iRobot 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 iRobot annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 172

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172

Proxy Statement
IRBT2016
Notice of Annual Meeting
of Stockholders to be held on
May 25, 2016

Table of contents

  • Page 1
    IRBT2016 Proxy Statement Notice of Annual Meeting of Stockholders to be held on May 25, 2016

  • Page 2

  • Page 3
    ... to attend the Annual Meeting of stockholders of iRobot Corporation, a Delaware corporation (the "Company"), to be held on Wednesday, May 25, 2016, at 8:30 a.m., local time, at the Company's headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730. Your board of directors is recommending...

  • Page 4
    Thank you for your continued support, interest and investment in iRobot. Sincerely, Colin M. Angle Chairman of the Board and Chief Executive Officer

  • Page 5
    ...held on Wednesday, May 25, 2016, at 8:30 a.m., local time, at the Company's headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, for the following purposes: 1. To elect two (2) Class II directors, nominated by the board of directors, each to serve for a three year term and until his...

  • Page 6
    .... By Order of the Board of Directors, GLEN D. WEINSTEIN Executive Vice President, Chief Legal Officer and Secretary Bedford, Massachusetts March 29, 2016 If you have any questions or require assistance with voting, please call: Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor New York...

  • Page 7
    ...Independence Executive Compensation Summary Grants of Plan-Based Awards in 2015 Outstanding Equity Awards at Fiscal Year End Option Exercises and Stock Vested Equity Compensation Plan Information Potential Benefits Upon Termination or Change in Control Director Compensation Transactions with Related...

  • Page 8
    ...- ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS Recommendation of the Board SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OTHER MATTERS STOCKHOLDER PROPOSALS SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE EXPENSES AND SOLICITATION Exhibit A ANNEX...

  • Page 9
    ... (the "Company" or "iRobot"), for use at the annual meeting of stockholders to be held on Wednesday, May 25, 2016, at 8:30 a.m., local time, at the Company's headquarters located at 8 Crosby Drive, Bedford, Massachusetts 01730, and any adjournments or postponements thereof. An annual report to...

  • Page 10
    ... LLP as the Company's independent registered public accountants for the current fiscal year, and Proposal 5, the advisory vote on the compensation of our named executive officers, an affirmative vote of holders of a majority of the votes cast by holders of shares present, in person...

  • Page 11
    ... proxy card sent to you by Red Mountain, you have the right to change your vote by executing a later dated WHITE proxy card or by attending and voting at the annual meeting. Only the latest dated proxy you submit will be counted. OUR BOARD RECOMMENDS THAT YOU DO NOT VOTE FOR ANY INDIVIDUALS WHO MAY...

  • Page 12
    ...'s home robots business unit, and began considering strategic alternatives with respect to the Company's defense and security ("D&S") business unit. In connection with this decision, our Board engaged Blackstone Advisory Partners LP, now known as PJT Partners, to begin exploring a potential sale of...

  • Page 13
    ... with the sale of the D&S business unit. In July 2015, our Board formed an ad hoc strategy and finance committee to, among other things, review the Company's strategic objectives and transactional opportunities to support those objectives. On July 29, 2015, Mr. Willem Mesdag, the Managing Partner of...

  • Page 14
    ... to maintaining your innovation edge." On November 10, 2015, the Company hosted an Analyst Day in New York City, where the Company publicly announced that it was shifting its focus to home robots and the connected home and would de-emphasize its D&S and remote presence businesses. On November 11...

  • Page 15
    ... December 28, 2015, the Company announced that our Board had authorized a new share repurchase plan whereby the Company would purchase up to one million shares of its common stock during the 2016 fiscal year, replacing the Company's existing share repurchase plan. On January 5, 2016, representatives...

  • Page 16
    After the Company's February 4, 2016 announcement, Mr. Angle contacted Mr. Mesdag to discuss his reactions to the D&S business unit sale and the expansion of the share repurchase program and continue to attempt to amicably settle the parties' differences. As part of these discussions, Mr. Angle ...

  • Page 17
    ..., that Mr. Mesdag has no known operating experience in software development, data analytics, Internet of Things or international technology sourcing. On March 14, 2016, the Company issued a press release announcing (i) the appointment of Mr. Bell to the board, (ii) the coming retirement of George...

  • Page 18
    ... for any reason be unable to serve or for good cause will not serve, the board of directors reserves the right to nominate substitute nominees for election prior to the annual meeting, in which case the Company will file an amendment to this proxy statement disclosing the identity of such substitute...

  • Page 19
    ... Deborah G. Ellinger 2018 2018 I I (1) (2) Mr. Ali was appointed by the board of directors as a Class II director in August 2015. Mr. Bell was appointed by the board of directors as a Class II director in March 2016. Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy Statement 11

  • Page 20
    ... President, Human Resources and Corporate Communications Executive Vice President and General Manager, Home Robots Business Unit Executive Vice President, Chief Legal Officer (4) Member of strategy and finance committee (5) Mr. McNamee will be retiring from the board of directors and all committees...

  • Page 21
    ... experience in international retail and consumer products, serving as the former chief executive officer of The Princeton Review, a company which assists students in test preparation, from 2012 to 2014, former president of Restoration Hardware, a luxury home furnishings retailer, from 2008 to 2009...

  • Page 22
    ... Board Experience: Director of Silver Spring Networks and several private companies. President New Devices Group, Corporate VP Mobile and Communications Group and Corporate Vice President Ultra Mobility Group. He was head of Product Development at Palm, Inc. from 2007 to 2010. He worked at Apple...

  • Page 23
    ... brings extensive experience as a former chief financial officer of three public companies and director of five public companies, in addition to iRobot; she has served as Audit Committee Chair for three boards of directors. From 1996 until her retirement in 2001, Ms. Deegan served as executive vice...

  • Page 24
    ... retiring from the board of directors and is not standing for re-election at this annual meeting. Senior Leadership Experience: Managing partner of FA Technology Ventures Michelle V. Stacy Age: 61 iRobot Committees: • Compensation and Talent; Audit Public Directorships: • iRobot; Flex Pharma...

  • Page 25
    ... to July 2000. Earlier in his career, Mr. Campanello spent nine years as vice president of human resources at Lotus Development Corporation. He holds a B.S. in Business Administration from the University of Massachusetts. Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy Statement 17

  • Page 26
    ... areas of the unit. Prior to iRobot, he was general manager and vice president of Sales and Marketing from April 2010 to March 2013 at Whirlpool Corporation, a multinational manufacturer of home appliances, where he was responsible for sales, marketing, brand communications, product development and...

  • Page 27
    ... time with the chief executive officer, and other executive officers, to understand the Company's vision and strategy and works to focus the board of directors on areas aligned with the Company's vision and strategy. Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy Statement 19

  • Page 28
    ...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 and talent committee identifies and oversees risks associated with our executive compensation...

  • Page 29
    ... any such recommendation for nomination not earlier than the close of business on the 120th day prior to the first anniversary of the date of the proxy statement delivered to stockholders in connection with the preceding year's annual meeting. All recommendations for nomination must be in writing...

  • Page 30
    ... our by-laws. Written notice of stockholder nominees to the board of directors must be received not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary the proceeding year's annual meeting. For details on the Company...

  • Page 31
    ...upon a request directed to: iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Investor Relations. We intend to disclose any amendment to or waiver of a provision of the Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial...

  • Page 32
    ..., planning and advice services), and the terms of such services, to be provided by our independent registered public accounting firm; reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures...

  • Page 33
    ... such corporate goals and objectives and determining the compensation of our chief executive officer and other executive officers; overseeing and administering our compensation, welfare, benefit and pension plans and similar plans; reviewing and making recommendations to the board of directors with...

  • Page 34
    ... opportunities that support the Company's strategic business objectives; reviewing with and, when appropriate, making recommendations to the board of directors regarding the Company's capital allocation objectives, strategies and plans; reviewing the Company's capital allocation process annually...

  • Page 35
    ..., the audit committee has reviewed and discussed with management the Company's consolidated financial statements for the fiscal quarters and full year ended January 2, 2016, including a discussion of, among other things, the quarterly and annual earnings press releases, the quality of the Company...

  • Page 36
    ... of Appointment of Independent Registered Public Accountants." Based on its evaluation, the audit committee has retained PricewaterhouseCoopers LLP to serve as the Company's independent registered public accounting firm for the 2016 fiscal year. Based on its review of the financial statements...

  • Page 37
    ... for developing executive compensation policies and advising the board of directors with respect to such policies and administering the Company's cash incentive and equity incentive plans. The compensation and talent committee sets performance goals and objectives for the chief executive officer and...

  • Page 38
    ..., individual objectives, including business unit contribution margin. Our compensation and talent committee annually reviews and approves elements of executive compensation, including executive officer base salaries, cash incentives and equity awards. Our performance as a company in 2015 was very...

  • Page 39
    ... of our say on pay votes, regulatory changes and emerging best practices when making future compensation decisions for our named executive officers. Our compensation plans are developed, in part, by utilizing publicly available compensation data and subscription compensation survey data for national...

  • Page 40
    ... and delivered to executives. Technology and technology/consumer products companies perform and pay differently from home builders, retailers and furniture distributors/ manufacturers. The compensation and talent committee takes all of these unique dynamics into account annually when reviewing our...

  • Page 41
    ... "disruptive innovation;" • Companies with products with brand recognition and/or disposable income "luxury" goods; and • Companies with moderate margins and levels of research and development expense that indicate similar business models and financial strategy. Our peer group for 2015 consisted...

  • Page 42
    ... vesting restricted stock units, performance share units ("PSUs") and stock options. All of our executive officers also are eligible for certain benefits offered to employees generally, including life, health, disability and dental insurance, as well as participation in our 401(k) plan. We have also...

  • Page 43
    ... metrics that reinforce the executive's role and impact and company business strategy. Also, the compensation and talent committee established a hurdle where the available total incentive compensation payout for the entire employee base - including the named executive officers - would be reduced on...

  • Page 44
    ... of keeping the executives' overall compensation at a competitive level with the comparator companies reviewed by the compensation and talent committee in the technology and robotics industries. Our compensation and talent committee also takes into consideration the number of shares of common stock...

  • Page 45
    ...-term business drivers. For the PSUs granted in 2014 and 2015, the number of shares actually earned at the end of the three-year period will range from 0% to 100% of the target number of PSUs granted based on the Company's performance Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy...

  • Page 46
    ..., the named-executive officers earned the following restricted stock units with respect to the 2014-2016 long-term incentive plan cycle: 2014-2016 PSUs Granted & Earned 2014 - 2016 PSU Performance Cycle PSUs Granted 2014 Earned PSUs 2015 Earned PSUs 2016 Earned PSUs Total PSUs Earned to Date Colin...

  • Page 47
    ... the 2015 - 2017 plan cycle were earned. Specifically, the named-executive officers earned the following restricted share units with respect to the 2015 long-term incentive plan: 2015-2017 PSUs Granted & Earned PSUs Granted 2015 Earned PSUs 2016 Earned PSUs 2017 Earned PSUs Total PSUs Earned to Date...

  • Page 48
    ... that if we experience a change in control, as defined in the executive agreements, and the employment of such officer is terminated by the Company without cause at any time within the period beginning on the date that is 45 days prior to the date of the public announcement of the execution of...

  • Page 49
    ... senior leadership team), and it its services were limited to executive compensation consulting; Fees paid by us to Pearl Meyer represented less than 1.0% of Pearl Meyer's total revenue for the period January 2015 through December 2015; Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy...

  • Page 50
    ... our executive officers; and None of the Pearl Meyer consultants on our account directly own shares of our stock. The compensation and talent committee continues to monitor the independence of its compensation consultant on a periodic basis. Notice of Annual Meeting of Stockholders and iRobot 2016...

  • Page 51
    ... included as part of our Annual Report on Form 10-K for the fiscal year ended January 2, 2016 for certain assumptions made in the valuation of stock and option awards. Represents amounts paid in 2016, 2015 and 2014, respectively under the Company's Senior Executive Incentive Compensation Plan for...

  • Page 52
    Grants of Plan-Based Awards in 2015 The following table sets forth, for each of the named executive officers, information about grants of planbased awards during fiscal year 2015: GRANTS OF PLAN-BASED AWARDS - 2015 Grant Date Fair Value of Stock and Option Awards ($) - 665,420 1,330,840 334,681 311,...

  • Page 53
    ... of the named executive officers, information about unexercised option awards and other unvested equity awards that were held as of January 2, 2016. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2015 Option Awards Stock Awards Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other...

  • Page 54
    ... Vested The following table sets forth, for each of the named executive officers, information with respect to the exercise of stock options and the vesting of restricted stock unit awards during the year ended January 2, 2016. OPTION EXERCISES AND STOCK VESTED - 2015 Option Awards Shares Acquired on...

  • Page 55
    ..., the Evolution Robotics, Inc. 2007 Stock Plan, and the 2015 Stock Option and Incentive Plan. Number of securities remaining available for future issuance under equity Weighted average compensation plan exercise price of (excluding outstanding securities options, units and referenced in rights...

  • Page 56
    ...,000 200,000 182,500 12,779 11,408 12,779 12,779 11,408 350,279 226,408 182,779 212,779 193,908 Assuming the employment of our named executive officers was terminated by the Company without cause during the period beginning on the date that is 45 days prior to the date of the public announcement...

  • Page 57
    ... $ 7,500 $ 7,500 $ 5,000 $ 5,000 $ 7,500 - In July 2015, the board of directors formed an ad hoc strategy and finance committee focused on overseeing strategic objectives and their translation into stockholder value creation, along with reviewing the Company's capital allocation process. Based upon...

  • Page 58
    ... Topic 718. The grant date fair value is the fair market value of our common stock on the date of grant multiplied by the number of shares of common stock underlying such restricted stock unit award. Gen. Kern stepped down from the board of directors at the 2015 annual meeting of stockholders, and...

  • Page 59
    ...-employee members of our board of directors who held such position on January 2, 2016 held the following aggregate number of unexercised options and unvested restricted stock units as of such date: Number of Securities Underlying Unexercised Options Name Number of Unvested Restricted Stock Units...

  • Page 60
    ... business, accounting policies and practices, and internal controls over financial reporting; and external data relating to audit quality and performance, including recent PCAOB inspection reports available for PwC. • • Based on this evaluation, the members of the audit committee and the board...

  • Page 61
    ... to respond to appropriate questions from stockholders. PricewaterhouseCoopers LLP Fees The following table shows the aggregate fees for professional services rendered by PwC to us during the fiscal years ended January 2, 2016 and December 27, 2014. 2015 Audit Fees Audit-Related Fees Tax Fees All...

  • Page 62
    Recommendation of the Board THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS iROBOT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2016. Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy Statement 54

  • Page 63
    ... shares, which is the required threshold for approval of the proposal. Our board of directors continues to believe that the amendments described below are in the best interests of the Company's stockholders, and, in light of the strong support received at the 2015 annual meeting, our board...

  • Page 64
    ... our by-laws. Recommendation of the Board THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS. Notice of Annual Meeting of Stockholders and iRobot 2016 Proxy...

  • Page 65
    ... current terms and thereafter would be eligible for reelection for one-year terms. As a result, the board of directors will be fully declassified upon the 2019 annual meeting of stockholders. In all cases, each director will hold office until his or her successor is duly elected and qualified or...

  • Page 66
    ...OUR NAMED EXECUTIVE OFFICERS The following proposal, commonly known as a "say on pay" proposal, gives our stockholders the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. This vote is not intended to address any specific item of compensation or...

  • Page 67
    ... 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 68
    ... address of each reporting entity is 100 Vanguard Boulevard, Malvern, PA 19355. This information has been obtained from a Schedule 13G/A filed by The Vanguard Group, Inc. with the SEC on February 10, 2016. Red Mountain Capital Partners LLC has sole voting power with respect to 1,782,500 shares and...

  • Page 69
    ... with the SEC's proxy rules. In order to curtail controversy as to the date on which we received a proposal, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested, to iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730, Attention: Secretary...

  • Page 70
    ...GAAP. Among other things, Adjusted EBITDA does not reflect the Company's actual cash expenditures. Other companies may calculate similar measures differently than iRobot, limiting their usefulness as comparative tools. iRobot compensates for these limitations by relying primarily on its GAAP results...

  • Page 71
    ... non-employee director or nominee who may be deemed to be a participant is set forth in the section of this proxy statement entitled "Election of Directors." Name Business Address Mohamad Ali iRobot Corporation 8 Crosby Drive Bedford, Massachusetts 01730 iRobot Corporation 8 Crosby Drive Bedford...

  • Page 72
    ...'s position with our company and the business address is iRobot Corporation, 8 Crosby Drive, Bedford, Massachusetts 01730. Name Position Colin M. Angle Chairman of the Board, Chief Executive Officer and Director Executive Vice President, Chief Financial Officer, Treasurer and Principal Accounting...

  • Page 73
    ... Name Date Purchase/(Sale) of Common Stock (number of shares) Transaction Type Alison Dean Russell J. Campanello Glen D. Weinstein 3/11/2016 4/1/2014 4/2/2014 6/9/2014 3/6/2015 3/7/2015 3/8/2015 3/9/2015 4/1/2015 6/8/2015 7/15/2015 7/15/2015 3/7/2016 3/7/2016 3/8/2016 3/9/2016 3/11/2016...

  • Page 74
    ...Date Purchase/(Sale) of Common Stock (number of shares) Transaction Type Christina Cerda Mohamad Ali Ronald Chwang, Ph.D. Gail Deegan Deborah G. Ellinger Andrea Geisser George C. McNamee 9/2/2014 9/2/2014 9/8/2014 10/1/2014 10/1/2014 11/3/2014 11/3/2014 12/1/2014 12/1/2014 3/6/2015 3/7/2015...

  • Page 75
    ... in this proxy statement, no persons listed under "Directors and Nominees" and "Executive Officers and Other Employees" has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon at the 2016 annual meeting of stockholders (and no other...

  • Page 76

  • Page 77
    ...name of the Corporation is iRobot Corporation. ARTICLE II The address of the Corporation's registered office in the State of Delaware is c/o Corporation Service Company, 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle. The name of its registered agent at such address...

  • Page 78
    ... law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights...

  • Page 79
    ... the direction of the Board of Directors except as otherwise provided herein or required by law. 2. Election of Directors. Election of Directors need not be by written ballot unless the By-laws of the Corporation (the "By-laws") shall so provide. 3. Number of Directors; Term of Office. The number of...

  • Page 80
    ... preceding sentence following the 2017 Annual Meeting shall hold office for a term expiring at the next annual meeting of stockholders of the Corporation held after such appointment for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy...

  • Page 81
    ... be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office. 2. Amendment by Stockholders. The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such...

  • Page 82

  • Page 83
    ... No.) 8 Crosby Drive, Bedford, MA (Address of principal executive offices) 01730 (Zip Code) (781) 430-3000 (Registrant's telephone number, including area code) _____ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Common Stock, $0.01 par value per share The NASDAQ Stock Market LLC...

  • Page 84

  • Page 85
    iROBOT CORPORATION ANNUAL REPORT ON FORM 10-K Year Ended January 2, 2016 TABLE OF CONTENTS Page Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 3 12 24 25 25 25 Form 10-K Part II Market ...

  • Page 86
    ... the date of this Annual Report. We caution readers not to place undue reliance upon any such forward-looking statements. iRobot, Roomba, Ava, Scooba, Mint, ViPR, NorthStar, Create, PackBot, FirstLook, iAdapt, Aware, Home Base, Looj, Braava, Kobra, AeroForce, uPoint, AeroVac, Mirra, and Virtual Wall...

  • Page 87
    ... adoption of Roomba supported by targeted marketing programs similar to the successful programs we introduced in the United States in 2015; Wider geographic distribution of Roomba 980; Building a second material revenue stream, which we expect to do with our wet floor care products; and Regional...

  • Page 88
    ... even larger share of the rapidly growing market for robotic floor care; Develop our wet floor care business to generate a material, secondary revenue stream; Scale our infrastructure to support future connected products; Explore, develop and grow adjacent non-floor care home robot products that can...

  • Page 89
    ... previous Roomba models. We currently offer the Braava automatic floor mopping robots designed exclusively for hard surface floors with a price of $299. These robots provide a different cleaning approach than our Roomba products. The Braava automatically dusts and damp mops hard surface floors using...

  • Page 90
    ... business unit during the first quarter of 2016. In the defense and security product markets, we currently offer several unmanned ground vehicles. Our tactical ground robots include the combat-tested 510 PackBot, the 310 SUGV, the 110 FirstLook small, light, throwable robot, and the 710 Kobra...

  • Page 91
    ... and international on-line stores, representing 6.1%, 6.1% and 5.9% of total home robots business unit revenue for fiscal 2015, 2014 and 2013, respectively. We have established valuable databases and customer lists that allow us to target directly those consumers most likely to purchase a new robot...

  • Page 92
    ... and technical support requirements for military operations. Customer service for the RP-VITA product is provided by InTouch Health. Customer service for the Ava 500 is provided by iRobot. Marketing and Brand We market our home robots to end-user customers through our sales and marketing teams as...

  • Page 93
    ... to do business. Our registered U.S. trademarks include iRobot, Roomba, Ava, Scooba, Mint, ViPR, NorthStar, Create, PackBot, FirstLook, iAdapt, Aware, Home Base, Looj, Braava, Kobra, AeroForce, uPoint, AeroVac, Mirra, and Virtual Wall. Our marks iRobot, Roomba, Virtual Wall, Scooba, and certain...

  • Page 94
    ... that we comply with various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees to obtain government clearances. The nature of the work we do for the...

  • Page 95
    ... by companies using new and unproven business models in rapidly evolving markets. These challenges include our ability to generate sufficient revenue and gross margin to maintain profitability; acquire and maintain market share in our consumer and defense markets; attract and retain customers of...

  • Page 96
    ... fiscal quarter, or even every fiscal year. We base our current and future expense levels on our internal operating plans and sales forecasts, including forecasts of holiday sales for our consumer products. A significant portion of our operating expenses, such as research and development expenses...

  • Page 97
    ... to further 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...

  • Page 98
    ... manufacture of our various families of home care and defense 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...

  • Page 99
    ..., to acquire new customers, and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to increase awareness of our home robot products. For the years ended January 2, 2016, December 27, 2014 and December 28, 2013, sales and marketing expenses were $97...

  • Page 100
    ... and customer support. In the event that the robot market expands further, we expect that competition will intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us may introduce products that are competitively priced, have...

  • Page 101
    ... Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, userfriendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors...

  • Page 102
    ... and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may afford little or no...

  • Page 103
    ... margins and the internal organization and operation of our business. Following closing of the sale of our defense and security business unit, we will be subject to certain of these regulations only as they pertain to matters related to our operation of the defense and security business unit prior...

  • Page 104
    ... generally will require that we comply with various Executive Orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees to obtain government clearances. Our failure to...

  • Page 105
    ... and Far East markets, and Canada. For the fiscal years ended January 2, 2016, December 27, 2014 and December 28, 2013, sales to non-U.S. customers accounted for 56.0%, 60.9% and 59.5% of total revenue, respectively. Our international revenue and operations are subject to a number of material risks...

  • Page 106
    ... placed, 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...

  • Page 107
    ... attention from an activist investor, Red Mountain Capital Partners, or RMCP, since April 2015. On February 18, 2016, RMCP delivered notice to us that it plans to nominate two director candidates for election to our board of directors at our 2016 annual meeting of stockholders. As a result of this...

  • Page 108
    ... corporate headquarters are located in Bedford, Massachusetts, where we lease approximately 203,000 square feet. This lease expires on May 1, 2020. We lease smaller facilities in Hong Kong; Guangzhou, China; London, England; and Pasadena, California. We do not own any real property. We believe that...

  • Page 109
    ...Issuer Purchases of Equity Securities The following is a summary of our repurchases of our common stock during the three months ended January 2, 2016: (a) Total number of Shares (b) Average Price Purchased (1) Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or...

  • Page 110
    ...be expected for any future period. Year Ended January 2, 2016 December 27, December 28, December 29, 2014 2013 2012 (In thousands, except earnings per share amounts) December 31, 2011 Consolidated Statements of Income: Revenue Cost of revenue Gross margin Operating expenses Research and development...

  • Page 111
    ...sales, product development and offerings, Roomba, Scooba, Looj, Braava and Mirra products, PackBot tactical military robots, the Small Unmanned Ground Vehicle, FirstLook, Kobra, Ava, our home robots, defense and security robots and remote presence robots business units, our competition, our strategy...

  • Page 112
    ... as part of our acquisition of Evolution Robotics. Roomba 980 was available on our website, in select retail locations in the U.S. and in Japan, as well as several European markets during fiscal 2015. Roomba 980 will be available in additional domestic and international locations in fiscal 2016. Our...

  • Page 113
    ... derive a majority of our product revenue from the sale of our home cleaning robots, and to a lesser extent, our PackBot, FirstLook, SUGV and Kobra defense and security robots, and product life cycle revenue related to these robots. For the fiscal years ended January 2, 2016, December 27, 2014 and...

  • Page 114
    ... Expenses Our selling, marketing, general and administrative expenses consist primarily of salaries and related costs for sales and marketing personnel; salaries and related costs for executives and administrative personnel; advertising, marketing and other brand-building costs; customer service...

  • Page 115
    ... the related sale is recorded. These estimates for rights of return are directly based on specific terms and conditions included in the reseller agreements, historical returns experience and various other assumptions that we believe are reasonable under the circumstances. In the case of new product...

  • Page 116
    ... as stock price volatility and expected option lives to value equity-based compensation. Accounting for Income Taxes We are subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations for examinations by the Internal Revenue Service is closed for...

  • Page 117
    ... evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions...

  • Page 118
    ... 8,763 The following table sets forth our results of operations as a percentage of revenue for the periods shown: Fiscal Year Ended January 2, 2016 December 27, 2014 December 28, 2013 Revenue Cost of revenue Gross margin Operating expenses Research and development Selling and marketing General and...

  • Page 119
    ... 2015, compared to $298.8 million in fiscal 2014. The increase is primarily due to the 12.1% and 10.9% increase of units shipped in our home robots business unit and defense and security business unit, respectively. These increases are partially offset by a higher mix of lower margin products sold...

  • Page 120
    ... to our product returns reserves compared to a net benefit to revenue and gross margin of $4.3 million and $5.7 million during fiscal 2014. The 0.5 percentage point decrease in the defense and security business unit is attributable to the increase in sales of our lower margin robots. Research and...

  • Page 121
    ... million in consulting costs, $1.8 million in people-related costs and $0.7 million related to investments in enterprise hardware and software maintenance, support, and services. Other Income (Expense), Net Form 10-K Fiscal Year Ended January 2, 2016 December 27, Dollar Change 2014 (In thousands...

  • Page 122
    ...the higher-priced Roomba 600 series in club stores. International home robots revenue growth was further supported by strong demand in China, where revenue increased over 200% in fiscal 2014 compared to fiscal 2013. The $4.5 million decrease in revenue from our defense and security business unit was...

  • Page 123
    ...increase in the home robots business unit was primarily driven by favorable product and customer mix, with increased volume of higher margin Roomba 800 and 600 series robots in fiscal 2014 compared to fiscal 2013. During 2014, we recorded a net benefit to revenue and gross margin of $4.3 million and...

  • Page 124
    ..., product-specific production tooling, internal use software and test equipment. In the fiscal years ended January 2, 2016, December 27, 2014 and December 28, 2013, we spent $9.4 million, $13.8 million and $6.8 million respectively, on capital equipment. Our strategy for delivering home robots...

  • Page 125
    ... in the purchase of property and equipment in 2015, including tooling for new products. We purchased $17.8 million of marketable securities in 2015, while sales and maturities of marketable securities amounted to $20.5 million. We received $5.6 million from sales of other assets. We made strategic...

  • Page 126
    ... 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 127
    ...At January 2, 2016, we had outstanding purchase orders aggregating approximately $74.7 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and...

  • Page 128
    ... company expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. In July 2015, the FASB voted to defer the effective date of the new...

  • Page 129
    ... AND SUPPLEMENTARY DATA iROBOT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at January 2, 2016 and December 27, 2014 Consolidated Statements of Income for the Years ended January 2, 2016, December 27...

  • Page 130
    ... 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 obtain reasonable...

  • Page 131
    ...: Accounts payable Accrued expenses Accrued compensation Deferred revenue and customer advances Total current liabilities Long term liabilities Commitments and contingencies (Note 11): Redeemable convertible preferred stock, 5,000,000 shares authorized and no shares issued or outstanding Common...

  • Page 132
    ...107 Net income per share Basic $ Diluted $ Number of weighted average common shares used in calculations per share Basic Diluted _____ (1) Stock-based compensation recorded in fiscal 2015, 2014 and 2013 breaks down by expense classification as follows: Fiscal Year Ended January 2, 2016 December 27...

  • Page 133
    iROBOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Year Ended January 2, 2016 December 27, 2014 (In thousands) December 28, 2013 Net income Other comprehensive loss, net of tax: Unrealized losses on investments, net of tax Total comprehensive ...

  • Page 134
    ...Shares Balance at December 29, 2012 Issuance of common stock for exercise of stock options Conversion of deferred compensation Vesting of restricted stock units Tax benefit of excess stock based compensation deduction Amortization of deferred compensation relating... thousands, except share data) 278 $...

  • Page 135
    ... Accrued expenses Accrued compensation Deferred revenue and customer advances Long term liabilities Net cash provided by operating activities Cash flows from investing activities: Additions of property and equipment Change in other assets Proceeds from sale of cost method investment Purchases of...

  • Page 136
    ...STATEMENTS 1. Nature of the Business iRobot Corporation ("iRobot" or the "Company") develops robotics and artificial intelligence technologies and applies these technologies in producing and marketing robots. The Company's revenue is primarily generated from product sales. 2. Summary of Significant...

  • Page 137
    ... life of the robot. Sales to domestic and Canadian resellers of home robots are typically subject to agreements allowing for limited rights of return, rebates and price protection. The Company also provides limited rights of returns for direct-to-consumer sales generated through its on-line stores...

  • Page 138
    ... 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: Fiscal Year Ended January 2, 2016 December 27, 2014 (In thousands...

  • Page 139
    ... unit's goodwill with the carrying value of that goodwill. The Company completes the annual impairment evaluation during the fourth quarter each year. Research and Development Costs incurred in the research and development of the Company's products are expensed as incurred. Internal Use Software...

  • Page 140
    ... by the Black-Scholes option-pricing model. Stock-based compensation cost for restricted stock awards, time-based restricted stock units and performance-based restricted stock units is measured based on the closing fair market value of the Company's common stock on the date of grant. For performance...

  • Page 141
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Income Taxes The Company is subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations for examinations by the Internal Revenue Service is closed for fiscal years prior ...

  • Page 142
    ...36,166 $ - - - $ 109,843 $ (1) The bond investments are valued based on observable market values as of the Company's reporting date. The bond investments are recorded at fair value and marked-to-market at the end of each reporting period. The realized and unrealized gains and losses are included...

  • Page 143
    ... company expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. In July 2015, the FASB voted to defer the effective date of the new...

  • Page 144
    ...) Raw materials Finished goods $ $ 9,082 $ 52,596 61,678 $ 9,455 38,402 47,857 4. Property and Equipment Property and equipment consists of the following at: January 2, 2016 December 27, 2014 (In thousands) Computer and equipment Furniture Machinery Tooling Leasehold improvements Business...

  • Page 145
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Accrued Expenses Accrued expenses consist of the following at: January 2, 2016 December 27, 2014 (In thousands) Accrued warranty Accrued direct fulfillment costs Accrued sales tax Accrued customer deposits Accrued rent ...

  • Page 146
    ... and Stock-Based Compensation The Company has options outstanding under three stock incentive plans: the 2005 Stock Option and Incentive Plan (the "2005 Plan"), the Evolution Robotics, Inc. 2007 Stock Plan (the "2007 Plan") and the 2015 Stock Option and Incentive Plan (the "2015 Plan" and together...

  • Page 147
    ... with exercise prices ranging from $2.55 to $4.81. All of these options were granted from the 2007 Plan, which was assumed by the Company as a result of the acquisition. The Company recognized $3.4 million of stock-based compensation expense during the fiscal year ended January 2, 2016 for stock...

  • Page 148
    ... The aggregate intrinsic value on the table was calculated based upon the positive difference between the closing market value of the Company's stock on January 2, 2016 of $35.40 and the exercise price of the underlying option. During fiscal years 2015, 2014, and 2013, the total intrinsic value of...

  • Page 149
    .... The Company expects to recognize associated stock-based compensation expense of $9.7 million, $7.3 million, $5.2 million and $2.1 million in 2016, 2017, 2018 and 2019, respectively. The table below summarizes activity relating to restricted stock units: Number of Shares Underlying Restricted...

  • Page 150
    iROBOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Income Taxes The components of income tax expense were as follows: Fiscal Year Ended January 2, 2016 December 27, 2014 (In thousands) December 28, 2013 Current Federal State Foreign Total current tax provision Deferred ...

  • Page 151
    ...of $2.1 million related to certain state tax attributes from the Evolution Robotics, Inc. acquisition. During the year ended December 27, 2014, this valuation allowance was released when realization of these state tax attributes became more likely than not. As of January 2, 2016, the Company did not...

  • Page 152
    ... tax expense was as follows: Fiscal Year Ended January 2, 2016 December 27, 2014 (In thousands) December 28, 2013 Expected federal income tax Miscellaneous permanent items State taxes (net of federal benefit) Federal and state credits Change in valuation allowance Domestic production activities...

  • Page 153
    ... benefits related to stock-based compensation beginning from January 1, 2006 of $0.6 million and $0.5 million as of January 2, 2016 and December 27, 2014, respectively. Included in the Company's state net operating loss carryforwards are unrecognized tax benefits related to stock-based compensation...

  • Page 154
    .... As of January 2, 2016, fiscal years 2012 through 2015 are open for audit by DCAA. Warranty The Company provides warranties on most products and has established a reserve for warranty based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 6) in the accompanying...

  • Page 155
    ... annual payroll. The employer matching contribution for Plan-Year 2015 is included in accrued compensation in the accompanying consolidated balance sheet. 13. Derivative Instruments Form 10-K The Company is exposed to adverse changes in foreign currency exchange rates, primarily related to sales...

  • Page 156
    ... and did not identify any goodwill impairment. The Company further considered the subsequent event of the signed definitive agreement associated with the sale of the defense and security business unit, and reevaluated its position which incorporated the associated purchase price and reconfirmed that...

  • Page 157
    ... countries through international distributors and retailers, and through the Company's on-line store. The Company's home robots business unit includes mobile robots used in the maintenance of households. Defense and Security Robots The Company's defense and security business unit offers products to...

  • Page 158
    ... 62,971 $ As of January 2, 2016, goodwill of $41.0 million and purchased intangible assets, net of $15.7 million recorded in conjunction with the acquisition of Evolution Robotics, Inc. in October 2012 are directly associated with the home robots business unit. Goodwill of $7.7 million recorded in...

  • Page 159
    ... On February 2, 2016, the Company entered into an Asset Purchase Agreement with iRobot Defense Holdings, Inc., a recently-formed portfolio company of Arlington Capital Partners, to sell all of the assets and certain liabilities of the defense and security business unit. The purchase price is up to...

  • Page 160
    ... the Company's internal control over financial reporting as of January 2, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting During the quarter...

  • Page 161
    ... Colin Angle, Chief Executive Officer and Glen D. Weinstein, EVP & Chief Legal Officer) of the Company have entered into trading plans (each a "Plan" and collectively, the "Plans") covering periods after the date of this Annual Report on Form 10-K in accordance with Rule 10b5-l and our policy...

  • Page 162
    ... STATEMENT SCHEDULES (a) 1. The following are filed as part of this Annual Report on Form 10-K: Financial Statements The following consolidated financial statements are included in Item 8: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at January 2, 2016 and...

  • Page 163
    ... and Boston Properties Limited Partnership for premises located at 418 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date) Senior Executive Incentive Compensation Plan (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended...

  • Page 164
    ...Number Description 101* The following materials from the Registrant's Annual Report on Form 10-K for the year ended January 2, 2016 formatted in XBRL (eXtensible Business Reporting...(vi) related notes to these financial statements Indicates a management contract or any compensatory plan, contract ...

  • Page 165
    ... 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, 2016 Form 10-K POWER OF ATTORNEY KNOW...

  • Page 166
    /s/ GEORGE C. MCNAMEE George C. McNamee /s/ DEBORAH G. ELLINGER Deborah G. Ellinger /s/ MOHAMAD ALI Director Director Director Mohamad Ali 83

  • Page 167
    ... and Boston Properties Limited Partnership for premises located at 418 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date) Senior Executive Incentive Compensation Plan (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended...

  • Page 168
    ...The following materials from the Registrant's Annual Report on Form 10-K for the year ended January 2, 2016 formatted in XBRL (eXtensible Business Reporting Language... and (vi) related notes to these financial statements Indicates a management contract or any compensatory plan, contract or arrangement...

  • Page 169
    ... reinvestment of dividends) was $100 on 12/31/2010 and tracks it through 12/31/2015. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among iRobot Corporation, the NASDAQ Composite Index, and S&P Technology Hardware & Equipment Industry Group $250 $200 $150 $100 $50 $0 12/10 3/11 6/11 9/11...

  • Page 170
    ... financial reports, stock quotes, news releases, SEC filings, as well as information on our products is available in the Investor Relations section of www.irobot.com Board Members Colin M. Angle Co-founder, Chairman of the Board and Chief Executive Officer Mohamad Ali Director, Strategy and Finance...

  • Page 171

  • Page 172
    iRobot Mission Empowering People To Do More Corporate Headquarters 8 Crosby Drive Bedford, MA 01730 USA Phone: 781.430.3000 Fax: 781.430.3001 www.irobot.com [email protected]