e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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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 29, 2008
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
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77-0259 335 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices)
(Zip code)
(781) 430-3000
(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, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 25, 2008 was
24,577,069.
iROBOT CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 29, 2008
INDEX
The accompanying notes are an integral part of the consolidated financial statements.
1
iROBOT CORPORATION
Consolidated Balance Sheets
(in thousands)
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March 29, |
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December 29, |
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2008 |
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2007 |
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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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$ |
22,861 |
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$ |
26,735 |
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Short term investments |
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16,550 |
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Accounts receivable, net of allowance of $350 and $65 at March 29, 2008 and
December 29, 2007, respectively |
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21,923 |
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47,681 |
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Unbilled revenue |
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2,609 |
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2,244 |
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Inventory, net |
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46,216 |
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45,222 |
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Deferred tax assets |
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5,905 |
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5,905 |
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Other current assets |
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6,337 |
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2,268 |
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Total current assets |
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105,851 |
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146,605 |
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Property and equipment, net |
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18,020 |
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15,694 |
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Deferred tax assets |
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4,293 |
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4,293 |
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Long term investments |
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15,401 |
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Other assets |
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2,500 |
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2,500 |
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Total assets |
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$ |
146,065 |
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$ |
169,092 |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
27,966 |
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$ |
44,697 |
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Accrued expenses |
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5,926 |
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7,987 |
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Accrued compensation |
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5,124 |
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4,603 |
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Deferred revenue |
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1,130 |
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1,578 |
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Total current liabilities |
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40,146 |
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58,865 |
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Commitments and contingencies (Note 6): |
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Redeemable convertible preferred stock, 5,000 shares authorized and zero
outstanding at March 29, 2008 and December 29, 2007 |
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Common stock, $0.01 par value, 100,000 and 100,000 shares authorized and 24,572
and 24,495 issued and outstanding at March 29, 2008 and December 29, 2007,
respectively |
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246 |
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245 |
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Additional paid-in capital |
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124,018 |
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122,318 |
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Deferred compensation |
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(593 |
) |
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(685 |
) |
Accumulated deficit |
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(15,656 |
) |
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(11,651 |
) |
Accumulated other comprehensive loss |
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(2,096 |
) |
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Total stockholders equity |
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105,919 |
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110,227 |
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Total liabilities, redeemable convertible preferred stock and stockholders equity |
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$ |
146,065 |
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$ |
169,092 |
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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 29, |
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March 31, |
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2008 |
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2007 |
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Revenue: |
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Product revenue |
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$ |
50,575 |
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$ |
34,121 |
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Contract revenue |
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6,727 |
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5,366 |
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Total revenue |
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57,302 |
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39,487 |
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Cost of revenue: |
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Cost of product revenue (1) |
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36,195 |
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23,486 |
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Cost of contract revenue (1) |
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5,747 |
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4,884 |
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Total cost of revenue |
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41,942 |
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28,370 |
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Gross profit |
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15,360 |
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11,117 |
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Operating expenses: |
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Research and development (1) |
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3,973 |
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4,156 |
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Selling and marketing (1) |
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11,458 |
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8,049 |
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General and administrative (1) |
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6,778 |
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5,327 |
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Total operating expenses |
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22,209 |
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17,532 |
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Operating loss |
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(6,849 |
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(6,415 |
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Other income, net |
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495 |
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931 |
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Loss before income taxes |
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(6,354 |
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(5,484 |
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Income tax expense (benefit) |
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(2,349 |
) |
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17 |
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Net loss |
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$ |
(4,005 |
) |
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$ |
(5,501 |
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Net loss per share |
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Basic and diluted |
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$ |
(0.16 |
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$ |
(0.23 |
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Number of shares used in per share calculations |
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Basic and diluted |
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24,506 |
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23,902 |
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(1) |
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Total stock-based compensation recorded in the three months ended March 29, 2008 and March
31, 2007 included in the above figures breaks down by expense classification as follows: |
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Three Months Ended |
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March 29, |
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March 31, |
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2008 |
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2007 |
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Cost of product revenue |
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$ |
154 |
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$ |
120 |
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Cost of contract revenue |
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59 |
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77 |
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Research and development |
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(33 |
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(9 |
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Selling and marketing |
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161 |
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157 |
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General and administrative |
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597 |
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312 |
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Total stock-based compensation |
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$ |
938 |
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$ |
657 |
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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 29, |
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March 31, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(4,005 |
) |
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$ |
(5,501 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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1,566 |
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1,206 |
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Loss on disposal of fixed assets |
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45 |
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35 |
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Stock-based compensation |
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938 |
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657 |
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Non-cash director deferred compensation |
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24 |
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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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25,758 |
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12,273 |
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Unbilled revenue |
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(365 |
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418 |
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Inventory |
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(994 |
) |
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4,691 |
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Other assets |
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(4,069 |
) |
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1,030 |
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Accounts payable |
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(16,731 |
) |
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(9,870 |
) |
Accrued expenses |
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(2,061 |
) |
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(1,907 |
) |
Accrued compensation |
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521 |
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(682 |
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Deferred revenue |
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(448 |
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69 |
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Net cash provided by operating activities |
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179 |
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2,447 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(3,937 |
) |
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(1,798 |
) |
Purchases of investments |
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(29,997 |
) |
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(15,400 |
) |
Sales of investments |
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29,050 |
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19,800 |
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Net cash provided by (used in) investing activities |
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(4,884 |
) |
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2,602 |
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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 |
) |
Proceeds from stock option exercises |
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570 |
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353 |
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Tax benefit of disqualifying dispositions |
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261 |
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Net cash provided by (used in) financing activities |
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831 |
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(1,235 |
) |
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Net increase (decrease) in cash and cash equivalents |
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(3,874 |
) |
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3,814 |
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Cash and cash equivalents, at beginning of period |
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26,735 |
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5,583 |
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Cash and cash equivalents, at end of period |
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$ |
22,861 |
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$ |
9,397 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
40 |
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$ |
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Cash paid for income taxes |
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24 |
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98 |
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Supplemental disclosure of noncash investing and financing activities (in thousands):
During the three months ended March 29, 2008 and March 31, 2007, the Company transferred $173
and $338, 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 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 29, 2008 and for the three months ended March 29,
2008 and March 31, 2007 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 29, 2007, filed with
the SEC on February 25, 2008.
In the opinion of management, all adjustments necessary to present a fair statement of
financial position as of March 29, 2008 and results of operations and cash flows for the periods
ended March 29, 2008 and March 31, 2007 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.
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.
5
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 and other relevant data. 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 compare 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.
Accounting for Share-Based Payments
The Company accounts for share-based payments to employees, including grants of employee stock
options and awards in the form of restricted shares and restricted stock units under the provisions
of SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). Under the provisions of SFAS 123(R), the
Company establishes the fair value of each option grant using the Black-Scholes option-pricing
model. SFAS 123(R) requires the recognition of the fair value of share-based payments as a charge
against earnings. The Company recognizes share-based payment expense over the requisite service
period of the underlying grants and awards. Based on the provisions of SFAS 123(R), the Companys
share-based payment awards are accounted for as equity instruments.
6
Net Income Per Share
The following table presents the calculation of both basic and diluted net income per share:
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Three Months Ended |
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March 29, |
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March 31, |
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2008 |
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|
2007 |
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(In thousands, except |
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|
per share data) |
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Net loss |
|
$ |
(4,005 |
) |
|
$ |
(5,501 |
) |
|
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|
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|
Diluted weighted average shares outstanding |
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|
24,506 |
|
|
|
23,902 |
|
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Basic and diluted loss per share |
|
$ |
(0.16 |
) |
|
$ |
(0.23 |
) |
Income Taxes
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.
In fiscal 2007, the Company completed an analysis of historical and projected future
profitability which resulted in the full release of the valuation allowance relating to federal
deferred tax assets. The Company continues to maintain a valuation allowance against state deferred
tax assets due to less certainty of their realizability given the shorter expiration period
associated with them and the generation of state tax credits in excess of the state tax liability.
At March 29, 2008, the Company has total deferred tax assets of $12.8 million and a valuation
allowance of $2.6 million resulting in a net deferred tax asset of $10.2 million.
Comprehensive Loss
Comprehensive loss includes unrealized losses on certain investments. The differences between
net loss and comprehensive loss were as follows:
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Three Months Ended |
|
|
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March 29, |
|
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March 31, |
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|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net loss, as reported |
|
$ |
(4,005 |
) |
|
$ |
(5,501 |
) |
Unrealized losses on investments, net of tax |
|
|
(1,315 |
) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total comprehensive loss |
|
$ |
(5,320 |
) |
|
$ |
(5,501 |
) |
|
|
|
|
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|
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the United States, and
expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS
157 as of December 30, 2007, for financial instruments. Although the adoption of SFAS 157 did not
materially impact its financial condition, results of operations, or cash flow, the Company is now
required to provide additional disclosures as part of its financial statements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
7
The Company has invested in auction rate security instruments, which have been historically
classified as available for sale securities and reflected at fair value. Due to recent events in
credit markets, however, the auction events for all of these instruments currently held by the
Company failed during the first quarter of 2008. Therefore, the fair values of these securities are
estimated utilizing a discounted cash flow
model which also considered limited secondary market indicators as of March
29, 2008. These analyses consider, among other items, the collateralization underlying the
security investments, the timing of expected future cash flows, and the expectation of the next
time the security is expected to have a successful auction. These securities were also compared,
when possible, to other observable market data with similar characteristics to the securities held
by the Company.
As a result of the temporary declines in fair value for the Companys auction rate securities,
which the Company attributes to liquidity issues of the securities rather than credit issues, it
has recorded an unrealized loss of $2.1 million to accumulated other comprehensive loss on the
balance sheet. The auction rate security instruments held by the Company at March 29, 2008 were in
securities collateralized by student loan portfolios, the majority of which are guaranteed by the
United States government. Historically, these securities have been classified as Short term
investments, and at December 29, 2007, the Company held auction rate securities with a par value
and fair value of $16.6 million. Due to the Companys belief that the market for these student loan
collateralized instruments may take in excess of twelve months to fully recover, the Company has
classified these investments as noncurrent and has included them in Long term investments on the
unaudited Condensed Consolidated Balance Sheet at March 29, 2008. Any future fluctuation in fair
value related to these instruments that the Company deems to be temporary, including any recoveries
of the $2.1 million write-down, would be recorded to Accumulated other comprehensive income
(loss). If the Company determines that any future valuation adjustment was other than temporary,
it would record a charge to earnings as appropriate.
The Companys assets measured at fair value on a recurring basis subject to the disclosure
requirements of SFAS 157 at March 29, 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 29, 2008 |
|
|
|
(in thousands) |
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Accounts |
|
$ |
23,629 |
|
|
$ |
|
|
|
$ |
|
|
Auction Rate Securities |
|
|
|
|
|
|
|
|
|
|
15,401 |
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
23,629 |
|
|
|
|
|
|
$ |
15,401 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) as defined in SFAS 157 at March 29, 2008:
|
|
|
|
|
|
|
Fair Value Measurements of Assets using |
|
|
|
Level 3 inputs |
|
|
|
Auction Rate Securities |
|
|
|
(In thousands) |
|
Beginning balance at December 29, 2007 |
|
$ |
|
|
Transfers to Level 3 |
|
|
17,497 |
|
Total losses (realized or unrealized) |
|
|
|
|
Included in other comprehensive loss |
|
|
(2,096 |
) |
|
|
|
|
Ending balance at March 29, 2008 |
|
$ |
15,401 |
|
|
|
|
|
Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS 157, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found
in various prior accounting pronouncements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007.
However, on February 12, 2008, the FASB issued FSP
FAS 157-2, which delays the effective date of SFAS 157 for
all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). This FSP
partially defers the effective date of Statement 157 to fiscal
years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP.
Effective fiscal 2008, the Company has adopted SFAS 157 except
as it applies to those nonfinancial assets and nonfinancial
liabilities as noted in FSP FAS 157-2. The Company is currently
evaluating the potential impact of adoption of FSP FAS 157-2 and
has not yet determined the impact, if any, that its adoption will
have on its results of operations or financial condition.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 allows entities to voluntarily choose to measure
certain financial assets and liabilities at fair value (fair value option). The fair value option
may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date
occurs. If the fair value option is elected for an instrument, SFAS
8
159 specifies that unrealized gains and losses for that instrument be reported in earnings at
each subsequent reporting date. SFAS 159 was effective for the Company on January 1, 2008. The
Company did not apply the fair value option to any of its outstanding instruments and therefore,
SFAS 159 did not have an impact on the Companys consolidated financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141R)
and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51 (SFAS 160). SFAS 141R will change how business acquisitions
are accounted for and will impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a component of equity. The
provisions of SFAS 141R and SFAS 160 are effective for fiscal years beginning on or after
December 15, 2008. The Company is currently evaluating the potential impact of adoption of
SFAS 141R and SFAS 160 and has not yet determined the impact, if any, that their adoption will have
on its results 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. Inventory
Inventory consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
March 29, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Raw materials |
|
$ |
2,772 |
|
|
$ |
1,641 |
|
Work in process |
|
|
473 |
|
|
|
517 |
|
Finished goods |
|
|
42,971 |
|
|
|
43,064 |
|
|
|
|
|
|
|
|
|
|
$ |
46,216 |
|
|
$ |
45,222 |
|
|
|
|
|
|
|
|
4. 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 initially 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 29, 2008, there were 2,026,805 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. 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.
9
5. Accrued Expenses
Accrued expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
March 29, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Accrued warranty |
|
$ |
2,524 |
|
|
$ |
2,491 |
|
Accrued direct fulfillment costs |
|
|
831 |
|
|
|
1,953 |
|
Accrued rent |
|
|
148 |
|
|
|
197 |
|
Accrued sales commissions |
|
|
579 |
|
|
|
1,074 |
|
Accrued accounting fees |
|
|
302 |
|
|
|
361 |
|
Accrued income taxes |
|
|
9 |
|
|
|
32 |
|
Accrued other |
|
|
1,533 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
$ |
5,926 |
|
|
$ |
7,987 |
|
|
|
|
|
|
|
|
6. Commitments and Contingencies
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for the three months
ended March 29, 2008 and March 31, 2007 amounted to $0.6 million and $0.5 million, respectively.
Future minimum rental payments under operating leases were as follows as of March 29, 2008:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
|
|
(In thousands) |
|
Remainder of 2008 |
|
$ |
2,716 |
|
2009 |
|
|
2,337 |
|
2010 |
|
|
2,226 |
|
2011 |
|
|
2,210 |
|
2012 |
|
|
2,162 |
|
Thereafter |
|
|
15,333 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
26,984 |
|
|
|
|
|
Sales Taxes
The Company collects and remits sales tax in jurisdictions in which it has a physical presence
or it believes a nexus exists, which therefore obligates the Company to collect and remit sales tax.
The Company is not currently aware of any asserted claims for sales tax liabilities for prior
taxable periods. The Company is currently being audited by one state but does not believe this is
likely to result in any material liability.
The Company has conducted an evaluation of whether it has established a nexus in various
jurisdictions with respect to sales tax. As a result of this evaluation, the Company recorded a
liability for potential exposure in one state. In an effort to mitigate its potential liability,
the Company intends to approach this state pursuant to voluntary disclosure arrangements. The
Company continues to analyze possible sales tax exposure, but does not currently believe that any
individual claim or aggregate claims that might arise will ultimately have a material effect on its
consolidated results of operations, financial position or cash flows.
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
10
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 29, 2008 and December 29, 2007, 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 5) in
the accompanying balance sheets.
Activity related to the warranty accrual was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 29, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
2,491 |
|
|
$ |
2,462 |
|
Provision |
|
|
1,541 |
|
|
|
1,984 |
|
Warranty usage(*) |
|
|
(1,508 |
) |
|
|
(1,949 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
2,524 |
|
|
$ |
2,497 |
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Warranty usage includes the pro rata expiration of product warranties unutilized. |
7. 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.
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 and 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.
11
The table below presents segment information about revenue, cost of revenue, gross profit and
loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 29, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Revenue: |
|
|
|
|
|
|
|
|
Home Robots |
|
$ |
30,148 |
|
|
$ |
19,441 |
|
Government & Industrial |
|
|
27,154 |
|
|
|
20,046 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
57,302 |
|
|
|
39,487 |
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Home Robots |
|
|
22,079 |
|
|
|
13,564 |
|
Government & Industrial |
|
|
19,863 |
|
|
|
14,806 |
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
41,942 |
|
|
|
28,370 |
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Home Robots |
|
|
8,069 |
|
|
|
5,877 |
|
Government & Industrial |
|
|
7,291 |
|
|
|
5,240 |
|
|
|
|
|
|
|
|
Total gross profit |
|
|
15,360 |
|
|
|
11,117 |
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
Other |
|
|
3,973 |
|
|
|
4,156 |
|
Selling and marketing |
|
|
|
|
|
|
|
|
Other |
|
|
11,458 |
|
|
|
8,049 |
|
General and administrative |
|
|
|
|
|
|
|
|
Other |
|
|
6,778 |
|
|
|
5,327 |
|
Other income, net |
|
|
|
|
|
|
|
|
Other |
|
|
495 |
|
|
|
931 |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
Other |
|
$ |
(6,354 |
) |
|
$ |
(5,484 |
) |
|
|
|
|
|
|
|
Geographic Information
For the three months ended March 29, 2008 and March 31, 2007, sales to non-U.S. customers
accounted for 19.6% and 6.1% of total revenue, respectively.
Significant Customers
For the three months ended March 29, 2008 and March 31, 2007, U.S. federal government orders,
contracts and subcontracts accounted for 43.7% and 46.5% of total revenue, respectively.
12
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 29, 2007, 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.
In particular, statements contained in this Quarterly Report on Form 10-Q, and in the documents
incorporated by reference into this Quarterly Report on Form 10-Q, that are not historical facts,
including, but not limited to statements concerning new product sales, product development and
offerings, Roomba, Scooba, Looj, Verro and ConnectR products, PackBot tactical military robots,
our home robot and government and industrial robots divisions, our competition, our strategy, our
market position, market acceptance of our products, seasonal factors, revenue recognition, our
profits, growth of our revenues, composition of our revenues, our cost of revenues, operating
expenses, selling and marketing expenses, general and administrative expenses, research and
development expenses, and compensation costs, our projected income tax rate, our ability to attract
and retain qualified personnel, our credit facility and equipment facility, our valuations of
investments, valuation and composition of our stock-based awards, SFAS 123(R), and liquidity,
constitute forward-looking statements and are made under these safe harbor provisions. 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 29, 2007, 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 in the home,
while our Looj gutter cleaning robot and Verro pool cleaning robot perform tasks outside the home,
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. 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 29, 2008, we had 452 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, reducing the
time, cost and risk of product development. 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 consumer 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 consumer
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.
13
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 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 29, 2007.
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 29, 2008 and March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 29, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenue |
|
|
|
|
|
|
|
|
Product revenue |
|
|
88.3 |
% |
|
|
86.4 |
% |
Contract revenue |
|
|
11.7 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
63.2 |
|
|
|
59.5 |
|
Cost of contract revenue |
|
|
10.0 |
|
|
|
12.3 |
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
73.2 |
|
|
|
71.8 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
26.8 |
|
|
|
28.2 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
Research and development |
|
|
6.9 |
|
|
|
10.5 |
|
Selling and marketing |
|
|
20.0 |
|
|
|
20.4 |
|
General and administrative |
|
|
11.9 |
|
|
|
13.5 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
38.8 |
|
|
|
44.4 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(12.0 |
) |
|
|
(16.2 |
) |
Other income, net |
|
|
0.9 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(11.1 |
) |
|
|
(13.9 |
) |
Income tax expense (benefit) |
|
|
(4.1 |
) |
|
|
0.0 |
|
|
|
|
|
|
|
|
Net loss |
|
|
(7.0 |
)% |
|
|
(13.9 |
)% |
|
|
|
|
|
|
|
14
Comparison of Three Months Ended March 29, 2008 and March 31, 2007
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total revenue |
|
$ |
57,302 |
|
|
$ |
39,487 |
|
|
$ |
17,815 |
|
|
|
45.1 |
% |
Total revenue for the three months ended March 29, 2008 increased to $57.3 million, or 45.1%,
compared to $39.5 million for the three months ended March 31, 2007. Revenue increased
approximately $10.7 million, or 55.1%, in our home robots business and increased approximately $7.1
million, or 35.5%, in our government and industrial business.
The $10.7 million increase in revenue from our home robots division for the three months ended
March 29, 2008 was driven by a $9.2 million increase in home floor care robots revenue due to a
31.9% increase in units shipped and a 16.1% increase in average selling prices, and a $1.4 million
increase in product life cycle revenue (spares and accessories), as compared to the three months
ended March 31, 2007. Total home floor care robots shipped in the three months ended March 29, 2008
were approximately 169,000 units compared to approximately 129,000 units in the three months ended
March 31, 2007. The $7.1 million increase in revenue from our government and industrial business
for the three months ended March 29, 2008 as compared to three months ended March 31, 2007 was due
to a $5.6 million increase in product sales of our military robots driven by a 60.8% increase in
units shipped, 156 units compared to 97 units, partially offset by an 8.0% decrease in associated
net average selling prices related to product mix primarily attributable to expansion of our
military product line into lower priced models. In addition, there was an increase of $1.3 million
in recurring contract development revenue generated under funded research and development
contracts.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total cost of revenue |
|
$ |
41,942 |
|
|
$ |
28,370 |
|
|
$ |
13,572 |
|
|
|
47.8 |
% |
As a percentage of total revenue |
|
|
73.2 |
% |
|
|
71.8 |
% |
|
|
|
|
|
|
|
|
Total cost of revenue increased to $41.9 million in the three months ended March 29, 2008,
compared to $28.4 million in the three months ended March 31, 2007. The increase is primarily due
to higher costs associated with the 31.9% increase in home robot unit sales and 60.8% increase in
government and industrial unit sales.
The home robots division cost of revenue increased as a percent of revenue by 3.5 percentage
points in the three months ended March 29, 2008 as compared to the three months ended March 31,
2007. This increase was primarily attributable to shipments to Linens N Things for which we
recorded costs, but did not recognize revenue due to collectability concerns given their financial
condition and recent bankruptcy filing.
The government and industrial robots division cost of revenue decreased as a percent of
revenue by 0.7 percentage points in the three months ended March 29, 2008 as compared to the three
months ended March 31, 2007. This was due to a 16.2% decrease in average unit costs related to
product mix primarily attributable to expansion of our military product line into lower priced
models in our government and industrial division.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollar in thousands) |
|
|
|
|
Total gross profit |
|
$ |
15,360 |
|
|
$ |
11,117 |
|
|
$ |
4,243 |
|
|
|
38.2 |
% |
As a percentage of total revenue |
|
|
26.8 |
% |
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
15
Gross
profit increased $4.2 million, or 38.2%, to $15.4 million (26.8% of revenue) in the
three months ended March 29, 2008, from $11.1 million (28.2% of revenue) in the three months ended
March 31, 2007. The decrease in gross profit as a percentage of revenue in the three months ended
March 29, 2008 compared to the three months ended March 31, 2007 was the result of the home robots
division gross profit decreasing 3.5 percentage points, partially offset by the government and
industrial division increasing 0.7 percentage points. The 3.5 percentage point decrease in the
home robots division is primarily attributable to shipments to Linens N Things for which we
recorded costs but did not recognize revenue due to collectability concerns given their financial
condition and recent bankruptcy filing. The government and industrial increase was primarily the
result of overhead leverage.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total research and development expense |
|
$ |
3,973 |
|
|
$ |
4,156 |
|
|
$ |
(183 |
) |
|
|
(4.4 |
%) |
As a percentage of total revenue |
|
|
6.9 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
Research and development expenses decreased by $0.2 million, or 4.4%, to $4.0 million (6.9% of
revenue) in the three months ended March 29, 2008, from $4.2 million (10.5% of revenue) for the
three months ended March 31, 2007. The decrease in research and development expenses is primarily
due to a decrease in material costs associated with internal research and development projects.
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.
Overall research and development headcount decreased to 104 at March 29, 2008 compared to 107
as of March, 31, 2007, a decrease of 3 employees or 3%.
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 29, 2008, these expenses amounted to
$5.7 million compared to $4.9 million for the three months ended March 31, 2007. In accordance with
accounting principles generally accepted in the United States, these expenses have been classified
as cost of revenue rather than research and development expense.
Headcount for research and development under funded development arrangements
increased to 65 at March 29, 2008 compared to 60 at
March 31, 2007, an increase of 5 employees or 8%.
Selling and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total selling and marketing expense |
|
$ |
11,458 |
|
|
$ |
8,049 |
|
|
$ |
3,409 |
|
|
|
42.4 |
% |
As a percentage of total revenue |
|
|
20.0 |
% |
|
|
20.4 |
% |
|
|
|
|
|
|
|
|
Selling and marketing expenses increased by $3.4 million, or 42.4%, to $11.5 million (20.0% of
revenue) in the three months ended March 29, 2008 from $8.0 million (20.4% of revenue) in the three
months ended March 31, 2007. The increase was primarily driven by increases of $1.8 million in
television, online and print media and $1.0 million in direct fulfillment related expenses due
primarily to a 50.7% growth in our direct business. Our direct business, which carries a higher
selling and marketing cost per revenue dollar than retail sales, accounted for 26.1% of our home
robots division revenue in the three months ended March 29, 2008 compared to 26.8% in the three
months ended March 31, 2007. Marketing consulting and research increased by $0.6 million as
compared to the three months ended March 31, 2007.
Overall selling and marketing headcount increased to 36 at March 29, 2008 compared to 29 as of
March 31, 2007, an increase of 7 employees or 24.1% growth, primarily due to headcount growth in
our overseas territories.
16
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total general and administrative expense |
|
$ |
6,778 |
|
|
$ |
5,327 |
|
|
$ |
1,451 |
|
|
|
27.2 |
% |
As a percentage of total revenue |
|
|
11.9 |
% |
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
General and administrative expenses increased by $1.5 million, or 27.2%, to $6.8 million
(11.8% of revenue) in the three months ended March 29, 2008 from $5.3 million (13.5% of revenue) in
the three months ended March 31, 2007. The increase in general and administrative expenses was
driven by increases of $0.6 million in compensation expense due to increased headcount, $0.3
million in stock-based compensation, $0.3 million in bad debt expense associated with
collectability concerns of receivables due from Linens N Things given their financial
condition and recent bankruptcy filing, and $0.2 million in various other expenses, over the comparable period last year.
Overall general and administrative headcount increased to 97 at March 29, 2008 compared to 74
as of March 31, 2007, an increase of 23 employees or 31.1% growth.
For the full fiscal year 2008, we expect total operating expenses consisting of Research and
Development, Selling and Marketing, and General and Administrative to be approximately 31% to 33%
of revenue.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total other income, net |
|
$ |
495 |
|
|
$ |
931 |
|
|
$ |
(436 |
) |
|
|
(46.8 |
%) |
As a percentage of total revenue |
|
|
0.9 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
Other income, net amounted to $0.5 million for the three months ended March 29, 2008 compared
to $1.0 million for the three months ended March 31, 2007.
Other income, net was directly related to interest income resulting from the investment in
auction rate securities and money market accounts. The lower other income, net for the three month
period ended March 29, 2008 as compared to the three month period ended March 31, 2007 is
attributable to lower average auction rate securities and money market account balances and due to
reduced interest rates earned on the portfolio.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
Dollar |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total income tax provision (benefit) |
|
$ |
(2,349 |
) |
|
$ |
17 |
|
|
$ |
(2,366 |
) |
|
|
N/A |
|
As a percentage of total revenue |
|
|
(4.1 |
%) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
In the three months ending March 29, 2008, we recorded a $2.3 million tax benefit based on a
projected effective 2008 income tax rate of 37%.
Liquidity and Capital Resources
At March 29, 2008, our principal sources of liquidity were cash and cash equivalents totaling
$22.9 million and accounts receivable of $21.9 million.
As of March 29, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $15.4 million. The fair values of these securities are
estimated utilizing a discounted cash flow model
which also considered limited secondary market indicators as of March 29, 2008. These analyses consider, among other things,
the collateralization underlying the security investments, the creditworthiness of the
counterparty, and the timing of expected future cash flows. These securities were also compared,
when possible, to other observable market data with similar characteristics to the securities held
by us. As
17
a result of the temporary declines in fair value for our auction rate securities, which we
attribute to liquidity issues of the securities rather than credit issues, we have recorded an
unrealized loss of $2.1 million to Accumulated other comprehensive loss on the balance sheet. A
substantial majority of the underlying assets of these auction rate securities are student loans
which are backed by the federal government under the Federal Family Education Loan Program. In
February 2008, auctions began to fail for these securities and each auction since then has failed.
Based on the overall failure rate of these auctions, the frequency of the failures, and the
underlying maturities of the securities, a portion of which are greater than 30 years, we have
classified these investments as long-term assets on our balance sheet.
If the issuers of our auction rate securities are unable to successfully close future auctions
or refinance their debt in the near term and their credit ratings deteriorate, we may in the future
be required to record additional unrealized losses or an impairment charge on these investments.
Based on our expected operating cash flows and our other sources of cash, we do not anticipate that
the current lack of liquidity on these investments will affect our ability to execute our current
business plan.
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. However,
cash flow will be impacted in the coming months as we finalize the build out of new leased
facilities for occupancy during the second quarter of 2008. 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 29, 2008 and March
31, 2007, we spent $3.9 million, and $1.8 million, respectively, the majority of which was for
leasehold improvements.
Discussion of Cash Flows
Net cash provided by our operating activities in the three months ended March 29, 2008 was
$0.2 million compared to net cash provided by operating activities of $2.4 million in the three
months ended March 31, 2007. The cash provided by our operating activities in the three months
ended March 29, 2008 was primarily due to a decrease in accounts receivable (including unbilled
revenue) of $25.3 million, partially offset by a net loss of $4.0 million, a decrease in accounts
payable of $16.7 million, a decrease in accrued expenses of $2.0 million, an increase in inventory
of $1.0 million and an increase in other assets of $4.1 million. In addition, in the three months
ended March 29, 2008, we had depreciation and amortization expenses of approximately $1.6 million
and stock-based compensation of $0.9 million, both of which are non-cash expenses. 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, partially 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 expenses of approximately
$1.2 million and stock-based compensation of $0.7 million, both of which are non-cash expenses.
Net cash used by our investing activities was $4.9 million in the three months ended March 29,
2008 compared to net cash provided by our investing activities of $2.6 million in the three months
ended March 31, 2007. Investing activities in the three months ended March 29, 2008 represent the
sale of investments of $29.0 million, offset by the purchase of investments of $30.0 million and
the purchase of capital equipment and leasehold improvements of $3.9 million. Investing activities
in the three months ended March 31, 2007 represent the purchase of short-term investments of $15.4
million and capital equipment of $1.8 million, offset by the sale of short-term investments of
$19.8 million.
Net cash provided by our
financing activities was approximately $0.8 million in the three
months ended March 29, 2008 compared to net cash used by our financing activities of $1.2 million
in the three months ended March 31, 2007. Included in the financing activities for the three months
ended March 29, 2008 was $0.6 million in proceeds from the exercise of stock options. Net cash used
by our financing activities for the three months ended March 31, 2007 includes 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.
18
Working Capital Facility
On June 5, 2007, we entered into a $35.0 million unsecured revolving credit facility with Bank
of America, N.A. to replace our expired working capital line of credit with Bank of America. The
credit facility will be available to fund working capital and other corporate purposes. The
interest on loans under our working capital line of credit will accrue, at our election, at either
(i) Bank of Americas prime rate minus 1% or (ii) the Eurodollar rate plus 1.25%. The credit
facility will terminate and all amounts outstanding thereunder will be due and payable in full on
June 5, 2010. As of March 29, 2008, we had letters of credit outstanding of $2.1 million and $32.9
million available under our working capital line of credit. This credit facility contains customary
terms and conditions for credit facilities of this type, including restrictions on our ability to
incur or guaranty additional indebtedness, create liens, enter into transactions with affiliates,
make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our
stock, and consolidate or merge with other entities.
In addition, we are required to meet certain financial covenants customary with this type of
agreement, including maintaining a minimum specified tangible net worth, a minimum specified ratio
of current assets to current liabilities and a minimum specified annual net income.
This credit facility contains customary events of default, including for payment defaults,
breaches of representations, breaches of affirmative or negative covenants, cross defaults to other
material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs
and is not cured within any applicable cure period or is not waived, our obligations under the
credit facility may be accelerated.
For the quarter ended March 29, 2008, Bank of America, N.A. formally waived compliance with
the minimum specified ratio of current assets to current liabilities. We were in compliance with
all other covenants under the credit facility.
Equipment Financing Facility
On June 5, 2007, we entered into a $15.0 million secured equipment facility with Banc of
America Leasing and Capital, LLC under which we can finance the acquisition of equipment, furniture
and leasehold improvements. We may borrow amounts under the equipment facility until July 1, 2008
and any amounts borrowed during that period will accrue interest at 30-day LIBOR plus 1%. After
July 1, 2008, all amounts then outstanding under the equipment line will be repaid in 60 equal
monthly installments commencing in July 2008 and will accrue interest, at our election, at either a
fixed or variable rate of interest. Our obligations under the equipment facility will be secured by
any financed equipment. As of March 29, 2008, we had no amounts outstanding and $15.0 million
available under our equipment financing line of credit.
This equipment facility contains customary terms and conditions for equipment facilities of
this type, including, without limitation, restrictions on our ability to transfer, encumber or
dispose of the financed equipment. In addition, we are required to meet certain financial covenants
customary to this type of agreement, including maintaining a minimum specified tangible net worth,
a minimum specified ratio of current assets to current liabilities and a minimum specified annual
net income.
This equipment facility contains customary events of default, including for payment defaults,
breaches of representations, breaches of affirmative or negative covenants, cross defaults to other
material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs
and is not cured within any applicable cure period or is not waived, or if we repay all of our
indebtedness under our credit facility with Bank of America, N.A., our obligations under this
equipment facility may be accelerated.
For the quarter ended March 29, 2008, Bank of America Leasing & Capital, LLC formally waived
compliance with the minimum specified ratio of current assets to current liabilities. We were in
compliance with all other covenants under the equipment facility.
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables,
expense accruals
19
and operating leases, all of which we anticipate funding through working capital, funds
provided by operating activities and our existing working capital line of credit. We have made
significant capital commitments for expenditures associated with the recent move to our new
corporate headquarters. These expenditures have been jointly funded by our landlord at this site
and by us. 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 binding 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 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
3,307 |
|
|
$ |
4,532 |
|
|
$ |
4,359 |
|
|
$ |
14,786 |
|
|
$ |
26,984 |
|
Minimum contractual payments |
|
|
2,694 |
|
|
|
9,500 |
|
|
|
7,000 |
|
|
|
|
|
|
|
19,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,001 |
|
|
$ |
14,032 |
|
|
$ |
11,359 |
|
|
$ |
14,786 |
|
|
$ |
46,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of March 29, 2008, 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.
20
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At March 29, 2008, we had unrestricted cash and cash equivalents of $22.9 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 in a variety of 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 29, 2008,
all of our cash equivalents were held in money market accounts.
As of March 29, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $15.4 million, classified as long-term assets. As a
result of the temporary declines in fair value for our auction rate securities, which we attribute
to liquidity issues of the securities rather than credit issues, we have recorded an unrealized
loss of $2.1 million to Accumulated other comprehensive loss on the balance sheet. A substantial
majority of the underlying assets of these auction rate securities are student loans which are
backed by the federal government under the Federal Family Education Loan Program. In February 2008,
auctions began to fail for these securities and each auction since then has failed. Effective
January 1, 2008, we determine the fair market values of our financial instruments based on the fair
value hierarchy established in SFAS 157 which requires an entity to maximize the use of observable
inputs (Level 1 and Level 2 inputs) and minimize the use of unobservable inputs (Level 3 inputs)
when measuring fair value. Given the current failures in the auction markets to provide quoted
market prices of the securities as well as the lack of any correlation of these instruments to
other observable market data, we valued these securities using a discounted cash flow methodology,
as well as consideration of secondary markets, with the most significant input categorized as Level
3. Significant inputs that went into the model were the credit quality of the issuer, the
percentage and the types of guarantees (such as Federal Family Education Loan ProgramFFELP), the
probability of the auction succeeding or the security being called, and an illiquidity discount
factor. Changes in the assumptions of our model based on dynamic market conditions could have a
significant impact on the valuation of these securities, which may lead us in the future to take
additional unrealized losses, unrealized gains, or an impairment charge for these securities.
Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we must pay on our outstanding debt instruments, primarily certain borrowings under our
working capital line of credit and our equipment financing facility. The advances under the working
capital line of credit bear a variable rate of interest determined as a function of the prime rate
or the Eurodollar rate at the time of the borrowing. The advances under the equipment financing
facility bear either a variable or fixed rate of interest, at our election, determined as a
function of the LIBOR rate at the time of borrowing. At March 29, 2008, there were no amounts
outstanding under our working capital line of credit or our equipment financing facility.
Exchange Rate Sensitivity
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. In
late 2007, we began to accept orders for home robot products in currencies other than the U.S.
dollar and we expect this practice to continue in the future. We regularly monitor the level of
non-U.S. dollar accounts receivable balances to determine if any actions, including possibly
entering into foreign currency forward contracts, should be taken to minimize the impact of
fluctuating exchange rates on our results of operations.
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
21
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.
Part II. Other Information
Item 1. Legal Proceedings
From time to time and in the ordinary course of business, we are subject to various claims,
charges and litigation. The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect
our financial condition or results of operations.
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 29, 2007, which could
materially affect our business, financial condition or future results. There are no material
changes to the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2007, other than changes to the risk factor listed below entitled We invest in
auction rate securities that are subject to market risk and the recent problems in the financial
markets could adversely affect the value and liquidity of our
assets. This risk factor has been amended to reflect an update regarding our investments in auction
rate securities. 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.
We invest in auction rate securities that are subject to market risk and the recent problems in the
financial markets could adversely affect the value and liquidity of our assets.
As of March 29, 2008, we held auction rate securities with a par value of approximately $17.5
million and a fair value of approximately $15.4 million, all of which were purchased in January or
February of 2008. As a result of the temporary declines in fair value for our auction rate
securities, which we attribute to liquidity issues of the securities rather than credit issues, we
have recorded an unrealized loss of $2.1 million to Accumulated other comprehensive loss on the
balance sheet. A substantial majority of the underlying assets of these auction rate securities are
student loans which are backed by the federal government under the Federal Family Education Loan
Program. In February 2008, auctions for these securities began to fail and each such auction since
then has failed. As a result, our ability to liquidate our investments in the near term may be
limited, and we may not be able to recover any of the carrying value of our investments in these
securities. An auction failure means that the parties wishing to sell securities could not carry
out the transaction. Based on our expected operating cash flows, and our other potential sources
of cash, including our available line of credit, we do not anticipate that the potential lack of
liquidity on these securities in the near-term will affect our ability to execute our current
business plan. While we do not currently anticipate the lack of liquidity of these auction rate
securities to adversely affect our ability to conduct business, we will not be able to access these
funds until a future auction for these securities is successful or until we sell the securities in
a secondary market. In addition, if the credit rating of either the security issuer or the
third-party insurer underlying these securities deteriorates, we may be required to adjust the
carrying value of these securities through an impairment charge.
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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 29, 2008 by or on behalf of us or any affiliated purchaser:
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(a) Total number of |
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(b) Average Price |
|
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Shares (or Units) |
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Paid per Share (or |
Period(1) |
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Purchased |
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Unit) |
Fiscal month beginning December 30, 2007 and ended
January 26, 2008 |
|
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0.25 |
(2) |
|
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$18.08 |
(3) |
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|
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|
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Total |
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0.25 |
(2) |
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$18.08 |
(3) |
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(1) |
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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 29, 2008. |
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(2) |
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On January 1, 2008, in connection with the settlement of phantom stock for shares of our
common stock pursuant to the iRobot Corporation Non-Employee Directors Deferred Compensation
Program, we automatically settled the remaining fractional shares of phantom stock for cash. |
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(3) |
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The amount represents the last reported sale price of our common stock on the NASDAQ Global
Market on December 31, 2007. |
Item 5. Other Information
Our policy governing transactions in our securities by our 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 of our officers (including Colin Angle, Chief Executive
Officer 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 names of our 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. We, however, 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.
On April 30, 2008, the Company and Geoffrey P. Clear entered into a Transitional Services and
Departure Agreement (the Agreement). Pursuant to the Agreement, Mr. Clear will continue to be
employed by the Company as the Senior Finance Advisor to the CEO to assist in the transition of his
responsibilities, effective upon commencement of the employment of the Companys new chief
financial officer.
The Agreement also provides the following, among other things: (i) continuation of salary at
Mr. Clears current rate until his separation from the Company; (ii) the opportunity for Mr. Clear
to receive a pro-rated bonus for fiscal 2008; (iii) continuation of certain change in control
benefits pursuant to Mr. Clears previous executive agreement until his separation from the
Company; and (iv) accelerated vesting of unvested stock options, restricted stock and restricted
stock units upon Mr. Clears separation from the Company. The foregoing description of the
Agreement does not purport to be complete and is qualified in its entirety by reference to the
Agreement, which is filed as Exhibit 10.2 hereto, and is incorporated herein by reference.
23
Item 6. Exhibits
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Exhibit Number |
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Description |
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10.1
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Senior Executive Incentive Compensation Plan |
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10.2
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Transitional Services and Departure Agreement by and between iRobot
Corporation and Geoffrey P. Clear, dated April 30, 2008 |
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31.1
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 |
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31.2
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 |
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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Indicates a management contract or any compensatory plan, contract or arrangement |
24
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.
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iROBOT CORPORATION
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Date: May 5, 2008 |
By: |
/s/ Geoffrey P. Clear
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Geoffrey P. Clear |
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Senior Vice President, Chief Financial
Officer and
Treasurer (Duly Authorized Officer and
Principal Financial Officer) |
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25
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description |
|
|
|
10.1
|
|
Senior Executive Incentive Compensation Plan |
|
|
|
10.2
|
|
Transitional Services and Departure Agreement by and between iRobot
Corporation and Geoffrey P. Clear, dated April 30, 2008 |
|
|
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31.1
|
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Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 |
|
|
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31.2
|
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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 |
Indicates a management contract or any compensatory plan, contract or arrangement
26