e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED September 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 000-51598
iROBOT CORPORATION
(Exact name of registrant as specified in its charter) |
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Delaware
(State or other jurisdiction of
incorporation or organization)
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77-0259 335
(I.R.S. Employer
Identification No.) |
63 South Avenue
Burlington, MA 01803
(Address of principal executive offices)
(Zip code)
(781) 345-0200
(Registrants telephone number, including area code)
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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
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 number of shares outstanding of the Registrants Common Stock as of October 28, 2006 was
23,710,444.
iROBOT CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006
INDEX
1
iROBOT CORPORATION
Consolidated Balance Sheets
(in thousands)
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September 30, |
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December 31, |
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2006 |
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2005 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
8,318 |
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$ |
76,064 |
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Short-term investments |
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63,850 |
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Accounts receivable, net of allowance of
$236 and $117 at September 30, 2006 and
December 31, 2005, respectively |
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30,643 |
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23,045 |
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Unbilled revenue |
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1,113 |
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1,424 |
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Inventory, net |
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23,824 |
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15,903 |
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Other current assets |
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1,161 |
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1,533 |
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Total current assets |
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128,909 |
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117,969 |
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Property and equipment, net |
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8,062 |
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6,966 |
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Total assets |
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$ |
136,971 |
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$ |
124,935 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
27,959 |
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$ |
23,721 |
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Accrued expenses |
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5,361 |
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3,484 |
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Accrued compensation |
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5,994 |
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4,002 |
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Provision for contract settlements |
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5,154 |
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Deferred revenue |
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2,198 |
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1,018 |
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Total current liabilities |
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41,512 |
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37,379 |
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Commitments and contingencies (Note 8): |
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Common stock, $0.01 par value, 100,000 and
100,000 shares authorized and 23,695 and 23,406
issued and outstanding at September 30, 2006
and December 31, 2005, respectively |
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237 |
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234 |
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Additional paid-in capital |
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116,667 |
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114,808 |
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Deferred compensation |
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(2,517 |
) |
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(3,210 |
) |
Accumulated deficit |
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(18,928 |
) |
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(24,276 |
) |
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Total stockholders equity |
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95,459 |
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87,556 |
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Total liabilities and stockholders equity |
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$ |
136,971 |
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$ |
124,935 |
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The accompanying notes are an integral part of the consolidated financial statements.
2
iROBOT CORPORATION
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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October 1, |
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September 30, |
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October 1, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenue: |
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Product revenue |
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$ |
48,359 |
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$ |
48,315 |
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$ |
111,309 |
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$ |
83,039 |
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Contract revenue |
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6,688 |
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4,143 |
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16,508 |
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12,375 |
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Royalty revenue |
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62 |
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Total revenue |
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55,047 |
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52,458 |
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127,817 |
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95,476 |
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Cost of revenue: |
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Cost of product revenue (1) |
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28,398 |
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28,578 |
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69,698 |
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55,338 |
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Cost of contract revenue (1) |
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3,666 |
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3,173 |
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11,166 |
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8,953 |
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Total cost of revenue |
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32,064 |
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31,751 |
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80,864 |
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64,291 |
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Gross profit |
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22,983 |
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20,707 |
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46,953 |
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31,185 |
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Operating expenses: |
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Research and development (1) |
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4,345 |
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2,590 |
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10,946 |
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8,335 |
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Selling and marketing (1) |
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4,712 |
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4,887 |
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19,197 |
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11,582 |
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General and administrative (1) |
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4,663 |
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3,448 |
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14,074 |
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8,852 |
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Total operating expenses |
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13,720 |
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10,925 |
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44,217 |
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28,769 |
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Operating Income |
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9,263 |
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9,782 |
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2,736 |
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2,416 |
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Other income (expense), net |
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978 |
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60 |
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2,847 |
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271 |
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Income before income taxes |
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10,241 |
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9,842 |
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5,583 |
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2,687 |
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Income tax expense |
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199 |
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90 |
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235 |
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92 |
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Net Income |
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$ |
10,042 |
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$ |
9,752 |
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$ |
5,348 |
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$ |
2,595 |
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Net income attributable to common stockholders |
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$ |
10,042 |
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$ |
5,040 |
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$ |
5,348 |
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$ |
1,332 |
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Net Income per share |
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Basic |
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$ |
0.43 |
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$ |
0.49 |
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$ |
0.23 |
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$ |
0.13 |
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Diluted |
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$ |
0.39 |
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$ |
0.40 |
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$ |
0.21 |
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$ |
0.11 |
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Number of shares used in per share calculations |
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Basic |
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23,560 |
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10,223 |
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23,455 |
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10,080 |
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Diluted |
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25,502 |
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12,600 |
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25,610 |
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12,268 |
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(1) |
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Effective January 1, 2006 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123(R) Share-Based Payment, using the modified prospective method to value its
share-based payments. Accordingly, for the three and nine months ended September 30, 2006,
stock-based compensation was accounted for under SFAS No. 123(R), while for the three and nine
months ended October 1, 2005, stock-based compensation was accounted for under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. See Note 2
Summary of Significant Accounting Policies. Total stock-based compensation recorded in 2006
and 2005 included in the above figures breaks down by expense classification as follows: |
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Three Months Ended |
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Nine months Ended |
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September 30, |
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October 1, |
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September 30, |
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October 1, |
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2006 |
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2005 |
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2006 |
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2005 |
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(In thousands) |
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Cost of product revenue |
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$ |
92 |
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$ |
9 |
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$ |
215 |
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$ |
18 |
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Cost of contract revenue |
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|
72 |
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18 |
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|
183 |
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|
29 |
|
Research and development |
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|
91 |
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27 |
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|
271 |
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|
59 |
|
Selling and marketing |
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|
133 |
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9 |
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|
239 |
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|
12 |
|
General and administrative |
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|
336 |
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|
109 |
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|
854 |
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|
244 |
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Total stock-based compensation |
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$ |
724 |
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$ |
172 |
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$ |
1,762 |
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$ |
362 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
iROBOT CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Nine Months Ended |
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September 30, |
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October 1, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net income |
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$ |
5,348 |
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$ |
2,595 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
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2,737 |
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|
1,423 |
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Loss on disposal of fixed assets |
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2 |
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Stock-based compensation |
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1,762 |
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|
362 |
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Tax benefit of disqualifying dispositions |
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|
94 |
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Changes in working capital (use) source |
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Accounts receivable |
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(7,598 |
) |
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(14,537 |
) |
Unbilled revenue |
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|
311 |
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|
(187 |
) |
Inventory |
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(7,921 |
) |
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|
(6,653 |
) |
Other assets |
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|
372 |
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(1,172 |
) |
Accounts payable |
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4,238 |
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|
8,810 |
|
Accrued expenses |
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|
1,877 |
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|
532 |
|
Accrued compensation |
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|
1,992 |
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|
999 |
|
Provision for contract settlement |
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(5,154 |
) |
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|
42 |
|
Deferred revenue |
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|
1,180 |
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|
1,054 |
|
Change in long-term liabilities |
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(67 |
) |
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Net cash used in operating activities |
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|
(760 |
) |
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(6,799 |
) |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(3,835 |
) |
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(3,927 |
) |
Purchases of investments |
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(108,150 |
) |
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Sales of investments |
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44,300 |
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Net cash used in financing activities |
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(67,685 |
) |
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(3,927 |
) |
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Cash flows from financing activities: |
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Repayment of Note Receivable from stockholder |
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|
43 |
|
Proceeds from stock option exercises |
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|
699 |
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|
459 |
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|
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Net cash provided by financing activities |
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|
699 |
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|
|
502 |
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|
|
|
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Net decrease in cash and cash equivalents |
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|
(67,746 |
) |
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|
(10,224 |
) |
Cash and cash equivalents, at beginning of period |
|
|
76,064 |
|
|
|
19,441 |
|
|
|
|
|
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|
Cash and cash equivalents, at end of period |
|
$ |
8,318 |
|
|
$ |
9,217 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Supplemental disclosure of cash flow information: |
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|
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Cash paid for interest |
|
$ |
13 |
|
|
$ |
9 |
|
Cash paid for income taxes |
|
|
164 |
|
|
|
11 |
|
Supplemental disclosure of noncash investing and financing activities (in thousands):
During the nine months ended September 30, 2006 and October 1, 2005, the Company transferred
$697 and $259, respectively, of inventory to fixed assets.
The accompanying notes are an integral part of the consolidated financial statements.
4
iROBOT CORPORATION
Notes To Consolidated Financial Statements
(unaudited)
1. Description of Business
iRobot Corporation (iRobot or the Company) was incorporated in 1990 as IS Robotics, Inc.
to develop robotics and artificial intelligence technologies and apply these technologies in
producing and marketing robots. The majority of the Companys revenue is generated from product
sales and government and industrial research and development contracts.
The Company is subject to risks common to companies in high-tech industries including, but not
limited to, uncertainty of progress in developing technologies, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance with government
regulations and uncertainty of market acceptance of products.
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.
The accompanying financial data as of September 30, 2006 and for the three and nine months
ended September 30, 2006 and October 1, 2005 has been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the Companys audited consolidated
financial statements and the notes thereto included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2005, filed with the SEC on March 16, 2006.
In the opinion of management, all adjustments necessary to present a fair statement of
financial position as of September 30, 2006 and results of operations and cash flows for the
periods ended September 30, 2006 and October 1, 2005 have been made. The results of operations and
cash flows for any interim period are not necessarily indicative of the operating results and cash
flows for the full fiscal year or any future periods.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these
estimates and judgments, including those related to revenue recognition, sales returns, bad debts,
warranty claims, lease termination, 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.
Reclassification
Certain reclassifications have been made to the prior year financial statements to conform to
the current year presentation.
5
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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 end on the Saturday that falls closest
to the last day of the third month of each quarter.
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 to the
customer, net of estimated returns, provided that collection is determined to be probable and no
significant obligations remain. Sales to resellers are subject to agreements allowing for limited
rights of return for defective products only, rebates and price protection. The Company has
historically not taken product returns except for defective products. Accordingly, the Company
reduces revenue for its estimates of liabilities for these rights at the time the related sale is
recorded. The Company makes an estimate of sales returns for products sold by resellers directly or
through its distributors based on historical returns experience. The Company has aggregated and
analyzed historical returns from resellers and end users which form the basis of its estimate of
future sales returns by resellers or end users. In accordance with Statement of Financial
Accounting Standards No. 48, Revenue Recognition When Right of Return Exists, the provision for
these estimated returns is recorded as a reduction of revenue at the time that the related revenue
is recorded. If actual returns differ significantly from its estimates, such differences could have
a material impact on the Companys results of operations for the period in which the returns become
known. The estimates for returns are adjusted periodically based upon historical rates of returns.
The estimates and reserve for rebates and price protection are based on specific programs, expected
usage and historical experience. Actual results could differ from these estimates.
Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognizes revenue based on costs
incurred plus a pro rata portion of the total fixed fee. Revenue on firm fixed price (FFP)
contracts is recognized using the percentage-of-completion method. Costs and estimated gross
profits on contracts are recorded as revenue as work is performed based on the percentage that
incurred costs bear to estimated total costs utilizing the most recent estimates of costs and
funding. Changes in job performance, job conditions, and estimated profitability, including those
arising from final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Since many contracts extend over a
long period of time, revisions in cost and funding estimates during the progress of work have the
effect of adjusting earnings applicable to past performance in the current period. When the current
contract estimate indicates a loss, provision is made for the total anticipated loss in the current
period. Revenue earned in excess of billings, if any, is recorded as unbilled revenue. Billings in
excess of revenue earned, if any, are recorded as deferred revenue.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based
Payment, which establishes accounting for equity instruments exchanged for employee services. Under
the provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date,
based on the calculated fair value of the award, and is recognized as an expense over the
employees requisite service period (generally the vesting period of the equity grants). Prior to
January 1, 2006, the Company accounted for share-based compensation to employees in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and
related interpretations. The Company also followed the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. The Company elected to adopt the modified prospective
transition method as provided by SFAS No. 123(R) and, accordingly financial statement amounts for
the prior periods presented in this Quarterly Report on Form 10-Q have not been restated to reflect
the fair value method of expensing share-based compensation.
Under SFAS No. 123(R), entities that become public companies after June 15, 2005 and used the
minimum value method of measuring equity share options and similar instruments as a non-public
company for either recognition or pro forma disclosure purposes under SFAS No. 123 must apply the
provisions of SFAS No. 123(R)
6
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
prospectively to new and/or modified awards after the adoption of SFAS No. 123(R). Companies
should continue to account for any portion of awards outstanding at the date of initial application
of SFAS No. 123(R) using the accounting principles originally applied to those awards either the
minimum value method under SFAS No. 123 or the provisions of APB No. 25 and its related
interpretive guidance. Accordingly, the Company did not record any cumulative effect of a change in
accounting principle associated with the adoption of SFAS No. 123(R).
The Company has historically granted stock options at exercise prices that equaled the fair
value of its common stock as estimated by its board of directors, with input from management, as of
the date of grant. Because there was no public market for the Companys common stock prior to its
initial public offering on November 9, 2005, its board of directors determined the fair value of
its common stock by considering a number of objective and subjective factors, including the
Companys operating and financial performance and corporate milestones, the prices at which it sold
shares of convertible preferred stock, the superior rights and preferences of securities senior to
its common stock at the time of each grant, and the risk and non-liquid nature of its common stock.
The Company has not historically obtained contemporaneous valuations by an unrelated valuation
specialist because, at the time of the issuances of stock options, the Company believed its
estimates of the fair value of its common stock to be reasonable based on the foregoing factors.
In connection with the initial public offering, the Company retrospectively reassessed the
fair value of its common stock for options granted during the period from July 1, 2004 to November
8, 2005. As a result of this reassessment, the Company determined that the estimated fair market
value used in granting options for the period from July 1, 2004 to December 31, 2004 was reasonable
and appropriate. Accordingly, no deferred compensation was recorded for these grants. For the
period from January 1, 2005 through November 8, 2005, the Company determined that the estimated
fair value of its common stock increased from $4.60 to $21.60 due to a number of factors such as,
among other things, the likelihood of an initial public offering, its improving operating results
and the achievement of other corporate milestones in 2005. Based upon this determination, the
Company recorded deferred compensation of approximately $3.4 million in the twelve months ended
December 31, 2005 under APB No. 25 relating to stock options with exercise prices below the
retrospectively reassessed fair market value on the date of grant. The Company recognized
associated stock-based compensation expense of $0.2 million and $0.5 million for the three and nine
months ended September 30, 2006, respectively. As of September 30, 2006, the deferred stock-based
compensation balance associated with these grants was $2.4 million. The Company will continue to
recognize the associated stock-based compensation expense, in accordance with the provisions of APB
No. 25, related to these shares of $0.2 million during the remaining three months of 2006 and $0.7
million, $0.7 million, $0.7 million and $0.1 million for 2007, 2008, 2009 and 2010, respectively.
Under the provisions of SFAS No. 123(R), the Company recognized $0.5 million and $1.1 million
of stock-based compensation expense during the three and nine months ended September 30, 2006 for
stock options granted subsequent to the initial public offering. The unamortized fair value as of
September 30, 2006 associated with these grants was $10.0 million with a weighted average remaining
recognition period of 1.98 years.
The fair value of each option grant for the three and nine months ended September 30, 2006 was
computed on the grant date using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2006 |
|
September 30, 2006 |
Risk-free interest rate |
|
|
4.77% - 5.11 |
% |
|
|
4.32% - 5.11 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
Expected life |
|
|
4.75 |
|
|
4.75 - 6.5 years |
Expected volatility |
|
|
65 |
% |
|
|
65 |
% |
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate,
which approximates the rate in effect at the time of grant, commensurate with the expected life of
the instrument. The dividend yield is zero based upon the fact the Company has never paid and has
no present intention to pay cash dividends. The expected term calculation is based upon the
simplified method provided under SEC Staff Accounting Bulletin (SAB) No. 107. Under SAB No. 107,
the expected term is developed by averaging the contractual term of the stock option grants (7 or
10 years) with the associated vesting term (typically 4 to 5 years). Given the Companys
7
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
initial public offering in November 2005 and the resulting short history as a public company,
the Company could not rely solely on company specific historical data for purposes of establishing
expected volatility. Consequently, the Company performed an analysis of several peer companies with
similar expected option lives to develop an expected volatility assumption.
Based upon the above assumptions, the weighted average fair value of each stock option granted
for the three and nine months ended September 30, 2006 was $9.754 and $12.854 respectively.
The Company has assumed a forfeiture rate of 5% for all stock options granted subsequent to
the initial public offering with the exception of those issued to executives and directors for
which a zero forfeiture rate has been assumed. In the future, the Company will record incremental
stock-based compensation expense if the actual forfeiture rates are lower than estimated and will
record a recovery of prior stock-based compensation expense if the actual forfeitures are higher
than estimated.
The Company had previously adopted the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and
Disclosure through disclosure only. The following table illustrates the effects on net income and
earnings per share for the three and nine months ended October 1, 2005 as if the Company had
applied the fair value recognition provisions of SFAS No. 123 to share-based employee awards.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
October 1, 2005 |
|
|
October 1, 2005 |
|
|
|
(In thousands except |
|
|
|
per share data) |
|
Net income as reported |
|
$ |
9,752 |
|
|
$ |
2,595 |
|
Add back: |
|
|
|
|
|
|
|
|
Stock-based employee compensation expense reported in net income |
|
|
172 |
|
|
|
362 |
|
Less: Stock-based employee compensation expense determined
under fair-value method for all awards |
|
|
(219 |
) |
|
|
(491 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
9,705 |
|
|
$ |
2,466 |
|
|
|
|
|
|
|
|
Pro forma net income attributable to common stockholders |
|
$ |
5,016 |
|
|
$ |
1,266 |
|
|
|
|
|
|
|
|
Net income per share, as reported |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.49 |
|
|
$ |
0.13 |
|
Diluted |
|
$ |
0.40 |
|
|
$ |
0.11 |
|
Pro forma net income per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.49 |
|
|
$ |
0.13 |
|
Diluted |
|
$ |
0.40 |
|
|
$ |
0.10 |
|
Number of shares used in per share calculations |
|
|
|
|
|
|
|
|
Basic |
|
|
10,223 |
|
|
|
10,080 |
|
Diluted |
|
|
12,600 |
|
|
|
12,268 |
|
The fair value of each option grant for the three and nine months ended October 1, 2005 was
estimated on the grant date using the Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
October 1, 2005 |
|
October 1, 2005 |
Risk-free interest rate |
|
|
3.88 |
% |
|
|
3.88 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
Expected life |
|
5 years |
|
5 years |
Expected volatility |
|
|
0.0 |
% |
|
|
0.0 |
% |
In accordance with the provisions of SFAS No. 123 the Company valued options under the minimum
value method up to its initial public offering on November 9, 2005, therefore options granted prior
to this date had a zero expected volatility.
Based upon the above assumptions, the weighted average fair value of each stock option granted
for the three and nine months ended October 1, 2005 was $6.80 and $4.15, respectively.
8
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
The table below summarizes stock option plan activity for the nine months ended September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Contractual Term |
|
|
Value (1) |
|
Outstanding at December 31, 2005 |
|
|
3,271,484 |
|
|
$ |
1.278 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
662,745 |
|
|
|
21.938 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(289,216 |
) |
|
|
2.417 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(74,742 |
) |
|
|
17.618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
3,570,271 |
|
|
$ |
8.091 |
|
|
6.87 years |
|
$45.4 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2006 |
|
|
1,218,346 |
|
|
$ |
2.140 |
|
|
5.06 years |
|
$21.9 million |
Weighted average fair value of
options granted during the nine
months ended September 30, 2006 |
|
|
|
|
|
$ |
12.854 |
|
|
|
|
|
|
|
|
|
Options available for future grant
at September 30, 2006 |
|
|
715,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 30, 2006 of $20.06 and
the exercise price of the underlying option. |
During the three and nine month periods ended September 30, 2006, the total intrinsic value of
stock options exercised was $2.5 million and $5.5 million, respectively. No amounts relating to
stock-based compensation have been capitalized.
The table below summarizes activity relating to restricted stock awards in the nine months
ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
Shares Underlying |
|
|
Grant Date Fair |
|
|
|
Restricted Stock |
|
|
Value |
|
Outstanding at December 31, 2005 |
|
|
173,361 |
|
|
$ |
1.941 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(124,362 |
) |
|
$ |
1.614 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
48,999 |
|
|
$ |
2.770 |
|
|
|
|
|
|
|
|
As of September 30, 2006, the unamortized fair value of all restricted stock awards was
$102,000. The Company expects to recognize associated stock-based compensation expense of $17,000
in the remaining three months of 2006, $68,000 in 2007 and $17,000 in 2008.
The following table summarizes information about stock options outstanding at September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Remaining |
|
|
Weighted Average |
|
|
Number |
|
|
Weighted Average |
|
Range of Exercise Prices |
|
|
Outstanding |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
Exercisable |
|
|
Exercise Price |
|
$0.0002 |
|
|
|
|
|
$ |
0.24 |
|
|
|
383,930 |
|
|
0.88 years |
|
|
$ |
0.02 |
|
|
|
383,930 |
|
|
$ |
0.02 |
|
0.55 |
|
|
|
|
|
|
1.87 |
|
|
|
280,317 |
|
|
|
5.32 |
|
|
|
1.17 |
|
|
|
214,651 |
|
|
|
1.35 |
|
2.33 |
|
|
|
|
|
|
2.33 |
|
|
|
646,247 |
|
|
|
7.22 |
|
|
|
2.33 |
|
|
|
316,874 |
|
|
|
2.33 |
|
2.78 |
|
|
|
|
|
|
2.78 |
|
|
|
521,002 |
|
|
|
7.82 |
|
|
|
2.78 |
|
|
|
164,931 |
|
|
|
2.78 |
|
4.60 |
|
|
|
|
|
|
4.60 |
|
|
|
146,715 |
|
|
|
8.30 |
|
|
|
4.60 |
|
|
|
25,675 |
|
|
|
4.60 |
|
4.96 |
|
|
|
|
|
|
4.96 |
|
|
|
407,250 |
|
|
|
8.41 |
|
|
|
4.96 |
|
|
|
67,000 |
|
|
|
4.96 |
|
5.66 |
|
|
|
|
|
|
16.46 |
|
|
|
502,665 |
|
|
|
7.90 |
|
|
|
13.48 |
|
|
|
39,285 |
|
|
|
12.80 |
|
17.40 |
|
|
|
|
|
|
24.00 |
|
|
|
475,850 |
|
|
|
8.27 |
|
|
|
21.78 |
|
|
|
1,500 |
|
|
|
20.46 |
|
24.88 |
|
|
|
|
|
|
33.94 |
|
|
|
194,395 |
|
|
|
6.76 |
|
|
|
27.52 |
|
|
|
4,500 |
|
|
|
28.23 |
|
34.98 |
|
|
|
|
|
|
34.98 |
|
|
|
11,900 |
|
|
|
9.32 |
|
|
|
34.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0002 |
|
|
|
|
|
$ |
34.98 |
|
|
|
3,570,271 |
|
|
|
6.87 |
|
|
$ |
8.09 |
|
|
|
1,218,346 |
|
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Net Income Per Share
Prior to its initial public offering on November 9, 2005, the Company had outstanding
preferred stock and, accordingly, presented basic and diluted net income per share available to
common stockholders in conformity with SFAS No. 128, Earnings per Share and related interpretation
Emerging Issues Task Force 03-06, Participating Securities and the Two Class Method under FASB
Statement No. 128. Basic net income per share available to common stockholders is computed by
dividing net income available to common stockholders by the weighted-average number of common
shares outstanding during the period, excluding the dilutive effects of common stock equivalents.
Income available to common stockholders excludes earnings allocated to participating preferred
stockholders. Common stock equivalents include stock options, restricted stock and, in certain
circumstances, convertible securities such as the preferred stock. Diluted net income per share
assumes the conversion of the preferred stock using the if converted method, if dilutive, and
includes the dilutive effect of stock options under the treasury stock method.
In conjunction with the initial public offering, all outstanding shares of preferred stock
were converted to common stock on a 1-for-1 basis. Consequently, the requirements of Emerging
Issues Task Force 03-06 were not applicable for the three and nine months ended September 30, 2006.
The following table presents the calculation of both basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands, except per |
|
|
|
|
|
|
|
|
|
|
|
share amounts) |
|
|
|
|
|
Net Income attributable to common shareholders |
|
$ |
10,042 |
|
|
$ |
5,040 |
|
|
$ |
5,348 |
|
|
$ |
1,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
23,560 |
|
|
|
10,223 |
|
|
|
23,455 |
|
|
|
10,080 |
|
Dilutive effect of employee stock options,
restricted shares and warrants |
|
|
1,942 |
|
|
|
2,377 |
|
|
|
2,155 |
|
|
|
2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
25,502 |
|
|
|
12,600 |
|
|
|
25,610 |
|
|
|
12,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.43 |
|
|
$ |
0.49 |
|
|
$ |
0.23 |
|
|
$ |
0.13 |
|
Diluted earnings per share |
|
$ |
0.39 |
|
|
$ |
0.40 |
|
|
$ |
0.21 |
|
|
$ |
0.11 |
|
The assumed conversion of preferred stock totaling 9,557 shares was not included in the
calculations for the three and nine months ended October 1, 2005 because the effect would have been
antidilutive.
Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided if based upon the weight of
available evidence, it is more likely than not that some or all of the deferred tax assets will not
be realized.
The Company monitors the realization of its deferred tax assets based on changes in
circumstances, such as recurring periods of income for tax purposes following historical periods of
cumulative losses or changes in tax laws or regulations. The Companys income tax provisions and
its assessment of the realizability of its deferred tax assets involve significant judgments and
estimates. If the Company continued to generate taxable income through profitable operations in
future years it may be required to recognize these deferred tax assets through the reduction of the
valuation allowance which would result in a material benefit to its results of operations in the
period in which the benefit is determined, excluding the recognition of the portion of the
valuation allowance which relates to stock compensation.
10
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and
display of comprehensive income and its components in financial statements. The Companys
comprehensive income is equal to the Companys net income for all periods presented.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements.
This statement does not require any new fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value measurements. The provisions of SFAS
No. 157 are effective for fiscal years beginning after November 15, 2007. The Company is currently
assessing SFAS No. 157 and has not yet determined the impact, if any, that its adoption will have
on its result of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB 108). SAB 108 provides guidance on how prior year misstatements
should be taken into consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current years financial statements are
materially misstated. SAB 108 is effective for fiscal years ending on or after November 15, 2006.
The Company does not expect the adoption of SAB 108 to have any impact on its results of operations
or financial condition.
In June 2006, FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in
Income TaxesAn Interpretation of FASB Statement No. 109, which prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 will be effective for fiscal years beginning
after December 15, 2006. The Company is currently assessing FIN 48 and has not yet determined the
impact, if any, that its adoption will have on its results of operations or financial condition.
In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
replaces APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements An Amendment of APB Opinion No. 28. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The Company adopted SFAS No. 154 effective January 1, 2006 and the adoption did
not have an effect on its consolidated results of operations and financial condition.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing. SFAS No. 151 amends previous
guidance regarding treatment of abnormal amounts of idle facility expense, freight, handling costs,
and spoilage. SFAS No. 151 requires that those items be recognized as current period charges
regardless of whether they meet the criterion of so abnormal which was the criterion specified in
ARB No. 43. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the
cost of the production be based on normal capacity of the production facilities. The Company
adopted SFAS No. 151 effective January 1, 2006 and the adoption did not have an effect on its
consolidated results of operations and financial condition.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that
the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Companys consolidated financial statements upon adoption.
11
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
3. Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, money market accounts, and other highly
liquid investments with original maturities of three months or less at the date of acquisition. The
Company invests its excess operating cash primarily in money market funds of major financial
institutions. Cash equivalents are carried at cost, which approximates fair market value, and
interest is accrued as earned.
4. 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 September 30, 2006, investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
Cost |
|
|
Market Value |
|
|
|
(In thousands) |
|
Auction Rate Debt Securities |
|
$ |
63,850 |
|
|
$ |
63,850 |
|
The Company did not hold any investments as of December 31, 2005.
As of September 30, 2006, the Companys investments had maturity dates ranging from July 2020 to
December 2045. Despite the long-term contractual maturities of the auction rate securities held at
September 30, 2006, all of these securities are available for immediate sale and it is the
Companys intention to liquidate these securities within one year.
5. Inventory
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Raw materials |
|
$ |
1,906 |
|
|
$ |
990 |
|
Work in process |
|
|
93 |
|
|
|
15 |
|
Finished goods |
|
|
21,825 |
|
|
|
14,898 |
|
|
|
|
|
|
|
|
|
|
$ |
23,824 |
|
|
$ |
15,903 |
|
|
|
|
|
|
|
|
6. Stock Option Plans
The Company has options outstanding under four stock incentive plans: the 1994 Stock Option
Plan (the 1994 Plan), the 2001 Special Stock Option Plan (the 2001 Plan), the 2004 Stock Option
and Incentive Plan (the 2004 Plan) and the 2005 Stock Option and Incentive Plan (the 2005
Plan). The 2005 Plan is the only one of the four plans under which new awards may currently be
granted. Under the 2005 Plan, which became effective October 10, 2005, 1,583,682 shares were
reserved for issuance in the form of incentive stock options, non-qualified stock options, stock
appreciation rights, deferred stock awards and restricted stock awards. Additionally, the 2005 Plan
provides that the number of shares reserved and available for issuance under the plan will
automatically increase each January 1, beginning in 2007, by 4.5% of the outstanding number of
shares of common stock on the immediately preceding December 31. Stock options returned to the 1994
Plan, 2001 Plan, 2004 Plan and 2005 Plan as a result of their expiration, cancellation or
termination are automatically made available for issuance under the 2005 Plan. Eligibility for
incentive stock options is limited to those individuals whose employment status would qualify them
for the tax treatment associated with incentive stock options in accordance with the Internal
Revenue Code. As of September 30, 2006, there were 715,679 shares available for future grant under
the 2005 Plan.
Options granted under the 1994 Plan, the 2001 Plan, the 2004 Plan and the 2005 Plan (the
Plans) are subject to terms and conditions as determined by the compensation committee of the
board of directors, including vesting
12
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
periods. Options granted under the Plans are exercisable in full at any time subsequent to
vesting, generally vest over periods from 0 to 5 years, and expire 7 or 10 years from the date of
grant or, if earlier, 60 or 90 days from employee termination. Prior to the Companys initial
public offering, the exercise price for each incentive stock option was determined by the board of
directors of the Company to be equal to the fair value of the common stock on the date of grant. In
reaching this determination at the time of each such grant, the board of directors considered a
broad range of factors, including the illiquid nature of an investment in the Companys common
stock, the Companys historical financial performance, the Companys future prospects and the value
of preferred stock based on recent financing activities. Subsequent to the Companys initial public
offering, the exercise price of 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.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), in
accounting for stock options issued subsequent to this date. Prior to January 1, 2006, the Company
utilized the provisions of APB No. 25 and related interpretations in accounting for options
granted.
7. Accrued Expenses
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Accrued warranty |
|
$ |
1,938 |
|
|
$ |
2,031 |
|
Accrued rent |
|
|
294 |
|
|
|
323 |
|
Accrued sales commissions |
|
|
335 |
|
|
|
468 |
|
Accrued accounting fees |
|
|
363 |
|
|
|
255 |
|
Accrued other |
|
|
2,431 |
|
|
|
407 |
|
|
|
|
|
|
|
|
|
|
$ |
5,361 |
|
|
$ |
3,484 |
|
|
|
|
|
|
|
|
8. Commitments and Contingencies
Legal
The Company received a letter from the United Kingdoms Ministry of Defence (the Customer)
dated February 9, 2004, attempting to terminate a contract for the design, development, production
and support of a number of man-portable remote control vehicles for use in explosive ordnance
disposal operations. The Company entered into the contract with the Customer on May 23, 2001, and
substantially completed the product design and development phase of the work. The Company received
payments based upon achieving a number of contract milestones and has recognized revenue based on
progress under the percentage-of-completion method of accounting. In addition to the milestone
payments, the Customer advanced the Company funds to purchase long-lead inventory components in
advance of the production contemplated in the contract. On July 27, 2006, the Company signed an
agreement with the United Kingdoms Ministry of Defence (MoD) Defence Procurement Agency (DPA) to
supply 30 iRobot PackBot EOD robots, spare parts and support in exchange for the payments received
by the Company under the contract.
Upon the signing of this agreement, and based upon the current estimate-to-complete, the
Company recorded approximately $2.2 million in contract revenue and a $0.3 million reduction in
cost of contract revenue thereby reducing the previously established $5.1 million reserve by $2.5
million. At September 30, 2006, the remaining $2.6 million was classified as $1.7 million in
deferred revenue and $0.9 million in accrued expense.
13
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for the three months
ended September 30, 2006 and October 1, 2005 amounted to $0.5 million and $0.3 million,
respectively, and for the nine months ended September 30, 2006 and October 1, 2005 amounted to $1.5
million and $0.9 million, respectively. Future minimum rental payments under operating leases were
as follows as of September 30, 2006:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
Remainder of 2006 |
|
$ |
475 |
|
2007 |
|
|
1,792 |
|
2008 |
|
|
1,538 |
|
2009 |
|
|
137 |
|
2010 |
|
|
74 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
4,016 |
|
|
|
|
|
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 products. 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 September 30, 2006 and December 31, 2005, respectively.
14
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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 7) in
the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,757 |
|
|
$ |
2,028 |
|
|
$ |
2,031 |
|
|
$ |
1,398 |
|
Provision |
|
|
1,317 |
|
|
|
850 |
|
|
|
3,693 |
|
|
|
2,994 |
|
Warranty usage(*) |
|
|
(1,136 |
) |
|
|
(783 |
) |
|
|
(3,786 |
) |
|
|
(2,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,938 |
|
|
$ |
2,095 |
|
|
$ |
1,938 |
|
|
$ |
2,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product warranties unutilized. |
9. Industry Segment, Geographic Information and Significant Customers
The Company operates in two reportable segments, the home robots division and government and
industrial division.
The nature of products and types of customers for the two segments vary significantly. As
such, the segments are managed separately.
Home Robots
The Companys home robots business offers products through a network of retail businesses
throughout the United States and to certain countries through international distributors. The
Companys home robots division includes mobile robots used in the maintenance of domestic
households sold primarily to retail outlets.
Government and Industrial
The Companys government and industrial division offers products through a small U.S.
government-focused sales force, while products are sold to a limited number of countries other than
the United States through international distribution. The Companys government and industrial
products are robots used by various U.S. and foreign governments, primarily for reconnaissance and
bomb disposal missions. The table below presents segment information about revenue, cost of
revenue, gross profit and loss before income taxes:
15
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
$ |
30,596 |
|
|
$ |
40,371 |
|
|
$ |
70,543 |
|
|
$ |
59,944 |
|
Government & Industrial |
|
|
24,451 |
|
|
|
12,087 |
|
|
|
57,274 |
|
|
|
35,470 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
55,047 |
|
|
|
52,458 |
|
|
|
127,817 |
|
|
|
95,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
17,690 |
|
|
|
22,494 |
|
|
|
43,691 |
|
|
|
36,996 |
|
Government & Industrial |
|
|
14,374 |
|
|
|
9,246 |
|
|
|
37,173 |
|
|
|
27,295 |
|
Other |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
32,064 |
|
|
|
31,751 |
|
|
|
80,864 |
|
|
|
64,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
12,906 |
|
|
|
17,877 |
|
|
|
26,852 |
|
|
|
22,948 |
|
Government & Industrial |
|
|
10,077 |
|
|
|
2,841 |
|
|
|
20,101 |
|
|
|
8,175 |
|
Other |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
22,983 |
|
|
|
20,707 |
|
|
|
46,953 |
|
|
|
31,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
4,345 |
|
|
|
2,590 |
|
|
|
10,946 |
|
|
|
8,335 |
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
4,712 |
|
|
|
4,887 |
|
|
|
19,197 |
|
|
|
11,582 |
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
4,663 |
|
|
|
3,448 |
|
|
|
14,074 |
|
|
|
8,852 |
|
Other (expense) income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
978 |
|
|
|
60 |
|
|
|
2,847 |
|
|
|
271 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
10,241 |
|
|
$ |
9,842 |
|
|
$ |
5,583 |
|
|
$ |
2,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
For the three months ended September 30, 2006 and October 1, 2005, sales to non-U.S. customers
accounted for 10.8% and 8.6% of total revenue, respectively, and for the nine months ended
September 30, 2006 and October 1, 2005, sales to non-U.S. customers accounted for 9.8% and 8.3% of
total revenue, respectively
Significant Customers
For the three months ended September 30, 2006 and October 1, 2005, U.S. federal government
orders, contracts and subcontracts accounted for 36.9% and 17.7% of total revenue, respectively,
and for the nine months ended September 30, 2006 and October 1, 2005, U.S. federal government
orders, contracts and subcontracts accounted for 39.7% and 30.8% of total revenue, respectively.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of iRobot
Corporation should be read in conjunction with the consolidated financial statements and the
related notes thereto included elsewhere in this Form 10-Q and the audited financial statements and
notes thereto and Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended December 31, 2005, which
has been filed with the Securities and Exchange Commission (the SEC). This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, and are subject to the safe harbor created by those sections. Some of the
forward-looking statements can be identified by the use of forward-looking terms such as
believes, expects, may, will, should, could, seek, intends, plans, estimates,
anticipates, or other comparable terms. Forward-looking statements involve inherent risks and
uncertainties which could cause actual results to differ materially from those in the
forward-looking statements, including those risks and uncertainties described in our Annual Report
on Form 10-K for the year ended December 31, 2005, as well as elsewhere in this report. We urge you
to consider the risks and uncertainties discussed in our Annual Report on Form 10-K and in Item 1A
contained herein in evaluating our forward-looking statements. We caution readers not to place
undue reliance upon any such forward-looking statements, which speak only as of the date made.
Overview
iRobot provides robots that enable people to complete complex tasks in a better way. Founded
in 1990 by roboticists who performed research at the Massachusetts Institute of Technology, we have
developed proprietary technology incorporating advanced concepts in navigation, mobility,
manipulation and artificial intelligence to build industry-leading robots. Our Roomba floor
vacuuming robot and Scooba floor washing robot perform time-consuming domestic chores, and our
PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In addition,
we are developing the Small Unmanned Ground Vehicle reconnaissance robot for the U.S. Armys Future
Combat Systems program and, in conjunction with Deere & Company, the R-Gator unmanned ground
vehicle. We sell our robots to consumers through a variety of distribution channels, including
chain stores and other national retailers, and our on-line store, and to the U.S. military and
other government agencies worldwide.
As of September 30, 2006, we had 347 full-time employees. We have developed expertise in most
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, thereby
reducing the time, cost and risk of product development. We believe that 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 home robot and military products, our continued success
depends upon our ability to respond to a number of future challenges. We believe the most
significant of these challenges include increasing competition in the markets for both our home
robot and military products, our ability to obtain U.S. federal government funding for research and
development programs, and our ability to successfully develop and introduce products and product
enhancements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and
judgments, in particular those related to revenue recognition; valuation allowances (specifically
sales returns and other allowances); assumptions used in valuing stock-based compensation
instruments; evaluating loss contingencies; and valuation allowances for deferred tax assets.
Actual amounts could differ significantly from these estimates. Our management bases its estimates
and judgments on historical experience and various other
17
factors that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities and the amounts
of revenue and expenses that are not readily apparent from other sources.
Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based Payment, which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS No. 123(R), share-based
compensation cost is measured at the grant date, based on the calculated fair value of the award,
and is recognized as an expense over the employees requisite service period (generally the vesting
period of the equity grants). Prior to January 1, 2006, we accounted for share-based compensation
to employees in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and related interpretations. We also followed the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure. We elected to adopt the
modified prospective transition method as provided by SFAS No. 123(R) and, accordingly financial
statement amounts for the prior periods presented in this Quarterly Report on Form 10-Q have not
been restated to reflect the fair value method of expensing share-based compensation.
Under SFAS No. 123(R), entities that become public companies after June 15, 2005 and used the
minimum value method of measuring equity share options and similar instruments as a non-public
company for either recognition or pro forma disclosure purposes under SFAS No. 123 shall apply the
provisions of SFAS No. 123(R) prospectively to new and/or modified awards after the adoption of
SFAS No. 123(R). Companies should continue to account for any portion of awards outstanding at the
date of initial application of SFAS No. 123(R) using the accounting principles originally applied
to those awards either the minimum value method under SFAS No. 123 or the provisions of APB No.
25 and its related interpretive guidance. Accordingly, we did not record any cumulative effect of a
change in accounting principle associated with the adoption of SFAS No. 123(R). Additionally, since
we valued options under the minimum value method up to our initial public offering on November 9,
2005, options granted prior to this date had a zero expected volatility. Prior to our initial
public offering, we had accounted for certain option grants under APB 25. As of September 30, 2006,
the deferred stock-based compensation balance associated with these grants was $2.4 million. We
will continue to recognize the associated stock-based compensation expense, in accordance with the
provisions of APB No. 25, related to these shares of $0.2 million during the remaining three months
of 2006 and $0.7 million, $0.7 million, $0.7 million and $0.1million for 2007, 2008, 2009 and 2010,
respectively.
Under the provisions of SFAS No. 123(R), we recognized $0.5 million and $1.1 million of
stock-based compensation expense during the three and nine months ended September 30, 2006 for
stock options granted subsequent to the initial public offering. The unamortized fair value as of
September 30, 2006 associated with these grants was $10.0 million with a weighted average remaining
recognition period of 1.98 years.
The fair value of each option grant for the three and nine months ended September 30, 2006 was
computed on the grant date using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2006 |
|
September 30, 2006 |
Risk-free interest rate |
|
|
4.77% - 5.11 |
% |
|
|
4.32% - 5.11 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
Expected life |
|
4.75 years |
|
|
4.75 - 6.5 years |
|
Expected volatility |
|
|
65 |
% |
|
|
65 |
% |
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate,
which approximates the rate in effect at the time of grant, commensurate with the expected life of
the instrument. The dividend yield is zero based upon the fact that we have never paid and have no
present intention to pay cash dividends. The expected term calculation is based upon the simplified
method provided under SEC Staff Accounting Bulletin (SAB) No. 107. Under SAB No. 107, the
expected term is developed by averaging the contractual term of the stock option grants (7 or 10
years) with the associated vesting term (typically 4 to 5 years). Given our initial public offering
in November 2005 and the resulting short history as a public company, we could not rely solely on
company specific historical data for purposes of establishing expected volatility. Consequently, we
performed an analysis of several peer companies with similar expected option lives to develop an
expected volatility assumption.
18
Based upon the above assumptions, the weighted average fair value of each stock option granted
for the three and nine months ended September 30, 2006 was $9.754 and $12.854 respectively.
We have assumed a forfeiture rate of 5% for all stock options granted subsequent to the
initial public offering with the exception of those issued to executives and directors for which a
zero forfeiture rate has been assumed. In the future, we will record incremental stock-based
compensation expense if the actual forfeiture rates are lower than estimated and will record a
recovery of prior stock-based compensation expense if the actual forfeitures are higher than
estimated.
SFAS No. 123(R) requires significant judgment and the use of estimates, particularly
surrounding assumptions such as stock price volatility and expected option lives, as well as
expected option forfeiture rates to value equity-based compensation. There is little experience or
guidance with respect to developing these assumptions and models. There is also uncertainty as to
how the standard will be interpreted and applied as more companies adopt the standard and companies
and their advisors gain experience with the standard. SFAS No. 123(R) requires the recognition of
the fair value of stock-based compensation in net income. Refer to Note 2 Summary of Significant
Accounting Policies in our notes to our consolidated financial statements included elsewhere in
this Quarterly Report on Form 10-Q for more discussion.
Additional information about these critical accounting policies may be found in the
Managements Discussion and Analysis of Financial Condition and Results of Operations section
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue for the
three and nine month periods ended September 30, 2006 and October 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
87.9 |
% |
|
|
92.1 |
% |
|
|
87.1 |
% |
|
|
87.0 |
% |
Contract revenue |
|
|
12.1 |
|
|
|
7.9 |
|
|
|
12.9 |
|
|
|
12.9 |
|
Royalty revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
58.7 |
|
|
|
59.2 |
|
|
|
62.6 |
|
|
|
66.6 |
|
Cost of contract revenue |
|
|
54.8 |
|
|
|
76.6 |
|
|
|
67.6 |
|
|
|
72.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
58.2 |
|
|
|
60.5 |
|
|
|
63.3 |
|
|
|
67.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
41.8 |
|
|
|
39.5 |
|
|
|
36.7 |
|
|
|
32.7 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
7.9 |
|
|
|
4.9 |
|
|
|
8.6 |
|
|
|
8.7 |
|
Selling and marketing |
|
|
8.6 |
|
|
|
9.3 |
|
|
|
15.0 |
|
|
|
12.1 |
|
General and administrative |
|
|
8.5 |
|
|
|
6.6 |
|
|
|
11.0 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
25.0 |
|
|
|
20.8 |
|
|
|
34.6 |
|
|
|
30.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
16.8 |
|
|
|
18.7 |
|
|
|
2.1 |
|
|
|
2.6 |
|
Other income (expense), net |
|
|
1.8 |
|
|
|
0.1 |
|
|
|
2.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18.6 |
|
|
|
18.8 |
|
|
|
4.4 |
|
|
|
2.8 |
|
Income tax expense |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
18.2 |
% |
|
|
18.6 |
% |
|
|
4.2 |
% |
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Comparison of Three Months and Nine months Ended September 30, 2006 and October 1, 2005
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total revenue |
|
$ |
55,047 |
|
|
$ |
52,458 |
|
|
$ |
2,589 |
|
|
|
4.9 |
% |
|
$ |
127,817 |
|
|
$ |
95,476 |
|
|
$ |
32,341 |
|
|
|
33.9 |
% |
Total revenue for the three months ended September 30, 2006 increased to $55.0 million, or
4.9%, compared to $52.5 million for the three months ended October 1, 2005. Revenue decreased
approximately $9.8 million, or 24.2%, in our home robots business and increased approximately $12.4
million, or 102.3%, in our government and industrial business. The $9.8 million decrease in revenue
from our home robots division was driven by a 4.7% decrease in net average selling prices and a
21.6% decrease in unit shipments resulting from a change in customer buying patterns due to our improved logistics
capabilities
which allow for shorter lead-time purchases as compared to the three months
ended October 1, 2005. Total home floor care robots shipped in the three months ended September 30,
2006 was approximately 221,000 units compared to approximately 282,000 units in the three months
ended October 1, 2005. The $12.4 million increase in revenue from our government and industrial
business for the three months ended September 30, 2006 as compared to three months ended October 1,
2005 was due to a 78.7% increase in unit shipments of our military robots combined with a 6.1%
increase in associated net average selling prices, a 17.6% increase in recurring contract
development revenue generated under funded research and development contracts and the one-time
impact of $2.2 million associated with the United Kingdom Ministry of Defence contract
modification. Also included in this $12.4 million growth was an increase of approximately $3.5
million in product life cycle revenue (robot spares), which was primarily driven by the continued
demand for our military robots, as compared to $1.6 million of product life cycle revenue in the
three months ended October 1, 2005. Total military robot units shipped in the three months ended
September 30, 2006 was 109 compared to 61 in the three months ended October 1, 2005.
Total revenue for the nine months ended September 30, 2006 increased to $127.8 million, or
33.9%, compared to $95.5 million for the nine months ended October 1, 2005. Revenue increased
approximately $10.6 million, or 17.7%, in our home robots business and $21.8 million, or 61.5%, in
our government and industrial business, respectively. The $10.6 million increase in revenue from
our home robots division was driven primarily by the initial distribution into the retail channel
of our Scooba floor washing robot, which was released late in 2005, continued demand for our Roomba
floor vacuuming robot and an 8.9% increase in net average selling prices. Total home floor care
robots shipped in the nine months ended September 30, 2006 was approximately 458,000 units compared
to approximately 428,000 units in the nine months ended October 1, 2005. Included within this unit
increase were a significant number of Scooba floor washing robots associated with the initial
distribution into the retail channel in the first quarter. The $21.8 million increase in revenue
from our government and industrial business for the nine months ended September 30, 2006 as
compared to nine months ended October 1, 2005 was due to a 34.7% increase in the number of military
robots shipped combined with an 8.9% increase in associated net average selling prices, a 26.8%
increase in recurring contract revenues generated under funded research and development contracts
and the one-time impact of $2.2 million associated with the United Kingdom Ministry of Defence
contract modification. Also included in this $21.8 million growth was an increase of approximately
$6.9 million in product life cycle revenue (robot spares), which was primarily driven by the
increased demand for our military robots, as compared to $3.5 million of product life cycle revenue
in the nine months ended October 1, 2005. Total military robot units shipped in the nine months
ended September 30, 2006 was 264 compared to 196 in the nine months ended October 1, 2005. The
majority of this unit increase was related to 209 units shipped under our contract with the Naval
Sea Systems Command for Man Transportable Robotics Systems.
20
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total cost of
revenue |
|
$ |
32,064 |
|
|
$ |
31,751 |
|
|
$ |
313 |
|
|
|
1.0 |
% |
|
$ |
80,864 |
|
|
$ |
64,291 |
|
|
$ |
16,573 |
|
|
|
25.8 |
% |
As a percentage of
total revenue |
|
|
58.2 |
% |
|
|
60.5 |
% |
|
|
|
|
|
|
|
|
|
|
63.3 |
% |
|
|
67.3 |
% |
|
|
|
|
|
|
|
|
Total cost of revenue increased to $32.1 million in the three months ended September 30, 2006,
compared to $31.8 million in the three months ended October 1, 2005. The increase is due to the
higher costs associated with the 78.7% increase in the unit sales of our government and industrial
robots and the 17.6% increase in recurring contract revenues generated under funded research and
development contracts offset by a reduction in costs associated with the 21.6% decrease in the unit
sales of our home floor care robots in the three months ended September 30, 2006 as compared to the
three months ended October 1, 2005.
The home robots division cost of revenue increased as a percent of revenue by 2.1 percentage
points in the three months ended September 30, 2006 over the three months ended October 1, 2005.
This increase was attributable to the above-mentioned reduction in average selling prices, offset
partially by a reduction in average unit costs, and higher manufacturing overhead and warranty
costs as compared to the three months ended October 1, 2005. The government and industrial robots
division cost of revenue decreased as a percent of revenue by 17.7 percentage points in the three
months ended September 30, 2006 as compared to the three months ended October 1, 2005. This
decrease was due primarily to a the above-mentioned increase in average selling prices, a reduction
in the average unit cost of product sold, higher margins on increased product life cycle revenue,
reduced manufacturing overhead and a $0.3 million reduction in costs of contract revenue directly
related to the United Kingdom Ministry of Defence contract modification.
Total cost of revenue increased to $80.9 million in the nine months ended September 30, 2006,
compared to $64.3 million in the nine months ended October 1, 2005. The increase is primarily
attributable to a 7.0% increase in the unit sales of our home floor care robots, a 34.7% increase
in the unit sales of our military robots and higher costs associated with a 26.8% increase in
recurring contract revenues generated under funded research and development contracts in the nine
months ended September 30, 2006 as compared to the nine months ended October 1, 2005.
The home robots division cost of revenue increased as a percent of revenue by 0.2 percentage
points in the nine months ended September 30, 2006 over the nine months ended October 1, 2005.
This increase was attributable to the above-mentioned increase in average selling prices, offset by
an increase in average unit costs, as a result of a shift in the product mix of the home floor care
robots that we sold. In particular, the average unit cost increase was largely attributable to a
significant number of Scooba floor washing robots shipped in the nine months ended September 30,
2006. Our Scooba floor washing robot carries a higher per unit cost than our Roomba floor vacuuming
robot which represented 100% of home floor care robots shipped in the nine months ended October 1,
2005. The government and industrial robots division cost of revenue decreased as a percent of
revenue by 12.1 percentage points for the nine months ended September 30, 2006 as compared to the
nine months ended October 1, 2005. This decrease was due primarily to a the above-mentioned
increase in average selling prices, a reduction in the average unit cost of product sold, higher
margins on increased product life cycle revenue, reduced manufacturing overhead and a $0.3 million
reduction in costs of contract revenue directly related to the United Kingdom Ministry of Defence
contract modification.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total gross profit |
|
$ |
22,983 |
|
|
$ |
20,707 |
|
|
$ |
2,276 |
|
|
|
11.0 |
% |
|
$ |
46,953 |
|
|
$ |
31,185 |
|
|
$ |
15,768 |
|
|
|
50.6 |
% |
As a percentage of
total revenue |
|
|
41.8 |
% |
|
|
39.5 |
% |
|
|
|
|
|
|
|
|
|
|
36.7 |
% |
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
21
Gross profit increased 11.0% to $23.0 million in the three months ended September 30, 2006,
from $20.7 million in the three months ended October 1, 2005. Gross profit as a percentage of
revenue increased to 41.8% in the three months ended September 30, 2006 from 39.5% of revenue in
the three months ended October 1, 2005. This 2.3 percentage point increase in gross profit was the
result of the home robots division gross profit decreasing 2.1 percentage points and the government
and industrial division increasing 17.7 percentage points. Additionally, the home robots division,
which carries a higher overall gross profit percentage than the government and industrial division
accounted for 56.2% of total gross profit in the three months ended September 30, 2006 as compared
to 86.3% in the three months ended October 1, 2005. Included in the total gross profit was $2.5
million associated with the United Kingdom Ministry of Defence contract modification, which
contributed 3.1 percentage points in gross profit for the three months ended September 30, 2006
Gross profit increased 50.6% to $47.0 million in the nine months ended September 30, 2006,
from $31.2 million in the nine months ended October 1, 2005. Gross profit as a percentage of
revenue increased to 36.7% in the nine months ended September 30, 2006 from 32.7% of revenue in the
nine months ended October 1, 2005. This 4.0 percentage increase in gross profit was the result of the home robots division gross profit decreasing 0.2 percentage points and the government and
industrial gross profit increasing 12.1 percentage points. Additionally, the home robots division,
which carries a higher overall gross profit than the government and industrial division, accounting
for 57.2% of total gross profit in the nine months ended September 30, 2006 as compared to 73.6% in
the nine months ended October 1, 2005. Included in the total gross profit was $2.5 million
associated with the United Kingdom Ministry of Defence contract modification, which contributed 1.3
percentage points in gross profit for the nine months ended September 30, 2006
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total research
and development
expense |
|
$ |
4,345 |
|
|
$ |
2,590 |
|
|
$ |
1,755 |
|
|
|
67.8 |
% |
|
$ |
10,946 |
|
|
$ |
8,335 |
|
|
$ |
2,611 |
|
|
|
31.3 |
% |
As a percentage of
total revenue |
|
|
7.9 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
8.6 |
% |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
Research and development expenses increased by $1.8 million or 67.8% to $4.3 million (7.9%
percent of revenue) in the three months ended September 30, 2006, from $2.6 million (4.9% of
revenue) for the three months ended October 1, 2005. The increase in research and development
expenses is primarily due to an increase of $0.9 million in compensation and benefit related
expenses attributed to increased headcount. Consulting and related material costs associated with
internal research projects increased by $0.3 million and $0.5 million, respectively. Additionally,
$0.1 million of the increase relates to increased occupancy and depreciation expenses that include
the addition of our Mysore, India office, which opened in late 2005, as well as increased
depreciation expense on computer equipment related to increased headcount.
Research and development expenses increased by $2.6 million or 31.3% to $10.9 million (8.6%
percent of revenue) in the nine months ended September 30, 2006, from $8.3 million (8.7% of
revenue) for the nine months ended October 1, 2005. The increase in research and development
expense is primarily due to an increase of $2.7 million in compensation and benefit related
expenses attributed to increased headcount. Consulting and related material costs associated with
internal research projects increased by $0.3 million and $0.6 million, respectively. Additionally,
$0.4 million of the increase related to increased occupancy and depreciation expenses that include
the addition of the Mysore, India office, which opened in late 2005, as well as increased
depreciation expense on computer equipment related to increased headcount. These increases were
offset by a reduction of $1.7 million in internally funded research and development projects
primarily related to the Scooba floor washing robot, which was launched late in the fourth quarter
of 2005.
22
Overall research and development headcount increased to 91 at September 30, 2006 compared to
68 as of October 1, 2005, an increase of 23 employees or 34% growth.
We intend to accelerate our investment in research and development for the balance of fiscal
2006. Accordingly, we anticipate that research and development expenses will be between 8.5% and
9.0% of revenue for the full year.
In addition to our internal research and development activities discussed above, we incur
research and development expenses under funded development arrangements with both governments and
industrial third parties. For the three and nine months ended September 30, 2006, these expenses
amounted to $3.7 million and $11.2 million compared to $3.2 million and $9.0 million for the
comparable three and nine month periods ended October 1, 2005, respectively. In accordance with
generally accepted accounting principles, these expenses have been classified as cost of revenue
rather than research and development expense.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total selling
and marketing
expense |
|
$ |
4,712 |
|
|
$ |
4,887 |
|
|
$ |
(175 |
) |
|
|
(3.6 |
%) |
|
$ |
19,197 |
|
|
$ |
11,582 |
|
|
$ |
7,615 |
|
|
|
65.7 |
% |
As a percentage of
total revenue |
|
|
8.6 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
15.0 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
Selling and marketing expenses decreased by $0.2 million or 3.6% to $4.7 million (8.6% of
revenue) in the three months ended September 30, 2006 from $4.9 million (9.3% of revenue) in the
three months ended October 1, 2005. The decrease in selling and marketing expense was primarily
driven by a decrease of $1.1 million in direct marketing and television media and production costs
in the home robot division as compared to the three months ended October 1, 2005. Additionally,
agency fees and marketing display costs decreased by $0.4 million. These decreases were partially
offset by $0.3 million in increased customer service costs and $0.3 million in direct fulfillment
costs, attributed to an increase in our direct business. Government and industrial division
expenses were up $0.4 million from the comparable quarter last year due primarily to an increase in
compensation and benefit as well as travel related expenses. Corporate sales and marketing
increased $0.2 million which relates to public relations expenses not incurred in the prior year in
which we were a private company.
Selling and marketing expenses increased by $7.6 million or 65.7% to $19.2 million (15.0% of
revenue) in the nine months ended September 30, 2006 from $11.6 million (12.1% of revenue) in the
nine months ended October 1, 2005. The increase in selling and marketing expense was primarily
driven by increased home robot division selling and marketing expense increase of $5.5 million over
the comparable nine months ended October 1, 2005. This increase was primarily made up of $1.4
million of increased television advertising and related productions costs on Scooba and Roomba,
$1.1 million increased in direct fulfillment costs, $0.6 million increased compensation and benefit
related expense, $1.0 million increase in marketing display and on-line media advertising, $0.9
million increased cooperative advertising and $0.7 million increase in customer service costs. All
of these increases are attributable to increased home robot revenue year-over-year of $10.6
million. Government and industrial division expenses were up $1.2 million from the comparable nine
months last year due primarily to $0.5 million of increased bid and proposal activities and $0.3
million of increased compensation and benefit related expense attributed to incremental headcount.
Corporate sales and marketing increased $0.9 million of which $0.6 million relates to public
relations expenses.
For the balance of fiscal 2006, we expect to aggressively invest in national advertising and
direct marketing in support of the holiday buying season. Accordingly, we anticipate that selling
and marketing expenses will increase in absolute dollars and will be between 18.0% and 19.0% of
revenue for the full year.
Overall selling and marketing headcount increased to 29 at September 30, 2006 compared to 22
as of October 1, 2005, an increase of 7 employees or 32% growth.
23
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total general
and administrative
expense |
|
$ |
4,663 |
|
|
$ |
3,448 |
|
|
$ |
1,215 |
|
|
|
35.2 |
% |
|
$ |
14,074 |
|
|
$ |
8,852 |
|
|
$ |
5,222 |
|
|
|
59.0 |
% |
As a percentage of
total revenue |
|
|
8.5 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
11.0 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
General and administrative expenses increased by $1.2 million or 35.2% to $4.7 million (8.5%
of revenue) in the three months ended September 30, 2006 from $3.4 million (6.6% of revenue) in the
three months ended October 1, 2005. The increase in general and administrative expenses was
primarily driven by an increase of $0.6 million relating to costs incurred on professional
accounting, legal, and other costs associated with being a public company, including costs
associated with Section 404 of the Sarbanes-Oxley Act, and $0.4 million in compensation, benefits,
depreciation and occupancy expenses due to increased headcount over the comparable period.
General and administrative expenses increased by $5.2 million or 59.0% to $14.1 million (11.0%
of revenue) in the nine months ended September 30, 2006 from $8.9 million (9.3% of revenue) in the
nine months ended October 1, 2005. The increase in general and administrative expense was primarily
driven by an increase of $2.1 million in compensation, benefits, occupancy and depreciation
expenses due to increased headcount over the comparable period and $0.4 million related to
increases in software maintenance and general liability insurance . Additionally, $1.9 million
relating to costs incurred on professional accounting, legal and other costs associated with being
a public company, including costs associated with Section 404 of the Sarbanes-Oxley, all of which
were not required last year as we were a private company. SFAS 123R stock-based compensation costs
totaling $0.5 million were recorded, a factor that did not exist in the comparable period.
For the full fiscal year 2006, we expect general and administrative expenses to be
approximately 10% of revenue.
Overall general and administrative headcount increased to 70 at September 30, 2006 compared to
58 as of October 1, 2005, an increase of 12 employees or 21% growth.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total other
income (expense),
net |
|
$ |
978 |
|
|
$ |
60 |
|
|
$ |
918 |
|
|
|
N/M |
|
|
$ |
2,847 |
|
|
$ |
271 |
|
|
$ |
2,576 |
|
|
|
N/M |
|
As a percentage of
total revenue |
|
|
1.8 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
2.3 |
% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
Other income (expense), net amounted to $1.0 million for the three months ended September 30,
2006 compared to $0.1 million for the three months ended October 1, 2005. The other income
(expense), net was directly related to $1.0 million of interest income resulting from the
investment of the net proceeds from our initial public offering, which closed on November 15, 2005.
For the nine months ended September 30, 2006, other income (expense), net amounted to $2.8
million compared to $0.3 million in the nine months ended October 1, 2005. The other income
(expense), net was directly related to $2.9 million of interest income resulting from the
investment of net proceeds from our initial public offering.
24
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
September 30, |
|
October 1, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total income
tax provision |
|
$ |
199 |
|
|
$ |
90 |
|
|
$ |
109 |
|
|
|
121.1 |
% |
|
$ |
235 |
|
|
$ |
92 |
|
|
$ |
143 |
|
|
|
155.4 |
% |
As a percentage of
total revenue |
|
|
0.4 |
% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
0.2 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
The provision for income taxes for the three and nine months ended September 30, 2006 consists
of $0.1 million of federal alternative minimum taxes and $0.1 million of state taxes.
Liquidity and Capital Resources
At September 30, 2006 our principal sources of liquidity were cash and cash equivalents
totaling $8.3 million, short-term investments of $63.9 million, and accounts receivable of $30.6
million. Prior to our initial public offering in November 2005, we funded our growth primarily with
proceeds from the issuance of convertible preferred stock for aggregate net cash proceeds of $37.5
million, occasional borrowings under a working capital line of credit and cash generated from
operations. In the initial public offering, we raised $70.4 million net of underwriting
commissions, professional fees and other expenses associated with the offering.
We manufacture and distribute our products through contract manufacturers and third-party
logistics providers. We believe that this approach gives us the advantages of relatively low
capital investment and significant flexibility in scheduling production and managing inventory
levels. By leasing our office facilities, we also minimize the cash needed for expansion.
Accordingly, our capital spending is generally limited to leasehold improvements, computers, office
furniture and product-specific production tooling and test equipment. In the nine month periods
ending September 30, 2006 and October 1, 2005, we spent $3.8 million and $3.9 million,
respectively, on capital equipment.
Our home robots product sales are, and are expected to continue to be, highly seasonal. This
seasonality typically results in a break even or net use of cash in support of operating needs
during the first half of the year with the low point generally occurring in the middle of the third
quarter, and a favorable cash flow during the second half of the year.
Discussion of Cash Flows
Net cash used by our operating activities in the nine months ended September 30, 2006 was $0.8
million compared to net cash used by operating activities of $6.8 million in the nine months ended
October 1, 2005. The cash used by our operating activities in the nine months ended September 30,
2006 was primarily due to an increase in accounts receivable (including unbilled revenue) of $7.3
million and an increase in inventory of $7.9 million in anticipation of the holiday buying season,
offset by net income of $5.3 million, a decrease in other assets of $0.4 million, and a decrease in
liabilities of $4.1 million. In addition, in the nine months ended September 30, 2006, we had
depreciation and amortization of approximately $2.7 million and stock-based compensation of $1.8
million, both of which are non-cash expenses. The cash used by our operating activities in the nine
months ended October 1, 2005 was primarily due to an increase in accounts receivable (including
unbilled revenue) of $14.7 million, an increase in inventory of $6.7 million in anticipation of the
holiday buying season, and an increase in other assets of $1.2 million, partially offset by net
income of 2.6 million and an increase in total liabilities of approximately $11.4 million. In
addition, in the nine months ended October 1, 2005, we had $1.4 million of depreciation expense and
approximately $0.4 million in stock-based compensation, both of which are non-cash expenses.
Net cash used in our investing activities was $67.7 million in the nine months ended September
30, 2006 and $3.9 million in the nine months ended October 1, 2005. Investing activities in the
nine months ended September 30, 2006 represent the purchase of short-term investments of $108.2
million and capital equipment of $3.8 million,
25
offset by the sale of short-term investments of
$44.3 million. Investing activities in the nine months ended October 1, 2005 represent the purchase
of capital equipment.
Net cash provided by our financing activities was approximately $0.7 million in the nine
months ended September 30, 2006 and $0.5 million in the nine months ended October 1, 2005
consisting primarily of proceeds from the exercise of common stock options.
The majority of our long-lived assets for the nine months ended September 30, 2006 and October
1, 2005 are located in the United States. However, we have invested in production tooling for the
manufacture of the Roomba and Scooba product lines in China.
Historically, we have incurred significant losses, largely attributable to our investment in
internally funded research and development. Based on our historical product development efforts, we
launched our first commercial products, our Roomba floor vacuuming robot and our PackBot tactical
military robot, in fiscal 2002. Since fiscal 2002, our revenue has significantly increased, our
investment in internally-funded research and development has declined as a percentage of revenue,
and we achieved profitability in both fiscal 2004 and fiscal 2005. We have not historically
invested significantly in property, plant and equipment, primarily as a result of our outsourced
approach to manufacturing that provides significant flexibility in both managing inventory levels
and financing our inventory. Our home robot revenue has been highly seasonal. This seasonality
tends to result in a break even or net use of cash during the first half of the year and
significant generation of cash in the second half of the year. Given the recent success of our
products and resulting growth in revenue, we believe that existing cash and cash equivalents,
short-term investments, cash provided by operating activities and funds available through our bank
line of credit will be sufficient to meet our working capital and capital expenditure needs for the
foreseeable future.
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables,
expense accruals and operating leases, all of which we anticipate funding through our existing
working capital line of credit, working capital and funds provided by operating activities. In
addition, 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. Although we are currently not a party to any
agreement or letter of intent with respect to potential investments in, or acquisitions of,
businesses, services or technologies, we may enter into these types of arrangements in the future,
which could also require us to seek additional equity or debt financing. Additional funds may not
be available on terms favorable to us or at all.
26
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 September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less Than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More Than |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
Total |
|
|
|
(In thousands) |
|
Operating leases |
|
$ |
1,898 |
|
|
$ |
2,014 |
|
|
$ |
104 |
|
|
$ |
|
|
|
$ |
4,016 |
|
Minimum contractual payments |
|
|
|
|
|
|
1,750 |
|
|
|
1,750 |
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,898 |
|
|
$ |
3,764 |
|
|
$ |
1,854 |
|
|
$ |
|
|
|
$ |
7,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of September 30, 2006, we had no off-balance sheet arrangements as defined in Item
303(a)(4) of Regulation S-K.
Foreign Operations
Nearly all of our revenue is derived from transactions denominated in U.S. dollars, even
though we maintain sales and business operations in foreign countries. As such, we have exposure to
adverse changes in exchange rates associated with operating expenses of our foreign operations, but
we believe this exposure to be immaterial.
Recently Issued Accounting Pronouncements
See Footnote 2 to the Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At September 30, 2006, we had unrestricted cash and cash equivalents of $8.3 million and
short-term investments of $63.9 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 principal amount of the investment to
fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including auction rate
securities, commercial paper, money market funds, debt securities and certificates of deposit. Due
to the short-term nature of these investments, we believe that we do not have any material exposure
to changes in the fair value of our investment portfolio as a result of changes in interest rates.
As of September 30, 2006, all of our cash equivalents were held in money market accounts and our
short-term investments were comprised of auction rate securities.
Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we would be required to pay on outstanding debt instruments, primarily certain borrowings
under our bank line of credit. The advances under this line of credit bear a variable rate of
interest determined as a function of the prime rate or the published LIBOR rate at the time of the
borrowing. At September 30, 2006, there were no amounts outstanding under our working capital line
of credit.
Exchange Rate Sensitivity
Nearly all of our revenue is derived from transactions denominated in U.S. dollars, even
though we maintain sales and business operations in foreign countries. As such, we have exposure to
adverse changes in exchange rates associated with operating expenses of our foreign operations, but
we believe this exposure to be immaterial.
27
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were effective in
ensuring that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. We believe that a control system, no
matter how well designed and operated, cannot provide absolute assurance that the objectives of the
control system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
There was no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Part II. Other Information
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks, some of which
are beyond our control. In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on
Form 10-K for the year ended December 31, 2005, which could materially affect our business,
financial condition or future results. In addition to the risks described in our Annual Report on
Form 10-K, you are urged to consider the risk set forth below which may affect our future operating
results. These are not the only risks we face. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition or operating results
We recently introduced our Scooba home robot product line, and if this new product line does not
generate significant sales or support the suggested unit pricing, our revenue and operating results
would be negatively impacted.
In December 2005, we made our Scooba floor washing robot available for volume distribution. We
have limited experience with the enhancement, development and introduction of new product lines. In
connection with the market introduction of Scooba, our retail distributors placed initial orders
for Scooba robots late in the fourth quarter of 2005 and in the first quarter of 2006. The
suggested retail price for our initial line of Scooba robots has been and is $399 per unit. A significant number of
retail outlets independently began to offer and are offering Scooba robots for a discounted price
per unit of less than $300. We have devoted significant time and have incurred significant expenses
in connection with developing an extension of our Scooba line of floor washing robots with a
suggested retail price of less than $300, which was introduced toward the end of the second quarter
of 2006. We are unable to determine at this time whether any of our Scooba floor washing robots
will attain market acceptance, at any price, or generate significant sales to consumers. Our
revenues and operating results in 2006 and in the future will depend in large part on the success
of this product line, and our revenues and operating results will be negatively impacted if this
product line does not generate significant sales to consumers or support pricing that allows us to
achieve an acceptable gross margin.
Item 4. Submission of Matters to a Vote of Security Holders
The Companys annual meeting of stockholders was held on Thursday, July 19, 2006, in
Burlington, Massachusetts, at which the following matters were submitted to a vote of the
stockholders:
28
(a) |
|
Votes regarding the election of the persons named below as class I members
to the board of directors, each for a three-year term and until his successor has been duly
elected and qualified or until his earlier resignation or removal, were as follows: |
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withheld |
|
Colin Angle |
|
|
15,350,098 |
|
|
|
26,457 |
|
Ronald Chwang |
|
|
14,967,942 |
|
|
|
408,613 |
|
Paul J. Kern, Gen. U.S. Army, (ret.) |
|
|
15,350,098 |
|
|
|
26,457 |
|
(b) |
|
Votes regarding ratification of the Companys 2005 Stock Option and
Incentive Plan were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Not Voted |
|
14,883,181 |
|
|
64,294 |
|
|
|
4,068 |
|
|
|
500,995 |
|
(c) |
|
Votes regarding ratification of the appointment of the accounting firm of
PricewaterhousCoopers LLP as the Companys independent registered public accountants for
the current fiscal year were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Not Voted |
|
15,343,052 |
|
|
17,495 |
|
|
|
17,282 |
|
|
|
74,709 |
|
Item 5. Other Information
Our policy governing transactions in our securities by directors, officers, and
employees permits our officers, directors, funds affiliated with our directors, and
certain other persons to enter into trading plans complying with Rule 10b5-l under the
Securities Exchange Act of 1934, as amended. We have been advised that certain
officers (including Colin Angle, Chief Executive Officer; Helen Greiner, Chairman; Dr.
Rodney Brooks, Chief Technology Officer; Geoffrey Clear, Senior Vice President, Chief
Financial Officer & Treasurer; Joseph Dyer, President, Government & Industrial Robots;
Gregory White, President, Home Robots; and Glen Weinstein, Senior Vice President,
General Counsel & Secretary) of the Company have entered into a trading plan
(each a Plan and collectively, the Plans) covering periods after the date of this
Quarterly Report in accordance with Rule 10b5-l and our policy governing transactions
in our securities. Generally, under these trading plans, the individual relinquishes
control over the transactions once the trading plan is put into place. Accordingly,
sales under these plans may occur at any time, including possibly before,
simultaneously with, or immediately after significant events involving our company.
We anticipate that, as permitted by Rule 10b5-l and our policy governing transactions
in our securities, some or all of our officers, directors and employees may establish
trading plans in the future. We intend to disclose the names of executive officers and
directors who establish a trading plan in compliance with Rule 10b5-l and the
requirements of our policy governing transactions in our securities in our future
quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and
Exchange Commission. However, we undertake no obligation to update or revise the
information provided herein, including for revision or termination of an established
trading plan, other than in such quarterly and annual reports.
Item 6. Exhibits
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Exhibit Number |
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Description |
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31.1
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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31.2
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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iROBOT CORPORATION
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Date: November 7, 2006 |
By: |
/s/ Geoffrey P. Clear
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Geoffrey P. Clear |
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Senior Vice President, Chief Financial
Officer and Treasurer (Duly Authorized Officer
and Principal Financial Officer) |
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30
EXHIBIT INDEX
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Exhibit Number |
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Description |
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31.1
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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31.2
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
31
exv31w1
Exhibit 31.1
Certifications
I, Colin M. Angle, certify that:
1. |
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I have reviewed this Quarterly Report on Form 10-Q of iRobot Corporation; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have: |
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
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b) |
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[Paragraph omitted in accordance with SEC transition instructions contained in SEC
Release No. 34-47986]; |
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c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
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d) |
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Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
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The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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a) |
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All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
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Date: November 7, 2006 |
/s/ Colin M. Angle
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Colin M. Angle |
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Chief Executive Officer |
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exv31w2
Exhibit 31.2
Certifications
I, Geoffrey P. Clear, certify that:
1. |
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I have reviewed this Quarterly Report on Form 10-Q of iRobot Corporation; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
|
The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
b) |
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[Paragraph omitted in accordance with SEC transition instructions contained in SEC
Release No. 34-47986]; |
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c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
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d) |
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Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
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The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
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All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
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Date: November 7, 2006 |
/s/ Geoffrey P. Clear
|
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Geoffrey P. Clear |
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Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of iRobot Corporation (the Company) for
the period ending September 30, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the Report), we, Colin M. Angle, the Chief Executive Officer of the Company and
Geoffrey P. Clear, the Chief Financial Officer of the Company, hereby certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge
that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended, and
(2) the information in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part
of the Report, nor is it to be deemed to be filed for any purpose whatsoever.
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Dated: November 7, 2006 |
/s/ Colin M. Angle
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Colin M. Angle |
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Chief Executive Officer |
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Dated: November 7, 2006 |
/s/ Geoffrey P. Clear
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Geoffrey P. Clear |
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Chief Financial Officer |
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