iRobot 2005 Annual Report Download - page 52

Other Income (Expense), Net
Other income (expense), net principally consists of interest income on our investment portfolio, partially
offset by interest expense as we have occasionally borrowed on a working capital line of credit. Other expense,
net for fiscal 2004 amounted to $0.1 million compared to other income, net of $15,000 in fiscal 2003. In fiscal
2004, the other expense, net consisted primarily of interest expense incurred as a result of our borrowings
under our working capital line of credit and cash discounts for accelerated payments $0.1 million, partially
offset by interest income of $0.1 million earned on our cash portfolio.
Income Tax Provision
Our income taxes represent primarily state taxes and the impact of applying the alternative minimum tax
rules.
Liquidity and Capital Resources
At December 31, 2005 our principal sources of liquidity were cash and cash equivalents totaling
$76.1 million and accounts receivable of $23.0 million. Prior to our initial public offering in November 2005,
we funded our growth primarily with proceeds from the issuance of convertible preferred stock for aggregate
net cash proceeds of $37.5 million, occasional borrowings under a working capital line of credit and cash
generated from operations. In the initial public offering, we raised $70.4 million net of underwriting and
professional fees associated with this offering.
We manufacture and distribute our products through contract manufacturers and third-party logistics
providers. We believe that this approach gives us the advantages of relatively low capital investment and
significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities,
we also minimize the cash needed for expansion. Accordingly, our capital spending is generally limited to
leasehold improvements, computers, office furniture and product-specific production tooling and test equip-
ment. In fiscal 2005 and 2004, we spent $5.5 million and $3.2 million, respectively, on capital equipment.
The majority of our consumer products are delivered to our customers directly from our contract
manufacturer in China. Accordingly, our consumer product inventory consists of goods shipped to our
domestic third-party logistic providers for the fulfillment of domestic retail orders and direct-to-consumer
sales. Our inventory of military products is minimal as they are generally built to order. Our contract
manufacturers are responsible for purchasing and stocking the components required for the production of our
products, and they invoice us when the finished goods are shipped. Based on this approach to production and
distribution, we turned our inventory approximately 8 times during fiscal 2005.
Our consumer product sales are, and are expected to continue to be, highly seasonal. This seasonality
typically results in a net use of cash in support of operating needs during the first half of the year with the low
point generally occurring in the middle of the third quarter, and a favorable cash flow during the second half of
the year. In the past, we have relied on our working capital line of credit to cover the short-term cash needs
resulting from the seasonality of our consumer business.
Discussion of Cash Flows
Net cash used by our operating activities in fiscal 2005 was $8.9 million compared to net cash generated
by operating activities of $8.9 million in fiscal 2004 and net cash used by operating activities of $11.3 million in
fiscal 2003. The cash used by our operating activities in fiscal 2005 was primarily due to an increase in
accounts receivable of $9.8 million, an increase in inventory of $8.2 million, an increase in other current assets
of $1.1 million, and an increase in unbilled revenue of $0.7 million, offset by net income of $2.6 million, and an
increase in liabilities of approximately $5.5 million. In addition, in fiscal 2005, we had depreciation and
amortization of approximately $2.1 million and amortization of deferred compensation of $0.6 million, both of
which are non-cash expenses. The increase in accounts receivable, inventory and liabilities in fiscal 2005 are
directly attributable to the 49.4% growth in revenue from the comparable period in fiscal 2004. The cash
provided by our operating activities in fiscal 2004 was primarily due to net income of approximately
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