e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED March 31, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-51598
iROBOT CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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77-0259 335
(I.R.S. Employer
Identification No.) |
63 South Avenue
Burlington, MA 01803
(Address of principal executive offices)
(Zip code)
(781) 345-0200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares outstanding of the Registrants Common Stock as of April 28, 2007 was
24,195,561.
iROBOT CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2007
INDEX
1
iROBOT CORPORATION
Consolidated Balance Sheets
(in thousands)
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March 31, |
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December 30, |
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2007 |
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2006 |
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(unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
9,397 |
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$ |
5,583 |
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Short-term investments |
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60,400 |
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64,800 |
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Accounts receivable, net of allowance of
$163 and $163 at March 31, 2007 and December
30, 2006, respectively |
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16,237 |
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28,510 |
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Unbilled revenue |
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1,543 |
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1,961 |
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Inventory, net |
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16,199 |
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20,890 |
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Other current assets |
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1,833 |
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2,863 |
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Total current assets |
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105,609 |
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124,607 |
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Property and equipment, net |
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11,258 |
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10,701 |
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Total assets |
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$ |
116,867 |
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$ |
135,308 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
17,815 |
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$ |
27,685 |
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Accrued expenses |
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5,113 |
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7,020 |
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Accrued compensation |
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4,545 |
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5,227 |
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Deferred revenue |
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526 |
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457 |
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Total current liabilities |
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27,999 |
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40,389 |
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Commitments and contingencies (Note 8): |
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Redeemable convertible preferred stock, 5,000
shares authorized and zero outstanding at March
31, 2007 and December 30, 2006 |
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Common stock, $0.01 par value, 100,000 and
100,000 shares authorized and 24,181 and 23,791
issued and outstanding at March 31, 2007 and
December 30, 2006, respectively |
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242 |
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238 |
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Additional paid-in capital |
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116,596 |
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117,718 |
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Deferred compensation |
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(1,758 |
) |
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(2,326 |
) |
Accumulated deficit |
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(26,212 |
) |
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(20,711 |
) |
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Total stockholders equity |
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88,868 |
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94,919 |
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Total liabilities and stockholders equity |
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$ |
116,867 |
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$ |
135,308 |
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The accompanying notes are an
integral part of the consolidated
financial statements.
2
iROBOT CORPORATION
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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March 31, |
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April 1, |
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2007 |
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2006 |
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Revenue: |
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Product revenue |
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$ |
34,121 |
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$ |
33,356 |
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Contract revenue |
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5,366 |
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4,853 |
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Total revenue |
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39,487 |
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38,209 |
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Cost of revenue: |
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Cost of product revenue (1) |
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23,486 |
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22,467 |
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Cost of contract revenue (1) |
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4,884 |
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3,549 |
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Total cost of revenue |
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28,370 |
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26,016 |
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Gross profit |
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11,117 |
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12,193 |
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Operating expenses: |
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Research and development (1) |
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4,156 |
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2,783 |
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Selling and marketing (1) |
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8,049 |
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8,816 |
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General and administrative (1) |
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5,327 |
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4,417 |
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Total operating expenses |
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17,532 |
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16,016 |
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Operating Loss |
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(6,415 |
) |
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(3,823 |
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Other income, net |
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931 |
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920 |
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Loss before income taxes |
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(5,484 |
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(2,903 |
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Income tax expense |
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17 |
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14 |
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Net loss |
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$ |
(5,501 |
) |
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$ |
(2,917 |
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Net loss per share |
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Basic and diluted |
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$ |
(0.23 |
) |
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$ |
(0.12 |
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Number of shares used in per share calculations |
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Basic and diluted |
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23,902 |
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23,375 |
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(1) |
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Total stock-based compensation recorded in the three months ended March 31, 2007 and April 1,
2006 included in the above figures breaks down by expense classification as follows: |
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Three Months Ended |
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March 31, |
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April 1, |
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2007 |
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2006 |
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Cost of product revenue |
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$ |
120 |
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$ |
55 |
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Cost of contract revenue |
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77 |
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54 |
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Research and development |
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(9 |
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91 |
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Selling and marketing |
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157 |
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32 |
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General and administrative |
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312 |
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255 |
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Total stock-based compensation |
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$ |
657 |
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$ |
487 |
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The accompanying notes are an
integral part of the consolidated
financial statements.
3
iROBOT CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended |
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March 31, |
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April 1, |
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(5,501 |
) |
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$ |
(2,917 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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1,206 |
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922 |
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Loss on disposal of fixed assets |
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35 |
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Stock-based compensation |
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657 |
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487 |
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Non-cash director deferred compensation |
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28 |
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Changes in working capital (use) source |
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Accounts receivable |
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12,273 |
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12,106 |
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Unbilled revenue |
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418 |
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(102 |
) |
Inventory |
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4,691 |
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(771 |
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Other assets |
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1,030 |
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132 |
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Accounts payable |
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(9,870 |
) |
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(1,806 |
) |
Accrued expenses |
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(1,907 |
) |
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(86 |
) |
Accrued compensation |
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(682 |
) |
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(534 |
) |
Provision for contract settlement |
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(39 |
) |
Deferred revenue |
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69 |
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(503 |
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Net cash provided by operating activities |
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2,447 |
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6,889 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(1,798 |
) |
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(1,000 |
) |
Purchases of investments |
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(15,400 |
) |
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(80,175 |
) |
Sales of investments |
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19,800 |
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10,050 |
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Net cash provided by (used in) investing activities |
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2,602 |
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(71,125 |
) |
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Cash flows from financing activities: |
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Income tax withholding payment associated with stock option exercise |
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(1,588 |
) |
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Proceeds from stock option exercises |
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353 |
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65 |
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Tax benefit of disqualifying dispositions |
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38 |
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Net cash provided by (used in) financing activities |
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(1,235 |
) |
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103 |
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Net increase (decrease) in cash and cash equivalents |
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3,814 |
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(64,133 |
) |
Cash and cash equivalents, at beginning of period |
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5,583 |
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76,064 |
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Cash and cash equivalents, at end of period |
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$ |
9,397 |
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$ |
11,931 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
9 |
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Cash paid for income taxes |
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98 |
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156 |
|
Supplemental disclosure of noncash investing and financing activities (in thousands):
During the three months ended March 31, 2007 and April 1, 2006, the Company transferred $338
and $141, respectively, of inventory to fixed assets.
The accompanying notes are an
integral part of the consolidated
financial statements.
4
iROBOT CORPORATION
Notes To Consolidated Financial Statements
(unaudited)
1. Description of Business
iRobot Corporation (iRobot or the Company) was incorporated in 1990 as IS Robotics, Inc.
to develop robotics and artificial intelligence technologies and apply these technologies in
producing and marketing robots. The majority of the Companys revenue is generated from product
sales and government and industrial research and development contracts.
The Company is subject to risks common to companies in high-tech industries including, but not
limited to, uncertainty of progress in developing technologies, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance with government
regulations and uncertainty of market acceptance of products.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and its
subsidiaries, after elimination of all intercompany accounts and transactions. iRobot has prepared
the accompanying consolidated financial statements in conformity with accounting principles
generally accepted in the United States.
The accompanying financial data as of March 31, 2007 and for the three months ended March 31,
2007 and April 1, 2006 has been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted pursuant to such
rules and regulations. However, the Company believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial statements should be read in
conjunction with the Companys audited consolidated financial statements and the notes thereto
included in its Annual Report on Form 10-K for the fiscal year ended December 30, 2006, filed with
the SEC on March 2, 2007.
In the opinion of management, all adjustments necessary to present a fair statement of
financial position as of March 31, 2007 and results of operations and cash flows for the periods
ended March 31, 2007 and April 1, 2006 have been made. The results of operations and cash flows for
any interim period are not necessarily indicative of the operating results and cash flows for the
full fiscal year or any future periods.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles
generally accepted in the United States requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these
estimates and judgments, including those related to revenue recognition, sales returns, bad debts,
warranty claims, inventory reserves, valuation of investments, assumptions used in valuing
stock-based compensation instruments and income taxes. The Company bases these estimates on
historical and anticipated results, and trends and on various other assumptions that the Company
believes are reasonable under the circumstances, including assumptions as to future events. These
estimates form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. By their nature, estimates are subject to an
inherent degree of uncertainty. Actual results may differ from the Companys estimates.
Reclassification
Certain reclassifications have been made to the prior year financial statements to conform to
the current year presentation.
5
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Fiscal Year-End
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest
to December 31. Accordingly, the Companys fiscal quarters end on the Saturday that falls closest
to the last day of the third month of each quarter.
Revenue Recognition
The Company derives its revenue from product sales, government research and development
contracts, and commercial research and development contracts. The Company sells products directly
to customers and indirectly through resellers and distributors. The Company recognizes revenue from
sales of home robots under the terms of the customer agreement upon transfer of title to the
customer, net of estimated returns, provided that collection is determined to be probable and no
significant obligations remain. Sales to resellers are subject to agreements allowing for limited
rights of return for defective products only, rebates and price protection. The Company has
typically not taken product returns except for defective products. Accordingly, the Company reduces
revenue for its estimates of liabilities for these rights at the time the related sale is recorded.
The Company makes an estimate of sales returns for products sold by resellers directly or through
its distributors based on historical returns experience. The Company has aggregated and analyzed
historical returns from resellers and end users which form the basis of its estimate of future
sales returns by resellers or end users. In accordance with Statement of Financial Accounting
Standards No. 48, Revenue Recognition When Right of Return Exists, the provision for these
estimated returns is recorded as a reduction of revenue at the time that the related revenue is
recorded. If actual returns differ significantly from its estimates, such differences could have a
material impact on the Companys results of operations for the period in which the returns become
known. The estimates for returns are adjusted periodically based upon historical rates of returns.
The estimates and reserve for rebates and price protection are based on specific programs, expected
usage and historical experience. Actual results could differ from these estimates.
Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognizes revenue based on costs
incurred plus a pro rata portion of the total fixed fee. Revenue on firm fixed price (FFP)
contracts is recognized using the percentage-of-completion method. Costs and estimated gross
profits on contracts are recorded as revenue as work is performed based on the percentage that
incurred costs bear to estimated total costs utilizing the most recent estimates of costs and
funding. Changes in job performance, job conditions, and estimated profitability, including those
arising from final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Since many contracts extend over a
long period of time, revisions in cost and funding estimates during the progress of work have the
effect of adjusting earnings applicable to past performance in the current period. When the current
contract estimate indicates a loss, a provision is made for the total anticipated loss in the current
period. Revenue earned in excess of billings, if any, is recorded as unbilled revenue. Billings in
excess of revenue earned, if any, are recorded as deferred revenue.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based
Payment, which establishes accounting for the equity instruments exchanged for employee services.
Under the provisions of SFAS No. 123(R), the Company establishes the fair value of each option
grant using the Black-Scholes option-pricing model. Given the Companys initial public offering in
November 2005 and the resulting short history as a public company, the Company could not rely
solely on company specific historical data upon the adoption of SFAS No. 123(R) for purposes of
establishing an expected volatility assumption for use in applying the Black-Scholes option-pricing
model. Consequently, the Company performed an analysis of several peer companies with similar
expected option lives to develop an expected volatility assumption of 65% which was utilized for
establishing the fair value of all options granted during fiscal 2006.
During the three month period ended March 31, 2007, the Company updated its volatility
assumption utilizing a methodology consistent with that described above that included a blend of
company specific data since its initial public offering and data from the above-mentioned peer
companies for a period covering the expected option lives. Based upon this analysis, the Company
established a volatility rate of 55% for use in calculating the fair value of option grants in the
three month period ended March 31, 2007. This reduction in the volatility rate assumption had
6
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
the result of establishing lower fair values and, consequently, lower stock-based compensation
expense in the current and future periods, for options granted in the three months ended March 31,
2007.
Upon the adoption of SFAS No. 123(R) on January 1, 2006, the Company assumed a forfeiture rate
of 5% for all stock options granted subsequent to its initial public offering with the exception of
those issued to executives and directors for which a zero forfeiture rate had been assumed. These
rates were in effect for all of fiscal 2006. Effective the beginning of fiscal 2007, the Company
established a 2.5% forfeiture rate for executives and directors. In the future, the Company will
record incremental stock-based compensation expense if the actual forfeiture rates are lower than
estimated and will record a recovery of prior stock-based compensation expense if the actual
forfeitures are higher than estimated.
Net Income Per Share
The following table presents the calculation of both basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
April 1, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands, except |
|
|
|
per share data) |
|
Net loss |
|
$ |
(5,501 |
) |
|
$ |
(2,917 |
) |
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
23,902 |
|
|
|
23,375 |
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.23 |
) |
|
$ |
(0.12 |
) |
Income Taxes
In June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty
in Income Taxes An Interpretation of FASB Statement No. 109, which prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Accordingly, the Company adopted FIN 48 beginning December 31,
2006 and the impact of adoption on its opening balance of retained earnings is zero. As of the
beginning of fiscal year 2007, the Company had no unrecognized tax benefits. No unrecognized tax
benefits were recorded in the three months ended March 31, 2007. The Company recognizes interest
and penalties related to unrecognized tax benefits in its tax provision and there were no accrued
interest or penalties as of December 31, 2006 or March 31, 2007.
The Company is subject to taxation in the United States and various states and foreign
jurisdictions. The Companys United States federal income tax returns for tax years after 1998 are subject to
examination by the Internal Revenue Service. The Companys principal state income tax returns for tax years
after 2002 are subject to examination by the state tax authorities.
Deferred taxes are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided if based upon the weight of
available evidence, it is more likely than not that some or all of the deferred tax assets will not
be realized.
The Company monitors the realization of its deferred tax assets based on changes in
circumstances, such as recurring periods of income for tax purposes following historical periods of
cumulative losses or changes in tax laws or regulations. The Companys income tax provisions and
its assessment of the realizability of its deferred tax assets involve significant judgments and
estimates. If the Company continued to generate taxable income through profitable operations in the
future it may be required to recognize these deferred tax assets through the reduction of the
valuation allowance which would result in a material benefit to its results of operations in the period in which the benefit is determined, excluding the
recognition of the portion of the valuation allowance that relates to stock compensation.
7
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and
display of comprehensive income and its components in financial statements. The Companys
comprehensive income is equal to the Companys net income for all periods presented.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements, which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements.
This statement does not require any new fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value measurements. The provisions of SFAS
No. 157 are effective for fiscal years beginning after November 15, 2007. The Company is currently
assessing SFAS No. 157 and has not yet determined the impact, if any, that its adoption will have
on its result of operations or financial condition.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that
the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Companys consolidated financial statements upon adoption.
3. Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, money market accounts, and other highly
liquid investments with original maturities of three months or less at the date of acquisition. The
Company invests its excess operating cash primarily in money market funds of major financial
institutions. Cash equivalents are carried at cost, which approximates fair market value, and
interest is accrued as earned.
4. Short-term Investments
The Companys investments are classified as available-for-sale and are recorded at fair value
with any unrealized gain or loss recorded as an element of stockholders equity. The fair value of
investments is determined based on quoted market prices at the reporting date for those
instruments. As of March 31, 2007, investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
December 30, 2006 |
|
|
|
|
|
|
Fair |
|
|
|
|
|
Fair |
|
|
Cost |
|
Market Value |
|
Cost |
|
Market Value |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Auction Rate Debt Securities |
|
$ |
60,400 |
|
|
$ |
60,400 |
|
|
$ |
64,800 |
|
|
$ |
64,800 |
|
As of March 31, 2007, the Companys investments had maturity dates ranging from November 2027 to
December 2045. Despite the long-term contractual maturities of the auction rate securities held at
March 31, 2007, all of these securities are available for immediate sale and it is the Companys
intention to liquidate these securities within one year.
8
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
5. Inventory
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Raw materials |
|
$ |
1,445 |
|
|
$ |
1,248 |
|
Work in process |
|
|
113 |
|
|
|
311 |
|
Finished goods |
|
|
14,641 |
|
|
|
19,331 |
|
|
|
|
|
|
|
|
|
|
$ |
16,199 |
|
|
$ |
20,890 |
|
|
|
|
|
|
|
|
6. Stock Option Plans
The Company has options outstanding under four stock incentive plans: the 1994 Stock Option
Plan (the 1994 Plan), the 2001 Special Stock Option Plan (the 2001 Plan), the 2004 Stock Option
and Incentive Plan (the 2004 Plan) and the 2005 Stock Option and Incentive Plan (the 2005 Plan
and together with the 1994 Plan, the 2001 Plan and the 2004 Plan, the Plans). The 2005 Plan is
the only one of the four plans under which new awards may currently be granted. Under the 2005
Plan, which became effective October 10, 2005, 1,583,682 shares were reserved for issuance in the
form of incentive stock options, non-qualified stock options, stock appreciation rights, deferred
stock awards and restricted stock awards. Additionally, the 2005 Plan provides that the number of
shares reserved and available for issuance under the plan will automatically increase each January
1, beginning in 2007, by 4.5% of the outstanding number of shares of common stock on the
immediately preceding December 31. Stock options returned to the Plans as a result of their expiration, cancellation or termination are automatically made
available for issuance under the 2005 Plan. Eligibility for incentive stock options is limited to
those individuals whose employment status would qualify them for the tax treatment associated with
incentive stock options in accordance with the Internal Revenue Code. As of March 31, 2007, there
were 1,868,732 shares available for future grant under the 2005 Plan.
Options granted under the Plans are subject to terms and conditions as determined by the
compensation committee of the board of directors, including vesting periods. Options granted under
the Plans are exercisable in full at any time subsequent to vesting, generally vest over periods
from 0 to 5 years, and expire 7 or 10 years from the date of grant or, if earlier, 60 or 90 days
from employee termination. Prior to the Companys initial public offering, the exercise price for
each incentive stock option was determined by the board of directors of the Company to be equal to
the fair value of the common stock on the date of grant. In reaching this determination at the time
of each such grant, the board of directors considered a broad range of factors, including the
illiquid nature of an investment in the Companys common stock, the Companys historical financial
performance, the Companys future prospects and the value of preferred stock based on recent
financing activities. Subsequent to the Companys initial public offering, the exercise price of
incentive stock options is equal to the closing price on the NASDAQ Global Market on the date of
grant. The exercise price of nonstatutory options may be set at a price other than the fair market
value of the common stock.
7. Accrued Expenses
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Accrued warranty |
|
$ |
2,497 |
|
|
$ |
2,462 |
|
Accrued direct fulfillment costs |
|
|
630 |
|
|
|
2,123 |
|
Accrued rent |
|
|
266 |
|
|
|
284 |
|
Accrued sales commissions |
|
|
326 |
|
|
|
502 |
|
Accrued accounting fees |
|
|
340 |
|
|
|
332 |
|
Accrued income taxes |
|
|
78 |
|
|
|
168 |
|
Accrued other |
|
|
976 |
|
|
|
1,149 |
|
|
|
|
|
|
|
|
|
|
$ |
5,113 |
|
|
$ |
7,020 |
|
|
|
|
|
|
|
|
9
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
8. Commitments and Contingencies
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for the three months
ended March 31, 2007 and April 1, 2006 amounted to $0.4 million and $0.5 million, respectively.
Future minimum rental payments under operating leases were as follows as of March 31, 2007:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
|
|
(In thousands) |
|
Remainder of 2007 |
|
$ |
1,390 |
|
2008 |
|
|
2,889 |
|
2009 |
|
|
2,147 |
|
2010 |
|
|
2,084 |
|
2011 |
|
|
2,061 |
|
Thereafter |
|
|
17,395 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
27,966 |
|
|
|
|
|
Guarantees and Indemnification Obligations
The Company enters into standard indemnification agreements in the ordinary course of
business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the
indemnified party for losses incurred by the indemnified party, generally the Companys customers,
in connection with any patent, copyright, trade secret or other proprietary right infringement
claim by any third party with respect to the Companys products. The term of these indemnification
agreements is generally perpetual any time after execution of the agreement. The maximum potential
amount of future payments the Company could be required to make under these indemnification
agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes the estimated fair
value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for
these agreements as of March 31, 2007 and December 30, 2006, respectively.
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 7) in
the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
April 1, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
2,462 |
|
|
$ |
2,031 |
|
Provision |
|
|
1,984 |
|
|
|
1,316 |
|
Warranty usage(*) |
|
|
(1,949 |
) |
|
|
(1,337 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
2,497 |
|
|
$ |
2,010 |
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product warranties unutilized. |
9. Industry Segment, Geographic Information and Significant Customers
The Company operates in two reportable segments, the home robots division and government and
industrial division.
The nature of products and types of customers for the two segments vary significantly. As
such, the segments are managed separately.
10
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
Home Robots
The Companys home robots business offers products through a network of retail businesses
throughout the United States and to certain countries through international distributors. The
Companys home robots division includes mobile robots used in the maintenance of domestic
households sold primarily to retail outlets.
Government and Industrial
The Companys government and industrial division offers products through a small sales force
primarily focused on the U.S. government, while products are sold to a limited number of countries
other than the United States through international distribution. The Companys government and
industrial products are robots used by various U.S. and foreign governments, primarily for
reconnaissance and bomb disposal missions. The table below presents segment information about
revenue, cost of revenue, gross profit and loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
April 1, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands) |
|
Revenue: |
|
|
|
|
|
|
|
|
Home Robots |
|
$ |
19,441 |
|
|
$ |
23,209 |
|
Government & Industrial |
|
|
20,046 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
39,487 |
|
|
|
38,209 |
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Home Robots |
|
|
13,564 |
|
|
|
15,253 |
|
Government & Industrial |
|
|
14,806 |
|
|
|
10,763 |
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
28,370 |
|
|
|
26,016 |
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Home Robots |
|
|
5,877 |
|
|
|
7,956 |
|
Government & Industrial |
|
|
5,240 |
|
|
|
4,237 |
|
|
|
|
|
|
|
|
Total gross profit |
|
|
11,117 |
|
|
|
12,193 |
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
Other |
|
|
4,156 |
|
|
|
2,783 |
|
Selling and marketing |
|
|
|
|
|
|
|
|
Other |
|
|
8,049 |
|
|
|
8,816 |
|
General and administrative |
|
|
|
|
|
|
|
|
Other |
|
|
5,327 |
|
|
|
4,417 |
|
Other income, net |
|
|
|
|
|
|
|
|
Other |
|
|
931 |
|
|
|
920 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
Other |
|
$ |
(5,484 |
) |
|
$ |
(2,903 |
) |
|
|
|
|
|
|
|
Geographic Information
For the three months ended
March 31, 2007 and April 1, 2006, sales to non-U.S. customers
accounted for 6.1% and 7.1% of total revenue, respectively.
Significant Customers
For the three months ended March 31, 2007 and April 1, 2006, U.S. federal government
orders, contracts and subcontracts accounted for 46.5% and 36.1% of total revenue, respectively.
11
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of the financial condition and results of operations of iRobot
Corporation should be read in conjunction with the consolidated financial statements and the
related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and
notes thereto and Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended December 30, 2006, which
has been filed with the Securities and Exchange Commission (the SEC). This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, and are subject to the safe harbor created by those sections. Some of the
forward-looking statements can be identified by the use of forward-looking terms such as
believes, expects, may, will, should, could, seek, intends, plans, estimates,
anticipates, or other comparable terms. Forward-looking statements involve inherent risks and
uncertainties which could cause actual results to differ materially from those in the
forward-looking statements, including those risks and uncertainties described in our Annual Report
on Form 10-K for the year ended December 30, 2006, as well as elsewhere in this report. We urge you
to consider the risks and uncertainties discussed in our Annual Report on Form 10-K and in Item 1A
contained herein in evaluating our forward-looking statements. We caution readers not to place
undue reliance upon any such forward-looking statements, which speak only as of the date made.
Overview
iRobot provides robots that enable people to complete complex tasks in a better way. Founded
in 1990 by roboticists who performed research at the Massachusetts Institute of Technology, we have
developed proprietary technology incorporating advanced concepts in navigation, mobility,
manipulation and artificial intelligence to build industry-leading robots. Our Roomba floor
vacuuming robot and Scooba floor washing robot perform time-consuming domestic chores, and our
PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In addition,
we are developing the Small Unmanned Ground Vehicle reconnaissance robot for the U.S. Armys Future
Combat Systems program and, in conjunction with Deere & Company, the R-Gator unmanned ground
vehicle. We sell our robots to consumers through a variety of distribution channels, including
chain stores and other national retailers, and our on-line store, and to the U.S. military and
other government agencies worldwide.
As of March 31, 2007, we had 387 full-time employees. We have developed expertise in most
disciplines necessary to build durable, high-performance and cost-effective robots through the
close integration of software, electronics and hardware. Our core technologies serve as reusable
building blocks that we adapt and expand to develop next generation and new products, thereby
reducing the time, cost and risk of product development. We believe that our significant expertise
in robot design and engineering, combined with our management teams experience in military and
consumer markets, positions us to capitalize on the expected growth in the market for robots.
Although we have successfully launched home robot and military products, our continued success
depends upon our ability to respond to a number of future challenges. We believe the most
significant of these challenges include increasing competition in the markets for both our home
robot and military products, our ability to obtain U.S. federal government funding for research and
development programs, and our ability to successfully develop and introduce products and product
enhancements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and
judgments, in particular those related to revenue recognition; valuation allowances (specifically
sales returns and other allowances); assumptions used in valuing stock-based compensation
instruments; evaluating loss contingencies; and valuation allowances for deferred tax assets.
Actual amounts could differ significantly from these estimates. Our management bases its estimates
and judgments on historical experience and various other factors that
12
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the amounts of revenue and
expenses that are not readily apparent from other sources. Additional information about these
critical accounting policies may be found in the Managements Discussion and Analysis of Financial
Condition and Results of Operations section included in our Annual Report on Form 10-K for the
fiscal year ended December 30, 2006.
Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue for the
three month periods ended March 31, 2007 and April 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
|
2007 |
|
2006 |
Revenue |
|
|
|
|
|
|
|
|
Product revenue |
|
|
86.4 |
% |
|
|
87.3 |
% |
Contract revenue |
|
|
13.6 |
|
|
|
12.7 |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
59.5 |
|
|
|
58.8 |
|
Cost of contract revenue |
|
|
12.3 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
71.8 |
|
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
28.2 |
|
|
|
31.9 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
Research and development |
|
|
10.5 |
|
|
|
7.3 |
|
Selling and marketing |
|
|
20.4 |
|
|
|
23.1 |
|
General and administrative |
|
|
13.5 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
44.4 |
|
|
|
41.9 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
(16.2 |
) |
|
|
(10.0 |
) |
Other income, net |
|
|
2.3 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(13.9 |
) |
|
|
(7.6 |
) |
Income tax expense |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
(13.9 |
)% |
|
|
(7.6 |
)% |
|
|
|
|
|
|
|
|
|
13
Comparison of Three Months Ended March 31, 2007 and April 1, 2006
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
39,487 |
|
|
$ |
38,209 |
|
|
$ |
1,278 |
|
|
|
3.3 |
% |
Total revenue for the three months ended March 31, 2007 increased to $39.5 million, or 3.3%,
compared to $38.2 million for the three months ended April 1, 2006. Revenue decreased approximately
$3.8 million, or 16.2%, in our home robots business and increased approximately $5.0 million, or
33.6%, in our government and industrial business.
The $3.8 million decrease in revenue from our home robots division was driven by a 19.7%
decrease in net average selling prices that was primarily due to lower sales of our Scooba floor
washing robot, which have higher average selling prices than our Roomba floor vacuuming robot, for
the three months ended March 31, 2007 as compared to the three months ended April 1, 2006. Total
home floor care robots shipped in the three months ended March 31, 2007 was approximately 129,000
units compared to approximately 129,000 units in the three months ended April 1, 2006. The $5.0
million increase in revenue from our government and industrial business for the three months ended
March 31, 2007 as compared to three months ended April 1, 2006 was due to a 36.6% increase in unit
shipments of our military robots combined with a 3.5% increase in associated net average selling
prices and a 10.9% increase in recurring contract development revenue generated under funded
research and development contracts. Also included in this $5.0 million growth was an increase of
approximately $1.1 million in product life cycle revenue (robot spares) as compared to $1.9 million
of product life cycle revenue in the three months ended April 1, 2006. Total military robot units
shipped in the three months ended March 31, 2007 was 97 compared to 71 in the three months ended
April 1, 2006.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
28,370 |
|
|
$ |
26,016 |
|
|
$ |
2,354 |
|
|
|
9.0 |
% |
As a percentage of total revenue |
|
|
71.8 |
% |
|
|
68.1 |
% |
|
|
|
|
|
|
|
|
Total cost of revenue increased to $28.4 million in the three months ended March 31, 2007,
compared to $26.0 million in the three months ended April 1, 2006. The increase is due to the
higher costs associated with the 36.6% increase in unit sales of our government and industrial
robots and the 10.9% increase in recurring contract revenues generated under funded research and
development contracts, offset by a 25.5% reduction in the average unit costs of home robots and an
8.9% reduction in the average unit costs of government and industrial robots.
The home robots division cost of revenue increased as a percent of revenue by 4.1 percentage
points in the three months ended March 31, 2007 as compared to the three months ended April 1,
2006. This increase was attributable to the 19.7% decrease in average selling prices offset by the
above-mentioned decrease in average unit costs, both of which are a result of a shift in the
product mix of the home floor care robots that we sold. In particular, we shipped significantly
more Roomba floor vacuuming robots, which have lower per unit selling prices and costs than our
Scooba floor washing robots, in the three months ended March 31, 2007 as compared to the three
months ended April 1, 2006. Other factors contributing to the increase in cost of revenue as a
percent of revenue were higher warranty and overhead costs.
The government and industrial robots division cost of revenue increased as a percent of
revenue by 2.1 percentage points in the three months ended March 31, 2007 as compared to the three
months ended April 1, 2006. This increase was due to higher overhead costs associated with an expanded
infrastructure to support our growth and
14
achieve operational scale as well as higher warranty costs offset by the combined effect of
the 3.5% increase in average selling prices and the above mentioned reductions in average unit
costs.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollar in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
11,117 |
|
|
$ |
12,193 |
|
|
$ |
(1,076 |
) |
|
|
(8.8 |
%) |
As a percentage of total revenue |
|
|
28.2 |
% |
|
|
31.9 |
% |
|
|
|
|
|
|
|
|
Gross profit decreased 8.8% to $11.1 million in the three months ended March 31, 2007, from
$12.2 million in the three months ended April 1, 2006. Gross profit as a percentage of revenue
decreased to 28.2% in the three months ended March 31, 2007 from 31.9% of revenue in the three
months ended April 1, 2006. This decrease in gross profit as a percentage of total revenue was the
result of the home robots division gross profit decreasing 4.1 percentage points and the government
and industrial division decreasing 2.1 percentage points, each compared to the three months ended
April 1, 2006. Additionally, the home robots division, which carries a higher overall gross profit
percentage than the government and industrial division accounted for 52.9% of total gross profit in
the three months ended March 31, 2007 as compared to 65.3% in the three months ended April 1, 2006.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total research and development expense |
|
$ |
4,156 |
|
|
$ |
2,783 |
|
|
$ |
1,373 |
|
|
|
49.3 |
% |
As a percentage of total revenue |
|
|
10.5 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
Research and development
expenses increased by $1.4 million, or 49.3%, to $4.2 million (10.5%
of revenue) in the three months ended March 31, 2007, from $2.8 million (7.3% of revenue)
for the three months ended April 1, 2006. The increase in research and development expenses is
primarily due to an increase of $0.5 million in compensation and benefit related expenses
attributed to increased headcount. Consulting and related material costs associated with internal
research projects increased by $0.3 million and $0.4 million, respectively.
In 2007, we intend to
continue to invest in research and development to respond to and anticipate customer needs and we expect quarterly
spending to approximate the levels we experienced in the three months ended March 31, 2007. Given the seasonality
of our business and the impact on quarterly revenues, research and development expenses are expected to fluctuate
as a percent of revenue throughout the year. For the full fiscal year 2007, we expect research and development expenses to be approximately
7% of revenue as compared to the 10.5% we experienced in the three months ended March 31, 2007.
Overall research and development headcount increased to 107 at March 31, 2007 compared to 82
as of April 1, 2006, an increase of 25 employees or 30%.
In addition to our internal research and development activities discussed above, we incur
research and development expenses under funded development arrangements with both governments and
industrial third parties. For the three months ended March 31, 2007, these expenses amounted to
$4.9 million compared to $3.5 million for the three months ended April 1, 2006. In accordance with
generally accepted accounting principles, these expenses have been classified as cost of revenue
rather than research and development expense.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total selling and marketing expense |
|
$ |
8,049 |
|
|
$ |
8,816 |
|
|
$ |
(767 |
) |
|
|
(8.7 |
%) |
As a percentage of total revenue |
|
|
20.4 |
% |
|
|
23.1 |
% |
|
|
|
|
|
|
|
|
Selling and marketing expenses decreased by $0.8 million, or 8.7%, to $8.0 million (20.4% of
revenue) in the three months ended March 31, 2007 from $8.8 million (23.1% of revenue) in the three
months ended April 1, 2006. The decrease in selling and marketing expense was primarily driven by a
decrease of $2.5 million in direct
15
marketing and television media and production costs in the home robot division as compared to
the three months ended April 1, 2006. These decreases were partially offset by a $1.2 million
increase in costs attributed to growth in our direct business. Government and industrial division
expenses for the three months ended March 31, 2007 increased $0.6 million from the comparable
quarter last year due primarily to an increase in compensation and benefits as well as travel
related expenses associated with increased sales headcount.
For the full fiscal year 2007, we expect selling and marketing expenses to be approximately
19% of revenue.
Overall selling and marketing headcount increased to 29 at March 31, 2007 compared to 23 as of
April 1, 2006, an increase of 6 employees or 26% growth.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expense |
|
$ |
5,327 |
|
|
$ |
4,417 |
|
|
$ |
910 |
|
|
|
20.6 |
% |
As a percentage of total revenue |
|
|
13.5 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
General and administrative
expenses increased by $0.9 million, or 20.6%, to $5.3 million (13.5%
of revenue) in the three months ended March 31, 2007 from $4.4 million (11.5% of revenue) in the
three months ended April 1, 2006. The increase in general and administrative expenses was primarily
driven by an increase of $0.7 million in compensation, benefits and depreciation expenses due to
increased headcount over the comparable period. Also included in the $0.9 million increase was $0.2
million of legal expenses associated with our strategic alliances and intellectual property
procurement.
Given the seasonality of our business and
the impact on quarterly revenues, general and administrative expenses are expected to fluctuate as a percent of
revenue throughout the year. For the full fiscal year 2007, we expect general and administrative expenses to be
approximately 10% of revenue as compared to the 13.5% of revenue we experienced in the three months ended March 31, 2007.
Overall general and administrative headcount increased to 74 at March 31, 2007 compared to 60
as of April 1, 2006, an increase of 14 employees or 23% growth.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total other income, net |
|
$ |
931 |
|
|
$ |
920 |
|
|
$ |
11 |
|
|
|
1.2 |
% |
As a percentage of total revenue |
|
|
2.3 |
% |
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
Other income, net amounted to $0.9 million for the three months ended March 31, 2007 compared
to $0.9 million for the three months ended April 1, 2006. Other income, net was directly related to
$0.9 million of interest income resulting from the investment of the net proceeds from our initial
public offering, which closed on November 15, 2005.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
April 1, |
|
Dollar |
|
Percent |
|
|
2007 |
|
2006 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision |
|
$ |
17 |
|
|
$ |
14 |
|
|
$ |
3 |
|
|
|
21.4 |
% |
As a percentage of total revenue |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
The provision for income taxes for the three months ended March 31, 2007 and April 1, 2006
consists solely of state taxes.
16
Liquidity and Capital Resources
At March 31, 2007 our principal sources of liquidity were cash and cash equivalents totaling
$9.4 million, short-term investments of $60.4 million, and accounts receivable of $16.2 million.
Prior to our initial public offering in November 2005, we funded our growth primarily with proceeds
from the issuance of convertible preferred stock for aggregate net cash proceeds of $37.5 million,
occasional borrowings under a working capital line of credit and cash generated from operations. In
the initial public offering, we raised $70.4 million net of underwriting commissions, professional
fees and other expenses associated with the offering.
We manufacture and distribute our products through contract manufacturers and third-party
logistics providers. We believe that this approach gives us the advantages of relatively low
capital investment and significant flexibility in scheduling production and managing inventory
levels. By leasing our office facilities, we also minimize the cash needed for expansion.
Accordingly, our capital spending is generally limited to leasehold improvements, computers, office
furniture and product-specific production tooling and test equipment. In the three month periods
ended March 31, 2007 and April 1, 2006, we spent $1.8 million and $1.0 million, respectively, on
capital equipment.
Our home robots product sales are, and are expected to continue to be, highly seasonal. This
seasonality typically results in a break even or net use of cash in support of operating needs
during the first half of the year with the low point generally occurring in the middle of the third
quarter, and a favorable cash flow during the second half of the year.
Discussion of Cash Flows
Net cash provided by our operating activities in the three months ended March 31, 2007 was
$2.4 million compared to net cash provided by operating activities of $6.9 million in the three
months ended April 1, 2006. The cash provided by our operating activities in the three months ended
March 31, 2007 was primarily due to a decrease in accounts receivable (including unbilled revenue)
of $12.7 million, a decrease in inventory of $4.7 million, and a decrease in other assets of $1.0
million, offset by a net loss of $5.5 million and a net decrease in liabilities of $12.4 million.
In addition, in the three months ended March 31, 2007, we had depreciation and amortization of
approximately $1.2 million and stock-based compensation of $0.7 million, both of which are non-cash
expenses. The cash provided by our operating activities in the three months ended April 1, 2006 was
primarily due to a decrease in accounts receivable (including unbilled revenue) of $12.0 million
and a decrease in other assets of $0.1 million, partially offset by a net loss of $2.9 million and
a decrease in total liabilities of approximately $3.0 million. In addition, in the three months
ended April 1, 2006, we had $0.9 million of depreciation expense and approximately $0.5 million in
stock-based compensation, both of which are non-cash expenses.
Net cash provided by our investing activities was $2.6 million in the three months ended March
31, 2007 compared to net cash used by our investing activities of $71.1 million in the three months
ended April 1, 2006. Investing activities in the three months ended March 31, 2007 represent the
sale of short-term investments of $19.8 million, offset by the purchase of short-term investments
of $15.4 million and the purchase of capital equipment of $1.8 million. Investing activities in the
three months ended April 1, 2006 represent the purchase of short-term investments of $80.2 million
and the purchase of capital equipment of $1.0 million, offset by the sale of short-term investments
of $10.1 million.
Net cash used by our financing activities was approximately $1.2 million in the three months
ended March 31, 2007 compared to net cash provided by our financing activities of $0.1 million in
the three months ended April 1, 2006. Included in the financing activities for the three months
ended March 31, 2007 was a $1.6 million payment by us of the minimum tax withholding
obligation relating to a stock option exercise during the period. This figure was offset
by $0.4 million of proceeds from the exercise of stock options.
The majority of our long-lived assets for the three months ended March 31, 2007 and April
1, 2006 are located in the United States. However, we have invested in production tooling for the
manufacture of the Roomba and Scooba product lines in China.
17
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables,
expense accruals and operating leases, all of which we anticipate funding through our existing
working capital line of credit, working capital and funds provided by operating activities. We do
anticipate making significant capital commitments in the next twelve months for expenditures
associated with the planned move to our new corporate headquarters on or about May 1, 2008. These
expenditures will be jointly funded by the landlord for this site and by the Company. Other than
this project, we do not currently anticipate significant investment in property, plant and
equipment, and we believe that our outsourced approach to manufacturing provides us with
flexibility in both managing inventory levels and financing our inventory. We believe our existing
cash and cash equivalents, short-term investments, cash provided by operating activities, and funds
available through our working capital line of credit will be sufficient to meet our working capital
and capital expenditure needs over at least the next twelve months. In the event that our revenue
plan does not meet our expectations, we may eliminate or curtail expenditures to mitigate the
impact on our working capital. Our future capital requirements will depend on many factors,
including our rate of revenue growth, the expansion of our marketing and sales activities, the
timing and extent of spending to support product development efforts, the timing of introductions
of new products and enhancements to existing products, the acquisition of new capabilities or
technologies, and the continuing market acceptance of our products and services. Moreover, to the
extent that existing cash and cash equivalents, short-term investments, cash from operations, and
cash from short-term borrowing are insufficient to fund our future activities, we may need to raise
additional funds through public or private equity or debt financing. Although we are currently not
a party to any agreement or letter of intent with respect to potential investments in, or
acquisitions of, businesses, services or technologies, we may enter into these types of
arrangements in the future, which could also require us to seek additional equity or debt
financing. Additional funds may not be available on terms favorable to us or at all.
Contractual Obligations
We generally do not enter into binding purchase commitments. Our principal commitments consist
of obligations under our working capital line of credit, leases for office space and minimum
contractual obligations for services. The following table describes our commitments to settle
contractual obligations in cash as of March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less Than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More Than |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
Total |
|
|
|
(In thousands) |
|
Operating leases |
|
$ |
1,779 |
|
|
$ |
5,179 |
|
|
$ |
4,135 |
|
|
$ |
16,873 |
|
|
$ |
27,966 |
|
Minimum contractual payments |
|
|
875 |
|
|
|
1,750 |
|
|
|
875 |
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,654 |
|
|
$ |
6,929 |
|
|
$ |
5,010 |
|
|
$ |
16,873 |
|
|
$ |
31,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of March 31, 2007, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of
Regulation S-K.
Recently Issued Accounting Pronouncements
See Footnote 2 to the Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements.
18
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At March 31, 2007, we had unrestricted cash and cash equivalents of $9.4 million and
short-term investments of $60.4 million. The unrestricted cash and cash equivalents are held for
working capital purposes. We do not enter into investments for trading or speculative purposes.
Some of the securities in which we invest, however, may be subject to market risk. This means that
a change in prevailing interest rates may cause the principal amount of the investment to
fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including auction rate
securities, commercial paper, money market funds, debt securities and certificates of deposit. Due
to the short-term nature of these investments, we believe that we do not have any material exposure
to changes in the fair value of our investment portfolio as a result of changes in interest rates.
As of March 31, 2007, all of our cash equivalents were held in money market accounts and our
short-term investments were comprised of auction rate securities.
Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we would be required to pay on outstanding debt instruments, primarily certain borrowings
under our bank line of credit. The advances under this line of credit bear a variable rate of
interest determined as a function of the prime rate or the published LIBOR rate at the time of the
borrowing. At March 31, 2007, there were no amounts outstanding under our working capital line of
credit.
Exchange Rate Sensitivity
Nearly all of our revenue is derived from transactions denominated in U.S. dollars, even
though 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.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were effective in
ensuring that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. We believe that a control system, no
matter how well designed and operated, cannot provide absolute assurance that the objectives of the
control system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
There was no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
19
Part II. Other Information
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could
materially affect our business, financial condition or future results, some of which are beyond our
control. In addition to the other information set forth in this report, the risks and uncertainties
that we believe are most important for you to consider are discussed in Part I, Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended December 30, 2006, which could
materially affect our business, financial condition or future results. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or which are similar to
those faced by other companies in our industry or business in general, may also impair our business
operations. There are no material changes to the Risk Factors described in our Annual Report on
Form 10-K for the fiscal year ended December 30, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth the repurchases of our equity securities during the three months
ended March 31, 2007 by or on behalf of us or any affiliated purchaser:
|
|
|
|
|
|
|
|
|
|
|
(a) Total number of |
|
(b) Average Price |
|
|
Shares (or Units) |
|
Paid per Share (or |
Period(1) |
|
Purchased |
|
Unit) |
Fiscal month
beginning February
25, 2007 and ended
March 31, 2007 |
|
|
110,396 |
(2) |
|
$ |
14.39 |
(3) |
|
|
|
|
|
|
|
|
|
Total |
|
|
110,396 |
(2) |
|
$ |
14.39 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
There were no other repurchases of our equity securities by or on behalf of us or any
affiliated purchaser during the three months ended March 31, 2007. |
|
(2) |
|
On March 6, 2007, the compensation committee authorized the Company to withhold 110,396
shares of our common stock to satisfy the minimum tax withholding obligation in connection
with the exercise of a non-qualified stock option for 347,710 shares of our common stock. |
|
(3) |
|
The amount represents the last reported sale price of our common stock on the NASDAQ
Global Market on March 6, 2007. |
Item 5. Other Information
Our policy governing transactions in our securities by directors, officers, and employees
permits our officers, directors, funds affiliated with our directors, and certain other persons to
enter into trading plans complying with Rule 10b5-l under the Securities Exchange Act of 1934, as
amended. We have been advised that certain officers (including Geoffrey Clear, Senior Vice
President, Chief Financial Officer & Treasurer and Glen Weinstein, Senior Vice President, General
Counsel & Secretary) of the Company have entered into a trading plan (each a Plan and
collectively, the Plans) covering periods after the date of this quarterly report on Form 10-Q in
accordance with Rule 10b5-l and our policy governing transactions in our securities. Generally,
under these trading plans, the individual relinquishes control over the transactions once the
trading plan is put into place. Accordingly, sales under these plans may occur at any time,
including possibly before, simultaneously with, or immediately after significant events involving
our company.
We anticipate that, as permitted by Rule 10b5-l and our policy governing transactions in
our securities, some or all of our officers, directors and employees may establish trading plans in
the future. We intend to disclose the
20
names of executive officers and directors who establish a trading plan in compliance with
Rule 10b5-l and the requirements of our policy governing transactions in our securities in our
future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange
Commission. However, we undertake no obligation to update or revise the information provided
herein, including for revision or termination of an established trading plan, other than in such
quarterly and annual reports.
Item 6. Exhibits
|
|
|
Exhibit Number |
|
Description |
31.1
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934 |
|
|
|
31.2
|
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934 |
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
iROBOT CORPORATION
|
|
Date: May 7, 2007 |
By: |
/s/ Geoffrey P. Clear
|
|
|
|
Geoffrey P. Clear |
|
|
|
Senior Vice President, Chief Financial Officer
and Treasurer (Duly Authorized Officer
and Principal Financial Officer) |
|
22
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description |
31.1
|
|
Certification Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934 |
|
|
|
31.2
|
|
Certification Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934 |
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
23