iRobot 2007 Annual Report Download

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Dear Stockholder: April 14, 2008
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 Thursday, May 29, 2008 at iRobot Corporation headquarters located at 8 Crosby
Drive, Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect three class III directors for three-year terms, and to
ratify the appointment of our independent registered public accountants. The board of directors unanimously
recommends that you vote FOR election of the director nominees and FOR ratification of appointment of our
independent 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 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 ANGLE HELEN GREINER
Chief Executive Officer Chairman of the Board
Proxy Statement

Table of contents

  • Page 1
    ... local time, on Thursday, May 29, 2008 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect three class III directors for three-year terms, and to ratify the appointment of our independent registered public...

  • 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 Thursday, May 29, 2008, at 2:00 p.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, for...

  • Page 4

  • Page 5
    ...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 29, 2007, is being mailed together...

  • Page 6
    ...the Company; (iii) 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...

  • Page 7
    ...Fund, L.P. and IP Fund One, L.P. Dr. Chwang is a general partner of the management company for each of iD5 Fund, L.P. and IP Fund One, L.P., and may be deemed to share voting and investment power... options held by fourteen (14) executive officers and directors and an aggregate of 4,874 shares issuable...

  • Page 8
    ... meeting of stockholders to be held in 2009 and (ii) three class II Directors (Helen Greiner, George McNamee and Peter Meekin) whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2010. Ms. Greiner serves as the chairman of the board...

  • Page 9
    ...Officer and Treasurer President and General Manager, Government & Industrial President and General Manager, Home Robots Senior Vice President, General Counsel and Secretary Vice President, Financial Controls & Analysis Director Director Director Director Director Director (1) Member of compensation...

  • Page 10
    .... Sandra B. Lawrence has served as the president and general manager of our home robots division, since May 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 from...

  • Page 11
    ... met in executive session four (4) times in 2007. Policies Governing Director Nominations Director Qualifications The nominating and corporate governance committee of the board of directors is responsible for reviewing with the board of directors from time to time the appropriate qualities, skills...

  • Page 12
    ... 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 13
    ...For communications directed to the board of directors as a whole, security holders may send such communications to the attention of the chairman of the board of directors by U.S. mail (including courier or expedited delivery service) to: iRobot Corporation 8 Crosby Drive Bedford, Massachusetts 01730...

  • Page 14
    ... is available at the Corporate Governance section of our website at http://www.irobot.com. A copy of the Code of Business Conduct and Ethics may also be obtained, free of charge, from us upon a request directed to: iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Investor...

  • Page 15
    ...(m) of the Internal Revenue Code. 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...

  • Page 16
    ... times during the fiscal year ended December 29, 2007. 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...

  • Page 17
    ... 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 the Company's financial reporting. Based on its review...

  • Page 18
    ... responsible for developing executive compensation policies and advising the board of directors with respect to such policies and administering the company's cash incentive, stock option and employee stock purchase plans. The compensation committee sets performance goals and objectives for the chief...

  • Page 19
    ...stockholders through long-term equity incentives; and • to provide management with performance goals that are directly linked to our annual plan for growth and profit. We believe that the compensation of our named executive officers should reflect their success as a management team, rather than as...

  • Page 20
    ... applicable compensation data and to help us determine appropriate compensation levels for our named executive officers. With respect to 2007 long-term incentives, we reviewed companies with similar-sized revenues of greater than $100 million and less than $400 million, focusing on U.S.-based public...

  • Page 21
    ... benefits upon termination of employment following a change in control of the Company. Annual Cash Compensation Base Salary. The compensation committee believes that our executive officers, including our chief executive officer, are paid salaries in line with their qualifications, experience...

  • Page 22
    ... president, home robots and president, government & industrial robots, were $330,625, $267,500, $330,625, $320,000 and $303,264, respectively. We believe that the base salaries paid to our executive officers during our fiscal year 2007 achieve our executive compensation objectives, compare favorably...

  • Page 23
    ... of the compensation committee that these provisions were consistent with executive severance arrangements that are customary for public companies at our stage of development and were necessary in order to hire and/or retain the executives. From time to time, the Company's executive officers enter...

  • Page 24
    ... statements included as part of our Annual Report on Form 10-K for the fiscal year ended December 29, 2007 for certain assumptions made in the valuation of stock and option awards. (2) Excludes medical, group life insurance and certain other benefits received by the named executive officers that are...

  • Page 25
    ... of the named executive officers, information about grants of planbased awards during 2007. GRANTS OF PLAN-BASED AWARDS - 2007 All Other All Other Option Stock Exercise Awards: Awards: Estimated Possible Payouts Under Number Number of or Base Non-Equity Incentive Plan of Shares Securities Price of...

  • Page 26
    .... Target cash incentives for named executive officers are generally targeted at the 50th percentile of similar cash incentives provided to officers in peer companies reviewed by the compensation committee in the technology and robotics industries. For each executive officer, except Ms. Lawrence, 100...

  • Page 27
    ... AT FISCAL YEAR END - 2007 Number of Securities Underlying Unexercised Options (#) Exercisable Option Awards Number of Securities Underlying Unexercised Option Options Exercise (#) Price Unexercisable ($) Stock Awards Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares...

  • Page 28
    ... were calculated based on the difference between the fair market value of the Company's common stock on the date of exercise and the exercise price of the options in accordance with regulations promulgated under the Exchange Act. Potential Benefits Upon Termination or Change in Control Severance and...

  • Page 29
    ... as of the effective date of a change in control or termination without cause or resignation for good reason following a change in control. The following table provides the market value (that is, the value based upon our stock price on December 29, 2007, minus the exercise price) of stock options...

  • Page 30
    ... market value on the date of the award. All of our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors. The following table provides compensation information for the fiscal year ended December 29, 2007 for each non-employee member...

  • Page 31
    ... 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. In April 2007, our board of directors adopted a written related party transaction approval policy, which...

  • Page 32
    ... questions from stockholders. Fees Billed by PricewaterhouseCoopers LLP The following table shows the aggregate fees for professional services rendered by PricewaterhouseCoopers LLP to us during the fiscal years ended December 29, 2007 and December 30, 2006. 2007 2006 Audit Fees ...Audit-Related...

  • Page 33
    ... 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 34
    ... and one proxy statement, we will deliver promptly a separate copy of the Annual Report and the proxy statement to any shareholder who sends a written request to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Secretary, Office of the General Counsel, (781) 430-3000...

  • Page 35
    ...is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ¥ The aggregate market value of the Common Stock held by nonaffiliates of the registrant was approximately $325,453,593 based on the last reported sale of the Common Stock on the NASDAQ Global Market on June 29, 2007. As of...

  • Page 36
    ..., 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...

  • Page 37
    ...robots. Our Roomba floor vacuuming robots, Scooba floor washing robot and Looj gutter cleaning 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 38
    ... offer floor cleaning products for various surfaces at multiple price points, a gutter cleaning product, a pool cleaning product, and a number of product accessories. We are extending our military robot offerings from small, unmanned ground vehicles (such as our PackBot line of robots) to full-scale...

  • Page 39
    ...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 our unmanned ground vehicles to accomplish complex missions such as waypoint navigation and real-time...

  • Page 40
    ...cleaning solutions at an affordable price and by freeing people from repetitive home cleaning tasks. Home Floor Cleaning Robots. Over the past five years, we sold more than 3 million home floor cleaning robots. We currently offer multiple Roomba floor vacuuming robots and Scooba floor washing robots...

  • Page 41
    ... features an advanced diagnostic system to provide the user with important maintenance feedback and improve user experience and product life. The suggested retail price for the Scooba robots range from $249 to $499. With The Clorox Company, we have developed a specially-engineered cleaning solution...

  • Page 42
    ... Roomba's re-chargeable batteries, remote control and other accessories. The suggested retail price for the Create ranges from $129 to $299. Government and Industrial Products Our current government and industrial product offerings include our PackBot and PackBot 510 line of small, unmanned ground...

  • Page 43
    ... contract funding limit. Under a firm fixed price contract, we receive a fixed amount upon satisfying contractually defined deliverables. On our time and materials contracts, we recover a specific amount per hour worked based on a bill rate schedule, plus the cost of direct materials, subcontracts...

  • Page 44
    ... domestic and international marketing network, to market the new commercial SUGV product. Advanced Scientific Concepts, Inc. (ASC). We have entered into an agreement, in fiscal 2007, for exclusive rights to use ASC's patented 3D Flash Laser Radar, or LADAR, technology for unmanned ground vehicles in...

  • Page 45
    ... that offer specialized technological expertise. The 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...

  • Page 46
    ... experience selling military products to government procurement offices, both in the United States and internationally. We maintain a single person direct sales and support presence in Europe. Customer Service and Support We also invest in our ongoing customer service and support. Consumer customer...

  • Page 47
    Marketing and Brand We market our home robots in the United States to end-user customers directly through our sales and product management team of 14 employees. We also market our consumer products in the United States through our retail network of more than 30 national retailers and internationally...

  • Page 48
    ... in the United States, India and Hong Kong as technical interfaces with the facilities in China, and benefit from the experience of Jetta Company Limited, Kin Yat Industrial Co. Ltd. and their engineers. Our government and industrial products are manufactured by Gem City Engineering Corporation at...

  • Page 49
    ... Grumman Corporation; and • established government contractors working on unmanned systems such as Lockheed Martin Corporation, BAE Systems, Inc. and General Dynamics Corporation. While we believe many of our customers purchase our Roomba floor vacuuming robots and Scooba floor washing robots as...

  • Page 50
    ... us with any competitive advantages, or that the patents of others will harm or altogether preclude our ability to do business. Our registered U.S. trademarks include iRobot, Roomba, Scooba, iRobot Dirt Dog, Create, PackBot, Home Base and Virtual Wall. Our marks, iRobot, Roomba, Scooba, and certain...

  • Page 51
    ... products and technical data. We also need special security clearances to continue working on and advancing certain of our projects with the U.S. federal government. Classified programs generally will require that we comply with various Executive Orders, federal laws and regulations and customer...

  • Page 52
    ...in Hong Kong, the United Kingdom, China and India. We also maintain iRobot Securities Corporation, a Massachusetts securities corporation, to invest our cash balances on a short-term basis. Our website address is www.irobot.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current...

  • Page 53
    ... number of major programs under which the U.S. federal government is currently funding the development or purchase of military robots. You should consider the challenges, risks and uncertainties frequently encountered by companies using new and unproven business models in rapidly evolving markets...

  • Page 54
    ... prices. The development and application of new technologies involve time, substantial costs and risks. Our results in 2008 will depend in part on the success of product lines introduced during 2007, such as the Roomba 500 series robot, Verro pool cleaning robot and the Looj gutter cleaning robot...

  • Page 55
    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 29, 2007 and December 30, 2006, 45.0% and 59.8% of our contract revenue was derived from our participation in the U.S. ...

  • Page 56
    ... Co Limited, to manufacture our Roomba 500 series of home robot products at plants in China. Moreover, we rely on one contract manufacturer, Gem City Engineering Corporation, to manufacture our military products at a single plant in the United States. We do not have a long-term contract with Jetta...

  • Page 57
    ...the home floor care and military markets. We plan to expand into other markets. For example, we have devoted significant time and incurred expenses in connection with the development of our Looj gutter cleaning robot and ConnectR virtual visiting robot. Efforts to expand our product offerings beyond...

  • Page 58
    ... 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 59
    ... many of our expenses are based on anticipated levels of annual revenue, our business and operating results will suffer if we do not achieve revenue consistent with our expectations. Our home robots revenue is significantly seasonal. For the fiscal years ended December 29, 2007 and December 30...

  • Page 60
    ...Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors...

  • Page 61
    ... Chain stores and other national retailers are the primary distribution channels for our consumer robots and accounted for approximately 31.4% and 41.6% of our total revenue for the fiscal years ended December 29, 2007 and December 30, 2006, respectively. We do not have long-term contracts regarding...

  • Page 62
    ...; Deere & Company on the development of the R-Gator unmanned ground vehicle; TASER International, Inc. on the development of robots that can remotely engage, incapacitate and control dangerous suspects; and The Clorox Company on the cleaning solution used in our Scooba floor washing robot. Under...

  • Page 63
    ... team might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our robots, the loss of any significant number of our existing engineering and project...

  • Page 64
    ... 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; • assumption of unanticipated problems or latent liabilities, such as problems with the quality...

  • Page 65
    ... and short term investments. If similar consumptions of cash were to continue, we may need additional financing to execute on our current or future business strategies, including to: • hire additional engineers and other personnel; • develop new, or enhance existing, robots and robot accessories...

  • Page 66
    ... cannot obtain required government approvals under applicable regulations 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. We invest...

  • Page 67
    ... states may, from time to time, claim that we have state-related activities constituting a sufficient nexus to require such collection. Additionally, many other states seek to impose sales tax collection obligations on companies that sell goods to customers in their state, or directly to the state...

  • Page 68
    ... affect the market price of our common stock. 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...

  • Page 69
    ...157,000 square feet 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...

  • Page 70
    ... sale price of our common stock on the NASDAQ Global Market on February 22, 2008 was $18.03 per share. Dividend Policy We have never declared or paid any cash dividends on our capital stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business...

  • Page 71
    ... Cost of product revenue ...Cost of contract revenue ...Total cost of revenue ...Gross Profit(1) ...Operating Expenses Research and development ...Selling and marketing ...General and administrative ...Litigation and related expenses(2) ...Total operating expenses ...Operating Income (Loss)...Net...

  • Page 72
    ... new product sales, product development and offerings, Roomba, Scooba, Looj, Verro and ConnectR products, PackBot tactical military robots, our home robot and government and industrial robot divisions, competition and strategy and our market position, market acceptance of our products, seasonal...

  • Page 73
    ...generation and new products, reducing the time, cost and risk of product development. Our significant expertise in robot design and engineering, combined with our management team's experience in military and consumer markets, positions us to capitalize on the expected growth in the market for robots...

  • Page 74
    ... generated in the second half of the year (in advance of the holiday season). The timing of holiday season shipments could materially affect our third or fourth quarter consumer product revenue in any fiscal year. Revenue from our military robot sales and revenue from funded research and development...

  • Page 75
    ...• advertising, marketing and other brand-building costs; • fulfillment costs associated with direct-to-consumer sales through the iRobot on-line store; • customer service costs; • professional services costs; • information systems and infrastructure costs; • travel and related costs; and...

  • Page 76
    ... 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 77
    ... periods presented in this Annual Report on Form 10-K have not been restated to reflect the fair value method of expensing share-based compensation. In a review of our stock-based compensation accounting methodology performed in the fiscal quarter ended June 30, 2007, we determined that a cumulative...

  • Page 78
    ... the fiscal year ended December 29, 2007 was computed on the grant date using the Black-Scholes option-pricing model with the following assumptions: Fiscal Year Ended December 29, 2007 Risk-free Expected Expected Expected interest rate ...3.23% - 4.90% dividend yield ...- life ...3.50 - 4.75 years...

  • Page 79
    ... 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 lower than those that we project and this difference could have a material...

  • Page 80
    ... Tax Expense (Benefit) ...Net Income ... (1) Stock-based compensation recorded in 2007, 2006 and 2005 breaks down by expense classification as follows. December 29, 2007 Fiscal Year Ended December 30, December 31, 2006 2005 (In thousands) Cost of product revenue ...$ 692 $ 326 $ 33 Cost of contract...

  • Page 81
    ...in military robots revenue due to a 22.3% increase in units shipped and a 20.4% increase in net average selling prices, and a $7.7 million increase in product life cycle revenue (robot spares, services and training). Total military robots shipped in fiscal 2007 was 471 units compared to 385 units in...

  • Page 82
    .... The increase is primarily due to a 23.9% increase in the unit sales of our home care robots, and a 22.3% increase in the unit sales of our military robots in fiscal 2007 as compared to fiscal 2006. The home robots division cost of revenue increased as a percent of revenue by 7.2 percentage points...

  • Page 83
    ...expenses. Additionally, trade shows and other marketing related activities increased by $1.3 million, people related costs increased by $0.7 million and sales commissions increased by $0.6 million. Government and industrial division selling and marketing expenses were up $2.4 million for fiscal 2007...

  • Page 84
    ... 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 shipped in fiscal 2006 was approximately 725,000 units compared to...

  • Page 85
    ...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 86
    ... office, which opened in late 2005, as well as increased depreciation expense on computer equipment related to increased headcount. These increases were offset by a reduction of $2.3 million in internally funded research and development projects primarily related to the Scooba floor washing robot...

  • Page 87
    .... Prior to our initial public offering in November 2005, we funded our growth primarily with proceeds from the issuance of convertible preferred stock for aggregate net cash proceeds of $37.5 million, occasional borrowings under a working capital line of credit and cash generated from operations. In...

  • Page 88
    ..., office furniture and product-specific production tooling, internal use software and test equipment. In fiscal 2007 and 2006, we spent $10.4 million and $7.5 million, respectively, on capital equipment. During 2006, our strategy for delivering product to our retail customers changed from a model...

  • Page 89
    ... commercial products, our Roomba floor vacuuming robot and our PackBot tactical military robot, in fiscal 2002. Since fiscal 2002, our revenue has significantly increased, our investment in internally-funded research and development has declined as a percentage of revenue, and we achieved annual...

  • Page 90
    ... 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 91
    ...372 10,500 $14,872 $15,333 1,500 $16,833 $27,563 20,625 $48,188 Form 10-K On February 22, 2007, we entered into a lease agreement for our new corporate headquarters in Bedford, Massachusetts to which we expect to relocate on or about May 1, 2008. Off-Balance Sheet Arrangements As of December 29...

  • Page 92
    ... 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. In late 2007, we began to accept orders for home robot products in...

  • Page 93
    ... DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 29, 2007 and December 30, 2006 ...Consolidated Statements of Operations for the Years ended December 29, 2007, December...

  • Page 94
    ... in the period ended December 29, 2007 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, 2007, based on criteria...

  • Page 95
    ... ...Short term investments ...Accounts receivable, net of allowance of $65 and $163 at December 29, 2007 and December 30, 2006, respectively ...Unbilled revenue ...Inventory, net ...Deferred tax assets ...Other current assets...Total current assets ...Property and equipment, net ...Deferred...

  • Page 96
    ... breaks down by expense classification as follows: December 29, 2007 Fiscal Year Ended December 30, December 31, 2006 2005 (In thousands) Cost of product revenue ...$ 692 $ 326 $ 33 Cost of contract revenue ...386 267 58 Research and development ...377 376 95 Selling and marketing ...1,074 389 32...

  • Page 97
    ...public offering, net of costs ...3,260,870 33 70,374 Conversion of warrants to common stock . . 16,155 Deferred compensation relating to issuance of stock options ...3,421 Tax benefit... - 111 9,060 Balance at December 29, 2007 ...24,494,931 $245 $122,318 $(11,651) $110,227 ...

  • Page 98
    ... from stock option exercises ...Proceeds from initial public offering, net of offering costs ...Tax benefit of excess stock based compensation deductions ...Tax benefit of disqualifying dispositions ...Net cash provided by financing activities ...Net increase (decrease) in cash and cash equivalents...

  • Page 99
    ... 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 100
    ... 29, 2007 have been liquidated. Revenue Recognition The Company derives its revenue from product sales, government research and development contracts and commercial research and development contracts. The Company sells products directly to customers and indirectly through resellers and distributors...

  • Page 101
    ... not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Activity related to the allowance for doubtful accounts was as follows: December 29, 2007 Fiscal Year Ended December 30, December 31, 2006...

  • Page 102
    ... Institute of Certified Public Accountants Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). At December 29, 2007 and December 30, 2006, the Company had $4.8 million and $3.6 million respectively, of costs related to enterprise...

  • Page 103
    ... presented in this Annual Report on Form 10-K have not been restated to reflect the fair value method of expensing share-based compensation. In a review of its stock-based compensation accounting methodology performed during the second quarter of fiscal 2007, the Company determined that a cumulative...

  • Page 104
    ... No. 25 relating to stock options with exercise prices below the retrospectively reassessed fair market value on the date of grant. The Company recognized associated stock-based compensation expense of $0.2 million, $0.7 million and $0.4 million for the fiscal years ended December 29, 2007, December...

  • Page 105
    ... if the Company had applied the fair value recognition provisions of SFAS No. 123 to share-based employee awards. Fiscal Year Ended December 31, 2005 (In thousands except per share data) Form 10-K Net income as reported ...Add back: Stock-based employee compensation expense reported in net income...

  • Page 106
    ... The aggregate intrinsic value on the table was calculated based upon the positive difference between the closing market value of the Company's stock on December 29, 2007 of $18.04 and the exercise price of the underlying option. During fiscal years 2007, 2006 and 2005, the total intrinsic value of...

  • Page 107
    ... 1.94 - $ 1.61 - $ 2.77 16.03 2.77 2.77 $10.11 Form 10-K As of December 29, 2007, the unamortized fair value of all restricted stock awards was $363,000. The Company expects to recognize associated stock-based compensation expense of $110,000, $100,000, $104,000 and $49,000 in 2008, 2009, 2010 and...

  • Page 108
    .... The Company expects to recognize associated stock-based compensation expense of $106,000, $113,000, $123,000 and $87,000 in 2008, 2009, 2010 and 2011, respectively. Advertising Expense The Company expenses advertising costs as they are incurred. During the years ended December 29, 2007, December...

  • Page 109
    ... not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. 3. Inventory Inventory consists of the following at: December 29, December 30, 2007 2006 (In thousands) Form 10-K Raw materials ...Work in process ...Finished goods ... $ 1,641 517...

  • Page 110
    ... other specific factors relating to the business underlying the investment. If any such impairment is identified, a reduction in the carrying value of the investment would be recorded at that time. 6. Accrued Expenses Accrued expenses consist of the following at: December 29, December 30, 2007 2006...

  • Page 111
    .... Interest accrues at a variable rate based on prime or published LIBOR rates. The line expired on May 26, 2007. On June 5, 2007, the Company entered into a $35 million unsecured revolving credit facility with Bank of America, N.A. to replace its expired working capital line of credit with Bank of...

  • Page 112
    ... and the value of preferred stock based on recent financing activities. Subsequent to the Company's initial 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...

  • Page 113
    ... 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...

  • Page 114
    ... and Contingencies Legal The Company received a letter from the United Kingdom's Ministry of Defence (the "Customer") dated February 9, 2004, attempting to terminate a contract for the design, development, production and support of a number of man-portable remote control vehicles for use in...

  • Page 115
    ..., 2007, the Company filed a lawsuit in Massachusetts Superior Court against Robotic FX, Inc. and Jameel Ahed alleging, among other things, misappropriation of trade secrets and breach of contract, and seeking both injunctive and monetary relief. The case was subsequently removed to the United States...

  • Page 116
    ... 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 29, 2007 Fiscal Year Ended December 30...

  • Page 117
    ... 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 force, while products are sold to a limited number of countries other than the United States through international distribution...

  • Page 118
    ..., no one country accounted for more than 10% of total revenue. Significant Customers For the fiscal years ended December 29, 2007 and December 30, 2006, U.S. federal government orders, contracts and subcontracts accounted for 34.9% and 34.4% of total revenue, respectively. 16. Quarterly Information...

  • Page 119
    ... 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 29, 2007, based on criteria for...

  • Page 120
    ... or termination of an established trading plan, other than in such quarterly and annual reports. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant...

  • Page 121
    ... 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 the year ended December...

  • Page 122
    ... City Engineering Corporation, dated as of July 27, 2004 Non-Employee Directors' Deferred Compensation Program, as amended Lease Agreement between the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007...

  • Page 123
    Exhibit Number Description 23.1* 24.1 31.1* 31.2* 32.1* Consent of PricewaterhouseCoopers LLP Power of Attorney (incorporated by reference to the signature page of this report on Form 10-K) Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 ...

  • Page 124
    ..., 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: February 25, 2008 POWER OF ATTORNEY KNOW ALL MEN BY THESE...

  • Page 125
    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 Form 10-K 91

  • Page 126
    ... City Engineering Corporation, dated as of July 27, 2004 Non-Employee Directors' Deferred Compensation Program, as amended Lease Agreement between the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007...

  • Page 127
    ... Registrant and Banc of America Leasing Capital, LLC, dated as of June 19, 2007 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated by reference herein) Manufacturing Agreement between the Registrant and Kin Yat Industrial Co...

  • Page 128
    ... our common stock and in each of the indexes on 11/9/2005 and its relative performance is tracked through 12/31/2007. COMPARISON OF 25 MONTH CUMULATIVE TOTAL RETURN* Among iRobot Corporation, The NASDAQ Composite Index And The NASDAQ Computer & Data Processing Index $160 $140 $120 $100 $80 $60 $40...

  • Page 129
    ... and General Manager, Home Robots Geoff Clear Senior Vice President and Chief Financial Officer Glen Weinstein Senior Vice President and General Counsel Alison Dean Vice President, Financial Controls and Analysis New Address As of April 28, 2008 8 Crosby Drive Bedford, Massachusetts 01730 Phone...

  • Page 130
    NOTES

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    NOTES

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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]