iRobot 2012 Annual Report Download

Download and view the complete annual report

Please find the complete 2012 iRobot annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Dear Stockholder: April 10, 2013
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 Wednesday, May 22, 2013 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect two (2) class II directors for three-year terms, to ratify the appointment of our
independent registered public accountants, to cast an advisory vote on the approval of the compensation of our named executive
officers, and to consider a shareholder proposal entitled “Proxy Access for Shareholders." 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, FOR approval, on an advisory basis, of the compensation of our named executive officers, and AGAINST the
shareholder proposal entitled "Proxy Access for Shareholders."
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
Proxy Statement

Table of contents

  • Page 1
    ..., May 22, 2013 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect two (2) class II directors for three-year terms, to ratify the appointment of our independent registered public accountants, to cast an...

  • Page 2

  • Page 3
    ...the Stockholders of iRobot Corporation: The annual meeting of stockholders of iRobot Corporation, a Delaware corporation (the "Company"), will be held on Wednesday, May 22, 2013, at 2:00 p.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, for...

  • Page 4

  • Page 5
    ... EXECUTIVE OFFICERS AND DIRECTORS Compensation Discussion & Analysis Executive Compensation Summary Grants of Plan-Based Awards in 2012 Outstanding Equity Awards at Fiscal Year End Options Exercises and Stock Vested Potential Benefits Upon Termination or Change in Control Director Compensation...

  • Page 6

  • Page 7
    ... corporation (the "Company"), for use at the annual meeting of stockholders to be held on Wednesday, May 22, 2013, at 2:00 p.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, and any adjournments or postponements thereof. An annual report...

  • Page 8
    ... of the independent registered public accountants, the advisory vote on the compensation of our named executive officers, and the shareholder proposal entitled "Proxy Access for Shareholders," the board of directors knows of no other matters to be presented at the annual meeting. If any other...

  • Page 9
    ... by each 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...

  • Page 10
    ...restricted stock units. Includes 57,625 shares issuable to Mr. Campanello upon exercise of stock options. Includes an aggregate of 240,000 shares held by iD5 Fund, L.P. Dr. Chwang is a general partner of the management company for iD5 Fund, L.P. and may be deemed to share voting and investment power...

  • Page 11
    ...corporate governance committee, has nominated George C. McNamee and Paul Sagan and recommended that each be elected to the board of directors as a class II director, each to hold office until the annual meeting of stockholders to be held in the year...the annual meeting of... the annual meeting of ...office...

  • Page 12
    ...LISTED BELOW. The following table sets forth the nominees to be elected at the annual meeting and continuing directors, the year...Name and Year First Became a Director Position(s) with the Company Year... Chairman of the Board, Chief Executive Officer and Director Director Director Director 2014 2014 2014...

  • Page 13
    ... sales from 2003 to 2004. Ms. Dean holds a B.A. in Business Economics from Brown University and an M.B.A. from Boston University. Jeffrey A. Beck has served as our chief operating officer since February 2012. Mr. Beck previously served as president of our home robots division from April 2009...

  • Page 14
    ... have taken her all over the world; she has lived and worked in Europe, Asia and America. Ms. Ellinger also serves on the board of directors at National Life Group and The Princeton Review and is a former director of Sealy Corporation. She is qualified as a Barrister-at-Law in London, as a member of...

  • Page 15
    ... of directors his extensive experience in the military and defense industry. Paul Sagan has served as a director since February 2010. He is the executive vice chairman of Akamai Technologies, Inc. (NASDAQ: AKAM), and previously served as the company's chief executive officer from April 2005 until...

  • 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
    Proxy Statement consideration of the following minimum qualifications that the nominating and corporate governance committee believes must be met by all directors nominees must have experience at a strategic or policy making level in a business, government, non-profit or academic organization of ...

  • Page 18
    ... individual director by U.S. mail (including courier or expedited delivery service) to: iRobot Corporation 8 Crosby Drive Bedford, Massachusetts 01730 Attn: [Name of the director], c/o Secretary We will forward any such security holder communication to the chairman of the board, as a representative...

  • Page 19
    Proxy Statement Policy Governing Director Attendance at Annual Meetings of Stockholders Our policy is to schedule a regular meeting of the board of directors on the same date as our annual meeting of stockholders and, accordingly, directors are encouraged to be present at our stockholder meetings. ...

  • Page 20
    ... 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 Relations. We...

  • Page 21
    ... with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; coordinating the oversight and reviewing the adequacy of our internal control over financial reporting; establishing policies and procedures for the receipt...

  • Page 22
    ... the fiscal year ended December 29, 2012. The compensation committee operates under 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. Nominating and Corporate Governance Committee The...

  • Page 23
    .... The audit committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examinations; their evaluations of the Company's internal control, including internal control over financial reporting; and the overall quality of...

  • Page 24
    ... the Company's cash incentive, stock option and employee stock purchase plans. The compensation committee sets performance goals and objectives for the chief executive officer and the other executive officers, evaluates their performance with respect to those goals and sets their compensation based...

  • Page 25
    ... reduce headcount, acquiring Evolution Robotics, Inc. and integrating its products into our product portfolio and roadmap. Based on 2012 performance, and taking into account our significant change in business strategy, our named executive officers received lower cash compensation in 2012 than they...

  • Page 26
    ... similar market capitalizations Companies within the technology industry Companies with a similar business strategy Highly innovative product(s) and/or technological advancement Moderate to high growth over a 1-, 3-, and 5- year period Moderate mix of sales in the United States and internationally...

  • Page 27
    ...salary, long-term equity interest, primarily in the form of stock options and restricted stock units, and an annual cash incentive program based on both corporate and, if appropriate, divisional performance. All of our executive officers also are eligible for certain benefits offered to employees 21

  • Page 28
    ...not to increase the base salaries of our other named executives officers for 2012 because of identified business challenges and desire to set an appropriate tone for the company as a whole. In February 2013, as part of its annual review of compensation, the compensation committee increased Mr. Angle...

  • Page 29
    ... 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 milestones, the...

  • Page 30
    ... employee base - including the named executive officers - should be reduced on a dollar-for-dollar basis if Adjusted EBITDA, excluding cash incentive compensation expense fell below $76.9 million. The following table shows our achievement against the various metrics used for calculating the 2012...

  • Page 31
    ... stock options and restricted stock unit awards to our named executive officers. We also granted stock options and restricted stock unit awards to Messrs. Beck and Weinstein in connection with promotions during 2012. As part of the annual review of our equity compensation program, the compensation...

  • Page 32
    ...: • Our compensation program for executive officers is designed to provide a balanced mix of cash and equity, annual and longer-term incentives, and performance targets. • The base salary portion of compensation is designed to provide a steady income regardless of our stock price performance so...

  • Page 33
    ... chief executive officer, chief financial officer and the three other most highly compensated executive officers: SUMMARY COMPENSATION TABLE - 2012 Name and Principal Position Year Salary ($)(1) Bonus ($) Stock Awards ($)(2) Option Awards ($)(2) Non-Equity Incentive Plan Compensation ($) All...

  • Page 34
    ...business and operational milestones and the comparable cash incentive compensation of companies within our peer group. Mr. Dyer resigned as Chief Strategy Officer effective October 15, 2012. Grants of Plan-Based Awards in 2012 The following table sets forth, for each of the named executive officers...

  • Page 35
    ... under our Senior Executive Incentive Compensation Plan. The actual amounts paid for fiscal year 2012 are disclosed in the "Bonus" column of the Summary Compensation Table. All stock awards and option awards were made pursuant to our 2005 Stock Option and Incentive Plan (the "2005 Plan"). Mr. Dyer...

  • Page 36
    ... of the named executive officers, information about unexercised option awards and unvested restricted stock and restricted stock unit awards that were held as of December 29, 2012. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2012 Option Awards Stock Awards Name Grant Date Number of Securities...

  • Page 37
    ... in control, the executive officer is entitled to 200% of the executive officer's current base salary, 200% of the executive officer's current target cash incentive compensation, continued health plan premium payments for up to two years, and full vesting of all unvested stock, stock options, awards...

  • Page 38
    ... exercise price) of stock options and restricted stock units that would become exercisable or vested as a result of these acceleration events as of December 29, 2012. Name Base Salary ($) Bonus ($) Continuation of Health Plan Premium Payments ($) Market Value of Stock Options ($) Market Value...

  • Page 39
    ... Compensation Program, each non-employee director may elect in advance to defer the receipt of these cash fees. During the deferral period, the cash fees will be deemed invested in stock units. The deferred compensation will be settled in shares of our common stock upon the termination of service...

  • Page 40
    ... the fair market value of our common stock on the date of grant. The non-employee members of our board of directors who held such position on December 29, 2012 held the following aggregate number of unexercised options and unvested restricted stock units as of such date: Name Number of Securities...

  • Page 41
    ... 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 transaction required to be reported in our filings with the Securities and Exchange Commission. Our policy with regard to...

  • Page 42
    ... services that were reasonably related to the performance of audits or reviews of our financial statements and were not reported above under "Audit Fees." Tax Fees Tax Fees consist of fees for professional services rendered for assistance with federal, state, local and international tax planning...

  • Page 43
    ... Statement All Other Fees All other fees include licenses to technical accounting research software. The audit committee has determined that the provision of services ...YOU VOTE "FOR" THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS iROBOT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2013. 37

  • Page 44
    ... executive officers. This vote is not intended to address any specific item of compensation or the compensation of any particular officer, but rather the overall compensation of our named executive officers and our compensation philosophy, policies and practices, as discussed in this proxy statement...

  • Page 45
    ... each held continuously for one year a number of shares of the Company's stock that, at some point within the preceding 60 days, was worth at least $2,000. 5. Nominees may include in the proxy statement a 500 word supporting statement. 6. Each proxy statement or special meeting notice to elect board...

  • Page 46
    ... professional, business and personal attributes that are best suited to further the Company's purposes. This process gives stockholders an opportunity to recommend director candidates to the board of directors and have their qualifications properly reviewed by the Nominating and Corporate Governance...

  • Page 47
    ... of business and personal background, nominated by a stockholder or a stockholder group meeting the criteria articulated in the proposal would have to be included in the proxy materials and included on the proxy card. The proposal removes a basic duty of corporate governance (the identification...

  • Page 48
    ...of the Annual Report and the proxy statement to any shareholder who sends a written request to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Secretary, Office of the General Counsel, (781) 430-3000. If your household is receiving multiple copies of our Annual Report or...

  • Page 49
    Proxy Statement Exhibit A iRobot Corporation Adjusted EBITDA Reconciliation to GAAP (unaudited, in thousands) For the twelve months ended December 29, 2012 December 31, 2011 Net income Interest income, net Income tax expense Depreciation Amortization EBITDA Stock-based compensation expense Merger...

  • Page 50

  • Page 51
    ...-51598 Form 10-K iROBOT CORPORATION (Exact name of registrant as specified in its charter) 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) (781) 430-3000...

  • Page 52
    ... Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Part III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13...

  • Page 53
    ...-looking statements. iRobot, Roomba, Scooba, PackBot, Warrior, FirstLook, Looj, Verro, Virtual Wall, Home Base, Aware, Mint and AeroVac are trademarks of iRobot Corporation. Form 10-K Overview iRobot Corporation ("iRobot" or the "Company" or "we") designs and builds robots that make a difference...

  • Page 54
    ... develop and launch new products into current and adjacent markets. Our strategy is to maintain a leadership position by delivering robotic technology-based remote presence and automated home maintenance solutions that delight our customers and anticipate their needs, while extending our technical...

  • Page 55
    ... 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 vehicles to...

  • Page 56
    ... in new market segments. For example, in 2011 we signed a joint development and licensing agreement with InTouch Health, a leading remote presence telemedicine solution provider, to explore potential opportunities for healthcare applications on iRobot platforms such as the iRobot Ava mobile robotics...

  • Page 57
    ... in selling to government and defense agencies. All of these individuals have years of experience selling military products to government procurement offices, both in the United States and internationally. We maintain a direct sales and support presence in Europe. Customer Service and Support We...

  • Page 58
    ... and industrial products. Similarly, expertise developed while designing consumer products is used in designing products for defense and security applications. We also work with strategic collaborators to develop industry-specific technologies. Competition The market for robots is highly competitive...

  • Page 59
    ... our ability to do business. Our registered U.S. trademarks include iRobot, Roomba, Scooba, Mint, ViPR, NorthStar, iRobot Dirt Dog, Create, PackBot, FirstLook, iAdapt, FasTac, Aware, Home Base, Looj, Verro, Virtual Wall, and Warrior. Our marks iRobot, Roomba, Scooba, and certain other trademarks...

  • Page 60
    ... who wish to buy or acquire control or influence over companies that control technology or produce goods in the security interests of the United States. There may need to be a review under the Exon-Florio provisions of the Defense Production Act. Finally, the government may require a prospective...

  • Page 61
    ... 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 manufacturers; • seasonality in the sales of our military and consumer products; • the...

  • Page 62
    ... penetrate the consumer home care market, to enhance our current consumer products and develop and introduce new consumer products offering enhanced performance and functionality at competitive prices. The development and application of new technologies involve time, substantial costs and risks. Our...

  • Page 63
    ... these manufacturers fail to meet our requirements. We currently depend largely on several single source contract manufacturers, for the manufacture of our various families of home care and defense products. All contract manufacturers for our home robots are located in China. These manufacturers 13...

  • Page 64
    ..., their traditional vacuum cleaners; we also compete in some cases with providers of traditional vacuum cleaners. Our competitors include developers of robot floor cleaning products, developers of small unmanned ground vehicles, and established government contractors working on unmanned systems. 14

  • Page 65
    ... on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, userfriendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors and may in the...

  • Page 66
    ...management team and key technical employees, such as our project management personnel and senior engineers. Moreover, we often must comply with provisions in government contracts that require employment of persons with specified levels of education and work experience. Each of our executive officers...

  • Page 67
    ... bid on or win new contracts, or effectively rebid on expiring contracts. Classified programs generally will require that we comply with various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share...

  • Page 68
    ... market value of our common stock. In particular we have allocated the cost of acquiring businesses to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as acquired technology, acquired trade names and acquired customer relationships based...

  • Page 69
    ... European and Far East markets, and Canada. For the fiscal years ended December 29, 2012 and December 31, 2011, sales to non-U.S. customers accounted for 57.3% and 45.5% of total revenue, respectively. Our international revenue and operations are subject to a number of material risks, including, but...

  • Page 70
    ... 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 stock. Provisions...

  • Page 71
    ...could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. ITEM 1B. None. ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS Our corporate headquarters are located in Bedford, Massachusetts, where we lease...

  • Page 72
    ... 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...

  • Page 73
    ... to be expected for any future period. Form 10-K Year Ended December 29, 2012 December 31, 2011 January 1, 2011 January 2, 2010 December 27, 2008 (In thousands, except earnings per share amounts) Consolidated Statements of Income: Revenue Product revenue Contract revenue Total revenue Cost of...

  • Page 74
    ... facts, including, but not limited to statements concerning new product sales, product development and offerings, Roomba, Scooba, Looj, Mint and Verro products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, Ava, our home robots and defense and security robots business units...

  • Page 75
    ... contracts. Product revenue is derived from the sale of our various home cleaning robots and defense and security 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...

  • Page 76
    ... business unit, offset by a shift in our product mix to higher margin home robot products and favorable adjustments relating to reductions in our international warranty accrual for our home robots business that were directly attributable to declining warranty cost experience. Raw material costs...

  • Page 77
    ... salaries and related costs for executives and administrative personnel; • advertising, marketing and other brand-building costs; • fulfillment costs associated with direct-to-consumer sales through our on-line store; • customer service costs; • professional services costs; • information...

  • Page 78
    ... of each stock option granted for the fiscal year ended December 29, 2012 was $13.23. During the fiscal year ended December 29, 2012, the Company recognized $6.4 million of stock-based compensation associated with restricted stock units. Unamortized expense associated with restricted stock units at...

  • Page 79
    ... (1) Stock-based compensation recorded in fiscal 2012, 2011 and 2010 breaks down by expense classification as follows. Fiscal Year Ended December 29, 2012 December 31, 2011 (In thousands) January 1, 2011 Cost of product revenue Cost of contract revenue Research and development Selling and marketing...

  • Page 80
    ...improvement in returns resulting from sustained investment in product quality. In addition, net average selling prices in the home robots business unit increased due to increased volume of higher priced products including the Roomba 700 series robot, and fewer sales of our lower priced Roomba series...

  • Page 81
    ... contracts, and a $5.1 million decrease in product life cycle revenue (spare parts, accessories). The $81.1 million decrease in defense and security robots revenue was primarily due to a decrease in sales of higher price PackBot and SUGV units in 2012 as compared to 2011. Net average selling price...

  • Page 82
    ... home robots business unit is primarily the result of increased efforts in the areas of product development, including our efforts associated with the RP-VITA (Remote Presence Virtual + Independent Telemedicine Assistant) product that was jointly developed with, and is sold by, InTouch Technologies...

  • Page 83
    ... distributors and continued efforts to increase international retail outlets for our home robots products across various countries. Domestic retail sales of our home robot products increased 7.9% and domestic direct sales through our website increased 2.3% in fiscal 2011 as compared to fiscal 2010...

  • Page 84
    ... 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 introduction of our Roomba 700 series and Scooba 230 robots. The $15.3 million increase in revenue from our defense and security robots business unit...

  • Page 85
    ...as compared to fiscal 2010. Selling and marketing expenses in our defense and security robots business unit increased by $1.2 million attributable to an increase in compensation, trade show, depreciation related to demonstration robots and travel expenses in fiscal 2011. In fiscal 2012, we expect to...

  • Page 86
    ... production tooling, internal use software and test equipment. In the fiscal years ended December 29, 2012 and December 31, 2011, we spent $6.8 million and $13.0 million, respectively, on capital equipment. Our strategy for delivering home robots products to our distributors and retail customers...

  • Page 87
    ... and demonstration assets, leasehold improvements and internal use software. Net cash provided by financing activities for the fiscal year ended December 29, 2012 was $5.0 million, a decrease of $14.4 million compared to the $19.4 million of net cash provided by financing activities for the...

  • Page 88
    ... 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...

  • Page 89
    ..., which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Risk We maintain sales and business operations in foreign countries. As such, we have...

  • Page 90
    ... SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 29, 2012 and December 31, 2011 Consolidated Statements of Income for the Years ended December 29, 2012, December 31...

  • Page 91
    ... three years in the period ended December 29, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2012, based on...

  • Page 92
    iROBOT CORPORATION CONSOLIDATED BALANCE SHEETS December 29, 2012 December 31, 2011 (In thousands) ASSETS Current assets: Cash and cash equivalents Short term investments Accounts receivable, net of allowance of $111 and $87 at December 29, 2012 and December 31, 2011, respectively Unbilled ...

  • Page 93
    ...(1) Stock-based compensation recorded in fiscal 2012, 2011 and 2010 breaks down by expense classification as follows: Fiscal Year Ended December 29, 2012 December 31, 2011 (In thousands) January 1, 2011 Cost of product revenue Cost of contract revenue Research and development Selling and marketing...

  • Page 94
    iROBOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Year Ended December 29, 2012 December 31, 2011 (In thousands) January 1, 2011 Net income, as reported Other comprehensive income (loss), net of tax: Unrealized gains (losses) on investments, net of tax Total comprehensive ...

  • Page 95
    ... based compensation deduction Amortization of deferred compensation relating to stock options Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units Unrealized gain on short term investment Directors' deferred compensation Net income Balance at December 29, 2012...

  • Page 96
    ...Robotics, Inc., net of cash received Purchase of investments Sales of investments Net cash used in investing activities Cash flows from financing activities: Income tax withholding payment associated with restricted stock vesting Proceeds from stock option exercises Tax benefit of excess stock based...

  • Page 97
    ... and marketing robots. The majority of the Company's revenue is generated from product sales and defense and security research and development contracts. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include those of iRobot and...

  • Page 98
    ... 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...

  • Page 99
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out (FIFO) method. The Company maintains a reserve for inventory items to provide for an ...

  • Page 100
    ... reporting unit's goodwill with the carrying value of that goodwill. 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 capitalizes...

  • Page 101
    ... examining the Company's tax returns for the years 2009 and 2010. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation...

  • Page 102
    ... 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. This updated guidance did not have a material impact on the Company's consolidated financial statements. In September 2011, the...

  • Page 103
    ... in a series of preferred stock of Advanced Scientific Concepts, Inc. In January 2012, the Company recorded an investment of $6.0 million in a series of preferred stock of InTouch Technologies, Inc. These investments are accounted for at cost. The Company regularly monitors these investments 53

  • Page 104
    ... Plans and Stock-Based Compensation The Company has options outstanding under four stock incentive plans: the 1994 Stock Option Plan (the "1994 Plan"), the 2004 Stock Option and Incentive Plan (the "2004 Plan"), the 2005 Stock Option and Incentive Plan (the "2005 Plan") and the Evolution Robotics...

  • Page 105
    ...exercise prices ranging from $2.55 to $4.81. All of these options were granted from the 2007 Plan, which was assumed by the Company as a result of the acquisition. The Company recognized $4.6 million of stock-based compensation expense during the fiscal year ended December 29, 2012 for stock options...

  • Page 106
    ... was calculated based upon the positive difference between the closing market value of the Company's stock on December 29, 2012 of $18.59 and the exercise price of the underlying option. During fiscal years 2012, 2011, and 2010, the total intrinsic value of stock options exercised was $6.2 million...

  • Page 107
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes information about stock options outstanding at December 29, 2012: Options Outstanding Weighted Average Remaining Contractual Life Options Exercisable Weighted Average Exercise Price Number ...

  • Page 108
    ... of $25.99, the closing price of the Company's common stock on NASDAQ on September 7, 2012. The stock options and restricted stock units generally vest over a four year period. On December 7, 2012, the Company granted certain employees, including an executive officer, stock options totaling 136,000...

  • Page 109
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Income Taxes The components of income tax expense were as follows: Fiscal Year Ended December 29, 2012...undistributed earnings of non-U.S. subsidiaries that the Company expects to distribute in 2013. In other ...

  • Page 110
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The components of net deferred tax assets were as follows: December 29, 2012 December 31, 2011 (In thousands) Net deferred tax assets Current deferred tax assets Reserves and accruals Stock based compensation Net ...

  • Page 111
    ...the Internal Revenue Code. However, these limitations do not cause any of these net operating loss carryforwards or federal and state research and development credits to expire unused. The reconciliation of the expected tax (benefit) expense (computed by applying the federal statutory rate to income...

  • Page 112
    ... During 2012, the Company recorded favorable adjustments relating to reductions in its international warranty accrual for our home robots business related to our sustained improvements in product quality, resulting in a net credit for its 2012 warranty provision. (**) Warranty usage includes costs...

  • Page 113
    ..., each employee participating during Plan-Year 2012, Plan-Year 2011 and Plan-Year 2010 is entitled up to a maximum of three percent of his or her eligible annual payroll. The employer matching contribution for Plan-Year 2012 is included in accrued compensation. 13. Acquisition of Evolution Robotics...

  • Page 114
    ... applicable reporting units with their aggregate carrying values, including goodwill, was completed, and the Company did not identify any goodwill impairment. Other intangible assets include the value assigned to completed technology, research contracts, and trade names. The estimated useful lives...

  • Page 115
    ...in two reportable segments, the home robots business unit and the defense and security robots business unit. The nature of products and types of customers for the two segments vary significantly. As such, the segments are managed separately. Home Robots The Company's home robots business unit offers...

  • Page 116
    ...through a small U.S. government-focused sales force, while products are sold to a limited number of countries, other than the United States, primarily through international distributors but also through a small internationally-focused sales team. The Company's defense and security robots are used by...

  • Page 117
    ... of 2012, the Company identified certain immaterial errors to previously-reported product revenue and general and administrative expense and recorded out of period adjustments to correct for these items which resulted in a $0.3 million increase in fourth quarter 2012 net loss and a $0.1 million...

  • Page 118
    ... assessment of internal control over financial reporting as of December 29, 2012 because it was acquired by the Company in a purchase business combination during 2012. We have also excluded Evolution Robotics, Inc. from our audit of internal control over financial reporting. Evolution Robotics, Inc...

  • Page 119
    ... of an established trading plan, other than in such quarterly and annual reports. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Form 10-K The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to...

  • Page 120
    ... STATEMENT SCHEDULES (a) 1. The following are filed as part of this Annual Report on Form 10-K: Financial Statements The following consolidated financial statements are included in Item 8: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 29, 2012...

  • Page 121
    ...-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 8-K filed on June 2, 2009 and...

  • Page 122
    ... by and between 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...

  • Page 123
    ... to the Company's Registration Statement on Form... S-1 (File No. 333126907) Filed herewith As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange...

  • Page 124
    ... 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 Director Date: February 15, 2013 POWER OF ATTORNEY KNOW ALL...

  • Page 125
    ... JOHN LEAHY Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) John Leahy /s/ RONALD CHWANG Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Director Ronald Chwang /s/ JACQUES S. GANSLER Director...

  • Page 126
    ...-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 8-K filed on June 2, 2009 and...

  • Page 127
    ... by and between 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...

  • Page 128
    ... materials from the Registrant's Annual Report on Form 10-K for the year ended December 29, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income...

  • Page 129
    ... been made in our common stock and in each of the indexes on 12/31/2007 and its relative performance is tracked through 12/31/2012. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among iRobot Corporation, the NASDAQ Composite Index, and S&P Technology Hardware & Equipment Industry Group $250 $200...

  • Page 130
    ... 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 131

  • Page 132
    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]