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 June 28, 2008
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
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77-0259 335 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices)
(Zip code)
(781) 430-3000
(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, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the Registrants Common Stock as of July 25, 2008 was
24,689,521.
iROBOT CORPORATION
FORM 10-Q
THREE AND SIX MONTHS ENDED JUNE 28, 2008
INDEX
The accompanying notes are an integral part of the consolidated financial statements.
1
iROBOT CORPORATION
Consolidated Balance Sheets
(in thousands)
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June 28, |
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December 29, |
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2008 |
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2007 |
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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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$ |
14,760 |
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$ |
26,735 |
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Short term investments |
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1,200 |
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16,550 |
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Accounts receivable, net of allowance of $350 and $65 at June 28, 2008 and
December 29, 2007, respectively |
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24,253 |
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47,681 |
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Unbilled revenue |
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2,190 |
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2,244 |
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Inventory, net |
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43,288 |
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45,222 |
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Deferred tax assets |
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5,905 |
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5,905 |
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Other current assets |
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10,384 |
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2,268 |
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Total current assets |
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101,980 |
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146,605 |
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Property and equipment, net |
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24,612 |
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15,694 |
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Deferred tax assets |
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4,293 |
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4,293 |
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Long term investments |
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13,639 |
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Other assets |
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2,500 |
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2,500 |
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Total assets |
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$ |
147,024 |
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$ |
169,092 |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
23,965 |
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$ |
44,697 |
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Accrued expenses |
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8,166 |
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7,987 |
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Accrued compensation |
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6,625 |
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4,603 |
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Deferred revenue |
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950 |
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1,578 |
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Total current liabilities |
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39,706 |
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58,865 |
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Long term liabilities |
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4,659 |
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Commitments and contingencies (Note 6): |
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Redeemable convertible preferred stock, 5,000 shares authorized and zero
outstanding at June 28, 2008 and December 29, 2007 |
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Common stock, $0.01 par value, 100,000 and 100,000 shares authorized and 24,687
and 24,495 issued and outstanding at June 28, 2008 and December 29, 2007,
respectively |
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247 |
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245 |
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Additional paid-in capital |
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125,747 |
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122,318 |
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Deferred compensation |
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(508 |
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(685 |
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Accumulated deficit |
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(20,169 |
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(11,651 |
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Accumulated other comprehensive loss |
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(2,658 |
) |
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Total stockholders equity |
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102,659 |
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110,227 |
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Total liabilities, redeemable convertible preferred stock and stockholders
equity |
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$ |
147,024 |
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$ |
169,092 |
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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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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenue: |
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Product revenue |
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$ |
60,676 |
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$ |
41,361 |
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$ |
111,251 |
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$ |
75,482 |
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Contract revenue |
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6,526 |
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5,653 |
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13,253 |
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11,019 |
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Total revenue |
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67,202 |
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47,014 |
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124,504 |
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86,501 |
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Cost of revenue: |
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Cost of product revenue (1) |
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44,382 |
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27,238 |
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80,577 |
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50,724 |
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Cost of contract revenue (1) |
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6,352 |
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4,552 |
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12,099 |
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9,436 |
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Total cost of revenue |
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50,734 |
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31,790 |
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92,676 |
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60,160 |
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Gross profit |
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16,468 |
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15,224 |
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31,828 |
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26,341 |
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Operating expenses: |
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Research and development (1) |
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4,718 |
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4,179 |
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8,691 |
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8,335 |
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Selling and marketing (1) |
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13,471 |
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10,944 |
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24,929 |
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18,993 |
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General and administrative (1) |
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7,340 |
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5,752 |
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14,118 |
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11,079 |
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Total operating expenses |
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25,529 |
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20,875 |
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47,738 |
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38,407 |
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Operating loss |
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(9,061 |
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(5,651 |
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(15,910 |
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(12,066 |
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Other income, net |
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242 |
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887 |
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737 |
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1,818 |
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Loss before income taxes |
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(8,819 |
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(4,764 |
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(15,173 |
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(10,248 |
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Income tax expense (benefit) |
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(4,306 |
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12 |
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(6,655 |
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29 |
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Net loss |
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$ |
(4,513 |
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$ |
(4,776 |
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$ |
(8,518 |
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$ |
(10,277 |
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Net loss per share |
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Basic and diluted |
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$ |
(0.18 |
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$ |
(0.20 |
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$ |
(0.35 |
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$ |
(0.43 |
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Number of shares used in per share calculations |
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Basic and diluted |
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24,610 |
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24,226 |
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24,561 |
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24,064 |
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(1) |
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Total stock-based compensation recorded in the three and six months ended June 28, 2008 and
June 30, 2007 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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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Cost of product revenue |
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$ |
216 |
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$ |
239 |
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$ |
370 |
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$ |
359 |
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Cost of contract revenue |
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114 |
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134 |
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173 |
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211 |
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Research and development |
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128 |
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127 |
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95 |
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118 |
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Selling and marketing |
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267 |
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450 |
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428 |
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607 |
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General and administrative |
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808 |
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578 |
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1,405 |
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890 |
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Total stock-based compensation |
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$ |
1,533 |
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$ |
1,528 |
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$ |
2,471 |
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$ |
2,185 |
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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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June 28, |
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June 30, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(8,518 |
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$ |
(10,277 |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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3,291 |
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2,459 |
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Loss on disposal of fixed assets |
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68 |
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35 |
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Stock-based compensation |
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2,471 |
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2,185 |
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Non-cash director deferred compensation |
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47 |
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55 |
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Changes in working capital (use) source |
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Accounts receivable |
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23,428 |
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10,831 |
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Unbilled revenue |
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54 |
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472 |
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Inventory |
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1,934 |
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(1,118 |
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Other assets |
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(8,116 |
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883 |
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Accounts payable |
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(20,732 |
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(579 |
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Accrued expenses |
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179 |
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(2,021 |
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Accrued compensation |
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2,022 |
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286 |
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Deferred revenue |
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(628 |
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1,457 |
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Change in long term liabilities |
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4,659 |
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Net cash provided by operating activities |
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159 |
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4,668 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(12,277 |
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(3,921 |
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Purchases of investments |
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(29,997 |
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(22,000 |
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Sales of investments |
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29,050 |
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26,800 |
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Net cash provided by (used in) investing activities |
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(13,224 |
) |
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879 |
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Cash flows from financing activities: |
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Income tax withholding payment associated with stock option exercise |
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(1,588 |
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Proceeds from stock option exercises |
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732 |
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719 |
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Tax benefit of disqualifying dispositions |
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358 |
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Net cash provided by (used in) financing activities |
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1,090 |
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(869 |
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Net increase (decrease) in cash and cash equivalents |
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(11,975 |
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4,678 |
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Cash and cash equivalents, at beginning of period |
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26,735 |
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5,583 |
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Cash and cash equivalents, at end of period |
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$ |
14,760 |
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$ |
10,261 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
41 |
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$ |
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Cash paid for income taxes |
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38 |
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112 |
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Supplemental disclosure of noncash investing and financing activities (in thousands):
During the six months ended June 28, 2008 and June 30, 2007, the Company transferred $146 and
$481, 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 to develop robotics
and artificial intelligence technologies and apply these technologies in producing and marketing
robots. The majority of the Companys revenue is generated from product sales and government and
industrial research and development contracts.
The Company is subject to risks common to companies in high-tech industries including, but not
limited to, uncertainty of progress in developing technologies, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance with government
regulations and uncertainty of market acceptance of products.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and its
subsidiaries, after elimination of all intercompany accounts and transactions. iRobot has prepared
the accompanying consolidated financial statements in conformity with accounting principles
generally accepted in the United States.
The accompanying financial data as of June 28, 2008 and for the three and six months ended
June 28, 2008 and June 30, 2007 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 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 29,
2007, filed with the SEC on February 25, 2008.
In the opinion of management, all adjustments necessary to present a fair statement of
financial position as of June 28, 2008 and results of operations and cash flows for the periods
ended June 28, 2008 and June 30, 2007 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 requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates these estimates and
judgments, including those related to revenue recognition, sales returns, bad debts, warranty
claims, inventory reserves, valuation of investments, assumptions used in valuing stock-based
compensation instruments and income taxes. The Company bases these estimates on historical and
anticipated results, and trends and on various other assumptions that the Company believes are
reasonable under the circumstances, including assumptions as to future events. These estimates form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. By their nature, estimates are subject to an inherent degree
of uncertainty. Actual results may differ from the Companys estimates.
Fiscal Year-End
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest
to December 31. Accordingly, the Companys fiscal quarters end on the Saturday that falls closest
to the last day of the third month of each quarter.
5
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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
typically not taken product returns except for defective products. Accordingly, the Company reduces
revenue for its estimates of liabilities for these rights at the time the related sale is recorded.
The Company makes an estimate of sales returns for products sold by resellers directly or through
its distributors based on historical returns experience and other relevant data. 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 compare to estimated total costs utilizing the most recent estimates of costs and
funding. Changes in job performance, job conditions, and estimated profitability, including those
arising from final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Since many contracts extend over a
long period of time, revisions in cost and funding estimates during the progress of work have the
effect of adjusting earnings applicable to past performance in the current period. When the current
contract estimate indicates a loss, a provision is made for the total anticipated loss in the
current period. Revenue earned in excess of billings, if any, is recorded as unbilled revenue.
Billings in excess of revenue earned, if any, are recorded as deferred revenue.
Accounting for Share-Based Payments
The Company accounts for share-based payments to employees, including grants of employee stock
options and awards in the form of restricted shares and restricted stock units under the provisions
of SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). Under the provisions of SFAS 123(R), the
Company establishes the fair value of each option grant using the Black-Scholes option-pricing
model. SFAS 123(R) requires the recognition of the fair value of share-based payments as a charge
against earnings. The Company recognizes share-based payment expense over the requisite service
period of the underlying grants and awards. Based on the provisions of SFAS 123(R), the Companys
share-based payment awards are accounted for as equity instruments.
Net Income Per Share
The following table presents the calculation of both basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except per share data) |
|
Net loss |
|
$ |
(4,513 |
) |
|
$ |
(4,776 |
) |
|
$ |
(8,518 |
) |
|
$ |
(10,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
24,610 |
|
|
|
24,226 |
|
|
|
24,561 |
|
|
|
24,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.18 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.43 |
) |
6
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Potentially dilutive securities representing approximately 0.9 million and 1.2 million shares
of common stock for the quarters ended June 28, 2008 and June 30, 2007, respectively, and 1.0
million and 1.4 million shares of common stock for the six months ended June 28, 2008 and June 30,
2007, respectively, were excluded from the computation of diluted earnings per share for these
periods because their effect would have been antidilutive.
Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided if based upon the weight of
available evidence, it is more likely than not that some or all of the deferred tax assets will not
be realized.
In fiscal 2007, the Company completed an analysis of historical and projected future
profitability which resulted in the full release of the valuation allowance relating to federal
deferred tax assets. The Company continues to maintain a valuation allowance against state deferred
tax assets due to less certainty of their realizability given the shorter expiration period
associated with them and the generation of state tax credits in excess of the state tax liability.
At June 28, 2008, the Company has total deferred tax assets of $12.8 million and a valuation
allowance of $2.6 million resulting in a net deferred tax asset of $10.2 million.
Comprehensive Loss
Comprehensive loss includes unrealized losses on certain investments. The differences between
net loss and comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net loss, as reported |
|
$ |
(4,513 |
) |
|
$ |
(4,776 |
) |
|
$ |
(8,518 |
) |
|
$ |
(10,277 |
) |
Unrealized losses on investments |
|
|
(562 |
) |
|
|
|
|
|
|
(2,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(5,075 |
) |
|
$ |
(4,776 |
) |
|
$ |
(11,176 |
) |
|
$ |
(10,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the United States, and
expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS
157 as of December 30, 2007, for financial instruments. Although the adoption of SFAS 157 did not
materially impact its financial condition, results of operations, or cash flow, the Company is now
required to provide additional disclosures as part of its financial statements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
The Company has invested in auction rate security instruments, which have been historically
classified as available for sale securities and reflected at fair value. Due to recent events in
credit markets, however, the auction events for all of these instruments currently held by the
Company began to fail during the first quarter of 2008 and each such auction since then has failed. Therefore, the fair values of these securities are
estimated utilizing a discounted cash flow model which also considers limited secondary market
indicators as of June 28, 2008. These analyses consider, among other items, the collateralization
underlying the security investments, the timing of expected future cash flows, and the expectation
of the next time the security is expected to have a successful auction. These securities were also
compared, when possible, to other observable market data with similar characteristics to the
securities held by the Company.
7
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
As a result of the temporary declines in fair value for the Companys auction rate securities,
which the Company attributes to liquidity issues of the securities rather than credit issues, it
has recorded an unrealized loss of $2.7 million to Accumulated other comprehensive loss on the
balance sheet. The auction rate security instruments held by the Company at June 28, 2008 were in
securities collateralized by student loan portfolios, the majority of which are guaranteed by the
United States government. Historically, these securities have been classified as Short term
investments, and at December 29, 2007, the Company held auction rate securities with a par value
and fair value of $16.6 million. Due to the Companys belief that the market for these student loan
collateralized instruments may take in excess of twelve months to fully recover, the Company has
classified $13.6 million of these investments as noncurrent and has included them in Long term
investments on the unaudited Condensed Consolidated Balance Sheet at June 28, 2008. Any future
fluctuation in fair value related to these instruments that the Company deems to be temporary,
including any recoveries of the $2.7 million write-down, would be recorded to Accumulated other
comprehensive income (loss). If the Company determines that any future valuation adjustment was
other than temporary, it would record a charge to earnings as appropriate. The Company received
information during the quarter ended June 28, 2008 that one issuer had refinanced its auction rate
bonds and intended to call its outstanding issues at par. The Company held $1.2 million of the
auction rate bonds to be called. These bonds were called at par on July 7, 2008. Given the
expectation of a pending call, the Company classified these bonds as a short-term investment and
recorded their value at par as of June 28, 2008.
The Companys assets measured at fair value on a recurring basis subject to the disclosure
requirements of SFAS 157 at June 28, 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 28, 2008 |
|
|
|
(in thousands) |
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Accounts |
|
$ |
13,776 |
|
|
$ |
|
|
|
$ |
|
|
Auction Rate Securities |
|
|
|
|
|
|
|
|
|
|
14,839 |
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
13,776 |
|
|
|
|
|
|
$ |
14,839 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys assets measured at fair value on a recurring basis
using significant unobservable inputs
(Level 3) as defined in SFAS 157 at June 28, 2008:
|
|
|
|
|
|
|
Fair Value Measurements of Assets using |
|
|
Level 3 inputs |
|
|
Auction Rate Securities |
|
|
|
|
|
(In thousands) |
Beginning balance at December 29, 2007 |
|
$ |
|
|
Transfers to Level 3 |
|
|
17,497 |
|
Total losses (realized or unrealized) |
|
|
|
|
Included in other comprehensive loss |
|
|
(2,658 |
) |
|
|
|
|
Ending balance at June 28, 2008 |
|
$ |
14,839 |
|
|
|
|
|
Recent Accounting Pronouncements
In September 2006, FASB issued SFAS 157, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not
require any new fair value measurements but rather eliminates inconsistencies in guidance found in
various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, on February 12, 2008, FASB issued FSP FAS 157-2, which delays the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually). This FSP partially defers the effective date of Statement 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years for items within
the scope of this FSP. Effective fiscal 2008, the Company has adopted SFAS 157 except as it applies
to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The Company is
currently evaluating the potential impact of adoption of FSP FAS 157-2 and has not yet determined
the impact, if any, that its adoption will have on its results of operations or financial
condition.
8
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 allows entities to voluntarily choose to measure
certain financial assets and liabilities at fair value (fair value option). The fair value option
may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date
occurs. If the fair value option is elected for an instrument, SFAS 159 specifies that unrealized
gains and losses for that instrument be reported in earnings at each subsequent reporting date.
SFAS 159 was effective for the Company on January 1, 2008. The Company did not apply the fair value
option to any of its outstanding instruments and therefore, SFAS 159 did not have an impact on the
Companys consolidated financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141R)
and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51 (SFAS 160). SFAS 141R will change how business acquisitions
are accounted for and will impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a component of equity. The
provisions of SFAS 141R and SFAS 160 are effective for fiscal years beginning on or after December
15, 2008. The Company is currently evaluating the potential impact of adoption of SFAS 141R and
SFAS 160 and has not yet determined the impact, if any, that their adoption will have on its
results of operations or financial condition.
In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures to enable investors
to better understand their effects on an entitys financial position, financial performance and
cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. The Company is
currently evaluating the potential impact of adoption of SFAS 161 and has not yet determined the
impact, if any, that its adoption will have on its results of operations or financial condition.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that
the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Companys consolidated financial statements upon adoption.
3. Inventory
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Raw materials |
|
$ |
3,878 |
|
|
$ |
1,641 |
|
Work in process |
|
|
540 |
|
|
|
517 |
|
Finished goods |
|
|
38,870 |
|
|
|
43,064 |
|
|
|
|
|
|
|
|
|
|
$ |
43,288 |
|
|
$ |
45,222 |
|
|
|
|
|
|
|
|
4. 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
and together with the 1994 Plan, the 2001 Plan and the 2004 Plan, the Plans). 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 initially reserved for
issuance in the form of incentive stock options, non-qualified stock options, stock appreciation
rights, deferred stock awards and restricted stock awards. Additionally, the 2005 Plan provides
that the number of shares reserved and available for issuance under the plan will automatically
increase each January 1, beginning in 2007, by 4.5% of the outstanding number of shares of common
stock on the immediately preceding December 31. Stock options returned to the Plans as a result of
their expiration, cancellation or termination are automatically made
9
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
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 June 28, 2008,
there were 1,636,936 shares available for future grant under the 2005 Plan.
Options granted under the Plans are subject to terms and conditions as determined by the
compensation committee of the board of directors, including vesting periods. Options granted under
the Plans are exercisable in full at any time subsequent to vesting, generally vest over periods
from 0 to 5 years, and expire 7 or 10 years from the date of grant or, if earlier, 60 or 90 days
from employee termination. The exercise price of incentive stock options is equal to the closing
price on the NASDAQ Global Market on the date of grant. The exercise price of nonstatutory options
may be set at a price other than the fair market value of the common stock.
5. Accrued Expenses
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Accrued warranty |
|
$ |
3,257 |
|
|
$ |
2,491 |
|
Accrued direct fulfillment costs |
|
|
967 |
|
|
|
1,953 |
|
Accrued rent |
|
|
1,074 |
|
|
|
197 |
|
Accrued sales commissions |
|
|
774 |
|
|
|
1,074 |
|
Accrued accounting fees |
|
|
433 |
|
|
|
361 |
|
Accrued other |
|
|
1,661 |
|
|
|
1,911 |
|
|
|
|
|
|
|
|
|
|
$ |
8,166 |
|
|
$ |
7,987 |
|
|
|
|
|
|
|
|
6. Commitments and Contingencies
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for the three months
ended June 28, 2008 and June 30, 2007 amounted to $1.5 million and $0.5 million, respectively, and
for the six months ended June 28, 2008 and June 30, 2007 amounted to $2.1 million and $1.0 million,
respectively. The Company recorded $0.7 million of expense in the three month period ended June 28,
2008 for remaining lease commitments, net of estimated sublease income, at our former corporate
headquarters in Burlington, MA. Future minimum rental payments under operating leases were as
follows as of June 28, 2008:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
|
|
(In thousands) |
|
Remainder of 2008 |
|
$ |
1,818 |
|
2009 |
|
|
2,341 |
|
2010 |
|
|
2,229 |
|
2011 |
|
|
2,211 |
|
2012 |
|
|
2,189 |
|
Thereafter |
|
|
15,307 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
26,095 |
|
|
|
|
|
Sales Taxes
The Company collects and remits sales tax in jurisdictions in which it has a physical presence
or it believes a nexus exists, which therefore obligates the Company to collect and remit sales
tax. The Company is not currently aware of any asserted claims for sales tax liabilities for prior
taxable periods. The Company is currently being audited by one state but does not believe this is
likely to result in any material liability.
The Company has conducted an evaluation of whether it has established a nexus in various
jurisdictions with respect to sales tax. In conjunction with this evaluation, the Company has
approached several states pursuant to voluntary disclosure arrangements. As a result of this
process, the Company is currently in negotiations with one state where nexus is believed to be
probable and has recorded a liability for potential exposure in this one
10
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
jurisdiction. The Company continues to analyze possible sales tax exposure, but does not
currently believe that any individual claim or aggregate claims that might arise will ultimately
have a material effect on its consolidated results of operations, financial position or cash flows.
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 June 28, 2008 and June 30, 2007, respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty
based on identified warranty costs. The reserve is included as part of accrued expenses (Note 5) in
the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
2,524 |
|
|
$ |
2,497 |
|
|
$ |
2,491 |
|
|
$ |
2,462 |
|
Provision |
|
|
1,704 |
|
|
|
1,407 |
|
|
|
3,245 |
|
|
|
3,391 |
|
Warranty usage(*) |
|
|
(971 |
) |
|
|
(1,483 |
) |
|
|
(2,479 |
) |
|
|
(3,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
3,257 |
|
|
$ |
2,421 |
|
|
$ |
3,257 |
|
|
$ |
2,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product warranties unutilized. |
7. Industry Segment, Geographic Information and Significant Customers
The Company operates in two reportable segments, the home robots division and government and
industrial division.
The nature of products and types of customers for the two segments vary significantly. As
such, the segments are managed separately.
Home Robots
The Companys home robots business offers products through a network of retail businesses
throughout the United States and to certain countries through international distributors. The
Companys home robots division includes mobile robots used in the maintenance of domestic
households and sold primarily to retail outlets.
Government and Industrial
The Companys government and industrial division offers products through a small sales force
primarily focused on the U.S. government, 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.
11
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
The table below presents segment information about revenue, cost of revenue, gross profit and
loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
$ |
41,705 |
|
|
$ |
17,197 |
|
|
$ |
71,853 |
|
|
$ |
36,638 |
|
Government & Industrial |
|
|
25,497 |
|
|
|
29,817 |
|
|
|
52,651 |
|
|
|
49,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
67,202 |
|
|
|
47,014 |
|
|
|
124,504 |
|
|
|
86,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
30,946 |
|
|
|
11,805 |
|
|
|
53,025 |
|
|
|
25,369 |
|
Government & Industrial |
|
|
19,788 |
|
|
|
19,985 |
|
|
|
39,651 |
|
|
|
34,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
50,734 |
|
|
|
31,790 |
|
|
|
92,676 |
|
|
|
60,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots |
|
|
10,759 |
|
|
|
5,392 |
|
|
|
18,828 |
|
|
|
11,269 |
|
Government & Industrial |
|
|
5,709 |
|
|
|
9,832 |
|
|
|
13,000 |
|
|
|
15,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
16,468 |
|
|
|
15,224 |
|
|
|
31,828 |
|
|
|
26,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
4,718 |
|
|
|
4,179 |
|
|
|
8,691 |
|
|
|
8,335 |
|
Selling and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
13,471 |
|
|
|
10,944 |
|
|
|
24,929 |
|
|
|
18,993 |
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
7,340 |
|
|
|
5,752 |
|
|
|
14,118 |
|
|
|
11,079 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
242 |
|
|
|
887 |
|
|
|
737 |
|
|
|
1,818 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
(8,819 |
) |
|
$ |
(4,764 |
) |
|
$ |
(15,173 |
) |
|
$ |
(10,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
For the three months ended June 28, 2008 and June 30, 2007, sales to non-U.S. customers
accounted for 27.6% and 16.6% of total revenue, respectively, and for the six months ended June 28,
2008 and June 30, 2007, sales to non-U.S. customers accounted for 23.9% and 11.8% of total revenue,
respectively.
Significant Customers
For the three months ended June 28, 2008 and June 30, 2007, U.S. federal government orders,
contracts and subcontracts accounted for 35.5% and 50.8% of total revenue, respectively, and for
the six months ended June 28, 2008 and June 30, 2007, U.S. federal government orders, contracts and
subcontracts accounted for 39.3% and 48.7% of total revenue, respectively.
12
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 Quarterly Report on 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 29, 2007, 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.
In particular, statements contained in this Quarterly Report on Form 10-Q, and in the documents
incorporated by reference into this Quarterly Report on Form 10-Q, that are not historical facts,
including, but not limited to statements concerning new product sales, product development and
offerings, Roomba, Scooba, Looj, Verro and ConnectR products, PackBot tactical military robots, our
home robot and government and industrial robots divisions, our competition, our strategy, our
market position, market acceptance of our products, seasonal factors, revenue recognition, our
profits, growth of our revenues, composition of our revenues, our cost of revenues, operating
expenses, selling and marketing expenses, general and administrative expenses, research and
development expenses, and compensation costs, our projected income tax rate, our ability to attract
and retain qualified personnel, our credit facility and equipment facility, our valuations of
investments, valuation and composition of our stock-based awards, SFAS 123(R), and liquidity,
constitute forward-looking statements and are made under these safe harbor provisions. Some of the
forward-looking statements can be identified by the use of forward-looking terms such as
believes, expects, may, will, should, could, seek, intends, plans, estimates,
anticipates, or other comparable terms. Forward-looking statements involve inherent risks and
uncertainties 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 29, 2007, as well as elsewhere in this report. We urge you
to consider the risks and uncertainties discussed in our Annual Report on Form 10-K and in Item 1A
contained herein in evaluating our forward-looking statements. We caution readers not to place
undue reliance upon any such forward-looking statements, which speak only as of the date made.
Overview
iRobot provides robots that enable people to complete complex tasks in a better way. Founded
in 1990 by roboticists who performed research at the Massachusetts Institute of Technology, we have
developed proprietary technology incorporating advanced concepts in navigation, mobility,
manipulation and artificial intelligence to build industry-leading robots. Our Roomba floor
vacuuming robot and Scooba floor washing robot perform time consuming domestic chores in the home,
while our Looj gutter cleaning robot and Verro pool cleaning robot perform tasks outside the home,
and our PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In
addition, we are developing the Small Unmanned Ground Vehicle reconnaissance robot for the U.S.
Armys Future Combat Systems program. We sell our robots to consumers through a variety of
distribution channels, including chain stores and other national retailers, and our on-line store,
and to the U.S. military and other government agencies worldwide.
As of June 28, 2008, we had 482 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 consumer and military products, our continued success
depends upon our ability to respond to a number of future challenges. We believe the most
significant of these challenges include increasing competition in the markets for both our consumer
and military products, our ability to obtain U.S. federal government funding for research and
development programs, and our ability to successfully develop and introduce products and product
enhancements.
13
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and
judgments, in particular those related to revenue recognition; valuation allowances (specifically
sales returns and other allowances); assumptions used in valuing stock-based compensation
instruments; evaluating loss contingencies; and valuation allowances for deferred tax assets.
Actual amounts could differ significantly from these estimates. Our management bases its estimates
and judgments on historical experience and various other 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. 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 29, 2007.
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 June 28, 2008 and June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
June 28, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
90.3 |
% |
|
|
88.0 |
% |
|
|
89.4 |
% |
|
|
87.3 |
% |
Contract revenue |
|
|
9.7 |
|
|
|
12.0 |
|
|
|
10.6 |
|
|
|
12.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
66.0 |
|
|
|
57.9 |
|
|
|
64.7 |
|
|
|
58.6 |
|
Cost of contract revenue |
|
|
9.5 |
|
|
|
9.7 |
|
|
|
9.7 |
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
75.5 |
|
|
|
67.6 |
|
|
|
74.4 |
|
|
|
69.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
24.5 |
|
|
|
32.4 |
|
|
|
25.6 |
|
|
|
30.5 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
7.0 |
|
|
|
8.9 |
|
|
|
7.0 |
|
|
|
9.6 |
|
Selling and marketing |
|
|
20.1 |
|
|
|
23.3 |
|
|
|
20.0 |
|
|
|
22.0 |
|
General and administrative |
|
|
10.9 |
|
|
|
12.2 |
|
|
|
11.4 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
38.0 |
|
|
|
44.4 |
|
|
|
38.4 |
|
|
|
44.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(13.5 |
) |
|
|
(12.0 |
) |
|
|
(12.8 |
) |
|
|
(13.9 |
) |
Other income, net |
|
|
0.4 |
|
|
|
1.9 |
|
|
|
0.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(13.1 |
) |
|
|
(10.1 |
) |
|
|
(12.2 |
) |
|
|
(11.8 |
) |
Income tax expense (benefit) |
|
|
(6.4 |
) |
|
|
0.1 |
|
|
|
(5.4 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(6.7 |
)% |
|
|
(10.2 |
)% |
|
|
(6.8 |
)% |
|
|
(11.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three and Six Months Ended June 28, 2008 and June 30, 2007
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total revenue |
|
$ |
67,202 |
|
|
$ |
47,014 |
|
|
$ |
20,188 |
|
|
|
42.9 |
% |
|
$ |
124,504 |
|
|
$ |
86,501 |
|
|
$ |
38,003 |
|
|
|
43.9 |
% |
Total revenue for the three months ended June 28, 2008 increased to $67.2 million, or 42.9%,
compared to $47.0 million for the three months ended June 30, 2007. Revenue increased approximately
$24.5 million, or 142.5%, in our home robots business and decreased approximately $4.3 million, or
14.5%, in our government and industrial business.
14
The $24.5 million increase in revenue from our home robots division for the three months ended
June 28, 2008 was driven by a $22.7 million increase in home floor care robots revenue due to a
140.5% increase in units shipped and a 6.5% increase in average selling prices, and a $1.8 million
increase in product life cycle revenue (spares and accessories), as compared to the three months
ended June 30, 2007. Total home floor care robots shipped in the three months ended June 28, 2008
were approximately 237,000 units compared to approximately 99,000 units in the three months ended
June 30, 2007. The $4.3 million decrease in revenue from our government and industrial business for
the three months ended June 28, 2008 as compared to three months ended June 30, 2007 was due to a
$5.5 million decrease in product sales of our military robots. This was driven by a 32.6% decrease
in associated net average selling prices related to product mix primarily attributable to a shift
of our military product line into lower priced models. This was partially offset by an 11.8%
increase in units shipped, 170 units compared to 152 units, and an increase of $0.9 million in
recurring contract development revenue generated under funded research and development contracts.
Total revenue for the six months ended June 28, 2008 increased to $124.5 million, or 43.9%,
compared to $86.5 million for the six months ended June 30, 2007. Revenue increased approximately
$35.2 million, or 96.1%, in our home robots business and increased approximately $2.8 million, or
5.6%, in our government and industrial business.
The $35.2 million increase in revenue from our home robots division for the six months ended
June 28, 2008 was driven by a $33.5 million increase in home floor care robots revenue due to a
78.6% increase in units shipped and a 15.2% increase in average selling prices, and a $3.2 million
increase in product life cycle revenue (spares and accessories), as compared to the six months
ended June 30, 2007. Total home floor care robots shipped in the six months ended June 28, 2008
were approximately 407,000 units compared to approximately 227,000 units in the six months ended
June 30, 2007. The $2.8 million increase in revenue from our government and industrial business for
the six months ended June 28, 2008 as compared to six months ended June 30, 2007 was due to an
increase of $2.2 million in recurring contract development revenue generated under funded research
and development contracts and a $0.5 million increase in product life cycle revenue. Product sales
of our military robots increased $0.1 million due to a 30.9% increase in units shipped, 326
compared to 249, offset by a 23.3% decrease in associated net average selling prices related to
product mix primarily attributable to a shift of our military product line into lower priced
models.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total cost of revenue |
|
$ |
50,734 |
|
|
$ |
31,790 |
|
|
$ |
18,944 |
|
|
|
59.6 |
% |
|
$ |
92,676 |
|
|
$ |
60,160 |
|
|
$ |
32,516 |
|
|
|
54.0 |
% |
As a percentage of
total revenue |
|
|
75.5 |
% |
|
|
67.6 |
% |
|
|
|
|
|
|
|
|
|
|
74.4 |
% |
|
|
69.5 |
% |
|
|
|
|
|
|
|
|
Total cost of revenue increased to $50.7 million in the three months ended June 28, 2008,
compared to $31.8 million in the three months ended June 30, 2007. The increase is primarily due to
higher costs associated with the 140.5% increase in home robot unit sales and an increase in home
robots unit costs due to the introduction of our Roomba 500 product line in mid-2007 which has a
higher unit cost than our previous model.
The home robots division cost of revenue increased as a percent of revenue by 5.5 percentage
points in the three months ended June 28, 2008 as compared to the three months ended June 30, 2007.
This increase was primarily attributable to a higher percentage of lower margin international
revenue and a lower percentage of higher margin direct revenue, in the three months ended June 28,
2008 as compared to the three months ended June 30, 2007.
The government and industrial robots division cost of revenue increased as a percent of
revenue by 10.6 percentage points in the three months ended June 28, 2008 as compared to the three
months ended June 30, 2007. This was primarily due to an 11.0% increase in overhead costs as a
percentage of revenue and an increase in contract costs, partially offset by favorable product mix.
Total cost of revenue increased to $92.7 million in the six months ended June 28, 2008,
compared to $60.2 million in the six months ended June 30, 2007. The increase is primarily due to
higher costs associated with the 78.6% increase in home robot unit sales and an increase in home
robots unit costs due to the introduction of our Roomba 500 product line in mid-2007 which has a
higher unit cost than our previous model.
15
The home robots division cost of revenue increased as a percent of revenue by 4.5 percentage
points in the six months ended June 28, 2008 as compared to the six months ended June 30, 2007.
This increase was primarily attributable to a higher percentage of lower margin international
revenue and a lower percentage of higher margin direct revenue in the six months ended June 28,
2008 as compared to the six months ended June 30, 2007. In addition we had shipments to Linens N
Things during the first quarter of 2008 for which we recorded costs, but did not recognize revenue
due to collectability concerns given their financial condition and bankruptcy filing. These
decreases were partially offset by improved warranty and favorable overhead absorption.
The government and industrial robots division cost of revenue increased as a percent of
revenue by 5.5 percentage points in the six months ended June 28, 2008 as compared to the six
months ended June 30, 2007. This was due to a 5.5% increase in overhead costs as a percentage of
revenue.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollar in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total gross profit |
|
$ |
16,468 |
|
|
$ |
15,224 |
|
|
$ |
1,244 |
|
|
|
8.2 |
% |
|
$ |
31,828 |
|
|
$ |
26,341 |
|
|
$ |
5,487 |
|
|
|
20.8 |
% |
As a percentage of
total revenue |
|
|
24.5 |
% |
|
|
32.4 |
% |
|
|
|
|
|
|
|
|
|
|
25.6 |
% |
|
|
30.5 |
% |
|
|
|
|
|
|
|
|
Gross profit increased $1.2 million, or 8.2%, to $16.5 million (24.5% of revenue) in the three
months ended June 28, 2008, from $15.2 million (32.4% of revenue) in the three months ended June
30, 2007. The decrease in gross profit as a percentage of revenue in the three months ended June
28, 2008 compared to the three months ended June 30, 2007 was the result of the home robots
division gross profit decreasing 5.5 percentage points, and by the government and industrial
division decreasing 10.5 percentage points. The 5.5 percentage point decrease in the home robots
division is primarily attributable to a higher percentage of lower margin international revenue and
a lower percentage of higher margin direct revenue in the three months ended June 28, 2008 as
compared to the three months ended June 30, 2007. The government and industrial decrease was
primarily the result of higher overhead expenses due to increased investments to drive scalability,
increased facility costs and lower revenue.
Gross profit increased $5.5 million, or 20.8%, to $31.8 million (25.6% of revenue) in the six
months ended June 28, 2008, from $26.3 million (30.5% of revenue) in the six months ended June 30,
2007. The decrease in gross profit as a percentage of revenue in the six months ended June 28, 2008
compared to the six months ended June 30, 2007 was the result of the home robots division gross
profit decreasing 4.5 percentage points, and by the government and industrial division decreasing
5.5 percentage points. The 4.5 percentage point decrease in the home robots division is primarily
attributable to a higher percentage of lower margin international revenue and a lower percentage of
higher margin direct revenue in the three months ended June 28, 2008 as compared to the three
months ended June 30, 2007 and shipments to Linens N Things during the first quarter of 2008 for
which we recorded costs but did not recognize revenue due to collectability concerns given their
financial condition and bankruptcy filing. The government and industrial division decrease was
primarily the result of higher overhead expenses due to increased
investments to drive scalability and
increased facility costs.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total research and
development expense |
|
$ |
4,718 |
|
|
$ |
4,179 |
|
|
$ |
539 |
|
|
|
12.9 |
% |
|
$ |
8,691 |
|
|
$ |
8,335 |
|
|
$ |
356 |
|
|
|
4.3 |
% |
As a percentage of
total revenue |
|
|
7.0 |
% |
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
7.0 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
Research and development expenses increased by $0.5 million, or 12.9%, to $4.7 million (7.0%
of revenue) in the three months ended June 28, 2008, from $4.2 million (8.9% of revenue) for the
three months ended June 29, 2007. The increase in research and development expenses is primarily
due to an increase in compensation and employee related costs offset slightly by a decrease in
material costs associated with internal research and development projects.
16
Research and development expenses increased by $0.4 million, or 4.3%, to $8.7 million (7.0% of
revenue) in the six months ended June 28, 2008, from $8.3 million (9.6% of revenue) for the six
months ended June 30, 2007. The increase in research and development expenses is primarily due to
an increase in compensation and employee related costs offset by a decrease in material costs
associated with internal research and development projects.
Given the seasonality of our business and the impact on quarterly revenues, research and
development expenses are expected to fluctuate as a percent of revenue throughout the year.
Overall research and development headcount was 106 at both June 28, 2008 and June 30, 2007.
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 June 28, 2008, these expenses amounted
to $6.4 million and $12.1 million compared to $4.6 million and $9.4 million for the three and six
months ended June 30, 2007, respectively. In accordance with generally accepted accounting
principles, these expenses have been classified as cost of revenue rather than research and
development expense.
Headcount for research and development under funded development arrangements increased to 64
at June 28, 2008 compared to 61 at June 30, 2007, an increase of three employees or 5%.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total selling and
marketing expense |
|
$ |
13,471 |
|
|
$ |
10,944 |
|
|
$ |
2,527 |
|
|
|
23.1 |
% |
|
$ |
24,929 |
|
|
$ |
18,993 |
|
|
$ |
5,936 |
|
|
|
31.3 |
% |
As a percentage of
total revenue |
|
|
20.1 |
% |
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
20.0 |
% |
|
|
22.0 |
% |
|
|
|
|
|
|
|
|
Selling
and marketing expenses increased by $2.5 million, or 23.1%, to
$13.5 million (20.1% of
revenue) in the three months ended June 28, 2008 from $10.9 million (23.3% of revenue) in the three
months ended June 30, 2007. The increase was primarily driven by increases in our home robots
division of $0.5 million in television, online and print media, and $0.9 million in direct
fulfillment related expenses. Our government and industrial division had increases of $0.6 million
in labor and other costs associated with bid and proposal activity as compared to the three months
ended June 30, 2007.
Selling
and marketing expenses increased by $5.9 million, or 31.3%, to
$24.9 million (20.0% of
revenue) in the six months ended June 28, 2008 from $19.0 million (22.0% of revenue) in the six
months ended June 30, 2007. The increase was primarily driven by increases in our home robots
division of $1.3 million in television, online and print media, $0.6 million in marketing
consulting and research and $1.9 million in direct fulfillment related expenses due primarily to a
23.7% growth in our direct business, which carries a higher selling and marketing cost per revenue
dollar than retail sales. Our government and industrial division had increases of $0.8 million in
labor and other costs associated with bid and proposal activity as compared to the six months ended
June 30, 2007.
Overall selling and marketing headcount increased to 44 at June 28, 2008 compared to 34 as of
June 30, 2007, an increase of ten employees or 29% growth, primarily due to headcount growth in our
overseas territories.
17
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total general and
administrative
expense |
|
$ |
7,340 |
|
|
$ |
5,752 |
|
|
$ |
1,588 |
|
|
|
27.6 |
% |
|
$ |
14,118 |
|
|
$ |
11,079 |
|
|
$ |
3,039 |
|
|
|
27.4 |
% |
As a percentage of
total revenue |
|
|
10.9 |
% |
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
|
|
11.4 |
% |
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
General and administrative expenses increased by $1.6 million, or 27.6%, to $7.3 million
(10.9% of revenue) in the three months ended June 28, 2008 from $5.8 million (12.2% of revenue) in
the three months ended June 30, 2007. The increase in general and administrative expenses was
driven by increases of $0.8 million in compensation expense due to increased headcount, $0.2
million in stock-based compensation, $0.3 million in occupancy and depreciation expense and $0.3
million in various other expenses, over the comparable period last year.
General and administrative expenses increased by $3.0 million, or 27.4%, to $14.1 million
(11.4% of revenue) in the six months ended June 28, 2008 from $11.1 million (12.8% of revenue) in
the six months ended June 30, 2007. The increase in general and administrative expenses was driven
by increases of $1.4 million in compensation expense due to increased headcount, $0.5 million in
stock-based compensation, $0.4 million in occupancy and depreciation expense, $0.3 million in bad
debt expense associated with collectability concerns of receivables due from Linens N Things given
their financial condition and bankruptcy filing, and $0.5 million in various other expenses, over
the comparable period last year.
Overall general and administrative headcount increased to 106 at June 28, 2008 compared to 82
as of June 30, 2007, an increase of 24 employees or 29% growth.
For the full fiscal year 2008, we expect total operating expenses consisting of Research and
Development, Selling and Marketing, and General and Administrative to be approximately 31% to 33%
of revenue.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total other income
(expense), net |
|
$ |
242 |
|
|
$ |
887 |
|
|
$ |
(645 |
) |
|
|
(72.7 |
%) |
|
$ |
737 |
|
|
$ |
1,818 |
|
|
$ |
(1,081 |
) |
|
|
(59.5 |
%) |
As a percentage of
total revenue |
|
|
0.4 |
% |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
0.6 |
% |
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
Other income, net amounted to $0.2 million for the three months ended June 28, 2008 compared
to $0.9 million for the three months ended June 30, 2007. Other income, net was directly related to
interest income resulting from the investment in auction rate securities and money market accounts.
The lower other income, net for the three month period ended June 28, 2008 as compared to the three
month period ended June 30, 2007 is attributable to lower average auction rate securities and money
market account balances and reduced interest rates earned on the portfolio.
Other income, net amounted to $0.7 million for the six months ended June 28, 2008 compared to
$1.8 million for the six months ended June 30, 2007. Other income, net was directly related to
interest income resulting from the investment in auction rate securities and money market accounts.
The lower other income, net for the six month period ended June 28, 2008 as compared to the six
month period ended June 30, 2007 is attributable to lower average auction rate securities and money
market account balances and reduced interest rates earned on the portfolio.
18
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
June 28, |
|
June 30, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Total income tax
provision (benefit) |
|
$ |
(4,306 |
) |
|
$ |
12 |
|
|
$ |
(4,318 |
) |
|
|
N/A |
|
|
$ |
(6,655 |
) |
|
$ |
29 |
|
|
$ |
(6,684 |
) |
|
|
N/A |
|
As a percentage of
total revenue |
|
|
(6.4 |
%) |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
(5.4 |
%) |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
In the three months ended June 28, 2008, we recorded a $4.3 million tax benefit based on a
projected effective 2008 income tax rate of 43.9%. Our tax benefit for the six month period ended
June 28, 2008 was $6.7 million based on our estimated effective 2008 income tax rate of 43.9%
Liquidity and Capital Resources
At June 28, 2008, our principal sources of liquidity were cash and cash equivalents totaling
$14.8 million, short-term investments of $1.2 million and accounts receivable of $24.3 million.
As of June 28, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $14.8 million. The fair values of these securities are
estimated utilizing a discounted cash flow model which also considered limited secondary market
indicators as of June 28, 2008. These analyses consider, among other things, the collateralization
underlying the security investments, the creditworthiness of the counterparty, and the timing of
expected future cash flows. These securities were also compared, when possible, to other observable
market data with similar characteristics to the securities held by us. As a result of the temporary
declines in fair value for our auction rate securities, which we attribute to liquidity issues of
the securities rather than credit issues, we have recorded an unrealized loss of $2.7 million to
Accumulated other comprehensive loss on the balance sheet. A substantial majority of the underlying
assets of these auction rate securities are student loans which are backed by the federal
government under the Federal Family Education Loan Program. In February 2008, auctions began to
fail for these securities and each auction since then has failed. Based on the overall failure rate
of these auctions, the frequency of the failures, and the underlying maturities of the securities,
a portion of which are greater than 30 years, we have classified these investments as long-term
assets on our balance sheet, with the exception of one holding. We received information during the
quarter that one issuer had refinanced its auction rate bonds and intended to call its outstanding
issues at par. We held $1.2 million of the auction rate bonds to be called. These bonds were
called at par on July 7, 2008. Given the expectation of a pending call, we classified these bonds
as a short-term investment and recorded their value at par as of June 28, 2008.
If the issuers of our auction rate securities are unable to successfully close future auctions
or refinance their debt in the near term and their credit ratings deteriorate, we may in the future
be required to record additional unrealized losses or an impairment charge on these investments.
Based on our expected operating cash flows and our other sources of cash, we do not anticipate that
the current lack of liquidity on these investments will affect our ability to execute our current
business plan. Except as detailed above, we are currently no longer
purchasing auction rate securities and, as of June 28, 2008, all
of our cash equivalents were held in money market accounts.
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. However,
cash flow has been impacted in recent months as we completed the build out of new leased facilities
for occupancy during the second quarter of 2008. 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 ended June 28, 2008 and June 30, 2007, we spent $12.3
million and $3.9 million, respectively.
Discussion of Cash Flows
Net cash provided by our operating activities in the six months ended June 28, 2008 was $0.2
million compared to net cash provided by operating activities of $4.7 million in the six months
ended June 30, 2007. The cash
19
provided by our operating activities in the six months ended June 28, 2008 was primarily due
to a decrease in accounts receivable (including unbilled revenue) of $23.5 million, a decrease in
inventory of $1.9 million, an increase in accrued expenses (including accrued compensation) of $2.2
million, and an increase in long-term liabilities of $4.7 million, partially offset by a net loss
of $8.5 million, an increase in other assets of $8.1 million, a decrease in accounts payable of
$20.7 million, and a decrease in deferred revenue of $0.6 million. In addition, in the six months
ended June 28, 2008, we had depreciation and amortization of approximately $3.3 million and
stock-based compensation of $2.5 million, both of which are non-cash expenses. The cash provided by
our operating activities in the six months ended June 30, 2007 was primarily due to a decrease in
accounts receivable (including unbilled revenue) of $11.3 million, and a decrease in other assets
of $0.9 million, offset by a net loss of $10.3 million, an increase in inventory of $1.1 million
and a net decrease in liabilities of $0.9 million. In addition, in the six months ended June 30,
2007, we had depreciation and amortization of approximately $2.5 million and stock-based
compensation of $2.2 million, both of which are non-cash expenses.
Net cash used by our investing activities was $13.2 million in the six months ended June 28,
2008 compared to net cash provided by our investing activities of $0.9 million in the six months
ended June 30, 2007. Investing activities in the six months ended June 28, 2008 represent the sale
of investments of $29.1 million, offset by the purchase of investments of $30.0 million and the
purchase of capital equipment and leasehold improvements of $12.3 million. Investing activities in
the six months ended June 30, 2007 represent the sale of short-term investments of $26.8 million,
offset by the purchase of short-term investments of $22.0 million and the purchase of capital
equipment of $3.9 million.
Net cash provided by our financing activities was approximately $1.1 million in the six months
ended June 28, 2008 compared to net cash used by our financing activities of $0.9 million in the
six months ended June 30, 2007. Included in the financing activities for the six months ended June
28, 2008 was $0.7 million in proceeds from the exercise of stock options and $0.4 million from the
tax benefit of disqualifying dispositions. Included in the financing activities for the six months
ended June 30, 2007 was a $1.6 million payment by us of the minimum tax withholding obligation
relating to a stock option exercise during the period. This figure was offset by $0.7 million of
proceeds from the exercise of stock options.
Working Capital Facility
We have a $45.0 million unsecured revolving credit facility with Bank of America, N.A., which
is available to fund working capital and other corporate purposes. The interest on loans under our
credit facility will accrue, at our election, at either (i) Bank of Americas prime rate minus 1%
or (ii) the Eurodollar rate plus 1.25%. The credit facility will terminate and all amounts
outstanding thereunder will be due and payable in full on June 5, 2010.
As of June 28, 2008, we had letters of credit outstanding of $2.1 million and $42.9 million
available under our working capital line of credit. This credit facility contains customary terms
and conditions for credit facilities of this type, including restrictions on our ability to incur
or guaranty additional indebtedness, create liens, enter into transactions with affiliates, make
loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our
stock, and consolidate or merge with other entities.
In addition, we are required to meet certain financial covenants customary with this type of
agreement, including maintaining a minimum specified tangible net worth, a minimum specified ratio
of current assets to current liabilities and a minimum specified annual net income.
This credit facility contains customary events of default, including for payment defaults,
breaches of representations, breaches of affirmative or negative covenants, cross defaults to other
material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs
and is not cured within any applicable cure period or is not waived, our obligations under the
credit facility may be accelerated.
For the quarter ended June 28, 2008, Bank of America, N.A. formally waived compliance with the
minimum specified ratio of current assets to current liabilities. We were in compliance with all
other covenants under the credit facility.
20
Equipment Financing Facility
We have a $5.0 million secured equipment facility with Banc of America Leasing & Capital, LLC
under which we can finance the acquisition of equipment, furniture and leasehold improvements. We
may borrow amounts under the equipment facility until April 30, 2009 and any amounts borrowed
during that period will accrue interest at 30-day LIBOR plus 1%. After April 30, 2009, all amounts
then outstanding under the equipment line will be repaid in 60 equal monthly installments
commencing in April 2009 and will accrue interest, at our election, at either a fixed or variable
rate of interest. Our obligations under the equipment facility will be secured by any financed
equipment.
As of June 28, 2008, we had no amounts outstanding and $5.0 million available under our
equipment financing line of credit.
This equipment facility contains customary terms and conditions for equipment facilities of
this type, including, without limitation, restrictions on our ability to transfer, encumber or
dispose of the financed equipment. In addition, we are required to meet certain financial covenants
customary to this type of agreement, including maintaining a minimum specified tangible net worth,
a minimum specified ratio of current assets to current liabilities and a minimum specified annual
net income.
This equipment facility contains customary events of default, including for payment defaults,
breaches of representations, breaches of affirmative or negative covenants, cross defaults to other
material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs
and is not cured within any applicable cure period or is not waived, or if we repay all of our
indebtedness under our credit facility with Bank of America, N.A., our obligations under this
equipment facility may be accelerated.
For the quarter ended June 28, 2008, Bank of America Leasing & Capital, LLC formally waived
compliance with the minimum specified ratio of current assets to current liabilities. We were in
compliance with all other covenants under the equipment facility.
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables,
expense accruals and operating leases, all of which we anticipate funding through working capital,
funds provided by operating activities and our existing working capital line of credit. We have
made significant capital expenditures associated with the recent move to our new corporate
headquarters. These expenditures have been jointly funded by our landlord at this site and by us.
Other than this project, 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 binding 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.
21
Contractual Obligations
We generally do not enter into binding purchase commitments. Our principal commitments consist
of obligations under our working capital line of credit, leases for office space and minimum
contractual obligations for services. The following table describes our commitments to settle
contractual obligations in cash as of June 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less Than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More Than |
|
|
Total |
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
|
|
|
|
(In thousands) |
|
Operating leases |
|
$ |
3,016 |
|
|
$ |
4,442 |
|
|
$ |
4,373 |
|
|
$ |
14,264 |
|
|
$ |
26,095 |
|
Minimum contractual payments |
|
|
1,188 |
|
|
|
9,500 |
|
|
|
7,000 |
|
|
|
|
|
|
|
17,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,204 |
|
|
$ |
13,942 |
|
|
$ |
11,373 |
|
|
$ |
14,264 |
|
|
$ |
43,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of June 28, 2008, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of
Regulation S-K.
Recently Issued Accounting Pronouncements
See Footnote 2 to the Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At June 28, 2008, we had unrestricted cash and cash equivalents of $14.8 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 in a variety of securities, commercial paper,
money market funds, debt securities and certificates of deposit. Due to the short-term nature of
these investments, we believe that we do not have any material exposure to changes in the fair
value of our investment portfolio as a result of changes in interest rates. As of June 28, 2008,
all of our cash equivalents were held in money market accounts.
As of June 28, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $13.6 million, classified as long-term assets, and $1.2
million, classified as short term assets. As a result of the temporary declines in fair value for
our auction rate securities, which we attribute to liquidity issues of the securities rather than
credit issues, we have recorded an unrealized loss of $2.7 million to Accumulated other
comprehensive loss on the balance sheet. A substantial majority of the underlying assets of these
auction rate securities are student loans which are backed by the federal government under the
Federal Family Education Loan Program. In February 2008, auctions began to fail for these
securities and each auction since then has failed. Effective January 1, 2008, we determine the fair
market values of our financial instruments based on the fair value hierarchy established in SFAS
157 which requires an entity to maximize the use of observable inputs (Level 1 and Level 2 inputs)
and minimize the use of unobservable inputs (Level 3 inputs) when measuring fair value. Given the
current failures in the auction markets to provide quoted market prices of the securities as well
as the lack of any correlation of these instruments to other observable market data, we valued
these securities using a discounted cash flow methodology, as well as consideration of secondary
markets, with the most significant input categorized as Level 3. Significant inputs that went into
the model were the credit quality of the issuer, the percentage and the types of guarantees (such
as Federal Family Education Loan Program), the probability of the auction succeeding or the
security being called, and an illiquidity discount factor. Changes in the assumptions of our model
based on dynamic market conditions could have a significant impact on the valuation of these
securities, which may lead us in the future to take additional unrealized losses, unrealized gains,
or an impairment charge for these securities.
22
Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we must pay on our outstanding debt instruments, primarily certain borrowings under our
working capital line of credit and our equipment financing facility. The advances under the working
capital line of credit bear a variable rate of interest determined as a function of the prime rate
or the Eurodollar rate at the time of the borrowing. The advances under the equipment financing
facility bear either a variable or fixed rate of interest, at our election, determined as a
function of the LIBOR rate at the time of borrowing. At June 28, 2008, there were no amounts
outstanding under our working capital line of credit or our equipment financing facility.
Exchange Rate Sensitivity
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. In
late 2007, we began to accept orders for home robot products in currencies other than the U.S.
dollar and we expect this practice to continue in the future. We regularly monitor the level of
non-U.S. dollar accounts receivable balances to determine if any actions, including possibly
entering into foreign currency forward contracts, should be taken to minimize the impact of
fluctuating exchange rates on our results of operations.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were effective in
ensuring that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. We believe that a control system, no
matter how well designed and operated, cannot provide absolute assurance that the objectives of the
control system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
There was no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
From time to time and in the ordinary course of business, we are subject to various claims,
charges and litigation. The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect
our financial condition or results of operations.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could
materially affect our business, financial condition or future results, some of which are beyond our
control. In addition to the other information set forth in this report, the risks and uncertainties
that we believe are most important for you to consider are discussed in Part I, Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended December 29, 2007, which could
materially affect our business, financial condition or future results. There are no material
changes to the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2007, other than changes to the risk factor listed below entitled We invest in
auction rate securities that are subject to market risk and the recent problems in the financial
markets could adversely affect the value and liquidity of our assets. This risk factor has been
amended to reflect an update regarding our investments in auction rate securities. Additional risks
and uncertainties not presently known to us, which we currently deem immaterial or which are
similar to those faced by other companies in our industry or business in general, may also impair
our business operations.
23
We invest in auction rate securities that are subject to market risk and the recent problems in the
financial markets could adversely affect the value and liquidity of our assets.
As of June 28, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $14.8 million, all of which were purchased in January or
February of 2008. As a result of the temporary declines in fair value for our auction rate
securities, which we attribute to liquidity issues of the securities rather than credit issues, we
have recorded an unrealized loss of $2.7 million to Accumulated other comprehensive loss on the
balance sheet. A substantial majority of the underlying assets of these auction rate securities are
student loans which are backed by the federal government under the Federal Family Education Loan
Program. In February 2008, auctions for these securities began to fail and each such auction since
then has failed. As a result, our ability to liquidate our investments in the near term may be
limited, and we may not be able to recover any of the carrying value of our investments in these
securities. An auction failure means that the parties wishing to sell securities could not carry
out the transaction. Based on our expected operating cash flows, and our other potential sources of
cash, including our available line of credit, we do not anticipate that the potential lack of
liquidity on these securities in the near-term will affect our ability to execute our current
business plan. While we do not currently anticipate the lack of liquidity of these auction rate
securities to adversely affect our ability to conduct business, we will not be able to access these
funds until a future auction for these securities is successful or until we sell the securities in
a secondary market. In addition, if the credit rating of either the security issuer or the
third-party insurer underlying these securities deteriorates, we may be required to adjust the
carrying value of these securities through an impairment charge.
Except as detailed above, we are currently no longer purchasing
auction rate securities and, as of June 28, 2008, all of our
cash equivalents were held in money market accounts.
Item 4. Submission of Matters to a Vote of Security Holders
The Companys annual meeting of stockholders was held on Thursday, May 29, 2008, in Bedford,
Massachusetts, at which the following matters were submitted to a vote of the stockholders:
(a) |
|
Votes regarding the election of the persons named below as class III members to the board of
directors, each for a three-year term and until his successor has been duly elected and
qualified or until his earlier resignation or removal, were as follows: |
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For |
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Withheld |
Rodney Brooks, Ph.D. |
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18,705,004 |
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179,876 |
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Jacques S. Gansler, Ph.D. |
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18,719,194 |
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165,686 |
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Andrea Geisser |
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18,705,731 |
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179,149 |
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(b) |
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Votes regarding ratification of the appointment of the accounting firm of
PricewaterhouseCoopers LLP as the Companys independent registered public accountants for the
current fiscal year were as follows: |
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For |
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Against |
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Abstentions |
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18,786,695
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45,850
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52,335 |
Item 5. Other Information
Our policy governing transactions in our securities by our directors, officers, and employees
permits our officers, directors, funds affiliated with our directors, and certain other persons to
enter into trading plans complying with Rule 10b5-l under the Securities Exchange Act of 1934, as
amended. We have been advised that certain of our officers (including Colin Angle, Chief Executive
Officer and Glen Weinstein, Senior Vice President, General Counsel & Secretary) of the Company have
entered into a trading plan (each a Plan and collectively, the Plans) covering periods after
the date of this quarterly report on Form 10-Q in accordance with Rule 10b5-l and our policy
governing transactions in our securities. Generally, under these trading plans, the individual
relinquishes control over the transactions once the trading plan is put into place. Accordingly,
sales under these plans may occur at any time, including possibly before, simultaneously with, or
immediately after significant events involving our company.
24
We anticipate that, as permitted by Rule 10b5-l and our policy governing transactions in our
securities, some or all of our officers, directors and employees may establish trading plans in the
future. We intend to disclose the names of our executive officers and directors who establish a
trading plan in compliance with Rule 10b5-l and the requirements of our policy governing
transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K
filed with the Securities and Exchange Commission. We, however, 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.
25
Item 6. Exhibits
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Exhibit Number |
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Description |
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10.1
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First Amendment and Waiver to Credit Agreement by and between iRobot Corporation and
Bank of America, N.A., dated April 30, 2008 (filed as Exhibit 10.1 to iRobot Corporations Current Report on Form 8-K filed on
May 29, 2008 and incorporated by reference herein) |
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10.2
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First Amendment to Note by and between iRobot Corporation and Bank of America, N.A.,
dated April 30, 2008 (filed as Exhibit 10.2 to iRobot Corporations Current Report on Form 8-K filed on
May 29, 2008 and incorporated by reference herein) |
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10.3
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Form of Deferred Stock Award Agreement under the 2005 Stock Option and Incentive Plan |
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10.4
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Form of Restricted Stock Award Agreement under the 2005 Stock Option and Incentive Plan |
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10.5
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Amendment No. 1 to the Master Loan and Security Agreement between iRobot Corporation
and Banc of America Leasing and Capital, LLC, dated May 15, 2008 |
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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 |
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Indicates a management contract or any compensatory plan, contract or arrangement |
26
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 1, 2008
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By:
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/s/ JOHN LEAHY |
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John Leahy |
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Executive Vice President, Chief Financial
Officer and Treasurer (Duly Authorized
Officer and Principal Financial Officer) |
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27
EXHIBIT INDEX
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Exhibit |
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Number |
|
Description |
10.1
|
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First Amendment and Waiver to Credit Agreement by and between iRobot Corporation and
Bank of America, N.A., dated April 30, 2008 (filed as Exhibit
10.1 to iRobot Corporation's Current Report on Form 8-K filed on
May 29, 2008 and incorporated by reference herein) |
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|
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10.2
|
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First Amendment to Note by and between iRobot Corporation and Bank of America, N.A.,
dated April 30, 2008 (filed as Exhibit
10.2 to iRobot Corporation's Current Report on Form 8-K filed on
May 29, 2008 and incorporated by reference herein) |
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10.3
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Form of Deferred Stock Award Agreement under the 2005 Stock Option and Incentive Plan |
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10.4
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Form of Restricted Stock Award Agreement under the 2005 Stock Option and Incentive Plan |
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10.5
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Amendment No. 1 to the Master Loan and Security Agreement between iRobot Corporation
and Banc of America Leasing and Capital, LLC, dated as of May 15, 2008 |
|
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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 |
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Indicates a management contract or any compensatory plan, contract or arrangement |
28
exv10w3
Exhibit 10.3
Including Forced Sale Provision
DEFERRED STOCK AWARD AGREEMENT
UNDER THE iROBOT CORPORATION
2005 STOCK OPTION AND INCENTIVE PLAN
Name of Grantee:
No. of Restricted Stock Units Granted:
Grant Date:
Pursuant to the iRobot Corporation 2005 Stock Option and Incentive Plan (the Plan) as
amended through the date hereof, iRobot Corporation (the Company) hereby grants a Deferred Stock
Award consisting of the number of Restricted Stock Units listed above (an Award) to the Grantee
named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value
$.01 per share (the Stock) of the Company specified above, subject to the restrictions and
conditions set forth herein and in the Plan.
1. Restrictions on Transfer of Award. The Award shall not be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of by the Grantee, until (i) the Restricted
Stock Units have vested as provided in Section 2 of this Award Agreement, and (ii) shares have been
issued pursuant to Section 4 of this Award Agreement.
2. Vesting of Restricted Stock Units. The Restricted Stock Units shall vest in
accordance with the schedule set forth below, provided in each case that the Grantee is then, and
since the Grant Date has continuously remained, in a service relationship (in the capacity of an
employee, officer, director or consultant) with the Company or its Subsidiaries.
|
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Incremental (Aggregate) |
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Number of |
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Restricted Stock Units Vested |
|
Vesting Date |
(25%) |
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(50%) |
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(75%) |
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(100%) |
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In the event of an Acquisition (as defined in the Plan) or a Change in Control (as defined in
an Executive Agreement or Employment Agreement or similar agreement between the Company and the
Grantee (the Executive Agreement)), the treatment of the unvested Restricted Stock Units in
connection with such Acquisition or Change in Control shall be governed by the Executive Agreement.
To the extent that the Grantee is not a party to an Executive Agreement, in the event of an
Acquisition the acquirer shall assume the Award and the terms of this Award Agreement taking into
account any adjustment or substitution as provided in Section 3(d) of the Plan; provided, however,
that if the Award and the terms of this Award Agreement are not so assumed, any Restricted Stock
Units that remain unvested at the time of such Acquisition shall become fully vested at such time.
The Administrator may at any time accelerate the vesting schedule specified in this Section 2.
3. Forfeiture. In the event the Grantees service relationship with the Company and
its Subsidiaries ceases prior to the applicable vesting dates, all Restricted Stock Units that have
not previously been vested on such date shall be immediately forfeited to the Company.
4. Issuance of Shares of Stock; Rights as Stockholder.
(a) As soon as practicable following each vesting date, but in no event later than 30 days
after each such vesting date, the Company shall direct its transfer agent to issue to the Grantee
in book entry form the number of shares of Stock equal to the number of Restricted Stock Units
credited to the Grantee that have vested pursuant to Section 2 of this Award Agreement on such date
in satisfaction of such Restricted Stock Units. Such issuance may be effected by the Company
directing its transfer agent to deposit such shares of Stock into the Grantees brokerage account.
The Grantees cost basis in any shares of Stock issued hereunder shall be $0.00.
(b) In each instance above, the issuance of shares of Stock shall be subject to the payment by
the Grantee by cash or other means acceptable to the Company of any federal, state, local and other
applicable taxes required to be withheld in connection with such issuance in accordance with
Section 7 of this Award Agreement.
(c) The Grantee understands that (i) the Grantee shall have no rights with respect to the
shares of Stock underlying the Restricted Stock Units, such as voting rights, dividend rights and
dividend equivalent rights, unless and until such shares of Stock have been issued to the Grantee
as specified in Section 4(a) hereof and (ii) once shares have been delivered by book entry to the
Grantee in respect of the Restricted Stock Units, the Grantee will be free to sell such shares of
Stock, subject to applicable requirements of federal and state securities laws and Company policy.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Award
Agreement shall be subject to and governed by all the terms and conditions of the Plan, including
the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this
Award Agreement shall have the meaning specified in the Plan, unless a different meaning is
specified herein.
6. Transferability of this Award Agreement. This Award Agreement is personal to the
Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise,
other than by will or the laws of descent and distribution.
7. Tax Withholding. In the event the Company is required to withhold taxes from the
Grantee for taxable compensation relating to the issuance of shares of Stock in connection with
this Award, the Company shall cause its transfer agent and any manager of the Companys stock plan
benefits (e.g. E*Trade Financial) to sell from the number of shares of Stock to be issued
to the Grantee, the minimum number of shares of Stock necessary to satisfy the Federal, state and
local taxes required by law to be withheld from the Grantee on account of such transfer along with
any applicable third-party commission. The Company shall use the proceeds from such sale to
satisfy the Grantees tax withholding obligation hereunder. During any period of time during which
the Grantee is a director or an executive officer of the Company and/or
2
becomes subject to the reporting requirements of Section 16 of the Securities Exchange Act of
1934, as amended, this provision shall no longer be effective and the Grantee will be required to
satisfy his or her tax withholding obligations with respect to the Restricted Stock Unit Award in
another manner permitted by the Plan.
8. No Obligation to Continue Employment Service Relationship. Neither the Company nor
any Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the
Grantee in a service relationship with the Company or any Subsidiary and neither the Plan nor this
Award Agreement shall interfere in any way with the right of the Company or any Subsidiary to
terminate its service relationship with the Grantee at any time.
9. Arbitration. Any dispute, controversy, or claim arising out of, in connection
with, or relating to the performance of this Award Agreement or its termination shall be settled by
arbitration in the Commonwealth of Massachusetts, pursuant to the rules then obtaining of the
American Arbitration Association. Any award shall be final, binding and conclusive upon the parties
and a judgment rendered thereon may be entered in any court having jurisdiction thereof.
10. Miscellaneous.
(a) Notices. Notices hereunder shall be mailed or delivered to the Company at its
principal place of business and shall be mailed or delivered to the Grantee at the address on file
with the Company or, in either case, at such other address as one party may subsequently furnish to
the other party in writing.
(b) Entire Award; Modification. This Award Agreement constitutes the entire agreement
between the parties relative to the subject matter hereof, and supersedes all proposals, written or
oral, and all other communications between the parties relating to the subject matter of this Award
Agreement. This Award Agreement may be modified, amended or rescinded only by a written agreement
executed by both parties.
(c) Severability. The invalidity, illegality or unenforceability of any provision of
this Award Agreement shall in no way affect the validity, legality or enforceability of any other
provision.
(d) Successors and Assigns. This Award Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns, subject to the
limitations set forth in Section 6 hereof.
(e) Governing Law. This Award Agreement shall be governed by and interpreted in
accordance with the laws of the state of Delaware, without giving effect to the principles of the
conflicts of laws thereof.
(f) Fractional Shares. All fractional shares resulting from the adjustment provisions
or from the withholding of shares to satisfy tax withholding obligations, contained in this Award
Agreement or in the Plan, shall be rounded down.
3
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iROBOT CORPORATION |
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By: |
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Title: |
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The foregoing Award Agreement is hereby accepted and the terms and conditions thereof hereby agreed
to by the undersigned.
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Dated: |
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Grantees Signature |
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Grantees name and address: |
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4
exv10w4
Exhibit 10.4
Including Forced Sale Provision
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE iROBOT CORPORATION
2005 STOCK OPTION AND INCENTIVE PLAN
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Purchase Price Per Share: |
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Pursuant to the iRobot Corporation 2005 Stock Option and Incentive Plan (the Plan) as
amended through the date hereof, iRobot Corporation (the Company) hereby grants a Restricted
Stock Award (an Award) to the Grantee named above. Upon acceptance of this Award and payment of
the Purchase Price Per Share specified above (which may be zero), the Grantee shall receive the
number of shares of Common Stock, par value $0.01 per share (the Stock) of the Company specified
above, subject to the restrictions and conditions set forth herein and in the Plan. The Company
acknowledges the receipt from the Grantee of consideration with respect to the par value of the
Stock in the form of cash, past or future services rendered to the Company by the Grantee or such
other form of consideration as is acceptable to the Administrator.
1. Acceptance of Award. The Grantee shall have no rights with respect to this Award
unless he or she shall have accepted this Award prior to the close of business on the Final
Acceptance Date specified above by (i) signing and delivering to the Company a copy of this Award
Agreement, (ii) delivering to the Company a stock power endorsed in blank and (iii) paying the
Purchase Price Per Share specified above (which may be zero). Upon acceptance of this Award by the
Grantee, the shares of Restricted Stock so accepted shall be issued and held by the Companys
transfer agent in book entry form, and the Grantees name shall be entered as the stockholder of
record on the books of the Company. Thereupon, the Grantee shall have all the rights of a
stockholder with respect to such shares, including voting and dividend rights, subject, however, to
the restrictions and conditions specified in Paragraph 2 below.
2. Restrictions and Conditions.
(a) Any book entries for the shares of Restricted Stock granted herein may bear an appropriate
legend, as determined by the Administrator in its sole discretion, to the effect that such shares
are subject to restrictions as set forth herein and in the Plan as specified in Paragraph 6 below.
(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of by the Grantee prior to vesting.
(c) If the Grantees service relationship (in the capacity of an employee, officer, director
or consultant) with the Company and its Subsidiaries is voluntarily or involuntarily terminated for
any reason (including death) prior to vesting of shares of Restricted
Stock granted herein, all
shares of Restricted Stock shall immediately and automatically be forfeited and returned to the
Company.
3. Vesting of Restricted Stock. The restrictions and conditions in Paragraph 2 of
this Award Agreement shall lapse on the Vesting Date or Dates specified in the following schedule
so long as the Grantee remains in a service relationship (in the capacity of an employee, officer,
director or consultant) with the Company or a Subsidiary on such Dates. If a series of Vesting
Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with
respect to the number of shares of Restricted Stock specified as vested on such date.
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Number of |
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Shares
Vested |
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Vesting Date |
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(25 |
%) |
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(50 |
%) |
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(75 |
%) |
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(100 |
%) |
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Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and
conditions have lapsed shall no longer be deemed Restricted Stock. In the event of an Acquisition
(as defined in the Plan) or a Change in Control (as defined in an Executive Agreement or Employment
Agreement or similar agreement between the Company and the Grantee (the Executive Agreement)),
the treatment of the shares of Restricted Stock in connection with such Acquisition or Change in
Control shall be governed by the Executive Agreement. To the extent that the Grantee is not a
party to an Executive Agreement, in the event of an Acquisition the acquirer shall assume the Award
and the terms of this Award Agreement taking into account any adjustment or substitution as
provided in Section 3(d) of the Plan; provided, however, that if the Award and the terms of this
Award Agreement are not so assumed, any shares of Restricted Stock that remain unvested at the time
of such Acquisition shall become fully vested at such time. The Administrator may at any time
accelerate the vesting schedule specified in this Paragraph 3.
4. Dividends. Dividends on Shares of Restricted Stock shall be paid currently to the
Grantee.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this
Award Agreement shall be subject to and governed by all the terms and conditions of the Plan,
including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms
in this Award Agreement shall have the meaning specified in the Plan, unless a different
meaning is specified herein.
2
6. Legends. In the Administrators sole discretion, book entries or certificates
representing the Restricted Stock granted pursuant to this Award Agreement may carry substantially
the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE
SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING RESTRICTIONS AGAINST TRANSFERS)
CONTAINED IN A CERTAIN RESTRICTED STOCK AWARD AGREEMENT DATED BETWEEN THE COMPANY
AND THE HOLDER OF THIS CERTIFICATE (A COPY OF WHICH IS AVAILABLE AT THE OFFICES OF THE
COMPANY FOR EXAMINATION).
7. Transferability. This Award Agreement is personal to the Grantee, is
non-assignable and is not transferable in any manner, by operation of law or otherwise, other than
by will or the laws of descent and distribution.
8. Tax Withholding. In the event the Company is required to withhold taxes from the
Grantee relating to taxable compensation relating to the transfer of, or the lapse of restrictions
on, this Award, the Company shall cause its transfer agent or any manager of the Companys stock
plan benefits (e.g. E*Trade Financial) to sell from the number of shares of Stock to be
released to the Grantee, the minimum number of shares of Stock necessary to satisfy the Federal,
state and local taxes required by law to be withheld from the Grantee on account of such event
along with any applicable third-party commission. The Company shall use the proceeds from such
sale to satisfy the Grantees tax withholding obligation hereunder. During any period of time
during which the Grantee is a director or an executive officer of the Company and/or subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, this
provision shall have no force and effect and the Grantee will be required to satisfy his or her tax
withholding obligations with respect to the Restricted Stock Award in another manner permitted by
the Plan.
9. Election Under Section 83(b). The Grantee and the Company hereby agree that the
Grantee may, within 30 days following the acceptance of this Award as provided in Paragraph 1
hereof, file with the Internal Revenue Service and the Company an election under Section 83(b) of
the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to
provide a copy of the election to the Company.
10. No Obligation to Continue Service Relationship. Neither the Company nor any
Subsidiary is obligated by or as a result of the Plan or this Award Agreement to continue the
Grantee in a service relationship with the Company and neither the Plan nor this Award Agreement
shall interfere in any way with the right of the Company or any Subsidiary to terminate its service
relationship with the Grantee at any time.
11. Arbitration. Any dispute, controversy, or claim arising out of, in connection
with, or relating to the performance of this Award Agreement or its termination shall be settled by
arbitration in the Commonwealth of Massachusetts, pursuant to the rules then obtaining of the
American Arbitration Association. Any award shall be final, binding and conclusive upon the parties
and a judgment rendered thereon may be entered in any court having jurisdiction thereof.
3
12. Miscellaneous.
(a) Notices. Notices hereunder shall be mailed or delivered to the Company at its
principal place of business and shall be mailed or delivered to the Grantee at the address on file
with the Company or, in either case, at such other address as one party may subsequently furnish to
the other party in writing.
(b) Entire Award; Modification. This Award Agreement constitutes the entire agreement
between the parties relative to the subject matter hereof, and supersedes all proposals, written or
oral, and all other communications between the parties relating to the subject matter of this Award
Agreement. This Award Agreement may be modified, amended or rescinded only by a written agreement
executed by both parties.
(c) Severability. The invalidity, illegality or unenforceability of any provision of
this Award Agreement shall in no way affect the validity, legality or enforceability of any other
provision.
(d) Successors and Assigns. This Award Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns, subject to the
limitations set forth in Section 7 hereof.
(e) Governing Law. This Award Agreement shall be governed by and interpreted in
accordance with the laws of the state of Delaware, without giving effect to the principles of the
conflicts of laws thereof.
(f) Fractional Shares. All fractional Shares resulting from the adjustment provisions
or from the withholding of shares to satisfy tax withholding obligations, contained in this
Agreement or in the Plan, shall be rounded down.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
Including Forced Sale Provision
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iROBOT CORPORATION
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By: |
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Title: |
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by
the undersigned.
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Dated: |
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Grantees Signature
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Grantees name and address: |
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exv10w5
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Bank of America |
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Amendment Number 001 |
Banc of America Leasing & Capital, LLC |
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to Master Loan and Security Agreement No. 17507-70000 |
This
Amendment Number 001 (the Amendment) is made this
30th day of April, 2008
to Master Loan and Security Agreement No. 17507-70000 dated as of June 13, 2007, (together with
all (equipment schedules,) (equipment) notes, addenda, amendments, riders, and other documents
and instruments thereto, the Agreement), between Banc of America Leasing & Capital, LLC
(Lender) and iRobot Corporation
(Borrower).
WITNESSETH:
WHEREAS, Lender and Borrower are parties to the Agreement;
and
WHEREAS, Lender and Borrower desire to amend certain
provisions of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises as hereinafter set forth,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, the parties agree as follows:
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The Agreement is hereby amended by deleting the Addendum to Master Loan and Security
Agreement No. 17507-70000 dated June 19, 2007 in its
entirety. |
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The Agreement is hereby amended by inserting the following as a second paragraph at the end
of Section 8 of the Agreement: |
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All covenants of Borrower that are based upon a specified level or ratio relating to assets,
liabilities, indebtedness, rentals, net worth, cash flow, earnings, profitability, or any
other accounting-based measurement or test, now or hereafter existing (collectively, the
Additional Covenants), in that certain Credit Agreement dated June 5, 2007 by and
between Borrower and Bank of America, N.A., or in any replacement credit facility acceptable
to Lender between Borrower and a United States national banking association or other
financial institution (a Bank Facility), are hereby Incorporated into and made a part of
this Agreement (with such adjustments to defined terms as may be necessary to assure
consistency) as such Additional Covenants may be amended from time to time under such Bank
Facility; provided, however, that (i) the Additional
Covenants shall be deemed
permanently incorporated into this Agreement, in their then existing form without further
modification or amendment except as may be agreed to in writing by Lender, upon and
notwithstanding the cancellation or termination of a Bank Facility due to voluntary
prepayment, payment at maturity, default or otherwise, unless a replacement credit facility
with Additional Covenants has been accepted in writing by Lender in its sole discretion prior
to the effective date of such cancellation or termination of such Bank Facility, and (ii) any
waiver of any breach (or anticipated breach) of any Additional Covenant under the Bank
Facility (by reason of amendment, forbearance or otherwise) shall not constitute a waiver of
the corresponding default (or anticipated default) under this Agreement unless specifically
agreed to in writing by Lender. Borrower shall promptly provide Lender: (a) certified copies
of true, correct and complete documentation of any Bank Facility in effect from time to time,
and any all proposed amendments and modifications thereof; (b) notices of any event of
default or other condition of non-compliance issued to Borrower in connection with a Bank
Facility; (c) any certificates of compliance and supporting information and reports in the
form required pursuant to a Bank Facility as they pertain to the Additional Covenants, and
shall continue to provide the same to Lender notwithstanding the cancellation or other
termination of such Bank Facility for so long as any Obligations owing to Lender remain
outstanding in connection with this Agreement; and (d) prior written notice of the
cancellation or termination of a Bank Facility for any reason. Borrower further acknowledges
and agrees that any event of default under a Bank Facility shall constitute an Event of
Default under this Agreement. |
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The Agreement is hereby amended by deleting Section 8 (c) in its entirety and replacing it
with the following:
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Borrower shall notify Lender in writing at least 30 days before changing its legal name,
state of organization, corporate address or organizational
identification number; |
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It is the intention of Lender and Borrower that, upon execution, this Amendment shall
constitute a part of the Agreement, Except as amended
hereby, the Agreement shall remain in full force and effect and is in all respects hereby
ratified and affirmed. To the extent that the provisions of
this Amendment conflict with the provisions of the Agreement, the provisions of this
Amendment shall control. Capitalized terms not otherwise
defined herein shall have the meanings ascribed them in the Agreement. All other financial
terms and conditions contained herein that are not
specifically defined herein shall have meanings determined in accordance with generally
accepted accounting principles consistently applied. This
Amendment shall apply to all Equipment Notes now existing (except any Equipment Notes which
Lender has assigned to a third party unless such
third party has approved or consented to this Amendment) or hereafter
entered into under the
Agreement. |
IN WITNESS WHEREOF, the parties, each by its duly authorized officer or agent, have duly executed
and delivered this Amendment, which is intended to take effect as a sealed instrument, as of the
day and year first written above.
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Banc of America Leasing & Capital, LLC (Lender) |
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iRobot Corporation (Borrower) |
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By: |
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-s- Patricia Smith-Disu |
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By: |
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-s- Geoffrey P. Clear |
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Printed Name: |
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Patricia Smith-Disu |
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Printed Name: |
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GEOFFREY P. CLEAR |
Title: |
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Vice President |
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Title: |
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SR VP/CFO |
Page 1 of 1
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; |
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; |
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; |
4. |
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The registrants other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
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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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Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
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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 fiscal 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 officer 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 1, 2008 |
/s/ Colin M. Angle
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Colin M. Angle |
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Chief Executive Officer |
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exv31w2
Exhibit 31.2
Certifications
I, John Leahy, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of iRobot Corporation; |
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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; |
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; |
4. |
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The registrants other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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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Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
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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 fiscal 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 officer 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 1, 2008 |
/s/ John Leahy
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John Leahy |
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Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of iRobot Corporation (the Company) for
the period ending June 28, 2008 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 John
Leahy, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 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 contained 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 1, 2008 |
/s/ Colin M. Angle
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Colin M. Angle |
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Chief Executive Officer |
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Dated August 1, 2008 |
/s/ JOHN LEAHY
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John Leahy |
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Chief Financial Officer |
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