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 July 1, 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 July 28, 2006 was
23,557,721.
iROBOT CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED JULY 1, 2006
INDEX
1
iROBOT CORPORATION
Consolidated Balance Sheets
(in thousands)
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July 1, |
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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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$ |
7,732 |
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$ |
76,064 |
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Short-term investments |
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67,400 |
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Accounts receivable, net of allowance of
$238 and $117 at July 1, 2006 and December
31, 2005, respectively |
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8,109 |
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23,045 |
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Unbilled revenue |
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1,214 |
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1,424 |
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Inventory, net |
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16,843 |
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15,903 |
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Other current assets |
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1,269 |
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1,533 |
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Total current assets |
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102,567 |
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117,969 |
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Property and equipment, net |
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7,333 |
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6,966 |
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Total assets |
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$ |
109,900 |
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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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$ |
10,240 |
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$ |
23,721 |
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Accrued expenses |
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4,343 |
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3,484 |
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Accrued compensation |
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4,468 |
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4,002 |
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Provision for contract settlements |
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5,096 |
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5,154 |
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Deferred revenue |
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1,591 |
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1,018 |
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Total current liabilities |
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25,738 |
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37,379 |
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Commitments and contingencies (Note 8): |
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Common stock, $0.01 par value, 100,000 and
100,000 shares authorized and 23,532 and 23,406
issued and outstanding at July 1, 2006 and
December 31, 2005, respectively |
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235 |
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234 |
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Additional paid-in capital |
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115,628 |
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114,808 |
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Deferred compensation |
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(2,731 |
) |
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(3,210 |
) |
Accumulated deficit |
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(28,970 |
) |
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(24,276 |
) |
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Total stockholders equity |
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84,162 |
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87,556 |
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Total liabilities and stockholders equity |
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$ |
109,900 |
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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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Six Months Ended |
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July 1, |
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July 2, |
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July 1, |
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July 2, |
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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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$ |
29,594 |
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$ |
22,193 |
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$ |
62,950 |
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$ |
34,724 |
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Contract revenue |
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4,967 |
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3,693 |
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9,820 |
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8,232 |
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Royalty revenue |
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62 |
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Total revenue |
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34,561 |
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25,886 |
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72,770 |
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43,018 |
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Cost of revenue: |
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Cost of product revenue (1) |
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18,833 |
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16,923 |
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41,300 |
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26,760 |
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Cost of contract revenue (1) |
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3,951 |
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2,652 |
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7,500 |
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5,780 |
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Total cost of revenue |
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22,784 |
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19,575 |
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48,800 |
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32,540 |
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Gross profit |
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11,777 |
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6,311 |
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23,970 |
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10,478 |
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Operating expenses: |
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Research and development (1) |
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3,818 |
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2,687 |
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6,601 |
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5,745 |
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Selling and marketing (1) |
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5,669 |
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3,907 |
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14,485 |
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6,695 |
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General and administrative (1) |
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4,994 |
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2,887 |
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9,411 |
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5,404 |
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Total operating expenses |
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14,481 |
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9,481 |
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30,497 |
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17,844 |
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Operating loss |
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(2,704 |
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(3,170 |
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(6,527 |
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(7,366 |
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Other income (expense), net |
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949 |
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114 |
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1,869 |
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211 |
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Loss before income taxes |
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(1,755 |
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(3,056 |
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(4,658 |
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(7,155 |
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Income tax expense |
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22 |
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36 |
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2 |
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Net loss |
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$ |
(1,777 |
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$ |
(3,056 |
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$ |
(4,694 |
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$ |
(7,157 |
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Net loss per share |
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Basic and diluted |
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$ |
(0.08 |
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$ |
(0.30 |
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$ |
(0.20 |
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$ |
(0.72 |
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Number of shares used in per share calculations |
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Basic and diluted |
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23,431 |
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10,139 |
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23,403 |
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10,008 |
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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 six months ended July 1, 2006,
stock-based compensation was accounted for under SFAS No. 123(R), while for the three and six
months ended July 2, 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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Six Months Ended |
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July 1, |
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July 2, |
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July 1, |
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July 2, |
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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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$ |
68 |
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$ |
6 |
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$ |
123 |
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$ |
9 |
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Cost of contract revenue |
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57 |
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7 |
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111 |
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11 |
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Research and development |
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89 |
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22 |
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180 |
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32 |
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Selling and marketing |
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74 |
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3 |
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106 |
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3 |
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General and administrative |
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263 |
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75 |
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518 |
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135 |
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Total stock-based compensation |
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$ |
551 |
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$ |
113 |
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$ |
1,038 |
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$ |
190 |
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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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Six Months Ended |
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July 1, |
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July 2, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(4,694 |
) |
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$ |
(7,157 |
) |
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |
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Depreciation and amortization |
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1,844 |
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887 |
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Stock-based compensation |
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1,038 |
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190 |
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Tax benefit of disqualifying dispositions |
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38 |
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Changes in working capital (use) source |
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Accounts receivable |
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14,936 |
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7,092 |
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Unbilled revenue |
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210 |
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(156 |
) |
Inventory |
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(940 |
) |
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(4,731 |
) |
Other assets |
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264 |
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(79 |
) |
Accounts payable |
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(13,481 |
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31 |
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Accrued expenses |
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860 |
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|
210 |
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Accrued compensation |
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466 |
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(387 |
) |
Provision for contract settlement |
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(58 |
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48 |
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Deferred revenue |
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573 |
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|
740 |
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Change in long-term liabilities |
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(67 |
) |
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Net cash provided by (used in) operating activities |
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1,056 |
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(3,379 |
) |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(2,211 |
) |
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(1,385 |
) |
Purchases of investments |
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(92,200 |
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Sales of investments |
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24,800 |
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Net cash used in financing activities |
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(69,611 |
) |
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(1,385 |
) |
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Cash flows from financing activities: |
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Repayment of Note Receivable from stockholder |
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43 |
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Proceeds from stock option exercises |
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223 |
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370 |
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Net cash provided by financing activities |
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223 |
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413 |
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Net decrease in cash and cash equivalents |
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(68,332 |
) |
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(4,351 |
) |
Cash and cash equivalents, at beginning of period |
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76,064 |
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19,441 |
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Cash and cash equivalents, at end of period |
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$ |
7,732 |
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$ |
15,090 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
10 |
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$ |
6 |
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Cash paid for income taxes |
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|
163 |
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7 |
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Supplemental disclosure of noncash investing and financing activities (in thousands):
During the six months ended July 1, 2006 and July 2, 2005, the Company transferred $459 and
$140, 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, uncertainty of market acceptance of products and the need to obtain financing, if
necessary.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and 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 July 1, 2006 and for the three and six months ended July
1, 2006 and July 2, 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 July 1, 2006 and results of operations and cash flows for the periods
ended July 1, 2006 and July 2, 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 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, 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.
6
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Under SFAS No. 123(R), entities that become public companies after June 15, 2005 and used the
minimum value method of measuring equity share options and similar instruments as a non-public
company for either recognition or pro forma disclosure purposes under SFAS No. 123 must apply the
provisions of SFAS No. 123(R) prospectively to new and/or modified awards after the adoption of
SFAS No. 123(R). Companies should continue to account for any portion of awards outstanding at the
date of initial application of SFAS No. 123(R) using the accounting principles originally applied
to those awards either the minimum value method under SFAS No. 123 or the provisions of APB No.
25 and its related interpretive guidance. Accordingly, the Company did not record any cumulative
effect of a change in accounting principle associated with the adoption of SFAS No. 123(R).
The Company has historically granted stock options at exercise prices that equaled the fair
value of its common stock as estimated by its board of directors, with input from management, as of
the date of grant. Because there was no public market for the Companys common stock prior to its
initial public offering on November 9, 2005, its board of directors determined the fair value of
its common stock by considering a number of objective and subjective factors, including the
Companys operating and financial performance and corporate milestones, the prices at which it sold
shares of convertible preferred stock, the superior rights and preferences of securities senior to
its common stock at the time of each grant, and the risk and non-liquid nature of its common stock.
The Company has not historically obtained contemporaneous valuations by an unrelated valuation
specialist because, at the time of the issuances of stock options, the Company believed its
estimates of the fair value of its common stock to be reasonable based on the foregoing factors.
In connection with the initial public offering, the Company retrospectively reassessed the
fair value of its common stock for options granted during the period from July 1, 2004 to November
8, 2005. As a result of this reassessment, the Company determined that the estimated fair market
value used in granting options for the period from July 1, 2004 to December 31, 2004 was reasonable
and appropriate. Accordingly, no deferred compensation was recorded for these grants. For the
period from January 1, 2005 through November 8, 2005, the Company determined that the estimated
fair value of its common stock increased from $4.60 to $21.60 due to a number of factors such as,
among other things, the likelihood of an initial public offering, its improving operating results
and the achievement of other corporate milestones in 2005. Based upon this determination, the
Company recorded deferred compensation of approximately $3.4 million in the twelve months ended
December 31, 2005 under APB 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 $0.4 million for the three and six
months ended July 1, 2006, respectively and $0.4 million for the twelve months ended December 31,
2005. As of July 1, 2006, the deferred stock-based compensation balance associated with these
grants was $2.6 million. The Company will continue to recognize the associated stock-based
compensation expense, in accordance with the provisions of APB No. 25, related to these shares of
$0.3 million during the remaining six months of 2006 and $0.7 million, $0.7 million, $0.7 million
and $0.2 million for 2007, 2008, 2009 and 2010, respectively.
Under the provisions of SFAS No. 123(R), the Company recognized $0.3 million and $0.6 million
of stock-based compensation expense during the three and six months ended July 1, 2006 for stock
options granted subsequent to the initial public offering. The unamortized fair value as of July 1,
2006 associated with these grants was $7.8 million with a weighted average remaining recognition
period of 2.23 years.
The fair value of each option grant for the three and six months ended July 1, 2006 was
computed on the grant date using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, 2006 |
|
July 1, 2006 |
Risk-free interest rate |
|
|
4.85% 4.99 |
% |
|
|
4.32% 4.99 |
% |
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
7
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
expected term calculation is based upon the simplified method provided under SEC Staff
Accounting Bulletin (SAB) No. 107. Under SAB No. 107, the expected term is developed by averaging
the contractual term of the stock option grants (7 or 10 years)
with the associated vesting term (typically 4
to 5 years). Given the Companys initial public offering in November 2005 and the resulting short
history as a public company, the Company could not rely solely on company specific historical data
for purposes of establishing expected volatility. Consequently, the Company performed an analysis
of several peer companies with similar expected option lives to develop an expected volatility
assumption.
Based upon the above assumptions, the weighted average fair value of each stock option granted
for the three and six months ended July 1, 2006 was $13.312 and $15.060 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 six months ended July 2, 2005 as if the Company had applied
the fair value recognition provisions of SFAS No. 123 to share-based employee awards.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 2, 2005 |
|
|
July 2, 2005 |
|
|
|
(In thousands except |
|
|
|
per share data) |
|
Net loss |
|
|
|
|
|
|
|
|
As reported |
|
$ |
( 3,056 |
) |
|
$ |
( 7,157 |
) |
Add back: Stock-based employee compensation
expense reported in net loss |
|
|
113 |
|
|
|
190 |
|
Less: Stock-based employee compensation
expense determined under fair-value method for
all awards |
|
|
(161 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
|
Pro forma loss |
|
$ |
(3,104 |
) |
|
$ |
(7,238 |
) |
|
|
|
|
|
|
|
Net loss per share, as reported |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.30 |
) |
|
$ |
(0.72 |
) |
Pro forma net loss per share |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.31 |
) |
|
$ |
(0.72 |
) |
Number of shares used in per share calculations |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
10,139 |
|
|
|
10,008 |
|
The fair value of each option grant for the three and six months ended July 2, 2005 was
estimated on the grant date using the Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 2, 2005 |
|
July 2, 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 six months ended July 2, 2005 was $4.98 and $2.80, respectively.
8
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
The table below summarizes stock option plan activity for the six months ended July 1, 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 |
|
|
387,145 |
|
|
|
25.513 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(126,274 |
) |
|
|
1.764 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(29,737 |
) |
|
|
7.767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2006 |
|
|
3,502,618 |
|
|
$ |
7.363 |
|
|
7.17 years |
|
$62.2 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of July 1, 2006 |
|
|
1,199,646 |
|
|
$ |
2.045 |
|
|
5.21 years |
|
$27.4 million |
Weighted average fair value of
options granted during the six
months ended July 1, 2006 |
|
|
|
|
|
$ |
15.060 |
|
|
|
|
|
|
|
|
|
Options available for future grant
at July 1, 2006 |
|
|
946,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 July 1, 2006 of $24.88 and the exercise
price of the underlying option. |
During the three and six month periods ended July 1, 2006, the total intrinsic value of stock
options exercised was $2.1 million and $3.0 million, respectively. No amounts relating to
stock-based compensation have been capitalized.
The table below summarizes activity relating to restricted stock awards in the six months ended
July 1, 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 July 1, 2006 |
|
|
48,999 |
|
|
$ |
2.770 |
|
|
|
|
|
|
|
|
As of July 1, 2006, the unamortized fair value of all restricted stock awards was $119,000.
The Company expects to recognize associated stock-based compensation expense of $34,000 in the
remaining six months of 2006, $68,000 in 2007 and $17,000 in 2008.
The following table summarizes information about stock options outstanding at July 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Options Exercisable |
|
|
Number |
|
Remaining |
|
Weighted Average |
|
Number |
|
Weighted Average |
Exercise Price |
|
Outstanding |
|
Contractual Life |
|
Exercise Price |
|
Exercisable |
|
Exercise Price |
$0.0002 |
|
|
347,710 |
|
|
0.97 years |
|
$ |
0.0002 |
|
|
|
347,710 |
|
|
$ |
0.0002 |
|
0.24 |
|
|
43,420 |
|
|
|
2.63 |
|
|
|
0.24 |
|
|
|
43,420 |
|
|
|
0.24 |
|
0.55 |
|
|
157,742 |
|
|
|
6.47 |
|
|
|
0.55 |
|
|
|
90,951 |
|
|
|
0.55 |
|
1.87 |
|
|
139,390 |
|
|
|
4.55 |
|
|
|
1.87 |
|
|
|
138,825 |
|
|
|
1.87 |
|
2.33 |
|
|
710,979 |
|
|
|
7.47 |
|
|
|
2.33 |
|
|
|
288,406 |
|
|
|
2.33 |
|
2.78 |
|
|
565,872 |
|
|
|
8.07 |
|
|
|
2.78 |
|
|
|
139,459 |
|
|
|
2.78 |
|
4.60 |
|
|
147,015 |
|
|
|
8.55 |
|
|
|
4.60 |
|
|
|
25,975 |
|
|
|
4.60 |
|
4.96 |
|
|
429,270 |
|
|
|
8.66 |
|
|
|
4.96 |
|
|
|
82,020 |
|
|
|
4.96 |
|
5.66 |
|
|
135,775 |
|
|
|
9.04 |
|
|
|
5.66 |
|
|
|
17,780 |
|
|
|
5.66 |
|
14.54 |
|
|
111,500 |
|
|
|
9.14 |
|
|
|
14.54 |
|
|
|
12,600 |
|
|
|
14.54 |
|
16.32 |
|
|
40,100 |
|
|
|
9.24 |
|
|
|
16.32 |
|
|
|
6,500 |
|
|
|
16.32 |
|
17.77 |
|
|
84,500 |
|
|
|
9.30 |
|
|
|
17.77 |
|
|
|
500 |
|
|
|
17.77 |
|
21.60 |
|
|
23,200 |
|
|
|
9.34 |
|
|
|
21.60 |
|
|
|
|
|
|
|
|
|
21.80 |
|
|
28,200 |
|
|
|
6.93 |
|
|
|
21.80 |
|
|
|
1,000 |
|
|
|
|
|
9
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Options Exercisable |
|
|
Number |
|
Remaining |
|
Weighted Average |
|
Number |
|
Weighted Average |
Exercise Price |
|
Outstanding |
|
Contractual Life |
|
Exercise Price |
|
Exercisable |
|
Exercise Price |
22.20 |
|
|
146,650 |
|
|
|
7.72 |
|
|
|
22.20 |
|
|
|
|
|
|
|
|
|
24.00 |
|
|
160,000 |
|
|
|
9.36 |
|
|
|
24.00 |
|
|
|
|
|
|
|
|
|
24.88 |
|
|
28,650 |
|
|
|
7.00 |
|
|
|
24.88 |
|
|
|
|
|
|
|
|
|
27.22 |
|
|
129,140 |
|
|
|
6.65 |
|
|
|
27.22 |
|
|
|
|
|
|
|
|
|
27.80 |
|
|
15,605 |
|
|
|
6.75 |
|
|
|
27.80 |
|
|
|
3,500 |
|
|
|
27.80 |
|
29.74 |
|
|
6,000 |
|
|
|
9.40 |
|
|
|
29.74 |
|
|
|
1,000 |
|
|
|
29.74 |
|
33.94 |
|
|
15,000 |
|
|
|
9.50 |
|
|
|
33.94 |
|
|
|
|
|
|
|
|
|
34.98 |
|
|
36,900 |
|
|
|
9.58 |
|
|
|
34.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0002-$34.98 |
|
|
3,502,618 |
|
|
|
7.17 |
|
|
$ |
7.36 |
|
|
|
1,199,646 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) 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 six months ended July 1, 2006.
The following table presents the calculation of both basic and diluted net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
July 1, |
|
|
July 2, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands, except per |
|
|
|
|
|
|
|
|
|
|
|
share amounts) |
|
|
|
|
|
Net loss |
|
$ |
(1,777 |
) |
|
$ |
(3,056 |
) |
|
$ |
(4,694 |
) |
|
$ |
(7,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
23,431 |
|
|
|
10,139 |
|
|
|
23,403 |
|
|
|
10,008 |
|
Dilutive effect of employee stock options, restricted
shares and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of assumed conversion of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
23,431 |
|
|
|
10,139 |
|
|
|
23,403 |
|
|
|
10,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.08 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.72 |
) |
For the three and six months ended July 1, 2006, the weighted effect of options to purchase
common stock totaling 2,166 and 2,249 shares, respectively, were not included in the calculation
because the effect would have been antidilutive. For the three and six months ended July 2, 2005,
the weighted effect of options to purchase common stock, the assumed conversion of preferred stock
and warrants totaling 11,638 and 11,489 shares, respectively, were not included in the calculation
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
10
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
the deferred tax assets will not be realized.
The Company monitors the realization of its deferred tax assets based on changes in
circumstances, for example recurring periods of income for tax purposes following historical
periods of cumulative losses or changes in tax laws or regulations. The Companys income tax
provisions and its assessment of the realizability of its deferred tax assets involve significant
judgments and estimates. If the Company continued to generate taxable income through profitable
operations in future years it may be required to recognize these deferred tax assets through the
reduction of the valuation allowance which would result in a material benefit to its results of
operations in the period in which the benefit is determined, excluding the recognition of the
portion of the valuation allowance which relates to stock compensation.
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and
display of comprehensive income (loss) and its components in financial statements. The Companys
comprehensive income (loss) is equal to the Companys net income (loss) for all periods presented.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (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
has not yet evaluated the impact of the implementation of FIN 48 on its consolidated financial
statements.
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.
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.
11
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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 July 1, 2006, investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Cost |
|
Market Value |
|
|
(In thousands) |
Auction Rate Debt Securities |
|
$ |
67,400 |
|
|
$ |
67,400 |
|
The Company did not hold any investments as of July 2, 2005.
As of July 1, 2006, the Companys investments had maturity dates ranging from August 2027 to
December 2045. Despite the long-term contractual maturities of the auction rate securities held at
July 1, 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:
|
|
|
|
|
|
|
|
|
|
|
July 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Raw materials |
|
$ |
1,772 |
|
|
$ |
990 |
|
Work in process |
|
|
|
|
|
|
15 |
|
Finished goods |
|
|
15,071 |
|
|
|
14,898 |
|
|
|
|
|
|
|
|
|
|
$ |
16,843 |
|
|
$ |
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 July 1, 2006, there were 946,274 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 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
12
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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 National
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:
|
|
|
|
|
|
|
|
|
|
|
July 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Accrued warranty |
|
$ |
1,757 |
|
|
$ |
2,031 |
|
Accrued rent |
|
|
304 |
|
|
|
323 |
|
Accrued sales commissions |
|
|
102 |
|
|
|
468 |
|
Accrued accounting fees |
|
|
295 |
|
|
|
255 |
|
Accrued other |
|
|
1,885 |
|
|
|
407 |
|
|
|
|
|
|
|
|
|
|
$ |
4,343 |
|
|
$ |
3,484 |
|
|
|
|
|
|
|
|
8. Commitments and Contingencies
Legal
The Company received a letter from a UK government agency (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 has 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. The Company has been paid £3.7 million (approximately $6.7
million at the July 1, 2006 exchange rate), which includes £0.7 million (approximately $1.2 million
at the July 1, 2006 exchange rate) for long-lead inventory items. In its termination letter, the
Customer demanded a refund of all monies paid under the contract. The Company engaged legal counsel
in anticipation of a negotiated settlement with the Customer. Management believes that it has
adequately provided for the possibility of refunding some portion of the payments made to date
under the contract.
See footnote 10 regarding the settlement reached with the Customer on July 27, 2006.
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 July 1, 2006 and July 2, 2005 amounted to $0.5 million and $0.3 million, respectively, and
for the six months ended July 1, 2006 and July 2, 2005 amounted to $1.0 million and $0.6 million,
respectively. Future minimum rental payments under operating leases were as follows as of July 1,
2006:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
Remainder of 2006 |
|
$ |
946 |
|
2007 |
|
|
1,786 |
|
2008 |
|
|
1,538 |
|
2009 |
|
|
137 |
|
2010 |
|
|
74 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
4,481 |
|
|
|
|
|
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 July 1, 2006 and December 31, 2005, respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty
based on identified warranty costs. The reserve is included as part of accrued expenses (Note 7) in
the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
July 1, |
|
|
July 2, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,010 |
|
|
$ |
1,100 |
|
|
$ |
2,031 |
|
|
$ |
1,398 |
|
Provision |
|
|
1,060 |
|
|
|
1,698 |
|
|
|
2,376 |
|
|
|
2,144 |
|
Warranty usage(*) |
|
|
(1,313 |
) |
|
|
(770 |
) |
|
|
(2,650 |
) |
|
|
(1,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,757 |
|
|
$ |
2,028 |
|
|
$ |
1,757 |
|
|
$ |
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
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 and government and industrial
divisions.
14
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
July 1, |
|
|
July 2, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
$ |
16,738 |
|
|
$ |
11,082 |
|
|
$ |
39,947 |
|
|
$ |
19,573 |
|
Government & Industrial |
|
|
17,823 |
|
|
|
14,804 |
|
|
|
32,823 |
|
|
|
23,383 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
34,561 |
|
|
|
25,886 |
|
|
|
72,770 |
|
|
|
43,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
10,748 |
|
|
|
8,337 |
|
|
|
26,001 |
|
|
|
14,501 |
|
Government & Industrial |
|
|
12,036 |
|
|
|
11,252 |
|
|
|
22,799 |
|
|
|
18,050 |
|
Other |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
22,784 |
|
|
|
19,575 |
|
|
|
48,800 |
|
|
|
32,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
5,990 |
|
|
|
2,745 |
|
|
|
13,946 |
|
|
|
5,072 |
|
Government & Industrial |
|
|
5,787 |
|
|
|
3,552 |
|
|
|
10,024 |
|
|
|
5,333 |
|
Other |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
11,777 |
|
|
|
6,311 |
|
|
|
23,970 |
|
|
|
10,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
3,818 |
|
|
|
2,687 |
|
|
|
6,601 |
|
|
|
5,745 |
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
5,669 |
|
|
|
3,907 |
|
|
|
14,485 |
|
|
|
6,695 |
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
4,994 |
|
|
|
2,887 |
|
|
|
9,411 |
|
|
|
5,404 |
|
Other (expense) income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
949 |
|
|
|
114 |
|
|
|
1,869 |
|
|
|
211 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
(1,755 |
) |
|
$ |
(3,056 |
) |
|
$ |
(4,658 |
) |
|
$ |
(7,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
For the three months ended July 1, 2006 and July 2, 2005, sales to non-U.S. customers
accounted for 10.8% and 7.3% of total revenue, respectively, and for the six months ended July 1,
2006 and July 2, 2005, sales to non-U.S. customers accounted for 8.9% and 8.1% of total revenue,
respectively
Significant Customers
For the three months ended July 1, 2006 and July 2, 2005, U.S. federal government orders,
contracts and subcontracts accounted for 48.1% and 54.0% of total revenue, respectively, and for
the six months ended July 1, 2006 and July 2, 2005, U.S. federal government orders, contracts and
subcontracts accounted for 41.8% and 49.0%
15
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
of total revenue, respectively.
10. Subsequent Event
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. This agreement is a settlement of a dispute between the MoD and the Company as more
fully described in footnote 8.
The current reserve balance of $5.1 million (noted in footnote 8) is sufficient to complete
the deliverables under the agreement and the agreement will be treated as a change order to the
original contract in the third fiscal quarter of 2006.
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 Item 1A 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 July 1, 2006, we had 325 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, reducing the
time, cost and risk of product development. Our significant expertise in robot design and
engineering, combined with our management teams experience in military and consumer markets,
positions us to capitalize on the expected growth in the market for robots.
Although we have successfully launched 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
17
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 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 July 1, 2006, the
deferred stock-based compensation balance associated with these grants was $2.6 million. We will
continue to recognize the associated stock-based compensation expense, in accordance with the
provisions of APB No. 25, related to these shares of $0.3 million during the remaining six months
of 2006 and $0.7 million, $0.7 million, $0.7 million and $0.2 million for 2007, 2008, 2009 and
2010, respectively.
Under the provisions of SFAS No. 123(R), we recognized $0.3 million and $0.6 million of stock-based
compensation expense during the three and six months ended July 1, 2006 for stock options granted
subsequent to the initial public offering. The unamortized fair value as of July 1, 2006 associated
with these grants was $7.8 million with a weighted average remaining recognition period of 2.23
years.
The fair value of each option grant for the three and six months ended July 1, 2006 was
computed on the grant date using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, 2006 |
|
July 1, 2006 |
Risk-free interest rate |
|
|
4.85% 4.99 |
% |
|
|
4.32% 4.99 |
% |
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
18
data for purposes of establishing expected volatility. Consequently, we performed an analysis
of several peer companies with similar expected option lives to develop an expected volatility
assumption.
Based upon the above assumptions, the weighted average fair value of each stock option granted
for the three and six months ended July 1, 2006 was $13.312 and $15.060 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.
19
Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue for the
three and six month periods ended July 1, 2006 and July 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
July 1, |
|
|
July 2, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
85.6 |
% |
|
|
85.7 |
% |
|
|
86.5 |
% |
|
|
80.7 |
% |
Contract revenue |
|
|
14.4 |
|
|
|
14.3 |
|
|
|
13.5 |
|
|
|
19.2 |
|
Royalty revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
54.5 |
|
|
|
65.4 |
|
|
|
56.8 |
|
|
|
62.2 |
|
Cost of contract revenue |
|
|
11.4 |
|
|
|
10.2 |
|
|
|
10.3 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
65.9 |
|
|
|
75.6 |
|
|
|
67.1 |
|
|
|
75.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
34.1 |
|
|
|
24.4 |
|
|
|
32.9 |
|
|
|
24.4 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
11.0 |
|
|
|
10.4 |
|
|
|
9.1 |
|
|
|
13.3 |
|
Selling and marketing |
|
|
16.4 |
|
|
|
15.1 |
|
|
|
19.9 |
|
|
|
15.6 |
|
General and administrative |
|
|
14.5 |
|
|
|
11.1 |
|
|
|
12.9 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
41.9 |
|
|
|
36.6 |
|
|
|
41.9 |
|
|
|
41.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(7.8 |
) |
|
|
(12.2 |
) |
|
|
(9.0 |
) |
|
|
(17.1 |
) |
Other income (expense), net |
|
|
2.8 |
|
|
|
0.4 |
|
|
|
2.6 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(5.0 |
) |
|
|
(11.8 |
) |
|
|
(6.4 |
) |
|
|
(16.6 |
) |
Income tax expense |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(5.1 |
)% |
|
|
(11.8 |
)% |
|
|
(6.5 |
)% |
|
|
(16.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three Months and Six Months Ended July 1, 2006 and July 2, 2005
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total revenue |
|
$ |
34,561 |
|
|
$ |
25,886 |
|
|
$ |
8,675 |
|
|
|
33.5 |
% |
|
$ |
72,770 |
|
|
$ |
43,018 |
|
|
$ |
29,752 |
|
|
|
69.2 |
% |
Total revenue for the three months ended July 1, 2006 increased to $34.6 million, or 33.5%,
compared to $25.9 million for the three months ended July 2, 2005. Revenue increased approximately
$5.7 million, or 51.0%, in our home robots business and $3.0 million, or 20.4%, in our government
and industrial business. The $5.7 million increase in revenue from our home robots division was
driven primarily by a 28.9% increase in unit shipments and a 20.9% increase in net average selling
prices. Total home floor care robots shipped in the three months ended July 1, 2006 was
approximately 107,000 units compared to approximately 83,000 units in the three months ended July
2, 2005. The $3.0 million increase in revenue from our government and industrial business for the
three months ended July 1, 2006 as compared to three months ended July 2, 2005 was due to a 29.5%
increase in the net average selling price of our military robots and a 48.3% increase in contract
revenues generated under funded research and development contracts such as the Future Combat
Systems program. Included in this $3.0 million growth was an increase of approximately $1.8
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 July 2, 2005. Total military robot units shipped in the three months ended July
1, 2006 was 85 compared to 98 in the three months ended July 2, 2005.
Total revenue for the six months ended July 1, 2006 increased to $72.8 million, or 69.2%,
compared to $43.0 million for the six months ended July 2, 2005. Revenue increased approximately
$20.4 million, or 104.1%, in our home robots business and $9.4 million, or 40.4%, in our government
and industrial business. The $20.4 million increase in revenue from our home robots division was
driven primarily by the initial distribution into the retail
20
channel of our Scooba floor washing robot, which was released late in 2005, continued demand
for our Roomba floor vacuuming robot and a 30.9% increase in net average selling prices. Total home
floor care robots shipped in the six months ended July 1, 2006 was approximately 237,000 units
compared to approximately 146,000 units in the six months ended July 2, 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 $9.4 million increase in revenue
from our government and industrial business for the six months ended July 1, 2006 as compared to
six months ended July 2, 2005 was due to a 15.6% increase in the number of military robots shipped,
a 25.1% increase in average selling prices and a 31.5% increase in contract revenues generated
under funded research and development contracts such as the Future Combat Systems program. Included
in this $9.4 million growth was an increase of approximately $3.2 million in product life cycle
revenue (robot spares), which was primarily driven by the increased demand for our military robots,
as compared to $2.1 million of product life cycle revenue in the six months ended July 2, 2005.
Total military robot units shipped in the six months ended July 1, 2006 was 156 compared to 135 in
the six months ended July 2, 2005. The majority of this unit increase was related to 131 units
shipped under our contract with the Naval Sea Systems Command for Man Transportable Robotics
Systems.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total cost of revenue |
|
$ |
22,784 |
|
|
$ |
19,575 |
|
|
$ |
3,209 |
|
|
|
16.4 |
% |
|
$ |
48,800 |
|
|
$ |
32,540 |
|
|
$ |
16,260 |
|
|
|
50.0 |
% |
As a percentage of total revenue |
|
|
65.9 |
% |
|
|
75.6 |
% |
|
|
|
|
|
|
|
|
|
|
67.1 |
% |
|
|
75.6 |
% |
|
|
|
|
|
|
|
|
Total cost of revenue increased to $22.8 million in the three months ended July 1, 2006,
compared to $19.6 million in the three months ended July 2, 2005. The increase is primarily
attributable to a 28.9% increase in the unit sales of our home floor care robots and higher costs
associated with the 48.3% increase in contract revenues generated under funded research and
development contracts in the three months ended July 1, 2006 as compared to the three months ended
July 2, 2005. These increases were offset by lower costs associated with a 13.3% decrease in the
unit sales of our PackBot robots. The average unit costs of our home robots increased by
approximately 4.1% over the three months ended July 2, 2005. This increase was attributable to a
shift in the mix of the home floor care robots that we sold and higher manufacturing overhead
expenses offset by lower warranty costs as compared to the three months ended July 2, 2005. The
average unit cost of our government and industrial robots increased by 4.4% over the three months
ended July 2, 2005 and was due to higher manufacturing overhead expenses and slightly higher
average standard cost due to the mix of products shipped offset by lower warranty costs.
Total cost of revenue increased to $48.8 million in the six months ended July 1, 2006,
compared to $32.5 million in the six months ended July 2, 2005. The increase is primarily
attributable to a 62.3% increase in the unit sales of our home floor care robots, a 15.6% increase
in the unit sales of our military robots and higher costs associated with a 31.5% increase in
contract revenues generated under funded research and development contracts in the six months ended
July 1, 2006 as compared to the six months ended July 2, 2005. The average unit costs of our home
robots increased by approximately 16.0% over the six months ended July 2, 2005 and was primarily
related to the a shift in the 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 six months ended July 1, 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 six months ended July 2, 2005. This increase was partially offset by
lower manufacturing overhead expenses and lower warranty costs. The average unit cost of our
government and industrial robots increase by 2.2% over the six months ended July 2, 2005. This
increase was due to higher manufacturing overhead expenses and higher average standard cost due to
the mix of products shipped partially offset by reductions in
warranty costs.
21
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total gross profit |
|
$ |
11,777 |
|
|
$ |
6,311 |
|
|
$ |
5,466 |
|
|
|
86.6 |
% |
|
$ |
23,970 |
|
|
$ |
10,478 |
|
|
$ |
13,492 |
|
|
|
128.8 |
% |
As a percentage of total revenue |
|
|
34.1 |
% |
|
|
24.4 |
% |
|
|
|
|
|
|
|
|
|
|
32.9 |
% |
|
|
24.4 |
% |
|
|
|
|
|
|
|
|
Gross profit increased 86.6% to $11.8 million in the three months ended July 1, 2006, from
$6.3 million in the three months ended July 2, 2005. Gross profit as a percentage of revenue
increased to 34.1% in the three months ended July 1, 2006 from 24.4% of revenue in the three months
ended July 2, 2005. This 9.7 percentage point increase in gross profit was attributable to two
factors. First, the home robots division, which carries a higher overall gross profit than the
government and industrial division, accounted for approximately 50.9% of total gross profit for the
three months ended July 1, 2006 compared to approximately 43.5% in the three months ended July 2,
2005. Second, for the reasons noted above, both the home robots and the government and industrial
divisions experienced improved gross profit for the three months ended July 1, 2006 as compared to
the three months ended July 2, 2005. Home robots gross profit improved by 11.0 percentage points
for the three months ended July 1, 2006 as compared to the three month period ended July 2, 2005
due primarily to higher net average selling prices and lower warranty costs. Government and
industrial gross profit improvement was 8.5 percentage points for the three months ended July 1,
2006 as compared to the three months ended July 2, 2005 due primarily to improved warranty
experience, higher net average selling prices and increased product life cycle revenue partially
offset by increased manufacturing overhead expenses.
Gross profit increased 128.8% to $24.0 million in the six months ended July 1, 2006, from
$10.5 million in the six months ended July 2, 2005. Gross profit as a percentage of revenue
increased to 32.9% in the six months ended July 1, 2006 from 24.4% of revenue in the six months
ended July 2, 2005. This 8.5 percentage increase in gross profit was attributable to two factors.
First, the home robots division, which carries a higher overall gross profit than the government
and industrial division, accounted for approximately 58.2% of total gross profit for the six months
ended July 1, 2006 compared to approximately 48.4% in the six months ended July 2, 2005. Second,
both the home robots and the government and industrial divisions experienced improved gross profit
for the six months ended July 1, 2006 as compared to the six months ended July 2, 2005. Home robots
gross profit improved by 9.0 percentage points for the six months ended July 1, 2006 as compared to
the six month period ended July 2, 2005 due to higher net
average selling prices as well as lower warranty
costs and lower manufacturing overhead expenses as a percent of total
revenue. Government and industrial gross profit improvement
was 7.7 percentage points for the six months ended July 1, 2006 as compared to the six months ended
July 2, 2005 due primarily to improved warranty experience and higher net average selling prices
partially offset by increased manufacturing overhead expenses.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total research and development
expense |
|
$ |
3,818 |
|
|
$ |
2,687 |
|
|
$ |
1,131 |
|
|
|
42.1 |
% |
|
$ |
6,601 |
|
|
$ |
5,745 |
|
|
$ |
856 |
|
|
|
14.9 |
% |
As a percentage of total revenue |
|
|
11.0 |
% |
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
9.1 |
% |
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
Research and development expenses increased by $1.1 million or 42.1% to $3.8 million (11.0%
percent of revenue) in the three months ended July 1, 2006, from $2.7 million (10.4% of revenue)
for the three months ended July 2, 2005. The increase in research and development expenses was
primarily due to a $0.8 million increase in compensation and benefit related expenses attributed to
increased headcount, $0.2 million relates to increased occupancy and depreciation expenses which
includes 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 $0.9 million or 14.9% to $6.6 million (9.1%
percent of revenue) in the six months ended July 1, 2006, from
$5.7 million (13.3% of revenue) for
the six months ended July
22
2, 2005. The increase in research and development expense is due primarily to a $1.8 million
increase in compensation and benefit related expenses attributed to increased headcount, $0.3
million related to increased occupancy and depreciation expenses that includes 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
$1.5 million in internally funded research and development projects primarily related to Scooba,
which was launched late in the fourth quarter of 2005.
Overall research and development headcount increased to 89 at July 1, 2006 compared to 64 as
of July 2, 2005, an increase of 25 employees or 39% growth.
We intend to accelerate our investment in research and development for the balance of fiscal
2006 to respond to and anticipate customer needs. Accordingly, we anticipate that research and
development expenses will increase in absolute dollars for the foreseeable future.
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 six months ended July 1, 2006, these expenses amounted
to $4.0 million and $7.5 million compared to $2.7 million and $5.8 million for the comparable three
and six month periods ended July 2, 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 |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total selling and marketing
expense |
|
$ |
5,669 |
|
|
$ |
3,907 |
|
|
$ |
1,762 |
|
|
|
45.1 |
% |
|
$ |
14,485 |
|
|
$ |
6,695 |
|
|
$ |
7,790 |
|
|
|
116.4 |
% |
As a percentage of total revenue |
|
|
16.4 |
% |
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
19.9 |
% |
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $1.8 million or 45.1% to $5.7 million (16.4% of
revenue) in the three months ended July 1, 2006 from $3.9 million (15.1% of revenue) in the three
months ended July 2, 2005. The increase in selling and marketing expense was primarily driven by
increased home robot division selling and marketing expenses which increased $1.1 million over the
three months ended July 2, 2005. This increase primarily consisted of $0.3 million in increased
customer service costs, $0.3 million in increased advertising expense and $0.5 million in direct
fulfillment costs, attributed to an increase in our direct business, offset by a slight decrease
$0.1 million in television media marketing for the three months ended July 1, 2006. Government and
industrial division expenses were up $0.3 million from the comparable quarter last year due
primarily to $0.1 million of bid and proposal activities, $0.1 million increase in compensation and
benefit related expense attributed to increased headcount. Corporate sales and marketing increased
$0.3 million of which $0.2 million relates to public relations expenses not incurred in the prior
year in which we were a private company.
Selling and marketing expenses increased by $7.8 million or 116.4% to $14.5 million (19.9% of
revenue) in the six months ended July 1, 2006 from $6.7 million (15.6% of revenue) in the six
months ended July 2, 2005. The increase in selling and marketing expense was primarily driven by
increased home robot division selling and marketing expense increase of $6.3 million over the
comparable six months ended July 2, 2005. The increase was primarily made up of $2.9 million in
television advertising on Scooba and Roomba, $1.0 million increase in marketing display and on-line
media advertising, $0.7 million on increase in direct fulfillment costs, $0.7 million increased
compensation and benefit related expense, $0.5 million increased customer service costs, $0.4
million increased freight costs on promotional activities and $0.3 million of increased travel.
All of these increases are attributable to increased home robot revenue year-over-year of $20.4
million. Government and industrial division expenses were up $0.8 million from the comparable six
months last year due primarily to $0.5 million of increased bid and proposal activities, $0.1
million of increased compensation and benefit related expense attributed to incremental headcount.
Corporate sales and marketing increased $0.7 million of which $0.5 million relates to public
relations expenses.
23
For the balance of fiscal 2006, we expect to continue to invest in national advertising, trade
shows, and direct marketing and public relations opportunities to further build brand awareness.
Accordingly, we anticipate that selling and marketing expenses will increase in absolute dollars
but as a percentage of total revenue will trend down slightly as
compared to the first six months of fiscal 2006.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total general and administrative
expense |
|
$ |
4,994 |
|
|
$ |
2,887 |
|
|
$ |
2,107 |
|
|
|
73.0 |
% |
|
$ |
9,411 |
|
|
$ |
5,404 |
|
|
$ |
4,007 |
|
|
|
74.1 |
% |
As a percentage of total revenue |
|
|
14.5 |
% |
|
|
11.1 |
% |
|
|
|
|
|
|
|
|
|
|
12.9 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
General and administrative expenses increased by $2.1 million or 73.0% to $5.0 million (14.5%
of revenue) in the three months ended July 1, 2006 from
$2.9 million (11.1% of revenue) in the
three months ended July 2, 2005. The increase in general and administrative expenses was primarily
driven by an increase of $0.8 million in compensation and related benefit expenses due to increased
headcount over the comparable period, $0.8 million relates 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.
General
and administrative expenses increased by $4.0 million or 74.1% to $9.4 million (12.9%
of revenue) in the six months ended July 1, 2006 from $5.4 million (12.6% of revenue) in the six
months ended July 2, 2005. The increase in general and administrative expense was primarily
driven by an increase of $1.6 million in compensation and related benefit expenses due to increased
headcount over the comparable period, $1.4 million relates 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.
Overall general and administrative headcount increased to 66 at July 1, 2006 compared to 46 as
of July 2, 2005, an increase of 20 employees or 43% growth.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total other income (expense),
net |
|
$ |
949 |
|
|
$ |
114 |
|
|
$ |
835 |
|
|
|
N/M |
|
|
$ |
1,869 |
|
|
$ |
211 |
|
|
$ |
1,658 |
|
|
|
N/M |
|
As a percentage of total revenue |
|
|
2.8 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
2.6 |
% |
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
Other income (expense), net amounted to $0.9 million for the three months ended July 1, 2006
compared to $0.1 million for the three months ended July 2, 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 six months ended July 1, 2006, other income (expense), net amounted to $1.9 million
compared to $0.2 million in the six months ended July 2, 2005. The other income (expense), net was
directly related to $1.9 million of interest income resulting from the investment of net proceeds
from our initial public offering.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
July 1, |
|
July 2, |
|
Dollar |
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total income tax provision |
|
$ |
22 |
|
|
|
|
|
|
$ |
22 |
|
|
|
N/A |
|
|
$ |
36 |
|
|
$ |
2 |
|
|
$ |
34 |
|
|
|
N/M |
|
As a percentage of total revenue |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
24
The provision for income taxes for the three and six months ended July 1, 2006 consists solely
of state taxes.
Liquidity and Capital Resources
At July 1, 2006 our principal sources of liquidity were cash and cash equivalents totaling
$7.7 million, short-term investments of $67.4 million, and
accounts receivable of $8.1 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 six month periods
ending July 1, 2006 and July 2, 2005, we spent $2.2 million and $1.4 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. In the past, we have relied
on our working capital line of credit to cover the short-term cash needs resulting from the
seasonality of our home robots business.
Discussion of Cash Flows
Net cash provided by our operating activities in the six months ended July 1, 2006 was $1.1
million compared to net cash used by operating activities of $3.4 million in the six months ended
July 2, 2005. The cash provided by our operating activities in the six months ended July 1, 2006
was primarily due to a decrease in accounts receivable of $14.9 million offset by a net loss of
$4.7 million, an increase in inventory of $0.9 million, and a decrease in liabilities of $11.6
million. In addition, in the six months ended July 1, 2006, we had depreciation and amortization of
approximately $1.8 million and stock-based compensation of $1.0 million, both of which are non-cash
expenses. The cash used by our operating activities in the six months ended July 2, 2005 was
primarily due to a net loss of approximately $7.2 million, and an increase in inventory of $4.7
million, partially offset by a decrease in accounts receivable of $7.1 million, and an increase in
total liabilities of approximately $0.6 million. In addition, in the six months ended July 2, 2005,
we had $0.9 million of depreciation expense and approximately $0.2 million in stock-based
compensation, both of which are non-cash expenses.
Net cash used in our investing activities was $69.6 million in the six months ended July 1,
2006 and $1.4 million in the six months ended July 2, 2005. Investing activities in the six months
ended July 1, 2006 represent the purchase of short-term investments of $92.2 million and capital
equipment of $2.2 million, offset by the sale of short-term investments of $24.8 million. Investing
activities in the six months ended July 2, 2005 represent the purchase of capital equipment.
Net cash provided by our financing activities was approximately $0.2 million in the six months
ended July 1, 2006 and $0.4 million in the six months ended July 2, 2005. Net cash provided by our
financing activities in the six months ended July 1, 2006 and July 2, 2005 consisted primarily of
proceeds from the exercise of common stock options.
The
majority of our long-lived assets for the six months ended
July 1, 2006 and July 2, 2005
are located in the United States. However, we have invested a significant amount 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
25
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.
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 July 1, 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 |
|
$ |
1,895 |
|
|
$ |
2,453 |
|
|
$ |
133 |
|
|
$ |
|
|
|
$ |
4,481 |
|
Minimum contractual payments |
|
|
219 |
|
|
|
1,750 |
|
|
|
1,750 |
|
|
|
|
|
|
|
3,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,114 |
|
|
$ |
4,203 |
|
|
$ |
1,883 |
|
|
$ |
|
|
|
$ |
8,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of July 1, 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
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No.
109, which prescribes a
26
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 will be
effective for fiscal years beginning after December 15, 2006. We have not yet evaluated the impact
of the implementation of FIN 48 on our consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
replaces APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements An Amendment of APB Opinion No. 28. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. We adopted SFAS No. 154 effective January 1, 2006 and the adoption did not have
an effect on our consolidated results of operations and financial condition.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing. SFAS No. 151 amends previous
guidance regarding treatment of abnormal amounts of idle facility expense, freight, handling costs,
and spoilage. SFAS No. 151 requires that those items be recognized as current period charges
regardless of whether they meet the criterion of so abnormal which was the criterion specified in
ARB No. 43. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the
cost of the production be based on normal capacity of the production facilities. We adopted SFAS
No. 151 effective January 1, 2006 and the adoption did not have an effect on our consolidated
results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At July 1, 2006, we had unrestricted cash and cash equivalents of $7.7 million and short-term
investments of $67.4 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 July 1,
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 July 1, 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.
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
27
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 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 5. Other Information
Our policy governing transactions in our securities by directors, officers and employees
permits our officers, directors and certain other persons to enter into trading plans complying
with Rule 10b5-1 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 either entered into, or announced their intention to
enter into, a trading plan (each a Plan and collectively, the Plans)
covering periods after the date of this Quarterly Report in accordance with Rule 10b5-1 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.
Pursuant to the Plan entered into by Mr. Angle, a maximum of 520,464 shares of common stock
may be sold over a 3-year period starting August 2006, including 192,048 shares of common stock
that may be sold during the initial year of the Plan. Such sales would represent, on average per
year, approximately 10% of the common stock underlying his stock options and common stock owned.
Pursuant to the Plan entered into by Ms. Greiner, a maximum of 422,760 shares of common stock
may be sold over a 3-year period starting August 2006, including up to 156,000 shares of common
stock that may be sold during the initial year of the Plan. Such sales would represent, on average
per year, approximately 10% of her common stock owned.
Pursuant to the Plan entered into by Dr. Brooks, a maximum of 178,125 shares of common stock
may be sold over a one-year period beginning in August 2006. Such sales would represent
approximately 10% of his common stock owned.
We anticipate that, as permitted by Rule 10b5-1 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 10b5-1 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
The following exhibits are filed as part of and incorporated by reference into the Quarterly
Report on Form 10-Q:
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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 |
28
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: August 8, 2006
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By:
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/s/ Geoffrey P. Clear |
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Geoffrey P. Clear |
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Senior Vice President, Chief Financial |
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Officer and Treasurer (Duly Authorized Officer |
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and Principal Financial Officer) |
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Date: August 8, 2006
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By:
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/s/ Gerald C. Kent, Jr. |
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Gerald C. Kent, Jr. |
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Vice President and Controller (Principal |
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Accounting Officer) |
29
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 |
30
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: August 8, 2006
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/s/ Colin M. Angle |
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Colin M. Angle |
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Chief Executive Officer |
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; |
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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: August 8, 2006
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/s/ Geoffrey P. Clear |
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Geoffrey P. Clear |
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Chief Financial Officer |
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 July 1, 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: August 8, 2006
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/s/ Colin M. Angle |
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Colin M. Angle |
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Chief Executive Officer |
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Dated: August 8, 2006
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/s/ Geoffrey P. Clear |
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Geoffrey P. Clear |
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Chief Financial Officer |