iRobot 2014 Annual Report Download

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Dear Stockholder: April 13, 2015
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 20, 2015 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect three (3) Class I directors for three-year terms, to elect one (1) Class III
director for a two-year term, to ratify the appointment of our independent registered public accountants, to approve the iRobot
Corporation 2015 Stock Option and Incentive Plan (the “2015 Plan”), to approve amendments to our amended and restated certificate
of incorporation to adopt majority voting standards (the “Restated Certificate”), to cast an advisory vote on the approval of the
compensation of our named executive officers, and to consider a stockholder proposal entitled “Elect Each Director Annually." 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 of the 2015 Plan, FOR approval of the Restated Certificate, FOR
approval, on an advisory basis, of the compensation of our named executive officers, and AGAINST the stockholder proposal entitled
“Elect Each Director Annually”.
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
    ... at 2:00 p.m., local time, on Wednesday, May 20, 2015 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect three (3) Class I directors for three-year terms, to elect one (1) Class III director for a two-year...

  • Page 2
    ... Company's performance. This is in addition to our non-equity incentive based compensation, which is strictly "at risk" and based on financial performance. Overall, our executive compensation program contains the following highlights: Annual "say-on-pay" vote Clawback policy Strong stock ownership...

  • Page 3
    ... 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 Executive Vice President, Chief Legal Officer and Secretary Bedford, Massachusetts April 13, 2015...

  • Page 4
    ... OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES. IN ACCORDANCE WITH...

  • Page 5
    ... EXECUTIVE OFFICERS AND DIRECTORS Compensation Discussion & Analysis Executive Compensation Summary Grants of Plan-Based Awards in 2014 Outstanding Equity Awards at Fiscal Year End Options Exercises and Stock Vested Potential Benefits Upon Termination or Change in Control Director Compensation...

  • Page 6
    STOCKHOLDER PROPOSALS SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE EXPENSES AND SOLICITATION Exhibit A Annex A Annex B 49 49 49 A A-1 B-1

  • Page 7
    ..., May 20, 2015, 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 to stockholders, containing financial statements for the fiscal year ended December 27, 2014, is being...

  • Page 8
    ... of the independent registered public accountants, the approval of the 2015 Plan, the approval of the Restated Certificate, the advisory vote on the compensation of our named executive officers and the stockholder proposal entitled "Elect Each Director Annually," the board of directors knows of...

  • 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
    ... and Exchange Commission on February 13, 2015. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202. Includes 290,480 shares issuable to Mr. Angle upon exercise of stock options and 5,700 shares issuable to Mr. Angle upon vesting of restricted stock units...

  • Page 11
    ...2014. The board of directors is also composed of (i) two Class II directors (George McNamee and Paul Sagan) whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2016... person for the office of director as the board of directors may ...

  • Page 12
    ... V. Stacy 2014 (1) Continuing Directors: George C. McNamee 1999 Paul Sagan 2010 Gail Deegan 2011 Andrea Geisser 2004 (1) Chairman of the Board, Chief Executive Officer and Director Director Director 2015 2015 2015 I I I Director 2017 III Director Director Director Director 2016 2016 2017 2017...

  • Page 13
    ... Corporate Communications Executive Vice President, Chief Technology Officer Executive Vice President, Chief Legal Officer Senior Vice President and General Manager, Home Robots Business Unit Director Director Director Director Director Director Director Director (1) (2) (3) Member of compensation...

  • Page 14
    ... of our Home Robot Business Unit since May 2013. He has direct responsibility over global sales, marketing and product development and oversees a multifunctional team managing all operational execution areas of the unit. Prior to iRobot, he was General Manager at Whirlpool Corporation and before...

  • Page 15
    ... and was also a board member of the New York Stock Exchange Inc., MapInfo, Home Shopping Network and the Meta Group. He received his B.A. from Yale University. Mr. McNamee brings to the board of directors his extensive experience regarding the management of public and private companies, as well as...

  • Page 16
    ...from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks. The audit committee focuses on risk related to accounting, internal controls, and financial and tax reporting. The audit committee...

  • Page 17
    ... to the nominating and corporate governance committee, with the expectation that other members of the board of directors, and of management, will be requested to take part in the process as appropriate. Generally, the nominating and corporate governance committee identifies candidates for director...

  • Page 18
    ... of directors by U.S. mail (including 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...

  • Page 19
    ...upon a request directed to: iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Investor Relations. We intend to disclose any amendment to or waiver of a provision of the Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial...

  • Page 20
    ... internal audit program; establishing policies and procedures for the receipt and retention of accounting related complaints and concerns; reviewing and discussing with management risk assessment and risk management, including cyber security; overseeing the development of business continuity plans...

  • Page 21
    ... corporate goals and objectives and determining the compensation of our chief executive officer and other executive officers; overseeing and administering our compensation, welfare, benefit and pension plans and similar plans and determining the compensation of all executive officers; and reviewing...

  • Page 22
    ... and corporate governance 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. Compensation Committee Interlocks and Insider Participation During 2014, Dr...

  • Page 23
    ...its familiarity with our operations and businesses, accounting policies and practices, and our internal controls over financial reporting; and the appropriateness of fees paid to PricewaterhouseCoopers LLP for audit and non-audit services in 2014, on an absolute basis and as compared to the scope of...

  • Page 24
    ...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 executive officer and the other executive officers...

  • Page 25
    ... defense & security business revenue delivered results consistent with our expectations. In addition, we began selling Ava 500 business collaboration robots in the first half of 2014. Based on our 2014 performance, our named executive officers achieved and were paid significant short-term incentive...

  • Page 26
    ... future compensation decisions for our named executive officers. Our compensation plans are developed, in part, by utilizing publicly available compensation data and subscription compensation survey data for national and regional companies in the technology, defense, household durables and robotics...

  • Page 27
    ...is valued and delivered to executives. Technology and technology/consumer products companies perform and pay differently from home builders, retailers and furniture distributors/manufacturers. The compensation committee takes all of these unique dynamics into account annually when reviewing our peer...

  • Page 28
    ... base salary, an annual cash incentive, and long-term equity interests, primarily in the form of stock options, time vesting restricted stock units and performance share units. All of our executive officers also are eligible for certain benefits offered to employees generally, including life, health...

  • Page 29
    ... other named executive officers remained the same for fiscal 2015. While the Senior Executive Incentive Compensation Plan is designed to provide short-term cash incentive payments based upon objectively determinable formulas that tie cash incentive payments to specific financial goals and strategic...

  • Page 30
    ... on results from our Home Robots business unit, the Senior Executive Incentive Compensation Plan targets for 2014 were: Performance Goal Performance Measure Weighting Threshold Target Maximum Adjusted EBITDA, excluding cash incentive compensation expense Home Robots Business Unit Revenue 37.5% 62...

  • Page 31
    ... compensation plans, the number of options and other equity awards held by the executive officer for whom an award is being considered and other elements of the officer's compensation, as well as our compensation objectives and policies described above when reviewing the long-term incentive program...

  • Page 32
    ...the incentives of management with our business strategy. For the PSUs granted in 2014, the number of shares actually earned at the end of the three year period will range from 0% to 100% of the target number of PSUs granted based on the Company's performance against three year operating income goals...

  • Page 33
    ... arrangements or post-retirement health coverage for our named executive officers or other employees. We also maintain insurance and other benefit plans for our employees. We offer no perquisites that are not otherwise available to all of our employees. Stock Ownership Guidelines We introduced...

  • Page 34
    ... aspects of the executive compensation program and evolving best practices, and providing market information and analysis regarding the competitiveness of our program design and awards in relationship to our performance. The compensation committee reviews the services provided by its outside...

  • Page 35
    ...our senior leadership team), and it its services were limited to executive compensation consulting. Fees paid by us to PM&P represented 0.1% of PM&P's total revenue for the period December 2013 through December 2014; PM&P maintains a Conflicts Policy and an Insider Trading Policy which were provided...

  • Page 36
    ... of stock and option awards. Represents amounts paid in 2014 under the Company's Senior Executive Incentive Compensation Plan for performance in the fiscal year ended December 27, 2014. Includes 401(k) matching contributions for each of our named executive officers. Excludes medical, group life...

  • Page 37
    ... the named executive officers, information about grants of plan-based awards during fiscal year 2014: GRANTS OF PLAN-BASED AWARDS - 2014 Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Estimated Future Payouts Under Equity Incentive Plan Awards(2) All Other Stock Awards: Number...

  • Page 38
    ...named executive officers, information about unexercised option awards and other unvested equity awards that were held as of December 27, 2014. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2014 Option Awards Stock Awards Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights...

  • Page 39
    ... of the date that the Company acquired Evolution Robotics, Inc. Option Exercises and Stock Vested The following table sets forth, for each of the named executive officers, information with respect to the exercise of stock options and the vesting of restricted stock unit awards during the year ended...

  • Page 40
    ... of Health Plan Premium Payments ($) Market Value of Stock Options ($) Market Value of Restricted Stock and Restricted Stock Units ($) Total ($) Colin Angle Alison Dean Russ Campanello Christian Cerda Paolo Pirjanian Director Compensation 1,300,000 800,000 650,000 700,000 700,000 1,300,000 500...

  • Page 41
    ...: Number of Securities Underlying Unexercised Options Number of Unvested Restricted Stock Units Name Ronald Chwang, Ph.D. Gail Deegan Deborah G. Ellinger Andrea Geisser Paul J. Kern, Gen. U.S. Army (ret.) George C. McNamee Paul L. Sagan Michelle V. Stacy 35 30,000 - - 40,000 60,000 70,000 2,500...

  • Page 42
    ... which any director, executive officer, holder of five percent or more of any class 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...

  • Page 43
    ... Fees Tax Fees consist of fees for professional services rendered for assistance with federal, state, local and international tax planning and compliance. All Other Fees All other fees include licenses to technical accounting research software. The audit committee has determined that the provision...

  • Page 44
    Recommendation of the Board THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS iROBOT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2015. 38

  • Page 45
    ... OF THE iROBOT CORPORATION 2015 STOCK OPTION AND INCENTIVE PLAN Proposal The board of directors believes that stock options and other stock-based incentive awards can play an important role in the success of iRobot by encouraging and enabling the employees, officers, non-employee directors and...

  • Page 46
    ... to determine the specific terms and conditions of each award, subject to the provisions of the 2015 Plan. The compensation committee may delegate to our Chief Executive Officer, or a committee comprised of the Chief Executive Officer and another officer or officers of iRobot, the authority to grant...

  • Page 47
    ... of any stock option or stock appreciation right will be counted for this purpose as one share for each share of common stock actually subject to the award. Stock Options. The 2015 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under...

  • Page 48
    ... of the Company's clawback policy, as in effect from time to time. No Repricing. Except in connection with a material change in our capital stock or a sale event, the 2015 Plan prohibits the repricing of stock options or stock appreciation rights through the reduction of the exercise price, or...

  • Page 49
    ... Corporate Communications Christian Cerda, Executive Vice President and General Manager, Home Business Unit Paolo Pirjanian, Executive Vice President and Chief Technology Officer All executive officers, as a group All current directors who are not executive officers, as a group All current employees...

  • Page 50
    ... the Evolution Robotics, Inc. 2007 Stock Plan. If the 2015 Plan is approved, no further shares may be granted under any previous Plans. Represents shares issued pursuant to the Evolution Robotics, Inc. 2007 Stock Plan, acquired by the company as part of the acquisition of Evolution Robotics, Inc...

  • Page 51
    ... 75% of the shares of the Company entitled to vote on such matter is required to amend or repeal Articles V, VI, VII, VIII or IX of the Existing Certificate, which address, among other things, actions by written consent of stockholders, special meetings of stockholders requirements and procedures...

  • Page 52
    ... 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 directors determined that it intends to hold non...

  • Page 53
    ... Exchange Commission, said, "In my view it's best for the investor if the entire board is elected once a year. Without annual election of each director shareholders have far less control over who represents them." A total of 79 S&P 500 and Fortune 500 companies, with aggregate market capitalization...

  • Page 54
    ... would need to approve the amendment. After careful consideration, we have determined that continuation of our classified board structure is appropriate and in the best long-term interests of the Company and its stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" APPROVAL...

  • Page 55
    ... proposals by Certified Mail, Return Receipt Requested, to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Secretary. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own...

  • Page 56
    ... of its operating performance. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, merger and acquisition expenses, net intellectual property litigation expenses, restructuring expenses and non-cash stock compensation. The Company also presents...

  • Page 57
    ... 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS The name of the plan is the iRobot Corporation 2015 Stock Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and Consultants of iRobot Corporation (the "Company") and...

  • Page 58
    ...; return on sales; gross or net profit levels; productivity; expense; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of Stock; sales or market shares; and number of customers, any of which may be measured either in absolute terms or as compared to...

  • Page 59
    ... terms of the Plan, including the power and authority: (i) to select the individuals to whom Awards may from time to time be granted; (ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, NonQualified Stock Options, Stock Appreciation Rights, Restricted...

  • Page 60
    ... under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company. (b) Effect of Awards. The grant of any full value Award (i.e., an Award other than an Option or a Stock Appreciation Right) shall be deemed, for purposes of determining the number of shares...

  • Page 61
    ...to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to such outstanding Awards (to the extent then vested or, in the case of Options and Stock Appreciation Rights, exercisable at prices not in excess of the Sale Price) and (B) if applicable, the aggregate...

  • Page 62
    ...the exercise of a Stock Option and not as to unexercised Stock Options. (e) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be...

  • Page 63
    ... objectives. The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase...

  • Page 64
    ... service relationship) with the Company and its Subsidiaries for any reason. SECTION 9. UNRESTRICTED STOCK AWARDS The Administrator may grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award...

  • Page 65
    ...-Based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 2,500,000 shares of Stock (subject to adjustment as provided in Section 3(c) hereof) or $7,500,000 in the case of a Performance-Based Award that is a Cash-Based Award. SECTION 13. DIVIDEND EQUIVALENT RIGHTS...

  • Page 66
    ... members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an...

  • Page 67
    ...in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions...

  • Page 68
    ... specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary. (e) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company's insider trading...

  • Page 69
    ...office in the State of Delaware is c/o Corporation Service Company, 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle. The name of its registered agent at such address is Corporation Service Company. ARTICLE III The purpose of the Corporation is to engage in any lawful...

  • Page 70
    ... of the Corporation. ARTICLE VI DIRECTORS 1. General. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law. 2. Election of Directors. Election of Directors need not be by written ballot...

  • Page 71
    ... of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features...

  • Page 72
    ... repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office. 2. Amendment by Stockholders. The of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose as provided in...

  • Page 73
    ...001-36414 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...

  • Page 74

  • Page 75
    ... Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Directors Independence Principal Accounting Fees and Services Part IV Item...

  • Page 76
    ... iRobot, Roomba, Ava, Scooba, Mint, ViPR, NorthStar, Create, PackBot, FirstLook, iAdapt, Aware, Home Base, Looj, Braava, Kobra, AeroForce, uPoint, AeroVac, Mirra, and Virtual Wall are trademarks of iRobot Corporation. Overview iRobot Corporation ("iRobot" or the "Company" or "we") designs and builds...

  • Page 77
    ...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 leadership...

  • Page 78
    ... cleaning applications. We believe our consumer products provide value to our customers by delivering a better way to clean and by freeing people from repetitive home cleaning tasks. We currently offer multiple Roomba floor vacuuming robots with varying price points ranging from $299 to $699 based...

  • Page 79
    ... and mobility technologies developed by iRobot with the state-of-the-art telemedicine and electronic health record integration developed by InTouch Health. The RP-VITA, which is sold to healthcare customers by InTouch Health, was introduced in 2012 and began shipping in early 2013. Our Ava 500 Video...

  • Page 80
    ... InTouch Health, a leading remote presence telemedicine solution provider, to explore potential opportunities for healthcare applications on iRobot platforms such as the Ava mobile robotics platform. This alliance resulted in the introduction in 2012 of the RP-VITA, the first autonomous navigation...

  • Page 81
    ... and technical support requirements for military operations. Customer service for the RP-VITA product is provided by InTouch Health. Customer service for the Ava 500 is provided by iRobot. Marketing and Brand We market our home robots to end-user customers through our sales and marketing teams as...

  • Page 82
    ... to do business. Our registered U.S. trademarks include iRobot, Roomba, Ava, Scooba, Mint, ViPR, NorthStar, Create, PackBot, FirstLook, iAdapt, Aware, Home Base, Looj, Braava, Kobra, AeroForce, uPoint, AeroVac, Mirra, and Virtual Wall. Our marks iRobot, Roomba, Virtual Wall, Scooba, and certain...

  • Page 83
    ... online or require online services to establish privacy policies. Defense and Security Product Backlog Our defense and security product backlog consists of written orders or contracts to purchase our products received from our defense and security customers. Total backlog of product sales to defense...

  • Page 84
    ... stores and international distributors for our home care robots; • the size and timing of orders from military and other government agencies; • the mix of products that we sell in the period; • disruption of supply of our products from our manufacturers; • disruptions to our supply chain...

  • Page 85
    ... retailers or consumers, could materially and adversely affect our business, results of operations and financial condition. Because we are a global business that in 2014 generated approximately 61% of our total revenue from sales to customers outside of the United States, we are subject to a number...

  • Page 86
    ... on selling our robots in the home floor care and defense markets. We are actively expanding into new markets, in particular remote presence robots for telemedicine and business collaboration, and we plan to expand into other markets. Efforts to expand our product offerings beyond the markets that...

  • Page 87
    ... 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. The market for robots is highly competitive, rapidly evolving and subject to changing technologies...

  • Page 88
    ... customers to terminate their contracts with us, reduce our gross margin and seriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers become financially unstable, we may have to find new suppliers. It may take several months to locate alternative...

  • Page 89
    ..., enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may...

  • Page 90
    ...employees with the required security clearances for a particular contract, we may not be able to 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...

  • Page 91
    ...to enter new markets. Acquisitions and combinations are accompanied by a number of risks, including the difficulty of integrating the operations and personnel of the acquired companies, the potential disruption of our ongoing business, the potential distraction of management, expenses related to the...

  • Page 92
    ..., 2014 and December 28, 2013, sales to non-U.S. customers accounted for 60.9% and 59.5% 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...

  • Page 93
    ... is required 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...

  • Page 94
    ... of business, we are subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations. ITEM...

  • Page 95
    ... December 27, 2014: (c) Total Number of (a) Total number Shares Purchased as Part of Shares (b) Average Price of Publicly Announced Purchased (1) Paid per Share Plans or Programs (2) (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Period Fiscal month...

  • Page 96
    ...the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected for any future period. Year Ended December 27, 2014...

  • Page 97
    ..., product development and offerings, Roomba, Scooba, Looj, Braava and Mirra products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, FirstLook, Ava, our home robots, defense and security robots and remote presence robots business units, our competition, our strategy, our market...

  • Page 98
    ... to market these services to the expanding installed base of our robots. We currently derive a majority of our product revenue from the sale of our home cleaning robots, and to a lesser extent, our PackBot, FirstLook, SUGV and Kobra defense and security robots, and product life cycle revenue related...

  • Page 99
    ... and contract revenue, the mix of products sold, total sales volume, the level of defective product returns, and levels of other product costs such as warranty, scrap, re-work and manufacturing overhead. For the years ended December 27, 2014, December 28, 2013 and December 29, 2012, gross margin was...

  • Page 100
    ... of liabilities for these rights of return, rebates and price protection at the time the related sale is recorded. These estimates for rights of return are directly based on specific terms and conditions included in the reseller agreements, historical returns experience and various other assumptions...

  • Page 101
    ... for obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Actual demand and market conditions may be lower than those that we project and this difference could have a material adverse effect on our gross margin if inventory write-downs beyond...

  • Page 102
    ... 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 103
    ... by a $1.4 million increase in product life cycle revenue (spare parts, accessories). Total defense and security robots shipped in fiscal 2014 were 265 units compared to 534 units in fiscal 2013, while the net average selling price of our defense and security robots increased from approximately $36...

  • Page 104
    ... the defense and security business unit gross margin decreasing 3.7 percentage points. The 1.2 percentage point increase in the home robots business unit was primarily driven by favorable product and customer mix, with increased volume of higher margin Roomba 800 and 600 series robots in fiscal 2014...

  • Page 105
    ... is primarily attributable to $11.6 million in promotions, marketing displays, on-line media and other selling and marketing costs incurred to support the retail launch of the Roomba 800 series and Scooba 450 robots and our continued global marketing and branding efforts, as well as increases in...

  • Page 106
    ... selling prices in the home robots business unit increased due to increased volume of higher priced products including the Roomba 700 and 600 series robots, and fewer sales of our lower priced Roomba series. The $20.9 million decrease in revenue from our defense and security robots business unit...

  • Page 107
    ... 7.1 percentage points offset by the home robots business unit gross margin decreasing 1.7 percentage points. The 7.1 percentage point increase in the defense and security robots business unit is attributable to improved leverage of our overhead expense in 2013 as compared to 2012, as well as higher...

  • Page 108
    ...retail and direct-to-consumer sales. Our inventory of defense and security products consists mostly of components, as well as carefully-managed levels of sub-assemblies. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products...

  • Page 109
    ... increase in the purchase of property and equipment of $6.9 million, with purchases of $13.8 million, including $3.5 million for leasehold improvements in our Bedford, Massachusetts office, compared to purchases of $6.8 million in 2013, and an increase in the net purchase of marketable securities of...

  • Page 110
    ..., with a strategic investment of $2.0 million in the preferred shares of InTouch Technologies, Inc. in 2013 compared to $74.5 million paid for the acquisition of Evolution Robotics and $6.0 million paid for the purchase of the preferred shares of InTouch Technologies, Inc. in 2012. This decrease...

  • Page 111
    ... operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. As part of our business strategy, we may consider additional acquisitions of companies, technologies and products...

  • Page 112
    ... Risk We maintain sales and business operations in foreign countries. As such, we have exposure to adverse changes in exchange rates associated with operating expenses of our foreign operations, but we believe this exposure to be immaterial. Additionally, we accept orders for home robots products in...

  • Page 113
    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 27, 2014 and December 28, 2013 Consolidated Statements of Income for the Years ...

  • Page 114
    ... 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 27, 2014, based on criteria established in Internal Control Integrated Framework (2013) issued by...

  • Page 115
    ... Current liabilities: Accounts payable Accrued expenses Accrued compensation Deferred revenue and customer advances Total current liabilities Long term liabilities Commitments and contingencies (Note 11): Redeemable convertible preferred stock, 5,000,000 shares authorized and no shares issued or...

  • Page 116
    iROBOT CORPORATION CONSOLIDATED STATEMENTS OF INCOME Fiscal Year Ended December 27, 2014 December 28, 2013 December 29, 2012 (In thousands, except per share amounts) Revenue Cost of revenue(1) Gross margin Operating expenses: Research and development(1) Selling and marketing(1) General and ...

  • Page 117
    iROBOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Year Ended December 27, 2014 December 28, 2013 (In thousands) December 29, 2012 Net income, as reported Other comprehensive income (loss), net of tax: Unrealized gains (losses) on investments, net of tax Total comprehensive ...

  • Page 118
    ... 29, 2012 Issuance of common stock for exercise of stock options Conversion of deferred compensation Vesting of restricted stock units Tax benefit of excess stock based compensation deduction Amortization of deferred compensation relating to stock options and restricted stock Stock withheld to...

  • Page 119
    ... Other assets Accounts payable Accrued expenses Accrued compensation Deferred revenue Long term liabilities Net cash provided by operating activities Cash flows from investing activities: Additions of property and equipment Change in other assets Purchase of Evolution Robotics, Inc., net of cash...

  • Page 120
    ... STATEMENTS 1. Nature of 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, to a lesser...

  • Page 121
    ... rights of return, rebates and price protection at the time the related sale is recorded. The estimates for rights of return are directly based on specific terms and conditions included in the reseller agreements, historical returns experience and various other assumptions that the Company believes...

  • Page 122
    ... straight-line method over the estimated useful lives as follows: Estimated Useful Life Computer and research equipment Furniture Machinery Tooling Business applications software Capital leases and leasehold improvements 3 years 5 2-5 2-5 5-7 Lesser of economic benefit period or term of lease 49

  • Page 123
    ... 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 124
    ... option-pricing model. Stock-based compensation cost for timebased restricted stock units and performance-based restricted stock units is measured based on the closing fair market value of the Company's common stock on the date of grant. For performance-based restricted stock units, the compensation...

  • Page 125
    ... within annual periods beginning after December 15, 2016. The Company does not believe that the impact of this amendment will be material to the Company's consolidated financial statements. In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award...

  • Page 126
    ... transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods...

  • Page 127
    ...economic environment, market conditions, operational performance and other specific factors relating to the businesses underlying the investments. If any such impairment is identified, a reduction in the carrying value of the investments would be recorded at that time. Since the Company believes the...

  • Page 128
    ... customary terms and conditions for credit facilities of this type, including restrictions on the Company's ability to incur or guaranty additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on...

  • Page 129
    ... stock option held by Evolution employees as of the acquisition date was automatically converted into stock options of the Company under the same terms and conditions as were applicable to the original Evolution grants. The number of replacement options granted and the associated exercise prices...

  • Page 130
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The table below summarizes stock option plan activity: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value(1) Outstanding at December 31 2011 Granted ...

  • Page 131
    ..., respectively. The Company expects to recognize associated stock-based compensation expense of $8.3 million, $6.4 million, $4.0 million and $1.4 million in 2015, 2016, 2017 and 2018, respectively. The table below summarizes activity relating to restricted stock units: Number of Shares Underlying...

  • Page 132
    ... 28, 2013, the Company maintained a valuation allowance of $2.1 million related to certain state tax attributes from the Evolution Robotics, Inc. acquisition. During the year ended December 27, 2014, this valuation allowance was released when realization of these state tax attributes became more...

  • Page 133
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 27, 2014, the Company has $34.5 million of net operating loss carryforwards and $2.2 million of federal and state research and development credits related to the acquisition of Evolution Robotics that are limited by...

  • Page 134
    ... 2014, 2013 and 2012 amounted to $4.8 million, $5.3 million, and $4.4 million, respectively. Future minimum rental payments under operating leases were as follows as of December 27, 2014: Operating Leases 2015 2016 2017 2018 2019 Thereafter Total minimum lease payments Outstanding Purchase Orders...

  • Page 135
    ... 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 incurred for warranty obligations. Sales Taxes The Company collects and...

  • Page 136
    ... and administrative expenses during the fiscal year ended December 28, 2013. In the fourth quarter of 2014, the Company completed its annual goodwill impairment test. The first step of the two-step impairment test, which involves comparing the fair values of the applicable reporting units with their...

  • Page 137
    ...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 138
    ... 29, 2012 Revenue: Home Robots Defense & Security Robots Other Total revenue Cost of revenue: Home Robots Defense & Security Robots Other Total cost of revenue Gross margin: Home Robots Defense & Security Robots Other Total gross margin Research and development Selling and marketing General and...

  • Page 139
    ... of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed the Company's internal control over financial reporting as of December 27, 2014, based on criteria for...

  • Page 140
    ... Company's internal control over financial reporting as of December 27, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting During the quarter...

  • Page 141
    ... and employees may establish trading plans in the future. We intend to disclose the names of our executive officers and directors who establish a trading plan in compliance with Rule 10b5-l and the requirements of our policy governing transactions in our securities in our future quarterly and annual...

  • Page 142
    ...the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date) (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 2014 and incorporated...

  • Page 143
    ... herein) Form of Restricted Stock Award Agreement under the 2005 Stock Option and Incentive Plan (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 and incorporated by reference herein) Manufacturing Services Agreement between the Registrant...

  • Page 144
    ... 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 13, 2015 POWER OF ATTORNEY KNOW ALL...

  • Page 145
    /s/ GEORGE C. MCNAMEE George C. McNamee /s/ DEBORAH G. ELLINGER Deborah G. Ellinger /s/ PAUL J. KERN Paul J. Kern /s/ PAUL SAGAN Paul Sagan Director Director Director Director Form 10-K 72

  • Page 146
    ... located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date) (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 2014 and incorporated by reference herein) Senior Executive Incentive Compensation Plan...

  • Page 147
    ...following materials from the Registrant's Annual Report on Form 10-K for the year ended December 27, 2014 formatted in XBRL (eXtensible Business Reporting Language...and (vi) related notes to these financial statements Indicates a management contract or any compensatory plan, contract or arrangement. ...

  • Page 148

  • Page 149
    ... of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2009 to 12/31/2014. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among iRobot Corporation, the NASDAQ Composite Index, and S&P Technology Hardware & Equipment Industry Group $300 $250...

  • Page 150

  • Page 151
    ... 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 152
    iRobot Mission Empowering People To Do More Corporate Headquarters 8 Crosby Drive Bedford, MA 01730 USA Phone: 781.430.3000 Fax: 781.430.3001 www.irobot.com [email protected]