iRobot 2010 Annual Report Download

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Dear Stockholder: April 13, 2011
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 Wednesday, May 25, 2011 at iRobot Corporation headquarters located at 8 Crosby
Drive, Bedford, Massachusetts 01730.
At this annual meeting, you will be asked to elect three (3) class III directors for three-year terms, to
approve our Senior Executive Incentive Compensation Plan, as amended and restated, to ratify the appointment
of our independent registered public accountants, to cast an advisory vote on the compensation of our named
executive officers and to cast an advisory vote on the frequency of holding future advisory votes on the
compensation of our named executive officers. The board of directors unanimously recommends that you vote
FOR election of the director nominees, FOR approval of our Senior Executive Incentive Compensation Plan,
as amended and restated, FOR ratification of appointment of our independent registered public accountants,
FOR approval, on an advisory basis, of the compensation of our named executive officers and FOR approval,
on an advisory basis, of the proposal to hold future advisory votes on the compensation of our named
executive officers on a triennial basis.
Details regarding the matters to be acted upon at this annual meeting appear in the accompanying proxy
statement. Please give this material your careful attention.
Whether or not you plan to attend the annual meeting, we urge you to sign and return the enclosed proxy
so that your shares will be represented at the annual meeting. If you attend the annual meeting, you may vote
in person even if you have previously returned your proxy card. Your prompt cooperation will be greatly
appreciated.
Very truly yours,
COLIN M. ANGLE
Chief Executive Officer & Chairman of the Board
Proxy Statement

Table of contents

  • Page 1
    ... local time, on Wednesday, May 25, 2011 at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. At this annual meeting, you will be asked to elect three (3) class III directors for three-year terms, to approve our Senior Executive Incentive Compensation Plan, as...

  • Page 2
    ... of iRobot Corporation: The annual meeting of stockholders of iRobot Corporation, a Delaware corporation (the "Company"), will be held on Wednesday, May 25, 2011, at 10:00 a.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, for the following...

  • Page 3
    ... ...Policy Governing Director Attendance at Annual Meetings of Stockholders ...Board of Directors Evaluation Program ...Code of Ethics ...THE BOARD OF DIRECTORS AND ITS COMMITTEES ...Board of Directors ...Audit Committee...Compensation Committee ...Nominating and Corporate Governance Committee...

  • Page 4
    ... OF HOLDING FUTURE ADVISORY VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS ...Recommendation of the Board...OTHER MATTERS ...STOCKHOLDER PROPOSALS ...SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ...EXPENSES AND SOLICITATION ...HOUSEHOLDING OF PROXY MATERIALS ...Appendix...

  • Page 5
    ... corporation (the "Company"), for use at the annual meeting of stockholders to be held on Wednesday, May 25, 2011, at 10:00 a.m., local time, at iRobot Corporation headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, and any adjournments or postponements thereof. An annual report...

  • Page 6
    ... the total number of shares from which the majority is calculated. 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...

  • Page 7
    ... 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. Shares Beneficially Owned...

  • Page 8
    ...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 9
    ...upon termination of service. (21) Includes an aggregate of 965,024 shares issuable upon exercise of stock options held by sixteen (16) executive officers and directors, an aggregate of 27,039 shares issuable upon vesting of restricted stock units held by seven (7) executive officers and an aggregate...

  • Page 10
    ... (ret.) 2006 Helen Greiner ...1994 George C. McNamee ...1999 Peter T. Meekin ...2003 Paul Sagan ...2010 ... N/A Director Director N/A 2011 2011 2012 2012 2012 2013 2013 2013 2013 N/A III III I I I II II II II ... Chairman of the Board, Chief Executive Officer and Director Director ...Director...

  • Page 11
    ... as the president of our government and industrial robots division from July 2006 to August 2010. Mr. Dyer served as executive vice president and general manager of our government and industrial robots division from September 2003 until July 2006. Prior to joining iRobot, Mr. Dyer served for 32...

  • Page 12
    ... 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 13
    ...September 2001, Ms. Deegan served as executive vice president and chief financial officer of Houghton Mifflin Company, a publishing company. From February 1995 to February 1996, Ms. Deegan was senior vice president of regulatory and government affairs for NYNEX New England, and from November 1991 to...

  • Page 14
    ...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 15
    ... risk related to accounting, internal controls, and financial and tax reporting. The audit committee also assesses economic and business risks and monitors compliance with ethical standards. The compensation committee identifies and oversees risks associated with our executive compensation policies...

  • Page 16
    ... history of actively contributing at board meetings. We do not have a formal diversity policy. However, pursuant to the Policy Governing Director Qualifications and Nominations, as part of its evaluation of potential director candidates and in addition to other standards the nominating and corporate...

  • Page 17
    ...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 18
    ... 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 19
    ... 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 compensation of our chief executive officer...

  • Page 20
    ... times during the fiscal year ended January 1, 2011. 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 21
    ... 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 22
    ...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 23
    ...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 EBITDA performance and operating cash flow, as well as longer-term strategic objectives, such as invention, product development...

  • Page 24
    ..., 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 25
    ... of restricted stock units, and an annual cash incentive program based on both corporate and, if appropriate, divisional performance. All of our executive officers also are eligible for certain benefits offered to employees generally, including life, health, disability and dental insurance, as well...

  • Page 26
    ... were set at levels the compensation committee determined were appropriate in order to achieve our objective of retaining those executives who perform at or above the levels necessary for us to achieve our business plan, which, among other things, involved growing our company in a cost-effective...

  • Page 27
    ... divisions and with corporate functions. Identical financial measures, although with differing weightings, were used for 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...

  • Page 28
    ...of funds on a pre-tax basis. We do not provide pension arrangements or post-retirement health coverage for our named executive officers or other employees. We also maintain insurance and other benefit plans for our employees. Executive officers receive higher life, accidental death and dismemberment...

  • Page 29
    ...% of such officer's annual bonus, as well as certain continued health benefits. It is the belief 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...

  • Page 30
    ... 2010 and 2009, respectively, based upon a number of factors including completion of significant business and operational milestones and the comparable cash incentive compensation of companies within our peer group. (6) Mr. Beck received a bonus payment of $5,000 for fiscal 2010 based upon a number...

  • Page 31
    ...following table sets forth, for each of the named executive officers, information about grants of planbased awards during fiscal year 2010. GRANTS OF PLAN-BASED AWARDS - 2010 Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) Threshold Target Maximum All Other Stock Awards: Number...

  • Page 32
    ...Year End The following table sets forth, for each of the named executive officers, information about unexercised option awards and unvested restricted stock and restricted stock unit awards that were held as of January 1, 2011. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2010 Number of Securities...

  • Page 33
    ...2011, our named executive officers would be entitled to cash payments in the amounts set forth opposite their names in the below tables, subject to any deferrals required under Section 409A of the Internal Revenue Code of 1986, as amended. Base Salary ($) Continuation of Health Plan Premium Payments...

  • Page 34
    ...if the amount would cause the executive officer to incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended. The following table provides the market value (that is, the value based upon our stock price on January 1, 2011, minus the exercise price) of stock options that...

  • Page 35
    ... from our 2005 Plan. In 2010, 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...

  • Page 36
    ... included as part of our Annual Report on Form 10-K for the fiscal year ended January 1, 2011 for certain assumptions made in the valuation of stock option awards. (3) The non-employee members of our board of directors who held such position on January 1, 2011 held the following aggregate number of...

  • Page 37
    ... 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 our...

  • Page 38
    ... that is directly related to attainment of pre-selected performance goals of the Company. Incentive payments made to Covered Employees under the Incentive Plan are intended to qualify as "performance-based" compensation and therefore allows the Company to obtain federal income tax deductions for...

  • Page 39
    ...for fiscal years 2008, 2009 and 2010 to our Named Executive Officer are set forth in the Summary Compensation Table on page 26. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE iROBOT CORPORATION SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED. 35

  • Page 40
    .... PricewaterhouseCoopers LLP Fees The following table shows the aggregate fees for professional services rendered by PricewaterhouseCoopers LLP to us during the fiscal years ended January 1, 2011 and January 2, 2010. 2010 2009 Audit Fees ...Audit-Related Fees ...Tax Fees ...All Other Fees...

  • Page 41
    ...international tax compliance. All Other Fees All other fees include licenses to technical accounting research software. The audit committee has determined that the provision of services... THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS iROBOT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2011. 37

  • Page 42
    ... of our named executive officers and our compensation philosophy, policies and practices, as discussed in this proxy statement. Accordingly, we are asking our stockholders to vote "FOR" the following resolution at our annual meeting of stockholders: "RESOLVED, that the Company's stockholders approve...

  • Page 43
    ...stockholders entitled to vote at our 2011 annual meeting of stockholders, pursuant to Rule 14a-8 promulgated under the Exchange Act by the Securities and Exchange Commission, must be received at the Company's principal executive offices not later than December 15, 2011. Stockholders who wish to make...

  • Page 44
    ... 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 45
    ...expenses, gross margins, return on equity, investment, capital or assets, division contribution margin, inventory level, working capital, and specific strategic milestones including acquisitions and product launch. b. (i) Any bonuses paid to Covered Executives under the Incentive Plan shall be based...

  • Page 46
    ... requirements of Section 162(m) of the Code. 6. Timing of Payment & Tax Withholding The Performance Goals will be measured at the end of each fiscal year after the Company's financial reports have been published. If the Performance Goals are met, payments will be made within 30 days thereafter...

  • Page 47
    ... iROBOT CORPORATION (Exact name of registrant as specified in its charter) Form 10-K Delaware (State or other jurisdiction of incorporation or organization) 77-0259 335 (I.R.S. Employer Identification No.) 8 Crosby Drive, Bedford, MA (Address of principal executive offices) 01730 (Zip Code...

  • Page 48
    ...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 Matters ...Certain Relationships and Related Transactions, and Directors Independence ...Principal...

  • Page 49
    ...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 growth we expect in the market for robot-based products...

  • Page 50
    ... this community by making our products into extensible platforms with open interfaces designed to carry payloads. Technology We are focused on behavior-based, artificially-intelligent systems developed to meet customer requirements in multiple market segments. In contrast to robotic manufacturing...

  • Page 51
    ... the pool floor, walls and stairs. Verro is brought to market under the iRobot brand through a relationship with the Aqua Products Group companies including AquaJet LLC and Aquatron, Inc., which developed the pool cleaning robots. There are three models available. Our Looj Gutter Cleaning Robot was...

  • Page 52
    ... batteries, remote control and other accessories. Government and Industrial Products In government and industrial product markets, we currently offer both ground and maritime unmanned vehicles. Our tactical ground robots include the combat-tested 510 PackBot line of small, unmanned ground robots...

  • Page 53
    ... marketing team. Our retail and distributor networks are our primary distribution channels for our consumer products. We also offer products direct-to-consumer through our domestic and international on-line stores, representing 11.5% and 17.1% of total home robots division revenue for fiscal 2010...

  • Page 54
    ...value. Our sales and marketing expenses represented 12.6%, 13.7% and 15.2% of our total revenue in 2010, 2009 and 2008, respectively. We expect to continue to invest in national advertising, consumer and industry trade shows, direct marketing and public relations to further build brand awareness. We...

  • Page 55
    ... cleaning products, developers of small unmanned ground vehicles, established government contractors working on unmanned systems, and developers of small unmanned underwater vehicles. While we believe many of our customers purchase our Roomba floor vacuuming robots and Scooba floor washing robots...

  • Page 56
    ... 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 Warrior. Our marks, iRobot, Roomba, Scooba, and certain other trademarks, have also been...

  • Page 57
    ... online services to establish privacy policies. Government and Industrial Product Backlog Our government and industrial product backlog consists of written orders or contracts to purchase our products received from our government and industrial customers. Total backlog of product sales to government...

  • Page 58
    ... 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 Reports on Form 8-K and amendments to...

  • Page 59
    ... and other government agencies; • the size, timing and mix of orders from retail stores and international distributors for our home care robots; • the mix of products that we sell in the period; • disruption of supply of our products from our manufacturers; • seasonality in the sales of our...

  • Page 60
    ... penetrate the consumer home 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. Our...

  • Page 61
    ... to grow our sales and profitability. 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 January 1, 2011 and January 2, 2010, 62.7% and 40.3% of our total contract revenue was...

  • Page 62
    ... of our various families of home care and government products. All contract manufacturers for our home robots are located in China. These manufacturers supply substantially all of the raw materials and provide all facilities and labor required to manufacture our products. If these companies were to...

  • Page 63
    ... exchange rates could impact our suppliers and increase our prices. 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 64
    ... vacuum cleaners. Our competitors include developers of robot floor cleaning products, developers of small unmanned ground vehicles, established government contractors working on unmanned systems, and developers of small unmanned underwater vehicles. The market for robots is highly competitive...

  • Page 65
    ...our brand or divert our resources from other purposes. 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...

  • Page 66
    ... and work experience. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and...

  • Page 67
    ...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 68
    .... As part of our business strategy, we intend to consider additional acquisitions of companies, technologies and products that we believe could accelerate our ability to compete in our core markets or allow us to enter new markets. Acquisitions and combinations are accompanied by a number of risks...

  • Page 69
    ... distributors, some of whom may be operating without written contracts. Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty...

  • Page 70
    ... 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 71
    ... PROPERTIES Our corporate headquarters are located in Bedford, Massachusetts, where we lease approximately 183,000 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...

  • Page 72
    ... 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 NASDAQ Global Market. High Low Fiscal 2009: First quarter ...Second quarter ...Third quarter ...Fourth quarter ...Fiscal 2010: First quarter ...Second quarter...

  • Page 73
    ... ...40,558 Total revenue ...Cost of revenue Cost of product revenue ...Cost of contract revenue ...Total cost of revenue ...Gross Margin ...Operating Expenses Research and development ...Selling and marketing ...General and administrative...Litigation and related expenses ...400,952 228,403 27...

  • Page 74
    ... new product sales, product development and offerings, Roomba, Scooba, Looj and Verro products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, Seaglider, Negotiator, our home robot and government and industrial robots divisions, our competition, our strategy, our market...

  • Page 75
    .... Product revenue is derived from the sale of our various home cleaning robots and government and industrial robots and related accessories. Research and development revenue is derived from the execution of contracts awarded by the U.S. federal government, other governments and a small number of...

  • Page 76
    ...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 77
    ... 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 for product returns and, as...

  • Page 78
    ... to pay cash dividends. Prior to 2010, the expected term calculation was based upon the simplified method provided under the relevant authoritative guidance. During 2010, we began to rely solely on company specific historical data to calculate the expected term. Given our initial public offering in...

  • Page 79
    ... amounts to the customer for defective products. We record estimated warranty costs, based on historical experience by product, at the time we recognize product revenue. As the complexity of our products increases, we could experience higher warranty claims relative to sales than we have previously...

  • Page 80
    ...(1) Stock-based compensation recorded in 2010, 2009 and 2008 breaks down by expense classification as follows. January 1, 2011 Fiscal Year Ended January 2, December 27, 2010 2008 (In thousands) Cost of product revenue ...Cost of contract revenue ...Research and development ...Selling and marketing...

  • Page 81
    ... direct channel decreased $2.2 million as compared to fiscal 2009. Home robot division revenue from international sales, which consist of products having a higher average selling price than products sold to domestic customers, was 66.0% of total home robot division revenue in fiscal 2010 as compared...

  • Page 82
    ... research and development contracts was primarily attributable to an increase in funding of our SUGV program offset by decreases in funding of our PackBot and Warrior programs. Total government and industrial robots shipped in fiscal 2010 were 871 units compared to 789 units in fiscal 2009. Cost...

  • Page 83
    ..., on-line media, sales commission expenses as a result of higher sales, and an increase in compensation and employee-related expense supporting our international home robot sales for fiscal 2010 as compared to fiscal 2009. Selling and marketing expenses in our government and industrial division...

  • Page 84
    ... increased international sales of our home robot products resulting from our increased efforts to expand our global presence. In fiscal 2009, home robot revenue from domestic retailers decreased $25.8 million and direct to consumers sales through our on-line store decreased $5.1 million, as compared...

  • Page 85
    ... 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 86
    ... 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 sales in fiscal 2009 as compared to...

  • Page 87
    ... our home robots product inventory consists of goods shipped to our thirdparty logistics providers for the fulfillment of retail orders and direct-to-consumer sales. Our inventory of government and industrial products is relatively low as they are generally built to order. Our contract manufacturers...

  • Page 88
    ... purchase of property and equipment of $12.6 million in 2010, compared to $5.0 million in 2009, primarily due to an increase in self-constructed and demonstration assets, and tooling related to new products in our government and industrial division and a new contract manufacturer in our home robots...

  • Page 89
    ... 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 90
    ...exceed these minimum contractual obligations in our ordinary course of business. Other obligations consist of software license and services agreement for our home robots division web support. Off-Balance Sheet Arrangements As of January 1, 2011, we had no off-balance sheet arrangements as defined in...

  • Page 91
    ... Risk We maintain sales and business operations in foreign countries. As such, we have exposure to adverse changes in exchange rates associated with operating expenses of our foreign operations, but we believe this exposure to be immaterial. Additionally, we accept orders for home robot products in...

  • Page 92
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets at January 1, 2011 and January 2, 2010 ...Consolidated Statements of Operations for the Years...

  • Page 93
    ... 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 to...

  • Page 94
    iROBOT CORPORATION CONSOLIDATED BALANCE SHEETS January 1, January 2, 2011 2010 (In thousands) ASSETS Current assets: Cash and cash equivalents ...Short term investments ...Accounts receivable, net of allowance of $88 and $90 at January 1, 2011 and January 2, 2010, respectively ...Unbilled revenue ...

  • Page 95
    ...-based compensation recorded in fiscal 2010, 2009 and 2008 breaks down by expense classification as follows: January 1, 2011 Fiscal Year Ended January 2, December 27, 2010 2008 (In thousands) Cost of product revenue ...Cost of contract revenue ...Research and development ...Selling and marketing...

  • Page 96
    .... Director's deferred compensation ...Net income ...Balance at January 2, 2010 ...Issuance of common stock for exercise of stock options ...Vesting of restricted stock units ...Tax benefit of excess stock based compensation deduction ...Amortization of deferred compensation relating to stock options...

  • Page 97
    ... 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 deferred compensation ...Changes in operating assets and...

  • Page 98
    ... 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 development contracts...

  • Page 99
    ... 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. The Company recognizes revenue from sales of home robots under the terms of...

  • Page 100
    .... 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 1, 2011 Fiscal Year Ended January 2, December 27, 2010 2008 (In thousands...

  • Page 101
    ... 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 as incurred. 55

  • Page 102
    ... closing fair market value of the Company's common stock on the date of grant. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period, net of estimated forfeitures. Advertising Expense The Company expenses advertising costs...

  • Page 103
    ... in the full release of the valuation allowance relating to federal deferred tax assets. In fiscal 2010, based on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets. At January 1, 2011, the Company has total deferred...

  • Page 104
    ...) Description Assets: Money Market Funds ...$5,090 U.S. Government bonds ...Corporate bonds ...- Total assets measured at fair value ...$5,090 $ - 2,504 11,424 $- - $- $13,928 The bond investments are valued based on observable market values as of the Company's reporting date and are included...

  • Page 105
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The bond investment is valued based on observable market values as of the Company's reporting date and is included in Level 2. The bond investment is recorded at fair value and marked-to-market at the end of each reporting ...

  • Page 106
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Property and Equipment Property and equipment consists of the following at: January 1, January 2, 2011 2010 (In thousands) Computer and equipment ...Furniture ...Machinery ...Tooling ...Leasehold improvements ...Software...

  • Page 107
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Accrued Expenses Accrued expenses consist of the following at: January 1, January 2, 2011 2010 (In thousands) Accrued Accrued Accrued Accrued Accrued Accrued Accrued warranty ...direct fulfillment costs ...rent ...sales...

  • Page 108
    ..., 2009, the Company completed a one-time stock option exchange program as approved by its stockholders on May 28, 2009. In accordance with the terms and conditions of the stock option exchange program, the Company issued new options to purchase an aggregate of 310,607 shares of the Company's common...

  • Page 109
    ... compensation expense was realized) and December 27, 2008 was computed on the grant date using the Black-Scholes option-pricing model with the following assumptions: Fiscal Year Ended January 1, 2011 Fiscal Year Ended January 2, 2010 Fiscal Year Ended December 27, 2008 Risk-free Expected Expected...

  • Page 110
    ... aggregate intrinsic value on the table was calculated based upon the positive difference between the closing market value of the Company's stock on January 1, 2011 of $24.88 and the exercise price of the underlying option. During fiscal years 2010, 2009, and 2008, the total intrinsic value of stock...

  • Page 111
    ... 2011, the Company recognized $0.1 million of stock based compensation expense associated with restricted stock awards. As of January 1, 2011, 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 2011...

  • Page 112
    ...1, 2010, the Company granted to certain employees an annual merit grant totaling 40,420 restricted stock units. Also, on October 1, 2010 in connection with their promotions, the Company granted three employees, including executive officers, stock options exercisable for an aggregate of 38,073 shares...

  • Page 113
    ... a senior vice president of product development a stock option exercisable for 80,000 shares of the Company's common stock and 20,000 restricted stock units. Additionally, on April 2, 2010, the Company granted to certain employees, including executive officers, an annual merit grant of stock options...

  • Page 114
    ... 2010, based on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets. The table below summarizes activity relating to the valuation allowance: Balance at beginning of period Additions Charged to Costs and Expenses...

  • Page 115
    ...its stock option exchange program which concluded in the second fiscal quarter of 2009. At January 1, 2011, the Company had no material unrecognized tax benefits. Additionally, there were no accrued interest or penalties as of January 1, 2011, January 2, 2010 or December 27, 2008. We follow the with...

  • Page 116
    .... As of January 1, 2011, fiscal years 2007, 2008, 2009 and 2010 are open for audit by DCAA. Warranty 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...

  • Page 117
    ... contribution for Plan-Year 2010 is included in accrued 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...

  • Page 118
    ...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, to various countries through international distributors...

  • Page 119
    ...& 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 ...Income before income taxes ...137...

  • Page 120
    ... our home robot product revenue resulted from sales to 15 customers. 16. Quarterly Information (Unaudited) March 28, 2009 June 27, 2009 Fiscal Quarter Ended September 26, January 2, April 3, July 3, 2009 2010 2010 2010 (In thousands, except per share amounts) October 2, January 1, 2010 2011 Revenue...

  • Page 121
    ...the participation of management, including our principal executive and financial officers, we assessed the Company's internal control over financial reporting as of January 1, 2011, based on criteria for effective internal control over financial reporting established in Internal Control - Integrated...

  • Page 122
    ...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 123
    ... be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended January 1, 2011. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following are filed as part of this Annual Report on Form 10-K: 1. Financial Statements...

  • Page 124
    ...-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 8-K filed on June 2, 2009 and...

  • Page 125
    ...'s Annual Report on Form 10-K for the year ended January 2, 2010 and incorporated by reference herein) Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as of March 18, 2010 (filed as Exhibit 10.1 to Amendment No. 1 to the Registrant's Quarterly Report on...

  • 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 18, 2011 POWER OF ATTORNEY KNOW ALL...

  • Page 127
    Signature Title(s) /s/ GEORGE C. MCNAMEE George C. McNamee /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 Director 81

  • Page 128
    ...-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 8-K filed on June 2, 2009 and...

  • Page 129
    ...'s Annual Report on Form 10-K for the year ended January 2, 2010 and incorporated by reference herein) Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as of March 18, 2010 (filed as Exhibit 10.1 to Amendment No. 1 to the Registrant's Quarterly Report on...

  • Page 130
    ...following graph compares the cumulative 5-year total return provided shareholders on iRobot Corporation's common stock relative to the cumulative total returns of the NASDAQ Composite index, the S&P Technology Hardware & Equipment Industry Group index, and the NASDAQ Computer & Data Processing index...

  • Page 131
    Corporate Office 8 Crosby Drive Bedford, Massachusetts 01730 Phone: 781-430-3000 Fax: 781-430-3001 Transfer Agent Computershare Trust Company, Inc. 350 Indiana Street Suite 750 Golden, Colorado 80401 Phone: 303.262.0600 Legal Counsel Goodwin Procter LLP Exchange Place 53 State Street Boston, ...

  • 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]