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
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FOR THE QUARTERLY PERIOD ENDED October 2, 2010
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
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FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 000-51598
iROBOT CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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77-0259 335
(I.R.S. Employer
Identification No.)
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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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark 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
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(Do not check if a smaller reporting company)
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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 October 29, 2010 was
25,456,123.
iROBOT CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED OCTOBER 2, 2010
INDEX
2
iROBOT CORPORATION
Consolidated Balance Sheets
(unaudited)
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October 2,
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January 2,
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2010
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2010
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(in thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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90,603
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$
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71,856
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Short term investments
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16,576
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4,959
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Accounts receivable, net of allowance of $90 at October 2, 2010 and January 2, 2010
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27,794
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35,171
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Unbilled revenue
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2,534
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1,831
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Inventory
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33,969
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32,406
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Deferred tax assets
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9,922
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8,669
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Other current assets
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3,062
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4,119
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Total current assets
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184,460
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159,011
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Property and equipment, net
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22,389
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20,230
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Deferred tax assets
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8,183
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6,089
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Other assets
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13,889
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14,254
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Total assets
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$
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228,921
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$
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199,584
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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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$
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35,677
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$
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30,559
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Accrued expenses
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14,061
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14,384
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Accrued compensation
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13,117
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13,525
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Deferred revenue and customer advances
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2,023
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3,908
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Total current liabilities
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64,878
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62,376
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Long term liabilities
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3,692
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4,014
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Commitments and contingencies (Note 6)
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Redeemable convertible preferred stock, 5,000,000 shares authorized and none outstanding
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Common stock, $0.01 par value, 100,000,000 shares authorized; 25,443,144 and 25,091,619
issued and outstanding at October 2, 2010 and January 2, 2010, respectively
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254
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251
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Additional paid-in capital
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149,025
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140,613
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Deferred compensation
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(64
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)
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Retained earnings (accumulated deficit)
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10,949
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(7,565
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)
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Accumulated other comprehensive income (loss)
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123
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(41
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)
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Total stockholders equity
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160,351
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133,194
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Total liabilities, redeemable convertible preferred stock and stockholders equity
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$
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228,921
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$
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199,584
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The accompanying notes are an integral part of the consolidated financial statements.
3
iROBOT CORPORATION
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended
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Nine Months Ended
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October 2,
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September 26,
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October 2,
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September 26,
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2010
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2009
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2010
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2009
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Revenue:
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Product revenue
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$
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85,051
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$
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69,080
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$
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257,107
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$
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171,380
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Contract revenue
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9,172
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9,539
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29,850
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25,515
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Total revenue
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94,223
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78,619
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286,957
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196,895
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Cost of revenue:
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Cost of product revenue (1)
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54,472
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46,415
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165,897
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116,952
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Cost of contract revenue (1)
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6,494
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8,009
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21,116
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23,133
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Total cost of revenue
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60,966
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54,424
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187,013
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140,085
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Gross margin
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33,257
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24,195
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99,944
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56,810
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Operating expenses:
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Research and development (1)
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6,185
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3,159
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16,375
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10,633
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Selling and marketing (1)
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10,734
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9,514
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30,959
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27,420
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General and administrative (1)
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8,904
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7,420
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26,693
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21,915
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Total operating expenses
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25,823
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20,093
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74,027
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59,968
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Operating income (loss)
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7,434
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4,102
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25,917
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(3,158
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Other income (expense), net
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299
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112
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368
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(96
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Income (loss) before income taxes
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7,733
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4,214
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26,285
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(3,254
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Income tax expense (benefit)
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701
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1,620
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7,771
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(1,452
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Net income (loss)
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$
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7,032
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$
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2,594
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$
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18,514
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$
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(1,802
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Net income (loss) per share
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Basic
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$
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0.28
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$
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0.10
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$
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0.73
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$
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(0.07
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Diluted
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$
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0.27
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$
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0.10
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$
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0.70
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$
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(0.07
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Number of shares used in calculations per share
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Basic
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25,428
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25,025
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25,293
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24,974
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Diluted
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26,480
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25,670
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26,319
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24,974
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(1)
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Total stock-based compensation recorded in the three and nine months ended October 2, 2010
and September 26, 2009 included in the above figures breaks down by expense classification as
follows:
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Three Months Ended
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Nine Months Ended
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October 2,
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September 26,
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October 2,
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September 26,
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2010
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2009
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2010
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2009
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Cost of product revenue
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$
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310
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$
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267
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$
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997
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$
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758
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Cost of contract revenue
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101
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139
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337
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464
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Research and development
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211
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89
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488
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187
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Selling and marketing
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240
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351
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885
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1,006
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General and administrative
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1,079
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1,016
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3,325
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2,944
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The accompanying notes are an integral part of the consolidated financial statements.
4
iROBOT CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Nine Months Ended
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October 2,
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September 26,
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2010
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2009
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Cash flows from operating activities:
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Net income (loss)
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$
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18,514
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$
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(1,802
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)
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Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
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Depreciation and amortization
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5,673
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6,153
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Loss on disposal of property and equipment
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117
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176
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Stock-based compensation
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6,032
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5,359
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Benefit from deferred tax assets
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(3,867
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)
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(347
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Non-cash director deferred compensation
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99
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99
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Changes in operating assets and liabilities (use) source
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Accounts receivable
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7,377
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(8,004
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Unbilled revenue
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(703
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)
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(523
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Inventory
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(1,563
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)
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9,907
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Other assets
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1,010
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(1,111
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)
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Accounts payable
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5,118
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8,243
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Accrued expenses
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(315
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)
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673
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Accrued compensation
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(408
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)
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4,453
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Deferred revenue
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(1,885
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)
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1,612
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Long term liabilities
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(322
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)
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(322
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)
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Net cash provided by operating activities
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34,877
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24,566
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Cash flows from investing activities:
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Additions of property and equipment
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(7,537
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)
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(3,401
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)
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Purchases of investments
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(30,461
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)
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Sales of investments
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19,000
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Net cash used in investing activities
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(18,998
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)
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(3,401
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)
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Cash flows from financing activities:
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Proceeds from stock option exercises
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2,297
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495
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Income tax withholding payment associated with restricted stock vesting
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(284
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)
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(76
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)
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Tax benefit of excess stock-based compensation deductions
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855
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311
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|
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Net cash provided by financing activities
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2,868
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|
|
730
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Net increase in cash and cash equivalents
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18,747
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|
|
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21,895
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|
Cash and cash equivalents, at beginning of period
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71,856
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40,852
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|
|
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Cash and cash equivalents, at end of period
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$
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90,603
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|
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$
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62,747
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|
|
|
|
|
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Supplemental disclosure of cash flow information:
|
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|
|
|
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Cash paid for income taxes
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$
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12,198
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$
|
608
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|
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended October 2, 2010 and September 26, 2009, the Company transferred
$1,945 and $1,425, respectively, of inventory to fixed assets.
The accompanying notes are an integral part of the consolidated financial statements.
5
iROBOT CORPORATION
Notes To Consolidated Financial Statements
(unaudited)
1. Description of Business
iRobot Corporation (iRobot or the Company) develops robotics and artificial intelligence
technologies and applies these technologies in producing and marketing robots. The majority of the
Companys revenue is generated from product sales and government and industrial research and
development contracts.
The Company is subject to risks common to companies in high-tech industries including, but not
limited to, uncertainty of progress in developing technologies, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance with government
regulations, uncertainty of market acceptance of products, the need to obtain financing, if
necessary, global economic conditions and associated impact on consumer spending, and changes in
policies and spending priorities of the U.S. federal government and other government agencies.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and its
subsidiaries, after elimination of all intercompany accounts and transactions. iRobot has prepared
the accompanying consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial data as of October 2, 2010 and for the three and nine months ended
October 2, 2010 and September 26, 2009 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. The year-end balance sheet data was
derived from audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States. 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 January 2, 2010, filed with the SEC on February 19, 2010.
In the opinion of management, all adjustments necessary to state fairly its statement of
financial position as of October 2, 2010 and results of operations and cash flows for the periods
ended October 2, 2010 and September 26, 2009 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.
6
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
Fiscal Year-End
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest
to December 31. Accordingly, the Companys fiscal quarters end on the Saturday that falls closest
to the last day of the third month of each quarter.
Revenue Recognition
The Company derives its revenue from product sales, government research and development
contracts, and commercial research and development contracts. The Company sells products directly
to customers and indirectly through resellers and distributors. The Company recognizes revenue from
sales of home robots under the terms of the customer agreement upon transfer of title and risk of
loss to the customer, net of estimated returns, provided that collection is determined to be
reasonably assured and no significant obligations remain. Sales to
resellers are typically subject to
agreements allowing for limited rights of return for defective products only, rebates and price
protection. The Company has typically not taken product returns except for defective products.
Accordingly, the Company reduces revenue for its estimates of liabilities for these rights at the
time the related sale is recorded. The Company makes an estimate of sales returns for products sold
by resellers directly based on historical returns experience and other relevant data. The Companys
international distributor agreements do not currently allow for product returns and, as a result,
no reserve for returns is established for this group of customers. The Company has aggregated and
analyzed historical returns from resellers and end users which form the basis of its estimate of
future sales returns by resellers or end users. When a right of return exists, the provision for
these estimated returns is recorded as a reduction of revenue at the time that the related revenue
is recorded. If actual returns differ significantly from its estimates, such differences could have
a material impact on the Companys results of operations for the period in which the returns become
known. The estimates for returns are adjusted periodically based upon historical rates of returns.
The estimates and reserve for rebates and price protection are based on specific programs, expected
usage and historical experience. Actual results could differ from these estimates.
Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognizes revenue based on
costs incurred plus a pro rata portion of the total fixed fee. Costs incurred include labor and
material that are directly associated with individual CPFF contracts plus indirect overhead and
general and administrative type costs based upon billing rates submitted by the Company to, and
provisionally approved by, the Defense Contract Management Agency (DCMA). Annually, the Company
submits final indirect billing rates to DCMA based upon actual costs incurred throughout the year.
These final billing rates are subject to audit by the Defense Contract Audit Agency,which can occur
several years after the final billing rates are submitted and may result in material adjustments to
revenue recognized based on estimated final billing rates. In the situation where the Companys
anticipated actual billing rates will be lower than the provisional rates currently in effect, the
Company records a cumulative revenue adjustment in the period in which the rate differential is
identified. Revenue on firm fixed price (FFP) contracts is recognized using the
percentage-of-completion method. For government product FFP contracts revenue is recognized as the
product is shipped or in accordance with the contract terms. Costs and estimated gross margins on
contracts are recorded as revenue as work is performed based on the percentage that incurred costs
compare to estimated total costs utilizing the most recent estimates of costs and funding. Changes
in job performance, job conditions, and estimated profitability, including those arising from final
contract settlements and government audit, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Since many contracts extend over a
long period of time, revisions in cost and funding estimates during the progress of work have the
effect of adjusting earnings applicable to past performance in the current period. When the current
contract estimate indicates a loss, a provision is made for the total anticipated loss in the
current period. Revenue earned in excess of billings, if any, is recorded as unbilled revenue.
Billings in excess of revenue earned, if any, are recorded as deferred revenue.
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 by establishing the
fair value of each option grant using the Black-Scholes option-pricing model and the fair value of
awards based on stock price at the time of grant. The fair value of share-based payments is
recorded by the Company as a charge against earnings. The Company recognizes share-based payment
expense over the requisite
7
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
service period of the underlying grants and awards. The Companys share-based payment awards
are accounted for as equity instruments.
Net Income (Loss) Per Share
The following table presents the calculation of both basic and diluted net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2, 2010
|
|
|
September 26, 2009
|
|
|
October 2, 2010
|
|
|
September 26, 2009
|
|
Net income (loss)
|
|
$
|
7,032
|
|
|
$
|
2,594
|
|
|
$
|
18,514
|
|
|
$
|
(1,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
25,428
|
|
|
|
25,025
|
|
|
|
25,293
|
|
|
|
24,974
|
|
Dilutive effect of employee stock options
and restricted shares
|
|
|
1,052
|
|
|
|
645
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
26,480
|
|
|
|
25,670
|
|
|
|
26,319
|
|
|
|
24,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.28
|
|
|
$
|
0.10
|
|
|
$
|
0.73
|
|
|
$
|
(0.07
|
)
|
Diluted income (loss) per share
|
|
$
|
0.27
|
|
|
$
|
0.10
|
|
|
$
|
0.70
|
|
|
$
|
(0.07
|
)
|
Potentially dilutive securities representing approximately 1.2 million and 2.3 million shares
of common stock for the three month periods ended October 2, 2010 and September 26, 2009,
respectively, and approximately 1.0 million and 3.1 million shares of common stock for the nine
months ended October 2, 2010 and September 26, 2009, 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 book 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
performing its quarterly assessment,
the Company determined it had sufficient history of profitability and sufficient projected future
profitability to fully release its valuation allowance relating to
state deferred tax assets during the three month period ended October 2, 2010. At
October 2, 2010, the Company has total deferred tax assets of $18.1 million.
The
Company has projected an effective 2010 income tax rate of 38%. The
Company has recorded a tax provision of $0.7 million, which
reflects the projected 2010 tax rate and the $2.3 million associated with the full release of
its valuation allowance relating to state deferred tax assets. This $0.7 million expense compares
to $1.6 million tax expense for the three months ended September 26, 2009 based on a projected
effective 2009 income tax rate of 36%.
8
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
Comprehensive Income
Comprehensive income includes unrealized gains on certain investments. The differences between
net income and comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2, 2010
|
|
|
September 26, 2009
|
|
|
October 2, 2010
|
|
|
September 26, 2009
|
|
|
|
(In thousands)
|
|
Net income (loss), as reported
|
|
$
|
7,032
|
|
|
$
|
2,594
|
|
|
$
|
18,514
|
|
|
$
|
(1,802
|
)
|
Unrealized
gains on investments, net of tax
|
|
|
87
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
7,119
|
|
|
$
|
2,594
|
|
|
$
|
18,678
|
|
|
$
|
(1,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
The authoritative guidance for fair value establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
The Companys assets measured at fair value on a recurring basis at October 2, 2010, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of October 2, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Description
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
$
|
5,087
|
|
|
$
|
|
|
|
$
|
|
|
Investment in bonds
|
|
|
|
|
|
|
16,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
5,087
|
|
|
$
|
16,576
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys assets measured at fair value on a recurring basis at January 2, 2010, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of January 2, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Description
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
$
|
20,077
|
|
|
$
|
|
|
|
$
|
|
|
Investment in bonds
|
|
|
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
20,077
|
|
|
$
|
4,959
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
In each table above, the bond investments are valued based on observable market inputs as of
the Companys reporting date and are included in Level 2 inputs.
In determining the fair value of our Level 2 bond investments,
the Company considers the appropriateness of a model and assumptions
used by a pricing vendor to price the investments. The pricing
vendors model relies on a comprehensive
multi-dimensional relational model that uses standard inputs including benchmark yields, reported
trades, broker/dealer quotes, issue spreads, two-sided markets, benchmark securities, bids, offers
and reference data including market research publications. The bond investments are recorded at
fair value and marked-to-market at the end of each reporting period and realized and unrealized
gains and losses are included in comprehensive income (loss) for that period. The fair value of the
Companys bond investments are included in short term investments in its consolidated balance
sheet.
9
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for
an acquisition and the fair value of the net tangible and intangible assets acquired. The Company
tests goodwill for impairment at the reporting unit level (operating segment or one level below an
operating segment) annually or more frequently if the Company believes indicators of impairment
exist. The performance of the test involves a two-step process. The first step of the impairment
test involves comparing the fair values of the applicable reporting units with their aggregate
carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the
reporting units fair value, the Company performs the second step of the goodwill impairment test
to determine the amount of impairment loss. The second step of the goodwill impairment test
involves comparing the implied fair value of the affected reporting units goodwill with the
carrying value of that goodwill.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued an amendment to the
accounting and disclosure requirements for the consolidation of variable interest entities
(VIEs). The elimination of the concept of a Qualifying Special Purpose Entity (QSPE), removes
the exception from applying the consolidation guidance within this amendment. This amendment
requires an enterprise to perform a qualitative analysis when determining whether or not it must
consolidate a VIE and requires an enterprise to continuously reassess whether it must consolidate a
VIE. Additionally, this amendment requires enhanced disclosures about an enterprises involvement
with VIEs and any significant change in risk exposure due to that involvement, as well as how its
involvement with VIEs impacts the enterprises financial statements. Finally, an enterprise will be
required to disclose significant judgments and assumptions used to determine whether or not to
consolidate a VIE. This amendment is effective for financial statements issued for fiscal years
beginning after November 15, 2009. The implementation of this amendment did not impact the
Companys consolidated financial statements.
In January 2010, FASB updated the disclosure requirements for fair value measurements. The
updated guidance requires companies to disclose separately the investments that transfer in and out
of Levels 1 and 2 and the reasons for those transfers. Additionally, in the reconciliation for fair
value measurements using significant unobservable inputs (Level 3), companies should present
separately information about purchases, sales, issuances and settlements. The Company adopted the
updated guidance at the beginning of fiscal 2010, except for the disclosures about purchases,
sales, issuances and settlements in the Level 3 reconciliation, which are effective for fiscal
years beginning after December 15, 2010. The Company will adopt the remaining guidance at the
beginning of fiscal 2011. The adoption of the required guidance did not have an impact on the
Companys financial position, results of operations, or disclosures. The Company does not expect
that the adoption of the remaining guidance will have an impact on its financial position, results
of operations, or disclosures.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that
the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Companys consolidated financial statements upon adoption.
3. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
January 2 ,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
7,055
|
|
|
$
|
3,735
|
|
Work in process
|
|
|
590
|
|
|
|
687
|
|
Finished goods
|
|
|
26,324
|
|
|
|
27,984
|
|
|
|
|
|
|
|
|
|
|
$
|
33,969
|
|
|
$
|
32,406
|
|
|
|
|
|
|
|
|
10
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
4. Stock Option Plans
The Company has options outstanding under three stock incentive plans: the 1994 Stock Option
Plan (the 1994 Plan), the 2004 Stock Option and Incentive Plan (the 2004 Plan) and the 2005
Stock Option and Incentive Plan (the 2005 Plan and together with the 1994 Plan and the 2004 Plan,
the Plans). The 2005 Plan is the only one of the three plans under which new awards may currently
be granted. Under the 2005 Plan, which became effective October 10, 2005, 1,583,682 shares were
initially reserved for issuance in the form of incentive stock options, non-qualified stock
options, stock appreciation rights, deferred stock awards and restricted stock awards.
Additionally, the 2005 Plan provides that the number of shares reserved and available for issuance
under the plan will automatically increase each January 1, beginning in 2007, by 4.5% of the
outstanding number of shares of common stock on the immediately preceding December 31. Stock
options returned to the Plans as a result of their expiration, cancellation or termination are
automatically made available for issuance under the 2005 Plan. Eligibility for incentive stock
options is limited to those individuals whose employment status would qualify them for the tax
treatment associated with incentive stock options in accordance with the Internal Revenue Code of
1986, as amended. As of October 2, 2010, there were 1,969,564 shares available for future grant
under the 2005 Plan.
Options granted under the Plans are subject to terms and conditions as determined by the
compensation committee of the board of directors, including vesting periods. Options granted under
the Plans are exercisable in full at any time subsequent to vesting, generally vest over periods
from zero to five years, and expire seven or ten years from the date of grant or, if earlier, 60 or
90 days from employee termination. The exercise price of incentive stock options is equal to the
closing price on the NASDAQ Global Market on the date of grant. The exercise price of nonstatutory
options may be set at a price other than the fair market value of the common stock.
On October 1, 2010, in connection with the commencement of their employment, the Company
granted three employees stock options exercisable for an aggregate of 100,000 shares of the
Companys common stock and 28,000 restricted stock units. Additionally, on October 1, 2010, the
Company granted to certain employees an annual merit grant totaling 40,420 restricted stock units.
Also, on October 1, 2010 in connection with their promotions, the Company granted three employees,
including executive officers, stock options exercisable for an aggregate of 38,073 shares of the
Companys common stock and 10,344 restricted stock units. Each of the above stock options have a
per share exercise price of $18.61, the closing price of the Companys common stock on NASDAQ on
October 1, 2010. The stock options will vest 25% on the first anniversary of the grant date and
quarterly thereafter over the following three years. The restricted stock units will vest 25% on
each anniversary of the grant date.
5. Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
January 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Accrued warranty
|
|
$
|
8,699
|
|
|
$
|
6,105
|
|
Accrued direct fulfillment costs
|
|
|
1,032
|
|
|
|
1,836
|
|
Accrued rent
|
|
|
577
|
|
|
|
532
|
|
Accrued sales commissions
|
|
|
339
|
|
|
|
472
|
|
Accrued accounting fees
|
|
|
495
|
|
|
|
401
|
|
Accrued income taxes
|
|
|
749
|
|
|
|
2,177
|
|
Accrued other
|
|
|
2,170
|
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
$
|
14,061
|
|
|
$
|
14,384
|
|
|
|
|
|
|
|
|
11
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
6. Commitments and Contingencies
Lease Obligations
Rental expense under operating leases for the three months ended October 2, 2010 and September
26, 2009 were $1.0 million and $0.9 million, respectively, and for the nine months ended October 2,
2010 and September 26, 2009 were $2.8 million and $3.0 million, respectively. Future minimum rental
payments under operating leases were as follows as of October 2, 2010:
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
Remainder of 2010
|
|
$
|
696
|
|
2011
|
|
|
2,850
|
|
2012
|
|
|
2,589
|
|
2013
|
|
|
2,409
|
|
2014
|
|
|
2,383
|
|
Thereafter
|
|
|
12,710
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
23,637
|
|
|
|
|
|
Sales Taxes
The Company collects and remits sales tax in jurisdictions in which it has a physical presence
or it believes nexus exists, which therefore obligates the Company to collect and remit sales tax.
The Company continually evaluates whether it has established a nexus in new jurisdictions with
respect to sales tax. The Company has recorded a liability for potential exposure in several states
where there is uncertainty about the point in time at which the Company established a sufficient
business connection to create nexus. The Company continues to analyze possible sales tax exposure,
but does not currently believe that any individual claim or aggregate claims that might arise will
ultimately have a material effect on its consolidated results of operations, financial position or
cash flows.
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 October 2, 2010 and January 2, 2010, respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty
based on identified or estimated 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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
October 2,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
|
$
|
7,395
|
|
|
$
|
5,303
|
|
|
$
|
6,105
|
|
|
$
|
5,380
|
|
Provision
|
|
|
1,908
|
|
|
|
1,910
|
|
|
|
5,003
|
|
|
|
4,439
|
|
Warranty usage(1)
|
|
|
(604
|
)
|
|
|
(861
|
)
|
|
|
(2,409
|
)
|
|
|
(3,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
8,699
|
|
|
$
|
6,352
|
|
|
$
|
8,699
|
|
|
$
|
6,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Warranty usage includes the expiration of product warranties unutilized.
|
12
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
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 division offers products to consumers through a network of retail
businesses throughout the United States, to certain countries through international distributors
and retailers, and through the Companys on-line store. The Companys home robots division includes
mobile robots used in the maintenance of domestic households.
Government and Industrial
The Companys government and industrial division offers products through a small U.S.
government-focused sales force, while products are sold to a limited number of countries, other
than the United States, through international distribution. The Companys government and industrial
robots are used by various U.S. and foreign governments, primarily for reconnaissance and bomb
disposal missions.
The table below presents segment information about revenue, cost of revenue, gross margin and
income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
October 2,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
$
|
54,650
|
|
|
$
|
44,331
|
|
|
$
|
160,101
|
|
|
$
|
111,253
|
|
Government & Industrial
|
|
|
39,573
|
|
|
|
34,288
|
|
|
|
126,856
|
|
|
|
85,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
94,223
|
|
|
|
78,619
|
|
|
|
286,957
|
|
|
|
196,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
32,967
|
|
|
|
30,881
|
|
|
|
97,707
|
|
|
|
77,542
|
|
Government & Industrial
|
|
|
27,999
|
|
|
|
23,543
|
|
|
|
89,306
|
|
|
|
62,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
60,966
|
|
|
|
54,424
|
|
|
|
187,013
|
|
|
|
140,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Robots
|
|
|
21,683
|
|
|
|
13,450
|
|
|
|
62,394
|
|
|
|
33,711
|
|
Government & Industrial
|
|
|
11,574
|
|
|
|
10,745
|
|
|
|
37,550
|
|
|
|
23,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
|
|
|
33,257
|
|
|
|
24,195
|
|
|
|
99,944
|
|
|
|
56,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,185
|
|
|
|
3,159
|
|
|
|
16,375
|
|
|
|
10,633
|
|
Selling and marketing
|
|
|
10,734
|
|
|
|
9,514
|
|
|
|
30,959
|
|
|
|
27,420
|
|
General and administrative
|
|
|
8,904
|
|
|
|
7,420
|
|
|
|
26,693
|
|
|
|
21,915
|
|
Other income (expense), net
|
|
|
299
|
|
|
|
112
|
|
|
|
368
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
7,733
|
|
|
$
|
4,214
|
|
|
$
|
26,285
|
|
|
$
|
(3,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
For the three months ended October 2, 2010 and September 26, 2009, sales to non-U.S. customers
accounted for 40.7% and 33.6% of total revenue, respectively, and for the nine months ended October
2, 2010 and September 26, 2009, sales to non-U.S. customers accounted for 40.9% and 34.6% of total
revenue, respectively.
13
iROBOT CORPORATION
Notes To Consolidated Financial Statements (Continued)
(unaudited)
Significant Customers
For the three months ended October 2, 2010 and September 26, 2009, U.S. federal government
orders, contracts and subcontracts accounted for 37.9% and 36.3% of total revenue, respectively,
and for the nine months ended October 2, 2010 and September 26, 2009, U.S. federal government
orders, contracts and subcontracts accounted for 39.2% and 36.7% of total revenue, respectively.
8. Goodwill and Other Intangible Assets
The carrying amount of the goodwill at October 2, 2010 of $7.9 million is from the acquisition
of Nekton Research, LLC completed in September 2008.
Other intangible assets include the value assigned to completed technology, research
contracts, and a trade name. The estimated useful lives for all of these intangible assets are two
to ten years. The intangible assets are being amortized on a straight-line basis, which is
consistent with the pattern that the economic benefits of the intangible assets are expected to be
utilized.
Intangible assets at October 2, 2010 and January 2, 2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2010
|
|
|
January 2, 2010
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
Completed technology
|
|
$
|
3,700
|
|
|
$
|
775
|
|
|
$
|
2,925
|
|
|
$
|
3,700
|
|
|
$
|
496
|
|
|
$
|
3,204
|
|
Research contracts
|
|
|
100
|
|
|
|
96
|
|
|
|
4
|
|
|
|
100
|
|
|
|
64
|
|
|
|
36
|
|
Tradename
|
|
|
700
|
|
|
|
150
|
|
|
|
550
|
|
|
|
700
|
|
|
|
96
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,500
|
|
|
$
|
1,021
|
|
|
$
|
3,479
|
|
|
$
|
4,500
|
|
|
$
|
656
|
|
|
$
|
3,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to acquired intangible assets was $119,000 and $365,000 for the
three and nine months ended October 2, 2010, respectively. The estimated future amortization
expense related to current intangible assets in the current fiscal year and each of the four
succeeding fiscal years is expected to be as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
Remainder of 2010
|
|
$
|
115
|
|
2011
|
|
|
444
|
|
2012
|
|
|
444
|
|
2013
|
|
|
444
|
|
2014
|
|
|
444
|
|
|
|
|
|
Total
|
|
$
|
1,891
|
|
|
|
|
|
14
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
January 2, 2010, which has been filed with 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 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 and Verro products, PackBot
tactical military robots,the Small Unmanned Ground Vehicle, Seaglider, Negotiator, our home robot
and government and industrial robots divisions, our competition, our strategy, our market position,
market acceptance of our products, seasonal factors, revenue recognition, our profits, growth of
our revenues, composition of our revenues, our cost of revenues, operating expenses, selling and
marketing expenses, general and administrative expenses, research and development expenses, and
compensation costs, our projected income tax rate, our credit facility and equipment facility, our
valuations of investments, valuation and composition of our stock-based awards, and liquidity,
constitute forward-looking statements and are made under these safe harbor provisions. Some of the
forward-looking statements can be identified by the use of forward-looking terms such as
believes, expects, may, will, should, could, seek, intends, plans, estimates,
anticipates, or other comparable terms. Forward-looking statements involve inherent risks and
uncertainties 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 January 2, 2010, as well as elsewhere in this Quarterly Report on
Form 10-Q. 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 have no
plan to update our forward-looking statements to reflect events or circumstances after the date of
this Quarterly Report on
Form 10-Q
. We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made
.
Overview
iRobot designs and builds robots that make a difference. For over 20 years, we have developed
proprietary technology incorporating advanced concepts in navigation, mobility, manipulation and
artificial intelligence to build industry-leading robots. Our Roomba floor vacuuming robot and
Scooba floor washing robot perform time-consuming domestic chores in the home, while our Looj
gutter cleaning robot and Verro pool cleaning robot perform tasks outside the home. Our PackBot and
Small Unmanned Ground Vehicle (SUGV) tactical ground military robots perform battlefield
reconnaissance and bomb disposal. Our Negotiator ground robot performs multi-purpose tasks for
local police and first responders. Our 1Ka Seaglider unmanned underwater robot performs long
endurance oceanic missions. We sell our robots to consumers through a variety of distribution
channels, including chain stores and other national retailers, and through our on-line store, and
to the U.S. military and other government agencies worldwide. We maintain certifications for AS9100
and Capability Maturity Model Integration. These certifications enable us to service our military
products and services.
As of October 2, 2010, we had 643 full-time employees. We have developed expertise in the
disciplines necessary to build durable, high-performance and cost-effective robots through the
close integration of software, electronics and hardware. Our core technologies serve as reusable
building blocks that we adapt and expand to develop next generation and new products, reducing the
time, cost and risk of product development. Our significant expertise in robot design and
engineering, combined with our management teams experience in military and consumer markets,
positions us to capitalize on the expected growth in the market for robots.
Although we have successfully launched consumer and government and industrial products, our
continued success depends upon our ability to respond to a number of future challenges. We believe
the most significant of these challenges include increasing competition in the markets for both our
consumer and government and industrial products, our ability to obtain U.S. federal government
funding for research and development programs, and our ability to successfully develop and
introduce products and product enhancements.
15
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 (specifically sales returns and other
allowances); valuation 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
January 2, 2010.
Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue for the
three and nine month periods ended October 2, 2010 and September 26, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
October 2,
|
|
|
September 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
90.3
|
%
|
|
|
87.9
|
%
|
|
|
89.6
|
%
|
|
|
87.0
|
%
|
Contract revenue
|
|
|
9.7
|
|
|
|
12.1
|
|
|
|
10.4
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
57.8
|
|
|
|
59.0
|
|
|
|
57.8
|
|
|
|
59.4
|
|
Cost of contract revenue
|
|
|
6.9
|
|
|
|
10.2
|
|
|
|
7.4
|
|
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
64.7
|
|
|
|
69.2
|
|
|
|
65.2
|
|
|
|
71.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
35.3
|
|
|
|
30.8
|
|
|
|
34.8
|
|
|
|
28.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6.6
|
|
|
|
4.0
|
|
|
|
5.7
|
|
|
|
5.5
|
|
Selling and marketing
|
|
|
11.4
|
|
|
|
12.1
|
|
|
|
10.8
|
|
|
|
13.9
|
|
General and administrative
|
|
|
9.4
|
|
|
|
9.5
|
|
|
|
9.3
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
27.4
|
|
|
|
25.6
|
|
|
|
25.8
|
|
|
|
30.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
7.9
|
|
|
|
5.2
|
|
|
|
9.0
|
|
|
|
(1.6
|
)
|
Other income (expense), net
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
8.2
|
|
|
|
5.4
|
|
|
|
9.2
|
|
|
|
(1.7
|
)
|
Income tax expense (benefit)
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
2.7
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7.5
|
%
|
|
|
3.3
|
%
|
|
|
6.5
|
%
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three and Nine Months Ended October 2, 2010 and September 26, 2009
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
Total revenue
|
|
$
|
94,223
|
|
|
$
|
78,619
|
|
|
$
|
15,604
|
|
|
|
19.8
|
%
|
|
$
|
286,957
|
|
|
$
|
196,895
|
|
|
$
|
90,062
|
|
|
|
45.7
|
%
|
Total revenue for the three months ended October 2, 2010 increased to $94.2 million, or 19.8%,
compared to $78.6 million for the three months ended September 26, 2009. Revenue increased
approximately $10.3 million, or 23.3%, in our home robots division and increased approximately $5.3
million, or 15.4%, in our government and industrial division.
16
The $10.3 million increase in revenue from our home robots division for the three months
ended October 2, 2010 was driven by a 6.6% increase in units shipped and a 15.6% increase in net
average selling price as compared to the three months ended September 26, 2009. Total home robots
shipped in the three months ended October 2, 2010 were 308,000 units compared to 289,000 units in
the three months ended September 26, 2009. The increase in home robot division revenue and units
shipped was primarily attributable to increased international sales of our home robot products
resulting from our increased efforts to expand our global presence. In the three months ended
October 2, 2010, international home robot revenue increased $12.8 million and domestic home robot
revenue decreased $2.5 million as compared to the three months ended September 26, 2009. Home robot
division revenue from international sales, which consist of products having a higher average
selling price than products sold to domestic customers, was 63.7% of total home robot division
revenue in the three month period ending October 2, 2010 as compared to 49.7% in the three month
period ended September 26, 2009.
The $5.3 million increase in revenue from our government and industrial division was driven by
a $1.9 million increase in government and industrial robot revenue, a $3.7 million increase in
product life cycle revenue (spare parts and accessories), partially offset by a $0.4 million
decrease in recurring contract development revenue generated under research and development
contracts. The $1.9 million increase in government and industrial robots revenue was primarily due
to a 17.0% increase in units shipped partially offset by a 5.9% decrease in net average selling
prices in the three month period ended October 2, 2010 as compared to the three month period ended
September 26, 2009. The decrease in average selling price was due to product mix primarily
attributable to a significant number of SUGV 310 units shipped in the three-month period ended
October 2, 2010. The $3.7 million increase in product life cycle revenue is the result of a higher
installed base of our government and industrial robots which during the three month period ended
October 2, 2010 includes product life cycle revenue related to our SUGV 310 product. The $0.4
million decrease in recurring contract development revenue generated under research and development
contracts was the result of decreases in funding of our PackBot, Warrior and Research programs
partially offset by an increase in funding of our SUGV program. Total government and industrial
robots shipped in the three months ended October 2, 2010 were 186 units compared to 159 units in
the three months ended September 26, 2009.
Total revenue for the nine months ended October 2, 2010 increased to $287.0 million, or 45.7%,
compared to $196.9 million for the nine months ended September 26, 2009. Revenue increased
approximately $48.8 million, or 43.9%, in our home robots division and increased approximately
$41.2 million, or 48.1%, in our government and industrial division.
The $48.8 million increase in revenue from our home robots division for the nine months ended
October 2, 2010 was driven by a 33.9% increase in units shipped and a 9.7% increase in net average
selling price as compared to the nine months ended September 26, 2009. Total home robots shipped in
the nine months ended October 2, 2010 were 889,000 units compared to 664,000 units in the nine
months ended September 26, 2009. The increase in home robot division revenue and units shipped was
primarily attributable to increased international sales of our home robot products resulting from
our increased efforts to expand our global presence. In the nine months ended October 2, 2010,
international home robot revenue increased $47.7 million, domestic home robot revenue from our
retail channel increased $2.8 million, and domestic home robot
revenue from our direct channel decreased $1.7
million as compared to the nine months ended September 26, 2009. Home robot division revenue from
international sales, which consist of products having a higher average selling price than products
sold to domestic customers, was 66.9% of total home robot division revenue in the nine month period
ending October 2, 2010 as compared to 53.3% in the nine month period ended September 26, 2009.
The $41.2 million increase in revenue from our government and industrial division was driven
by a $24.6 million increase in government and industrial robot revenue, a $12.3 million increase in
product life cycle revenue (spare parts and accessories), and a $4.3 million increase in recurring
contract development revenue generated under research and development contracts. The $24.6 million
increase in government and industrial robots revenue was due to a 52.6% increase in units shipped
in the nine month period ended October 2, 2010 as compared to the nine month period ended September
26, 2009. The $12.3 million increase in product life cycle revenue is the result of a higher
installed base of our government and industrial robots, which, during the nine month period ended
October 2, 2010 included product life cycle revenue related to our SUGV 310 product. The $4.3
million increase in recurring contract development revenue generated under research and development
contracts was primarily attributable to an increase in funding of our SUGV program offset by
decreases in funding of our PackBot and Warrior programs. Total government and industrial robots
shipped in the nine months ended October 2, 2010 were 702 units compared to 460 units in the nine
months ended September 26, 2009.
17
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
60,966
|
|
|
$
|
54,424
|
|
|
$
|
6,542
|
|
|
|
12.0
|
%
|
|
$
|
187,013
|
|
|
$
|
140,085
|
|
|
$
|
46,928
|
|
|
|
33.5
|
%
|
As a percentage of total
revenue
|
|
|
64.7
|
%
|
|
|
69.2
|
%
|
|
|
|
|
|
|
|
|
|
|
65.2
|
%
|
|
|
71.1
|
%
|
|
|
|
|
|
|
|
|
Total cost of revenue increased to $61.0 million in the three months ended October 2, 2010,
compared to $54.4 million in the three months ended September 26, 2009. The increase is primarily
due to the 6.6% increase in home robot units shipped and the 17.0%
increase in government and industrial units shipped.
Total cost of revenue increased to $187.0 million in the nine months ended October 2, 2010,
compared to $140.1 million in the nine months ended September 26, 2009. The increase is primarily
due to the 33.9% increase in home robot units shipped and the 52.6%
increase in government and industrial units shipped.
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total gross margin
|
|
$
|
33,257
|
|
|
$
|
24,195
|
|
|
$
|
9,062
|
|
|
|
37.5
|
%
|
|
$
|
99,944
|
|
|
$
|
56,810
|
|
|
$
|
43,134
|
|
|
|
75.9
|
%
|
As a percentage of
total revenue
|
|
|
35.3
|
%
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
34.8
|
%
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
Gross margin increased $9.1 million, or 37.5%, to $33.3 million (35.3% of revenue) in the
three months ended October 2, 2010 from $24.2 million (30.8% of revenue) in the three months ended
September 26, 2009. The increase in gross margin as a percentage of revenue was the result of the
home robots division gross margin increasing 9.4 percentage points partially offset by the
government and industrial division gross margin decreasing 2.1 percentage points. The 9.4
percentage point increase in the home robots division is attributable to the increase in units
shipped through our higher-margin international channel, price increases on certain international
products, continued product cost reduction efforts, lower excess and obsolete inventory provisions,
improved leverage of our overhead expense against higher revenue, lower return provisions, and
lower warranty expense in the three month period ended October 2, 2010 as compared to the three
month period ended September 26, 2009. The 2.1 percentage point decrease in the government and
industrial division is due to product mix primarily attributable to a significant number of SUGV
310 units shipped, and increased overhead expenses in the three month period ended October 2, 2010
as compared to the three month period ended September 26, 2009.
Gross margin increased $43.1 million, or 75.9%, to $99.9 million (34.8% of revenue) in the
nine months ended October 2, 2010 from $56.8 million (28.9% of revenue) in the nine months ended
September 26, 2009. The increase in gross margin as a percentage of revenue was the result of the
home robots division gross margin increasing 8.7 percentage points and the government and
industrial division gross margin increasing 2.6 percentage points. The 8.7 percentage point
increase in the home robots division is attributable to lower return provisions, the increase in
units shipped through our higher-margin international channel, price increases on certain
international products, continued product cost reduction efforts, lower excess and obsolete
inventory provisions and improved leverage of our overhead expense against higher revenue in the
nine month period ended October 2, 2010 as compared to the nine month period ended September 26,
2009. The 2.6 percentage point increase in the government and industrial division is primarily
attributable to leveraging our overhead expense against higher revenue partially offset by a
decrease due to product mix primarily attributable to a significant number of SUGV 310 units
shipped in the nine month period ended October 2, 2010 as compared to the nine month period ended
September 26, 2009.
18
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total research and development
|
|
$
|
6,185
|
|
|
$
|
3,159
|
|
|
$
|
3,026
|
|
|
|
95.8
|
%
|
|
$
|
16,375
|
|
|
$
|
10,633
|
|
|
$
|
5,742
|
|
|
|
54.0
|
%
|
As a percentage of total revenue
|
|
|
6.6
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
5.7
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses increased by $3.0 million, or 95.8%, to $6.2 million (6.6%
of revenue) in the three months ended October 2, 2010 from $3.2 million (4.0% of revenue) for the
three months ended September 26, 2009. The increase in research and development expenses is
primarily due to increases in compensation and benefits and materials associated with internal
research and development projects in both our home robots and government and industrial divisions
and expenses related to our newly created healthcare business unit. The increase in our home robots
division is primarily the result of our increased efforts in the areas of product development and
advanced development relating to our consumer products.
Research and development expenses increased by $5.7 million, or 54.0%, to $16.4 million (5.7%
of revenue) in the nine months ended October 2, 2010 from $10.6 million (5.5% of revenue) for the
nine months ended September 26, 2009. The increase in research and development expenses is
primarily due to increases in compensation, recruiting, employee benefits, materials and consulting
costs associated with internal research and development projects in our home robots division and
expenses related to our newly created healthcare business unit. The increase in our home robots
division is primarily the result of our increased efforts in the areas of product development and
advanced development relating to our consumer products.
In addition to our research and development activities classified as research and development
expense, we incur research and development expenses under funded development arrangements with
governments and industrial third parties. For the three and nine months ended October 2, 2010,
these expenses amounted to $6.5 million and $21.1 million, respectively, compared to $8.0 million
and $23.1 million for the three and nine months ended September 26, 2009, respectively. These
expenses have been classified as cost of revenue rather than research and development expense. The
combined investment in future technologies, classified as cost of revenue and research and
development expense, was $12.7 million and $37.5 million, respectively, for the three and nine
months ended October 2, 2010, compared to $11.2 million and $33.8 million for the three and nine
months ended September 26, 2009, respectively.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
10,734
|
|
|
$
|
9,514
|
|
|
$
|
1,220
|
|
|
|
12.8
|
%
|
|
$
|
30,959
|
|
|
$
|
27,420
|
|
|
$
|
3,539
|
|
|
|
12.9
|
%
|
As a percentage of total revenue
|
|
|
11.4
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
10.8
|
%
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $1.2 million, or 12.8%, to $10.7 million (11.4% of
revenue) in the three months ended October 2, 2010 from $9.5 million (12.1% of revenue) in the
three months ended September 26, 2009. This was driven by an increase in our home robots division
of $0.7 million primarily attributable to increases in on-line media, other marketing,
compensation, and employee-related expense supporting our international home robot sales for the
three months ended October 2, 2010 as compared to the three months ended September 26, 2009.
Selling and marketing expenses in our government and industrial division increased by $0.5 million
attributable to an increase in compensation expenses relating to bid and proposal activities and
sales commissions in the three months ended October 2, 2010 as compared to the three months ended
September 26, 2009.
Selling and marketing expenses increased by $3.5 million, or 12.9%, to $31.0 million (10.8% of
revenue) in the nine months ended October 2, 2010 from $27.4 million (13.9% of revenue) in the nine
months ended September 26, 2009. This was driven by an increase in our home robots division of $2.2
million attributable to increases in on-line media, promotions, sales commission expenses as a
19
result of higher sales, and an increase in compensation and employee-related expense supporting our
international home robot sales for the nine months ended October 2, 2010 as compared to the nine
months ended September 26, 2009. Selling and marketing expenses in our government and industrial
division increased by $1.2 million attributable to an increase in compensation expenses relating to
bid and proposal activities, and sales commissions as a result of higher sales in the nine months
ended October 2, 2010 as compared to the nine months ended September 26, 2009.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total general and administrative
|
|
$
|
8,904
|
|
|
$
|
7,420
|
|
|
$
|
1,484
|
|
|
|
20.0
|
%
|
|
$
|
26,693
|
|
|
$
|
21,915
|
|
|
$
|
4,778
|
|
|
|
21.8
|
%
|
As a percentage of total revenue
|
|
|
9.4
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
9.3
|
%
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by $1.5 million, or 20.0%, to $8.9 million (9.4%
of revenue) in the three months ended October 2, 2010 from $7.4 million (9.5% of revenue) in the
three months ended September 26, 2009. This increase is attributable to increased compensation and
employee benefits expenses related to increased headcount, and an increase in legal expense,
primarily attributable to our international expansion and intellectual property prosecution and
enforcement, for the three months ended October 2, 2010 as compared to the three months ended
September 26, 2009.
General and administrative expenses increased by $4.8 million, or 21.8%, to $26.7 million
(9.3% of revenue) in the nine months ended October 2, 2010 from $21.9 million (11.1% of revenue) in
the nine months ended September 26, 2009. This increase is attributable to increased compensation,
benefit and recruiting expenses related to increased headcount and an increase in incentive
compensation expense, stock based compensation, and an increase in legal expense, primarily
attributable to our international expansion and intellectual property prosecution and enforcement,
for the nine months ended October 2, 2010 as compared to the nine months ended September 26, 2009.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total other
income (expense),
net
|
|
$
|
299
|
|
|
$
|
112
|
|
|
$
|
187
|
|
|
|
167.0
|
%
|
|
$
|
368
|
|
|
$
|
(96
|
)
|
|
$
|
464
|
|
|
|
Not Meaningful
|
|
As a percentage of
total revenue
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
0.2
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
Other income (expense), net, amounted to $0.3 million for the three months ended October 2,
2010 compared to $0.1 million for the three months ended September 26, 2009. Other income
(expense), net, for the three month period ended October 2, 2010 was related to interest income of
$0.2 million and foreign currency exchange gains of $0.1 million resulting from foreign currency
exchange rate fluctuations. Other income (expense), net, for the three month period ended September
26, 2009 was directly related to foreign currency exchange losses resulting from foreign currency
exchange rate fluctuations.
Other income (expense), net, amounted to $0.4 million for the nine months ended October 2,
2010 compared to $(0.1) million for the nine months ended September 26, 2009. Other income
(expense), net, for the nine month period ended October 2, 2010 was related to interest income of
$0.6 million offset by foreign currency exchange losses of $0.2 million resulting from foreign
currency exchange
rate fluctuations. Other income (expense), net, for the nine month period ended September 26,
2009 was directly related to foreign currency exchange losses resulting from foreign currency
exchange rate fluctuations.
20
Income Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
October 2,
|
|
|
September 26,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Total income
tax expense
(benefit)
|
|
$
|
701
|
|
|
$
|
1,620
|
|
|
$
|
(919
|
)
|
|
|
(56.7
|
)%
|
|
$
|
7,771
|
|
|
$
|
(1,452
|
)
|
|
$
|
9,223
|
|
|
|
Not Meaningful
|
|
As a percentage of
total revenue
|
|
|
0.7
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
2.7
|
%
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
In the three months ended October 2, 2010, we projected an effective 2010 income tax rate
of 38%. The tax provision we recorded is $0.7 million, which reflects the projected 2010
tax rate and the $2.3 million associated with the full release of our valuation allowance relating
to state deferred tax assets. This $0.7 million expense compares to $1.6 million tax expense for
the three months ended September 26, 2009 based on a projected effective 2009 income tax rate of
36%.
In the nine months ended October 2, 2010, we projected an effective 2010 income tax rate of
38%. We recorded a tax provision of $7.8 million, which is reflective of the projected 2010 tax
rate and the $2.3 million associated with the full release of our valuation allowance relating to
state deferred tax assets. This $7.8 million expense compares to
a $1.5 million tax benefit for the
nine months ended September 26, 2009 based on a projected effective 2009 income tax rate of 36%.
Liquidity and Capital Resources
At October 2, 2010, our principal sources of liquidity were cash and cash equivalents totaling
$90.6 million, short-term investments of $16.6 million and accounts receivable of $27.8 million.
We manufacture and distribute our products through contract manufacturers and third-party
logistics providers. We believe that this approach gives us the advantages of relatively low
capital investment and significant flexibility in scheduling production and managing inventory
levels. By leasing our office facilities, we also minimize the cash needed for expansion.
Accordingly, our capital spending is generally limited to leasehold improvements, computers, office
furniture and product-specific production tooling, internal use software and test equipment. In the
nine months ended October 2, 2010 and September 26, 2009, we spent $7.5 million and $3.4 million,
respectively, on capital equipment.
Our strategy for delivering products to our retail customers gives us the flexibility to
provide container shipments directly to the retailer from China and, alternatively, allows our
retail partners to take possession of product on a domestic basis. Accordingly, our home robots
product inventory consists of goods shipped to our third-party logistic providers for the
fulfillment of retail orders and direct-to-consumer sales. Our inventory of government and
industrial products is relatively low as they are generally built to order. Our contract
manufacturers are responsible for purchasing and stocking the majority of components required for
the production of our products, and they invoice us when the finished goods are shipped.
The balance of cash and short-term investments of $107.2 million at October 2, 2010 is
primarily the result of our significant focus over the past year on managing working capital. As of
October 2, 2010, we did not have any borrowings outstanding under our existing working capital line
of credit and had $1.8 million letters of credit outstanding under our working capital line of
credit.
21
Discussion of Cash Flows
Net cash provided by operating activities for the nine months ended October 2, 2010 was $34.9
million, an increase of $10.3 million compared to the $24.6 million of net cash provided by
operating activities for the nine months ended September 26, 2009. The increase in net cash
provided by operating activities was primarily driven by the following factors:
|
|
|
An increase in cash of $20.3 million resulting from net income of $18.5 million in 2010
versus a net loss of $1.8 million in 2009;
|
|
|
|
|
An increase in cash of $15.4 million resulting from a decrease in accounts receivable of
$7.4 million in 2010 versus an increase of $8.0 million in 2009, primarily due to aggressive
collections and a reduction in days sales outstanding;
|
|
|
|
|
A decrease in cash of $11.5 million resulting from an increase in inventory of $1.6
million in 2010 versus a decrease of $9.9 million in 2009,
primarily due to the introduction of new products in our government
and industrial division and increased demand for our home robot
products;
|
|
|
|
|
A decrease in cash of $4.1 million resulting from an increase in accounts payable and
accrued expenses of $4.8 million in 2010 versus an increase of $8.9 million in 2009,
primarily due to a general increase in business activity and timing of payments to
suppliers;
|
|
|
|
|
A decrease in cash of $4.9 million resulting from a decrease in accrued compensation
of $0.4 million in 2010 versus an increase of $4.5 million in 2009, primarily due to the
disbursement of cash under our incentive compensation plan in the first quarter of 2010; and
|
|
|
|
|
A decrease in cash of $3.5 million resulting from a decrease in deferred revenue of $1.9
million in 2010 compared to an increase of $1.6 million in 2009, primarily due to net
increase in extended warranty contracts of $1.3 million recorded in 2009 and a contract
modification in 2010.
|
Net cash used in investing activities for the nine months ended October 2, 2010 was $19.0
million, representing an increase of $15.6 million compared to the $3.4 million of net cash used in
investing activities for the nine months ended September 26, 2009. This increase in net cash used
in investing activities was primarily driven by the following:
|
|
|
Purchase of investments of $30.5 million in 2010, partially offset by the sale of
investments of $19.0 million in 2010; and
|
|
|
|
|
The purchase of property and equipment of $7.5 million in 2010, compared to $3.4 million
in 2009, primarily due to an increase in self-constructed and
demonstration assets, and tooling related to new products in our
government and industrial division and a new contract manufacturer in
our home robots division.
|
Net cash provided from financing activities for the nine months ended October 2, 2010 was $2.9
million, an increase of $2.2 million compared to the $0.7 million of net cash provided by financing
activities for the nine months ended September 26, 2009. The increase is due primarily to an
increase in proceeds from stock option exercises.
Working Capital Facility
We have an unsecured revolving credit facility with Bank of America, N.A., which is available
to fund working capital and other corporate purposes. The total amount available for borrowing
under our credit facility is $40.0 million. As of October 2, 2010, $38.2 million was available for
borrowing. The interest on loans under our credit facility will accrue, at our election, at either
(i) the greater of the BBA LIBOR Daily Floating Rate or the Prime Rate of Lender plus fifty (50)
basis points, or (ii) the LIBOR rate plus 2.00%. The credit facility will terminate and all amounts
outstanding thereunder will be due and payable in full on June 5, 2012.
As of October 2, 2010, we had letters of credit outstanding of $1.8 million under our working
capital line of credit. This credit facility contains customary terms and conditions for credit
facilities of this type, including restrictions on our ability to incur or guaranty additional
indebtedness, create liens, enter into transactions with affiliates, make loans or investments,
sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or
merge with other entities.
In addition, we are required to meet certain financial covenants customary with this type of
agreement, including maintaining a minimum specified tangible net worth, a minimum specified
adjusted EBITDA, and minimum specified interest coverage ratio.
This credit facility contains customary events of default, including for payment defaults,
breaches of representations, breaches of affirmative or negative covenants, cross defaults to other
material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs
and is not cured within any applicable cure period or is not waived, our obligations under the
credit facility may be accelerated.
As of October 2, 2010, we were in compliance with all covenants under the credit facility.
22
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables,
expense accruals and operating leases, all of which we anticipate funding through working capital,
funds provided by operating activities and our existing working capital line of credit. We do not
currently anticipate significant investment in property, plant and equipment, and we believe that
our outsourced approach to manufacturing provides us with flexibility in both managing inventory
levels and financing our inventory. We believe our existing cash and cash equivalents, short-term
investments, cash provided by operating activities, and funds available through our working capital
line of credit will be sufficient to meet our working capital and capital expenditure needs over at
least the next twelve months. In the event that our revenue plan does not meet our expectations, we
may eliminate or curtail expenditures to mitigate the impact on our working capital. Our future
capital requirements will depend on many factors, including our rate of revenue growth, the
expansion of our marketing and sales activities, the timing and extent of spending to support
product development efforts, the timing of introductions of new products and enhancements to
existing products, the acquisition of new capabilities or technologies, and the continuing market
acceptance of our products and services. Moreover, to the extent that existing cash and cash
equivalents, short-term investments, cash from operations, and cash from short-term borrowing are
insufficient to fund our future activities, we may need to raise additional funds through public or
private equity or debt financing. As part of our business strategy, we may consider additional
acquisitions of companies, technologies and products, which could also require us to seek
additional equity or debt financing. Additional funds may not be available on terms favorable to us
or at all.
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 October 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Operating leases
|
|
$
|
2,866
|
|
|
$
|
5,083
|
|
|
$
|
4,766
|
|
|
$
|
10,922
|
|
|
$
|
23,637
|
|
Minimum contractual payments
|
|
|
1,966
|
|
|
|
6,450
|
|
|
|
|
|
|
|
|
|
|
|
8,416
|
|
Other obligations
|
|
|
462
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,294
|
|
|
$
|
11,847
|
|
|
$
|
4,766
|
|
|
$
|
10,922
|
|
|
$
|
32,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our minimum contractual payments consist entirely of payments to our provider of direct
fulfillment services for direct to consumer sales of our home robots, which payments are incurred
in the ordinary course of business. Based on an analysis of actual and projected fees for 2010, we
expect there will be a shortfall between our actual transaction fees and our contractual minimum
fees. Expense accruals for the proportionate share of these expected shortfalls have been recorded
to selling and marketing expense in the three month and nine month periods ended October 2, 2010.
Other obligations consist of software license and services agreement for our home robots division
customer service web support.
Off-Balance Sheet Arrangements
As of October 2, 2010, we had no off-balance sheet arrangements as defined in Item 303(a)(4)
of Regulation S-K.
23
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 October 2, 2010, we had unrestricted cash and cash equivalents of $90.6 million and short
term investments of $16.6 million. The unrestricted cash and cash equivalents are held for working
capital purposes. We do not enter into investments for trading or speculative purposes. Some of the
securities in which we invest, however, may be subject to market risk. This means that a change in
prevailing interest rates may cause the fair market value of the investment to fluctuate. To
minimize this risk in the future, we intend to maintain our portfolio of cash equivalents in a
variety of securities, commercial paper, money market funds, debt securities and certificates of
deposit. Due to the short-term nature of these investments, we believe that we do not have any
material exposure to changes in the fair value of our investment portfolio as a result of changes
in interest rates. As of October 2, 2010, all of our cash and cash equivalents were held in
interest-bearing demand deposits and money market accounts.
Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we must pay on any outstanding debt instruments, primarily certain borrowings under our
working capital line of credit. The advances under the working capital line of credit bear a
variable rate of interest determined as a function of the prime rate or the LIBOR rate at the time
of the borrowing. At October 2, 2010, we had letters of credit outstanding of $1.8 million under
our working capital line of credit.
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, but
we believe this exposure to be immaterial. Additionally, we accept orders for home robot products
in currencies other than the U.S. dollar. We regularly monitor the level of non-U.S. dollar
accounts receivable balances to determine if any actions, including possibly entering into foreign
currency forward contracts, should be taken to minimize the impact of fluctuating exchange rates on
our results of operations. Our international revenue is primarily denominated in U.S. dollars and
therefore any fluctuations in the Euro or any other non-U.S. dollar currencies will have minimal
direct impact on our international revenue. However, as the U.S. dollar strengthens or weakens
against other currencies, our international distributors may be impacted, which could affect their
profitability and our ability to maintain current pricing levels on our international consumer
products.
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 Securities Exchange Act of 1934, as amended, or 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 at a reasonable assurance level in ensuring that information
required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms; and (ii) accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
discussions regarding required disclosure. 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.
24
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 January 2, 2010, which could
materially affect our business, financial condition or future results. 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. There are no material changes to the Risk Factors described in our Annual Report on
Form 10-K for the fiscal year ended January 2, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the repurchases of our equity securities during the three months
ended October 2, 2010 by or on behalf of us or any affiliated purchaser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total
|
|
|
(d) Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number (or
|
|
|
|
|
|
|
|
(b)
|
|
|
Shares (or Units)
|
|
|
Approximate Dollar
|
|
|
|
(a) Total
|
|
|
Average
|
|
|
Purchased as
|
|
|
Value) of Shares (or
|
|
|
|
number
|
|
|
Price
|
|
|
Part of Publicly
|
|
|
Units) that May Yet
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Announced
|
|
|
Be Purchased Under
|
|
|
|
(or Units)
|
|
|
Share (or
|
|
|
Plans or
|
|
|
the Plans or
|
|
Period
|
|
Purchased
|
|
|
Unit)
|
|
|
Programs
|
|
|
Programs
|
|
Fiscal month beginning July 4, 2010 and ended July 31, 2010
|
|
|
239
|
(1)
|
|
$
|
20.27
|
(2)
|
|
|
|
|
|
|
|
|
Fiscal month beginning August 1, 2010 and ended August 28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal month beginning August 29, 2010 and ended October 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
239
|
(1)
|
|
$
|
20.27
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents shares of our common stock withheld by us to satisfy the minimum tax withholding
obligation in connection with the vesting of restricted stock units held by executive
officers.
|
|
(2)
|
|
The amount represents the last reported sale price of our common stock on the NASDAQ Global
Market on the applicable vesting date.
|
|
(3)
|
|
The amount represents the weighted average sale price of all shares of our common stock
repurchased during the three months ended October 2, 2010.
|
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 and directors (including Colin Angle,
Chief
Executive Officer, Joseph Dyer, Chief Operating Officer, Glen Weinstein, Senior Vice
President, General Counsel and Secretary, Alison Dean, Senior Vice President of Corporate Finance
and Principal Accounting Officer, Robert Moses, President Government and Industrial Division,
Rodney Brooks, Director, and Helen Greiner, Director) of the Company have entered into trading
plans (each a
25
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.
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.
26
Item 6. Exhibits
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
10.1*†
|
|
Form of Executive Agreement between the Registrant and certain executive officers of the Registrant, as amended
|
|
|
|
31.1*
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
31.2*
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
32.1*
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
*
|
|
Filed herewith
|
|
†
|
|
Indicates a management contract or any compensatory plan, contract or arrangement
|
27
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.
|
|
|
|
|
|
iROBOT CORPORATION
|
|
Date: November 5, 2010
|
By:
|
/s/ JOHN LEAHY
|
|
|
|
John Leahy
|
|
|
|
Executive Vice President, Chief Financial Officer
and Treasurer (Duly Authorized Officer and
Principal Financial Officer)
|
|
28
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
10.1*†
|
|
Form of Executive Agreement between the Registrant and certain executive officers of the Registrant, as amended
|
|
|
|
31.1*
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
31.2*
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
|
|
|
|
32.1*
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
*
|
|
Filed herewith
|
|
†
|
|
Indicates a management contract or any compensatory plan, contract or arrangement
|
29
Exhibit 10.1
iRobot Corporation
8 Crosby Drive
Bedford, MA 01730
This [Amended and Restated] Executive
Agreement (the
Agreement
), by and among iRobot
Corporation, a Delaware corporation (the
Company), and the executive named below
(
Executive
), sets forth the terms and
conditions by which the Company will provide
certain benefits for Executive under certain
circumstances in the event of a termination of
Executives employment with the Company. The
effective date of this Agreement shall be the
date of last execution as set forth below (the
Execution Date
).
|
|
|
|
|
|
|
|
|
|
|
iRobot Corporation
|
|
|
|
EXECUTIVE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name: Colin Angle
|
|
|
|
|
|
Name:
|
|
|
|
|
Title: Chairman and CEO
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: May ___, 200_
|
|
|
|
Date: May ___, 200_
|
|
|
WHEREAS
, Executive currently is an employee of the Company and an Officer (as hereinafter
defined), and is expected to make significant contributions to the business, growth and financial
strength of the Company;
WHEREAS
, the Company recognizes that the uncertainty regarding the consequences of a
termination of Executives employment as an Officer of the Company may adversely affect the
Companys ability to retain Executive;
WHEREAS
, the Company further recognizes that, as is the case for most publicly-held companies,
the possibility of a Change in Control (as hereinafter defined) exists, which may alter the nature
and structure of the Company, and that the uncertainty regarding the consequences of such an event
may adversely affect the Companys ability to retain Executive as an Officer;
WHEREAS
, the Company desires to more closely align Executives interests with those of the
shareholders of the Company with respect to any Change in Control that may benefit the
shareholders;
WHEREAS
, the Company desires to assure itself of both present and future continuity of
management in the event of a Change in Control by establishing certain benefits for Executive
applicable under certain circumstances in the event of a Change in Control;
WHEREAS
, the parties desire to set forth in writing the terms and conditions of their
agreement with respect to the provision of benefits for Executive applicable under certain
circumstances in the event of a Change in Control; and
[WHEREAS
, the Company and Executive are parties to that Executive Agreement, dated as of
[_______] (the Prior Agreement) and wish to amend, restate and fully supersede the Prior
Agreement on the terms and conditions set forth herein];
NOW, THEREFORE,
in consideration of the premises and the mutual covenants and obligations
herein contained, it is agreed among the parties hereto as follows:
1.
Term
. This Agreement shall continue for a term commencing on the Execution Date
and ending on the date two years thereafter (Initial Term), and shall be automatically renewed
from year to year thereafter for successive one-year terms (each a Renewal Term) unless ninety
(90) days prior to the expiration of the initial term or any renewal term, a party gives written
notice of non-renewal to the other party; provided that any such notice provided by the Company any
time during the period beginning on the date that is forty-five (45) days prior to the date upon
which a definitive agreement for a Change in Control is publicly announced as having been executed
by the Company (the
Announcement Date
) and ending on the first anniversary of the
effective date of a Change in Control, shall have no effect whatsoever, and the Agreement shall
continue in force until such time as otherwise terminated in accordance with the terms hereof. If
an effective notice of non-renewal is given as permitted hereunder, this Agreement will expire at
the conclusion of either the Initial Term or the Renewal Term, whichever is applicable, unless
terminated earlier as permitted by Section 2 hereof. The Term of this Agreement shall include
the Initial Term, as well as any Renewal Term, if applicable, subject to termination at any time
prior to the expiration of the Term as provided in Section 2 hereof;
provided
,
however
, that in the event of the first Change in Control to occur during the Term
(including after any notice of non-renewal is given), the Term shall automatically continue through
the first anniversary of the effective date of such Change in Control.
2.
At-Will Status
. Notwithstanding any provision of this Agreement, Executive will
remain employed at-will, so that Executive or the Company may terminate Executives employment at
any time, with or without notice, for any or no reason, and this Agreement shall not create or
imply any right or duty of Executive or the Company to have Executive remain in the employ thereof
for any period of time. This Agreement shall automatically terminate on the earliest date of: (a)
Executives Termination Date (as hereinafter defined) if Executives employment ceases for any
reason other than due to an Involuntary Termination Upon a Change in Control or a Resignation for
Good Reason Upon a Change in Control (as such terms are hereinafter defined); or (b) the date
immediately following the one-year anniversary of the effective date of the first Change in Control
to occur during the Term; provided, that, notwithstanding any provision in this Agreement to the
contrary, if Executives employment is terminated by the Company prior to a Change in Control for
any reason other than for Cause, death or Disability (as hereinafter defined) or ceases due to an
Involuntary Termination Upon a Change in Control or a Resignation for Good Reason Upon a Change in
Control, this Agreement shall remain in effect until all obligations of the parties hereunder have
been fully satisfied.
3.
Definitions
. As used in this Agreement, the following terms shall have the
meanings set forth herein:
a.
Cause
shall mean any one or more of the following: (i) Executives failure or
refusal to perform his/her duties on behalf of the Company or Executives unsatisfactory
performance (except due to Disability) for a period of thirty (30) days after receiving written
notice identifying in reasonable detail the nature of such failure, refusal or unsatisfactory
performance; (ii) Executives commission of a felony or misdemeanor involving deceit, dishonesty or
fraud; (iii) disloyalty, willful misconduct or breach of fiduciary duty by Executive; or (iv)
Executives violation of any confidentiality, developments or non-competition agreement or any
written employment polices related to conduct such as harassment or any code of conduct.
Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution duly adopted by the
Companys Board of Directors (the Board) (excluding Executive if he is a Director) at a meeting
of the Board called and held for (but not necessarily exclusively for) that purpose (after
reasonable notice to Executive and an opportunity for Executive to be heard by the Board) finding
that Executive has, in the good faith opinion of the Board, engaged in conduct constituting
Cause and specifying the particulars thereof in reasonable detail.
b.
Change in Control
shall mean the occurrence of any of the following events:
(i) The Company is merged or consolidated or reorganized into or with another corporation or
other legal person, and as a result of such merger, consolidation or reorganization less than fifty
percent (50%) of the combined voting power of the then-outstanding securities of such surviving,
resulting or reorganized corporation or person immediately after such transaction is held in the
aggregate by the holders of the then-outstanding securities entitled to vote generally in the
election of directors of the Company (
Voting Stock
) immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or substantially all of its assets to any
other corporation or other legal person, and as a result of such sale or transfer less than fifty
percent (50%) of the combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale or transfer is held in the aggregate by the holders of Voting
Stock of the Company immediately prior to such sale or transfer;
(iii) Any corporation or other legal person, pursuant to a tender offer, exchange offer,
purchase of stock (whether in a market transaction or otherwise) or other transaction or event
acquires securities representing 30% or more of the Voting Stock of the Company, or there is a
report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the U.S. Securities Exchange Act of 1934, as amended (the
Exchange
Act
), disclosing that any person (as such term is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as such term is used in
Rule 13d-3 under the Exchange Act) of securities representing 30% or more of the Voting Stock of
the Company;
(iv) The Company files a report or proxy statement with the Securities and Exchange Commission
pursuant to the Exchange Act disclosing under or in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a change in control of the Company has
occurred; or
(v) If during any period of two consecutive years, individuals who at the beginning of any
such period constitute the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Companys stockholders, of each director
of the Company first elected during such period was approved by a vote of at least a majority of
the directors then still in office who were directors of the Company at the beginning of any such
period;
provided
,
however
, that a Change in Control shall not be deemed to have occurred
for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the Voting Stock, or (iii) any
Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company,
either files or becomes obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report)
under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because
the Company reports that a change in control of the Company has occurred by reason of such
beneficial ownership.
c.
Company
shall mean iRobot Corporation, its assigns, and its Successors.
d.
Disability
shall mean any physical or mental disability that renders Executive
unable to perform his/her essential job responsibilities for a cumulative period of 180 days in any
twelve-month period, where such disability cannot be reasonably accommodated absent undue hardship.
e.
Executive Office
shall mean those offices of the Company domiciled in the United
States that the Board in its reasonable discretion may designate from time to time as constituting
an officer position pursuant to Section 16 of the Exchange Act and/or such other officers of the
Company as the Board shall designate from time to time. Any person holding an Executive Office
shall be an
Officer
.
f.
Incentive Pay Eligibility
shall mean the aggregate amount of any cash
compensation derived from any bonus, incentive, performance, profit-sharing or similar agreement,
policy, plan or arrangement of the Company that Executive is eligible to receive based upon the
attainment of 100% target or quota with respect to any one year.
g.
Involuntary Termination Upon a Change in Control
shall mean the termination of
the employment of Executive by the Company without Cause at any time within the period beginning on
the date that is forty-five (45) days prior to the Announcement Date and ending on the first
anniversary of the effective date of a Change in Control. Involuntary Termination Upon Change in
Control shall not include any termination of Executives employment (a) for Cause; (b) as a result
of Executives Disability; (c) as a result of Executives death; or (d) by Executive for any
reason.
h.
Resignation for Good Reason Upon a Change in Control
shall occur in the event the
Executive resigns from his employment because the occurrence of any of the following Events
without Executives prior written consent during the one-year period beginning on the effective
date of a Change in Control and provided Executive provides notice specified below:
(i) The substantial reduction of Executives aggregate base salary;
(ii) A material diminution in Executives responsibilities, authority or duties;
(iii) The permanent relocation of Executives primary workplace to a location more than thirty
(30) miles away from Executives workplace in effect immediately prior to a Change in Control;
(iv) Failure of any Successor to, or assignee of, the Company to assume the duties and
obligations of the Company under this Agreement pursuant to Section 13 hereof; or
(v) The substantial reduction in Executives (1) Incentive Pay Eligibility or (2) the benefits
for which Executive was eligible, in each case, in effect immediately prior to a Change in Control
unless, however, in the case of subclause (2) only, such reduction is due to an across-the-board
reduction applicable to all senior executives of the Company and any Successor, and the benefits
available to Executive after such across-the-board reduction are no less favorable than those
available to similarly-situated executives of the Company and such Successor; and provided that any
substantial reduction in the case of subclause (1) or (2) results in a material negative change to
the Executive for purposes of Section 409A of the Code, based on all of the relevant facts and
circumstances; and
(x) Within sixty (60) days after the first occurrence of any such Event, Executive provides written
notice to the Company describing with reasonable specificity the Event and stating his/her
intention to resign from employment due to such Event, (y) Executive cooperates in good faith with
the Companys efforts, for a period not less than thirty (30) days following such notice (the Cure
Period) to remedy such Event; and (z) Executive terminates his employment because of the Event
within sixty (60) days after the end of the Cure Period. If the Company cures an Event during the
Cure Period, such Event shall be deemed not to have occurred.
j.
Severance Benefits
shall mean:
(i) payment equal to 50% (i.e. six (6) months) of Executives base salary, at the highest
annualized rate in effect during the one (1) year period immediately prior to the Termination Date,
payable in six (6) equal monthly installments, beginning on the first regular payroll date that
occurs 53 days after the Termination Date. Solely for purposes of Section 409A of the Internal
Revenue Code of 1986, as amended (the
Code
), each installment payment of the Severance
Benefits is considered a separate payment and the first installment payment shall include a
catch-up payment covering amounts that would otherwise have been paid during the 53-day period but
for the application of this provision, and the balance of the installments shall be payable in
accordance with their original schedule; and
(ii) in the event Executive elects after the Termination Date to continue health, vision
and/or dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985
(
COBRA
), the Company will pay, on a monthly basis, the portion of the Executives monthly
premium payments that the Company pays for active employees for each such coverage elected by
Executive for Executive and his or her eligible dependents, until the earliest of the following
dates to occur with respect to each such elected coverage: (A) the six month anniversary of the
Termination Date; (B) the date upon which Executive becomes covered under a comparable group plan
for such applicable coverage; or (C) the date upon which Executive ceases to be eligible for COBRA
continuation for such applicable coverage.
k.
Stock Plans
shall mean the 2005 Stock Option and Incentive Plan and any other
stock plans or stock option plans established and maintained by the Company at any time during the
Term and pursuant to which Executive holds any options, stock, awards and/or purchase rights, each
as may be or may have been amended.
l.
Successor
shall mean any successor to the Company (whether direct or
indirect, by Change in Control, operation of law or otherwise), including but not limited to any
successor (whether direct or indirect, by Change in Control, operation of law or otherwise) to, or
ultimate parent entity of any successor to, the Company.
m.
Termination Date
shall mean Executives last date of employment with the
Company.
n.
Vesting Date
shall have the meaning specified in Section 5.a.(iv) hereof.
4.
Effect of a Termination without Cause
. If Executives employment is terminated by
the Company at any time during the Term and prior to a Change in Control for any reason that does
not constitute Cause, death or Disability, Executive shall be entitled to receive the following,
subject to Section 7 hereof; provided, however that if such termination constitutes an Involuntary
Termination Upon a Change in Control or a Resignation for Good Reason Upon a Change in Control,
Executive shall instead be entitled to the Change in Control Benefits described in Section 5.a of
this Agreement.
a. The Severance Benefits.
b. Executive shall also be entitled to any unpaid salary and benefits, and unused vacation
accrued, through the Termination Date, which amounts shall be paid no later than ten days after the
Termination Date (or otherwise in accordance with the terms of the applicable benefit plan).
Executive shall also be entitled to receive reimbursement for expenses that Executive reasonably
and necessarily incurred on behalf of the Company prior to the Termination Date, provided that
Executive submits expense reports and supporting documentation of such expenses as required by the
Companys policy in effect at that time. Executive shall not be eligible for or entitled to any
severance payments or benefits pursuant to a severance plan, program, arrangement, practice or
policy of the Company, if any, that may be in effect as of the Termination Date, including without
limitation any other agreement,
entered into prior to the date hereof, that Executive may have with the Company regarding the
subject matter hereof.
5.
Effect of Involuntary Termination Upon a Change in Control or Resignation for Good
Reason Upon a Change in Control
. In the event of an Involuntary Termination Upon a Change in
Control or a Resignation for Good Reason Upon a Change in Control during the Term, Executive shall
be entitled to the following:
a.
Change in Control Benefits
as follows, subject to
Section 7 hereof:
(i) Payment of an amount equal to 200% (
i.e.,
24 months) of Executives base salary, at the
highest annualized rate in effect during the period between the date immediately prior to the
effective date of a Change in Control and the Termination Date, payable in accordance with Section
5.a(v) below;
(ii) Payment of an amount equal to 200% of the highest amount of Executives Incentive Pay
Eligibility with respect to the period beginning in the year prior to that in which the Change in
Control occurs and ending in the year in which Executives employment is terminated, payable in
accordance with Section 5.a(v) below; and
(iii) In the event Executive elects after the Termination Date to continue health, vision
and/or dental coverage pursuant to COBRA, the Company will pay, on a monthly basis, the portion of
the Executives monthly premium payments that the Company pays for active employees for each such
coverage elected by Executive for Executive and his or her eligible dependents, until the earliest
of the following dates to occur with respect to each such elected coverage: (A) the second
anniversary of the Termination Date; (B) the date upon which Executive becomes covered under a
comparable group plan for such applicable coverage; or (C) the date upon which Executive ceases to
be eligible for COBRA continuation for such applicable coverage.
(iv) Any and all unvested stock, stock options, awards and rights that were granted to
Executive under any of the Stock Plans prior to the Termination Date shall immediately become fully
vested and exercisable as of the Termination Date or, if Executives employment was terminated
within the 45-day period prior to the Announcement Date, as of the Announcement Date (whichever may
apply, the
Vesting Date
). Notwithstanding any contrary provision of any agreement
relating to then outstanding stock, stock options, awards and rights granted to Executive under any
of the Stock Plans after the Execution Date, all such stock, stock options, awards and rights
granted after the Execution Date may be exercised by Executive (or Executives heirs, estate,
legatees, executors, administrators, and legal representatives) at any time during the period
ending on the earlier of (A) the later of (i) three (3) months after the Vesting Date and (ii) if
Executive dies within the three-month period after the Vesting Date, the first anniversary of the
date of Executives death, and (B) the scheduled expiration of such stock, stock option, award or
right, as the case may be. Executive hereby acknowledges and agrees that, as a result of the
operation of Section 4 and this subsection 5.a(ii), some or all of the incentive stock options
(as defined in the Code) granted to Executive under the Stock Plans may no longer qualify as
incentive stock options for U.S. federal income tax purposes, and Executive hereby consents to
any such disqualification.
(v) Each of the payments set forth in subsections 5.a.(i)-(ii) above (the
Cash Severance
Benefits
) shall be payable in twenty-four (24) equal monthly installments, beginning on the
first regular payroll date that occurs after the 53-day period following the Executives
Termination Date. Solely for purposes of Section 409A of the Code, each installment payment of the
Cash Severance Benefits is considered a separate payment and the first installment payment shall
include a catch-up payment covering amounts that would otherwise have been paid during the 53-day
period but for the
application of this provision, and the balance of the installments shall be payable in
accordance with their original schedule. The payments described in Section 5.a.(iii) hereof shall
be paid on a monthly basis.
b. Executive shall also be entitled to any unpaid salary and benefits, and unused vacation
accrued, through the Termination Date, which amounts shall be paid no later than ten days after the
Termination Date (or otherwise in accordance with the terms of the applicable benefit plan).
Executive shall also be entitled to receive reimbursement for final expenses that Executive
reasonably and necessarily incurred on behalf of the Company prior to the Termination Date,
provided that Executive submits expense reports and supporting documentation of such expenses as
required by the Companys policy in effect at that time. Executive shall not be eligible for or
entitled to any severance payments or benefits pursuant to a severance plan, program, arrangement,
practice or policy of the Company, if any, that may be in effect as of the Termination Date,
including without limitation any other agreement, entered into prior to the date hereof, that
Executive may have with the Company regarding the subject matter hereof.
6.
Liquidated Damages
. The parties hereto expressly agree that provision of the
Severance Benefits or Change in Control Benefits to Executive in accordance with the terms of this
Agreement will be liquidated damages, and that Executive shall not be required to mitigate the
amount of any payments provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of Executive hereunder or
otherwise.
7.
Conditions of Severance Benefits and Change in Control Benefits
. Executive shall
receive Severance Benefits and/or Change in Control Benefits only if Executive: (a) executes a
separation agreement, which includes a general release of claims in favor of the Company and
related persons and entities in a form and of a scope reasonably acceptable to the Company; (b)
returns all property, equipment, confidential information and documentation of the Company; (c) has
complied and continues to comply with any noncompetition, inventions and/or nondisclosure
obligations that Executive may owe to the Company, whether pursuant to an agreement or applicable
law; and (d) provides a signed, written resignation of Executives status as an officer, including,
without limitation, an Executive Officer, and director (if applicable) of the Company and, if
applicable, its subsidiaries. In the event that Executive has breached any obligations described
in Section 7(c), then (x) the Cash Severance Benefits shall terminate and Executive shall no longer
be entitled to them; (y) Executive shall promptly repay to the Company any Cash Severance Benefits
previously received by Executive; and (z) all options, awards and purchase rights held by Executive
shall no longer be exercisable as of the date of Executives breach. Such termination and
repayment of Cash Severance Benefits and cessation of the right to exercise shall be in addition
to, and not in lieu of, any and all available legal and equitable remedies, including injunctive
relief. Notwithstanding anything in this Agreement to the contrary, no payment and vesting dates
will occur until after the separation agreement referred to in clause (a) above is executed by
Executive and becomes fully effective (including by any applicable revocation periods expiring).
Executive must satisfy each of the conditions specified above within the timeframes established by
the Company provided the Executive shall have no more than forty-five (45) days following
Executives Termination Date to satisfy the conditions specified in 7(a), 7(b) and 7(d) above.
8.
Taxes
. All payments and benefits described in this Agreement shall be subject to
any and all applicable federal, state, local and foreign withholding, payroll, income and other
taxes. Except as specifically provided for herein, nothing shall be construed to require the
Company to make any payments to compensate Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholdings from any payment or benefit.
9.
Section 409A
. Anything in this Agreement to the contrary notwithstanding, if at
the time of Executives separation from service within the meaning of Section 409A of the Code, the
Company
determines that Executive is a specified employee within the meaning of Section
409A(a)(2)(B)(i) of the Code, and if any payment or benefit that Executive becomes entitled to
under this Agreement would be considered deferred compensation subject to interest, penalties and
additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of
Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable or benefit shall be
provided prior to the date that is the earlier of (A) six months and one day after Executives
Separation from Service (defined below), or (B) Executives death. If any such delayed cash
payment is otherwise payable on an installment basis, the first payment shall include a catch-up
payment covering amounts that would otherwise have been paid during the six-month period but for
the application of this provision, and the balance of the installments shall be payable in
accordance with their original schedule. The parties intend that this Agreement will be
administered in accordance with Section 409A of the Code. For purposes of clarity, to the extent
that any payment or benefit hereunder is payable upon a termination of Executives employment, then
such payments or benefits shall only be payable upon Executives Separation from Service. The
term Separation from Service shall mean Executives separation from service from the Company,
an affiliate of the Company or a successor entity within the meaning set forth in Section 409A of
the Code, determined in accordance with the presumptions set forth in Treasury Regulation Section
1.409A-1(h). All in-kind benefits provided and expenses eligible for reimbursement under this
Agreement shall be provided by the Company or incurred by the Executive during the time periods set
forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable,
but in no event shall any reimbursement be paid after the last day of the taxable year following
the taxable year in which the expense was incurred. The amount of in-kind benefits provided or
reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be
provided or the expenses eligible for reimbursement in any other taxable year. Such right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
The parties agree that this Agreement may be amended, as reasonably requested by either party, and
as may be necessary to fully comply with Section 409A of the Code and all related rules and
regulations in order to preserve the payments and benefits provided hereunder without additional
cost to either party. The Company makes no representation or warranty and shall have no liability
to Executive or any other person if any provisions of this Agreement are determined to constitute
deferred compensation subject to Section 409A but do not satisfy an exemption from, or the
conditions of, such section.
10.
Certain Reduction of Payments
. If (a) the Change in Control Benefits and any
payment or benefit received or to be received by Executive pursuant to any other plan, arrangement
or agreement (collectively, the
Total Payments
) would constitute (in whole or in part) an
excess parachute payment within the meaning of Section 280G(b) of the Code, and (b) Executive
would retain more of the Total Payments (after the payment of applicable tax liabilities imposed on
the Total Payments) in the event that the Cap (defined below) is imposed, then the amount of the
Total Payments shall be reduced until the aggregate present value (as that term is defined in
Section 280G(d)(4) of the Code using the applicable federal rate in effect on the date of this
Agreement) of the Total Payments is such that no part of the Total Payments constitutes an excess
parachute payment within the meaning of Section 280G(b) of the Code (the
Cap
). In such
event, the Total Payments shall be reduced in the following order: (i) cash payments not subject
to Section 409A of the Code; (ii) cash payments subject to Section 409A of the Code; (iii)
equity-based payments and acceleration; and (iv) non-cash forms of benefits. To the extent any
payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced
in reverse chronological order.
11.
Exclusive Remedy
. Except as expressly set forth herein or otherwise required by
law, Executive shall not be entitled to any compensation, benefits, or other payments as a result
of or in connection with the termination or resignation of Executives employment at any time, for
any reason. The payments and benefits set forth in Sections 4 and 5 hereof shall constitute
liquidated damages and shall be Executives sole and exclusive remedy for any claims, causes of
action or demands arising under
or in connection with this Agreement or its alleged breach, the termination or resignation of
Executives employment relationship, or the cessation of holding an Executive Office.
12.
Governing Law/Forum
. The parties agree that any claims arising out of or in
connection with this Agreement shall be governed by and construed in accordance with the laws of
The Commonwealth of Massachusetts, and this Agreement shall in all respects be interpreted,
enforced and governed under the internal and domestic laws of such State, without giving effect to
the principles of conflicts of laws thereof. In addition, each of the parties, by its or his
execution hereof, hereby irrevocably submits to the exclusive jurisdiction of the state or federal
courts of Massachusetts with respect to any claims arising out of or in connection with this
Agreement and agrees not to commence any such claims or actions other than in such courts.
The prevailing party in any action arising out of or in connection with this Agreement shall
be entitled to payment, by the other party, of the prevailing partys reasonable expenses and
attorneys fees incurred in connection with such action.
13.
Entire Agreement
. This Agreement shall constitute the sole and entire agreement
among the parties with respect to the subject matter hereof, and supersedes and cancels all prior,
concurrent and/or contemporaneous arrangements, understandings, promises, programs, policies,
plans, practices, offers, agreements and/or discussions, whether written or oral, by or among the
parties regarding the subject matter hereof, including, but not limited to, the Prior Agreement and
any other agreement constituting or concerning employment agreements, change in control benefits
and/or severance benefits;
provided
,
however
, that this Agreement is not intended
to, and shall not, supersede, affect, limit, modify or terminate any of the following, all of which
shall remain in full force and effect in accordance with their respective terms: (i) any written
agreements, programs, policies, plans, arrangements or practices of the Company that do not relate
to the subject matter hereof; (ii) any written stock or stock option agreements between Executive
and the Company (except as expressly modified hereby); and (iii) any written agreements between
Executive and the Company concerning noncompetition, nonsolicitation, inventions and/or
nondisclosure obligations.
14.
Successors and Assignment
. Executive may not assign any rights or delegate any
duties or obligations under this Agreement. The Company will require its respective assigns and
Successors to expressly assume this Agreement and to agree to perform hereunder in the same manner
and to the same extent that the Company would be required to perform if no such succession or
assignment had taken place. Regardless of whether such an agreement is executed, this Agreement
shall inure to the benefit of, and be binding upon, the Companys Successors and assigns and
Executives heirs, estate, legatees, executors, administrators, and legal representatives.
15.
Notices
. All notices required hereunder shall be in writing and shall be
delivered in person, by facsimile or by certified or registered mail (or similar means for non-U.S.
addresses), return receipt requested, and shall be effective upon receipt if by personal delivery
or facsimile or three (3) business days after mailing if sent by certified or registered mail (or
similar means for non-U.S. addresses). All notices shall be addressed as specified on the first
page of this Agreement or to such other address as the parties may later provide in writing.
16.
Severability/Reformation
. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise
illegal, the remainder of this Agreement and the application of such provision to any other person
or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal. The language of all parts of this Agreement shall in all cases be
construed as a whole according to its fair meaning and not strictly for or against any of the
parties.
17.
Modification
. This Agreement may be modified or waived only in accordance with
this Section 17. No waiver by any party of any breach by the other or any provision hereof shall
be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision
of this Agreement. This Agreement and its terms may not be waived, changed, discharged or
terminated orally or by any course of dealing between or among the parties, but only by a written
instrument signed by the party against whom any waiver, change, discharge or termination is sought.
No modification or waiver by the Company is effective without written consent of the Board of
Directors of the Company.
18.
Survival of Obligations and Rights.
Notwithstanding anything to the contrary in
this Agreement, provisions herein shall survive the termination of Executives employment by the
Company prior to a Change in Control, or due to an Involuntary Termination Upon a Change in Control
or a Resignation for Good Reason Upon a Change in Control or, other expiration or termination of
this Agreement, if so provided herein or if necessary or desirable to fully accomplish the purposes
of such provisions, including the obligations and rights contained in Sections 4 through 19 hereof.
19.
Counterparts
. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall constitute one and the
same instrument. PDF and facsimile signature pages shall have the same legal effect as originals.
20.
Section Headings
. The descriptive section headings herein have been inserted for
convenience only and shall not be deemed to define, limit, or otherwise affect the construction of
any provision hereof.