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 January 1,
2011
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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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8 Crosby Drive, Bedford, MA
(Address of principal
executive offices)
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01730
(Zip
Code)
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(781) 430-3000
(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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o 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 $383,300,000
based on the last reported sale of the Common Stock on the
NASDAQ Global Market on July 2, 2010.
As of February 14, 2011, there were 26,034,629 shares
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 January 1, 2011. Portions of 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 January 1, 2011
TABLE OF CONTENTS
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PART I
This Annual Report on
Form 10-K
contains forward-looking statements. All statements other than
statements of historical facts contained in this Annual Report
on
Form 10-K,
including statements regarding our future results of operations
and financial position, business strategy, plans and objectives
of management for future operations, and plans for product
development and manufacturing 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, iRobot Dirt Dog, PackBot, Warrior,
Looj, Verro, Create, Negotiator, Virtual Wall, Home Base, and
Aware are trademarks of iRobot Corporation.
Overview
iRobot Corporation (iRobot or the
Company or we) designs and builds robots
that make a difference. For over 20 years, we have
developed proprietary technology incorporating advanced concepts
in navigation, mobility, manipulation and artificial
intelligence to build industry-leading robots. Our home care
robots perform time-consuming domestic chores while our
government and industrial robots perform tasks such as
battlefield reconnaissance and bomb disposal, multi-purpose
tasks for local police and first responders, and long-endurance
oceanic missions. We sell our robots to consumers through a
variety of distribution channels, including chain stores and
other national retailers, and through our on-line store, and to
the U.S. military and other government agencies worldwide.
We maintain certifications for AS9100 and Capability Maturity
Model Integration, or CMMI, which enable us to service our
military products and services.
Since our founding, we have accumulated expertise in all the
disciplines necessary to design and 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 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.
Over the past eight years, we sold approximately 6 million
of our home care robots. We also sold during that time more than
3,500 of our tactical military robots, most of which have been
sold to the U.S. military and deployed on missions in
Afghanistan and Iraq.
Strategy
Our goal is to design and build innovative robots that make a
difference and are adaptable for use in a broad range of
applications. We intend to increase the penetration of our
products in existing markets, expand existing products into new
markets, and develop and launch new products into current and
adjacent markets. Our strategy is to maintain a leadership
position by quickly delivering robotic technology-based remote
presence and automated home maintenance solutions that delight
our customers and anticipate their needs, while extending our
technical leadership in the areas of robot autonomy,
manipulation and platforms. Remote presence is the core of our
military robots which save lives by keeping warfighters at safe
standoff distances from hazards while they perform dangerous,
difficult and persistent missions. With increasing levels of
autonomy, continued mobility improvements, more sophisticated
sensor suites and advanced human interfaces, remote presence
systems will expand in
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effectiveness and efficiency and reduce the requirements for
actual physical operator presence and control. In the area of
automated home maintenance, we seek to enable home environments
that are persistently sanitary and safe while requiring as
little human physical intervention as possible. Key elements of
our strategy include:
Leverage Common Platforms and Software: By
committing long-term to a given platform and providing
incremental upgrades, we create a valuable installed base that
supports third-party development and greatly simplifies service
and support. When entering new product areas that cannot be
serviced with existing platforms, we intend to develop a
multi-generational platform strategy that allows for rapid
learning and long-term incremental improvements. Through the use
and development of a common software architecture, we intend to
create a robot intelligence system of enduring value and build a
formidable advantage that stifles competition. Our common
software will allow high reuse, reducing development costs of
new systems and payloads, as well as reducing development
timelines.
Continued Growth through Profitability, Operational
Excellence and Customer Focus. We intend to
consistently improve our profitability through disciplined
allocation of resources and by reducing costs of materials,
adjusting prices, optimizing our product and channel mix,
focusing on our discretionary spending and reducing our
seasonality. We will continue to focus on improving the
scalability and efficiency of our supply chain process and on
mitigating single source supply exposure. We will identify,
develop and enhance product features and functionality while
also aggressively focusing on product reliability.
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 avoid 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. 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.
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. We
outsource certain non-core activities, such as manufacturing and
back-office functions, which helps us focus our resources on our
core competencies.
Develop a Community of Third-Party Developers Around Our
Platforms. We have developed products around
which communities of third-party developers can create related
accessories, software and complementary products. We intend to
foster this community by making our products into extensible
platforms with open interfaces designed to carry payloads.
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
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stairs, and also allow our PackBot robots and our other 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, we have developed sensors that fit particular
cost-performance criteria. In other cases, we use
off-the-shelf
sensing hardware, such as laser scanners, cameras and optical
sensors.
User-Friendly Interfaces. Our robots require
that users interact and instruct our robots in intuitive ways
without extensive end-user
set-up,
installation, training or instruction. For example, our Roomba
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 build robots for the consumer and government and
industrial markets. With two decades of leadership in the robot
industry, we remain committed to establishing robot and software
platforms for invention and discovery, building key partnerships
to develop mission-critical payloads and creating robots that
improve the standards of safety and living worldwide.
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.
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. 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 dirt and grime, is safe for use on all
sealed, hard floor surfaces, including wood and tile, and is
smart enough to avoid carpet.
Our Verro Pool Cleaning Robot 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 three models available.
Our Looj Gutter Cleaning Robot was designed to simplify the
difficult and dangerous job of gutter cleaning. The Looj cleans
an entire stretch of gutter, reducing the number of times a
ladder must be repositioned and climbed
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during gutter cleaning. The Looj also features a detachable
handle that doubles as a wireless remote control, providing full
control of the robot while cleaning.
Our Create Programmable Robot is a fully assembled programmable
robot. The Create has ten built-in demos and 32 sensors that
allow users to experiment with robotics. An open cargo bay
allows the user to add their 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.
Government
and Industrial Products
In government and industrial product markets, we currently offer
both ground and maritime unmanned vehicles. Our tactical ground
robots include the combat-tested 510 PackBot line of small,
unmanned ground robots, the 310 SUGV and 320 SUGV (Small
Unmanned Ground Vehicle) multi-purpose ground robots and the
low-cost 210 Negotiator for state and local police and first
responders. The PackBot, SUGV, and Negotiator robot series make
up a family of robots using many common platform components and
offer our patented flipper technology that enables robots to
easily climb stairs, navigate rubble, and penetrate inaccessible
areas. These robots are designed to keep war fighters and public
safety officials out of harms way and are designed for
high-performance, durability and ease of use while performing
search, reconnaissance, mapping, bomb disposal and other
dangerous missions. As of January 1, 2011, more than 3,500
robots have been delivered to military and civil defense forces
worldwide. The robots are currently priced between approximately
$20,000 and $195,000 per unit, depending on configuration and
quantities ordered.
We continue to refine the PackBot product line, focusing on
enhanced modularity and providing new capabilities to support
new mission areas. Our unique Aware 2 software is incorporated
into the advanced 510 PackBot chassis and operator control unit.
As a result, PackBot can support multiple configurations and
payloads with the same chassis and operator control unit,
providing customers with a single robot capable of multiple
missions. iRobot also utilizes
Configure-To-Order
(CTO) procurement options for our commercial 510 PackBot,
allowing customers to tailor the product to their specific
mission needs. The combined benefits of the Aware 2 software and
CTO procurement options establish the 510 PackBot as a truly
modular multi-mission robotic platform.
The 310 and 320 SUGV continue to see strong demand as a family
of light weight backpackable robots well suited to dismounted
operations in Afghanistan. Over 300 310 SUGV mini-EODs were
delivered in 2010 and follow-on deliveries to the U.S. Air
Force are currently in progress. The 320 SUGV (Army designation
XM1216) Increment I infantry robot completed development and a
successful Limited User Test (LUT) leading to delivery of 30 Low
Rate Initial Production (LRIP) units in the fourth quarter.
Increment 2 development efforts continued in 2010 leading to an
expected critical design review in 2011. Within our maritime
business, the 1Ka Seaglider is a long endurance autonomous
underwater vehicle designed for oceanic missions to measure
temperature, salinity, depth-averaged current and other data for
scientific and military planners. During 2010 and as part of
Operation Clean Sweep, iRobot Seaglider robots were deployed to
and assisted in monitoring the Gulf of Mexico oil spill
disaster. These Seagliders were equipped with sensors that aided
in determining the presence of suspended oil below the surface
and also measured dissolved oxygen levels to help predict
impacts on sea life.
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,
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 of 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.
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Strategic
Alliances
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 organizations that can provide
best-in-class
technology or market advantages for establishing iRobot
technology in new market segments.
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 developers to add
payloads to our robots, improving their functionality.
Sales and
Distribution Channels
We sell our products through distinct sales channels to the
consumer and government and industrial markets. For the fiscal
years ended January 1, 2011, January 2, 2010 and
December 27, 2008, sales to
non-U.S. customers
accounted for 41.1%, 33.3% and 23.4% of total revenue,
respectively. During this time period, sales to
non-U.S. customers
in any single country did not account for more than 10% of total
revenue in any fiscal year. For the fiscal years ended
January 1, 2011, January 2, 2010 and December 27,
2008, U.S. federal government orders, contracts and
subcontracts accounted for 38.4%, 36.9% and 40.3% of total
revenue, respectively. For the fiscal year ended January 1,
2011, we generated 17.4% of total revenue from The Boeing
Company as a subcontractor under U.S. federal government
contracts.
Home
Robots
In the United States and Canada, we sell our consumer products
through a network of national retailers. In 2010, this network
consisted of more than 30 retailers which often sell either one
or some combination of our products. Certain smaller domestic
retail operations are supported by distributors to whom we sell
product directly. In support of these sales activities, we
maintain an in-house sales and product management team.
Internationally, our products have been sold in approximately 40
countries, primarily through a network of in-country
distributors who resell to retail stores in their respective
countries. These distributors are supported by our international
sales and product marketing team.
Our retail and distributor networks are our primary distribution
channels for our consumer products. We also offer products
direct-to-consumer
through our domestic and international on-line stores,
representing 11.5% and 17.1% of total home robots division
revenue for fiscal 2010 and 2009, respectively. 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, which provides an enhanced
position from which to improve our distribution and product
offerings.
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, Bosnia,
Lithuania, Pakistan, Qatar, Taiwan, South Africa and Canada.
Our government products are sold by a team of 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
direct sales and support presence in Europe.
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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.
Marketing
and Brand
We market our home robots to end-user customers through our
sales and marketing teams as well as through our extensive
network of retailers and in-country distributors. We market our
government and industrial products directly through our team of
government sales specialists to end users and indirectly through
prime contractors. Our website is also playing an increasing
role in supporting brand awareness, addressing customer
questions and serving as a showcase for our products.
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 12.6%,
13.7% and 15.2% of our total revenue in 2010, 2009 and 2008,
respectively. We expect to continue to invest in national
advertising, consumer and industry trade shows, direct marketing
and public relations to further build brand awareness.
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 among
the first-tier partners on the U.S. Armys Brigade
Combat Team Modernization 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.
Manufacturing
Our core competencies are the design, development and marketing
of robots. Our manufacturing strategy is to outsource non-core
competencies, 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.
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 three
contract manufacturers, each of which manufactures at a single
plant in China. Our PackBot, Small Unmanned Ground Vehicle
(SUGV) and Maritime families of government and industrial
products are each manufactured by separate contract
manufacturers located in the United States. The manufacturing of
our Negotiator family of products is outsourced to a contract
manufacturer in India.
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 January 1, 2011,
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January 2, 2010 and December 27, 2008, our research
and development expenses were $24.8 million,
$14.7 million and $17.6 million, respectively. In
addition to our internal research and development activities,
for the years ended January 1, 2011, January 2, 2010
and December 27, 2008, we have incurred research and
development expenses under funded development arrangements with
governments and industrial third parties of $27.1 million,
$30.8 million and $23.9 million, respectively. Of our
total research and development spending in 2010, 2009 and 2008,
approximately 50.4%, 63.9% and 51.7%, respectively was funded by
government-sponsored research and development contracts. For the
years ended January 1, 2011, January 2, 2010 and
December 27, 2008, the combined investment in future
technologies, classified as cost of revenue and research and
development expense, was $51.9 million, $45.5 million
and $41.5 million, respectively. 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.
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. Our
domestic research and development efforts are primarily located
at our headquarters in Bedford, Massachusetts, our office in
Durham, North Carolina, and our special projects engineering
office in San Luis Obispo, California.
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. Government
funding is provided to further the development of robot
technologies with the expectation that if the projects result in
the development of technically viable prototypes, 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, both consumer and industrial,
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. 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.
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 competitors include developers of robot floor
cleaning products, developers of small unmanned ground vehicles,
established government contractors working on unmanned systems,
and developers of small unmanned underwater vehicles.
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 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.
9
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 January 1, 2011, we held 82 U.S. patents and
more than 150 pending U.S. patent applications. Also, we
held 34 foreign patents, additional design registrations, and
more than 100 pending foreign applications. Our
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, Negotiator, Aware,
Home Base, Looj, Verro, Virtual Wall, and Warrior. 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.
Our business may require the compliance with state or local laws
designed to limit the uses of personal user information gathered
online or require online services to establish privacy policies.
Government
and Industrial Product Backlog
Our government and industrial product backlog consists of
written orders or contracts to purchase our products received
from our government and industrial customers. Total backlog of
product sales to government and industrial customers, which
includes federal, state, local and foreign governments, and
non-government customers, as of January 1, 2011 and
January 2, 2010 amounted to approximately
$23.9 million and $42.2 million, respectively. 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 our 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 January 1, 2011, we had 657 full-time employees
located in the United States and abroad, of whom 304 are in
research and development, 156 are in operations, 78 are in sales
and marketing and 119 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 margin 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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expand our product offerings beyond our existing robots;
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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.
These fluctuations will be due to numerous factors including:
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the size and timing of orders from military and other government
agencies;
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the size, timing and mix of orders from retail stores and
international distributors for our home care robots;
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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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seasonality in the sales of our consumer products, which have
historically been heavily weighted in the second half of the
year;
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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 and availability of labor and raw materials;
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costs of freight;
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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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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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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. 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. 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.
Global
economic conditions and any associated impact on consumer
spending could have a material adverse effect on our business,
results of operations and financial condition.
Continued economic uncertainty and reductions in consumer
spending may result in reductions in sales of our consumer
robots. Additionally, disruptions in credit markets may
materially limit consumer credit availability and restrict
credit availability of our retail customers, which would also
impact purchases of our consumer robots. Any reduction in sales
of our consumer robots, resulting from reductions in consumer
spending or continued disruption in the availability of credit
to retailers or consumers, could materially and adversely affect
our business, results of operations and financial condition.
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 January 1, 2011 and January 2,
2010, we derived 57.2% and 55.5% of our total revenue from our
consumer robots, respectively. For the foreseeable future, we
expect that a significant portion of our revenue will 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 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 January 1, 2011 and January 2,
2010, we derived 38.4% and 36.9% of our total revenue,
respectively, directly or indirectly, from the U.S. federal
government and its agencies. Any reduction in the amount
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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. U.S. Government
programs in which we participate, or in which we may seek to
participate in the future, must compete with other programs for
consideration during our nations budget formulation and
appropriation processes, and may be affected by changes in
general economic conditions. Budget decisions made in this
environment may have long-term consequences for our size and
structure and that of the defense industry. It is possible that
one or more of our programs will be reduced, extended, or
terminated. Reductions in our existing programs, unless offset
by other programs and opportunities, could adversely affect our
ability to grow our sales and profitability.
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 January 1,
2011 and January 2, 2010, 62.7% and 40.3% of our total
contract revenue was derived from our participation in the
U.S. Armys BCTM program, respectively. Future sales
of our military 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 business and results of operations
could be negatively affected by significant changes in the
policies and spending priorities of governments and government
agencies. 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.
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
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limitation of liability. These provisions could cause
substantial liability for us, especially given the use to which
our products may be put.
In addition, we are subject to audits by the U.S. federal
government as part of routine audits of government contracts. As
part of an audit, these agencies may review our performance on
contracts, cost structures and compliance with applicable laws,
regulations and standards. If any of our costs are found to be
allocated improperly to a specific contract, the costs may not
be reimbursed and any costs already reimbursed for such contract
may have to be refunded. Accordingly, an audit could result in a
material adjustment to our revenue and results of operations.
Moreover, if an audit uncovers improper or illegal activities,
we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with the government.
If any of the foregoing were to occur, or if the
U.S. federal government otherwise ceased doing business
with us or decreased the amount of business with us, our
business and operating results could be materially harmed and
the value of your investment in our common stock could be
impaired.
Some
of our contracts with the U.S. federal government allow it to
use inventions developed under the contracts and to disclose
technical data to third parties, which could harm our ability to
compete.
Some of our contracts allow the U.S. federal government
rights to use, or have others use, patented inventions developed
under those contracts on behalf of the government. Some of the
contracts allow the federal government to disclose technical
data without constraining the recipient in how that data is
used. The ability of third parties to use patents and technical
data for government purposes creates the possibility that the
government could attempt to establish additional sources for the
products we provide that stem from these contracts. It may also
allow the government the ability to negotiate with us to reduce
our prices for products we provide to it. The potential that the
government may release some of the technical data without
constraint creates the possibility that third parties may be
able to use this data to compete with us in the commercial
sector.
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 largely on several single source contract
manufacturers, for the manufacture of our various families of
home care and government products. All contract manufacturers
for our home robots are located in China. 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,
which 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;
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risks associated with international commerce, 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; and
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our attempts to add additional manufacturing resources may be
significantly delayed and thereby create disruptions in
production of our products.
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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
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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. Efforts
to expand our product offerings beyond the 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 have grown rapidly. This rapid
growth has placed, and will continue to place, a significant
strain on our management, administrative, operational and
financial infrastructure. From January 2, 2010 to
January 1, 2011, the number of our employees increased from
538 to 657. We anticipate further growth will be required to
address increases in our product offerings on 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. 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 or if we fail to
maintain or increase our consumer robot sales through our
distribution channels, 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 January 1, 2011 and January 2, 2010, consumer
robots accounted for 57.2% and 55.5%, 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.
We do not have long-term contracts regarding purchase volumes
with any of our retail partners. 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 retail partners. A decision by a major retail
partner, 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 partners, 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 partner relationship with us or in a retail
partners financial position could cause us to limit or
discontinue
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business with that partner, require us to assume more credit
risk relating to that partners receivables or limit our
ability to collect amounts related to previous purchases by that
partner, 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.
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.
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 competitors include developers
of robot floor cleaning products, developers of small unmanned
ground vehicles, established government contractors working on
unmanned systems, and developers of small unmanned underwater
vehicles.
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.
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.
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.
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. If we or
our outsourced manufacturers are unable to obtain components
from third-party suppliers in the quantities and of the quality
that we require, on a timely basis and at acceptable prices, we
may not be able to deliver our products on a timely or
cost-effective basis to our customers, which could cause
customers to terminate their contracts with us, reduce our gross
margin 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
18
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.
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, mandatory or voluntary recall or product upgrades,
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, 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.
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. 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.
19
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.
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.
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;
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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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Certain contracts from the U.S. federal government may
require us to maintain certain certifications including but not
limited to AS9100 and CMMI;
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Contractor Purchasing Systems review (CPSR) requirements, which
evaluate the efficiency and effectiveness with which we spend
U.S. Government funds; and
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The sale of our products in countries outside the United States
is regulated by the governments of those countries. While
compliance with such regulation will generally be undertaken by
international distributors, we may assist with such compliance
and in certain cases may be liable if a distributor fails to
comply.
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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, Warrior
and SUGV lines 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.
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. 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.
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
21
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.
Acquisitions
and 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
additional 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 and
combinations are accompanied by a number of risks, including the
difficulty of integrating the operations and personnel of the
acquired companies, the potential disruption of our ongoing
business, the potential distraction of management, expenses
related to the acquisition and potential unknown liabilities
associated with acquired businesses. Any inability to integrate
completed acquisitions or combinations in an efficient and
timely manner could have an adverse impact on our results of
operations. In addition, we may not be able to recognize any
expected synergies or benefits in connection with a future
acquisition or combination. If we are not successful in
completing acquisitions or combinations that we may pursue in
the future, we may incur substantial expenses and devote
significant management time and resources without a successful
result. In addition, future acquisitions could require use of
substantial portions of our available cash or result in dilutive
issuances of securities.
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. In such
cases we may need additional financing to execute on our current
or future business strategies. 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. In
addition, our access to credit through our working capital line
of credit may be limited by the restrictive financial covenants
contained in that agreement, which require us to maintain
profitability.
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 legal and regulatory requirements relating to our
products. 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 significant
portion of our revenue from international sales in various
European and Far East markets, and Canada. For the fiscal years
ended January 1, 2011 and January 2, 2010, sales to
non-U.S. customers
accounted for 41.1% and 33.3% 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, tariffs, 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;
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changes in foreign currency exchange rates;
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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; and
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outside of the United States, we primarily rely on a network of
exclusive distributors, some of whom may be operating without
written contracts.
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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
experience a disaster or other business continuity problem, we
may not be able to recover successfully, which could cause
material financial loss, loss of human capital, regulatory
actions, reputational harm, or legal liability.
If we experience a local or regional disaster or other business
continuity problem, such as an earthquake, terrorist attack,
pandemic or other natural or man-made disaster, our continued
success will depend, in part, on the availability of our
personnel, our office facilities, and the proper functioning of
our computer, telecommunication and other related systems and
operations. As we grow our operations in new geographic regions,
the potential for particular types of natural or man-made
disasters, political, economic or infrastructure instabilities,
or other country- or region-specific business continuity risks
increases.
If we
suffer any data breaches involving the designs, schematics or
source code for our products, our business and financial results
could be adversely affected.
We attempt to securely store our designs, schematics and source
code for our products as they are created. A breach,
whether physical, electronic or otherwise, of the systems on
which this sensitive data is stored could lead to damage or
piracy of our products. If we are subject to data security
breaches, we may have a loss in sales or increased costs arising
from the restoration or implementation of additional security
measures, either of which could materially and adversely affect
our business and financial results.
23
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 relevant
authoritative guidance 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.
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 our 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.
Our
directors and management will exercise significant control over
our company, which will limit your ability to influence
corporate matters.
As of January 1, 2011, our directors and executive officers
and their affiliates collectively beneficially owned
approximately 16.0% of our outstanding common stock. As a
result, these stockholders, if they act together, will be able
to influence our management and affairs and all matters
requiring stockholder approval, including the election of
directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying
or preventing a change in control of our company and might
negatively affect the market price of our common stock.
Provisions
in our certificate of incorporation and by-laws, our shareholder
rights agreement or Delaware law might discourage, delay or
prevent a change of control of our company or changes in our
management and, therefore, depress the trading price of our
common stock.
Provisions of our certificate of incorporation and by-laws and
Delaware law may discourage, delay or prevent a merger,
acquisition or other change in control that stockholders may
consider favorable, including transactions in which you might
otherwise receive a premium for your shares of our common stock.
These provisions may also prevent or frustrate attempts by our
stockholders to replace or remove our management. These
provisions include:
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limitations on the removal of directors;
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a classified board of directors so that not all members of our
board are elected at one time;
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advance notice requirements for stockholder proposals and
nominations;
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the inability of stockholders to act by written consent or to
call special meetings;
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the ability of our board of directors to make, alter or repeal
our by-laws; and
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the ability of our board of directors to designate the terms of
and issue new series of preferred stock without stockholder
approval.
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The affirmative vote of the holders of at least 75% of our
shares of capital stock entitled to vote is necessary to amend
or repeal the above provisions of our certificate of
incorporation. In addition, absent approval of our board of
directors, our by-laws may only be amended or repealed by the
affirmative vote of the holders of at least 75% of our shares of
capital stock entitled to vote.
24
We have also adopted a shareholder rights agreement that
entitles our stockholders to acquire shares of our common stock
at a price equal to 50% of the then-current market value in
limited circumstances when a third party acquires or announces
its intention to acquire 15% or more of our outstanding common
stock.
In addition, Section 203 of the Delaware General
Corporation Law prohibits a publicly-held Delaware corporation
from engaging in a business combination with an interested
stockholder, generally a person which together with its
affiliates owns, or within the last three years has owned, 15%
of our voting stock, for a period of three years after the date
of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner.
The existence of the foregoing provisions and anti-takeover
measures could limit the price that investors might be willing
to pay in the future for shares of our common stock. They could
also deter potential acquirers of our company, thereby reducing
the likelihood that you could receive a premium for your common
stock in an acquisition.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our corporate headquarters are located in Bedford,
Massachusetts, where we lease approximately 183,000 square
feet. This lease expires on May 1, 2020. We lease
15,700 square feet in Durham, North Carolina supporting our
government and industrial divisions unmanned underwater
vehicles. We lease smaller facilities in Burlington,
Massachusetts; Mysore, India; Hong Kong; Shenzhen, China;
London, England; 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.
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ITEM 3.
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LEGAL
PROCEEDINGS
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From time to time and in the ordinary course of business, we are
subject to various claims, charges and litigation. 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 affect our financial condition or
results of operations.
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ITEM 4.
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(REMOVED
AND RESERVED)
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PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our common stock 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.
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High
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Low
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Fiscal 2009:
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First quarter
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$
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10.20
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$
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7.00
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Second quarter
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$
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13.50
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$
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7.40
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Third quarter
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$
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13.59
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$
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10.21
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Fourth quarter
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$
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17.85
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$
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11.23
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Fiscal 2010:
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First quarter
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$
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18.74
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$
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14.45
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Second quarter
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$
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22.05
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$
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14.52
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Third quarter
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$
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21.36
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$
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16.34
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Fourth quarter
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$
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25.27
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$
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17.86
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As of February 14, 2011, there were approximately
26,034,629 shares of our common stock outstanding held by
approximately 125 stockholders of record and the last reported
sale price of our common stock on the NASDAQ Global Market on
February 14, 2011 was $28.86 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.
Issuer
Purchases of Equity Securities
During the fiscal quarter ended January 1, 2011, there were
no repurchases made by us or on our behalf, or by any
affiliated purchasers, of shares of our common stock.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected historical financial data set forth below as of
January 1, 2011 and January 2, 2010 and for the years
ended January 1, 2011, January 2, 2010 and
December 27, 2008 are derived from financial statements,
which have been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm. Consolidated
balance sheets as of January 1, 2011 and January 2,
2010 and the related consolidated statements of operations and
of cash flows for each of the three years in the period ended
January 1, 2011 and notes thereto appear elsewhere in this
Annual Report on
Form 10-K.
The selected historical financial data as of December 27,
2008, December 29, 2007 and December 30, 2006 and for
the years ended December 29, 2007 and December 30,
2006 are derived from our financial statements, which have been
audited by PricewaterhouseCoopers LLP and which are not included
elsewhere in this Annual Report.
26
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
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except earnings per share amounts)
|
|
|
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
360,394
|
|
|
$
|
262,199
|
|
|
$
|
281,187
|
|
|
$
|
227,457
|
|
|
$
|
167,687
|
|
Contract revenue
|
|
|
40,558
|
|
|
|
36,418
|
|
|
|
26,434
|
|
|
|
21,624
|
|
|
|
21,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
400,952
|
|
|
|
298,617
|
|
|
|
307,621
|
|
|
|
249,081
|
|
|
|
188,955
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
228,403
|
|
|
|
176,631
|
|
|
|
190,250
|
|
|
|
147,689
|
|
|
|
103,651
|
|
Cost of contract revenue
|
|
|
27,117
|
|
|
|
30,790
|
|
|
|
23,900
|
|
|
|
18,805
|
|
|
|
15,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
255,520
|
|
|
|
207,421
|
|
|
|
214,150
|
|
|
|
166,494
|
|
|
|
119,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
145,432
|
|
|
|
91,196
|
|
|
|
93,471
|
|
|
|
82,587
|
|
|
|
69,735
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
24,809
|
|
|
|
14,747
|
|
|
|
17,566
|
|
|
|
17,082
|
|
|
|
17,025
|
|
Selling and marketing
|
|
|
50,535
|
|
|
|
40,902
|
|
|
|
46,866
|
|
|
|
44,894
|
|
|
|
33,969
|
|
General and administrative
|
|
|
36,618
|
|
|
|
30,110
|
|
|
|
28,840
|
|
|
|
20,919
|
|
|
|
18,703
|
|
Litigation and related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
111,962
|
|
|
|
85,759
|
|
|
|
93,272
|
|
|
|
85,236
|
|
|
|
69,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
33,470
|
|
|
|
5,437
|
|
|
|
199
|
|
|
|
(2,649
|
)
|
|
|
38
|
|
Net Income
|
|
$
|
25,514
|
|
|
$
|
3,330
|
|
|
$
|
756
|
|
|
$
|
9,060
|
|
|
$
|
3,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Common Share Basic
|
|
$
|
1.00
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
|
$
|
0.37
|
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
0.96
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
|
$
|
0.36
|
|
|
$
|
0.14
|
|
Shares Used in Per Common Share Calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,394
|
|
|
|
24,998
|
|
|
|
24,654
|
|
|
|
24,229
|
|
|
|
23,516
|
|
Diluted
|
|
|
26,468
|
|
|
|
25,640
|
|
|
|
25,533
|
|
|
|
25,501
|
|
|
|
25,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
108,383
|
|
|
$
|
71,856
|
|
|
$
|
40,852
|
|
|
$
|
26,735
|
|
|
$
|
5,583
|
|
Short term investments
|
|
|
13,928
|
|
|
|
4,959
|
|
|
|
|
|
|
|
16,550
|
|
|
|
64,800
|
|
Total assets
|
|
|
254,331
|
|
|
|
199,584
|
|
|
|
163,678
|
|
|
|
169,092
|
|
|
|
135,308
|
|
Total liabilities
|
|
|
79,424
|
|
|
|
66,390
|
|
|
|
44,002
|
|
|
|
58,865
|
|
|
|
40,389
|
|
Total stockholders equity
|
|
|
174,907
|
|
|
|
133,194
|
|
|
|
119,676
|
|
|
|
110,227
|
|
|
|
94,919
|
|
27
|
|
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, or the Exchange Act, 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 and Verro products, PackBot
tactical military robots, the Small Unmanned Ground Vehicle,
Seaglider, Negotiator, our home robot and government and
industrial robots divisions, our competition, our strategy, our
market position, market acceptance of our products, seasonal
factors, revenue recognition, our profits, growth of our
revenues, composition of our revenues, our cost of revenues,
operating expenses, selling and marketing expenses, general and
administrative expenses, research and development expenses, and
compensation costs, our projected income tax rate, our credit
facility and equipment facility, our valuations of investments,
valuation and composition of our stock-based awards, 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 designs and builds robots that make a difference. For
over 20 years, we have developed proprietary technology
incorporating advanced concepts in navigation, mobility,
manipulation and artificial intelligence to build
industry-leading robots. Our Roomba floor vacuuming robot and
Scooba floor washing robot perform time-consuming domestic
chores in the home, while our Looj gutter cleaning robot and
Verro pool cleaning robot perform tasks outside the home. Our
PackBot and Small Unmanned Ground Vehicle (SUGV) tactical ground
military robots perform battlefield reconnaissance and bomb
disposal. Our Negotiator ground robot performs multi-purpose
tasks for local police and first responders. Our 1KA Seaglider
unmanned underwater robot performs long endurance oceanic
missions. We sell our robots to consumers through a variety of
distribution channels, including chain stores and other national
retailers, and through our on-line store, and to the
U.S. military and other government agencies worldwide. We
maintain certifications for AS9100 and Capability Maturity Model
Integration. These certifications enable us to service our
military products and services.
As of January 1, 2011, we had 657 full-time employees.
We have developed expertise in 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.
Although we have successfully launched consumer and government
and industrial 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 government
and industrial 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.
28
Revenue
We currently derive revenue from product sales, government
research and development contracts, and commercial research and
development contracts. Product revenue is derived from the sale
of our various home cleaning robots and government and
industrial 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 cleaning robots, and our PackBot and SUGV
tactical military robots. For the fiscal years ended
January 1, 2011 and January 2, 2010, product revenues
accounted for 89.9% and 87.8% of total revenue, respectively.
For the fiscal years ended January 1, 2011 and
January 2, 2010, our funded research and development
contracts accounted for approximately 10.1% and 12.2% of our
total revenue, respectively. We expect to continue to perform
funded research and development work with the intent of
leveraging the technology developed to advance our new product
development efforts. In the future, however, we expect that
revenue from funded research and development contracts could
grow modestly on an absolute dollar basis and represent a
decreasing percentage of our total revenue due to the
anticipated growth in consumer and military product revenue.
For the fiscal years ended January 1, 2011 and
January 2, 2010, approximately 65.7% and 56.0%,
respectively, of our home robot product revenue resulted from
sales to 15 customers. For fiscal 2010 and fiscal 2009, the
customers were comprised of both U.S. retailers and
international distributors.
Direct-to-consumer
revenue generated through our domestic and international on-line
stores accounted for 11.5% of our home robot product revenue for
the fiscal year ended January 1, 2011 compared to 17.1% in
the fiscal year ended January 2, 2010. In addition, 87.6%
and 78.6% of military product revenue, and 96.5% and 94.5% of
funded research and development contract revenue, resulted from
orders and contracts or subcontracts with the U.S. federal
government in the fiscal years ended January 1, 2011 and
January 2, 2010, respectively.
For the fiscal years ended January 1, 2011 and
January 2, 2010, sales to
non-U.S. customers
accounted for 41.1% and 33.3% 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. We recognize revenue
from the sales of home robots under the terms of the customer
agreement upon transfer of title and risk of loss to the
customer, net of estimated returns, provided that collection is
determined to be reasonably assured and no significant
obligations remain.
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. In addition, our revenue can be affected by the
timing of the release of new products and the size and timing of
contract awards from military and other government agencies.
Historically, revenue from consumer product sales has been
significantly seasonal, with a majority of our consumer product
revenue generated in the second half of the year (in advance of
the holiday season). As a result of the growth of our
international consumer business, which is less seasonal than our
domestic consumer business, our consumer product revenue is
spread more evenly throughout the year.
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 January 1, 2011
and January 2, 2010, cost of product revenue was 63.4% and
67.4% 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. 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. 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
29
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 January 1, 2011 and January 2, 2010, cost
of contract revenue was 66.9% and 84.5% of total contract
revenue, respectively.
Gross
Margin
Our gross margin as a percentage of revenue varies according to
the mix of product and contract revenue, the mix of products
sold, total sales volume, the level of defective product
returns, and levels of other product costs such as warranty,
scrap, re-work and manufacturing overhead. For the years ended
January 1, 2011 and January 2, 2010, gross margin was
36.3% and 30.5% of total revenue, respectively.
Research
and Development Expenses
Research and development expenses consist primarily of:
|
|
|
|
|
salaries and related costs for our engineers;
|
|
|
|
costs for high technology components used in product and
prototype development; and
|
|
|
|
costs of test equipment used during product development.
|
We have significantly expanded our research and development
capabilities and expect to continue to expand these capabilities
in the future. We are committed to consistently maintaining 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. We
anticipate that research and development expenses will increase
in absolute dollars for the foreseeable future.
For the fiscal years ended January 1, 2011 and
January 2, 2010, research and development expense was
$24.8 million and $14.7 million, or 6.2% and 4.9% 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 January 1,
2011 and January 2, 2010, these expenses amounted to
$27.1 million and $30.8 million, respectively. In
accordance with generally accepted accounting principles, these
expenses have been classified as cost of revenue rather than
research and development expense. For the years ended
January 1, 2011, January 2, 2010 and December 27,
2008, the combined investment in future technologies, classified
as cost of revenue and research and development expense, was
$51.9 million, $45.5 million and $41.5 million,
respectively.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses consist
primarily of:
|
|
|
|
|
salaries and related costs for sales and marketing personnel;
|
|
|
|
salaries and related costs for executives and administrative
personnel;
|
|
|
|
advertising, marketing and other brand-building costs;
|
|
|
|
fulfillment costs associated with
direct-to-consumer
sales through our on-line store;
|
|
|
|
customer service costs;
|
|
|
|
professional services costs;
|
|
|
|
information systems and infrastructure costs;
|
30
|
|
|
|
|
travel and related costs; and
|
|
|
|
occupancy and other overhead costs.
|
We anticipate that selling, general and administrative expenses
will increase in absolute dollars but remain relatively flat as
a percentage of revenue in the foreseeable future as we continue
to build the iRobot brand and also maintain company
profitability.
For the fiscal years ended January 1, 2011 and
January 2, 2010, selling, general and administrative
expense was $87.2 million and $71.0 million, or 21.7%
and 23.8% of total revenue, respectively.
Fiscal
Periods
We operate and report using a
52-53 week
fiscal year ending on the Saturday closest to December 31.
Accordingly, our fiscal quarters will end on the Saturday that
falls closest to the last day of the third month of each 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 and risk
of loss to the customer, provided the price is fixed or
determinable, collection is determined to be reasonably assured
and no significant obligations remain. Sales to resellers are
typically 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 based on
historical return experience and other relevant data. Our
international distributor agreements do not currently allow for
product returns and, as a result, no reserve for returns is
established for this group of customers. 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. When a 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. If future trends or
our ability to estimate were to change significantly from those
experienced in the past, incremental reductions or increases to
revenue may result based on this new experience.
Under cost-plus research and development contracts, we recognize
revenue based on costs incurred plus a pro-rata portion of the
total fixed fee. Costs and estimated gross margins 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. We recognize revenue on
firm fixed price (FFP) contracts using the
percentage-of-completion
method. For government product FFP contracts revenue is
recognized as the product is shipped or in accordance with the
31
contract terms. Changes in job performance, job conditions and
estimated profitability, including those arising from final
contract settlements and government audit, 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
Under the provisions of the relevant authoritative guidance, we
recognized $6.4 million of stock-based compensation expense
during the fiscal year ended January 1, 2011 for stock
options granted subsequent to our initial filing of our
Form S-1
with the SEC. The unamortized fair value as of January 1,
2011 associated with these grants was $12.0 million with a
weighted average remaining recognition period of 2.65 years.
The risk-free interest rate is derived from the average
U.S. Treasury constant maturity rate, which approximates
the rate in effect at the time of grant, commensurate with the
expected life of the instrument. The dividend yield is zero
based upon the fact that we have never paid and have no present
intention to pay cash dividends. Prior to 2010, the expected
term calculation was based upon the simplified method provided
under the relevant authoritative guidance. During 2010, we began
to rely solely on company specific historical data to calculate
the expected term. 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,
prior to 2010, we performed an analysis that included company
specific historical data combined with data of several peer
companies with similar expected option lives to develop expected
volatility assumptions. During 2010, we began to rely solely on
company specific historical data for purposes of establishing
expected volatility.
Based upon the above assumptions, the weighted average fair
value of each stock option granted for the fiscal year ended
January 1, 2011 was $8.24.
During the fiscal year ended January 1, 2011, the Company
recognized $0.1 million and $1.7 million 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 January 1, 2011, was $0.1 million and
$7.6 million, respectively.
We have assumed a forfeiture rate 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. In the future, we will record incremental
stock-based compensation expense if the actual forfeiture rates
are lower than estimated and will record a recovery of prior
stock-based compensation expense if the actual forfeitures are
higher than estimated.
Accounting for stock-based awards requires significant judgment
and the use of estimates, particularly surrounding assumptions
such as stock price volatility and expected option lives, 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 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 ability to
realize 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. In fiscal 2010, based on recent and
expected increased future profitability the valuation allowance
relating to state
32
deferred tax assets was released. At January 1, 2011, we
have total deferred tax assets of $21.2 million with no
valuation allowance.
During the quarter ending January 2, 2010, we recorded an
out-of-period
adjustment in the income tax provision of $0.2 million to
correct an error with respect to the earnings of our India
subsidiary. We believe that this adjustment did not have a
material impact to our full year 2009 results. In addition, we
do not believe the adjustment is material to the amounts
reported in previous periods.
Warranty
We typically provide a one-year warranty (with the exception of
European consumer products which typically have a two-year
warranty period and our government and industrial spares and
Negotiator products which typically have a warranty period of
less than one year) against defects in materials and workmanship
and will either repair the goods, provide replacement products
at no charge to the customer or refund amounts to the customer
for defective products. We record estimated warranty costs,
based on historical experience by product, at the time we
recognize product revenue. 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.
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 margin 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 margin
could be favorably impacted in future periods.
33
Overview
of Results of Operations
The following table sets forth our results of operations for the
periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
360,394
|
|
|
$
|
262,199
|
|
|
$
|
281,187
|
|
Contract revenue
|
|
|
40,558
|
|
|
|
36,418
|
|
|
|
26,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
400,952
|
|
|
|
298,617
|
|
|
|
307,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
|
228,403
|
|
|
|
176,631
|
|
|
|
190,250
|
|
Cost of contract revenue(1)
|
|
|
27,117
|
|
|
|
30,790
|
|
|
|
23,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
255,520
|
|
|
|
207,421
|
|
|
|
214,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
145,432
|
|
|
|
91,196
|
|
|
|
93,471
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
24,809
|
|
|
|
14,747
|
|
|
|
17,566
|
|
Selling and marketing(1)
|
|
|
50,535
|
|
|
|
40,902
|
|
|
|
46,866
|
|
General and administrative(1)
|
|
|
36,618
|
|
|
|
30,110
|
|
|
|
28,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
111,962
|
|
|
|
85,759
|
|
|
|
93,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
33,470
|
|
|
|
5,437
|
|
|
|
199
|
|
Other Income (Expense), Net
|
|
|
504
|
|
|
|
(81
|
)
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
33,974
|
|
|
|
5,356
|
|
|
|
1,125
|
|
Income Tax Expense
|
|
|
8,460
|
|
|
|
2,026
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
25,514
|
|
|
$
|
3,330
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock-based compensation recorded in 2010, 2009 and 2008 breaks
down by expense classification as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 1,
|
|
January 2,
|
|
December 27,
|
|
|
2011
|
|
2010
|
|
2008
|
|
|
(In thousands)
|
|
Cost of product revenue
|
|
$
|
1,311
|
|
|
$
|
1,127
|
|
|
$
|
753
|
|
Cost of contract revenue
|
|
|
446
|
|
|
|
575
|
|
|
|
462
|
|
Research and development
|
|
|
725
|
|
|
|
351
|
|
|
|
359
|
|
Selling and marketing
|
|
|
1,161
|
|
|
|
1,410
|
|
|
|
1,055
|
|
General and administrative
|
|
|
4,522
|
|
|
|
4,099
|
|
|
|
3,310
|
|
34
The following table sets forth our results of operations as a
percentage of revenue for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
89.9
|
%
|
|
|
87.8
|
%
|
|
|
91.4
|
%
|
Contract revenue
|
|
|
10.1
|
|
|
|
12.2
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
57.0
|
|
|
|
59.2
|
|
|
|
61.8
|
|
Cost of contract revenue
|
|
|
6.7
|
|
|
|
10.3
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
63.7
|
|
|
|
69.5
|
|
|
|
69.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
36.3
|
|
|
|
30.5
|
|
|
|
30.4
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6.2
|
|
|
|
4.9
|
|
|
|
5.7
|
|
Selling and marketing
|
|
|
12.6
|
|
|
|
13.7
|
|
|
|
15.2
|
|
General and administrative
|
|
|
9.1
|
|
|
|
10.1
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
27.9
|
|
|
|
28.7
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
8.4
|
|
|
|
1.8
|
|
|
|
0.1
|
|
Other Income (Expense), Net
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
8.5
|
|
|
|
1.8
|
|
|
|
0.4
|
|
Income Tax Expense
|
|
|
2.1
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
6.4
|
%
|
|
|
1.1
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended January 1, 2011 and January 2,
2010
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total Revenue
|
|
$
|
400,952
|
|
|
$
|
298,617
|
|
|
$
|
102,335
|
|
|
|
34.3
|
%
|
Our revenue increased 34.3% to $401.0 million in fiscal
2010 from $298.6 million in fiscal 2009. Revenue increased
approximately $63.5 million, or 38.3%, in our home robots
division and $38.8 million, or 29.3%, in our government and
industrial division.
The $63.5 million increase in revenue from our home robots
division was driven by a 28.4% increase in units shipped and a
9.7% increase in net average selling price. Total home robots
shipped in fiscal 2010 were 1,269,000 units compared to
988,000 units in fiscal 2009. The increase in home robot
division revenue and units shipped was primarily attributable to
increased international sales of our home robot products
resulting from our efforts to increase our global presence. In
fiscal 2010, international home robot revenue increased
$62.3 million, domestic home robot revenue from our retail
channel increased $3.4 million, and domestic home robot
revenue from our direct channel decreased $2.2 million as
compared to fiscal 2009. Home robot division revenue from
international sales, which consist of products having a higher
average selling price than products sold to domestic customers,
was 66.0% of total home robot division revenue in fiscal 2010 as
compared to 53.8% in fiscal 2009.
The $38.8 million increase in revenue from our government
and industrial division was driven by a $20.2 million
increase in government and industrial robot revenue, a
$14.5 million increase in product life cycle revenue (spare
parts and accessories), and a $4.1 million increase in
recurring contract development revenue
35
generated under research and development contracts. The
$20.2 million increase in government and industrial robots
revenue was due to a 10.3% increase in units shipped in fiscal
2010 as compared to fiscal 2009. The $14.5 million increase
in product life cycle revenue was the result of a higher
installed base of our government and industrial robots, which
during fiscal 2010 included product life cycle revenue related
to our SUGV 310 product. The $4.1 million increase in
recurring contract development revenue generated under research
and development contracts was primarily attributable to an
increase in funding of our SUGV program offset by decreases in
funding of our PackBot and Warrior programs. Total government
and industrial robots shipped in fiscal 2010 were 871 units
compared to 789 units in fiscal 2009.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total cost of revenue
|
|
$
|
255,520
|
|
|
$
|
207,421
|
|
|
$
|
48,099
|
|
|
|
23.2
|
%
|
As a percentage of total revenue
|
|
|
63.7
|
%
|
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
Total cost of revenue increased to $255.5 million in fiscal
2010, compared to $207.4 million in fiscal 2009. The
increase is primarily due to the 28.4% increase in home robot
units shipped and the 10.3% increase in government and
industrial units shipped.
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total gross margin
|
|
$
|
145,432
|
|
|
$
|
91,196
|
|
|
$
|
54,236
|
|
|
|
59.5
|
%
|
As a percentage of total revenue
|
|
|
36.3
|
%
|
|
|
30.5
|
%
|
|
|
|
|
|
|
|
|
Gross margin increased $54.2 million, or 59.5%, to
$145.4 million (36.3% of revenue) in fiscal 2010 from
$91.2 million (30.5% of revenue) in fiscal 2009. The
increase in gross margin as a percentage of revenue was the
result of the home robots division gross margin increasing
7.8 percentage points and the government and industrial
division gross margin increasing 2.9 percentage points. The
7.8 percentage point increase in the home robots division
is attributable to lower return provisions, the increase in
units shipped through our higher-margin international channel,
price increases on certain international products, continued
product cost reduction efforts, lower excess and obsolete
inventory provisions and improved leverage of our overhead
expense against higher revenue in fiscal 2010 as compared to
fiscal 2009. The 2.9 percentage point increase in the
government and industrial division is primarily attributable to
leveraging our overhead expense against higher revenue, and an
increase in higher-margin product life cycle revenue, partially
offset by a decrease due to product mix primarily attributable
to a significant number of SUGV 310 units shipped in fiscal
2010 as compared to fiscal 2009. Our margins relating to
contract revenue increased in fiscal 2010 as compared to fiscal
2009 due to higher-margin firm-fixed-priced contracts awarded in
2010.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total research and development
|
|
$
|
24,809
|
|
|
$
|
14,747
|
|
|
$
|
10,062
|
|
|
|
68.2
|
%
|
As a percentage of total revenue
|
|
|
6.2
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses increased by
$10.1 million, or 68.2%, to $24.8 million (6.2% of
revenue) in fiscal 2010, from $14.7 million (4.9% of
revenue) for fiscal 2009. The increase in research and
development expenses is primarily due to increases in
compensation, recruiting, employee benefits, materials and
consulting
36
costs associated with internal research and development projects
in our home robots division and expenses related to our
healthcare research. The increase in our home robots division is
primarily the result of our increased efforts in the areas of
product development and advanced development relating to our
consumer products.
In addition to our research and development activities
classified as research and development expense, we incur
research and development expenses under funded development
arrangements with governments and industrial third parties. For
fiscal 2010, these expenses amounted to $27.1 million
compared to $30.8 million for fiscal 2009. In accordance
with generally accepted accounting principles, these expenses
have been classified as cost of contract revenue rather than
research and development expense. The combined investment in
future technologies, classified as cost of revenue and research
and development expense, was $51.9 million for fiscal 2010,
compared to $45.5 million for fiscal 2009.
Selling
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total selling and marketing
|
|
$
|
50,535
|
|
|
$
|
40,902
|
|
|
$
|
9,633
|
|
|
|
23.6
|
%
|
As a percentage of total revenue
|
|
|
12.6
|
%
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $9.6 million,
or 23.6%, to $50.5 million (12.6% of revenue) in fiscal
2010 from $40.9 million (13.7% of revenue) in fiscal 2009.
This was driven by an increase in our home robots division of
$7.9 million attributable to increases in advertising,
promotions, on-line media, sales commission expenses as a result
of higher sales, and an increase in compensation and
employee-related expense supporting our international home robot
sales for fiscal 2010 as compared to fiscal 2009. Selling and
marketing expenses in our government and industrial division
increased by $1.7 million attributable to an increase in
compensation expenses and other expenses relating to bid and
proposal activities, and sales commissions as a result of higher
sales in fiscal 2010 as compared to fiscal 2009.
In fiscal 2011, 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 but remain at the same level or slightly above
fiscal 2010 as a percentage of revenue.
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
General and administrative
|
|
$
|
36,618
|
|
|
$
|
30,110
|
|
|
$
|
6,508
|
|
|
|
21.6
|
%
|
As a percentage of total revenue
|
|
|
9.1
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by
$6.5 million, or 21.6%, to $36.6 million (9.1% of
revenue) in fiscal 2010 from $30.1 million (10.1% of
revenue) in fiscal 2009. This increase is attributable to
increased compensation, benefit and recruiting expenses related
to increased headcount and an increase in incentive compensation
expense, stock based compensation, and an increase in legal
expense, primarily attributable to our international expansion
and intellectual property prosecution and enforcement, for
fiscal 2010 as compared to fiscal 2009.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Other Income (expense), net
|
|
$
|
504
|
|
|
$
|
(81
|
)
|
|
$
|
585
|
|
|
|
Not Meaningful
|
|
As a percentage of total revenue
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
37
Other income (expense), net amounted to $0.5 million in
fiscal 2010 compared to $(0.1) million in fiscal 2009.
Other income (expense), net, for fiscal 2010 was related to
interest income of $0.8 million offset by foreign currency
exchange losses of $0.3 million resulting from foreign
currency exchange rate fluctuations. Other income (expense),
net, for fiscal 2009 was directly related to foreign currency
exchange losses resulting from foreign currency exchange rate
fluctuations.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 1,
|
|
January 2,
|
|
|
|
|
|
|
2011
|
|
2010
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Income tax provision
|
|
$
|
8,460
|
|
|
$
|
2,026
|
|
|
$
|
6,434
|
|
|
|
Not Meaningful
|
|
As a percentage of total revenue
|
|
|
2.1
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
In fiscal 2010, we recorded a $8.5 million tax provision
based on an effective income tax rate of 24.9%. The provision
for income taxes for fiscal 2010 consists of $10.2 million
of federal taxes, $0.1 million of foreign taxes and
$(1.8) million of state taxes, which includes the
$2.3 million associated with the full release of our
valuation allowance relating to state deferred tax assets.
In fiscal 2009, we recorded a $2.0 million tax provision
based on an effective income tax rate of 38%. The provision for
income taxes for fiscal 2009 consists of $1.6 million of
federal taxes and $0.4 million of state taxes. Included in
the 2009 provision is a $0.2 million provision associated
with an
out-of-period
error correction with respect to the earnings of our India
subsidiary and a $0.3 million one-time benefit from the
conversion of incentive stock options to non-qualified stock
options as a result of our stock option exchange program which
concluded in our second fiscal quarter of 2009.
Comparison
of Years Ended January 2, 2010 and December 27,
2008
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total Revenue
|
|
$
|
298,617
|
|
|
$
|
307,621
|
|
|
$
|
(9,004
|
)
|
|
|
(2.9
|
)%
|
Our revenue decreased 2.9% to $298.6 million in fiscal 2009
from $307.6 million in fiscal 2008. Revenue decreased
approximately $7.7 million, or 4.5%, in our home robots
division and $1.3 million, or 0.9%, in our government and
industrial division.
The $7.7 million decrease in revenue from our home robots
division was driven by a 6.3% decrease in units shipped. Total
home robots shipped in fiscal 2009 were approximately
988,000 units compared to approximately
1,054,000 units in fiscal 2008. The decrease in home robot
division revenue and units shipped was attributable to decreased
domestic demand of our home robot products in both retail and
direct channels. The decrease in domestic and direct revenue was
partially offset by increased international sales of our home
robot products resulting from our increased efforts to expand
our global presence. In fiscal 2009, home robot revenue from
domestic retailers decreased $25.8 million and direct to
consumers sales through our on-line store decreased
$5.1 million, as compared to fiscal 2008. This was
partially offset by an increase of 34.2% of home robots units
shipped internationally in fiscal 2009 as compared to fiscal
2008. International home robots revenue increased
$23.2 million in fiscal 2009 as compared to fiscal 2008.
The $1.3 million decrease in revenue from our government
and industrial division was driven by a $15.0 million
decrease in government and industrial robots revenue partially
offset by a $3.7 million increase in product life cycle
revenue (spare parts and accessories) and a $10.0 million
increase in recurring contract development revenue generated
under research and development contracts. The $15.0 million
decrease in government and industrial robots revenue was due to
a 17.0% decrease in units in fiscal 2009 as compared to fiscal
2008. Total government and industrial robots shipped in fiscal
2009 were 789 units compared to 951 units in fiscal
38
2008. The $10.0 million increase in recurring contract
development revenue generated under research and development
contracts was the result of revenue from new contract awards and
increased funding on existing contracts for our PackBot, SUGV
and research programs and contracts acquired through our
September 2008 acquisition of Nekton Research, LLC.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total cost of revenue
|
|
$
|
207,421
|
|
|
$
|
214,150
|
|
|
$
|
(6,729
|
)
|
|
|
(3.1
|
)%
|
As a percentage of total revenue
|
|
|
69.5
|
%
|
|
|
69.6
|
%
|
|
|
|
|
|
|
|
|
Total cost of revenue decreased to $207.4 million in fiscal
2009, compared to $214.2 million in fiscal 2008. This
decrease was due to the decrease in home robot and government
and industrial product units shipped and lower costs associated
with product mix in our government and industrial division,
partially offset by an increase in cost of contracts resulting
from new contract awards and increased funding on existing
contracts for our PackBot, SUGV and research programs and
contracts acquired through our September 2008 acquisition of
Nekton Research, LLC.
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total gross margin
|
|
$
|
91,196
|
|
|
$
|
93,471
|
|
|
$
|
(2,275
|
)
|
|
|
(2.4
|
)%
|
As a percentage of total revenue
|
|
|
30.5
|
%
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
Gross margin decreased $2.3 million, or 2.4%, to
$91.2 million (30.5% of revenue) in fiscal 2009, from
$93.5 million (30.4% of revenue) in fiscal 2008. The
increase in gross margin as a percentage of revenue was the
result of the home robots division gross margin increasing
3.5 percentage points offset by a decrease in the
government and industrial division gross margin of
4.2 percentage points. The 3.5 percentage point
increase in the home robots division is attributable to price
increases and the introduction of higher-priced products into
the international market. In addition, domestic margins
increased due to an increase in volume and margins on
refurbished products in fiscal 2009 as compared to fiscal 2008.
Also, during fiscal 2008, we recorded costs but did not record
revenue for shipments to Linens N Things as a result
of its bankruptcy filing. The 4.2 percentage point decrease
in the government and industrial division is attributable to
higher overhead expense on lower revenue, partially offset by
higher margins due to product mix in fiscal 2009 as compared to
fiscal 2008.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total research and development
|
|
$
|
14,747
|
|
|
$
|
17,566
|
|
|
$
|
(2,819
|
)
|
|
|
(16.0
|
)%
|
As a percentage of total revenue
|
|
|
4.9
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses decreased by
$2.8 million, or 16.0%, to $14.7 million (4.9% of
revenue) in fiscal 2009, from $17.6 million (5.7% of
revenue) for fiscal 2008. The decrease in research and
development expenses is due to a decrease in compensation and
employee-related costs, contractor costs, occupancy expenses and
material associated with internal research and development
projects.
In addition to our research and development activities
classified as research and development expense, we incur
research and development expenses under funded development
arrangements with governments and industrial third parties. For
fiscal 2009, these expenses amounted to $30.8 million
compared to $23.9 million for fiscal 2008. In accordance
with generally accepted accounting principles, these expenses
have been classified as cost of contract
39
revenue rather than research and development expense. The
combined investment in future technologies, classified as cost
of revenue and research and development expense, was
$45.5 million for fiscal 2009, compared to
$41.5 million for fiscal 2008.
Selling
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Total selling and marketing
|
|
$
|
40,902
|
|
|
$
|
46,866
|
|
|
$
|
(5,964
|
)
|
|
|
(12.7
|
)%
|
As a percentage of total revenue
|
|
|
13.7
|
%
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses decreased by $6.0 million,
or 12.7%, to $40.9 million (13.7% of revenue) in fiscal
2009 from $46.9 million (15.2% of revenue) in fiscal 2008.
This was driven by a decrease in our home robots division of
$6.3 million primarily attributable to a reduction of
$4.5 million in television and other marketing expenses for
fiscal 2009 as compared to fiscal 2008 as a result of our
strategy to aggressively manage our expenses. The decrease of
selling and marketing expenses in our home robots division was
also attributable to decreases of $1.2 million in sales
commission expenses as a result of lower sales to domestic
retailers and $0.6 million in direct fulfillment expenses
related to lower direct sales in fiscal 2009 as compared to
fiscal 2008.
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
General and administrative
|
|
$
|
30,110
|
|
|
$
|
28,840
|
|
|
$
|
1,270
|
|
|
|
4.4
|
%
|
As a percentage of total revenue
|
|
|
10.1
|
%
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by
$1.3 million, or 4.4%, to $30.1 million (10.1% of
revenue) in fiscal 2009 from $28.8 million (9.4% of
revenue) in fiscal 2008. The increase in general and
administrative expenses was primarily driven by increases of
$2.7 million in incentive compensation and stock-based
compensation partially offset by a decreases of
$1.0 million in bad debt expense and $0.4 million in
compensation and other general and administrative expenses in
fiscal 2009 as compared to fiscal 2008.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Other Income (expense), net
|
|
$
|
(81
|
)
|
|
$
|
926
|
|
|
$
|
(1,007
|
)
|
|
|
Not Meaningful
|
|
As a percentage of total revenue
|
|
|
0.0
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
Other income (expense), net amounted to $(0.1) million in
fiscal 2009 compared to $0.9 million in fiscal 2008. Other
income (expense), net for fiscal 2009 was directly related to
foreign currency exchange losses resulting from foreign currency
exchange rate fluctuations. Other income (expense), net for
fiscal 2008 was directly related to interest income resulting
from investments in auction rate securities and money market
accounts. All of our auction rate securities investments have
been settled and our current money market investments earn
significantly reduced interest rates as compared to fiscal 2008.
40
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
January 2,
|
|
December 27,
|
|
|
|
|
|
|
2010
|
|
2008
|
|
Dollar Change
|
|
Percent Change
|
|
|
(In thousands)
|
|
|
|
Income tax provision (benefit)
|
|
$
|
2,026
|
|
|
$
|
369
|
|
|
$
|
1,657
|
|
|
|
Not Meaningful
|
|
As a percentage of total revenue
|
|
|
0.7
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
In fiscal 2009, we recorded a $2.0 million tax provision
based on an effective income tax rate of 37.8%. The provision
for income taxes for fiscal 2009 consists of $1.6 million
of federal taxes and $0.4 million of state taxes. Included
in the 2009 provision is a $0.2 million provision
associated with an
out-of-period
error correction with respect to the earnings of our India
subsidiary and a $0.3 million one-time benefit from the
conversion of incentive stock options to non-qualified stock
options as a result of our stock option exchange program which
concluded in our second fiscal quarter of 2009.
In fiscal 2008, we recorded a $0.4 million tax provision
based on an effective income tax rate of 32.8%. The provision
for income taxes for fiscal 2008 consisted of $0.1 million
of federal alternative minimum taxes and $0.3 million of
state taxes.
Liquidity
and Capital Resources
At January 1, 2011, our principal sources of liquidity were
cash and cash equivalents totaling $108.4 million,
short-term investments of $13.9 million and accounts
receivable of $34.1 million.
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,
product-specific production tooling, internal use software and
test equipment. In the fiscal years ended January 1, 2011
and January 2, 2010, we spent $12.6 million and
$5.0 million, respectively, on capital equipment.
Our strategy for delivering products to our retail customers
gives us the flexibility to provide container shipments directly
to the retailer from China and, alternatively, allows 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 logistics providers for the
fulfillment of retail orders and
direct-to-consumer
sales. Our inventory of government and industrial products is
relatively low as they are generally built to order. Our
contract manufacturers are responsible for purchasing and
stocking the majority of components required for the production
of our products, and they invoice us when the finished goods are
shipped.
The balance of cash and short-term investments of
$122.3 million at January 1, 2011 is primarily the
result of improving profitability and our significant focus over
the past two years on managing working capital. As of
January 1, 2011, we did not have any borrowings outstanding
under our working capital line of credit and had
$1.9 million letters of credit outstanding under our
working capital line of credit.
Discussion
of Cash Flows
Net cash provided by operating activities for the fiscal year
ended January 1, 2011 was $49.2 million, an increase
of $8.6 million compared to the $40.6 million of net
cash provided by operating activities for the fiscal year ended
January 2, 2010. The increase in net cash provided by
operating activities was primarily driven by the following
factors:
|
|
|
|
|
An increase in cash of $22.2 million resulting from net
income of $25.5 million in 2010 versus a net income of
$3.3 million in 2009;
|
|
|
|
A decrease in cash of $4.3 million resulting from an
increase in deferred tax assets of $7.6 million in 2010
versus an increase of $3.3 million in 2009;
|
41
|
|
|
|
|
A decrease in cash of $2.0 million resulting from an
increase in accounts receivable (including unbilled revenue) of
$1.1 million in 2010 versus an decrease of
$0.9 million in 2009, primarily due to growth in revenue
partially offset by the impact of aggressive collections and a
reduction in days sales outstanding;
|
|
|
|
An increase in cash of $3.1 million resulting from a
decrease in inventory of $5.2 million in 2010 versus a
decrease of $2.1 million in 2009, primarily due to
increased demand for our home robot products;
|
|
|
|
A decrease in cash of $1.3 million resulting from an
increase current assets primarily due to an increase in prepaid
income taxes;
|
|
|
|
A decrease in cash of $4.8 million resulting from an
increase in accounts payable and accrued expenses of
$9.6 million in 2010 versus an increase of
$14.4 million in 2009, primarily due to a general increase
in business activity and timing of payments to suppliers. In
fiscal 2010 accounts payable was a source of cash, but cash
provided was $4.8 million less than in fiscal 2009;
|
|
|
|
A decrease in cash of $2.8 million resulting from an
increase in accrued compensation of $4.3 million in 2010
versus an increase of $7.1 million in 2009, primarily due
to the impact of improving profitability on the incentive
compensation expense in 2009; and
|
|
|
|
A decrease in cash of $1.7 million resulting from a
decrease in deferred revenue and customers advances of
$0.4 million in 2010 compared to an increase of
$1.3 million in 2009, primarily due to a contract
modification in 2010.
|
Net cash used in investing activities for the fiscal year ended
January 1, 2011 was $21.6 million, representing an
increase of $9.1 million compared to the $12.5 million
of net cash used in investing activities for the fiscal year
ended January 2, 2010. This increase in net cash used in
investing activities was primarily driven by the following:
|
|
|
|
|
Purchase of investments, net of the proceeds from the sale of
investments, of $9.0 million in 2010 compared to the
purchase of investments of $5.0 million in 2009;
|
|
|
|
The purchase of property and equipment of $12.6 million in
2010, compared to $5.0 million in 2009, primarily due to an
increase in self-constructed and demonstration assets, and
tooling related to new products in our government and industrial
division and a new contract manufacturer in our home robots
division; and
|
|
|
|
A reduction in net cash used in investing activities in 2010
associated with cash disbursed in 2009 to complete the purchase
of Nekton Research LLC of $2.5 million.
|
Net cash provided from financing activities for the fiscal year
ended January 1, 2011 was $8.9 million, an increase of
$6.0 million compared to the $2.9 million of net cash
provided by financing activities for the fiscal year ended
January 2, 2010. The increase is due primarily to an
increase in proceeds from stock option exercises.
Working
Capital Facility
We have an unsecured revolving credit facility with Bank of
America, N.A., which is available to fund working capital and
other corporate purposes. The total amount available for
borrowing under our credit facility is $40.0 million. As of
January 1, 2011, $38.1 million was available for
borrowing. The interest on loans under our credit facility will
accrue, at our election, at either (i) the greater of the
BBA LIBOR Daily Floating Rate or the Prime Rate of Lender plus
fifty (50) basis points, or (ii) the LIBOR rate plus
2.00%. The credit facility will terminate and all amounts
outstanding thereunder will be due and payable in full on
June 5, 2012.
As of January 1, 2011, we had letters of credit outstanding
of $1.9 million 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 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.
42
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
adjusted EBITDA, and minimum specified interest coverage ratio.
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.
As of January 1, 2011, we were in compliance with all
covenants under the credit facility.
On January 4, 2011, we entered into a revolving letter of
credit facility with Bank of America, N.A. The credit facility
will be available to fund letters of credit on our behalf up to
an aggregate outstanding amount of $5 million. We may
terminate or from time to time permanently reduce the amount of
the credit facility.
We pay a fee on outstanding letters of credit issued under the
credit facility equal to 2% per annum of the daily maximum
amount available to be drawn under the outstanding letters of
credit. In addition, we pay a fee equal to 0.25% per annum of
the actual daily amount by which the credit facility exceeds the
aggregate undrawn amount of all outstanding letters of credit
under the credit facility plus the aggregate of all unreimbursed
drawings under all letters of credit under the credit facility.
The maturity date for letters of credit issued under the credit
facility shall be no later than seven days prior to June 5,
2012.
The credit facility contains customary terms and conditions for
credit facilities of this type, including restrictions on our
ability to incur or guaranty additional indebtedness, create
liens, enter into transactions with affiliates, make loans or
investments, sell assets, pay dividends or make distributions
on, or repurchase, its 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 adjusted EBITDA and a minimum specified ratio
of EBIT to interest expense.
The credit facility also 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
lender may accelerate the obligations under the credit 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 working
capital, funds provided by operating activities and our existing
working capital line of credit. We do not currently anticipate
significant investment in property, plant 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 and cash
equivalents, short-term investments, 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 and cash equivalents, short-term investments,
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. As part of our business strategy, we may consider
additional acquisitions of companies, technologies and products,
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.
43
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 January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
2,904
|
|
|
$
|
5,112
|
|
|
$
|
4,889
|
|
|
$
|
10,327
|
|
|
$
|
23,232
|
|
Minimum contractual payments
|
|
|
577
|
|
|
|
9,850
|
|
|
|
|
|
|
|
|
|
|
|
10,427
|
|
Other obligations
|
|
|
379
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,860
|
|
|
$
|
15,276
|
|
|
$
|
4,889
|
|
|
$
|
10,327
|
|
|
$
|
34,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our minimum contractual payments consist of payments to our
provider of direct fulfillment services for direct to consumer
sales of our home robots and payments to a key component
supplier for our home robots, which payments are incurred in the
ordinary course of business. Based on historical and current
operations, we believe that we will exceed these minimum
contractual obligations in our ordinary course of business.
Other obligations consist of software license and services
agreement for our home robots division web support.
Off-Balance
Sheet Arrangements
As of January 1, 2011, we had no off-balance sheet
arrangements as defined in Item 303(a)(4) of
Regulation S-K.
Recently
Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
issued an amendment to the accounting and disclosure
requirements for the consolidation of variable interest
entities, or VIEs. The elimination of the concept of a
Qualifying Special Purpose Entity, removes the exception from
applying the consolidation guidance within this amendment. This
amendment requires an enterprise to perform a qualitative
analysis when determining whether or not it must consolidate a
VIE and requires an enterprise to continuously reassess whether
it must consolidate a VIE. Additionally, this amendment requires
enhanced disclosures about an enterprises involvement with
VIEs and any significant change in risk exposure due to that
involvement, as well as how its involvement with VIEs impacts
the enterprises financial statements. Finally, an
enterprise will be required to disclose significant judgments
and assumptions used to determine whether or not to consolidate
a VIE. This amendment is effective for financial statements
issued for fiscal years beginning after November 15, 2009.
The implementation of this amendment did not impact our
consolidated financial statements.
In January 2010, FASB updated the disclosure requirements for
fair value measurements. The updated guidance requires companies
to disclose separately the investments that transfer in and out
of Levels 1 and 2 and the reasons for those transfers.
Additionally, in the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), companies
should present separately information about purchases, sales,
issuances and settlements. We adopted the updated guidance at
the beginning of fiscal 2010, except for the disclosures about
purchases, sales, issuances and settlements in the Level 3
reconciliation, which are effective for fiscal years beginning
after December 15, 2010. We will adopt the remaining
guidance at the beginning of fiscal 2011. The adoption of the
required guidance did not have an impact on our financial
position, results of operations, or disclosures. We do not
expect that the adoption of the remaining guidance will have an
impact on our financial position, results of operations, or
disclosures.
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.
44
|
|
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. Additionally, we
accept orders for home robot products in currencies other than
the U.S. dollar. 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. Our international
revenue is primarily denominated in U.S. dollars and
therefore any fluctuations in the Euro or any other
non-U.S. dollar
currencies will have minimal direct impact on our international
revenue. However, as the U.S. dollar strengthens or weakens
against other currencies, our international distributors may be
impacted, which could affect their profitability and our ability
to maintain current pricing levels on our international consumer
products.
Interest
Rate Sensitivity
At January 1, 2011, we had unrestricted cash and cash
equivalents of $108.4 million and short term investments of
$13.9 million. 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 fair market value of the investment to fluctuate. To
minimize this risk in the future, we intend to maintain our
portfolio of cash equivalents in a variety of securities,
commercial paper, money market funds, debt securities and
certificates of deposit. Due to the short-term nature of these
investments, we believe that we do not have any material
exposure to changes in the fair value of our investment
portfolio as a result of changes in interest rates. As of
January 1, 2011, all of our cash and cash equivalents were
held in interest-bearing demand deposits and money market
accounts.
Our exposure to market risk also relates to the increase or
decrease in the amount of interest expense we must pay on any
outstanding debt instruments, primarily certain borrowings under
our working capital line of credit. 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 LIBOR rate at
the time of the borrowing. At January 1, 2011, we had
letters of credit outstanding of $1.9 million under our
working capital line of credit.
45
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
iROBOT
CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
47
|
|
Consolidated Balance Sheets at January 1, 2011 and
January 2, 2010
|
|
|
48
|
|
Consolidated Statements of Operations for the Years ended
January 1, 2011, January 2, 2010 and December 27,
2008
|
|
|
49
|
|
Consolidated Statements of Stockholders Equity for the
Years ended January 1, 2011, January 2, 2010 and
December 27, 2008
|
|
|
50
|
|
Consolidated Statements of Cash Flows for the Years ended
January 1, 2011, January 2, 2010 and December 27,
2008
|
|
|
51
|
|
Notes to Consolidated Financial Statements
|
|
|
52
|
|
46
Report of
Independent Registered Public Accounting Firm
To Board of Directors and Stockholders of
iRobot Corporation:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
shareholders equity and of cash flows present fairly, in
all material respects, the financial position of iRobot
Corporation and its subsidiaries at January 1, 2011 and
January 2, 2010, and the results of their operations and
their cash flows for each of the three years in the period ended
January 1, 2011 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
January 1, 2011, 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 the
accompanying Managements Report on Internal Control over
Financial Reporting. 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.
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 18, 2011
47
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
108,383
|
|
|
$
|
71,856
|
|
Short term investments
|
|
|
13,928
|
|
|
|
4,959
|
|
Accounts receivable, net of allowance of $88 and $90 at
January 1, 2011 and January 2, 2010, respectively
|
|
|
34,056
|
|
|
|
35,171
|
|
Unbilled revenue
|
|
|
4,012
|
|
|
|
1,831
|
|
Inventory
|
|
|
27,160
|
|
|
|
32,406
|
|
Deferred tax assets
|
|
|
12,917
|
|
|
|
8,669
|
|
Other current assets
|
|
|
6,137
|
|
|
|
4,119
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
206,593
|
|
|
|
159,011
|
|
Property and equipment, net
|
|
|
25,620
|
|
|
|
20,230
|
|
Deferred tax assets
|
|
|
8,338
|
|
|
|
6,089
|
|
Other assets
|
|
|
13,780
|
|
|
|
14,254
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
254,331
|
|
|
$
|
199,584
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
38,689
|
|
|
$
|
30,559
|
|
Accrued expenses
|
|
|
15,790
|
|
|
|
14,384
|
|
Accrued compensation
|
|
|
17,827
|
|
|
|
13,525
|
|
Deferred revenue and customer advances
|
|
|
3,534
|
|
|
|
3,908
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,840
|
|
|
|
62,376
|
|
Long term liabilities
|
|
|
3,584
|
|
|
|
4,014
|
|
Commitments and contingencies (Note 11):
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, 5,000,000 shares
authorized and no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000 and
100,000,000 shares authorized and 25,844,840 and
25,091,619 shares issued and outstanding at January 1,
2011 and January 2, 2010, respectively
|
|
|
258
|
|
|
|
251
|
|
Additional paid-in capital
|
|
|
156,620
|
|
|
|
140,613
|
|
Deferred compensation
|
|
|
|
|
|
|
(64
|
)
|
Retained earnings (accumulated deficit)
|
|
|
17,949
|
|
|
|
(7,565
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
80
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
174,907
|
|
|
|
133,194
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders equity
|
|
$
|
254,331
|
|
|
$
|
199,584
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
48
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
360,394
|
|
|
$
|
262,199
|
|
|
$
|
281,187
|
|
Contract revenue
|
|
|
40,558
|
|
|
|
36,418
|
|
|
|
26,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
400,952
|
|
|
|
298,617
|
|
|
|
307,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
|
228,403
|
|
|
|
176,631
|
|
|
|
190,250
|
|
Cost of contract revenue(1)
|
|
|
27,117
|
|
|
|
30,790
|
|
|
|
23,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
255,520
|
|
|
|
207,421
|
|
|
|
214,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
145,432
|
|
|
|
91,196
|
|
|
|
93,471
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
24,809
|
|
|
|
14,747
|
|
|
|
17,566
|
|
Selling and marketing(1)
|
|
|
50,535
|
|
|
|
40,902
|
|
|
|
46,866
|
|
General and administrative(1)
|
|
|
36,618
|
|
|
|
30,110
|
|
|
|
28,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
111,962
|
|
|
|
85,759
|
|
|
|
93,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33,470
|
|
|
|
5,437
|
|
|
|
199
|
|
Other income (expense), net
|
|
|
504
|
|
|
|
(81
|
)
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
33,974
|
|
|
|
5,356
|
|
|
|
1,125
|
|
Income tax expense
|
|
|
8,460
|
|
|
|
2,026
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,514
|
|
|
$
|
3,330
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.00
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
Diluted
|
|
$
|
0.96
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
Number of shares used in per share calculations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,394
|
|
|
|
24,998
|
|
|
|
24,654
|
|
Diluted
|
|
|
26,468
|
|
|
|
25,640
|
|
|
|
25,533
|
|
|
|
|
(1) |
|
Stock-based compensation recorded in fiscal 2010, 2009 and 2008
breaks down by expense classification as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 1,
|
|
January 2,
|
|
December 27,
|
|
|
2011
|
|
2010
|
|
2008
|
|
|
(In thousands)
|
|
Cost of product revenue
|
|
$
|
1,311
|
|
|
$
|
1,127
|
|
|
$
|
753
|
|
Cost of contract revenue
|
|
|
446
|
|
|
|
575
|
|
|
|
462
|
|
Research and development
|
|
|
725
|
|
|
|
351
|
|
|
|
359
|
|
Selling and marketing
|
|
|
1,161
|
|
|
|
1,410
|
|
|
|
1,055
|
|
General and administrative
|
|
|
4,522
|
|
|
|
4,099
|
|
|
|
3,310
|
|
See accompanying Notes to Consolidated Financial Statements
49
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
Balance at December 29, 2007
|
|
|
24,494,931
|
|
|
$
|
245
|
|
|
$
|
122,318
|
|
|
$
|
(685
|
)
|
|
$
|
(11,651
|
)
|
|
$
|
|
|
|
$
|
110,227
|
|
|
|
|
|
Amortization of deferred compensation relating to restricted
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Issuance of common stock for exercise of stock options
|
|
|
289,970
|
|
|
|
3
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
Conversion of deferred compensation
|
|
|
2,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
22,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of excess stock based compensation deduction
|
|
|
|
|
|
|
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,648
|
|
|
|
|
|
Amortization of deferred compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
5,602
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
5,925
|
|
|
|
|
|
Reversal of deferred compensation related to cancelled stock
options
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors deferred compensation
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
756
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2008
|
|
|
24,810,736
|
|
|
$
|
248
|
|
|
$
|
130,637
|
|
|
$
|
(314
|
)
|
|
$
|
(10,895
|
)
|
|
$
|
|
|
|
$
|
119,676
|
|
|
|
|
|
Issuance of common stock for exercise of stock options
|
|
|
243,791
|
|
|
|
3
|
|
|
|
735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
42,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of excess stock based compensation deduction
|
|
|
|
|
|
|
|
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,873
|
|
|
|
|
|
Amortization of deferred compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
7,318
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
7,562
|
|
|
|
|
|
Stock withheld to cover tax withholdings requirements upon
vesting of restricted stock units
|
|
|
(5,737
|
)
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
Reversal of deferred compensation related to cancelled stock
options
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short term investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
(41
|
)
|
|
|
(41
|
)
|
Directors deferred compensation
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,330
|
|
|
|
|
|
|
|
3,330
|
|
|
|
3,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010
|
|
|
25,091,619
|
|
|
$
|
251
|
|
|
$
|
140,613
|
|
|
$
|
(64
|
)
|
|
$
|
(7,565
|
)
|
|
$
|
(41
|
)
|
|
$
|
133,194
|
|
|
|
|
|
Issuance of common stock for exercise of stock options
|
|
|
667,462
|
|
|
|
6
|
|
|
|
6,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,590
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
101,348
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of excess stock based compensation deduction
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
Amortization of deferred compensation relating to stock options
|
|
|
|
|
|
|
|
|
|
|
8,102
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
8,165
|
|
|
|
|
|
Stock withheld to cover tax withholdings requirements upon
vesting of restricted stock units
|
|
|
(15,589
|
)
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
Reversal of deferred compensation related to cancelled stock
options
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on short term investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
121
|
|
|
|
121
|
|
Directors deferred compensation
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,514
|
|
|
|
|
|
|
|
25,514
|
|
|
|
25,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
|
25,844,840
|
|
|
$
|
258
|
|
|
$
|
156,620
|
|
|
$
|
|
|
|
$
|
17,949
|
|
|
$
|
80
|
|
|
$
|
174,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
50
iROBOT
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,514
|
|
|
$
|
3,330
|
|
|
$
|
756
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,541
|
|
|
|
8,074
|
|
|
|
7,029
|
|
Loss on disposal of property and equipment
|
|
|
204
|
|
|
|
202
|
|
|
|
231
|
|
Stock based compensation
|
|
|
8,165
|
|
|
|
7,562
|
|
|
|
5,939
|
|
In-process research and development relating to acquisition of
Nekton Research LLC
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Benefit from deferred tax assets
|
|
|
(7,620
|
)
|
|
|
(3,317
|
)
|
|
|
(1,967
|
)
|
Non-cash director deferred compensation
|
|
|
132
|
|
|
|
132
|
|
|
|
95
|
|
Changes in operating assets and liabilities (use)
source
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,115
|
|
|
|
759
|
|
|
|
12,221
|
|
Unbilled revenue
|
|
|
(2,181
|
)
|
|
|
183
|
|
|
|
230
|
|
Inventory
|
|
|
5,246
|
|
|
|
2,154
|
|
|
|
10,662
|
|
Other current assets
|
|
|
(2,082
|
)
|
|
|
(816
|
)
|
|
|
(1,042
|
)
|
Accounts payable
|
|
|
8,130
|
|
|
|
11,015
|
|
|
|
(25,350
|
)
|
Accrued expenses
|
|
|
1,495
|
|
|
|
3,385
|
|
|
|
3,002
|
|
Accrued compensation
|
|
|
4,302
|
|
|
|
7,132
|
|
|
|
1,634
|
|
Deferred revenue and customer advances
|
|
|
(374
|
)
|
|
|
1,276
|
|
|
|
1,026
|
|
Other
|
|
|
(430
|
)
|
|
|
(430
|
)
|
|
|
4,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
49,157
|
|
|
|
40,641
|
|
|
|
19,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions of property and equipment
|
|
|
(12,597
|
)
|
|
|
(5,038
|
)
|
|
|
(14,817
|
)
|
Purchase of Nekton Research, LLC, net of cash received
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
(9,743
|
)
|
Purchase of investments
|
|
|
(30,461
|
)
|
|
|
(5,000
|
)
|
|
|
(29,997
|
)
|
Sales of investments
|
|
|
21,500
|
|
|
|
|
|
|
|
46,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,558
|
)
|
|
|
(12,538
|
)
|
|
|
(8,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving line of credit
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
Repayment of borrowings under revolving credit line
|
|
|
|
|
|
|
|
|
|
|
(5,500
|
)
|
Income tax withholding payment associated with restricted stock
vesting
|
|
|
(284
|
)
|
|
|
(76
|
)
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
6,590
|
|
|
|
738
|
|
|
|
1,011
|
|
Tax benefit of excess stock based compensation deductions
|
|
|
2,622
|
|
|
|
2,239
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
8,928
|
|
|
|
2,901
|
|
|
|
3,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
36,527
|
|
|
|
31,004
|
|
|
|
14,117
|
|
Cash and cash equivalents, at beginning of period
|
|
|
71,856
|
|
|
|
40,852
|
|
|
|
26,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period
|
|
$
|
108,383
|
|
|
$
|
71,856
|
|
|
$
|
40,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60
|
|
Cash paid for income taxes
|
|
$
|
17,807
|
|
|
$
|
1,127
|
|
|
$
|
89
|
|
Supplemental
disclosure of noncash investing and financing activities (in
thousands)
During 2010, 2009 and 2008, the Company transferred $3,637,
$2,318 and $893 respectively, of inventory to property and
equipment.
See accompanying Notes to Consolidated Financial Statements
51
iROBOT
CORPORATION
|
|
1.
|
Nature of
the Business
|
iRobot Corporation (iRobot or the
Company) develops robotics and artificial
intelligence technologies and applies 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, the need to obtain
financing, if necessary, global economic conditions and
associated impact on consumer spending, and changes in policies
and spending priorities of the U.S. federal government and
other government agencies.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include those
of iRobot and its 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
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, assumptions used in valuing
stock-based compensation instruments 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.
Fiscal
Year-End
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 or savings accounts
of major financial institutions. Accordingly, its cash
equivalents are subject to minimal credit and market risk. At
January 1, 2011 and January 2, 2010, cash equivalents
were comprised of money market and savings account funds
totaling $93.4 million and $63.1 million,
respectively. These cash equivalents are carried at cost, which
approximates fair value.
52
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
January 1, 2011 and January 2, 2010, investments
consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Market Value
|
|
|
Cost
|
|
|
Market Value
|
|
|
|
(In thousands)
|
|
|
Corporate bond
|
|
$
|
11,465
|
|
|
$
|
11,424
|
|
|
$
|
|
|
|
$
|
|
|
U.S. Government bond
|
|
|
2,498
|
|
|
|
2,504
|
|
|
|
5,000
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short term investments
|
|
$
|
13,963
|
|
|
$
|
13,928
|
|
|
$
|
5,000
|
|
|
$
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2011, the Companys investments had
maturity dates ranging from June 2010 to August 2013.
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 home robots under the
terms of the customer agreement upon transfer of title and risk
of loss to the customer, net of estimated returns, provided that
collection is determined to be reasonably assured and no
significant obligations remain. Sales to resellers are typically
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 based on
historical returns experience and other relevant data. The
Companys international distributor agreements do not
currently allow for product returns and, as a result, no reserve
for returns is established for this group of customers. 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. When a 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. Costs incurred include
labor and material that are directly associated with individual
CPFF contracts plus indirect overhead and general and
administrative type costs based upon billing rates submitted by
the Company to the Defense Contract Management Agency
(DCMA). Annually, the Company submits final indirect
billing rates to DCMA based upon actual costs incurred
throughout the year. These final billing rates are subject to
audit by the Defense Contract Audit Agency (DCAA),
which can occur several years after the final billing rates are
submitted and may result in material adjustments to revenue
recognized based on estimated final billing rates. As of
January 1, 2011, fiscal years 2007, 2008, 2009 and 2010 are
open for audit by DCAA. In the situation where the
Companys anticipated actual billing rates will be lower
than the provisional rates currently in effect, the Company
records a cumulative revenue adjustment in the period in which
the rate differential is identified. Revenue on firm fixed price
(FFP) contracts is recognized using the
percentage-of-completion
method. For government product FFP contracts revenue is
recognized as the product is shipped or in accordance with the
contract terms. Costs and estimated gross margins on contracts
are recorded as revenue as work is
53
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performed based on the percentage that incurred costs compare 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 and government audit, 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, a
provision is made for the total anticipated loss in the current
period. Revenue earned in excess of billings, if any, is
recorded as unbilled revenue. Billings in excess of revenue
earned, if any, are recorded as deferred revenue.
Allowance
for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to
provide for the estimated amount of accounts receivable that may
not be collected. The allowance is based upon an assessment of
customer creditworthiness, historical payment experience and the
age of outstanding receivables.
Activity related to the allowance for doubtful accounts was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
90
|
|
|
$
|
65
|
|
|
$
|
65
|
|
Provision
|
|
|
|
|
|
|
32
|
|
|
|
1,005
|
|
Deduction(*)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
88
|
|
|
$
|
90
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
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
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
3,713
|
|
|
$
|
2,770
|
|
|
$
|
441
|
|
Provision
|
|
|
677
|
|
|
|
2,117
|
|
|
|
2,622
|
|
Deduction(*)
|
|
|
(1,554
|
)
|
|
|
(1,174
|
)
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,836
|
|
|
$
|
3,713
|
|
|
$
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Deductions related to inventory reserve accounts represent
amounts written off against the reserve. |
54
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
|
|
2-5
|
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.
Long-Lived
Assets, including Purchased Intangible Assets
The Company periodically evaluates the recoverability of
long-lived assets, including other purchased intangible assets
whenever events and changes in circumstances, such as reductions
in demand or significant economic slowdowns in the industry,
indicate that the carrying amount of an asset may not be fully
recoverable. When indicators of impairment are present, the
carrying values of the asset group are evaluated in relation to
the 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.
Goodwill
Goodwill is recorded as the difference, if any, between the
aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. The
Company tests goodwill for impairment at the reporting unit
level (operating segment or one level below an operating
segment) annually or more frequently if the Company believes
indicators of impairment exist. The performance of the test
involves a two-step process. The first step of the impairment
test involves comparing the fair values of the applicable
reporting units with their aggregate carrying values, including
goodwill. If the carrying amount of a reporting unit exceeds the
reporting units fair value, the Company performs the
second step of the goodwill impairment test to determine the
amount of impairment loss. The second step of the goodwill
impairment test involves comparing the implied fair value of the
affected reporting units goodwill with the carrying value
of that goodwill.
Research
and Development
Costs incurred in the research and development of the
Companys products, classified as cost of contract and
research and development, are expensed as incurred.
55
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Internal
Use Software
The Company capitalizes costs associated with the development
and implementation of software obtained for internal use. At
January 1, 2011 and January 2, 2010, the Company had
$5.8 million and $4.9 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
$0.9 million, $0.9 million and $0.8 million of
amortization expense for the years ended January 1, 2011,
January 2, 2010 and December 27, 2008, 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 January 1,
2011 and January 2, 2010 the Company exceeded the insured
limit by $125.4 million and $79.4 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 January 1, 2011
and January 2, 2010, 6% and 23%, respectively, of the
Companys accounts receivable were due from the federal
government. At January 1, 2011, two additional customers
accounted for 22% and 19% of the Companys accounts
receivable balance. The customer accounting for 22% of the
Companys accounts receivable balance secured their balance
with guaranteed letters of credit. For the years ended
January 1, 2011, January 2, 2010, and
December 27, 2008, revenue from U.S. federal
government orders, contracts and subcontracts, represented
38.4%, 36.9% and 40.3% of total revenue, respectively. For the
fiscal year ended January 1, 2011, we generated 17.4% of
total revenue from The Boeing Company as a subcontractor under
U.S. federal government contracts.
Foreign
Currency Forward Contracts
The Company periodically enters into foreign currency forward
contracts to sell foreign currencies 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 foreign currency based accounts
receivable balances by partially offsetting a portion of such
exposure with gains or losses on the forward contracts.
These foreign currency contracts did not qualify for hedge
accounting. Accordingly, the foreign currency forward contracts
were
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. As of
January 1, 2011, the Company did not have any foreign
currency forward contracts.
Stock-Based
Compensation
The Company accounts for stock-based compensation through
recognition of the fair value of the stock-based compensation as
a charge against earnings. Stock-based compensation cost for
stock options is estimated at the grant date based on each
options fair-value as calculated by the Black-Scholes
option-pricing model. Stock-based compensation cost for
restricted stock awards and restricted stock units is measured
based on the closing fair market value of the Companys
common stock on the date of grant. The Company recognizes
stock-based compensation cost as expense ratably on a
straight-line basis over the requisite service period, net of
estimated forfeitures.
Advertising
Expense
The Company expenses advertising costs as they are incurred.
During the years ended January 1, 2011, January 2,
2010 and December 27, 2008 advertising expense totaled
$13.8 million, $7.0 million and $11.6 million,
respectively.
56
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Income Per Share
The following table presents the calculation of both basic and
diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
Net income
|
|
$
|
25,514
|
|
|
$
|
3,330
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
25,394
|
|
|
|
24,998
|
|
|
|
24,654
|
|
Dilutive effect of employee stock options and restricted shares
|
|
|
1,074
|
|
|
|
642
|
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
26,468
|
|
|
|
25,640
|
|
|
|
25,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
1.00
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
Diluted income per share
|
|
$
|
0.96
|
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
Potentially diluted securities representing approximately
1.0 million, 2.3 million and 2.1 million shares
of common stock for the fiscal years ended January 1, 2011,
January 2, 2010 and December 27, 2008, respectively,
were excluded from the computation of diluted earnings per share
for these periods because their effect would have been
antidilutive.
Income
Taxes
Effective December 31, 2006, the Company adopted the
relevant authoritative guidance 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. The impact of adoption on the
Companys opening balance of retained earnings was zero. As
of the beginning of fiscal year 2010, the Company had no
material unrecognized tax benefits and no material unrecognized
tax benefits were recorded in the fiscal year ended
January 1, 2011. 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
January 1, 2011, January 2, 2010 or December 27,
2008.
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, 2007,
although carryforward attributes that were generated prior to
fiscal year 2007 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
ability to realize 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. In fiscal 2010, based on recent and expected
increased future profitability, the Company released its
valuation allowance relating to state deferred tax assets. At
January 1, 2011, the Company has total deferred tax assets
of $21.2 million with no valuation allowance.
57
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income
Accumulated other comprehensive income includes unrealized gains
and losses on certain investments. The differences between net
income and comprehensive income were related to unrealized gains
(losses) on investments, net of tax.
Fair
Value Measurements
The Company has adopted the authoritative guidance for fair
value measurement as of December 30, 2007, for financial
instruments. Although the adoption of this guidance did not
materially impact its financial condition, results of
operations, or cash flow, the Company is now required to provide
additional disclosures as part of its financial statements.
The Company has adopted the authoritative guidance for fair
value measurement as of December 28, 2008 for nonfinancial
assets and nonfinancial liabilities. This adoption did not
impact the Companys consolidated financial statements.
The authoritative guidance for fair value establishes a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
The Companys assets measured at fair value on a recurring
basis at January 1, 2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of January 1, 2011
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
5,090
|
|
|
$
|
|
|
|
$
|
|
|
U.S. Government bonds
|
|
|
|
|
|
|
2,504
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
11,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
5,090
|
|
|
$
|
13,928
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The bond investments are valued based on observable market
values as of the Companys reporting date and are included
in Level 2. The bond investments are recorded at fair value
and
marked-to-market
at the end of each reporting period and realized and unrealized
gains and losses are included in comprehensive income for that
period. The fair value of the Companys bond investments
are included in short term investments in its consolidated
balance sheet.
The Companys assets measured at fair value on a recurring
basis at January 2, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of January 2, 2010
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
20,077
|
|
|
$
|
|
|
|
$
|
|
|
Investment in U.S. Government bonds
|
|
|
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
20,077
|
|
|
|
4,959
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The bond investment is valued based on observable market values
as of the Companys reporting date and is included in
Level 2. The bond investment is recorded at fair value and
marked-to-market
at the end of each reporting period and realized and unrealized
gains and losses are included in comprehensive income for that
period. The fair value of the Companys bond investment is
included in short term investments in its consolidated balance
sheet.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to the accounting and
disclosure requirements for the consolidation of variable
interest entities (VIEs). The elimination of the
concept of a Qualifying Special Purpose Entity, removes the
exception from applying the consolidation guidance within this
amendment. This amendment requires an enterprise to perform a
qualitative analysis when determining whether or not it must
consolidate a VIE and requires an enterprise to continuously
reassess whether it must consolidate a VIE. Additionally, this
amendment requires enhanced disclosures about an
enterprises involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how
its involvement with VIEs impacts the enterprises
financial statements. Finally, an enterprise will be required to
disclose significant judgments and assumptions used to determine
whether or not to consolidate a VIE. This amendment is effective
for financial statements issued for fiscal years beginning after
November 15, 2009. The implementation of this amendment did
not impact the Companys consolidated financial statements.
In January 2010, FASB updated the disclosure requirements for
fair value measurements. The updated guidance requires companies
to disclose separately the investments that transfer in and out
of Levels 1 and 2 and the reasons for those transfers.
Additionally, in the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), companies
should present separately information about purchases, sales,
issuances and settlements. The Company adopted the updated
guidance at the beginning of fiscal 2010, except for the
disclosures about purchases, sales, issuances and settlements in
the Level 3 reconciliation, which are effective for fiscal
years beginning after December 15, 2010. The Company will
adopt the remaining guidance at the beginning of fiscal 2011.
The adoption of the required guidance did not have an impact on
the Companys financial position, results of operations, or
disclosures. The Company does not expect that the adoption of
the remaining guidance will have an impact on its financial
position, results of operations, or disclosures.
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:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
6,723
|
|
|
$
|
3,735
|
|
Work in process
|
|
|
27
|
|
|
|
687
|
|
Finished goods
|
|
|
20,410
|
|
|
|
27,984
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,160
|
|
|
$
|
32,406
|
|
|
|
|
|
|
|
|
|
|
59
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Computer and equipment
|
|
$
|
16,852
|
|
|
$
|
12,789
|
|
Furniture
|
|
|
2,484
|
|
|
|
1,656
|
|
Machinery
|
|
|
1,981
|
|
|
|
1,517
|
|
Tooling
|
|
|
5,213
|
|
|
|
3,723
|
|
Leasehold improvements
|
|
|
13,532
|
|
|
|
12,579
|
|
Software purchased for internal use
|
|
|
5,771
|
|
|
|
4,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,833
|
|
|
|
37,122
|
|
Less: accumulated depreciation
|
|
|
20,213
|
|
|
|
16,892
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,620
|
|
|
$
|
20,230
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended January 1, 2011,
January 2, 2010 and December 27, 2008 was
$7.0 million, $7.5 million, and $6.9 million,
respectively.
Other assets consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Goodwill and intangible assets, net
|
|
$
|
11,280
|
|
|
$
|
11,754
|
|
Investment in Advanced Scientific Concepts, Inc.
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,780
|
|
|
$
|
14,254
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible assets are the result of the acquisition
of Nekton Research, LLC (Nekton), See Notes 13
and 14 to the Consolidated Financial Statements for a more
detailed discussion of the Goodwill and intangible assets, net.
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. The Company regularly monitors this investment to
determine if facts and circumstances have changed in a manner
that would require a change in accounting methodology.
Additionally, the Company regularly evaluates 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.
60
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Accrued warranty
|
|
$
|
9,284
|
|
|
$
|
6,105
|
|
Accrued direct fulfillment costs
|
|
|
2,405
|
|
|
|
1,836
|
|
Accrued rent
|
|
|
592
|
|
|
|
532
|
|
Accrued sales commissions
|
|
|
432
|
|
|
|
472
|
|
Accrued accounting fees
|
|
|
439
|
|
|
|
401
|
|
Accrued income taxes
|
|
|
|
|
|
|
2,177
|
|
Accrued other
|
|
|
2,638
|
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,790
|
|
|
$
|
14,384
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Revolving
Line of Credit
|
The Company has an unsecured revolving credit facility with Bank
of America, N.A., which is available to fund working capital and
other corporate purposes. The amount available for borrowing
under its credit facility is $40.0 million. As of
January 1, 2011, $38.1 million was available for
borrowing. The interest on loans under the credit facility will
accrue, at the Companys election, at either (i) the
greater of the BBA LIBOR Daily Floating Rate or the Prime Rate
of Lender plus fifty (50) basis points, or (ii) the
LIBOR rate plus 2.00%. The credit facility will terminate and
all amounts outstanding thereunder will be due and payable in
full on June 5, 2012.
As of January 1, 2011, the Company had letters of credit
outstanding of $1.9 million under its working capital line
of credit. This credit facility contains customary terms and
conditions for credit facilities of this type, including
restrictions on the Companys 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, the
Companys 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 adjusted EBITDA, and minimum specified interest
coverage ratio.
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.
As of January 1, 2011, the Company was in compliance with
all covenants under its 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.
|
Stock
Option Plans and Stock-Based Compensation
|
The Company has options outstanding under three stock incentive
plans: the 1994 Stock Option Plan (the 1994 Plan),
the 2004 Stock Option and Incentive Plan (the 2004
Plan) and the 2005 Stock Option and Incentive
61
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan (the 2005 Plan and together with the 1994 Plan
and the 2004 Plan, the Plans). The 2005 Plan is the
only one of the three plans under which new awards may currently
be granted. Under the 2005 Plan, which became effective
October 10, 2005, 1,583,682 shares were initially
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 Plans 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 of 1986, as amended.
As of January 1, 2011, there were 3,008,963 shares
available for future grant under the 2005 Plan.
Options granted under 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 zero to five years,
and expire seven or ten years from the date of grant or, if
earlier, 60 or 90 days from employee termination. The
exercise price of incentive stock options 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.
In connection with the initial public offering, the Company
retrospectively reassessed the fair value of its common stock
for options granted during the period from July 1, 2004 to
November 8, 2005. As a result of this reassessment, the
Company determined that the estimated fair market value used in
granting options for the period from July 1, 2004 to
December 31, 2004 was reasonable and appropriate.
Accordingly, no deferred compensation was recorded for these
grants. For the period from January 1, 2005 through
November 8, 2005, the Company determined that the estimated
fair value of its common stock increased from $4.60 to $21.60
due to a number of factors such as, among other things, the
likelihood of an initial public offering, its improving
operating results and the achievement of other corporate
milestones in 2005. Based upon this determination, the Company
recorded deferred compensation of approximately
$3.4 million in the twelve months ended December 31,
2005 relating to stock options with exercise prices below the
retrospectively reassessed fair market value on the date of
grant. The Company recognized associated stock-based
compensation expense of $0.1 million, $0.2 million and
$0.3 million for the fiscal years ended January 1,
2011, January 2, 2010 and December 27, 2008,
respectively.
The Company recognized $6.4 million of stock-based
compensation expense during the fiscal year ended
January 1, 2011 for stock options granted subsequent to the
Companys initial filing of its
Form S-1
with the SEC. The unamortized fair value as of January 1,
2011 associated with these grants was $12.0 million with a
weighted average remaining recognition period of 2.65 years.
On May 29, 2009, the Company completed a one-time stock
option exchange program as approved by its stockholders on
May 28, 2009. In accordance with the terms and conditions
of the stock option exchange program, the Company issued new
options to purchase an aggregate of 310,607 shares of the
Companys common stock in exchange for the cancellation of
options to purchase an aggregate of 678,850 of the
Companys common stock. The exchange ratios were designed
to result in the fair value, for accounting purposes, of the new
options being approximately equal to the fair value of the
exchanged eligible options to ensure the Company minimized any
additional compensation expense in connection with the stock
option exchange program. The Company incurred no additional
compensation expense in connection with the program.
The fair value of each option grant for the fiscal years ended
January 1, 2011, January 2, 2010 (excluding the new
options issued in conjunction with the stock option exchange
program described in the preceding paragraph for
62
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which no incremental compensation expense was realized) and
December 27, 2008 was computed on the grant date using the
Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
Fiscal Year Ended
|
|
|
January 1,
|
|
January 2,
|
|
December 27,
|
|
|
2011
|
|
2010
|
|
2008
|
|
Risk-free interest rate
|
|
1.27% 2.28%
|
|
1.45% 2.50%
|
|
2.24% 3.45%
|
Expected dividend yield
|
|
|
|
|
|
|
Expected life
|
|
4.00 4.75 years
|
|
3.50 4.75 years
|
|
3.50 4.75 years
|
Expected volatility
|
|
57.0% 62.0%
|
|
55.0% 56.5%
|
|
55.0%
|
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
the relevant authoritative guidance, 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, prior to 2010, the Company
performed an analysis that included company specific historical
data combined with data of several peer companies with similar
expected option lives to develop expected volatility
assumptions. During 2010, the Company began to rely solely on
company specific historical data for purposes of establishing
expected volatility.
Based upon the above assumptions, the weighted average fair
value of each stock option granted for the fiscal years ended
January 1, 2011, January 2, 2010 (excluding the new
options issued in conjunction with the stock option exchange
program for which no incremental compensation expense was
realized) and December 27, 2008 was $8.24, $4.91 and $7.12,
respectively.
63
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes stock option plan activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value(1)
|
|
|
Outstanding at December 29, 2007
|
|
|
3,246,088
|
|
|
$
|
12.29
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,007,660
|
|
|
|
14.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(289,970
|
)
|
|
|
3.49
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(439,847
|
)
|
|
|
15.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2008
|
|
|
3,523,931
|
|
|
$
|
13.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
941,406
|
|
|
|
11.09
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(243,791
|
)
|
|
|
3.02
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(824,918
|
)
|
|
|
19.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 2, 2010
|
|
|
3,396,628
|
|
|
$
|
11.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,058,323
|
|
|
|
16.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(667,348
|
)
|
|
|
9.87
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(130,568
|
)
|
|
|
15.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
3,657,035
|
|
|
$
|
13.40
|
|
|
|
4.86 years
|
|
|
$
|
42.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 1, 2011
|
|
|
3,476,378
|
|
|
$
|
13.30
|
|
|
|
4.80 years
|
|
|
$
|
40.3 million
|
|
Exercisable as of January 1, 2011
|
|
|
1,897,121
|
|
|
$
|
12.04
|
|
|
|
4.0 years
|
|
|
$
|
24.4 million
|
|
Weighted average fair value of options granted during the fiscal
year ended January 1, 2011
|
|
|
|
|
|
$
|
8.24
|
|
|
|
|
|
|
|
|
|
Options available for future grant at January 1, 2011
|
|
|
3,008,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 January 1, 2011 of $24.88 and
the exercise price of the underlying option. |
During fiscal years 2010, 2009, and 2008, the total intrinsic
value of stock options exercised was $7.5 million,
$2.0 million and $3.2 million, respectively. No
amounts relating to stock-based compensation have been
capitalized.
64
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding at January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$ 0.55 - $ 4.60
|
|
|
365,914
|
|
|
|
3.30
|
years
|
|
$
|
2.64
|
|
|
|
365,914
|
|
|
$
|
2.64
|
|
4.96 - 7.76
|
|
|
431,702
|
|
|
|
4.57
|
|
|
|
6.10
|
|
|
|
332,184
|
|
|
|
5.61
|
|
8.10 - 12.50
|
|
|
392,675
|
|
|
|
4.38
|
|
|
|
11.06
|
|
|
|
132,381
|
|
|
|
11.92
|
|
12.82 - 14.05
|
|
|
507,715
|
|
|
|
4.88
|
|
|
|
13.62
|
|
|
|
320,516
|
|
|
|
13.74
|
|
14.09 - 14.13
|
|
|
145,760
|
|
|
|
4.54
|
|
|
|
14.10
|
|
|
|
69,569
|
|
|
|
14.10
|
|
14.52 - 14.52
|
|
|
637,600
|
|
|
|
6.25
|
|
|
|
14.52
|
|
|
|
|
|
|
|
0.00
|
|
14.54 - 17.13
|
|
|
371,199
|
|
|
|
3.55
|
|
|
|
16.14
|
|
|
|
315,747
|
|
|
|
16.10
|
|
17.40 - 18.74
|
|
|
382,374
|
|
|
|
5.92
|
|
|
|
18.21
|
|
|
|
72,075
|
|
|
|
18.39
|
|
19.85 - 24.53
|
|
|
401,381
|
|
|
|
5.25
|
|
|
|
23.22
|
|
|
|
268,020
|
|
|
|
22.71
|
|
24.88 - 27.80
|
|
|
20,715
|
|
|
|
2.05
|
|
|
|
26.96
|
|
|
|
20,715
|
|
|
|
26.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.55 - $27.80
|
|
|
3,657,035
|
|
|
|
4.86
|
years
|
|
$
|
13.40
|
|
|
|
1,897,121
|
|
|
$
|
12.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 29, 2007
|
|
|
45,784
|
|
|
$
|
10.11
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(29,038
|
)
|
|
|
6.69
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2008
|
|
|
16,746
|
|
|
$
|
16.03
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(5,582
|
)
|
|
|
16.03
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 2, 2010
|
|
|
11,164
|
|
|
$
|
16.03
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(5,582
|
)
|
|
|
16.03
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
5,582
|
|
|
$
|
16.03
|
|
|
|
|
|
|
|
|
|
|
During the fiscal year ended January 1, 2011, the Company
recognized $0.1 million of stock based compensation expense
associated with restricted stock awards. As of January 1,
2011, the unamortized fair value of all restricted stock awards
was $0.1 million which the Company expects to recognize as
stock-based compensation expense in 2011.
65
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 29, 2007
|
|
|
24,447
|
|
|
$
|
19.05
|
|
Granted
|
|
|
168,547
|
|
|
|
15.40
|
|
Vested
|
|
|
(22,929
|
)
|
|
|
17.64
|
|
Forfeited
|
|
|
(1,349
|
)
|
|
|
18.02
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2008
|
|
|
168,716
|
|
|
$
|
15.60
|
|
Granted
|
|
|
183,139
|
|
|
|
9.94
|
|
Vested
|
|
|
(46,162
|
)
|
|
|
15.09
|
|
Forfeited
|
|
|
(4,469
|
)
|
|
|
16.23
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 2, 2010
|
|
|
301,224
|
|
|
$
|
12.23
|
|
Granted
|
|
|
382,564
|
|
|
|
16.84
|
|
Vested
|
|
|
(98,015
|
)
|
|
|
13.18
|
|
Forfeited
|
|
|
(15,696
|
)
|
|
|
13.17
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
570,077
|
|
|
$
|
15.14
|
|
|
|
|
|
|
|
|
|
|
During the fiscal year ended January 1, 2011, the Company
recognized $1.7 million of stock based compensation expense
associated with restricted stock units. As of January 1,
2011, the unamortized fair value of all restricted stock units
was $7.6 million. The Company expects to recognize
associated stock-based compensation expense of
$2.3 million, $2.2 million, $1.9 million and
$1.2 million in 2011, 2012, 2013 and 2014, respectively.
The following includes significant activity that is included in
the stock option activity and restricted stock activity tables
above:
On December 30, 2010, in connection with his employment,
the Company granted a senior vice president of human resources a
stock option exercisable for 100,000 shares of the
Companys common stock and 35,000 restricted stock units.
On December 30, 2010, in connection with the commencement
of their employment, the Company granted three employees stock
options exercisable for an aggregate of 21,000 shares of
the Companys common stock and 10,500 restricted stock
units. Each of the above stock options have a per share exercise
price of $24.53, the closing price of the Companys common
stock on NASDAQ on December 30, 2010. The stock options
will vest 25% on the first anniversary of the grant date and
quarterly thereafter over the following three years. The
restricted stock units will vest 25% on each anniversary of the
grant date.
On October 1, 2010, in connection with the commencement of
their employment, the Company granted three employees stock
options exercisable for an aggregate of 100,000 shares of
the Companys common stock and 28,000 restricted stock
units. Additionally, on October 1, 2010, the Company
granted to certain employees an annual merit grant totaling
40,420 restricted stock units. Also, on October 1, 2010 in
connection with their promotions, the Company granted three
employees, including executive officers, stock options
exercisable for an aggregate of 38,073 shares of the
Companys common stock and 10,344 restricted stock units.
Each of the above stock options have a per share exercise price
of $18.61, the closing price of the Companys common stock
on NASDAQ on October 1, 2010. The stock options will vest
25% on the first anniversary of the grant date and quarterly
thereafter over the following three years. The restricted stock
units will vest 25% on each anniversary of the grant date.
On July 2, 2010, the Company granted each of its nine
non-employee board members a stock option exercisable for
10,000 shares of the Companys common stock with an
exercise price per share of $17.70, the per
66
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
share closing price of the Companys common stock on NASDAQ
on July 2, 2010. These stock options will vest 100% on the
first anniversary of the grant date.
On April 2, 2010, in connection with the appointment of a
new member to its board of directors, the Company granted a
stock option exercisable for 40,000 shares of the
Companys common stock. On April 2, 2010, in
connection with his employment, the Company granted a senior
vice president of product development a stock option exercisable
for 80,000 shares of the Companys common stock and
20,000 restricted stock units. Additionally, on April 2,
2010, the Company granted to certain employees, including
executive officers, an annual merit grant of stock options
totaling 520,750 shares of the Companys common stock
and 185,650 restricted stock units. Each of the above stock
options have a per share exercise price of $14.52, the closing
price of the Companys common stock on NASDAQ on
April 2, 2010. The stock options will vest 25% on the first
anniversary of the grant date and quarterly over the following
three years, and the restricted stock units will vest 25% on
each anniversary of the grant date.
The components of income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,353
|
|
|
$
|
5,019
|
|
|
$
|
2,137
|
|
State
|
|
|
1,685
|
|
|
|
369
|
|
|
|
231
|
|
Foreign
|
|
|
112
|
|
|
|
42
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
16,150
|
|
|
|
5,430
|
|
|
|
2,378
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,196
|
)
|
|
|
(3,404
|
)
|
|
|
(2,009
|
)
|
State
|
|
|
(3,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
(7,690
|
)
|
|
|
(3,404
|
)
|
|
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
8,460
|
|
|
$
|
2,026
|
|
|
$
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No provision has been made for deferred taxes on undistributed
earnings of
non-U.S. subsidiaries
as these earnings have been indefinitely reinvested.
Determination of the amount of unrecognized deferred tax
liability on these undistributed earnings is not practicable. As
of January 1, 2011, a deferred tax liability has not been
established for approximately $1.0 million of cumulative
undistributed earnings of non-U.S. subsidiaries, as the Company
plans to keep these amount permanently reinvested overseas.
During the quarter ending January 2, 2010, the Company
recorded an
out-of-period
adjustment in the income tax provision of $0.2 million to
correct an error with respect to the earnings of the
Companys India subsidiary. The Company believes that this
adjustment did not have a material impact to its full year 2009
results. In addition, management does not believe the adjustment
is material to the amounts reported by the Company in previous
periods.
67
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net deferred tax assets are as follows at
January 1, 2011 and January 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
Current net deferred tax assets
|
|
|
|
|
|
|
|
|
Reserves and accruals
|
|
$
|
12,917
|
|
|
$
|
9,922
|
|
Valuation allowance
|
|
|
|
|
|
|
(1,253
|
)
|
|
|
|
|
|
|
|
|
|
Total current net deferred tax assets
|
|
|
12,917
|
|
|
|
8,669
|
|
|
|
|
|
|
|
|
|
|
Non-current net deferred tax assets
|
|
|
|
|
|
|
|
|
Capital loss carryforwards
|
|
|
|
|
|
|
99
|
|
Tax credits
|
|
|
1,698
|
|
|
|
1,450
|
|
Fixed assets
|
|
|
725
|
|
|
|
1,398
|
|
Stock based compensation
|
|
|
5,915
|
|
|
|
5,757
|
|
Valuation allowance
|
|
|
|
|
|
|
(2,615
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current net deferred tax assets
|
|
|
8,338
|
|
|
|
6,089
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
21,255
|
|
|
$
|
14,758
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2010, based on recent and expected increased future
profitability, the Company released its valuation allowance
relating to state deferred tax assets.
The table below summarizes activity relating to the valuation
allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance
|
|
|
|
beginning of
|
|
|
Costs and
|
|
|
|
|
|
at End
|
|
Fiscal Year Ended
|
|
period
|
|
|
Expenses
|
|
|
Deductions
|
|
|
of Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
December 27, 2008
|
|
$
|
2,680
|
|
|
$
|
772
|
|
|
|
|
|
|
$
|
3,452
|
|
January 2, 2010
|
|
|
3,452
|
|
|
|
416
|
|
|
|
|
|
|
|
3,868
|
|
January 1, 2011
|
|
$
|
3,868
|
|
|
|
|
|
|
$
|
3,868
|
|
|
|
|
|
The net deferred tax assets as of January 1, 2011 and
January 2, 2010 were $21.3 million and
$14.8 million, respectively.
As of January 1, 2011, the Company has research and
development credits carryforwards available to offset future
state taxes of $2.7 million and investment tax credit
carryforwards to offset future state taxes of $0.4 million,
which expire at various dates from 2016 to 2025. As of
January 2, 2010, the Company had research and development
credits carryforwards to offset future federal and state taxes
of $0.7 million and $2.2 million respectively, and
investment tax credit carryforwards to offset future state taxes
of $0.6 million, which expire at various dates from 2012 to
2024. Under the Internal Revenue Code, certain substantial
changes in the Companys ownership could result in an
annual limitation on the amount of these tax carryforwards which
can be utilized in future years.
68
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the expected tax (benefit) expense
(computed by applying the federal statutory rate to income
before income taxes) to actual tax expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Expected federal income tax
|
|
$
|
11,891
|
|
|
$
|
1,991
|
|
|
$
|
382
|
|
Miscellaneous permanent items
|
|
|
164
|
|
|
|
125
|
|
|
|
127
|
|
State taxes
|
|
|
1,545
|
|
|
|
94
|
|
|
|
(690
|
)
|
Credits
|
|
|
(997
|
)
|
|
|
(367
|
)
|
|
|
(494
|
)
|
Non deductible stock compensation
|
|
|
|
|
|
|
259
|
|
|
|
189
|
|
Conversion of incentive stock options(1)
|
|
|
|
|
|
|
(346
|
)
|
|
|
|
|
Other
|
|
|
(275
|
)
|
|
|
111
|
|
|
|
16
|
|
Increase (decrease) in valuation allowance
|
|
|
(3,868
|
)
|
|
|
159
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,460
|
|
|
$
|
2,026
|
|
|
$
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company recorded a discrete benefit from the conversion of
incentive stock options to non-qualified stock options as a
result of its stock option exchange program which concluded in
the second fiscal quarter of 2009. |
At January 1, 2011, the Company had no material
unrecognized tax benefits. Additionally, there were no accrued
interest or penalties as of January 1, 2011,
January 2, 2010 or December 27, 2008.
We follow the with and without approach for direct and indirect
effects of the windfall tax deductions.
|
|
11.
|
Commitments
and Contingencies
|
Legal
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 the
Companys 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. was dissolved and
certain residual assets were 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 $0.4 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. The Company paid
$0.1 million to Mr. Ahed during the fiscal year ended
January 1, 2011. These contingent payments will continue to
be expensed, when and if earned.
Lease
Obligations
The Company leases its facilities. Rental expense under
operating leases for fiscal 2010, 2009 and 2008 amounted to
$3.7 million, $3.9 million, and $3.8 million,
respectively. The Company recorded $0.7 million of expense
in the fiscal year ended December 27, 2008 for remaining
lease commitments, net of estimated sublease
69
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income, at its former corporate headquarters in Burlington, MA.
Future minimum rental payments under operating leases were as
follows as of January 1, 2011:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
2011
|
|
$
|
2,904
|
|
2012
|
|
|
2,646
|
|
2013
|
|
|
2,466
|
|
2014
|
|
|
2,447
|
|
2015
|
|
|
2,442
|
|
Thereafter
|
|
|
10,327
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
23,232
|
|
|
|
|
|
|
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
January 1, 2011 and January 2, 2010, respectively.
Government
Contract Contingencies
Several of the Companys 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 the Company. In addition, the Company
is 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 the Companys performance on
contracts, cost structures and compliance with applicable laws,
regulations and standards. If any of its 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.
Annually, the Company submits final indirect billing rates to
DCMA based upon actual costs incurred throughout the year. These
final billing rates are subject to audit by DCAA. As of
January 1, 2011, fiscal years 2007, 2008, 2009 and 2010 are
open for audit by DCAA.
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 6) in the accompanying balance sheets.
70
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
December 27,
|
|
|
|
2011
|
|
|
2010
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
6,105
|
|
|
$
|
5,380
|
|
|
$
|
2,491
|
|
Provision
|
|
|
6,402
|
|
|
|
4,870
|
|
|
|
7,728
|
|
Warranty usage(*)
|
|
|
(3,223
|
)
|
|
|
(4,145
|
)
|
|
|
(4,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,284
|
|
|
$
|
6,105
|
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product
warranties not utilized. |
Sales
Taxes
The Company collects and remits sales tax in jurisdictions in
which it has a physical presence or it believes nexus exists,
which therefore obligates the Company to collect and remit sales
tax. The Company continually evaluates whether it has
established a nexus in new jurisdictions with respect to sales
tax. The Company has recorded a liability for potential exposure
in several states where there is uncertainty about the point in
time at which the Company established a sufficient business
connection to create nexus. 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, contract
and international 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 $1.5 million, $1.2 million and
$0.9 million for the plan years ended January 1, 2011,
January 2, 2010 and December 27, 2008 (Plan-Year
2010, Plan-Year 2009 and Plan-Year
2008), 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 2010, Plan-Year 2009 and
Plan-Year 2008 is entitled up to a maximum of three percent of
his or her eligible annual payroll. The employer matching
contribution for Plan-Year 2010 is included in accrued
compensation.
|
|
13.
|
Acquisition
of Nekton Research, LLC
|
In September 2008 the Company acquired Nekton, an unmanned
underwater robot technology company based in Raleigh, North
Carolina. The Company acquired Nekton for a purchase price of
$10 million, consisting primarily of cash and direct
acquisition costs, with the potential for additional
consideration up to $5 million based on the achievement of
certain business and financial milestones. In connection with
the acquisition, the Company assumed $0.1 million in net
liabilities, and initially recorded $4.5 million of
intangible assets and $5.4 million of goodwill.
Approximately $0.2 million of the purchase price was
allocated to in-process research and development and was
expensed upon completion of the acquisition. In December 2009,
$2.5 million of additional consideration was paid and
recorded as goodwill, under the earn-out provisions of the
original agreement, bringing the total goodwill
71
iROBOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded for this acquisition to $7.9 million. There will
be no additional consideration paid in connection with this
acquisition.
The consolidated financial statements for the year ended
December 27, 2008 include the results of operations of
Nekton commencing as of September 8, 2008, the acquisition
date. No supplemental pro forma information is presented for the
acquisition due to the immaterial effect of the acquisition on
the Companys results of operations.
|
|
14.
|
Goodwill
and other intangible assets
|
The carrying amount of the goodwill at January 1, 2011 of
$7.9 million is from the acquisition of Nekton completed in
September 2008. In October 2010, the Company completed its
annual goodwill impairment test and did not identify any
goodwill impairment.
Other intangible assets include the value assigned to completed
technology, research contracts, and a trade name. The estimated
useful lives for all of these intangible assets are two to ten
years. The intangible assets are being amortized on a
straight-line basis, which is consistent with the pattern that
the economic benefits of the intangible assets are expected to
be utilized.
Intangible assets at January 1, 2011 and January 2,
2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
|
January 2, 2010
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Completed technology
|
|
$
|
3,700
|
|
|
$
|
865
|
|
|
$
|
2,835
|
|
|
$
|
3,700
|
|
|
$
|
496
|
|
|
$
|
3,204
|
|
Research contracts
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
|
|
64
|
|
|
|
36
|
|
Tradename
|
|
|
700
|
|
|
|
165
|
|
|
|
535
|
|
|
|
700
|
|
|
|
96
|
|
|
|
604
|
|
|
|
|
|
|
|
|