uncertain. We currently believe these securities are
not significantly impaired, primarily due to the government
backing of the underlying securities. However, it could take
until the final maturity of the underlying notes (up to
40 years) to realize our investments recorded value.
Based on our expected operating cash flows, and our other
potential sources of cash, including our available line of
credit, we do not anticipate that the potential lack of
liquidity on these investments in the near-term will affect our
ability to execute our current business plan.
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 working capital line of credit and our equipment financing
facility. The advances under the working capital line of credit
bear a variable rate of interest determined as a function of the
prime rate or the Eurodollar rate at the time of the borrowing.
The advances under the equipment financing facility bear either
a variable or fixed rate of interest, at our election,
determined as a function of the LIBOR rate at the time of
borrowing. At December 29, 2007, there were no amounts
outstanding under our working capital line of credit or our
equipment financing facility.
58
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
iROBOT
CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
59
Report of
Independent Registered Public Accounting Firm
To Board of Directors and Stockholders of
iRobot Corporation:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15 (a) (1) present
fairly, in all material respects, the financial position of
iRobot Corporation, and its subsidiaries at December 29,
2007 and December 30, 2006 and the results of their
operations and their cash flows for each of the three years in
the period ended December 29, 2007 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 29, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is
responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
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. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
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.
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, 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 25, 2008
60
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,735
|
|
|
$
|
5,583
|
|
Short term investments
|
|
|
16,550
|
|
|
|
64,800
|
|
Accounts receivable, net of allowance of $65 and $163 at
December 29, 2007 and December 30, 2006, respectively
|
|
|
47,681
|
|
|
|
28,510
|
|
Unbilled revenue
|
|
|
2,244
|
|
|
|
1,961
|
|
Inventory, net
|
|
|
45,222
|
|
|
|
20,890
|
|
Deferred tax assets
|
|
|
5,905
|
|
|
|
|
|
Other current assets
|
|
|
2,268
|
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
146,605
|
|
|
|
124,607
|
|
Property and equipment, net
|
|
|
15,694
|
|
|
|
10,701
|
|
Deferred tax assets
|
|
|
4,293
|
|
|
|
|
|
Other assets
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
169,092
|
|
|
$
|
135,308
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
44,697
|
|
|
$
|
27,685
|
|
Accrued expenses
|
|
|
7,987
|
|
|
|
7,020
|
|
Accrued compensation
|
|
|
4,603
|
|
|
|
5,227
|
|
Deferred revenue
|
|
|
1,578
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
58,865
|
|
|
|
40,389
|
|
Commitments and contingencies (Note 12):
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, 5,000 shares
authorized and zero outstanding at December 29, 2007 and
December 30, 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000 and
100,000 shares authorized and 24,495 and 23,791 issued and
outstanding at December 29, 2007 and December 30,
2006, respectively
|
|
|
245
|
|
|
|
238
|
|
Additional paid-in capital
|
|
|
122,318
|
|
|
|
117,718
|
|
Deferred compensation
|
|
|
(685
|
)
|
|
|
(2,326
|
)
|
Accumulated deficit
|
|
|
(11,651
|
)
|
|
|
(20,711
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
110,227
|
|
|
|
94,919
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders equity
|
|
$
|
169,092
|
|
|
$
|
135,308
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
61
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
227,457
|
|
|
$
|
167,687
|
|
|
$
|
124,616
|
|
Contract revenue
|
|
|
21,624
|
|
|
|
21,268
|
|
|
|
17,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
249,081
|
|
|
|
188,955
|
|
|
|
141,968
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
|
147,689
|
|
|
|
103,651
|
|
|
|
81,855
|
|
Cost of contract revenue(1)
|
|
|
18,805
|
|
|
|
15,569
|
|
|
|
12,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
166,494
|
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,587
|
|
|
|
69,735
|
|
|
|
47,579
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
17,082
|
|
|
|
17,025
|
|
|
|
11,601
|
|
Selling and marketing(1)
|
|
|
44,894
|
|
|
|
33,969
|
|
|
|
21,796
|
|
General and administrative(1)
|
|
|
20,919
|
|
|
|
18,703
|
|
|
|
12,072
|
|
Litigation and related expenses(2)
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
85,236
|
|
|
|
69,697
|
|
|
|
45,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(2,649
|
)
|
|
|
38
|
|
|
|
2,110
|
|
Other income (expense), net
|
|
|
3,151
|
|
|
|
3,831
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
502
|
|
|
|
3,869
|
|
|
|
2,786
|
|
Income tax expense (benefit)
|
|
|
(8,558
|
)
|
|
|
304
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
Number of shares used in per share calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,229
|
|
|
|
23,516
|
|
|
|
12,007
|
|
Diluted
|
|
|
25,501
|
|
|
|
25,601
|
|
|
|
14,331
|
|
|
|
|
(1) |
|
Stock-based compensation recorded in 2007, 2006 and 2005 breaks
down by expense classification as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
692
|
|
|
$
|
326
|
|
|
$
|
33
|
|
Cost of contract revenue
|
|
|
386
|
|
|
|
267
|
|
|
|
58
|
|
Research and development
|
|
|
377
|
|
|
|
376
|
|
|
|
95
|
|
Selling and marketing
|
|
|
1,074
|
|
|
|
389
|
|
|
|
32
|
|
General and administrative
|
|
|
2,182
|
|
|
|
1,211
|
|
|
|
380
|
|
|
|
|
(2) |
|
Consists of costs for litigation relating to lawsuits filed
against Robotic FX, Inc. and Jameel Ahed, as well as settlement
costs related to ending the litigation. See
Item 3 Legal Proceedings included elsewhere in
this Annual Report on Form 10-K for a more detailed
discussion of this litigation. |
See accompanying Notes to Consolidated Financial Statements
62
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, 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
|
|
Amortization of deferred compensation relating to restricted
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Issuance of common stock for exercise of stock options
|
|
|
793,283
|
|
|
|
8
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388
|
|
Stock withheld to cover tax withholdings requirements upon
exercise of stock options
|
|
|
(110,396
|
)
|
|
|
(1
|
)
|
|
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,588
|
)
|
Repurchase of restricted stock award
|
|
|
(4,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustment to stock based compensation
|
|
|
|
|
|
|
|
|
|
|
(836
|
)
|
|
|
|
|
|
|
836
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
|
25,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of excess stock based compensation deduction
|
|
|
|
|
|
|
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,626
|
|
Amortization of deferred compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
4,477
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
4,652
|
|
Reversal of deferred compensation related to cancelled stock
options
|
|
|
|
|
|
|
|
|
|
|
(571
|
)
|
|
|
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
Directors deferred compensation
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,060
|
|
|
|
9,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
|
24,494,931
|
|
|
$
|
245
|
|
|
$
|
122,318
|
|
|
$
|
|
|
|
$
|
(685
|
)
|
|
$
|
(11,651
|
)
|
|
$
|
110,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
63
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
$
|
2,610
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,311
|
|
|
|
3,743
|
|
|
|
2,078
|
|
Loss on disposal of fixed assets
|
|
|
48
|
|
|
|
7
|
|
|
|
|
|
Stock based compensation
|
|
|
4,711
|
|
|
|
2,569
|
|
|
|
598
|
|
Benefit from deferred tax assets
|
|
|
(10,198
|
)
|
|
|
|
|
|
|
|
|
Non-cash director deferred compensation
|
|
|
111
|
|
|
|
|
|
|
|
|
|
Changes in working capital (use) source
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,171
|
)
|
|
|
(5,465
|
)
|
|
|
(9,786
|
)
|
Unbilled revenue
|
|
|
(283
|
)
|
|
|
(537
|
)
|
|
|
(650
|
)
|
Inventory
|
|
|
(24,332
|
)
|
|
|
(4,987
|
)
|
|
|
(8,235
|
)
|
Other current assets
|
|
|
595
|
|
|
|
(1,330
|
)
|
|
|
(1,051
|
)
|
Accounts payable
|
|
|
17,012
|
|
|
|
3,964
|
|
|
|
4,140
|
|
Accrued expenses
|
|
|
967
|
|
|
|
3,536
|
|
|
|
842
|
|
Accrued compensation
|
|
|
(624
|
)
|
|
|
1,225
|
|
|
|
851
|
|
Provision for contract settlement
|
|
|
|
|
|
|
(5,154
|
)
|
|
|
(37
|
)
|
Deferred revenue
|
|
|
1,121
|
|
|
|
(561
|
)
|
|
|
(270
|
)
|
Change in long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(15,672
|
)
|
|
|
575
|
|
|
|
(8,977
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(10,352
|
)
|
|
|
(7,485
|
)
|
|
|
(5,531
|
)
|
Change in other assets
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(52,950
|
)
|
|
|
(174,100
|
)
|
|
|
|
|
Sales of investments
|
|
|
101,200
|
|
|
|
109,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
35,398
|
|
|
|
(72,285
|
)
|
|
|
(5,531
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of note receivable from stockholder
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Income tax withholding payment associated with stock option
exercise
|
|
|
(1,588
|
)
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
1,388
|
|
|
|
1,049
|
|
|
|
637
|
|
Proceeds from initial public offering, net of offering costs
|
|
|
|
|
|
|
|
|
|
|
70,407
|
|
Tax benefit of excess stock based compensation deductions
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
Tax benefit of disqualifying dispositions
|
|
|
|
|
|
|
180
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,426
|
|
|
|
1,229
|
|
|
|
71,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
21,152
|
|
|
|
(70,481
|
)
|
|
|
56,623
|
|
Cash and cash equivalents, at beginning of period
|
|
|
5,583
|
|
|
|
76,064
|
|
|
|
19,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period
|
|
$
|
26,735
|
|
|
$
|
5,583
|
|
|
$
|
76,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
41
|
|
|
$
|
15
|
|
|
$
|
13
|
|
Cash paid for income taxes
|
|
$
|
140
|
|
|
$
|
155
|
|
|
$
|
11
|
|
Supplemental
disclosure of noncash investing and financing activities (in
thousands)
During 2007, 2006 and 2005, the Company transferred $1,509,
$1,260 and $327, 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
64
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 cash equivalents are subject to
minimal credit and market risk. At December 29, 2007 and
December 30, 2006, cash equivalents were comprised of money
market funds totaling $23.3 million and $3.8 million,
respectively. These cash equivalents are carried at cost, which
approximates fair value.
65
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 29, 2007, and December 30, 2006, investments
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Market Value
|
|
|
Cost
|
|
|
Market Value
|
|
|
|
(In thousands)
|
|
|
Auction Rate Debt Securities
|
|
$
|
16,550
|
|
|
$
|
16,550
|
|
|
$
|
64,800
|
|
|
$
|
64,800
|
|
As of December 29, 2007, the Companys investments had
maturity dates ranging from February 2025 to June 2047. Despite
the long-term contractual maturities of the auction rate
securities held at December 29, 2007, all of these
securities were available for sale and it was the Companys
intention to liquidate these securities within one year.
Subsequent to December 29, 2007, the $16.6 million of
auction rate securities held at December 29, 2007 have been
liquidated.
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.
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 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.
66
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
163
|
|
|
$
|
117
|
|
|
$
|
50
|
|
Provision
|
|
|
|
|
|
|
121
|
|
|
|
83
|
|
Deduction(*)
|
|
|
(98
|
)
|
|
|
(75
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
65
|
|
|
$
|
163
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
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 net realizable value
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 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
554
|
|
|
$
|
485
|
|
|
$
|
1,903
|
|
Provision
|
|
|
106
|
|
|
|
267
|
|
|
|
251
|
|
Deduction(*)
|
|
|
(219
|
)
|
|
|
(198
|
)
|
|
|
(1,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
441
|
|
|
$
|
554
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Deductions related to inventory reserve accounts represent
amounts written off against the reserve. |
67
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 29, 2007 and December 30, 2006, the
Company had $4.8 million and $3.6 million
respectively, of 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 $0.7 million, $0.6 million and
$0.2 million of amortization expense for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005, 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 29,
2007 and December 30, 2006, the Company exceeded the
insured limit by $25.3 million and $6.1 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 business risk. At December 29,
2007 and December 30, 2006, 15% and 12% respectively, of
the Companys accounts receivable were due from the federal
government. At December 29, 2007 two additional customers
68
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accounted for 13% and 12%, respectively, of the Companys
accounts receivable balance. At December 30, 2006, two
additional customers each accounted for 17% of the
Companys account receivable balance. For the years ended
December 29, 2007, December 30, 2006, and
December 31, 2005 revenue from one customer, the federal
government, represented 35%, 34% and 28% of total revenue,
respectively.
Foreign
Currency Forward Contracts
In late 2007, the Company entered into several foreign currency
forward contracts to sell Canadian dollars for United States
dollars. The Companys objective in entering into these
contracts was to reduce foreign currency exposure to
appreciation or depreciation in the value of its Canadian dollar
based accounts receivable balances by partially offsetting a
portion of such exposure with gains or losses on the forward
contracts.
The Company accounted for these financial derivatives in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. These
foreign currency contracts did not qualify for hedge accounting
under SFAS No. 133. Accordingly, the foreign currency
forward contract was
marked-to-market
and recorded at fair value with unrealized gains and losses
reported along with foreign currency gains or losses in the
caption other income (expense), net on the
Companys consolidated statements of operations.
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.
In a review of its stock-based compensation accounting
methodology performed during the second quarter of fiscal 2007,
the Company determined that a cumulative adjustment of
$0.5 million of incremental stock-based compensation
expense, and a balance sheet reclassification of
$0.8 million from deferred compensation to additional
paid-in capital, were required due to a correction in the
application of SFAS No. 123(R). Upon adoption of
SFAS No. 123(R) on January 1, 2006, the Company
incorrectly valued 259,700 stock options that were granted
between the date that it filed its initial
Form S-1
registration statement with the Securities and Exchange
Commission on July 27, 2005 and the date it became a public
company (November 8, 2005). The Company believes, in
accordance with APB 28, paragraph 29, that this adjustment
did not have a material impact to its full year results for
2007. In addition, management does not believe the adjustment is
material to the amounts reported by the Company in previous
periods. This cumulative adjustment is included in the gross
profit and operating expenses for the fiscal year ended
December 29, 2007.
Under SFAS No. 123(R), entities that become public
companies after June 15, 2005 and used the minimum value
method of measuring equity share options and similar instruments
as a non-public company for either recognition or pro forma
disclosure purposes under SFAS No. 123 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).
69
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 $0.2 million,
$0.7 million and $0.4 million for the fiscal years
ended December 29, 2007, December 30, 2006 and
December 31, 2005, respectively. As of December 29,
2007, the deferred stock-based compensation balance associated
with these grants was $0.7 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 $0.3 million, $0.3 million
and $0.1 million for 2008, 2009 and 2010, respectively.
Under the provisions of SFAS No. 123(R), the Company
recognized $4.5 million of stock-based compensation expense
during the fiscal year ended December 29, 2007 for stock
options granted subsequent to the Companys initial filing
of its
Form S-1
with the SEC. The unamortized fair value as of December 29,
2007 associated with these grants was $15.8 million with a
weighted average remaining recognition period of 2.68 years.
The fair value of each option grant for the fiscal years ended
December 29, 2007 and December 30, 2006 was computed
on the grant date using the Black-Scholes option-pricing model
with the following assumptions:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
|
December 29, 2007
|
|
December 30, 2006
|
|
Risk-free interest rate
|
|
3.23% 4.90%
|
|
4.32% 5.11%
|
Expected dividend yield
|
|
|
|
|
Expected life
|
|
3.50 4.75 years
|
|
3.5 6.5 years
|
Expected volatility
|
|
50% 55%
|
|
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
70
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company performed an analysis that included company specific
historical data combined with data of several peer companies
with similar expected option lives to develop an expected
volatility assumption.
Based upon the above assumptions, the weighted average fair
value of each stock option granted for the fiscal year ended
December 29, 2007 was $8.64.
The Company has assumed a forfeiture rate of 5% for all stock
options granted subsequent to the Companys initial filing
of its
Form S-1
with the SEC with the exception of those issued to executives
and directors for which forfeiture rates of 0% and 2.5% were
assumed for fiscal years 2006 and 2007, respectively. 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.
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 year ended December 31,
2005 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,
|
|
|
|
2005
|
|
|
|
(In thousands except
|
|
|
|
per share data)
|
|
|
Net income as reported
|
|
$
|
2,610
|
|
Add back:
|
|
|
|
|
Stock-based employee compensation expense reported in net income
|
|
|
598
|
|
Less: Stock-based employee compensation expense determined under
fair-value method for all awards
|
|
|
(808
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
2,400
|
|
|
|
|
|
|
Pro forma net income attributable to common stockholders
|
|
$
|
1,428
|
|
|
|
|
|
|
Net income per share, as reported
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
0.11
|
|
Pro forma net income per share
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
0.10
|
|
Number of shares used in per share calculations
|
|
|
|
|
Basic
|
|
|
12,007
|
|
Diluted
|
|
|
14,331
|
|
The fair value of each option grant for the fiscal year 2005 was
estimated on the grant date using the Black-Scholes option
pricing model with the following assumptions:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.1
|
%
|
Expected dividend yield
|
|
|
|
|
Expected life
|
|
|
5 years
|
|
Expected volatility
|
|
|
65
|
%
|
71
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted average fair value of options granted during 2005
prior to and subsequent to the filing of its initial
Form S-1
registration statement with the SEC on July 27, 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 year 2005 was
$4.402.
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
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,172,475
|
|
|
|
10.81
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(442,204
|
)
|
|
|
1.43
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(63,787
|
)
|
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
3,271,484
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
700,245
|
|
|
|
21.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(384,827
|
)
|
|
|
2.72
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(87,192
|
)
|
|
|
16.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2006
|
|
|
3,499,710
|
|
|
$
|
8.34
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
812,778
|
|
|
|
17.33
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(793,283
|
)
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(273,117
|
)
|
|
|
7.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
3,246,088
|
|
|
$
|
12.29
|
|
|
|
6.35 years
|
|
|
$
|
22.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 29, 2007
|
|
|
2,996,037
|
|
|
$
|
12.20
|
|
|
|
6.32 years
|
|
|
$
|
21.3 million
|
|
Exercisable as of December 29, 2007
|
|
|
1,192,483
|
|
|
$
|
8.21
|
|
|
|
5.94 years
|
|
|
$
|
13.1 million
|
|
Weighted average fair value of options granted during the fiscal
year ended December 29, 2007
|
|
|
|
|
|
$
|
8.64
|
|
|
|
|
|
|
|
|
|
Options available for future grant at December 29, 2007
|
|
|
1,170,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 29, 2007 of $18.04 and
the exercise price of the underlying option. |
During fiscal years 2007, 2006 and 2005, the total intrinsic
value of stock options exercised was $11.7 million,
$7.0 million and $5.7 million, respectively. No
amounts relating to stock-based compensation have been
capitalized.
72
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
$
|
1.80
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(124,363
|
)
|
|
$
|
1.61
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
173,361
|
|
|
$
|
1.94
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(124,362
|
)
|
|
$
|
1.61
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2006
|
|
|
48,999
|
|
|
$
|
2.77
|
|
Granted
|
|
|
25,332
|
|
|
|
16.03
|
|
Vested
|
|
|
(24,500
|
)
|
|
|
2.77
|
|
Forfeited
|
|
|
(4,047
|
)
|
|
|
2.77
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
45,784
|
|
|
$
|
10.11
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2007, the unamortized fair value of all
restricted stock awards was $363,000. The Company expects to
recognize associated stock-based compensation expense of
$110,000, $100,000, $104,000 and $49,000 in 2008, 2009, 2010 and
2011, respectively.
The following table summarizes information about stock options
outstanding at December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$ 0.24 - $ 2.33
|
|
|
523,938
|
|
|
|
4.97
|
years
|
|
$
|
1.74
|
|
|
|
479,063
|
|
|
$
|
1.69
|
|
2.78 - 2.78
|
|
|
362,775
|
|
|
|
6.54
|
|
|
|
2.78
|
|
|
|
168,925
|
|
|
|
2.78
|
|
4.60 - 4.60
|
|
|
126,870
|
|
|
|
6.95
|
|
|
|
4.60
|
|
|
|
47,255
|
|
|
|
4.60
|
|
4.96 - 4.96
|
|
|
356,315
|
|
|
|
7.16
|
|
|
|
4.96
|
|
|
|
123,770
|
|
|
|
4.96
|
|
5.66 - 15.84
|
|
|
183,775
|
|
|
|
7.27
|
|
|
|
12.28
|
|
|
|
48,680
|
|
|
|
11.75
|
|
16.03 - 16.03
|
|
|
395,832
|
|
|
|
6.38
|
|
|
|
16.03
|
|
|
|
|
|
|
|
|
|
16.16 - 17.77
|
|
|
359,125
|
|
|
|
6.32
|
|
|
|
16.76
|
|
|
|
102,972
|
|
|
|
16.85
|
|
18.04 - 20.06
|
|
|
353,913
|
|
|
|
6.40
|
|
|
|
19.07
|
|
|
|
15,431
|
|
|
|
19.40
|
|
21.60 - 24.00
|
|
|
400,975
|
|
|
|
6.92
|
|
|
|
22.81
|
|
|
|
134,327
|
|
|
|
22.98
|
|
24.88 - 34.98
|
|
|
182,570
|
|
|
|
5.63
|
|
|
|
27.97
|
|
|
|
72,060
|
|
|
|
27.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.24 - $34.98
|
|
|
3,246,088
|
|
|
|
6.35
|
years
|
|
$
|
12.29
|
|
|
|
1,192,483
|
|
|
$
|
8.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes activity relating to restricted stock
units:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares Underlying
|
|
|
Grant Date Fair
|
|
|
|
Restricted Stock
|
|
|
Value
|
|
|
Outstanding at December 30, 2006
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
24,780
|
|
|
|
19.05
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(333
|
)
|
|
|
18.74
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
24,447
|
|
|
$
|
19.05
|
|
|
|
|
|
|
|
|
|
|
73
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 29, 2007, the unamortized fair value of all
restricted stock units was $429,000. The Company expects to
recognize associated stock-based compensation expense of
$106,000, $113,000, $123,000 and $87,000 in 2008, 2009, 2010 and
2011, respectively.
Advertising
Expense
The Company expenses advertising costs as they are incurred.
During the years ended December 29, 2007, December 30,
2006 and December 31, 2005 advertising expense totaled
$15.9 million, $14.3 million and $10.5 million,
respectively.
Income
Taxes
In June 2006, the 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 is effective for fiscal years
beginning after December 15, 2006. Accordingly, the Company
adopted FIN 48 beginning December 31, 2006 and the
impact of adoption on its opening balance of retained earnings
was zero. As of the beginning of fiscal year 2007, the Company
had no material unrecognized tax benefits and no material
unrecognized tax benefits were recorded in the fiscal year ended
December 29, 2007. The Company recognizes interest and
penalties related to unrecognized tax benefits in its tax
provision and there were no accrued interest or penalties as of
December 29, 2007, December 30, 2006 or
December 31, 2005.
The Company is subject to taxation in the United States and
various states and foreign jurisdictions. The statute of
limitations for assessment by the IRS and state tax authorities
is closed for fiscal years prior to December 31, 2004,
although carryforward attributes that were generated prior to
fiscal year 2004 may still be adjusted upon examination by
the IRS or state tax authorities if they either have been or
will be used in a future period. There are currently no federal
or state audits in progress.
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.
In fiscal 2007, the Company completed an analysis of historical
and projected future profitability which resulted in the full
release of the valuation allowance relating to federal deferred
tax assets. The Company continues to maintain a valuation
allowance against state deferred tax assets due to less
certainty of their realizability given the shorter expiration
period associated with these state deferred tax assets and the
generation of state tax credits in excess of the state tax
liability. At December 29, 2007, the Company has total
deferred tax assets of $12.9 million and a valuation
allowance of $2.7 million resulting in a net deferred tax
asset of $10.2 million.
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.
74
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
guidelines for measuring fair value and expands disclosures
regarding fair value measurements. SFAS 157 does not
require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. However, on
February 12, 2008, the FASB issued FSP
FAS 157-2
which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). This FSP
partially defers the effective date of Statement 157 to fiscal
years beginning after November 15, 2008, and interim
periods within those fiscal years for items within the scope of
this FSP. Effective for fiscal 2008, the company will adopt
SFAS 157 except as it applies to those nonfinancial assets
and nonfinancial liabilities as noted in FSP
FAS 157-2.
The partial adoption of SFAS 157 is not expected to have a
material impact on the Companys results of operations or
financial condition.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to choose fair value measurement for many
financial instruments and certain other items as of specified
election dates. Business entities will thereafter report in
earnings the unrealized gains and losses on items for which the
fair value option has been chosen. The fair value option may be
applied instrument by instrument, may not be applied to portions
of instruments and is irrevocable unless a new election date
occurs. SFAS 159 is effective for an entitys first
fiscal year beginning after November 15, 2007. The Company
is currently evaluating the potential impact of adoption of
SFAS 159 and has not yet determined the impact, if any,
that its adoption will have on its results of operations or
financial condition.
In December 2007, the FASB issued SFAS No. 141
(revised 2007) (SFAS 141R), Business
Combinations and SFAS No. 160
(SFAS 160), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51. SFAS 141R will
change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of
equity. The provisions of SFAS 141R and SFAS 160 are
effective for fiscal years beginning on or after
December 15, 2008. The Company is currently evaluating the
impact that SFAS 141R and SFAS 160 will have on its
results of operations or 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.
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
1,641
|
|
|
$
|
1,248
|
|
Work in process
|
|
|
517
|
|
|
|
311
|
|
Finished goods
|
|
|
43,064
|
|
|
|
19,331
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,222
|
|
|
$
|
20,890
|
|
|
|
|
|
|
|
|
|
|
75
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Computer and equipment
|
|
$
|
10,406
|
|
|
$
|
6,392
|
|
Furniture
|
|
|
577
|
|
|
|
536
|
|
Machinery
|
|
|
1,418
|
|
|
|
1,257
|
|
Tooling
|
|
|
5,977
|
|
|
|
4,445
|
|
Leasehold improvements
|
|
|
3,744
|
|
|
|
1,331
|
|
Software purchased for internal use
|
|
|
4,834
|
|
|
|
3,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,956
|
|
|
|
17,524
|
|
Less: accumulated depreciation and amortization
|
|
|
11,262
|
|
|
|
6,823
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,694
|
|
|
$
|
10,701
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005 was $5.3 million, $3.7 million,
and $2.1 million, respectively. Accumulated amortization on
leased equipment was $0.1 million at December 31, 2005.
In November 2007, the Company recorded an investment of
$2.5 million in a series of preferred stock of Advanced
Scientific Concepts, Inc. This investment is accounted for at
cost utilizing the cost method. On a going forward basis, the
Company will regularly monitor this investment to determine if
facts and circumstances have changed in a manner that would
require a change in accounting methodology. Additionally, the
Company will regularly evaluate whether or not this investment
has been impaired by considering such factors as economic
environment, market conditions, operational performance and
other specific factors relating to the business underlying the
investment. If any such impairment is identified, a reduction in
the carrying value of the investment would be recorded at that
time.
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accrued warranty
|
|
$
|
2,491
|
|
|
$
|
2,462
|
|
Accrued direct fulfillment costs
|
|
|
1,953
|
|
|
|
2,123
|
|
Accrued rent
|
|
|
197
|
|
|
|
284
|
|
Accrued sales commissions
|
|
|
1,074
|
|
|
|
502
|
|
Accrued accounting fees
|
|
|
361
|
|
|
|
332
|
|
Accrued income taxes
|
|
|
32
|
|
|
|
168
|
|
Accrued other
|
|
|
1,879
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,987
|
|
|
$
|
7,020
|
|
|
|
|
|
|
|
|
|
|
76
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Revolving
Line of Credit
|
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 expired on
May 26, 2007.
On June 5, 2007, the Company entered into a
$35 million unsecured revolving credit facility with Bank
of America, N.A. to replace its expired working capital line of
credit with Bank of America. The credit facility will be
available to fund working capital and other corporate purposes.
The interest on loans under its working capital line of credit
will accrue, at the Companys election, at either
(i) Bank of Americas prime rate minus 1% or
(ii) the Eurodollar rate plus 1.25%. The credit facility
will terminate and all amounts outstanding thereunder will be
due and payable in full on June 5, 2010. As of
December 29, 2007, the Company had letters of credit
outstanding of $2.1 million and $32.9 million
available under its working capital line of credit. This credit
facility contains customary terms and conditions for credit
facilities of this type, including restrictions on its 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, and consolidate or merge with
other entities.
In addition, the Company is required to meet certain financial
covenants customary with this type of agreement, including
maintaining a minimum specified tangible net worth, a minimum
specified ratio of current assets to current liabilities and a
minimum specified annual net income.
This credit facility contains customary events of default,
including for payment defaults, breaches of representations,
breaches of affirmative or negative covenants, cross defaults to
other material indebtedness, bankruptcy and failure to discharge
certain judgments. If a default occurs and is not cured within
any applicable cure period or is not waived, the Companys
obligations under the credit facility may be accelerated. At
December 29, 2007, the Company was in compliance with all
covenants under the credit facility.
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.
|
|
9.
|
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
77
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock under modified vesting requirements. The 2001 Plan is
administered by a Committee of the Board of 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, $0.1 million, $0.2 million
and $0.3 million was expensed in fiscal years, 2007, 2006,
2005 and 2004, respectively. The remaining balance of $14,000
will be expensed in 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 39, 2007, there were 1,170,440 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 7 or 10 years
from the date of grant or, if earlier, 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.
78
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,450
|
|
|
$
|
169
|
|
|
$
|
129
|
|
State
|
|
|
187
|
|
|
|
135
|
|
|
|
47
|
|
Foreign
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
1,640
|
|
|
|
304
|
|
|
|
176
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(10,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
(8,558
|
)
|
|
$
|
304
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred tax assets are as follows at
December 29, 2007 and December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
Current net deferred tax assets
|
|
|
|
|
|
|
|
|
Reserves and accruals
|
|
$
|
6,789
|
|
|
$
|
5,954
|
|
Valuation allowance
|
|
|
(884
|
)
|
|
|
(5,954
|
)
|
|
|
|
|
|
|
|
|
|
Total current net deferred tax assets
|
|
|
5,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current net deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
287
|
|
Capital loss carryforwards
|
|
|
99
|
|
|
|
99
|
|
Tax credits
|
|
|
2,913
|
|
|
|
3,212
|
|
Fixed assets
|
|
|
1,129
|
|
|
|
631
|
|
Stock based compensation
|
|
|
1,948
|
|
|
|
630
|
|
Valuation allowance
|
|
|
(1,796
|
)
|
|
|
(4,859
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current net deferred tax assets
|
|
|
4,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
10,198
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
79
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net change in valuation allowance from the prior year is
primarily due to the realization in 2007 that the deferred tax
assets related to certain temporary differences will more likely
than not be realized based on future projections of taxable
income. The valuation allowance as of December 29, 2007
relates to all state deferred tax assets, including state
credits, and state net operating losses.
At December 29, 2007, the Company had available net
operating loss carryforwards for federal and state purposes of
$8.6 million and $3.1 million respectively. All 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 2026.
The state net operating loss carryforwards will begin to expire
in the current year. The Company also had available research and
development credits carryforwards to offset future federal and
state taxes of $1.4 million and $1.8 million
respectively, which expire at various dates from 2012 to 2027,
and investment tax credit carryforwards to offset future state
taxes of $0.2 million, which expire from 2011 to 2012.
Under the Internal Revenue Service Code, certain substantial
changes in the Companys ownership could result in an
annual limitation on the amount of net operating losses and tax
credit carryforwards which can be utilized in future years.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Expected federal income tax
|
|
$
|
171
|
|
|
$
|
1,315
|
|
|
$
|
947
|
|
Permanent items
|
|
|
91
|
|
|
|
38
|
|
|
|
26
|
|
State taxes
|
|
|
301
|
|
|
|
(236
|
)
|
|
|
133
|
|
Credits
|
|
|
(1,148
|
)
|
|
|
(742
|
)
|
|
|
(166
|
)
|
Non deductible stock compensation
|
|
|
276
|
|
|
|
234
|
|
|
|
|
|
Other
|
|
|
(115
|
)
|
|
|
6
|
|
|
|
36
|
|
Increase (decrease) in valuation allowance
|
|
|
(8,134
|
)
|
|
|
(311
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,558
|
)
|
|
$
|
304
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As disclosed in Note 2, the Company adopted the provisions
of FIN 48 as of December 31, 2006. At
December 29, 2007, the Company had no material unrecognized
tax benefits. Additionally, there were no accrued interest or
penalties as of December 29, 2007, December 30, 2006
or December 31, 2005.
|
|
13.
|
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.
80
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On August 17, 2007, the Company filed a lawsuit in
Massachusetts Superior Court against Robotic FX, Inc. and Jameel
Ahed alleging, among other things, misappropriation of trade
secrets and breach of contract, and seeking both injunctive and
monetary relief. The case was subsequently removed to the United
States District Court for the District of Massachusetts. On
November 2, 2007, the court issued a preliminary
injunction, and on December 21, 2007 issued a permanent
injunction, against Robotic FX, Inc. and Mr. Ahed
preventing the sale of products using certain of our trade
secrets, including the Robotic FX Negotiator product.
In addition, on August 17, 2007, the Company filed a
lawsuit in the United States District Court for the Northern
District of Alabama against Robotic FX, Inc. alleging willful
infringement of two patents owned by the Company, and seeking
both injunctive and monetary relief. On December 21, 2007,
the court entered a judgment that Robotic FX, Inc. knowingly
infringed on both asserted patents.
In a related settlement, Robotic FX, Inc. will be dissolved and
certain residual assets retained by the Company at its election.
Mr. Ahed is prohibited from participating in competitive
activities in the robotics industry for five years.
The cumulative litigation and settlement-related expenditures
associated with this dispute are expected to total approximately
$3.0 million, including an obligation to make cash payments
up to $0.7 million through 2012, contingent upon
Mr. Ahed and Robotic FX, Inc. continuing to meet
obligations pursuant to various agreements, including but not
limited to certain non-competition provisions. These contingent
payments will be expensed, when and if earned.
Lease
Obligations
The Company leases its facilities. Rental expense under
operating leases for 2007, 2006 and 2005 amounted to
$2.1 million, $2.1 million, and $1.3 million,
respectively. Future minimum rental payments under operating
leases were as follows as of December 29, 2007:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
2008
|
|
$
|
3,295
|
|
2009
|
|
|
2,337
|
|
2010
|
|
|
2,226
|
|
2011
|
|
|
2,210
|
|
2012
|
|
|
2,162
|
|
Thereafter
|
|
|
15,333
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
27,563
|
|
|
|
|
|
|
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 29, 2007 and December 30, 2006, respectively.
81
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
2,462
|
|
|
$
|
2,031
|
|
|
$
|
1,398
|
|
Provision
|
|
|
6,649
|
|
|
|
5,971
|
|
|
|
4,133
|
|
Warranty usage(*)
|
|
|
(6,620
|
)
|
|
|
(5,540
|
)
|
|
|
(3,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,491
|
|
|
$
|
2,462
|
|
|
$
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product
warranties unutilized. |
Sales
Taxes
The Company collects and remits sales tax in jurisdictions in
which we have a physical presence or in which we believe nexus
exists, which obligates us to collect and remit sales tax. The
Company is not currently aware of any asserted claims for sales
tax liabilities for prior taxable periods, and no jurisdiction
has audited or indicated any intention of auditing sales and use
tax compliance.
The Company has conducted an evaluation of whether it has
established nexus in various jurisdictions with respect to sales
and use taxes. As a result of this evaluation, the Company
recorded a liability for potential exposure in one jurisdiction.
In an effort to mitigate its potential liability, the Company
intends to approach this state pursuant to voluntary disclosure
arrangements. The Company continues to analyze possible sales
tax exposure, but does not currently believe that any individual
claim or aggregate claims that might arise will ultimately have
a material effect on its consolidated results of operations,
financial position or cash flows.
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 $0.8 million, $0.7 million and
$0.5 million for the plan years ended December 29,
2007, December 30, 2006 and December 31, 2005
(Plan-Year 2007, Plan-Year 2006 and
Plan-Year 2005), 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 2007,
Plan-Year 2006 and Plan-Year 2005 is entitled up to a maximum of
three percent of his or her eligible annual payroll. The
employer matching contribution for Plan-Year 2007 is included in
accrued compensation.
82
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
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 29,
|
|
|
December 30,
|
|
|
December, 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
$
|
144,483
|
|
|
$
|
112,430
|
|
|
$
|
93,955
|
|
Government & Industrial
|
|
|
104,598
|
|
|
|
76,525
|
|
|
|
47,945
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
249,081
|
|
|
|
188,955
|
|
|
|
141,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
97,878
|
|
|
|
68,066
|
|
|
|
58,025
|
|
Government & Industrial
|
|
|
68,616
|
|
|
|
51,189
|
|
|
|
36,279
|
|
Other
|
|
|
|
|
|
|
(35
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
166,494
|
|
|
|
119,220
|
|
|
|
94,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
46,605
|
|
|
|
44,364
|
|
|
|
35,930
|
|
Government & Industrial
|
|
|
35,982
|
|
|
|
25,336
|
|
|
|
11,666
|
|
Other
|
|
|
|
|
|
|
35
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
82,587
|
|
|
|
69,735
|
|
|
|
47,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
17,082
|
|
|
|
17,025
|
|
|
|
11,601
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
44,894
|
|
|
|
33,969
|
|
|
|
21,796
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
20,919
|
|
|
|
18,703
|
|
|
|
12,072
|
|
Litigation and related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,151
|
|
|
|
3,831
|
|
|
|
676
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
502
|
|
|
$
|
3,869
|
|
|
$
|
2,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geographic
Information
For the fiscal years ended December 29, 2007 and
December 30, 2006, sales to
non-U.S. customers
accounted for 13.1% and 11.0% of total revenue, respectively.
For the year ended December 29, 2007, no one country
accounted for more than 10% of total revenue.
Significant
Customers
For the fiscal years ended December 29, 2007 and
December 30, 2006, U.S. federal government orders,
contracts and subcontracts accounted for 34.9% and 34.4% of
total revenue, respectively.
|
|
16.
|
Quarterly
Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
April 1,
|
|
|
July 1,
|
|
|
September 30,
|
|
|
December 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 29,
|
|
|
December 29,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue
|
|
$
|
38,209
|
|
|
$
|
34,561
|
|
|
$
|
55,047
|
|
|
$
|
61,138
|
|
|
$
|
39,487
|
|
|
$
|
47,014
|
|
|
$
|
63,840
|
|
|
$
|
98,740
|
|
Gross profit
|
|
|
12,193
|
|
|
|
11,777
|
|
|
|
22,983
|
|
|
|
22,782
|
|
|
|
11,117
|
|
|
|
15,224
|
|
|
|
20,112
|
|
|
|
36,134
|
|
Net income (loss)
|
|
|
(2,917
|
)
|
|
|
(1,777
|
)
|
|
|
10,042
|
|
|
|
(1,783
|
)
|
|
|
(5,501
|
)
|
|
|
(4,776
|
)
|
|
|
(1,378
|
)
|
|
|
20,715
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.12
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.39
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.81
|
|
84
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not Applicable.
|
|
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 29, 2007, 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 29, 2007 based on
the specified criteria.
The effectiveness of the Companys internal control over
financial reporting as of December 29, 2007 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which is
included herein.
85
Changes
in Internal Control Over Financial Reporting
During the quarter ended December 29, 2007, 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; 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 29, 2007.
|
|
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 29, 2007.
|
|
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 29, 2007.
|
|
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 29, 2007.
86
|
|
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 29, 2007.
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 29, 2007 and
December 30, 2006
Consolidated Statements of Operations for the Years ended
December 29, 2007, December 30, 2006, and
December 31, 2005
Consolidated Statements of Stockholders Equity (Deficit)
for the Years ended December 29, 2007, December 30,
2006, and December 31, 2005
Consolidated Statements of Cash Flows for the Years ended
December 29, 2007, December 30, 2006, and
December 31, 2005
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
(filed as Exhibit 10.4 to the Registrants Annual
Report on
Form 10-K
for the year ended December 30, 2006 and incorporated by
reference herein)
|
87
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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
|
|
Amended and Restated 2004 Stock Option and Incentive Plan and
forms of agreements thereunder (filed as Exhibit 10.4 to
the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
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*
|
|
Form of Executive Agreement between the Registrant and certain
executive officers of the Registrant, as amended
|
|
10
|
.11(1)
|
|
Employment Agreement between the Registrant and Helen Greiner,
dated as of January 1, 1997
|
|
10
|
.12(1)
|
|
Employment Agreement between the Registrant and Colin Angle,
dated as of January 1, 1997
|
|
10
|
.13(1)
|
|
Employment Agreement between the Registrant and Joseph W. Dyer,
dated as of February 18, 2004
|
|
10
|
.14
|
|
Independent Contractor Agreement between the Registrant and
Rodney Brooks, dated as of December 30, 2002
|
|
10
|
.15(1)
|
|
Government Contract DAAE07-03-9-F001 (Small Unmanned Ground
Vehicle)
|
|
10
|
.16(1)
|
|
Government Contract N00174-03-D-0003 (Man Transportable Robotic
System)
|
|
10
|
.17(1)
|
|
2005 Stock Option and Incentive Plan and forms of agreements
thereunder
|
|
10
|
.18#(1)
|
|
Manufacturing and Services Agreement between the Registrant and
Gem City Engineering Corporation, dated as of July 27, 2004
|
|
10
|
.19*
|
|
Non-Employee Directors Deferred Compensation Program, as
amended
|
|
10
|
.20
|
|
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 (filed as Exhibit 10.22 to the Registrants
Annual Report on
Form 10-K
for the year ended December 30, 2006 and incorporated by
reference herein)
|
|
10
|
.21
|
|
Form of Restricted Stock Award Agreement under the
Registrants 2005 Stock Option and Incentive Plan (filed as
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on May 24, 2007 and incorporated by reference herein)
|
|
10
|
.22
|
|
Form of Deferred Stock Award Agreement under the
Registrants 2005 Stock Option and Incentive Plan (filed as
Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.23
|
|
Credit Agreement between the Registrant and Bank of America,
N.A., dated as of June 5, 2007 (filed as Exhibit 10.1
to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.24
|
|
Master Loan and Security Agreement between the Registrant and
Banc of America Leasing and Capital, LLC, dated as of
June 13, 2007 and Addendum to Master Loan and Security
Agreement between the Registrant and Banc of America Leasing
Capital, LLC, dated as of June 19, 2007 (filed as
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.25#
|
|
Manufacturing Agreement between the Registrant and Kin Yat
Industrial Co. Ltd., dated as of March 23, 2007 (filed as
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
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)
|
88
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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 |
89
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: February 25, 2008
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 February 25, 2008.
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Signature
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Title(s)
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/s/ Helen
Greiner
Helen
Greiner
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Chairman of the Board
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/s/ Colin
M. Angle
Colin
M. Angle
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Chief Executive Officer and Director
(Principal Executive Officer)
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/s/ Geoffrey
P. Clear
Geoffrey
P. Clear
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Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
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/s/ Alison
Dean
Alison
Dean
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Vice President, Financial Controls & Analysis (Principal
Accounting Officer)
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/s/ Ronald
Chwang
Ronald
Chwang
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Director
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/s/ Jacques
S. Gansler
Jacques
S. Gansler
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Director
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/s/ Rodney
A. Brooks
Rodney
A. Brooks
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Director
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90
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Signature
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Title(s)
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/s/ Andrea
Geisser
Andrea
Geisser
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Director
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/s/ George
C. McNamee
George
C. McNamee
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Director
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/s/ Peter
Meekin
Peter
Meekin
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Director
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/s/ Paul
J. Kern
Paul
J. Kern
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Director
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91
EXHIBIT INDEX
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|
|
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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)
|
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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
(filed as Exhibit 10.4 to the Registrants Annual
Report on
Form 10-K
for the year ended December 30, 2006 and incorporated by
reference herein)
|
|
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
|
|
Amended and Restated 2004 Stock Option and Incentive Plan and
forms of agreements thereunder (filed as Exhibit 10.4 to
the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
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*
|
|
Form of Executive Agreement between the Registrant and certain
executive officers of the Registrant, as amended
|
|
10
|
.11(1)
|
|
Employment Agreement between the Registrant and Helen Greiner,
dated as of January 1, 1997
|
|
10
|
.12(1)
|
|
Employment Agreement between the Registrant and Colin Angle,
dated as of January 1, 1997
|
|
10
|
.13(1)
|
|
Employment Agreement between the Registrant and Joseph W. Dyer,
dated as of February 18, 2004
|
|
10
|
.14
|
|
Independent Contractor Agreement between the Registrant and
Rodney Brooks, dated as of December 30, 2002
|
|
10
|
.15(1)
|
|
Government Contract DAAE07-03-9-F001 (Small Unmanned Ground
Vehicle)
|
|
10
|
.16(1)
|
|
Government Contract N00174-03-D-0003 (Man Transportable Robotic
System)
|
|
10
|
.17(1)
|
|
2005 Stock Option and Incentive Plan and forms of agreements
thereunder
|
|
10
|
.18#(1)
|
|
Manufacturing and Services Agreement between the Registrant and
Gem City Engineering Corporation, dated as of July 27, 2004
|
|
10
|
.19*
|
|
Non-Employee Directors Deferred Compensation Program, as
amended
|
|
10
|
.20
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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 (filed as Exhibit 10.22 to the Registrants
Annual Report on
Form 10-K
for the year ended December 30, 2006 and incorporated by
reference herein)
|
|
10
|
.21
|
|
Form of Restricted Stock Award Agreement under the
Registrants 2005 Stock Option and Incentive Plan (filed as
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on May 24, 2007 and incorporated by reference herein)
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.22
|
|
Form of Deferred Stock Award Agreement under the
Registrants 2005 Stock Option and Incentive Plan (filed as
Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.23
|
|
Credit Agreement between the Registrant and Bank of America,
N.A., dated as of June 5, 2007 (filed as Exhibit 10.1
to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.24
|
|
Master Loan and Security Agreement between the Registrant and
Banc of America Leasing and Capital, LLC, dated as of
June 13, 2007 and Addendum to Master Loan and Security
Agreement between the Registrant and Banc of America Leasing
Capital, LLC, dated as of June 19, 2007 (filed as
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
10
|
.25#
|
|
Manufacturing Agreement between the Registrant and Kin Yat
Industrial Co. Ltd., dated as of March 23, 2007 (filed as
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated by
reference herein)
|
|
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 |