iRobot 2009 Annual Report Download

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Proxy Statement
Dear Stockholder: April 12, 2010
You are cordially invited to attend the annual meeting of stockholders of iRobot Corporation to be held at
10:00 a.m., local time, on Thursday, May 27, 2010 at iRobot Corporation headquarters located at 8 Crosby
Drive, Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect four class II 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 M. ANGLE
Chief Executive Officer & Chairman of the Board

Table of contents

  • Page 1
    ...You are cordially invited to attend the annual meeting of stockholders of iRobot Corporation to be held at 10:00 a.m., local time, on Thursday, May 27, 2010 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect...

  • Page 2
    ... 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 Senior Vice President, General Counsel and Secretary Bedford, Massachusetts April 12, 2010 IMPORTANT...

  • Page 3
    ... 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, May 27, 2010, at 10:00 a.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, and...

  • Page 4
    ... 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 Shares...

  • Page 5
    ...the shares owned directly by the Fidelity Funds, which power resides with the Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds' Boards of Trustees. The address of each reporting entity is 82 Devonshire Street, Boston, MA 02109...

  • Page 6
    ... recommendation of the nominating and corporate governance committee, has nominated Helen Greiner, George C. McNamee, Peter T. Meekin and Paul Sagan and recommended that each be elected to the board of directors as a class II director, each to hold office until the annual meeting of stockholders to...

  • Page 7
    ... the president of our home robots division since April 2009. Prior to joining iRobot, Mr. Beck served at AMETEK Corporation as senior vice president and general manager, Aerospace & Defense from 2008 to 2009 and as vice president & general manager, Power Systems and Instruments Division from 2004 to...

  • Page 8
    ... of directors his experience working with the federal government in the defense industry. Andrea Geisser has served as a director since March 2004. Mr. Geisser is currently a senior advisor to Zephyr Management Inc., a global private equity firm that specializes in emerging markets (Africa, India...

  • Page 9
    ...knowledge of the robotics industry, and as a co-founder and former executive officer of the Company, Ms. Greiner provides a critical contribution to the board of directors reflecting her detailed knowledge of the Company, the strategic marketplace and our competitors. George C. McNamee has served as...

  • Page 10
    ...his operational and corporate governance expertise. Our executive officers are elected by the board of directors on an annual basis and serve until their successors have been duly elected and qualified or until their earlier death, resignation or removal. CORPORATE GOVERNANCE AND BOARD MATTERS Board...

  • Page 11
    ... 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 nominee in consultation with management, through the use of...

  • Page 12
    ...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 13
    ... 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 14
    ... of the Exchange Act, and an outside director pursuant to Rule 162(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...

  • Page 15
    ...(3) times during the fiscal year ended January 2, 2010. The nominating 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...

  • Page 16
    ... 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 Securities...

  • Page 17
    ...Securities Exchange Act of 1934, as amended, is 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...

  • Page 18
    ... 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 individuals, in attaining key operating objectives, such as improved Adjusted...

  • Page 19
    ..., for each named executive officer. 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 industries. We believe that...

  • Page 20
    ... chief executive officer, are paid salaries in line with their qualifications, experience and responsibilities. Salaries are structured so that they are comparable with salaries paid by the peer companies reviewed by the compensation committee in the technology and robotics industry. We target base...

  • Page 21
    ... executive officer, 65% for our chief financial officer, 65% for the president of our home robots division, 65% for the president of our government & industrial robots division, and 50% for our senior vice president and general counsel. These target payout amounts were set at levels the compensation...

  • Page 22
    ... the company's performance incentive plan, which is the cash incentive program that applies to all employees at the manager level and above. The following table shows the company's achievement against the various metrics used for calculating the cash incentive compensation for our executive officers...

  • Page 23
    ... business and operational milestones and the comparable cash incentive compensation of companies within our peer group. Based on these factors, the compensation committee determined that our chief executive officer, chief financial officer, president, home robots, president, government & industrial...

  • Page 24
    ... of the compensation committee that these provisions are 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 25
    ...Chairman, Chief Executive Officer and Director John J. Leahy ...Executive Vice President, Chief Financial Officer and Treasurer Jeffrey A. Beck(5) ...President and General Manager Home Robots Joseph W. Dyer(6) ...President and General Manager Government & Industrial Glen D. Weinstein ...Senior Vice...

  • Page 26
    ...table sets forth, for each of the named executive officers, information about grants of planbased awards during fiscal year 2009. GRANTS OF PLAN-BASED AWARDS - 2009 Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) Threshold Target Maximum All Other Stock Awards: Number of Shares...

  • Page 27
    ... Stock Awards Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Name Grant Date Option Exercise Price ($) Option Expiration Date Colin M. Angle... John J. Leahy ...Jeffrey A. Beck ...Joseph P. Dyer ... Glen D. Weinstein...

  • Page 28
    ... reason upon a change in control, the executive officer is entitled to 200% of the executive officer's base salary, 200% of the executive officer's target cash incentive compensation or other performance, profit-sharing or any other similar arrangement, continued health plan premium payments for up...

  • Page 29
    ... resigned with good reason, during the one-year period following a change in control on January 2, 2010, 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...

  • Page 30
    ... In 2009, each of our non-employee members of our board of directors was entitled to the following equity compensation under our 2005 Plan: • Upon initial election to the board of directors, a non-employee director will receive a one-time option to purchase 40,000 shares of our common stock, which...

  • 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. Our board of directors has adopted a written related party transaction approval policy, which sets forth...

  • Page 32
    ... public accounting firm at any time during the year if it determines that such a change would be in the best interests of us and our stockholders. The audit committee of the board of directors has implemented procedures under our audit committee pre-approval policy for audit and non-audit services...

  • 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
    ... sharing an address. If your household has received only one Annual Report 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...

  • Page 35
    ...-51598 iROBOT CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 77-0259 335 (I.R.S. Employer Identification No.) 8 Crosby Drive, Bedford, MA (Address of principal executive offices) 01730 (Zip Code) (781...

  • Page 36
    .... Controls and Procedures ...Item 9B. Other Information ...Item 5. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Part III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 37
    ... and artificial intelligence to build industry-leading robots. Our Roomba floor vacuuming robots, Scooba floor washing robots and Looj gutter cleaning robot perform time-consuming domestic chores. Our PackBot and Small Unmanned Ground Vehicle (SUGV) tactical ground military robots perform...

  • Page 38
    ... product, a pool cleaning product, and a number of product accessories. We are extending our military robot offerings. In addition, we intend to leverage our increasing installed base to expand our revenues from recurring sales of consumables, services and support. Innovate to Penetrate New Markets...

  • Page 39
    ..., 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 our other unmanned ground vehicles to...

  • Page 40
    ...cleans automatically upon the push of a button. We offer multiple Roomba models with various features. The suggested retail price for the Roomba robots range from $129 to $549 depending on model, configuration and accessory packages. Scooba, our second major consumer product line, is the first floor...

  • Page 41
    ... 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 In government and industrial product markets, we currently offer both ground and maritime unmanned vehicles. Our tactical...

  • Page 42
    ... point on the spectrum of operations, through real-time network centric communications and systems of a family of manned vehicles and unmanned platforms by the next decade. Following a Defense Acquisition Board meeting, The Department of Defense terminated the Manned Ground Vehicle portion of FCS...

  • Page 43
    ... planning and task allocation for the command and control of multiple unmanned air and ground vehicles. LANdroids Project: LANdroids is a Defense Advanced Research Projects Agency (DARPA) program that is developing robots that establish and maintain communications for war fighters in urban settings...

  • Page 44
    ... that offer specialized technological expertise. The PackBot, the Roomba and the Scooba robots are designed with open interfaces that allow third-party developers to add payloads to our robots, improving their functionality. Sales and Distribution Channels We sell our products through distinct sales...

  • Page 45
    ...logistical and technical support requirements for military operations. Marketing and Brand We market our home robots in the United States to end-user customers directly through our sales and product management team. We also market our consumer products in the United States through our retail network...

  • Page 46
    ...that our reputation for innovative products and customer support will continue to play a significant role in our growth and success. We expect to invest in national advertising, consumer and industry trade shows, direct marketing and public relations to further build brand awareness. We believe that...

  • Page 47
    ...Integrated Logistical Support, Program Operations and Business Operations teams to work together to deliver a platform that integrates with the FCS/BCTM system of systems. Our domestic research and development efforts are primarily located at our headquarters in Bedford, Massachusetts, our office in...

  • Page 48
    ... 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 49
    ...may not provide 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, Negotiator, Aware, Home Base, Looj, Verro, Virtual Wall, and...

  • Page 50
    ... of certain 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...

  • Page 51
    ...the United States and abroad, including operations 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...

  • Page 52
    ... in the sales of our consumer products; • the size and timing of orders from retail stores 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...

  • Page 53
    ... program management inefficiencies. Predicting revenue for any particular quarter and from sales of our consumer products includes many challenges. Chain stores and other national retailers typically place orders for the holiday season in the third quarter and early in the fourth quarter. The timing...

  • Page 54
    ... without an offsetting 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...

  • Page 55
    ... depend on one contract manufacturer, Jetta Company Limited, to manufacture our Roomba 400 series and Scooba series of home robot products at a single plant in China, and one contract manufacturer, Kin Yat Industrial Co Limited, to manufacture our Roomba 500 series of home robot products at a single...

  • Page 56
    ... 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 to expand into other markets. For example, we have devoted significant time and incurred...

  • Page 57
    ...: • changes in government programs that are related to our products and services; • adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations; • changes in political or public support for security and defense programs; • delays or...

  • Page 58
    ... competition from providers offering alternative products, which could negatively impact our results of operations and cause 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...

  • Page 59
    ... at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to terminate their contracts with us, reduce our gross margin and seriously harm our business, results of operations and financial condition. Moreover...

  • Page 60
    ... correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to forego purchases of our products and purchase our competitors' products. Moreover, the development of new products has required...

  • Page 61
    ... to collect amounts related to previous purchases by that partner, all of which could harm our business and financial condition. Disruption of the iRobot on-line store could also decrease our home care robot sales. If we fail to enhance our brand, our ability to expand our customer base will be...

  • Page 62
    ...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 63
    ...various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees to obtain government clearances. Our failure to comply with applicable regulations, rules and...

  • Page 64
    ... 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; • assumption...

  • Page 65
    ...threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales, including sales to customers outside the United States, are primarily...

  • Page 66
    ... export laws. If we or our prime contractor partners 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...

  • Page 67
    ... are required in a future reporting period. Our directors and management will exercise significant control over our company, which will limit your ability to influence corporate matters. As of January 2, 2010, our directors and executive officers and their affiliates collectively beneficially...

  • Page 68
    ... COMMENTS Our corporate headquarters are located in Bedford, Massachusetts, where we lease approximately 157,000 square feet. This lease expires on May 1, 2020. We lease 15,700 square feet in Durham, North Carolina supporting our government and industrial division's unmanned underwater vehicles. We...

  • Page 69
    ... EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the NASDAQ Global Market under the symbol "IRBT". The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported on the...

  • Page 70
    ...298,617 Cost of revenue Cost of product revenue ...176,631 Cost of contract revenue ...30,790 Total cost of revenue ...Gross Margin ...Operating Expenses Research and development ...Selling and marketing ...General and administrative ...Litigation and related expenses(1) ...207,421 91,196 14,747 40...

  • Page 71
    ... new product sales, product development and offerings, Roomba, Scooba, Looj and Verro products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, Unmanned Underwater Vehicle, our home robot and government and industrial robot divisions, competition and strategy and our market...

  • Page 72
    ... and support services due to a focused effort 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 our PackBot tactical military robots. For the fiscal years ended January 2, 2010...

  • Page 73
    ... 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 January 2, 2010 and December 27, 2008, gross margin was 30.5% and 30.4% of total revenue, respectively. Research and Development...

  • Page 74
    ...and related costs for executives and administrative personnel; • advertising, marketing and other brand-building costs; • fulfillment costs associated with direct-to-consumer sales through our on-line store; • customer service costs; • professional services costs; • information systems and...

  • Page 75
    ... our estimates of liabilities for these rights at the time the related sale is recorded. We establish a provision for sales returns for products sold by resellers directly based on historical return experience and other relevant data. Our international distributor agreements do not currently allow...

  • Page 76
    amounts reported by us in previous periods. This cumulative adjustment is included in the gross margin and operating expenses for the fiscal year ended December 29, 2007. Entities that became public companies after June 15, 2005 and used the minimum value method of measuring equity share options and...

  • Page 77
    ... 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 adverse effect on our gross margin if inventory...

  • Page 78
    ...revenue ...Cost of Revenue Cost of product revenue(1) ...Cost of contract revenue(1) ...Total cost of revenue ...Gross margin ...Operating Expenses Research and development(1) ...Selling and marketing(1) ...General and administrative(1) ...Litigation and related expenses(2) ...298,617 176,631 30,790...

  • Page 79
    ... in home robot division revenue and units shipped was attributable to decreased domestic demand of our home robot products in both retail and direct channels. The decrease in domestic and direct revenue was partially offset by increased international sales of our home robot products resulting...

  • Page 80
    ... in the government and industrial division gross margin of 4.2 percentage points. The 3.5 percentage point increase in the home robots division is attributable to price increases and the introduction of higher-priced products into the international market. In addition, domestic margins increased due...

  • Page 81
    ... manage our expenses. The decrease of selling and marketing expenses in our home robots division was also attributable to decreases of $1.2 million in sales commission expenses as a result of lower sales to domestic retailers and $0.6 million in direct fulfillment expenses related to lower direct...

  • Page 82
    ...net average selling prices related to product mix primarily attributable to a shift of our military product line into lower priced FasTac units as compared to MTRS (Man Transportable Robot System) units last year, and a $0.7 million decrease in product life cycle revenue (spare parts and accessories...

  • Page 83
    ... in the home robots division was driven primarily by a retail customer bankruptcy, provisions taken for excess inventory and defective product returns, promotional incentives and channel mix. The government and industrial division decrease was attributable to higher net warranty costs, provisions...

  • Page 84
    .... Corporate marketing expenses increased by $0.7 million in fiscal 2008 as compared to fiscal 2007 primarily driven by public relations spending to continue building brand awareness. These increases were partially offset by an overall decrease in selling and marketing expenses of the home robots...

  • Page 85
    .... Our strategy for delivering products to our retail customers gives us the flexibility to provide container shipments directly to the retailer from China and, alternatively allows our retail partners to take possession of product on a domestic basis. Accordingly, our home robots product inventory...

  • Page 86
    ... goods are shipped. Our consumer product sales are, and are expected to continue to be, highly seasonal. This seasonality has historically resulted in a net use of cash in support of operating needs during the second and third quarters of the year, with the low point generally occurring in the third...

  • Page 87
    ... customary terms and conditions for credit facilities of this type, including restrictions on our 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, or repurchase...

  • Page 88
    ... and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies, and the continuing market acceptance of our products and services...

  • Page 89
    ... be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. This guidance is effective for annual periods beginning after...

  • Page 90
    ... 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 working capital line of credit and our equipment financing facility. The advances under the working capital line of...

  • Page 91
    ...FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at January 2, 2010 and December 27, 2008 ...Consolidated Statements of Operations for the Years ended...

  • Page 92
    ... financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits...

  • Page 93
    ...2, 2010 and December 27, 2008, respectively ...Unbilled revenue ...Inventory ...Deferred tax assets ...Other current assets ...Total current assets ...Property and equipment, net ......559 Accrued expenses ...14,384 Accrued compensation ...13,525 Deferred revenue and customer advances ...3,908 Total...

  • Page 94
    ... cost of revenue ...Gross margin ...Operating expenses: Research and development(1) ...Selling and marketing(1) ...General and administrative(1) ...Litigation and related expenses(2) ...Total operating expenses ...Operating income (loss) ...Other income (expense), net...Income before income taxes...

  • Page 95
    ...of restricted stock units...22,929 Tax benefit of excess stock based compensation deduction ...1,648 Amortization of deferred compensation relating to stock options ...5,602 Reversal of deferred compensation related to cancelled stock options ...(34) Director's deferred compensation ...95 Net income...

  • Page 96
    ... net cash provided by (used in) operating activities: Depreciation and amortization ...Loss on disposal of property and equipment...Stock based compensation ...In-process research and development relating to acquisition of Nekton Research LLC ...Benefit from deferred tax assets ...Non-cash director...

  • Page 97
    ... 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 government and industrial research and...

  • Page 98
    ... of liabilities for these rights at the time the related sale is recorded. The Company makes an estimate of sales returns for products sold by resellers directly based on historical returns experience and other relevant data. The Company's international distributor agreements do not currently...

  • Page 99
    ... that may 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: January 2, 2010 Fiscal Year Ended December 27, December 29...

  • Page 100
    ... involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. Research and Development Costs incurred in the research and development of the Company's products, classified as cost of contract and research and development, are expensed...

  • Page 101
    ... expensing share-based compensation. Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with the authoritative guidance in effect at that time. In a review of its stock-based compensation accounting methodology performed during the second quarter...

  • Page 102
    ... 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 of...

  • Page 103
    ...the grant date using the Black-Scholes option-pricing model with the following assumptions: Fiscal Year Ended January 2, 2010 Fiscal Year Ended December 27, 2008 Fiscal Year Ended December 29, 2007 Risk-free Expected Expected Expected interest rate ...1.45% - 2.50% dividend yield ...- life ...3.50...

  • Page 104
    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 30, 2006 ...3,499,710 ...

  • Page 105
    ... 2010, the Company recognized $0.1 million of stock based compensation expense associated with restricted stock awards. As of January 2, 2010, the unamortized fair value of all restricted stock awards was $0.1 million which the Company expects to recognize as stock-based compensation expense in 2010...

  • Page 106
    ... 2, 2010, the Company recognized $1.0 million of stock based compensation expense associated with restricted stock units. As of January 2, 2010, the unamortized fair value of all restricted stock units was $3.2 million. The Company expects to recognize associated stock-based compensation expense of...

  • Page 107
    .... In fiscal 2007, the Company completed an analysis of historical and projected future profitability which resulted in the full release of the valuation allowance relating to federal deferred tax assets. The Company continues to maintain a valuation allowance against state deferred tax assets due to...

  • Page 108
    ... value ...$39,512 $- (55) (55) $- - $- Foreign currency forward contracts are valued based on observable market spot and forward rates as of our reporting date and are included in level 2 inputs. The Company uses these derivative instruments to mitigate foreign currency receivable transactions...

  • Page 109
    ... be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. This guidance is effective for annual periods beginning after...

  • Page 110
    ... $34,560 4. Property and Equipment Property and equipment consists of the following at: January 2, December 27, 2010 2008 (In thousands) Computer and equipment ...Furniture ...Machinery ...Tooling ...Leasehold improvements ...Software purchased for internal use ...Less: accumulated depreciation...

  • Page 111
    ... as economic environment, market conditions, operational performance and 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 Form 10...

  • Page 112
    ... with the Internal Revenue Code of 1986, as amended. As of January 2, 2010, there were 3,124,979 shares available for future grant under the 2005 Plan. Options granted under the Plans are subject to terms and conditions as determined by the compensation committee of the board of directors, including...

  • Page 113
    ... president of its home robots division a stock option exercisable for 150,000 shares of the Company's common stock at the closing price of $9.80 and 35,000 restricted stock units. The stock option will vest 25% on the first anniversary of the grant date and quarterly over the following three years...

  • Page 114
    ... likely than not based on future projections of taxable income. The Company released the valuation allowance associated with these assets and recorded a income statement benefit of $10.2 million in fiscal 2007. The valuation allowance as of January 2, 2010 relates to all state deferred tax assets...

  • Page 115
    ... United States District Court for the District of Massachusetts. On November 2, 2007, the court issued a preliminary injunction, and on December 21, 2007 issued a permanent injunction, against Robotic FX, Inc. and Mr. Ahed preventing the sale of products using certain of the Company's trade secrets...

  • Page 116
    ... 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 6) in the accompanying balance sheets. Activity related to the warranty accrual was as follows: January 2, 2010...

  • Page 117
    ... compensation. 13. Acquisition of Nekton Research, LLC In September 2008 the Company acquired Nekton, an unmanned underwater robot technology company based in Raleigh, North Carolina. The Company acquired Nekton for a purchase price of $10 million, consisting primarily of cash and direct acquisition...

  • Page 118
    ... industrial division. 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 division offers products to consumers through a network of retail businesses throughout the United States...

  • Page 119
    ... revenue: Home Robots ...Government & Industrial ...Total cost of revenue ...Gross margin: Home Robots ...Government & Industrial ...Total gross margin ...Research and development ...Selling and marketing ...General and administrative ...Litigation and related expenses ...Other income (expense), net...

  • Page 120
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 17. Subsequent Events The Company has evaluated subsequent events through February 19, 2010, which represents the filing date of this Form 10-K with the SEC. As of February 19, 2010, there were no subsequent events which ...

  • Page 121
    ... control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management...

  • Page 122
    ... to enter into trading plans complying with Rule 10b5-l under the Exchange Act. We have been advised that certain of our officers and directors (including Colin Angle, Chief Executive Officer, Joseph Dyer, President - Government and Industrial Robots Division, Glen Weinstein, Senior Vice President...

  • Page 123
    ... 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 Senior Executive Incentive Compensation Plan (filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10...

  • Page 124
    ...18, 2004 Government Contract DAAE07-03-9-F001 (Small Unmanned Ground Vehicle) Government Contract N00174-03-D-0003 (Man Transportable Robotic System) 2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant's Current Report on Form...

  • Page 125
    ... Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002 Form 10-K †Indicates a management contract or any compensatory plan, contract or arrangement...

  • Page 126
    ... 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 19, 2010 POWER OF ATTORNEY KNOW ALL...

  • Page 127
    Signature Title(s) /s/ HELEN GREINER Helen Greiner /s/ PETER MEEKIN Peter Meekin /s/ PAUL J. KERN Paul J. Kern /s/ PAUL SAGAN Paul Sagan Director Director Director Director Form 10-K 93

  • Page 128
    ...18, 2004 Government Contract DAAE07-03-9-F001 (Small Unmanned Ground Vehicle) Government Contract N00174-03-D-0003 (Man Transportable Robotic System) 2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant's Current Report on Form...

  • Page 129
    ... Manufacturing Agreement between the Registrant and Kin Yat Industrial Co. Ltd., dated as of March 23, 2007 (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated by reference herein) Senior Executive Incentive Compensation Plan...

  • Page 130
    ...iRobot Corporation's cumulative 49-month total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Computer & Data Processing index. The graph tracks... price performance included in this graph is not necessarily indicative of future stock...

  • Page 131
    ...Sagan Director Executive Team Colin M. Angle Chief Executive Officer John J. Leahy Executive Vice President, Chief Financial Officer and Treasurer Jeffrey A. Beck President and General Manager, Home Robots Vice Admiral Joe Dyer (U.S. Navy, Ret.) President and General Manager, Government & Industrial...

  • Page 132
    iRobot Mission Build cool stuff • Deliver great product • Make money • Have fun • Change the world Corporate Headquarters 8 Crosby Drive Bedford, MA 01730 USA Phone: 781.430.3000 Fax: 781.430.3001 www.irobot.com [email protected]