iRobot 2011 Annual Report Download

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Proxy Statement
Dear Stockholder: April 11, 2012
You are cordially invited to attend the annual meeting of stockholders of iRobot Corporation to be held at
2:00 p.m., local time, on Tuesday, May 22, 2012 at iRobot Corporation headquarters located at 8 Crosby Drive,
Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect four (4) class I directors for three-year terms, to ratify the
appointment of our independent registered public accountants and to cast an advisory vote on the approval of the
compensation of our named executive officers. The board of directors unanimously recommends that you vote
FOR election of the director nominees, FOR ratification of appointment of our independent registered public
accountants and FOR approval, on an advisory basis, of the compensation of our named executive officers.
Details regarding the matters to be acted upon at this annual meeting appear in the accompanying proxy
statement. Please give this material your careful attention.
Whether or not you plan to attend the annual meeting, we urge you to sign and return the enclosed proxy so
that your shares will be represented at the annual meeting. If you attend the annual meeting, you may vote in
person even if you have previously returned your proxy card. Your prompt cooperation will be greatly
appreciated.
Very truly yours,
COLIN M. ANGLE
Chief Executive Officer & Chairman of the Board

Table of contents

  • Page 1
    ... You are cordially invited to attend the annual meeting of stockholders of iRobot Corporation to be held at 2:00 p.m., local time, on Tuesday, May 22, 2012 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect...

  • Page 2
    ... you have previously returned your proxy card. Directions to iRobot Corporation headquarters can be found at the Company's website, http://www.irobot.com. By Order of the Board of Directors, GLEN D. WEINSTEIN Senior Vice President, General Counsel and Secretary Bedford, Massachusetts April 11, 2012...

  • Page 3
    ... Holder Communications with the Board of Directors ...Policy Governing Director Attendance at Annual Meetings of Stockholders ...Board of Directors Evaluation Program ...Code of Ethics ...THE BOARD OF DIRECTORS AND ITS COMMITTEES ...Board of Directors ...Audit Committee ...Compensation Committee...

  • Page 4
    ... by the board of directors of iRobot Corporation, a Delaware corporation (the "Company"), for use at the annual meeting of stockholders to be held on Tuesday, May 22, 2012, at 2:00 p.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, and...

  • Page 5
    The person named as attorney-in-fact in the proxies, Glen D. Weinstein, was selected by the board of directors and is an officer of the Company. All properly executed proxies returned in time to be counted at the annual meeting will be voted by such person at the annual meeting. Where a choice has ...

  • Page 6
    ... named executive officer of the Company; and (iv) by all directors and executive officers of the Company as a group. Unless otherwise noted below, the address of each person listed on the table is c/o iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730. Name of Beneficial Owner Shares...

  • Page 7
    ...the shares owned directly by the Fidelity Funds, which power resides with the Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds' Boards of Trustees. The address of each reporting entity is 82 Devonshire Street, Boston, MA 02109...

  • Page 8
    ... of stock options and 1,821 shares issuable to Mr. Sagan upon termination of service. (21) Includes an aggregate of 863,622 shares issuable upon exercise of stock options held by fourteen (14) executive officers and directors, an aggregate of 40,459 shares issuable upon vesting of restricted stock...

  • Page 9
    .... Angle and Kern and Ms. Ellinger are class I directors whose terms expire at this annual meeting. The board of directors is also composed of (i) three class II directors (George C. McNamee, Peter T. Meekin and Paul Sagan), whose terms expire upon the election and qualification of directors at the...

  • Page 10
    ... the Company Year Current Term Will Expire Current Class of Director Nominees for Class I Directors: Colin M. Angle 1992 Ronald Chwang, Ph.D. 1998 Paul J. Kern, Gen. U.S. Army (ret.) 2006 Deborah G. Ellinger 2011 Continuing Directors: George C. McNamee 1999 Peter T. Meekin 2003 Paul Sagan 2010 Gail...

  • Page 11
    ... Director Director Director (1) Member of compensation committee (2) Member of audit committee (3) Member of nominating and corporate governance committee Colin M. Angle, a co-founder of iRobot, has served as chairman of the board since October 2008, as chief executive officer since June 1997...

  • Page 12
    ...commanding the Naval Air Systems Command at which he was responsible for research and development, procurement and in-service support for naval aircraft, weapons and sensors. He is an elected fellow in the Society of Experimental Test Pilots and the National Academy of Public Administration. He also...

  • Page 13
    ... Business School. Mr. Geisser brings to the board of directors his extensive experience regarding the management of companies, as well as his financial expertise. George C. McNamee has served as a director since August 1999. Currently a private investor, Mr. McNamee served as a managing partner...

  • Page 14
    ... member of Akamai's board of directors in January 2005. Akamai is the leader in providing managed services for powering video, dynamic transactions and enterprise applications online. From July 1997 to August 1998, Mr. Sagan was senior advisor to the World Economic Forum, a Geneva, Switzerland-based...

  • Page 15
    ... corporate governance. The lead independent director's specific duties include: • • providing the chairman of the board with input as to preparation of agendas for meetings; advising the chairman of the board as to the quality, quantity and timeliness of the flow of information from the company...

  • Page 16
    ... risk related to accounting, internal controls, and financial and tax reporting. The audit committee also assesses economic and business risks and monitors compliance with ethical standards. The compensation committee identifies and oversees risks associated with our executive compensation policies...

  • Page 17
    ... meets our criteria and would be able to fulfill the duties of a director. • • Nominations must be sent to the attention of our secretary by U.S. mail (including courier or expedited delivery service) to: iRobot Corporation 8 Crosby Drive Bedford, Massachusetts 01730 Attn: Secretary of iRobot...

  • Page 18
    ... courier or expedited delivery service) to: iRobot Corporation 8 Crosby Drive Bedford, Massachusetts 01730 Attn: Chairman of the Board, c/o Secretary For security holder communications directed to an individual director in his or her capacity as a member of the board of directors, security holders...

  • Page 19
    ... is available at the Corporate Governance section of our website at http://www.irobot.com. A copy of the Code of Business Conduct and Ethics may also be obtained, free of charge, from us upon a request directed to: iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Investor...

  • Page 20
    ... non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm; reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; coordinating...

  • Page 21
    ... a written charter adopted by the board of directors, a current copy of which is available at the Corporate Governance section of our website at http://www.irobot.com. Compensation Committee Interlocks and Insider Participation During 2011, Dr. Chwang, Gen. Kern and Mr. McNamee served as members of...

  • Page 22
    ... committee; (ii) a director of another entity, one of whose executive officers served on our compensation committee; or (iii) a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire...

  • Page 23
    ...1, AU section 380), other standards of the Public Company Accounting Oversight Board, rules of the Securities and Exchange Commission and other applicable regulations. The audit committee has reviewed permitted services under rules of the Securities and Exchange Commission as currently in effect and...

  • Page 24
    ... responsible for developing executive compensation policies and advising the board of directors with respect to such policies and administering the Company's cash incentive, stock option and employee stock purchase plans. The compensation committee sets performance goals and objectives for the chief...

  • Page 25
    ... as longer-term strategic objectives, such as invention, product development and evaluation of potential acquisitions. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, merger and acquisition expenses, net intellectual property litigation-related activity...

  • Page 26
    ...in 2011. The compensation committee will continue to consider the outcome of our say-on-pay votes, regulatory changes and emerging best practices when making future compensation decisions for our named executive officers. Our compensation plans are developed, in part, by utilizing publicly available...

  • Page 27
    ... responsibilities, administers our incentive compensation plan, and reviews and makes recommendations to management on company-wide compensation programs and practices. In setting compensation levels for our executive officers in fiscal 2011, the compensation committee considered many factors in...

  • Page 28
    ... year 2011 helped to achieve our executive compensation objectives, compare favorably to our peer group and, in light of our overall compensation program, are within our target of providing total compensation at the market median. In addition, we believe that the base salaries of our named executive...

  • Page 29
    ... success on the part of our named executive officers for achievement. While the Senior Executive Incentive Compensation Plan is designed to provide cash incentive payments based upon objectively determinable formulas that tie cash incentive payments to specific financial goals and strategic...

  • Page 30
    ..., divisional contribution margins, divisional revenue, as well as revenue derived from funded research & development contracts and company mix between its various business operations. Since the specific overall company performance targets are highly confidential, we do not publicly disclose these...

  • Page 31
    ... performance incentive plan, which is the cash incentive program that applies to all employees at the manager level and above. The following table shows our achievement against the various metrics used for calculating the 2011 cash incentive compensation for our named executive officers: 2011 Goals...

  • Page 32
    ...as well as our compensation objectives and policies described above. During fiscal year 2011, we granted stock options and restricted stock unit awards to our named executive officers. As part of the annual review of our equity compensation program, the compensation committee considered a variety of...

  • Page 33
    ... that are customary for public companies at our stage of development and were necessary in order to hire and/or retain our executives. Tax Deductibility of Executive Compensation In general, under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, we cannot deduct, for...

  • Page 34
    ... years 2010 and 2009, respectively, based upon a number of factors including completion of significant business and operational milestones and the comparable cash incentive compensation of companies within our peer group. (7) Mr. Moses resigned as President, Government and Industrial Robots division...

  • Page 35
    Grants of Plan-Based Awards in 2011 The following table sets forth, for each of the named executive officers, information about grants of planbased awards during fiscal year 2011. GRANTS OF PLAN-BASED AWARDS - 2011 All Other Stock Awards: Number of Shares of Stock or Units (#)(2) All Other Option ...

  • Page 36
    ... YEAR END - 2011 Option Awards Stock Awards Number of Number of Number of Market Value of Securities Securities Shares or Shares or Underlying Underlying Option Units of Stock Units of Stock Unexercised Unexercised Exercise Option That Have That Have Not Options (#) Options (#) Price Expiration Not...

  • Page 37
    ... with a change in control) on December 31, 2011, our named executive officers would be entitled to cash payments in the amounts set forth opposite their names in the tables below, subject to any deferrals required under Section 409A of the Internal Revenue Code of 1986, as amended. Base Salary...

  • Page 38
    ... one-year period following a change in control on December 31, 2011, our named executive officers would be entitled to cash payments in the amounts set forth opposite their names in the below table, subject to any deferrals required under Section 409A of the Internal Revenue Code of 1986, as amended...

  • Page 39
    In 2011, each of our non-employee members of our board of directors was entitled to the following equity compensation under our 2005 Plan: • Upon initial election to the board of directors, a non-employee director will receive a one-time grant of restricted stock units having a fair market value ...

  • Page 40
    ... of our capital stock or any member of their immediate family had or will have a direct or indirect material interest. Our board of directors has adopted a written related party transaction approval policy, which sets forth our policies and procedures for the review, approval or ratification of any...

  • Page 41
    ... Committees" and "Report of the Audit Committee of the Board of Directors." Representatives of PricewaterhouseCoopers LLP attended all of the meetings of the audit committee in 2011. We expect that a representative of PricewaterhouseCoopers LLP will attend the annual meeting, and the representative...

  • Page 42
    ... for assistance with federal, state, local and international tax planning compliance. All Other Fees All other fees include licenses to technical accounting research software. The audit committee has determined that the provision of services described above to us by PricewaterhouseCoopers LLP is...

  • Page 43
    .... At our 2011 annual meeting of stockholders, our stockholders voted, on a non-binding, advisory basis, for the Company to hold future, non-binding advisory votes on the compensation of our named executive officers on an annual basis. After taking into consideration this voting result, our board of...

  • Page 44
    ... Securities and Exchange Commission's proxy rules. In order to curtail controversy as to the date on which we received a proposal, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested, to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730...

  • Page 45
    ... sharing an address. If your household has received only one Annual Report and one proxy statement, we will deliver promptly a separate copy of the Annual Report and the proxy statement to any shareholder who sends a written request to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts...

  • Page 46
    ...A iRobot Corporation Adjusted EBITDA Reconciliation to GAAP (unaudited, in thousands) For the twelve months ended December 31, January 1, 2011 2011 Net income Interest income, net Income tax expense Depreciation Amortization EBITDA Stock-based compensation expense Merger and acquisition expense Net...

  • Page 47

  • Page 48
    ... iROBOT CORPORATION (Exact name of registrant as specified in its charter) Form 10-K Delaware (State or other jurisdiction of incorporation or organization) 77-0259 335 (I.R.S. Employer Identification No.) 8 Crosby Drive, Bedford, MA (Address of principal executive offices) 01730 (Zip Code...

  • Page 49
    iROBOT CORPORATION ANNUAL REPORT ON FORM 10-K Year Ended December 31, 2011 TABLE OF CONTENTS Page Part I Item 1. Business ...Item 1A. Risk Factors ...Item 1B. Unresolved Staff Comments ...Item 2. Properties ...Item 3. Legal Proceedings ...Item 4. Mine Safety Disclosures ...Part II Market for ...

  • Page 50
    ..., Scooba, iRobot Dirt Dog, PackBot, Warrior, FirstLook, Looj, Verro, Create,Virtual Wall, Home Base, and Aware are trademarks of iRobot Corporation. Overview iRobot Corporation ("iRobot" or the "Company" or "we") designs and builds robots that make a difference. For over 20 years, we have developed...

  • Page 51
    ... this community by making our products into extensible platforms with open interfaces designed to carry payloads. Technology We are focused on behavior-based, artificially-intelligent systems developed to meet customer requirements in multiple market segments. In contrast to robotic manufacturing...

  • Page 52
    ..., sensor fusion, power management and communication. Our AWARE systems allow our Roomba floor vacuuming robot and our Scooba floor washing robot to clean an entire floor while navigating around obstacles and not falling down stairs, and also allow our PackBot robots and our other unmanned ground...

  • Page 53
    ... the pool floor, walls and stairs. Verro is brought to market under the iRobot brand through a relationship with the Aqua Products Group companies including AquaJet LLC and Aquatron, Inc., which developed the pool cleaning robots. There are three models available. Our Looj Gutter Cleaning Robot was...

  • Page 54
    ..., Roomba and Scooba robots are designed with open interfaces that allow third-party developers to add payloads to our robots, improving their functionality. Sales and Distribution Channels We sell our products through distinct sales channels to the consumer and government and industrial markets. For...

  • Page 55
    ... and technical support requirements for military operations. Marketing and Brand We market our home robots to end-user customers through our sales and marketing teams as well as through our extensive network of retailers and in-country distributors. We market our government and industrial products...

  • Page 56
    ... at a single plant in China. Our PackBot, Small Unmanned Ground Vehicle (SUGV) and Maritime families of government and industrial products are each manufactured by separate contract manufacturers located in the United States. Research and Development Form 10-K We believe that our future...

  • Page 57
    ... cleaning products, developers of small unmanned ground vehicles, established government contractors working on unmanned systems, and developers of small unmanned underwater vehicles. While we believe many of our customers purchase our Roomba floor vacuuming robots and Scooba floor washing robots...

  • Page 58
    ... products and technical data. We also need special security clearances to continue working on and advancing certain of our projects with the U.S. federal government. Classified programs generally will require that we comply with various Executive Orders, federal laws and regulations and customer...

  • Page 59
    ... online services to establish privacy policies. Government and Industrial Product Backlog Our government and industrial product backlog consists of written orders or contracts to purchase our products received from our government and industrial customers. Total backlog of product sales to government...

  • Page 60
    ...: • the size and timing of orders from military and other government agencies; • the size, timing and mix of orders from retail stores and international distributors for our home care robots; • the mix of products that we sell in the period; • disruption of supply of our products from our...

  • Page 61
    ... products. A significant portion of our operating expenses, such as research and development expenses, certain marketing and promotional expenses and employee wages and salaries, do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a quarter...

  • Page 62
    ...our products and services, and correspondingly, our revenues, thereby adversely affecting our business, financial condition and results of operations. Our participation in specific major U.S. federal government programs is critical to both the development and sale of our military robots. For example...

  • Page 63
    .... We currently depend largely on several single source contract manufacturers, for the manufacture of our various families of home care and government products. All contract manufacturers for our home robots are located in China. These manufacturers supply substantially all of the raw materials and...

  • Page 64
    ... results. We have focused on selling our robots in the home floor care and military markets. We plan to expand into other markets. Efforts to expand our product offerings beyond the markets that we currently serve, however, may divert management resources from existing operations and require...

  • Page 65
    ... vacuum cleaners. Our competitors include developers of robot floor cleaning products, developers of small unmanned ground vehicles, established government contractors working on unmanned systems, and developers of small unmanned underwater vehicles. The market for robots is highly competitive...

  • Page 66
    ... us to continue offering, and our customers to continue using, our affected product. In addition, we may be required to indemnify our retail and distribution partners for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling in such a claim...

  • Page 67
    ... and work experience. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and...

  • Page 68
    ...various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees to obtain government clearances. Our failure to comply with applicable regulations, rules and...

  • Page 69
    ...1, 2011, sales to non-U.S. customers accounted for 45.5% and 42.1% of total revenue, respectively. Our international revenue and operations are subject to a number of material risks, including, but not limited to: • difficulties in staffing, managing and supporting operations in multiple countries...

  • Page 70
    ... for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales...

  • Page 71
    ... in a future reporting period. Provisions in our certificate of incorporation and by-laws, our shareholder rights agreement or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common...

  • Page 72
    ...North Carolina supporting our government and industrial division's unmanned underwater vehicles. We lease smaller facilities in Burlington, Massachusetts; Hong Kong; Shenzhen, China; London, England; San Luis Obispo, California; and Crystal City, Virginia. We do not own any real property. We believe...

  • Page 73
    ... sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported on the NASDAQ Global Market. High Low Fiscal 2010: First quarter ...Second quarter ...Third quarter ...Fourth quarter ...Fiscal 2011: First quarter ...Second quarter ...Third quarter...

  • Page 74
    ... revenue Cost of product revenue ...Cost of contract revenue ...Total cost of revenue ...Gross Margin ...Operating Expenses Research and development ...Selling and marketing ...General and administrative ...Litigation and related expenses ...Total operating expenses ...Operating (Loss) Income ...Net...

  • Page 75
    ... new product sales, product development and offerings, Roomba, Scooba, Looj and Verro products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, Seaglider, Negotiator, Ava, our home robots and government and industrial robots divisions, our competition, our strategy, our market...

  • Page 76
    ... sale of our various home cleaning robots and government and industrial robots and related accessories. Research and development revenue is derived from the execution of contracts awarded by the U.S. federal government, other governments and a small number of other partners. In the future, we expect...

  • Page 77
    ...associated with the project resources, engineering tools and supplies and program management expenses. For the fiscal years ended December 31, 2011 and January 1, 2011, cost of contract revenue was 67.9% and 66.9% of total contract revenue, respectively. Gross Margin Our gross margin as a percentage...

  • Page 78
    ...direct-to-consumer sales through our on-line store; • customer service costs; • professional services costs; • information systems and infrastructure costs; • travel and related costs; and • occupancy and other overhead costs. We anticipate that selling, general and administrative expenses...

  • Page 79
    ... rights of return at the time the related sale is recorded. We establish a provision for sales returns for products sold by domestic resellers directly based on historical return experience and other relevant data. Our international distributor agreements do not currently allow for product returns...

  • Page 80
    ... and will either repair the goods, provide replacement products at no charge to the customer or refund amounts to the customer for defective products. We record estimated warranty costs, based on historical experience by product, at the time we recognize product revenue. As the complexity of our...

  • Page 81
    ... 2011 2011 2010 (In thousands) Revenue Product revenue ...Contract revenue ...Total revenue ...Cost of Revenue Cost of product revenue(1) ...Cost of contract revenue(1) ...Total cost of revenue ...Gross margin ...Operating Expenses Research and development(1) ...Selling and marketing(1) ...General...

  • Page 82
    ..., January 1, January 2, 2011 2011 2010 Revenue Product revenue ...Contract revenue ...Total revenue ...Cost of Revenue Cost of product revenue ...Cost of contract revenue ...Total cost of revenue ...Gross margin ...Operating Expenses Research and development ...Selling and marketing ...General and...

  • Page 83
    ... 700 series and Scooba 230 robots. Home robots division revenue from international sales was 70.3% of total home robots division revenue in fiscal 2011 as compared to 66.0% in fiscal 2010. The increase in net average selling prices was primarily driven by customer mix and product mix relating to the...

  • Page 84
    ... increases in advertising as part of our continued global marketing and branding efforts, other marketing, compensation, and employee-related expense for fiscal 2011 as compared to fiscal 2010. Selling and marketing expenses in our government and industrial robots division increased by $1.2 million...

  • Page 85
    ...of our research and development credit and domestic manufacturing deductions. The $8.5 million provision for fiscal 2010 was based upon a projected 2010 effective tax rate of 31.5% offset by a $2.3 million one-time benefit associated with the full release of our valuation allowance relating to state...

  • Page 86
    ... international sales, which consist of products having a higher average selling price than products sold to domestic customers, was 66.0% of total home robot division revenue in fiscal 2010 as compared to 53.8% in fiscal 2009. The $38.8 million increase in revenue from our government and industrial...

  • Page 87
    ...line media, sales commission expenses as a result of higher sales, and an increase in compensation and employee-related expense supporting our international home robot sales for fiscal 2010 as compared to fiscal 2009. Selling and marketing expenses in our government and industrial division increased...

  • Page 88
    ... production tooling, internal use software and test equipment. In the fiscal years ended December 31, 2011 and January 1, 2011, we spent $13.0 million and $12.6 million, respectively, on capital equipment. Our strategy for delivering home robots products to our distributors and retail customers...

  • Page 89
    ..., our home robots product inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our inventory of government and industrial products is relatively low as they are generally built to order. Our contract...

  • Page 90
    ...compared to the $8.9 million of net cash provided by financing activities for the fiscal year ended January 1, 2011. The increase is due primarily to an increase in proceeds from stock option exercises of $6.8 million and an increase in the tax benefit associated with excess stock-based compensation...

  • Page 91
    ... 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...

  • Page 92
    ... of this shortfall have been recorded to selling and marketing expenses in fiscal 2011. Other obligations consist of software license and services agreement for our home robots division customer service web support. Off-Balance Sheet Arrangements As of December 31, 2011, we had no off-balance sheet...

  • Page 93
    ... as a result of changes in interest rates. As of December 31, 2011, all of our cash and cash equivalents were held in 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...

  • Page 94
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2011 and January 1, 2011 ...Consolidated Statements of Income for the Years ...

  • Page 95
    ... statements, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to...

  • Page 96
    ... ...Short term investments ...Accounts receivable, net of allowance of $87 and $88 at December 31, 2011 and January 1, 2011, respectively ...Unbilled revenue ...Inventory ...Deferred tax assets ...Other current assets ...Total current assets ...Property and equipment, net ...Deferred tax assets...

  • Page 97
    ... 2011 2011 2010 (In thousands, except per share amounts) Revenue: Product revenue ...Contract revenue ...Total revenue ...Cost of revenue: Cost of product revenue(1) ...Cost of contract revenue(1) ...Total cost of revenue ...Gross margin ...Operating expenses: Research and development(1) ...Selling...

  • Page 98
    ... at January 1, 2011 ...25,844,840 $258 $156,620 Issuance of common stock for exercise of stock options ...1,232,721 13 13,388 Vesting of restricted stock units ...167,875 1 (1) Tax benefit of excess stock based compensation deduction ...6,370 Amortization of deferred compensation relating to stock...

  • Page 99
    ...: Depreciation and amortization ...Loss on disposal of property and equipment ...Stock based compensation ...Deferred income taxes, net ...Tax benefit of excess stock based compensation deductions ...Non-cash director deferred compensation ...Changes in operating assets and liabilities - (use...

  • Page 100
    ... the 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 Company's revenue is generated from product sales and government and industrial research and...

  • Page 101
    ... 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...

  • Page 102
    ... 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...

  • Page 103
    ... evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions...

  • Page 104
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Research and Development Costs incurred in the research and development of the Company's products, classified as cost of contract and research and development, are expensed as incurred. Internal Use Software The Company ...

  • Page 105
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) fair market value of the Company's common stock on the date of grant. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period, net of estimated ...

  • Page 106
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets. At December 31, 2011, the Company has total deferred tax assets of $21.5 million with...

  • Page 107
    ... do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not...

  • Page 108
    ... as economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment. If any such impairment is identified, a reduction in the carrying value of the investment would be recorded at that time. Since the Company believes the...

  • Page 109
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Accrued Expenses Accrued expenses consist of the following at: December 31, January 1, 2011 2011 (In thousands) Accrued warranty ...Accrued direct fulfillment costs ...Accrued rent ...Accrued sales commissions ...Accrued...

  • Page 110
    ... relating to stock options with exercise prices below the retrospectively reassessed fair market value on the date of grant. The Company recognized associated stock-based compensation expense of $0.0 million, $0.1 million and $0.2 million for the fiscal years ended December 31, 2011, January 1, 2011...

  • Page 111
    ...vesting term (typically 4 to 5 years). Given the Company's initial public offering in November 2005 and the resulting short history as a public company, the Company could not rely solely on company specific historical data for purposes of establishing expected volatility. Consequently, prior to 2010...

  • Page 112
    ... The aggregate intrinsic value on the table was calculated based upon the positive difference between the closing market value of the Company's stock on December 31, 2011 of $29.85 and the exercise price of the underlying option. During fiscal years 2011, 2010, and 2009, the total intrinsic value of...

  • Page 113
    ... about stock options outstanding at December 31, 2011: Options Outstanding Options Exercisable Weighted Average Number Remaining Weighted Average Number Weighted Average Outstanding Contractual Life Exercise Price Exercisable Exercise Price Range of Exercise Prices $ 0.55 - 8.10 - 13.74 - 14.52...

  • Page 114
    ... units. As of December 31, 2011, January 1, 2011 and January 2, 2010 the unamortized fair value of all restricted stock units was $11.7 million, $7.6 million and $3.2 million, respectively. The Company expects to recognize associated stock-based compensation expense of $3.9 million, $3.5 million...

  • Page 115
    ..., on April 1, 2011, the Company granted to certain employees, including executive officers, an annual merit grant of stock options totaling 281,150 shares of the Company's common stock and 141,575 restricted stock units. Each of the above stock options have a per share exercise price of $33.48...

  • Page 116
    ... 2010, based on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets. The table below summarizes activity relating to the valuation allowance: Balance at beginning of period Additions Charged to Costs and Expenses...

  • Page 117
    ...before income taxes) to actual tax expense was as follows: Fiscal Year Ended December 31, January 1, January 2, 2011 2011 2010 (In thousands) Expected federal income tax ...Miscellaneous permanent items ...State taxes ...Federal and state research credits ...Domestic production activities deduction...

  • Page 118
    ..., generally the Company's customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party with respect to the Company's software. The term of these indemnification agreements is generally perpetual any time after execution of the...

  • Page 119
    ... audits of government contracts. As part of an audit, these agencies may review the Company's performance on contracts, cost structures and compliance with applicable laws, regulations and standards. If any of its costs are found to be allocated improperly to a specific contract, the costs may not...

  • Page 120
    ... Information and Significant Customers The Company operates in two reportable segments, the home robots division and the government and industrial robots division. The nature of products and types of customers for the two segments vary significantly. As such, the segments are managed separately. 73

  • Page 121
    ... of revenue: Home Robots ...Government & Industrial Robots ...Total cost of revenue ...Gross margin: Home Robots ...Government & Industrial Robots ...Total gross margin ...Research and development ...Selling and marketing ...General and administrative ...Other income (expense), net ...Income before...

  • Page 122
    ..., of our home robot product revenue resulted from sales to 15 customers. For the fiscal year ended December 31, 2011 the company generated 23.6% of its total revenue from two of its international distributors of consumer products: Sales on Demand Corporation (representing its Japanese market) and...

  • Page 123
    ... financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board...

  • Page 124
    ... termination of an established trading plan, other than in such quarterly and annual reports. Form 10-K PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required under this item is incorporated herein by reference to the Company's definitive proxy statement...

  • Page 125
    ... filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 2011. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following are filed as part of this Annual Report on Form 10-K: 1. Financial Statements...

  • Page 126
    ...18, 2004 Government Contract DAAE07-03-9-F001 (Small Unmanned Ground Vehicle) Government Contract N00174-03-D-0003 (Man Transportable Robotic System) 2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant's Current Report on Form...

  • Page 127
    ...) Manufacturing Agreement between the Registrant and Kin Yat Industrial Co. Ltd., dated as of March 23, 2007 (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated by reference herein) Senior Executive Incentive Compensation Plan...

  • Page 128
    ... Exchange Act of 1934 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following materials from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2011 formatted in XBRL (eXtensible Business Reporting...

  • Page 129
    ... of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. iROBOT CORPORATION By: /s/ Colin M. Angle Colin M. Angle Chairman of the Board, Chief Executive Officer and...

  • Page 130
    Signature Title(s) /s/ GEORGE C. MCNAMEE George C. McNamee /s/ DEBORAH G. ELLINGER Deborah G. Ellinger /s/ PETER MEEKIN Peter Meekin /s/ PAUL J. KERN Paul J. Kern /s/ PAUL SAGAN Paul Sagan Director Director Director Director Form 10-K Director 83

  • Page 131
    ... DAAE07-03-9-F001 (Small Unmanned Ground Vehicle) 10.11(1) Government Contract N00174-03-D-0003 (Man Transportable Robotic System) 10.12†2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed...

  • Page 132
    ... the Registrant and Bank of America, N.A., dated February 12, 2010 (filed as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended January 2, 2010 and incorporated by reference herein) Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as...

  • Page 133
    ... 31, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements †# Indicates a management contract or any...

  • Page 134
    ... Technology Hardware & Equipment Industry Group index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from 12/31/2006 to 12/31/2011. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among iRobot Corporation...

  • Page 135
    ... A copy of our financial reports, stock quotes, news releases, SEC filings, as well as information on our products is available in the Investor Relations section of www.irobot.com Board Members Colin M. Angle Co-founder, Chairman of the Board and Chief Executive Officer Dr. Ronald Chwang Director...

  • Page 136
    iRobot Mission Build cool stuff • Deliver great product • Make money • Have fun • Change the world Corporate Headquarters 8 Crosby Drive Bedford, MA 01730 USA Phone: 781.430.3000 Fax: 781.430.3001 www.irobot.com [email protected]