Attached files
file | filename |
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EX-31.2 - EX-31.2 SECTION 302 CERTIFICATION OF CFO - IROBOT CORP | b77454exv31w2.htm |
EX-31.1 - EX-31.1 SECTION 302 CERTIFICATION OF CEO - IROBOT CORP | b77454exv31w1.htm |
EX-32.1 - EX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO - IROBOT CORP | b77454exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED September 26, 2009
OR
o | 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)
Delaware | 77-0259 335 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices)
(Zip code)
Bedford, MA 01730
(Address of principal executive offices)
(Zip code)
(781) 430-3000
(Registrants telephone number, including area code)
(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o 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.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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 October 23, 2009 was
25,032,439.
iROBOT CORPORATION
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2009
INDEX
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2009
INDEX
Page | ||||||||
PART I: FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
15 | ||||||||
23 | ||||||||
24 | ||||||||
PART II: OTHER INFORMATION |
||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
27 | ||||||||
28 | ||||||||
Ex-31.1 Section 302 Certification of CEO | ||||||||
Ex-31.2 Section 302 Certification of CFO | ||||||||
Ex-32.1 Section 906 Certification of CEO & CFO |
The accompanying notes are an integral part of the consolidated financial statements.
2
Table of Contents
September 26, | December 27, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 62,747 | $ | 40,852 | ||||
Accounts receivable, net of allowance of $90 at September 26, 2009 and $65 December 27, 2008 |
43,934 | 35,930 | ||||||
Unbilled revenue |
2,537 | 2,014 | ||||||
Inventory |
24,653 | 34,560 | ||||||
Deferred tax assets |
7,295 | 7,299 | ||||||
Other current assets |
4,430 | 3,340 | ||||||
Total current assets |
145,596 | 123,995 | ||||||
Property and equipment, net |
20,401 | 22,929 | ||||||
Deferred tax assets |
4,508 | 4,508 | ||||||
Other assets |
11,877 | 12,246 | ||||||
Total assets |
$ | 182,382 | $ | 163,678 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 27,787 | $ | 19,544 | ||||
Accrued expenses |
11,672 | 10,989 | ||||||
Accrued compensation |
10,846 | 6,393 | ||||||
Deferred revenue and customer advances |
4,244 | 2,632 | ||||||
Total current liabilities |
54,549 | 39,558 | ||||||
Long term liabilities |
4,122 | 4,444 | ||||||
Commitments and contingencies (Note 6): |
||||||||
Redeemable convertible preferred stock, 5,000 shares authorized and zero outstanding at
September 26, 2009 and December 27, 2008 |
| | ||||||
Common stock, $0.01 par value, 100,000 and 100,000 shares authorized and 25,029 and 24,811
issued and outstanding at September 26, 2009 and December 27, 2008, respectively |
250 | 248 | ||||||
Additional paid-in capital |
136,294 | 130,637 | ||||||
Deferred compensation |
(136 | ) | (314 | ) | ||||
Accumulated deficit |
(12,697 | ) | (10,895 | ) | ||||
Total stockholders equity |
123,711 | 119,676 | ||||||
Total liabilities, redeemable convertible preferred stock and stockholders equity |
$ | 182,382 | $ | 163,678 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
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iROBOT CORPORATION
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenue: |
||||||||||||||||
Product revenue |
$ | 69,080 | $ | 87,224 | $ | 171,380 | $ | 198,475 | ||||||||
Contract revenue |
9,539 | 5,191 | 25,515 | 18,444 | ||||||||||||
Total revenue |
78,619 | 92,415 | 196,895 | 216,919 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Cost of product revenue (1) |
46,415 | 58,371 | 116,952 | 138,948 | ||||||||||||
Cost of contract revenue (1) |
8,009 | 5,114 | 23,133 | 17,213 | ||||||||||||
Total cost of revenue |
54,424 | 63,485 | 140,085 | 156,161 | ||||||||||||
Gross margin |
24,195 | 28,930 | 56,810 | 60,758 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development (1) |
3,159 | 4,940 | 10,633 | 13,631 | ||||||||||||
Selling and marketing (1) |
9,514 | 10,522 | 27,420 | 35,451 | ||||||||||||
General and administrative (1) |
7,420 | 7,578 | 21,915 | 21,696 | ||||||||||||
Total operating expenses |
20,093 | 23,040 | 59,968 | 70,778 | ||||||||||||
Operating income (loss) |
4,102 | 5,890 | (3,158 | ) | (10,020 | ) | ||||||||||
Other income (expense), net |
112 | 180 | (96 | ) | 917 | |||||||||||
Income (loss) before income taxes |
4,214 | 6,070 | (3,254 | ) | (9,103 | ) | ||||||||||
Income tax expense (benefit) |
1,620 | 2,218 | (1,452 | ) | (4,437 | ) | ||||||||||
Net income (loss) |
$ | 2,594 | $ | 3,852 | $ | (1,802 | ) | $ | (4,666 | ) | ||||||
Net income (loss) per share |
||||||||||||||||
Basic |
$ | 0.10 | $ | 0.16 | $ | (0.07 | ) | $ | (0.19 | ) | ||||||
Diluted |
$ | 0.10 | $ | 0.15 | $ | (0.07 | ) | $ | (0.19 | ) | ||||||
Number of shares used in calculations per share |
||||||||||||||||
Basic |
25,025 | 24,712 | 24,974 | 24,614 | ||||||||||||
Diluted |
25,670 | 25,536 | 24,974 | 24,614 |
(1) | Total stock-based compensation recorded in the three and nine months ended September 26, 2009 and September 27, 2008 included in the above figures breaks down by expense classification as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Cost of product revenue |
$ | 267 | $ | 184 | $ | 758 | $ | 554 | ||||||||
Cost of contract revenue |
139 | 127 | 464 | 300 | ||||||||||||
Research and development |
89 | 131 | 187 | 226 | ||||||||||||
Selling and marketing |
351 | 305 | 1,006 | 733 | ||||||||||||
General and administrative |
1,016 | 1,090 | 2,944 | 2,495 | ||||||||||||
Total stock-based compensation |
$ | 1,862 | $ | 1,837 | $ | 5,359 | $ | 4,308 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents
Nine Months Ended | ||||||||
September 26, | September 27, | |||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (1,802 | ) | $ | (4,666 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
6,153 | 5,135 | ||||||
Loss on disposal of property and equipment |
176 | 80 | ||||||
Stock-based compensation |
5,359 | 4,308 | ||||||
In-process research and development relating to acquisition of Nekton
Research, LLC |
| 200 | ||||||
Benefit from deferred tax assets |
(347 | ) | | |||||
Non-cash director deferred compensation |
99 | 71 | ||||||
Changes in operating assets and liabilities (use) source |
||||||||
Accounts receivable |
(8,004 | ) | 1,830 | |||||
Unbilled revenue |
(523 | ) | (28 | ) | ||||
Inventory |
9,907 | 2,626 | ||||||
Other assets |
(1,111 | ) | (6,930 | ) | ||||
Accounts payable |
8,243 | (13,540 | ) | |||||
Accrued expenses |
673 | 1,405 | ||||||
Accrued compensation |
4,453 | 3,503 | ||||||
Deferred revenue |
1,612 | 1,127 | ||||||
Long term liabilities |
(322 | ) | 4,552 | |||||
Net cash provided by (used in) operating activities |
24,566 | (327 | ) | |||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(3,401 | ) | (13,589 | ) | ||||
Purchase of Nekton Research, LLC, net of cash received |
| (9,745 | ) | |||||
Purchases of investments |
| (29,997 | ) | |||||
Sales of investments |
| 30,350 | ||||||
Net cash used in investing activities |
(3,401 | ) | (22,981 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from stock option exercises |
495 | 908 | ||||||
Income tax withholding payment associated with restricted stock award vesting |
(76 | ) | | |||||
Borrowings under revolving line of credit |
| 5,500 | ||||||
Tax benefit of excess stock-based compensation deductions |
311 | 680 | ||||||
Net cash provided by financing activities |
730 | 7,088 | ||||||
Net increase (decrease) in cash and cash equivalents |
21,895 | (16,220 | ) | |||||
Cash and cash equivalents, at beginning of period |
40,852 | 26,735 | ||||||
Cash and cash equivalents, at end of period |
$ | 62,747 | $ | 10,515 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | | $ | 43 | ||||
Cash paid for income taxes |
608 | 41 |
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended September 26, 2009 and September 27, 2008, the Company
transferred $1,425 and $649, respectively, of inventory to fixed assets.
The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
1. Description of Business
iRobot Corporation (iRobot or the Company) develops robotics and artificial intelligence
technologies and applies these technologies in producing and marketing robots. The majority of the
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, uncertainty of market acceptance of products, the need to obtain financing, if
necessary, global economic conditions and associated impact on consumer spending, and changes in
policies and spending priorities of the U.S. federal government and other government agencies.
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 September 26, 2009 and for the three and nine months
ended September 26, 2009 and September 27, 2008 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. The year-end balance
sheet data was derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States. 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 27, 2008, filed with the SEC on February 13, 2009.
In the opinion of management, all adjustments necessary to state fairly its statement of
financial position as of September 26, 2009 and results of operations and cash flows for the
periods ended September 26, 2009 and September 27, 2008 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.
6
Table of Contents
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
Fiscal Year-End
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest
to December 31. Accordingly, the Companys fiscal quarters end on the Saturday that falls closest
to the last day of the third month of each quarter.
Revenue Recognition
The Company derives its revenue from product sales, government research and development
contracts, and commercial research and development contracts. The Company sells products directly
to customers and indirectly through resellers and distributors. The Company recognizes revenue from
sales of home robots under the terms of the customer agreement upon transfer of title to the
customer, net of estimated returns, provided that collection is determined to be probable and no
significant obligations remain. Sales to resellers are subject to agreements allowing for limited
rights of return for defective products only, rebates and price protection. The Company has
typically not taken product returns except for defective products. Accordingly, the Company reduces
revenue for its estimates of liabilities for these rights at the time the related sale is recorded.
The Company makes an estimate of sales returns for products sold by resellers directly based on
historical returns experience and other relevant data. The Companys international distributor
agreements do not currently allow for product returns and, as a result, no reserve for returns is
established for this group of customers. 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. When a 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 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. For government product FFP
contracts revenue is recognized as the product is shipped or in accordance with the contract terms.
Costs and estimated gross margins 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 and audit, 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 by establishing the
fair value of each option grant using the Black-Scholes option-pricing model. The fair value of
share-based payments is recorded by the Company as a charge against earnings. The Company
recognizes share-based payment expense over the requisite service period of the underlying grants
and awards. The Companys share-based payment awards are accounted for as equity instruments.
7
Table of Contents
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
Net Income (Loss) Per Share
The following table presents the calculation of both basic and diluted net income (loss) per
share:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net income (loss) |
$ | 2,594 | $ | 3,852 | $ | (1,802 | ) | $ | (4,666 | ) | ||||||
Weighted average shares outstanding |
25,025 | 24,712 | 24,974 | 24,614 | ||||||||||||
Dilutive effect of employee stock options and restricted shares |
645 | 824 | | | ||||||||||||
Diluted weighted average shares outstanding |
25,670 | 25,536 | 24,974 | 24,614 | ||||||||||||
Basic income (loss) per share |
$ | 0.10 | $ | 0.16 | $ | (0.07 | ) | $ | (0.19 | ) | ||||||
Diluted income (loss) per share |
$ | 0.10 | $ | 0.15 | $ | (0.07 | ) | $ | (0.19 | ) |
Potentially dilutive securities representing approximately 2.3 million shares of common stock
for each of the three months ended September 26, 2009 and
September 27, 2008, and approximately 3.1 million and
3.0 million shares of common stock for the nine months ended September 26, 2009 and September 27,
2009, respectively, were excluded from the computation of diluted earnings per share for these
periods because their effect would have been anitdilutive.
Income Taxes
Deferred taxes are determined based on the difference between the book 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 September 26, 2009, the Company has total deferred tax assets of $15.2 million and a valuation
allowance of $3.4 million resulting in a net deferred tax asset of $11.8 million.
The Company recorded $1.6 million and $2.2 million of income tax expense for the three months
ended September 26, 2009 and September 27, 2008, respectively, and $1.5 million and $4.4 million of
income tax benefit for the nine months ended September 26, 2009 and September 27, 2008,
respectively. The projected annual effective tax rates for income taxes were 34.7% and 48.2% at
September 26, 2009 and September 27, 2008, respectively. The projected annual effective tax rate at
September 26, 2009 was lower than the comparable period in 2008 primarily due to the benefit of
research and development tax credits anticipated in 2009 partially offset by the impact of
permanent book-tax differences. In addition the Company recorded a
discrete benefit from the conversion of
incentive stock options to non-qualified stock options as a result of its stock option exchange
program which concluded in the second fiscal quarter of 2009 and
which increased its tax benefit on the loss for the nine month period
ending September 26, 2009 resulting in an effective tax rate of 44.6%.
Fair Value Measurements
The Company has adopted the authoritative guidance for fair value measurement as of December
30, 2007, for financial instruments. Although the adoption of this guidance 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.
The Company has adopted the authoritative guidance for fair value measurement as of December
28, 2008 for nonfinancial assets and nonfinancial liabilities. This adoption did not impact the
Companys consolidated financial statements.
The authoritative guidance for fair value 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.
8
Table of Contents
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
The Companys assets measured at fair value on a recurring basis subject to the disclosure
requirements at September 26, 2009, were as follows:
Fair Value Measurements as of September 26, 2009 | ||||||||||||
(In thousands) | ||||||||||||
Description | Level 1 | Level 2 | Level 3 | |||||||||
Assets: |
||||||||||||
Money Market Accounts |
$ | 51,048 | $ | | $ | | ||||||
Total assets measured at fair value |
$ | 51,048 | | | ||||||||
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for
an acquisition and the fair value of the net tangible and intangible assets acquired. The Company
tests goodwill for impairment at the reporting unit level (operating segment or one level below an
operating segment) annually or more frequently if the Company believes indicators of impairment
exist. The performance of the test involves a two-step process. The first step of the impairment
test involves comparing the fair values of the applicable reporting units with their aggregate
carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the
reporting units fair value, the Company performs the second step of the goodwill impairment test
to determine the amount of impairment loss. The second step of the goodwill impairment test
involves comparing the implied fair value of the affected reporting units goodwill with the
carrying value of that goodwill.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued amendments to the
accounting and disclosure requirements for business combinations and noncontrolling interests in
consolidated financial statements. The amendment to the accounting and disclosure requirements for
business combinations will change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent periods. The amendment to the
accounting and disclosure requirements for noncontrolling interests in consolidated financial
statements will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of equity. These
amendments are effective for fiscal years beginning on or after December 15, 2008. The Company
adopted these amendments at the beginning of fiscal 2009 and will change its accounting treatment
for business combinations, if any, on a prospective basis.
On April 1, 2009, FASB issued an amendment to the accounting and disclosure requirements for
assets acquired and liabilities assumed in a business combination that arise from contingencies.
This amendment addresses application issues regarding the initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. The Company adopted this amendment on April 1, 2009 and
will change its accounting treatment for business combinations, if any, on a prospective basis.
In May 2009, FASB issued an amendment to the accounting and disclosure requirements for
subsequent events. This amendment establishes general standards of accounting for disclosing
events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for selecting that date, that is, whether that date
represents the date the financial statements were issued or were available to be issued. This
amendment is effective for interim or annual financial periods ending after June 15, 2009. The
implementation of this amendment did not impact the Companys consolidated financial statements.
In June 2009, FASB issued an amendment to the accounting and disclosure requirements for the
consolidation of variable interest entities (VIEs). The elimination of the concept of a Qualifying
Special Purpose Entity (QSPE), removes the exception from applying the consolidation guidance
within this amendment. This amendment requires an enterprise to perform a qualitative analysis when
determining whether or not it must consolidate a VIE. This amendment also requires an enterprise to
continuously reassess whether it must consolidate a VIE. Additionally, this amendment requires
enhanced disclosures about an enterprises involvement with VIEs and any significant change in risk
exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprises
financial statements. Finally, an enterprise will be required to disclose significant judgments and
assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for
financial statements issued for fiscal years beginning after November 15, 2009. The Company does
not expect this amendment to have an impact on its financial position or results of operations.
9
Table of Contents
iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
In June 2009, FASB issued FASB Accounting Standards Codification (Codification). The
Codification will become the single source for all authoritative Generally Accepted Accounting
Principles (GAAP) recognized by FASB to be applied for financial statements issued for periods
ending after September 15, 2009. The Codification does not change GAAP and will not have an effect
on the Companys financial position or results of operations. The Company adopted this accounting standard
during the three month period ending September 26, 2009.
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:
September 26, | December 27, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Raw materials |
$ | 3,435 | $ | 3,443 | ||||
Work in process |
1,029 | 746 | ||||||
Finished goods |
20,189 | 30,371 | ||||||
$ | 24,653 | $ | 34,560 | |||||
4. Stock Option Plans
The Company has options outstanding under three stock incentive plans: the 1994 Stock Option
Plan (the 1994 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 and the 2004 Plan,
the Plans). The 2005 Plan is the only one of the three 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 of
1986, as amended. As of September 26, 2009, there were 1,989,203 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 zero to five years, and expire seven or ten 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.
On September 25, 2009, in connection with his employment, the Company granted the
recently-named president of its newly-created healthcare business unit a stock option exercisable
for 100,000 shares of the Companys common stock at the closing price of $12.82 and 25,000
restricted stock units. The stock option will vest 25% on the first anniversary of the grant date
and quarterly over the following three years, and the restricted stock units will vest 25% on each
anniversary of the grant date.
The Company has determined that grants, exercises and other stock-based compensation activity,
other than the items mentioned above, during the three months ended September 26, 2009 were not
material.
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iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
5. Accrued Expenses
Accrued expenses consist of the following:
September 26, | December 27, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Accrued warranty |
$ | 6,352 | $ | 5,380 | ||||
Accrued direct fulfillment costs |
1,502 | 1,236 | ||||||
Accrued rent |
517 | 470 | ||||||
Accrued sales commissions |
430 | 801 | ||||||
Accrued accounting fees |
512 | 376 | ||||||
Accrued income taxes |
65 | 248 | ||||||
Accrued other |
2,294 | 2,478 | ||||||
$ | 11,672 | $ | 10,989 | |||||
6. Commitments and Contingencies
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for the three months
ended September 26, 2009 and September 27, 2008 amounted to $0.9 million and $0.8 million,
respectively, and for the nine months ended September 26, 2009 and September 27, 2008 amounted to
$3.0 million and $2.9 million, respectively. Future minimum rental payments under operating leases
were as follows as of September 26, 2009:
Operating | ||||
Leases | ||||
(In thousands) | ||||
Remainder of 2009 |
$ | 658 | ||
2010 |
2,430 | |||
2011 |
2,305 | |||
2012 |
2,253 | |||
2013 |
2,087 | |||
Thereafter |
13,220 | |||
Total minimum lease payments |
$ | 22,953 | ||
Sales Taxes
The Company collects and remits sales tax in jurisdictions in which it has a physical presence
or it believes 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 continually evaluates whether it has established a nexus in new jurisdictions with
respect to sales tax. The Company has recorded a liability for potential exposure in several states
where there is uncertainty about the point in time at which the Company established a sufficient
business connection to create nexus. 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
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iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
indemnification agreements is unlimited. The Company has never incurred costs to defend
lawsuits or settle claims related to these indemnification agreements. As a result, the Company
believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no
liabilities recorded for these agreements as of September 26, 2009 and September 27, 2008,
respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty
based on identified or estimated 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 | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Balance at beginning of period |
$ | 5,303 | $ | 3,257 | $ | 5,380 | $ | 2,491 | ||||||||
Provision |
1,910 | 2,190 | 4,439 | 5,435 | ||||||||||||
Warranty usage(1) |
(861 | ) | (1,015 | ) | (3,467 | ) | (3,494 | ) | ||||||||
Balance at end of period |
$ | 6,352 | $ | 4,432 | $ | 6,352 | $ | 4,432 | ||||||||
(1) | Warranty usage includes the 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 division offers products to consumers through a network of retail
businesses throughout the United States, to certain countries through international distributors
and retailers, and through the Companys on-line store. The Companys home robots division includes
mobile robots used in the maintenance of domestic households.
Government and Industrial
The Companys government and industrial division offers products through a small U.S.
government-focused sales force, while products are sold to a limited number of countries, other
than the United States, through international distribution. The Companys government and industrial robots
are used by various U.S. and foreign governments, primarily for reconnaissance and bomb disposal
missions.
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iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
The table below presents segment information about revenue, cost of revenue, gross margin and
loss before income taxes:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: |
||||||||||||||||
Home Robots |
$ | 44,331 | $ | 53,626 | $ | 111,253 | $ | 125,479 | ||||||||
Government & Industrial |
34,288 | 38,789 | 85,642 | 91,440 | ||||||||||||
Total revenue |
78,619 | 92,415 | 196,895 | 216,919 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Home Robots |
30,881 | 38,759 | 77,542 | 91,784 | ||||||||||||
Government & Industrial |
23,543 | 24,726 | 62,543 | 64,377 | ||||||||||||
Total cost of revenue |
54,424 | 63,485 | 140,085 | 156,161 | ||||||||||||
Gross margin: |
||||||||||||||||
Home Robots |
13,450 | 14,867 | 33,711 | 33,695 | ||||||||||||
Government & Industrial |
10,745 | 14,063 | 23,099 | 27,063 | ||||||||||||
Total gross margin |
24,195 | 28,930 | 56,810 | 60,758 | ||||||||||||
Research and development |
3,159 | 4,940 | 10,633 | 13,631 | ||||||||||||
Selling and marketing |
9,514 | 10,522 | 27,420 | 35,451 | ||||||||||||
General and administrative |
7,420 | 7,578 | 21,915 | 21,696 | ||||||||||||
Other income (expense), net |
112 | 180 | (96 | ) | 917 | |||||||||||
Income (loss) before income taxes |
$ | 4,214 | $ | 6,070 | $ | (3,254 | ) | $ | (9,103 | ) | ||||||
Geographic Information
For the three months ended September 26, 2009 and September 27, 2008, sales to non-U.S.
customers accounted for 33.6% and 20.1% of total revenue, respectively, and for the nine months
ended September 26, 2009 and September 27, 2008, sales to non-U.S. customers accounted for 34.6%
and 22.3% of total revenue, respectively.
Significant Customers
For the three months ended September 26, 2009 and September 27, 2008, U.S. federal government
orders, contracts and subcontracts accounted for 36.3% and 36.8% of total revenue, respectively,
and for the nine months ended September 26, 2009 and September 27, 2008, U.S. federal government
orders, contracts and subcontracts accounted for 36.7% and 38.2% of total revenue, respectively.
8. Comprehensive Income (Loss)
Comprehensive income (loss) includes unrealized losses on certain investments. The differences
between net income (loss) and comprehensive loss were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss), as reported |
$ | 2,594 | $ | 3,852 | $ | (1,802 | ) | $ | (4,666 | ) | ||||||
Unrealized losses on investments, net of tax (1) |
| (1,000 | ) | | (3,658 | ) | ||||||||||
Less: reclassification adjustment for losses realized in net income (loss) (1) |
| 3,658 | | 3,658 | ||||||||||||
Total comprehensive income (loss) |
$ | 2,594 | $ | 6,510 | $ | (1,802 | ) | $ | (4,666 | ) | ||||||
(1) | This realized loss was entirely offset by a realized gain of approximately $3.7 million related to a put option provided by the broker of our auction rate securities. |
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iROBOT CORPORATION
Notes To Consolidated Financial Statements Continued
(unaudited)
(unaudited)
9. Goodwill and other intangible assets
The carrying amount of the goodwill at September 26, 2009 of $5.4 million is from the
acquisition of Nekton Research, LLC completed in September 2008. Pursuant to the terms of the
Nekton Research, LLC acquisition agreement, additional consideration
of up to $5 million may be paid based on the
achievement of certain business and financial milestones which are
determined at various intervals through March 17, 2011 and which could increase the carrying amount
of goodwill.
Other intangible assets include the value assigned to completed technology, research
contracts, and a trade name. The estimated useful lives for all of these intangible assets are two
to ten years. The intangible assets are being amortized on a straight-line basis, which is
consistent with the pattern that the economic benefits of the intangible assets are expected to be
utilized.
Intangible assets at September 26, 2009 and December 27, 2008 consisted of the following:
September 26, 2009 | December 27, 2008 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Cost | Amortization | Net | Cost | Amortization | Net | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Completed technology |
$ | 3,700 | $ | 403 | $ | 3,297 | $ | 3,700 | $ | 124 | $ | 3,576 | ||||||||||||
Research contracts |
100 | 52 | 48 | 100 | 16 | 84 | ||||||||||||||||||
Tradename |
700 | 78 | 622 | 700 | 24 | 676 | ||||||||||||||||||
Total |
$ | 4,500 | $ | 533 | $ | 3,967 | $ | 4,500 | $ | 164 | $ | 4,336 | ||||||||||||
Amortization expense related to acquired intangible assets was $123,000 and $369,000 for the
three and nine months ended September 26, 2009, respectively. The estimated future amortization
expense related to current intangible assets in the current fiscal year and each of the four
succeeding fiscal years is expected to be as follows:
(In thousands) | ||||
Remainder of 2009 |
$ | 123 | ||
2010 |
480 | |||
2011 |
444 | |||
2012 |
444 | |||
2013 |
444 | |||
Total |
$ | 1,935 | ||
10. Subsequent Events
The Company has evaluated subsequent events through October 30, 2009, which represents the
filing date of this Form 10-Q with the SEC. As of October 30, 2009, there were no subsequent events
which required recognition or disclosure.
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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 27, 2008, 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
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 and Verro products, PackBot tactical military robots, the Small
Unmanned Ground Vehicle, 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 credit facility and equipment facility, our valuations of investments, valuation and
composition of our stock-based awards, 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 27, 2008,
as well as elsewhere in this Quarterly 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 have no plan to update our forward-looking statements to reflect
events or circumstances after the date of this Quarterly Report on Form 10-Q. We caution readers
not to place undue reliance upon any such forward-looking statements, which speak only as of the
date made.
Overview
iRobot designs and builds robots that make a difference. 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. We developed the Small
Unmanned Ground Vehicle, or SUGV, reconnaissance robot for the U.S. Armys Future Combat Systems
program. In addition, our Seaglider Unmanned Underwater Vehicle is used on long endurance oceanic
missions. 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 September 26, 2009, we had 514 full-time employees. We have developed expertise in the
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 government and industrial 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 government and industrial 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.
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Table of Contents
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 (specifically sales returns and other
allowances); valuation 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 27, 2008.
Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue for the
three and nine month periods ended September 26, 2009 and September 27, 2008:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 26, | September 27, | September 26, | September 27, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenue |
||||||||||||||||
Product revenue |
87.9 | % | 94.4 | % | 87.0 | 91.5 | % | |||||||||
Contract revenue |
12.1 | 5.6 | 13.0 | 8.5 | ||||||||||||
Total revenue |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of revenue |
||||||||||||||||
Cost of product revenue |
59.0 | 63.2 | 59.4 | 64.1 | ||||||||||||
Cost of contract revenue |
10.2 | 5.5 | 11.7 | 7.9 | ||||||||||||
Total cost of revenue |
69.2 | 68.7 | 71.1 | 72.0 | ||||||||||||
Gross margin |
30.8 | 31.3 | 28.9 | 28.0 | ||||||||||||
Operating expenses |
||||||||||||||||
Research and development |
4.0 | 5.3 | 5.5 | 6.3 | ||||||||||||
Selling and marketing |
12.1 | 11.4 | 13.9 | 16.3 | ||||||||||||
General and administrative |
9.5 | 8.2 | 11.1 | 10.0 | ||||||||||||
Total operating expenses |
25.6 | 24.9 | 30.5 | 32.6 | ||||||||||||
Operating income (loss) |
5.2 | 6.4 | (1.6 | ) | (4.6 | ) | ||||||||||
Other income (expense), net |
0.2 | 0.2 | (0.1 | ) | 0.4 | |||||||||||
Income (loss) before income taxes |
5.4 | 6.6 | (1.7 | ) | (4.2 | ) | ||||||||||
Income tax expense (benefit) |
2.1 | 2.4 | (0.8 | ) | (2.0 | ) | ||||||||||
Net income (loss) |
3.3 | % | 4.2 | % | (0.9 | )% | (2.2 | )% | ||||||||
Comparison of Three and Nine Months Ended September 26, 2009 and September 27, 2008
Revenue
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total revenue |
$ | 78,619 | $ | 92,415 | $ | (13,796 | ) | (14.9 | )% | $ | 196,895 | $ | 216,919 | $ | (20,024 | ) | (9.2 | )% |
Total revenue for the three months ended September 26, 2009 decreased to $78.6 million, or
14.9%, compared to $92.4 million for the three months ended September 27, 2008. Revenue decreased
approximately $9.3 million, or 17.3%, in our home robots division and decreased approximately $4.5
million, or 11.6%, in our government and industrial division.
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The $9.3 million decrease in revenue from our home robots division for the three months ended
September 26, 2009 was driven by an 18.6% decrease in units shipped, as compared to the three
months ended September 27, 2008. Total home robots shipped in the three months ended September 26,
2009 were approximately 289,000 units compared to approximately 355,000 units in the three months
ended September 27, 2008. The decrease in home robot division revenue and units shipped was
primarily attributable to decreased domestic demand for our home robot products in our
retail channel resulting from lower levels of consumer spending. The decrease in domestic retail
was partially offset by increased international sales of our home robot products resulting from our
increased efforts to expand our global presence. In the three months ended September 26, 2009, home
robot revenue from domestic retailers decreased $15.8 million and direct to consumers sales through
our on-line store decreased $1.3 million, partially offset by an increase of $7.8 million in
international home robots revenue as compared to the three months ended September 27, 2008.
The $4.5 million decrease in revenue from our government and industrial division was driven by
an $8.2 million decrease in government and industrial robot revenue and a $0.6 million decrease in
product life cycle revenue (spare parts and accessories), offset by a $4.3 million increase in
recurring contract development revenue generated under research and development contracts. The $8.2
million decrease in government and industrial robots revenue was due to a 50.2% decrease in units
shipped, partially offset by a 40.8% increase in net average selling prices in the three month
period ended September 26, 2009 as compared to the three month period ended September 27, 2008.
This increase in average selling price was due to product mix primarily attributable to a
significant number of lower priced FasTac units shipped in the three month period ending September
27, 2008 as compared to the Man Transportable Robot System and PackBot 510 units shipped in the three months ended
September 26, 2009. The $4.3 million increase in recurring contract development revenue generated
under research and development contracts was primarily attributable to an increase in funding of
our SUGV program and new contract awards for our PackBot and research programs. Total government
and industrial robots shipped in the three months ended September 26, 2009 were 159 units compared
to 319 units in the three months ended September 27, 2008.
Total revenue for the nine months ended September 26, 2009 decreased to $196.9 million, or
9.2%, compared to $216.9 million for the nine months ended September 27, 2008. Revenue decreased
approximately $14.2 million, or 11.3%, in our home robots division and decreased approximately $5.8
million, or 6.3%, in our government and industrial division.
The $14.2 million decrease in revenue from our home robots division for the nine months ended
September 26, 2009 was driven by a 12.7% decrease in units shipped, as compared to the nine months
ended September 27, 2008. Total home robots shipped in the nine months ended September 26, 2009
were approximately 664,000 units compared to approximately 761,000 units in the nine months ended
September 27, 2008. The decrease in home robot division revenue and units shipped was attributable
to decreased domestic demand of our home robot products in both retail and direct channels. The decrease in domestic and direct revenue was
partially offset by increased international sales of our home robot products resulting from our
increased efforts to expand our global presence. In the nine months ended September 26, 2009, home
robot revenue from domestic retailers decreased $25.4 million and direct to consumers sales through
our on-line store decreased $5.3 million, as compared to the nine months ended September 27, 2008.
This was offset by an increase of 36.3% of home robots units shipped internationally as compared to
the nine months ended September 27, 2008. International home robots revenue increased $16.5 million
in the nine months ended September 26, 2009 as compared to the nine months ended September 27,
2008.
The $5.8 million decrease in revenue from our government and industrial division was driven by
a $15.8 million decrease in government and industrial robots revenue partially offset by a $2.9
million increase in product life cycle revenue (spare parts and accessories) and a $7.1 million
increase in recurring contract development revenue generated under research and development
contracts. The $15.8 million decrease in government and industrial robots revenue was due a 28.7%
decrease in units shipped partially offset by a 4.2% increase in net average selling prices related
to product mix in the nine month period ended September 26, 2009 as compared to the nine month
period ended September 27, 2008. Total government and industrial robots shipped in the nine months
ended September 26, 2009 were 460 units compared to 645 units in the nine months ended September
27, 2008. The $7.1 million increase in recurring contract development revenue generated under
research and development contracts was the result of revenue from new contract awards for our
PackBot and research programs and contracts acquired through our September 2008 acquisition of
Nekton Research, LLC partially offset by a decrease of revenue in our SUGV program.
Cost of Revenue
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total cost of revenue |
$ | 54,424 | $ | 63,485 | $ | (9,061 | ) | (14.3 | )% | $ | 140,085 | $ | 156,161 | $ | (16,076 | ) | (10.3 | )% | ||||||||||||||
As a percentage of total
revenue |
69.2 | % | 68.7 | % | 71.1 | % | 72.0 | % |
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Table of Contents
Total cost of revenue decreased to $54.4 million in the three months ended September 26, 2009,
compared to $63.5 million in the three months ended September 27, 2008. This decrease was
attributable to the decrease in home robot and government and industrial product units shipped,
partially offset by the increase in costs associated with funding of our SUGV program and the new
contract awards for our PackBot and research programs in the three month period ended September 26,
2009.
Total cost of revenue decreased to $140.1 million in the nine months ended September 26, 2009,
compared to $156.2 million in the nine months ended September 27, 2008. This decrease was due to
the decrease in home robot and government and industrial product units shipped and lower costs
associated with product mix in our government and industrial division, partially offset by an
increase in cost of contracts resulting from new contract awards for our PackBot and research
programs and contracts acquired through our September 2008 acquisition of Nekton Research, LLC.
Gross Margin
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total gross margin |
$ | 24,195 | $ | 28,930 | $ | (4,735 | ) | (16.4 | )% | $ | 56,810 | $ | 60,758 | $ | (3,948 | ) | (6.5 | )% | ||||||||||||||
As a percentage of
total revenue |
30.8 | % | 31.3 | % | 28.9 | % | 28.0 | % |
Gross margin decreased $4.7 million, or 16.4%, to $24.2 million (30.8% of revenue) in the
three months ended September 26, 2009, from $28.9 million (31.3% of revenue) in the three months
ended September 27, 2008. The decrease in gross margin as a percentage of revenue was the result of
the home robots division gross margin increasing 2.6 percentage points and the government and
industrial division gross margin decreasing 4.9 percentage points. The 2.6 percentage point
increase in the home robots division is attributable to price increases on certain international
products and the introduction of higher-priced products into the international market. The 4.9
percentage point decrease in the government and industrial division is attributable to higher
overhead expense on lower revenue, partially offset by higher margins due to product mix in the
three month period ended September 26, 2009 as compared to the three month period ended September
27, 2008.
Gross margin decreased $3.9 million, or 6.5%, to $56.8 million (28.9% of revenue) in the nine
months ended September 26, 2009, from $60.8 million (28.0% of revenue) in the nine months ended
September 27, 2008. The increase in gross margin as a percentage of revenue was the result of the
home robots division gross margin increasing 3.4 percentage points offset by a decrease in the
government and industrial division gross margin of 2.6 percentage points. The 3.4 percentage point
increase in the home robots division is attributable to price increases and the introduction of
higher-priced products into the international market. In addition, domestic margins increased due
to an increase in volume and margins on refurbished products in the nine months ending September
26, 2009 as compared to the nine months ending September 27, 2008. Also, during the nine month
period ending September 27, 2008, we recorded costs but did not record revenue for shipments to
Linens N Things as a result of its bankruptcy filing. The 2.6 percentage point decrease in the
government and industrial division is attributable to higher overhead expense on lower revenue,
partially offset by higher margins due to product mix in the nine month period ended September 26,
2009 as compared to the nine month period ended September 27, 2008.
Research and Development
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total research
and development |
$ | 3,159 | $ | 4,940 | $ | (1,781 | ) | (36.1 | )% | $ | 10,633 | $ | 13,631 | $ | (2,998 | ) | (22.0 | )% | ||||||||||||||
As a percentage of
total revenue |
4.0 | % | 5.3 | % | 5.5 | % | 6.3 | % |
Research and development expenses decreased by $1.8 million, or 36.1%, to $3.2 million (4.0%
of revenue) in the three months ended September 26, 2009, from
$4.9 million (5.3% of revenue) for
the three months ended September 27, 2008. The decrease in research and development expenses is
primarily due to a decrease in compensation, contractor and material costs associated with
internal research and development projects.
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Research and development expenses decreased by $3.0 million, or 22.0%, to $10.6 million (5.5%
of revenue) in the nine months ended September 26, 2009, from $13.6 million (6.3% of revenue) for
the nine months ended September 27, 2008. The decrease in research and development expenses is due
to a decrease in compensation and employee-related costs, contractor costs, occupancy expenses and
material associated with internal research and development projects.
In addition to our research and development activities classified as research and development
expense, we incur research and development expenses under funded development arrangements with
governments and industrial third parties. For the three and nine months ended September 26, 2009,
these expenses amounted to $8.0 million and $23.1 million compared to $5.1 million and $17.2
million for the three and nine months ended September 27, 2008, respectively. In accordance with
generally accepted accounting principles, these expenses have been classified as cost of revenue
rather than research and development expense. The combined investment in future technologies,
classified as cost of revenue and research and development expense, was $11.2 million and $33.8
million for the three and nine months ended September 26, 2009, respectively, compared to $10.1 and
$30.8 for the three and nine months ended September 27, 2008, respectively.
Selling and Marketing
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total selling
and marketing |
$ | 9,514 | $ | 10,522 | $ | (1,008 | ) | (9.6 | )% | $ | 27,420 | $ | 35,451 | $ | (8,031 | ) | (22.7 | )% | ||||||||||||||
As a percentage of
total revenue |
12.1 | % | 11.4 | % | 13.9 | % | 16.3 | % |
Selling and marketing expenses decreased by $1.0 million, or 9.6%, to $9.5 million (12.1% of
revenue) in the three months ended September 26, 2009 from $10.5 million (11.4% of revenue) in the
three months ended September 27, 2008. This was driven by a decrease in our home robots division of
$0.7 million attributable to decreases in sales commission expenses as a result of lower sales to
domestic retailers and direct fulfillment expenses related to lower direct sales in the three
months ended September 26, 2009 as compared to the three months ended September 27, 2008. Selling
and marketing expenses in our government and industrial division decreased by $0.4 million
attributable to a decrease in sales commissions expense as a result of lower sales in the three
months ended September 26, 2009 as compared to the three months ended September 27, 2008.
Selling and marketing expenses decreased by $8.0 million, or 22.7%, to $27.4 million (13.9% of
revenue) in the nine months ended September 26, 2009 from $35.5 million (16.3% of revenue) in the
nine months ended September 27, 2008. This was driven by a decrease in our home robots division of
$8.0 million primarily attributable to a reduction of $5.8 million in television and other
marketing expenses for the nine month period ended September 26, 2009 as compared to the nine
months ended September 27, 2008 as a result of our strategy to aggressively manage our expenses.
The decrease of selling and marketing expenses in our home robots division was also attributable to
decreases of $1.2 million in sales commission expenses as a result of lower sales to domestic
retailers and $1.0 million in direct fulfillment expenses related to lower direct sales in the nine
months ended September 26, 2009 as compared to the nine months ended September 27, 2008.
General and Administrative
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total general
and administrative |
$ | 7,420 | $ | 7,578 | $ | (158 | ) | (2.1 | )% | $ | 21,915 | $ | 21,696 | $ | 219 | 1.0 | % | |||||||||||||||
As a percentage of
total revenue |
9.5 | % | 8.2 | % | 11.1 | % | 10.0 | % |
General and administrative expenses decreased by $0.2 million, or 2.1%, to $7.4 million (9.5%
of revenue) in the three months ended September 26, 2009 from $7.6 million (8.2% of revenue) in the
three months ended September 27, 2008. This decrease is primarily attributable to expenses related
to a sales tax audit and bad debt recorded in the three months ended September 27, 2008, partially
offset by increased incentive compensation expense in the three months ended ending September 26,
2009.
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General and administrative expenses increased by $0.2 million, or 1.0%, to $21.9 million
(11.1% of revenue) in the nine months ended September 26, 2009 from $21.7 million (10.0% of
revenue) in the nine months ended September 27, 2008. This increase is primarily attributable to
higher incentive compensation and stock compensation expense partially offset by lower expenses
related to a sales tax audit, bad debt and consulting expenses in the three months ended September
26, 2009 as compared to the three months ended September 27, 2008.
Other Income (Expense), Net
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total other
income (expense),
net |
$ | 112 | $ | 180 | $ | (68 | ) | (37.8 | )% | $ | (96 | ) | $ | 917 | $ | (1,013 | ) | (110.5 | )% | |||||||||||||
As a percentage of
total revenue |
0.2 | % | 0.2 | % | (0.1 | )% | 0.4 | % |
Other income (expense), net amounted to $0.1 million for the three months ended September 26,
2009 compared to $0.2 million for the three months ended September 27, 2008. Other income
(expense), net for the three month period ended September 26, 2009 was directly related to foreign
currency exchange gains resulting from foreign currency exchange rate fluctuations. Other income
(expense), net for the three month period ended September 27, 2008 was directly related to interest
income resulting from investments in auction rate securities and money market accounts. All of our
auction rate securities investments have been settled and our current money market investments earn
significantly reduced interest rates as compared to the three month period ended September 27,
2008.
Other income (expense), net amounted to $(0.1) million for the nine months ended September 26,
2009 compared to $0.9 million for the nine months ended September 27, 2008. Other income (expense),
net for the nine month period ended September 26, 2009 was directly related to foreign currency
exchange losses resulting from foreign currency exchange rate fluctuations. Other income (expense),
net for the nine month period ended September 27, 2008 was directly related to interest income
resulting from investments in auction rate securities and money market accounts. All of our auction
rate securities investments have been settled and our current money market investments earn
significantly reduced interest rates as compared to the nine month period ended September 27, 2008.
Income Tax Expense (Benefit)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 26, | September 27, | Dollar | Percent | September 26, | September 27, | Dollar | Percent | |||||||||||||||||||||||||
2009 | 2008 | Change | Change | 2009 | 2008 | Change | Change | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Total income
tax expense
(benefit) |
$ | 1,620 | $ | 2,218 | $ | (598 | ) | (27.0 | )% | $ | (1,452 | ) | $ | (4,437 | ) | $ | 2,985 | (67.3 | )% | |||||||||||||
As a percentage of
total revenue |
2.1 | % | 2.4 | % | (0.8 | )% | (2.0 | )% |
In the three months ended September 26, 2009, we recorded a $1.6 million tax expense based on
a projected effective 2009 income tax rate of 34.7%. This $1.6 million expense compares to a $2.2
million tax expense for the three months ended September 27, 2008 based on a projected effective
2008 income tax rate of 48.2%
In the nine months ended September 26, 2009, we recorded a $1.5 million tax benefit based on a
projected annual effective 2009 income tax rate of 34.7% compared to a $4.4 million tax benefit for
the nine months ended September 27, 2008 based on a projected annual effective 2008 income tax rate
of 48.2%. This decrease in our projected annual effective tax rate was primarily due to the benefit
of research and development tax credits anticipated in 2009 and the impact of permanent book-tax
differences. In addition, we recorded a benefit from the conversion of incentive stock options to
non-qualified stock options as a result of our stock option exchange program which concluded in our
second fiscal quarter of 2009 and which increased our effective tax rate for the nine month period
ending September 26, 2009 to 44.6%.
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Liquidity and Capital Resources
At September 26, 2009, our principal sources of liquidity were cash and cash equivalents totaling
$62.7 million and accounts receivable of $43.9 million.
We manufacture and distribute our products through contract manufacturers and third-party logistics providers.
We believe that this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office
facilities, we also minimize the cash needed for expansion. Accordingly, our capital spending is generally limited to leasehold improvements, computers, office furniture and product-specific
production tooling, internal use software and test equipment. In the nine months ended September 26, 2009 and September 27, 2008, we spent $3.4 million and $13.6 million, respectively,
on capital equipment.
Our strategy for delivering products to our retail customers gives us the flexibility to provide container
shipments directly to the retailer from China and allows our retail partners to take possession of product on a domestic basis. Accordingly, our home robots product inventory consists of goods shipped
to our third-party logistic providers for the fulfillment of retail orders and direct-to-consumer sales. Our inventory of government and industrial products is relatively low as they are generally
built to order. Our contract manufacturers are responsible for purchasing and stocking the majority of components required for the production of our products, and they invoice us when the finished
goods are shipped.
Our consumer product sales are, and are expected to continue to be, highly seasonal. This seasonality has
historically resulted in a net use of cash in support of operating needs during the second and third quarters of the year, with the low point generally occurring in the third quarter, and a favorable
cash flow during the first and fourth quarters. The cash balance of $62.7 million at September 26, 2009 is primarily the result of our significant focus over the past year on managing working
capital, with specific emphasis placed on reducing inventory levels. We have relied on our working capital line of credit to cover short-term cash needs resulting from the seasonality of our consumer
business in the past. We currently do not have any borrowings outstanding under our existing working capital line of credit and expect to negotiate a new credit facility prior to the June 2010
termination of the existing credit facility.
Discussion of Cash Flows
Net cash provided by operating activities for the nine months ended September 26, 2009 was
$24.6 million, an increase of $24.9 million compared to the $0.3 million of net cash used in
operating activities for the nine months ended September 27, 2008. The increase in net cash
provided by operating activities was primarily driven by the following factors:
| An increase in cash resulting from an increase in accounts payable of $21.8 million, primarily due to the timing of cash payments under normal operating cycles; | ||
| An increase in cash resulting from a lower investment in inventory of $7.3 million, primarily driven by the implementation of operational initiatives to improve our inventory management and reduce overall inventory levels; | ||
| A decrease in net loss of $2.9 million, primarily due to an increased focus on cost containment; | ||
| An increase in depreciation and amortization of $1.0 million and stock based compensation of $1.1 million, both of which are non-cash items; and | ||
| A decrease in cash resulting from an increase in accounts receivable of $9.8 million, primarily due to an increase in days sales outstanding. |
Net cash used in investing activities for the nine months ended September 26, 2009 was $3.4
million, a decrease of $19.6 million compared to the $23.0 million of net cash used in investing
activities for the nine months ended September 27, 2008. This decrease in net cash used in
investing activities was primarily driven by the following two events that occurred in the nine
months ended September 27, 2008 that did not occur in the nine months ended September 26, 2009:
| Purchases of property and equipment associated with the move to our new headquarters in 2008; and | ||
| The purchase of Nekton Research, LLC. |
Net cash provided from financing activities for nine months ended September 26, 2009 was $0.7
million, a decrease of $6.4 million compared to the $7.1 million of net cash provided by financing
activities for the nine months ended September 27, 2008. This decrease was primarily due to $5.5
million of borrowings under our revolving line of credit in the nine months ended September 27,
2008 that did not occur in the nine months ended September 26, 2009.
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Working Capital Facility
We have an unsecured revolving credit facility with Bank of America, N.A., which is available
to fund working capital and other corporate purposes. The amount available for borrowing under our
credit facility is the lesser of: (a) $45.0 million or (b) amounts available pursuant to a
borrowing base calculation determined pursuant to the terms and conditions of the credit facility.
As of September 26, 2009, approximately $37.8 million was available for borrowing. The interest on
loans under our credit facility 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 September 26, 2009, we had letters of credit outstanding of $2.0 million 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 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.
As of September 26, 2009, we were in compliance with all covenants under the credit facility.
Equipment Financing Facility
We have a $5.0 million secured equipment facility with Banc of America Leasing & Capital, LLC
under which we can finance the acquisition of equipment, furniture and leasehold improvements. We
may borrow amounts or enter into lease agreements under the equipment facility until May 1, 2010,
with terms from 36 to 60 months depending upon the nature of the collateral. Our obligations under
the equipment facility will be secured by any financed equipment.
As of September 26, 2009, we have entered into operating leases for equipment valued at
approximately $0.2 million which has reduced the funds available under this equipment facility to
$4.8 million.
The 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
and a minimum specified annual net income.
The 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.
As of September 26, 2009, we were in compliance with all 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 and operating leases, all of which we anticipate funding through working capital,
funds provided by operating activities and our existing working
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capital line of credit. 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. Pursuant to the terms of
the Nekton Research, LLC acquisition agreement, additional consideration of up to $5 million may be
paid based on the achievement of certain business and financial milestones which are determined at various intervals through March 17, 2011. 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. We do not have any commitments to settle contractual
obligations related to our working capital line of credit as of September 26, 2009. The following
table describes our commitments to settle contractual obligations in cash as of September 26, 2009:
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 |
$ | 2,508 | $ | 4,616 | $ | 4,174 | $ | 11,655 | $ | 22,953 | ||||||||||
Minimum contractual payments |
1,581 | 10,500 | 1,500 | | 13,581 | |||||||||||||||
Total |
$ | 4,089 | $ | 15,116 | $ | 5,674 | $ | 11,655 | $ | 36,534 | ||||||||||
Our minimum contractual payments consist entirely of payments to our provider of direct
fulfillment services for direct to consumer sales of our home robots, which are incurred in the
ordinary course of business. Based on an analysis of actual and projected fees for 2009, we expect
there will be a shortfall between our actual transaction fees and our contractual minimum fees. In
addition, we expect to incur incremental fees due to a shortfall between our actual average order
value and contractual average order value minimums during 2009. Expense accruals for the
proportionate share of these expected shortfalls have been recorded to selling and marketing
expense in the three and nine month periods ending September 26, 2009.
Off-Balance Sheet Arrangements
As of September 26, 2009, 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
At September 26, 2009, we had unrestricted cash and cash equivalents of $62.7 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 September 26,
2009, all of our cash equivalents were held in money market accounts.
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Our exposure to market risk also relates to the increase or decrease in the amount of interest
expense we must pay on any 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 September 26, 2009, we had letters of
credit outstanding of $2.0 million under our working capital line of credit and approximately $0.2
million advanced for operating leases under the equipment 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, but
we believe this exposure to be immaterial. 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 Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of
the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures as of the end of the period
covered by this report were effective in ensuring that information required to be disclosed by us
in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and
forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely discussions regarding required
disclosure. 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 27, 2008, which could
materially affect our business, financial condition or future results. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or which are similar to
those faced by other companies in our industry or business in general, may also impair our business
operations. There are no material changes to the Risk Factors described in our Annual Report on
Form 10-K for the fiscal year ended December 27, 2008.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table sets forth the repurchases of our equity securities during the three months
ended September 26, 2009 by or on behalf of us or any affiliated purchaser:
(c) Total | (d) Maximum | |||||||||||||||
Number of | Number (or | |||||||||||||||
(b) | Shares (or Units) | Approximate Dollar | ||||||||||||||
(a) Total | Average | Purchased as | Value) of Shares (or | |||||||||||||
number | Price | Part of Publicly | Units) that May Yet | |||||||||||||
of Shares | Paid per | Announced | Be Purchased Under | |||||||||||||
(or Units) | Share (or | Plans or | the Plans or | |||||||||||||
Period | Purchased | Unit) | Programs | Programs | ||||||||||||
Fiscal month
beginning June 28,
2009 and ended July
25, 2009 |
107 | (1) | $ | 10.52 | (2) | | | |||||||||
Fiscal month
beginning July 26,
2009 and ended
August 22, 2009 |
133 | (1) | $ | 10.61 | (2) | | | |||||||||
Fiscal month
beginning August
23, 2009 and ended
September 26, 2009 |
| | | | ||||||||||||
Total |
240 | (1) | $ | 10.57 | (3) | | | |||||||||
(1) | Represents shares of our common stock withheld by us to satisfy the minimum tax withholding obligation in connection with the vesting of restricted stock units held by executive officers. | |
(2) | The amount represents the last reported sale price of our common stock on the NASDAQ Global Market on the applicable vesting date. | |
(3) | The amount represents the weighted average sale price of all shares of our common stock repurchased during the three months ended September 26, 2009. |
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 and directors (including Colin Angle,
Chief Executive Officer, Joseph Dyer, President Government and Industrial Robots Division, Glen
Weinstein, Senior Vice President, General Counsel and Secretary, and Helen Greiner, Director) of
the Company have entered into trading plans (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.
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Item 6. | Exhibits |
Exhibit Number | Description | |
31.1
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
31.2
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
iROBOT CORPORATION |
||||
Date: October 30, 2009 | By: | /s/ JOHN LEAHY | ||
John Leahy | ||||
Executive Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) | ||||
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EXHIBIT INDEX
Exhibit | ||
Number | Description | |
31.1
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
31.2
|
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
28