iRobot 2006 Annual Report Download

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Grow the business. Lead the industry.
Annual Report 2006

Table of contents

  • Page 1
    Grow the business. Lead the industry. Annual Report 20 06

  • Page 2
    ... 20% growth of Home Robots revenue was continued demand for our Roomba floor vacuuming robot, especially in the direct sales channel where we more than doubled revenue for the full year, and the initial distribution into the retail channel of our Scooba floor washing robot, which was released late...

  • Page 3
    ...Vehicle (SUGV) by introducing the SUGV Early, to meet the needs of soldiers and first responders. In our Home Robots division, we are deepening our penetration of the worldwide floor care business with strong brand promotion, international and domestic channel expansion, introduction of new products...

  • Page 4

  • Page 5
    ... registered public accountants. 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...

  • Page 6

  • Page 7
    ... Corporation: The annual meeting of stockholders of iRobot Corporation, a Delaware corporation (the "Company"), will be held on Thursday, June 28, 2007, at 2:00 p.m., local time, at the Bedford Glen Hotel located at 44 Middlesex Turnpike, Bedford, Massachusetts 01730, for the following purposes...

  • Page 8

  • Page 9
    ... of proxies by the board of directors of iRobot Corporation, a Delaware corporation (the "Company"), for use at the annual meeting of stockholders to be held on Thursday, June 28, 2007, at 2:00 p.m., local time, at the Bedford Glen Hotel located at 44 Middlesex Turnpike, Bedford, Massachusetts 01730...

  • Page 10
    The person named as attorney-in-fact in the proxies, Glen D. Weinstein, was selected by the board of directors and is an officer of the Company. All properly executed proxies returned in time to be counted at the annual meeting will be voted by such person at the annual meeting. Where a choice has ...

  • Page 11
    ... beneficially owned by Mr. White, as Mr. White resigned as President and General Manager, Home Robots on January 23, 2007. Also does not include Sandra B. Lawrence or any shares beneficially owned by Ms. Lawrence, as Ms. Lawrence was not an executive officer of the Company as of March 31, 2007. 3

  • Page 12
    ...upon the recommendation of the nominating and corporate governance committee, has nominated Helen Greiner, George McNamee and Peter Meekin 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...

  • Page 13
    ... was appointed president and general manager of our home robots division, effective May 14, 2007 (2) Member of compensation committee (3) Member of nominating and corporate governance committee (4) Member of audit committee Helen Greiner, a co-founder of iRobot, was named our president in June 1997...

  • Page 14
    .... Sandra B. Lawrence was appointed president and general manager of our home robots division, effective May 14, 2007. Prior to joining iRobot, Ms. Lawrence served as vice president, innovation and growth platforms for the consumer group of companies at Johnson & Johnson, a position which she held...

  • Page 15
    ... of IMS Health. Mr. Meekin holds a B.S. in Mathematics from the State University of New York at New Paltz. Paul J. Kern, Gen. U.S. Army (ret.) has served as a director since May 2006. Mr. Kern has served as a senior counselor to The Cohen Group, an international strategic business consulting firm...

  • Page 16
    ... industry and strategic experience and expertise that, in concert, offer us and our stockholders diversity of opinion and insight in the areas most important to us and our corporate mission. In addition, nominees for director are selected to have complementary, rather than overlapping, skill sets...

  • Page 17
    ... the preceding year's annual meeting. All recommendations for nomination must be in writing and include the following: • Name and address of the stockholder making the recommendation, as they appear on our books and records, and of such record holder's beneficial owner; • Number of shares of our...

  • Page 18
    ... employees worldwide, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the Code of Business Conduct and Ethics is available at the Corporate Governance section of our website...

  • Page 19
    ... a current copy of which is available at the Corporate Governance section of our website at http://www.irobot.com. As described more fully in its charter, the audit committee oversees our accounting and financial reporting processes, internal controls and audit functions. In fulfilling its role, the...

  • Page 20
    ... of the committee. Mr. McNamee serves as the chairman of the compensation committee. The compensation committee's responsibilities include: • annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer; • evaluating the performance of...

  • Page 21
    ... Mr. Meekin on the compensation committee. No member of the compensation committee was an employee or former employee of us or any of our subsidiaries, or had any relationship with us requiring disclosure herein. During the last year, no executive officer of the Company served as: (i) a member of...

  • Page 22
    ... Standards No. 61 (Communication with Audit Committees), as currently in effect, other standards of the Public Company Accounting Oversight Board, rules of the Securities and Exchange Commission and other applicable regulations. The audit committee has reviewed permitted services under rules of the...

  • Page 23
    ...responsible for developing executive compensation policies and advising the board of directors with respect to such policies and administering the company's cash incentive and stock option plans. The compensation committee sets performance goals and objectives for the chief executive officer and the...

  • Page 24
    ... the compensation of our named executive officers should reflect their success as a management team, rather than as individuals, in attaining key operating objectives - such as revenue growth and gross profit improvement - as well as longer-term strategic objectives - such as invention and product...

  • Page 25
    ...to help us evaluate peer companies for compensation purposes and to help us analyze applicable compensation data and to help us determine appropriate compensation levels for our chief executive officer. We believe that the use of benchmarking data is an important factor in remaining competitive with...

  • Page 26
    ...: salary, long-term equity interest, primarily in the form of stock options, and a cash incentive program based on both corporate and divisional performance. All of our executive officers also are eligible for certain benefits offered to employees generally, including life, health, disability and...

  • Page 27
    ... each executive officer's target bonus was tied to limiting non-operating division operating expenses, such as corporate finance, legal services, human resources, corporate marketing, information technology and similar shared services. Because our fiscal year 2006 corporate services expenses, net of...

  • Page 28
    ...each executive officer's target bonus was tied to achieving multiple milestones on product quality, product development and invention. These strategic and tactical metrics were chosen by the compensation committee to provide incentives to increase product offerings, minimize costs related to product...

  • Page 29
    Proxy Statement executives' overall compensation, including the equity component of that compensation, at a competitive level with the comparable companies reviewed by the committee in the technology and robotics industries. Our compensation committee also considers the number of shares of common ...

  • Page 30
    ... compensation objective, to structure executive compensation to minimize application of the deduction limitations of Section 162(m) of the Code. Executive Compensation Summary The following table sets forth summary compensation information for our chief executive officer, chief financial officer...

  • Page 31
    Proxy Statement Grants of Plan-Based Awards in 2006 The following table sets forth, for each of our named executive officers, information about grants of planbased awards during 2006. GRANTS OF PLAN-BASED AWARDS Estimated Future Payouts Under Non-Equity Incentive Plan Awards Threshold Target ($) ...

  • Page 32
    ...a change in control, the executive officer is entitled to 100% of the executive officer's base salary, and 50% of the executive officer's target bonus and 100% vesting of all stock, options, awards and purchase rights granted to the executive officer, as well as certain continued health benefits. In...

  • Page 33
    ... the one-year period following a change in control on December 30, 2006, our named executive officers would be entitled to cash payments in the amounts set forth opposite their names in the below table, subject to any deferrals required under Section 409A of the Internal Revenue Code of 1986, as...

  • Page 34
    ... board of directors, we maintain a cash and equity compensation policy for our non-employee members of our board of directors. In 2006, each of our non-employee members of our board of directors was entitled to the following cash compensation: Annual retainer for board membership ...Audit Committee...

  • Page 35
    ......50,000 George McNamee ...50,000 Peter Meekin ...50,000 (3) The following table presents the fair value of each grant of stock options in 2006 to non-employee members of our board of directors, computed in accordance with FAS 123(R): Number of Securities Underlying Options Exercise Price of Option...

  • Page 36
    ... family had or will have a direct or indirect material interest. In April 2007, our board of directors adopted a written related person transaction approval policy, which sets forth our polices and procedures for the review, approval or ratification of any transaction required to be reported...

  • Page 37
    ... procedures in connection with our initial public offering in 2005. Audit Fees also include the audit of our internal control over financial reporting. Audit-Related Fees Consists of fees for accounting consultations and other services that were reasonably related to the performance of audits or...

  • Page 38
    ... by Certified Mail, Return Receipt Requested, to iRobot Corporation, 63 South Avenue, Burlington, Massachusetts 01803, 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 39
    ... PROXY MATERIALS Our 2006 Annual Report, including audited financial statements for the fiscal year ended December 30, 2006, is being mailed to you along with this proxy statement. In order to reduce printing and postage costs, ADP Investor Communication Services has undertaken an effort to deliver...

  • Page 40

  • Page 41
    ... ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2006 OR n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file no. 000-51598 Form 10-K iROBOT CORPORATION (Exact name...

  • Page 42
    ..., 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...

  • Page 43
    ... to build industry-leading robots. Our Roomba floor vacuuming robot and Scooba floor washing robot perform time-consuming domestic chores, and our PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In addition, we are developing the Small Unmanned Ground Vehicle...

  • Page 44
    ... line to our customers. Within the consumer market today we offer floor cleaning products for various surfaces at multiple price points, as well as a number of product accessories. We are extending our military robot offerings from small, unmanned ground vehicles (such as our PackBot line of robots...

  • Page 45
    ..., sensor fusion, power management and communication. Our AWARE systems allow our Roomba floor vacuuming robot and our Scooba floor washing robot to clean an entire floor while avoiding obstacles and not falling down stairs, and also allow our PackBot robots and the R-Gator unmanned ground vehicle to...

  • Page 46
    ... with important maintenance feedback and improve user experience and product life. The suggested retail price for Scooba 5800 and Scooba 5900, our floor washing robots, are $299 and $399, respectively. With The Clorox Company, we have developed a specially-engineered cleaning solution for use with...

  • Page 47
    ...assist in the mobility of the robot. We are currently jointly marketing this specially-engineered cleaning solution with The Clorox Company. Government and Industrial Products Our current government and industrial product offerings extend from our PackBot line of small, unmanned ground robots to the...

  • Page 48
    ... of operations, through real-time network centric communications and systems of a family of manned vehicles and unmanned platforms by the next decade. The FCS program combines advanced technologies, organizations, people and processes with concepts to create new sources of military power that...

  • Page 49
    ...PackBot, the Roomba and the Scooba robots are designed with open interfaces that allow third-party designers to add sensors or other functionality to our robots. Sales and Distribution Channels We sell our products through distinct sales channels to the consumer and government and industrial markets...

  • Page 50
    ... iRobot on-line store has resulted in this direct channel increasing to 16.0% of home robots division revenue in fiscal 2006 compared to 9.3% in fiscal 2005. We have established valuable databases and customer lists that allow us to target directly those consumers most likely to purchase a new robot...

  • Page 51
    ...support requirements for military operations. Form 10-K Marketing and Brand iRobot markets its home robots in the United States to end-user customers directly through our sales and product management team of 11 employees. We also market our consumer products in the United States through our retail...

  • Page 52
    ...and Business Operations teams to work together to deliver a platform that integrates with the FCS system of systems. Global Engineering Our domestic research and development efforts are primarily located at our headquarters in Burlington, Massachusetts, and our special projects engineering office in...

  • Page 53
    ... industrial applications. We also work with strategic collaborators to develop industry-specific technologies. Moreover, we continue to reinvest in advanced research and development projects to maintain our technical capability and to enhance our product offerings. Competition The market for robots...

  • Page 54
    ... factors in the market for robots include product features, performance for the intended mission, cost of purchase, total cost of system operation, including maintenance and support, ease of use, integration with existing equipment, quality, reliability, customer support, brand and reputation. Our...

  • Page 55
    ... on and advancing certain of our projects with the U.S. federal government. Classified programs generally will require that we comply with various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and...

  • Page 56
    ... with respect to product sales to our non-government customers and funded research and development is not meaningful. There can be no assurance that any of our backlog will result in revenue. Employees As of December 30, 2006, we had 371 full-time employees located in the United States and abroad...

  • Page 57
    ...: • seasonality in the sales of our consumer products; • the size and timing of orders from retail stores for our home floor 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...

  • Page 58
    ... consumer home floor 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. For example...

  • Page 59
    ... increase in new sales to other customers would have a material adverse effect on our operating results. Our participation in specific major U.S. federal government programs is critical to both the development and sale of our military robots. For example, in the years ended December 30, 2006 and...

  • Page 60
    ... contract manufacturer, Jetta Company Limited, to manufacture our home robot products at a single plant in China and rely on one contract manufacturer, Gem City Engineering Corporation, to manufacture our military products at a single plant in the United States. Moreover, we do not have a long-term...

  • Page 61
    ... our suppliers in China negotiating increased pricing terms with us. Any efforts to expand our product offerings beyond our current markets may not succeed, which could negatively impact our operating results. We have focused on selling our robots in the home floor care and military markets. We plan...

  • Page 62
    ... our market share to decline. We believe that a number of companies have developed or are developing robots that will compete directly with our product offerings. Additionally, large and small companies, government-sponsored laboratories and universities are aggressively pursuing contracts for robot...

  • Page 63
    ... in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results. The market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting customer needs and expectations and the likely...

  • Page 64
    ...Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, friendly user interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors...

  • Page 65
    ... meet customer requirements on a timely basis, our products could lose market share, our revenue and profits could decline, or we could experience operating losses. Moreover, if we are unable to offset our product development costs through sales of existing or new products or product enhancements...

  • Page 66
    ... the development of the R-Gator unmanned ground vehicle, and The Clorox Company on the cleaning solution used in our Scooba floor washing robot. Under these collaborations, we may be dependent on our collaborators to fund some portion of development of the product or to manufacture and market either...

  • Page 67
    ...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 68
    ... if we had allocated the purchase price or other resources to another opportunity; • risks of entering new markets in which we have limited or no experience; • potential loss of key employees, customers and strategic alliances from either our current business or the target company's business; 28

  • Page 69
    ... comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could...

  • Page 70
    ...31, 2005, sales to non-U.S. customers accounted for 11.0% and 9.9% of total revenue, respectively. Our international revenue and operations are subject to a number of material risks, including, but not limited to: • difficulties in staffing, managing and supporting operations in multiple countries...

  • Page 71
    ... in a timely manner or at all, we would be delayed or prevented from selling our products in international jurisdictions, which could materially harm our business, operating results and ability to generate revenue. Risks Related to Ownership of Our Common Stock An active trading market for our...

  • Page 72
    ...for our new corporate headquarters in Bedford, Massachusetts to which we expect to relocate on or about May 1, 2008. ITEM 3. LEGAL PROCEEDINGS From time to time in the ordinary course of our business, we may be involved in disputes or litigation relating to claims arising out of our operations. The...

  • Page 73
    ... PURCHASES OF EQUITY SECURITIES Our common stock commenced trading on the NASDAQ Global Market on November 9, 2005 under the symbol "IRBT". The following table sets forth the high and low sale prices for our common stock for fiscal 2005 since our initial public offering and for fiscal year 2006...

  • Page 74
    ... revenue ...Cost of Revenue Cost of product revenue ...Cost of contract revenue ...Total cost of revenue ...Gross Profit (Loss)(1) ...Operating Expenses Research and development ...Selling and marketing ...General and administrative ...Total operating expenses ...Operating Income (Loss)...Net Income...

  • Page 75
    ... to build industry-leading robots. Our Roomba floor vacuuming robot and Scooba floor washing robot perform timeconsuming domestic chores, and our PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In addition, we are developing the Small Unmanned Ground Vehicle...

  • Page 76
    ... support services due to a focused effort to market these services and the expanding installed base of our robots. We currently derive a majority of our product revenue from the sale of our home floor care robots and our PackBot tactical military robots. For the fiscal years ended December 30, 2006...

  • Page 77
    ...of revenue. Compared to our PackBot tactical military robots, labor costs for our home floor cleaning robots comprise a greater percentage of the associated cost of revenue. We outsource the manufacture of our home floor cleaning robots to a contract manufacturer in China. While labor costs in China...

  • Page 78
    ...and related costs for executives and administrative personnel; • advertising, marketing and other brand-building costs; • fulfillment costs associated with direct-to-consumer sales through the iRobot on-line store; • professional services costs; • information systems and infrastructure costs...

  • Page 79
    ... rates of returns. The estimates and reserve for rebates and price protection are based on specific programs, expected usage and historical experience. Actual results could differ from these estimates. Through 2003, we recognized revenue on sales to certain distributors and retail customers...

  • Page 80
    ... the grant date using the Black-Scholes option-pricing model with the following assumptions: Fiscal Year Ended December 30, 2006 Risk-free Expected Expected Expected interest rate ...4.32% - 5.11% dividend yield...- life ...3.5 - 6.5 years volatility ...65% The risk-free interest rate is derived...

  • Page 81
    ... demand and market conditions. Because of the seasonality of our consumer product sales and inventory levels, obsolescence of technology and product life cycles, we generally write down inventory to net realizable value based on forecasted product demand. Actual demand and market conditions may be...

  • Page 82
    ... Stock-based compensation recorded in 2006, 2005 and 2004 breaks down by expense classification as follows. December 30, 2006 Fiscal Year Ended December 31, December 31, 2005 2004 (In thousands) Cost of product revenue ...Cost of contract revenue ...Research and development ...Selling and marketing...

  • Page 83
    ...our home robots division was driven primarily by the initial distribution into the retail channel of our Scooba floor washing robot, which was released late in 2005, continued demand for our Roomba floor vacuuming robot and an 8.2% increase in net average selling prices. Total home floor care robots...

  • Page 84
    ...our home floor care robots, a 52.8% increase in the unit sales of our military robots and higher costs associated with a 30.9% increase in recurring contract revenues generated under funded research and development contracts in fiscal 2006 as compared to fiscal 2005. The home robots division cost of...

  • Page 85
    ... benefit related expense, $0.7 million increased customer service costs and $0.5 million increased sales commissions. All of these increases are attributable to the increase in fiscal 2006 of $18.4 million of home robot revenue as compared to fiscal 2005. Government and industrial division selling...

  • Page 86
    ....7% For fiscal 2006, other income (expense), net amounted to $3.8 million compared to $0.7 million in fiscal 2005. The other income (expense), net was directly related to $4.0 million of interest income resulting from the investment of net proceeds from our initial public offering that occurred in...

  • Page 87
    ... industrial business. Form 10-K The increase in revenue from our home robots products was primarily driven by continued demand for our Roomba floor vacuuming robots and to a lesser degree, for our Scooba floor washing robot, as it was released late in 2005. During the year we added four retailers...

  • Page 88
    ... 31, 2004. For fiscal years 2005 and 2004 we incurred the majority of our internal (non-funded) research and development expenses to support the development of enhancements to our Roomba product line as well as our Scooba floor washing robot development which began in early 2004. In addition to our...

  • Page 89
    ... borrowings under a working capital line of credit and cash generated from operations. In the initial public offering, we raised $70.4 million net of underwriting and professional fees associated with this offering. We manufacture and distribute our products through contract manufacturers and third...

  • Page 90
    ..., our home robots product inventory consists of goods shipped to our domestic third-party logistic providers for the fulfillment of domestic retail orders and direct-to-consumer sales. Our inventory of military products is minimal as they are generally built to order. Our contract manufacturers are...

  • Page 91
    ...2003, largely attributable to our investment in internally funded research and development. Based on our historical product development efforts, we launched our first commercial products, our Roomba floor vacuuming robot and our PackBot tactical military robot, in fiscal 2002. Since fiscal 2002, our...

  • Page 92
    ... on our working capital. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and...

  • Page 93
    ...term investments were comprised of auction rate securities. Our exposure to market risk also relates to the increase or decrease in the amount of interest expense we must pay on our outstanding debt instruments, primarily certain borrowings under our bank line of credit. The advances under this line...

  • Page 94
    ... STATEMENTS AND SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 30, 2006 and December 31, 2005 ...Consolidated Statements of Operations for the Years ended...

  • Page 95
    ... of iRobot Corporation's 2006 consolidated financial statements and of its internal control over financial reporting as of December 30, 2006 and audits of its 2005 and 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United...

  • Page 96
    ... or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of...

  • Page 97
    ...cash equivalents ...Short term investments ...Accounts receivable, net of allowance of $163 and $117 at December 30, 2006 and December 31, 2005, respectively ...Unbilled revenue ...Inventory, net ...Other current assets...Total current assets ...Property and equipment, net ...Total assets ...$ 5,583...

  • Page 98
    ... Stock-based compensation recorded in 2006, 2005 and 2004 breaks down by expense classification as follows: December 30, 2006 Fiscal Year Ended December 31, December 31, 2005 2004 (In thousands) Cost of product revenue ...Cost of contract revenue ...Research and development ...Selling and marketing...

  • Page 99
    ... of initial public offering, net of costs ...3,260,870 Conversion of warrants to common stock ...16,155 Deferred compensation relating to issuance of stock options ...Tax benefit of disqualifying dispositions ...Amortization of deferred compensation relating to stock options ...Net income ...Balance...

  • Page 100
    ...Accrued expenses ...Accrued compensation ...Provision for contract settlement ...Deferred revenue ...Change in long-term liabilities ...Net cash provided by (used in) operating activities ...Cash flows from investing activities: Purchase of property and equipment ...Purchase of investments ...Sales...

  • Page 101
    ... Business iRobot Corporation, formerly IS Robotics, Inc., was incorporated in 1990 to develop robotics and artificial intelligence technologies and apply these technologies in producing and marketing robots. The majority of the Company's revenue is generated from product sales, and government and...

  • Page 102
    ...and commercial research and development contracts. The Company sells products directly to customers and indirectly through resellers and distributors. The Company recognizes revenue from sales of consumer robots under the terms of the customer agreement upon transfer of title to the customer, net of...

  • Page 103
    ... lower of cost or market with cost being determined using the first-in, first-out (FIFO) method. The Company maintains a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory. Activity related to the inventory reserve was as follows: December 30, 2006 Fiscal...

  • Page 104
    ... in relation to the operating performance and 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...

  • Page 105
    ... its initial public offering on November 9, 2005, its board of directors determined the fair value of its common stock by considering a number of objective and subjective factors, including the Company's operating and financial performance and corporate milestones, the prices at which it sold shares...

  • Page 106
    ... the grant date using the Black-Scholes option-pricing model with the following assumptions: Fiscal Year Ended December 30, 2006 Risk-free Expected Expected Expected interest rate ...4.32% - 5.11% dividend yield...- life ...3.5 - 6.5 years volatility ...65% The risk-free interest rate is derived...

  • Page 107
    ... estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: Fiscal Year Ended December 31, December 31, 2005 2004 Risk-free Expected Expected Expected interest rate ...dividend yield ...life ...volatility ... 4.1% - 5 years 65% 3.4% - 5 years 0% The...

  • Page 108
    ...market value of the Company's stock on December 30, 2006 of $18.06 and the exercise price of the underlying option. During fiscal years 2006 and 2005, the total intrinsic value of stock options exercised was $7.0 million and $5.7 million, respectively. No amounts relating to stock-based compensation...

  • Page 109
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of December 30, 2006, the unamortized fair value of all restricted stock awards was $85,000. The Company expects to recognize associated stock-based compensation expense of $68,000 in 2007 and $17,000 in 2008. The ...

  • Page 110
    ... production overheads to the cost of the production be based on normal capacity of the production facilities. The Company adopted SFAS No. 151 effective January 1, 2006 and the adoption did not have an effect on its consolidated results of operations and financial condition. From time to time, new...

  • Page 111
    ...903 Form 10-K 4. Property and Equipment Property and equipment consists of the following at: December 30, December 31, 2006 2005 (In thousands) Computer and equipment ...Furniture ...Machinery ...Tooling ...Leasehold improvements ...Software purchased for internal use ...Leased equipment ...Less...

  • Page 112
    ... of the Company's assets other than its intellectual property. The Company is required to maintain quarterly tangible net worth thresholds based on its stockholders' equity under the credit facility that vary by quarter based on anticipated seasonality in the business. These operating and financial...

  • Page 113
    ... public offering, the exercise price of stock options granted is equal to the closing price on the NASDAQ Global Market on the date of grant. The exercise price of nonstatutory options may be set at a price other than the fair market value of the common stock. Effective January 1, 2006, the Company...

  • Page 114
    ... and could be exercised at any time until January 29, 2010. The estimated fair value of the warrants of $22,312 was determined using the Black-Scholes option-pricing model. For this purpose, the Company assumed a risk-free rate of return of 3.12%; an expected life of 2 years; 100% volatility and no...

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    ..., development, production and support of a number of man-portable remote control vehicles for use in explosive ordnance disposal operations. The Company entered into the contract with the Customer on May 23, 2001, and substantially completed the product design and development phase of the work. The...

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    ... The Company provides warranties on most products and has established a reserve for warranty based on identified warranty costs. The reserve is included as part of accrued expenses (Note 5) in the accompanying balance sheets. Activity related to the warranty accrual was as follows: December 30, 2006...

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    ... international distributors. The Company's consumer segment includes mobile robots used in the maintenance of domestic households sold primarily to retail outlets. Government and Industrial The Company's government and industrial division offers products through a small U.S. government-focused sales...

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    ... Company and Boston Properties Limited Partnership entered into a Lease Agreement for the Company's new corporate headquarters. The lease is for 157,776 square feet space located at 4-18 Crosby Drive, Bedford, Massachusetts and shall commence, subject to certain conditions, on May 1, 2008. The term...

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    ... 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 30, 2006, based on criteria for...

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

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    ..., the Investors and the Stockholders named therein, dated as of November 10, 2004 Form of Indemnification Agreement between the Registrant and its Directors and Executive Officers Registrant's 2006 Incentive Compensation Plan (filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for...

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    ...-9-F001 (Small Unmanned Ground Vehicle) 10.17(1) Government Contract N00174-03-D-0003 (Man Transportable Robotic System) 10.18†(1) 2005 Stock Option and Incentive Plan and forms of agreements thereunder 10.19#(1) Manufacturing and Services Agreement between the Registrant and Gem City Engineering...

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

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    Signature Title(s) /s/ ANDREA GEISSER Andrea Geisser /s/ GEORGE C. MCNAMEE George C. McNamee /s/ PETER MEEKIN Peter Meekin /s/ PAUL J. KERN Paul J. Kern Director Director Director Director 84

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    ... CUMULATIVE TOTAL RETURN* Among iRobot Corporation, The NASDAQ Composite Index And The NASDAQ Computer & Data Processing Index $140 $120 $100 Form 10-K $80 $60 $40 $20 $0 11/05 11/05 12/05 1/06 2/06 3/06 4/06 5/06 6/06 7/06 8/06 9/06 10/06 11/06 12/06 iRobot Corporation NASDAQ Composite NASDAQ...

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    ... traded on the Nasdaq National Market under the symbol IRBT. Investor Information Elise Caffrey Director, Investor Relations 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...

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    iRobot Mission Build฀cool฀stuff Deliver฀great฀product Make฀money Have฀fun Change the world Corporate Headquarters 63 South Avenue Burlington, MA 01803 USA Phone: 781.345.0200 Fax: 781.345.0201 www.irobot.com [email protected]