iRobot 2007 Annual Report Download - page 88

As of February 21, 2008, we held $17.5 million of variable rate bonds or auction rate securities, all of which
were purchased in January or February of 2008. A substantial majority of the underlying assets of these auction rate
securities are student loans which are backed by the federal government under the Federal Family Education Loan
Program. On February 19, 2008 one auction failed for $2.5 million of our auction rate securities and there is no
assurance that auctions on the remaining auction rate securities in our investment portfolio will succeed in the
future. See Item 7A — Quantitative And Qualitative Disclosures About Market Risk, included elsewhere in this
Annual Report on Form 10-K for a more detailed discussion of these auction rate securities.
We manufacture and distribute our products through contract manufacturers and third-party logistics pro-
viders. We believe that this approach gives us the advantages of relatively low capital investment and significant
flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also
minimize the cash needed for expansion. Accordingly, our capital spending is generally limited to leasehold
improvements, computers, 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 that emphasized
container shipments directly to the retailer from China to a model emphasizing improved logistics capabilities that
allow our retail partners to take possession of product on a domestic basis. Accordingly, our home robots product
inventory consists of goods shipped to our third-party logistic providers for the fulfillment of 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 responsible for purchasing and stocking the components required for the production of
our products, and they invoice us when the finished goods are shipped.
Our consumer product sales are, and are expected to continue to be, highly seasonal. This seasonality typically
results in a net use of cash in support of operating needs during the first half of the year with the low point generally
occurring in the middle of the third quarter, and a favorable cash flow during the second half of the year. In the past,
we have relied on our working capital line of credit to cover the short-term cash needs resulting from the seasonality
of our consumer business.
Discussion of Cash Flows
Net cash used by our operating activities in fiscal 2007 was $15.7 million compared to net cash provided by
operating activities of $0.6 million in fiscal 2006 and net cash used by operating activities of $9.0 million in fiscal
2005. The cash used by our operating activities in fiscal 2007 was primarily due to an increase in accounts
receivable (including unbilled revenue) of $19.5 million and an increase in inventory of $24.3 million, offset by net
income of $9.1 million, a decrease in other current other assets of $0.6 million, an increase in accounts payable and
accrued expenses of $17.4 million and an increase in deferred revenue of $1.1 million. In addition, in fiscal 2007, we
had depreciation and amortization of approximately $5.3 million and amortization of deferred compensation of
$4.7 million, offset by a $10.2 million benefit from deferred tax assets which are non-cash items. The increase in
accounts receivable, inventory and liabilities in fiscal 2007 are directly attributable to the 31.9% growth in revenue
from the comparable period in fiscal 2006. The cash provided by our operating activities in fiscal 2006 was
primarily due to net income of $3.6 million and an increase in accounts payable, accrued expenses and accrued
compensation of $8.7 million, offset by an increase in accounts receivable and unbilled revenue of $6.0 million, an
increase in inventory of $5.0 million, an increase in other assets of $1.3 million, and a decrease in provision for
contract settlement and deferred revenue of $5.7 million. In addition, in fiscal 2006, we had depreciation and
amortization of approximately $3.7 million and amortization of deferred compensation of $2.6 million, both of
which are non-cash expenses. The increase in accounts receivable, inventory and liabilities in fiscal 2006 are
directly attributable to the 33.1% growth in revenue from the comparable period in fiscal 2005. The cash used by our
operating activities in fiscal 2005 was primarily due to an increase in accounts receivable of $9.8 million, an
increase in inventory of $8.2 million, an increase in other current assets of $1.1 million, and an increase in unbilled
revenue of $0.7 million, offset by net income of $2.6 million, and an increase in liabilities of approximately
$5.5 million. In addition, in fiscal 2005, we had depreciation and amortization of approximately $2.1 million and
amortization of deferred compensation of $0.6 million, both of which are non-cash expenses. The increase in
accounts receivable, inventory and liabilities in fiscal 2005 are directly attributable to the 49.4% growth in revenue
from the comparable period in fiscal 2004.
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