UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 30, 2017January 1, 2022
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file no. 001-36414
iROBOT CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | | 77-0259 33577-0259335 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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8 Crosby Drive, Bedford, MA | | 01730 |
(Address of principal executive offices) | | (Zip Code) |
8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices, including zip code)
(781) 430-3000
(Registrant’s telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION
Securities registered pursuant to Section 12(b) OF THE ACT:of the Act:
Common Stock, $0.01 par value per share | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | IRBT | The Nasdaq Stock Market LLC |
SECURITIES REGISTERED PURSUANT TO SECTION
Securities registered pursuant to Section 12(g) OF THE ACT:
of the Act: None
Indicate by check-mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check-mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 ¨
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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | ☑ | Accelerated filer | ¨ |
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Large accelerated filer | ý | Accelerated filer | ¨
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| Non-accelerated filer | ¨(Do not check if a smaller reporting company) | Smaller reporting company | ¨
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| | Emerging growth company | ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ
The aggregate market value of the Common Stock held by nonaffiliates of the registrant was approximately $2.3$2.5 billion based on the last reported sale of the Common Stock on The Nasdaq Global Select Market on July 1, 2017,2, 2021, the last business day of the registrant's most recently completed second fiscal quarter.
As of February 12, 2018,January 28, 2022, there were 27,945,27527,028,927 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 30, 2017.January 1, 2022. Portions of such Proxy Statement are incorporated by reference into Part III of this Form 10-K.
iROBOT CORPORATION
ANNUAL REPORT ON FORM 10-K
Year Ended December 30, 2017January 1, 2022
TABLE OF CONTENTS
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PART I
ITEM 1.BUSINESS
This Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements. All statements other than statements of historical facts contained in this Annual Report, on Form 10-K, including statements regarding our future results of operations and financial position, business strategy, plans and objectives of management for future operations, and plans for product development, launches and manufacturing, ability to address consumer needs, expansion of our addressable market and connected consumer base, factors for differentiation of our products, our competition, our market position, market acceptance of our products, seasonal factors, the impact of promotional activity and tariffs, efforts to refine value proposition and related results, efforts to mitigate supply chain challenges, availability of semiconductor chips, strategic alliances and product integration plans are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss certain of these risks in greater detail in the "Risk Factors" section and elsewhere in this Annual Report on Form 10-K.Report. Also, these forward-looking statements speak only as of the date of this Annual Report, on Form 10-K, and we have no plans to update our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report. We caution readers not to place undue reliance upon any such forward-looking statements.
iRobot and its stylized logo, Roomba, Clean Base, iRobot Genius Home Intelligence, NorthStar, Create, Clean Map, iAdapt, Aware, Home Base, Looj, Braava, Braava jet, AeroForce, AllergenLock, Better Together, PerfectEdge, Corners. Edges. And the Details in Between., Imprint, Mirra, Root, Terra, vSLAM and Virtual Wall are trademarks of iRobot Corporation.Corporation (together with its subsidiaries, "iRobot", the "Company", "we", "us" or "our").
Overview
iRobot Corporation ("iRobot" or the "Company" or "we") is a leading global consumer robot company that designs and builds robots that empower people to do more both insidemore. With over 30 years of artificial intelligence ("AI") and outsideadvanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the home. The Company's consumer robots help people find smarter ways to clean and accomplish more in their daily lives.world. iRobot's portfolio of solutionshome robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. ForLeveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more than 25 years, we have been a pioneer in the roboticsefficient, more secure and consumer products industries.healthier places to live.
Since our founding in 1990, we have developed expertise in all the disciplinesexpertise necessary to design, build, sell and buildsupport 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 developcreate next-generation and new products,robotic platforms. We believe that this approach accelerates the time to market while also reducing the costs, time cost and risk ofother risks associated with product development. OurThese capabilities are amplified by our Genius Home Intelligence ("Genius") platform, which leverages our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies to provide consumers with greater control over our products, simple integration with other smart home devices, recommendations that further enhance the cleaning experience and the ability to share and transfer home knowledge across multiple iRobot robots. We believe that the capabilities within Genius will support our ability to build out a larger ecosystem that encompasses a broader range of adjacent robotic and smart home categories. We believe that our significant expertise in robot design, engineering, and engineeringsmart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to expand our total addressable market and capitalize on the anticipated growth we expect in a wider range of robotic and smart home categories.
2021 Highlights
Our total revenue for 2021 was $1,565.0 million, which represents a 9.4% increase from revenue of $1,430.4 million for 2020. Domestic revenue grew $9.5 million, or 1.3%, and international revenue increased by $125.1 million, or 18.2%.
Since the market for robot-based consumer products.
Overintroduction of the past sixteen years,Roomba robotic vacuum cleaner ("RVC") in 2002, we have sold more than 2040 million consumer robots worldwide. During 2016, we took several stepsworldwide to become more focused on our well-establisheda global, market-leading consumer robots business androbotics innovator with a strong presence in a number of major geographic regions worldwide. In 2021, iRobot generated annual revenue of $1.565 billion while navigating very challenging market conditions as the COVID-19 pandemic continued to capitalize on the substantial opportunities available to us within consumer markets. We completed the saleimpact all aspects of our defensebusiness consistent with its effect across many industries. Most notably, we have faced supply chain challenges that have limited our ability to increase production to fulfill demand for our products and security business unitthat resulted in April 2016. In addition, we reallocated all thehigher costs to produce and ship our products. Our commitment to innovation and funding critical research and development resources fromprojects continued to yield tangible results through new product launches, and new and enhanced product features and functionality:
•We launched two major upgrades of our remote presence businessGenius Home Intelligence platform that delivered a wider range of features and functionality to provide users with greater control for where, when and how our consumer business duringRoomba and Braava robots clean.
These enhancements also enabled tighter integration between our products and other smart home devices, and the ability for consumers to seamlessly transfer maps to new iRobot robots added into the home.
•We launched the Roomba j7 Series, our first quarterRoomba designed specifically to leverage our Genius platform and our first Roomba with the ability to identify objects. Powered by Genius and featuring PrecisionVision Navigation technology, the Roomba j7 can detect, identify and avoid an expanding range of 2016,objects. We also launched the Roomba i1 Series, a lower-cost RVC that was initially sold at select retailers.
•We introduced the iRobot H1 handheld vacuum, a premium portable vacuum for cleaning hard-to-reach areas.
In November 2021, we acquired Aeris Cleantec AG ("Aeris"), a fast-growing provider of premium air purifiers. The addition of Aeris helps expand iRobot’s total addressable market with a portfolio of air purifiers that we believe are differentiated by their sophisticated design, quality craftmanship, HEPA filtration, state-of-the-art engineering and exited the remote presence business during the second quartersoftware intelligence. Other 2021 highlights included our efforts to mitigate semiconductor chip shortages that constrained production of 2016. These actions were taken to solidify our position as the leader in diversified consumerfloor cleaning robots and to focus on key technologies, with an emphasis on software,address a range of supply chain challenges that allowresulted in higher-than-expected costs for components, raw materials and transportation. We also continued our robots to understand the homesprocess expanding production in which they operate. It is our intent to continue investing in these critical technologies and the economic opportunities they unlock.
During 2017, we continued to expand our global operations with the acquisition of two of our major distributors in Japan and Europe. On April 3, 2017, we closed the acquisition of the iRobot-related distribution business of Sales On Demand Corporation (SODC) based in Tokyo, Japan for approximately $16.6 million in cash. The acquisition of SODC will better enable us to maintain our leadership position and accelerateMalaysia. To support the growth of our businessdirect-to-consumer sales channel, we continued to invest in Japan through direct control of pre-improving the online buying experience on our digital properties and post-sales market activities including sales,enhancing our marketing branding, channel relationshipssystems and customer service. It also expandstools to improve our presenceefficiency and customer outreach opportunitieseffectiveness in Japan. Additionally, on October 2, 2017, we closed the acquisition oftargeting our largest European distributor, Robopolis SAS, a French company (Robopolis), for approximately $170.1 million in cash, which was offset by acquired cash held by Robopolis and its subsidiaries, resulting in a net cash outlay of approximately $132.1 million. We anticipate that this acquisition will enhance our distribution network, ensure global brand consistency and help us better serve the needs of European consumers. We expect to drive continued growth in global markets through a consistent approach to all market activities including sales, marketing, branding, channel relationships and customer service. Both acquisitions provide us with more direct control over the go-to-market execution in these key regions.
We also achieved a number of significant milestones in the past two years that we believe will assist us in continuing to generate profitable growth and enhance value for our shareholders. In particular, in 2016, we successfully launched Roomba 960, our second 900 series Roomba, that extends mapping, visual navigation and cloud connectivity to a wider range ofconnected customers. We also launched the Braava jet mopping robot, with precision jet spraycontinued to test, refine and vibrating cleaning head, focused on expanding our wet floor care business. Both the Roomba 900 series and Braava jet are significantly more complex products, delivering enhanced performance enabled by software. The iRobot HOME App, compatible with both the Roomba 900 series and Braava jet, helps users get the most out of their experience by allowing them to choose the appropriate cleaning optionsexpand robot-related subscription services for their unique home. We also announced a relationship with Amazon Web Services, or AWS, that we believe will enable iRobot
to address significant opportunities within our consumer business and the connected home. AWS Cloud is a managed cloud solution that enables connected devices to interact easily and securely with cloud applications and other devices. The AWS Cloud will enable iRobot to scale the number of connected robots it supports globally and allow for increased capabilities in the Smart Home. We implemented new Roomba marketing programsconsumers in the United States, Japan and Europe.
Strategy
Our strategy to drive sustainable, profitable growth over the long term is focused on four concepts: innovate, get, keep and grow – all of which is enabled by our talent, operational excellence and an expansive range of data and insights about our products and the consumers who purchase them.
•Innovate: We are focused on maintaining our RVC category leadership and further diversifying our product portfolio into adjacent categories by continuing to fund innovation. Our investments in research and development support ongoing advances in our Genius platform by leveraging our extensive AI, home understanding and machine vision capabilities as well as developments that resultedfurther enhance the design and performance of our hardware. We believe that software intelligence will be increasingly critical for differentiating our floor cleaning robots and other home innovations.
•Get: We ended 2021 with approximately 14.0 million connected customers who have opted into communications with us either through our Home App, email or both. As we move forward, we believe that our extensive network of retailers and distributors around the world will remain critical in enabling us to continue expanding our connected customer base.
•Keep: It is important that our customers are happy with the performance of our products and use them consistently. We believe that a significant return onhighly satisfied iRobot customer is more likely to recommend our investment whichproducts to others and purchase more products and accessories directly from us over the course of their ownership. Accordingly, we plan to leverage as part of our strategy to accelerate growthinvest in international markets. In 2017, we launched Roomba 690features and 890, extending Wi-Fi connectivity tofunctionality aimed at elevating the entire Roomba line. And, we launched several connected product features, including push notifications, Clean Map Reports and integrations with Amazon Alexa, Google Assistant and IFTTT platform technology.
Our total revenue for 2017 was $883.9 million, which represents a 33.8% increase from 2016 revenue of $660.6 million. Domestic consumer robots revenue grew $133.2 million primarily due to increased sales as a result of significant investments in advertising media and national promotionsiRobot experience as well as in our customer care organization.
•Grow: An important element in our plan to drive profitable growth over the strength of the Roomba 900 series and Roomba 600 series. International consumer robotslong term is increasing revenue grew by $94.6 million in 2017 with increases in most markets, offset by a decline in China.
Our financial performance in 2018 will be driven byfrom our continued transformationexisting customers. To motivate more customers to a global consumer robots company. Our strategy is to maintain Roomba’s leadership in the robotic vacuum cleaner segment while positioning the Company as a strategic player in the emerging Smart Home. We expect growth to be driven by:
deeper household penetration of Roomba globally;
continued investment in innovation to extend our technology and product leadership;
increased gross margin due to our acquisitions of two of our foreign distributors, SODC and Robopolis, in 2017;
adoption and awareness of Braava products through targeted marketing programs; and
research and development of new products.
Strategy
In 2002, iRobot created the home robot cleaning category with the introduction of its Roomba vacuuming robot. Today, we are a global enterprise that has sold more than 20 million consumer robots worldwide. iRobot’s success in driving adoption of connected Roomba robots has created a unique opportunity to extend consumer value in the home and expand our business. Our long-term strategy is to increase the penetration ofpurchase our products and services more frequently directly from us, we continue to invest in existing markets, expand current products into new markets,enhancing the online buying experience on our website and develop and launch new products into current and adjacent markets. Asthrough our customer base grows, iRobot plans to create an ecosystem of connected robots designed to integrate with other devices. This ecosystem will create greater possibilities for new features and capacitiesHome App as well as empowering the Smart Home.
Global expansion is a key component of our strategy. Our relentless pursuit of product leadership, through targeted investment in key technologiesby implementing marketing systems and capabilities, coupled with our investments in furthering our global brand and targeted marketing initiatives, allowstools designed to enable us to continuetarget the right customers at the right time with the right promotions. Product diversification is also strategically important to maintain our leadership position in the robotic vacuum cleaner segment despite increasing competition. Our recent acquisitionsexpanding existing customer
To successfully execute our 2018 plan and drive revenue diversification and significant revenue growth beyond 2018,revenue. Accordingly, we plan to continue to make investmentspursue organic product development, partnerships and acquisitions that will enable us to expand our offerings and upsell and cross-sell them to our connected customers.
Technology
Since the Roomba’s introduction in our business during the year. These investments are expected to help iRobot achieve the following goals:
Continue to strengthen our marketing capabilities globally2002, we have continuously pursued innovation and accelerate worldwide consumer adoptionintroduced a wide of Roomba to maintainrange of powerful features and functionality that have been favorably received by customers, helped extend our market-leading position in robotic vacuum cleaners;
Continue to develop our wet floor care business to generate a material, secondary revenue stream;
Scale our infrastructure to support global operations and connected products;
Explore, develop and grow adjacent non-floor care consumer robot productstechnology and category leadership, and have further expanded our product portfolio. Over the past several years, we have focused on research and development initiatives that can generate meaningful diversified revenue streams;elevate the iRobot experience by advancing overall cleaning efficacy and
Make continued operational improvements that can reduce product and operating costs.
Key pillars performance, increasing the autonomy of our strategy include:
Technology: As a leading global consumer robotics company, iRobot must developproducts and maintain best-in-class technology in the areas of cleaning, mappingenabling personalized control over how, when and navigation. In 2018, iRobot plans to take steps towards expanding its product lines with newwhere our robots clean. We believe that our products that will deliver innovative solutions to improve cleaning performance, efficiency and ease-of-use. Mapping and navigation continuescontinue to be the core focus for iRobot. Consumer robots that can mapincreasingly differentiated by their software intelligence and are spatially aware creates a unique and differentiating opportunity to expand consumer value.
Brand: In 2016, we rolled out a new logo, mark and brand language to signify the partnership between man and machine. In 2017, to meet our goal of a consistent brand experience in every region, we expanded our presence globally by taking more direct control of marketing programs and the customer experience in Japan and Europe by acquiring key regional distributors. We believe our expanded global presence will allow us to strengthen strategic retailer partnerships, minimize competitive pressures and increase our consumer activation field programs.
Portfolio: Our strategy includes building a portfolio of investments to diversify across markets and delivering a steady progression of innovation over time. In 2017, we introduced the Roomba 690 and 890, extending cloud connectivity to a wider range of consumers. We plan to continue to build a diverse portfolio of physical platforms and digital capabilities across international markets and deliver a steady progression of innovation and growth. To achieve this,we plan to focus on developing products with connectivity and mobile app-enabled features, including Wi-Fi home maps and advanced spatial intelligence and memory.
Talent: Our employees are the most important driver of who we are. Our success, diversity and reputation as developers of great talent make us an attractive employer to the top talent all over the world. Talent recruitment and retention continues to be at the core of what we accomplish as we map out our culture and work towards achieving our vision. We are also growing our company to meet organization needs by strategically investing in our employees around the globe.
Technology
In 2016, iRobot narrowed its focus to the consumer market and made increased, but disciplined investments in advancing mapping and navigation, user interaction including cloud and app development and cleaning efficacy. From the launch of Braava jet, to the introduction of a lower cost Visual Simultaneous Localization and Mapping, or vSLAM, solution in Roomba 960, these strategic investments in technology had an immediate impact on product diversification, performance and market expansion. In 2017, we introduced two new connected products to the product portfolio bringing the advantages of cloud connectivity to more consumers. With the iRobot HOME App, we also deliveredGenius platform accordingly. By leveraging our robots’ maps directly to our customers through the launch of post-mission cleaning maps. We believe the improved performance of our connected robots, and the data sourced from our maps, will accelerate new product development and digital partnerships for the Smart Home.
We plan to continue to leverage opportunities, enabled by our growing connected product portfolio, to invest in developing technologies and interfaces for our products to provide a convenient and personalized user experience. At the foundation of our effort to drive enhanced user experience has been the deployment of our newrobust connectivity and cloud infrastructure through AWS. We made this investment to enableAmazon Web Services and the ever-increasing processing power in our robots, we have built a Home Knowledge Cloud that can quickly and cost-effectively support over-the-air delivery of new digital features and enhanced functionality for customers globally. This infrastructure also allows us to scalecollect valuable performance data that helps us identify and remedy product performance issues, improve the effectiveness of our connected products globally, with increased access to valuable cloud servicessupport teams, and applications toinform our short-term and long-term product roadmaps.
Our development roadmaps are shaped by our product management teams, interactions between customers and our support future product features,teams, a wide range of consumer studies and connect to other devices in the Smart Home.
From robotic vacuum cleaning to mopping, we are dedicated to developing market-leading solutions which provide compelling value to customers worldwide. From our customer’s perspective, the core valuesurveys, as well as analysis of extensive performance data of our robots isin the field as discussed above. We believe that our Genius platform will continue to play a key role in our ability to efficientlyconsistently deliver new features and effectivelyfunctionality in our floor cleaning robots and other home innovations. We also plan to continue leveraging recent and ongoing investments in a range of technologies and interfaces, including artificial intelligence, home understanding and machine vision, that further improve cleaning efficacy, make our products easier to use and perform a physical mission -better, increase the task for whichtrust that robot was initially purchased. In addition, we focus on features that allow the robotsuser places in our products to perform longer, without consumer interaction. Our goal is to deliver maximum autonomysuccessfully complete their missions, and effectiveness oftightly integrate our products into the mission.
Products
Historically, we have designed and marketed robots for both the consumer and defense and security markets. Following completion of the divestiturelifestyles of our defense and security business unit in April 2016, we are now focusing solely on the consumer market. With more than two decades of leadership in the robot industry, we remain committed to creating robots that empower people to do more.users.
Consumer Products & Services
We sell various products that are designed for useto empower people to do more in and around the home. Our current consumer products are focused on both indoor and outdoor cleaning applications.their homes. We believe our consumer products providehome floor cleaning robots deliver compelling and unique value to our customers by deliveringproviding a better way to clean and by freeingthat frees people from repetitive, time consuming home cleaning tasks. To ensure the continued acceptanceadoption of our robots, we willplan to continue to invest in technologythe digital, data and physical products necessary to further improve the robots' cleaning efficacy, deliver the requisite autonomy to complete missions without requiring user intervention, and offer personalized control over cleaning so that the robots fit seamlessly into the lifestyle of their capabilities.owners. We also have taken and will continue to take steps aimed at diversifying our product portfolio, which we believe will help us increase our total addressable market, leverage our Genius platform to support a larger ecosystem of robotic and smart home offerings, and drive profitable growth over the long term. We also continue to market subscription services for our robotic floor cleaning robots, which provide subscribers with several important benefits: a lower initial out-of-pocket expense; an affordable monthly recurring membership fee for continued use of the product; dedicated customer care; accessories on demand; and extended warranty coverage.
Our products and services consist of the following offerings:
Home Maintenance Products: Floor Care Robots
•Roomba – We currently offer multiple Roomba floor vacuuming robots at varyingsuggested retail price points ranging from $299approximately $275 to $899$1,099 based upon features and performance characteristics. Roomba's design allows itOur WiFi-connected Roomba robots are powered by our Genius platform, which leverages our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies to clean under toe kicks, bedsprovide consumers with greater control over our products, simple integration with other smart home devices, provide recommendations to further enhance the cleaning experience and other furniture, resulting in cleaner floors since the ability to share and transfer home knowledge across multiple robots. To help ensure that our Roomba can access more ofrobots perform optimally, we also sell Roomba accessories and consumables, including the floor than standard upright vacuum cleaners. In addition, Roomba eliminatesClean Base® Automatic Dirt Disposal, replacement dirt disposal bags for the need to manually vacuum -- it cleans automatically upon the push of a button or through scheduling.Clean Base, filters, brushes and batteries.
In 2017, we launched our newest connected robots, Roomba 690 and 890, bringing the advantages of connectivity to more consumers. Roomba 900 series robots help keep floors cleaner throughout the entire home with intelligent visual navigation, iRobot HOME App control with wireless connectivity, and 5x the suction power over previous generation Roomba vacuum cleaners. In addition to these highest-feature products, our lineup also includes the 800 series and 600 series robots.
The Roomba 800 series robots offer our AEROForce technology which incorporates brushless, counter-rotating extractors that amplify suction for superior performance over bristle brushes, while requiring less maintenance than previous Roomba models. The Roomba 600 series robots offer a three-stage cleaning system which thoroughly vacuums every section of the floor multiple times, as well as AeroVac technology and improved brush design enabling the robot to better handle fibers like hair, pet fur, lint and carpet fuzz.
•Braava – We currently offer the Braava family of automatic floor mopping robots designed exclusively for hard surface floors. These robots provide a different cleaning approach than our Roomba products. Thehard-surface floors at suggested retail price points ranging from $199 to $450. Our WiFi-connected Braava robots pricedare also powered by our Genius platform. To help ensure that our Braava robots perform optimally, we also sell Braava accessories and consumables, including cleaning solution, washable and disposable mopping pads, replacement tanks and batteries.
•Subscription services: We currently market several different subscription services to customers around the world. In the U.S., our iRobot Select membership program includes a premium Roomba, accessories on demand, a dedicated customer support team and an extended warranty for a monthly fee. We are also in the early stages of piloting our
Smart Care service in the U.S., which provides subscribers with Roomba or Braava accessories as needed for a monthly fee. In Japan, we market our Robot Smart Plans in which the customer pays a monthly fee as part of a three-year commitment to lease either a Roomba or Braava robot. We are also piloting a monthly rental service for certain Roomba or Braava robots through a third-party distribution partner. We also now directly offer extended warranties for our floor care robots including an option to cover accidental damage in the U.S. We expect that over the course of the coming quarters, we will gain additional knowledge and insight that will help us refine our value proposition in each geographic region, improve the overall efficiency and effectiveness of customer acquisition and optimize the customer experience.
Home Maintenance Products: Cleaning Products
•H1 Handheld Vacuum – We currently offer a powerful portable vacuum that was designed to help people clean areas that Roomba cannot easily reach. This product is currently sold directly to consumers via our digital properties at $199a suggested retail price of $250. We also market accessories for this product including filters, chargers, batteries and $299, automatically dustan extension kit that converts the H1 into a stick vacuum.
Home Health Products: Air Purifiers
•Aeris Air Purifiers – With the acquisition of Aeris in November 2021, we now market a line of air purifiers under the Aeris brand at suggested retail price points ranging from $499 to $1,299. We also sell filters and damp mop hard surface floors using popular cleaning cloths or our specially designed reusable microfiber cloths, and include a special reservoir that dispenses liquid throughout the cleaning cyclefabric covers. During 2022, we plan to keep the cloth damp. Braava jet, launched in March 2016, works with Braava jet Cleaning Pads to tackle a range of hard floor cleaning jobs, from wet mopping and damp sweeping to simple dusting.
Our Mirra Pool Cleaning Robot is used to clean residential pools and removes debris as small as two microns from pool floors, walls and stairs. Mirra is brought to marketrebrand these products under the iRobot brand, through a relationship with Aquatron, Inc., which developsstart selling these directly on our digital properties and manufactures the pool cleaning robots.
Defense and Security Products
As noted above, we completed the divestiturebegin integrating elements of our defenseGenius platform technology into the Aeris product portfolio to further differentiate these products.
Home Education Products: Coding Robots
•Root – We offer Root robots designed to help children learn how to code that range in price from $129 to $199. These products help broaden the impact of our STEM efforts and security business unit in April 2016. Priorreinforce our commitment to this divestiture, we developedmaking robotic technology more accessible to educators, students and delivered unmanned tactical ground robots in defenseparents.
•Create 2– iRobot Create 2, priced at $199, is an affordable, preassembled mobile robot platform that provides an out-of-the-box opportunity for educators, developers and security product markets. Following this divestiture, we no longer develop or sell defensehigh-school and security products.college-age students to program behaviors, sounds, movements and add additional electronics.
Strategic Alliances
In addition to our internal technology development, we leverage relevant robotic technologies through licensing, acquisitions, venture investments and/or other partnerships. These strategic alliances are an important part of our product development, advanced research and distribution strategies. We rely on strategic alliances to provide technology and complementary product offerings and increased and quicker access to markets. drive market adoption of our robotic products.
We seek to form relationships with organizations that can provide best-in-class technology or market advantages for establishing iRobot technology. Consistent with our position on customer data privacy, our customer data is not accessible to third parties unless the customer affirmatively opts into the program and acknowledges that this home understanding data will be used in support of these related integrations. We are also advancing technology in new market segments.alliances with other smart home device companies that will help expand the capabilities of our products or enable our respective products to be integrated more tightly and thereby work together more seamlessly. Additionally, we plan to explore opportunities to forge strategic alliances that will enable us to resell complementary third-party products directly to our customers.
Sales and Distribution Channels
We sell our consumerrobotic floor care products through distributor and retail sales channels, as well as the online store on our on-line store.website and through our Home App. We plan to integrate the Aeris air purifier products into our channels as applicable while continuing to support existing business-to-business sales to schools, medical and dental offices and other commercial enterprises. For the fiscal years ended December 30, 2017, December 31, 2016, andJanuary 1, 2022, January 2, 2016,2021 and December 28, 2019, sales to non-U.S. customers accounted for 48.8%51.8%, 51.2%47.9%, and 56.0%50.3% of total revenue, respectively. For the fiscal yearyears ended January 1, 2022, January 2, 2021 and December 30, 2017, the Company28, 2019, we generated 13.5%21.8%, 22.7% and 21.3% of total revenue, respectively, from one of its retailers (Amazon). For the fiscal year ended December 31, 2016, the Company generated 12.9%, 12.3% and 10.4% of total revenue from its distributor in Japan, Sales On Demand Corporation (SODC), Robopolis SAS, a network of affiliated European distributors (Robopolis) and Amazon, respectively. For the fiscal year ended January 2, 2016, the Company generated 13.3% and 12.7% of total revenue from SODC and Robopolis, respectively. In April 2017, the Company acquired the iRobot-related distribution business of SODC, and in October 2017, the Company acquired Robopolis.our retailers.
Consumer Products
Consumer product revenues were $883.7 million, $655.9 million and $559.6 million for fiscal year 2017, 2016 and 2015, respectively. In the United States, Canada, Japan and Canada,across much of Europe, we sell our consumer products primarily through a network of national retailers. To support these retailers, we maintain in-house sales, marketing and product management teams. Certain smaller domestic retail operations in these regions are supported by distributors to whom we sell our products directly. With the acquisition of SODC and Robopolis, iRobot now directly services retailers in Japan and countries that were previously serviced by Robopolis, including Austria, Belgium, France, Germany, Netherlands, Portugal and Spain. In support of sales in the United States, Canada, Japan and the seven European countries previously serviced by Robopolis, we maintain in-house sales, marketing and product management teams. In China, retailers are serviced by two local distributors. Due to the special needs of this market, we maintain a local sales, marketing and product team to support the distributors, manage the local marketing plan and meet product needs. Throughout the rest of the world, our products are sold primarily through a network of in-country distributors who resell to retail stores in their respective countries. These distributors are supported by our international sales and product marketing team.
Our retail and distributor networks are our primary distribution channels for our consumer products. We also offer productsComplementing our retail and distributor networks is a growing direct-to-consumer through our domesticsales channel. For the fiscal years ended January 1, 2022, January 2, 2021 and international on-line stores, representing 4.1%December 28, 2019, direct sales to consumers accounted for 12.0%, 5.1%10.5% and 6.1%5.8% of total consumer robots revenue, for fiscal 2017, 2016 and 2015, respectively. We ended 2021 with approximately 14 million connected customers who have established valuable databases and customer lists that allow usopted in to target directly those consumers most likely to purchase a new robot or upgrade. With Wi-Fi connectivity implemented across Roomba 690 and higher models, iRobot can more directly provide customer support viaour digital communications, an increase of 44% over the iRobot HOME App. In addition, connectivity enables us to provide direct marketing material and push new features/fixes to robots in the field. We believe we maintain a close connection with our customers in eachend of our markets, which provides an enhanced position from which to improve our distribution and product offerings.
2020.
Customer Service and Support
We also provide ongoing customer service and support.support, which is critical to the “Keep” element of our strategy. Consumer customer service representatives, the majority of whom are employees of outsourced service organizations or our distribution partners, are extensively trained on the technical intricacies of our consumer products. With Wi-Fi connectivity implemented across the vast majority of our floor cleaning robots, we can provide customer support directly via the iRobot HOME App, and our customer service representatives can access robot performance information remotely to identify relevant issues and behaviors to more efficiently and effectively troubleshoot and address customer questions and concerns. In addition, this connectivity enables us to provide direct marketing material, and deliver new features and enhanced functionality to robots in the field. Customer care is also an important differentiator in our robots-as-a-service offering. We believe that working closely with members of our subscription services will help elevate the utility of our floor care robots, increase overall customer satisfaction and maximize ongoing member retention.
Marketing and Brand
We market our consumer robots to end-user customers through our extensive network of retail partners with the support of our sales and marketing teams as well as through our extensive network of retailers andin collaborations with in-country distributors. In addition, we sell directly to our consumers through our website. Oure-commerce channels around the world and continually improve the buying experience on our website isand Home App. For consumers seeking information about our products, the iRobot website showcases our brand, allows consumers to learn more about our products, including the latest product innovations, and enables direct-to-consumer sales. The website also playingplays an increasingimportant after-sales role in supporting brand awareness, addressingfor owners seeking spare parts and accessories, as well as for trouble-shooting possible issues and contacting customer questions and serving as a showcase for our products.support.
Our marketing strategy is to increasedrive consumer awareness of and interest in iRobot's product portfolio and convert this interest into sales via our brand awarenessretail and associate the iRobot brand with innovation, reliability and value.direct-to-consumer channels. Our sales and marketing expenses represented 18.3%18.5%, 17.4%18.6% and 15.9%19.1% of our total revenue in 2017, 2016fiscal years 2021, 2020 and 2015,2019, respectively. We expect to continue to invest in national advertising consumer and industry trade shows,across a range of media, direct marketing and public relations to drive consumer demand and further build brand awareness.
Marketing highlights in 2021 included continued progress to upgrade our marketing technology infrastructure and enhance the e-commerce functionality on iRobot.com and our HOME App. We have built a trusted, recognized brand by providing high-quality robots. Customer word-of-mouth has been a significant driveralso supported the launches of our brand's success to date.the iRobot owner loyalty encourages repurchase,Genius Home Intelligence platform, the j7 Series Roomba in the United States and positive customer experiences inspire others to adopt our products. Our marketing efforts are focused on fueling this word-of-mouth momentum,Europe, and we use public relationsthe iRobot H1 handheld vacuum as well as various forms of advertisingefforts to promotebegin scaling our products.
In April 2017, we acquired SODC, launching four new iRobot offices in Japan. In October 2017, we acquired our largest European distributor, Robopolis, launching new iRobot offices in seven countries, including Austria, Belgium, France, Germany, Netherlands, Portugal and Spain. These acquisitions allow us to drive continued growthsubscription services in the region through a consistent approachU.S. and Japan. Additionally, we invested to all market activities including sales,further elevate the iRobot brand and align it with our “So You Can Human” marketing branding, channel relationships and customer service. Our innovative robotscampaign. Related to these specific initiatives, we have continued to fund critical marketing, advertising and public relations campaigns have generated extensive press coverage, andefforts to build demand generation in ways that amplify the iRobot and ourapplicable product brands, generate consumer robots have won several awards. Through these efforts, we have been able to buildinterest in our brand, and we expect that our reputation for innovative products and perpetuate customer word-of-mouth, to encourage repeat purchases by existing customers and inspire new customers to buy our products. During 2022, key marketing initiatives include moving into production with our marketing technology systems and tools in key regions around the globe, rebranding and marketing the Aeris air purification products and continuing our efforts to elevate the iRobot brand globally to support will continue to play a significant role incontinued demand for our growth and success.offerings.
Manufacturing
Our core competencies are the design, development and marketing of robots. Our manufacturing strategy is to outsource non-core competencies, such as the production of our robots, to third-party entities skilled in manufacturing. By relying on the outsourced manufacture of our robots, we can focus our engineering expertise on the design of robots.robots and associated technologies.
Manufacturing a new product requires a close relationship between our product designers, our operations teams and the manufacturing organizations.contract manufacturer, as well as a range of component and raw materials suppliers as appropriate. Using multiple engineering techniques, our products are introduced to the selected production facility at an early-development stage and the feedback provided by manufacturing is incorporated into the design before tooling is finalized and mass production begins. As a result, we believe that we can significantly reduce the time required to move a product from its design phase to mass production deliveries, with improved quality and yields. Once a new product has been introduced, we focus on executing a multi-year plan to improve its profitability through a combination of higher production volume and cost-optimization initiatives.
Under our agreements with our contract manufacturers, the manufacturers supply us with specified quantities of products that align with demand forecasts that we establish based upon historical trends and analysis from our sales and product management functions. We believe that we have taken steps to diversify our manufacturing so that overall volumes are relatively well balanced across our multiple contract manufacturers and a substantial majority of volume is dual sourced. We expect our production processes will give us the capacity to produce up to 37,000 robots a day in 2022, helping us to meet demand for peak seasons and provide us with additional greater geographical diversity and flexibility to respond to ever-changing market conditions.
We outsource the manufacturing of our consumer products to fourmultiple contract manufacturers eachwith plants in Southern China and Malaysia. During 2021, we continued to scale production in Malaysia by qualifying additional contract manufacturers. The COVID-19 pandemic has affected and delayed our effort to fully diversify our supply chain into Malaysia during fiscal 2021. In fiscal 2022, we plan to continue to scale and expand production in Malaysia with the goal of which manufactureshaving the majority of our robots at a single plantU.S. volume produced in Malaysia so that we can substantially reduce our exposure to current U.S. tariffs in 2023, and mitigate the geopolitical risks associated with concentrating production solely in China. Our production processes giveWe also continue to explore potential expansion of our manufacturing footprint into regions that will help us lower overall supply chain costs.
During 2021, we encountered many supply chain challenges driven primarily by the capacityCOVID-19 pandemic consistent with its effect across many industries, including limited availability and rising costs for semiconductor components, higher raw materials costs and increased oceanic and air transportation expenses. We anticipate that higher supply chain costs, particularly those involving oceanic transportation, will continue to produce upimpact our business during 2022 and that our access to 20,000 robotssemiconductor componentry will remain limited through at least the first half of 2022. In addition, port congestion and warehouse labor shortages have caused and are expected to continue causing shipping delays and longer-than-expected shipping times. We are implementing a day, helpingrange of initiatives aimed at improving our supply chain continuity and resiliency, increasing our operational efficiency and effectiveness to help us to meet demand for peak seasons.capitalize on our most promising growth prospects, and enhancing product flexibility, quality and time-to-market.
Research and Development
Our research and development team develops new software and hardware products, as well as improves and enhances our existing software to address customer demands and emerging trends. We believe that our future success depends upon our ability to continue to develop new products and product accessories, and enhancements toenhance and develop new applications for our existing products. For the years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 2016,2021 and December 28, 2019, our research and development expenses were $113.1$161.3 million, $79.8$156.7 million and $76.1$141.6 million, or 12.8%10.3%, 12.1%11.0% and 12.3%11.7% of revenue, respectively. We intend to continue our investment in research and development to respond to and anticipate customer needs, and to enable us to introduce new products over the next few years that will continue to address our existing and adjacent market sectors.
Our research and development is conducted by teams dedicated to particular projects. Our research and development effortsprojects, which are primarily located at our headquarters in Bedford, Massachusetts and our office in Pasadena, California.
Competition
The market for robots, including floor cleaning robots, is highly competitive, rapidly evolving and subject to changing technologies, shifting customer needs and expectations, with an increasing number of competitor companies and products. As the likely increased introductionperformance, functionality and features of newour floor cleaning robots have advanced, we believe that consumers are increasingly willing to consider our products as replacements for their traditional vacuum cleaners and wet floor cleaning products. A number of established companies have developed or are developing robots that will compete directly with our product offerings, and many of our competitors have significantly more financial and other resources than we possess. Our robot cleaning competitors include consumer electronics and consumer appliance companies such as Samsung, LG, Panasonic, Xiaomi, Cecotec, Hitachi, Electrolux, Midea and Shark, traditional floor cleaning brands with robotic offerings such as Dyson, Bissell and Hoover, and firms primarily focused on robotic cleaning such as well as developers of robotEcovacs, Roborock, Neato and iLife. In addition, several competitors market floor cleaning products.
While we believe many of our customers purchase our Roomba floorrobots that consolidate both vacuuming robots and Braava mopping robots asin a supplement to, rather than a replacement for, their traditional vacuum cleaners and wet floor cleaning methods, we do compete in some cases with providers of traditional cleaning products.
single product. We believe that the principal competitive factors in the market for robots include product features, performance for the intended mission, cost of purchase, total cost of system operation and overall perceived value, including maintenance and support, ease of use, integration with existing equipment, quality, reliability, customerbrand and reputation.
The market for air purifiers is also highly competitive with an increasing number of competitors and products along with the potential for emerging technologies to disrupt the marketplace. A number of companies offer air purifiers that compete directly with ours, and many of these competitors possess greater financial strength and better access to other resources than we do. Our air purifier competitors include consumer and industrial appliance and electronics companies such as Honeywell, Dyson, Holmes and Levoit, as well as specialized home health companies that focus extensively on air purification with premium products such as Blue Air, Molekule, Alen Air, Austin Air and IQAir. We believe that the principal competitive factors in the market for air purifiers include the ability to improve air quality by removing a wide range of pollutants, measure
air quality and other features that provide greater insight into and control over the product’s performance, total cost and overall perceived value, including maintenance and support, ease of use, integration with other connected devices in the home, product quality, reliability, brand and reputation.
Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, customer support, and customer support.ability to leverage our Genius platform across our products. We cannot provide assurance thatremain committed to funding the enhancement of our products will continue to compete favorably or that we will be successfuland the development of new products, as well as investing in the face of increasing competition from new productsvarious sales, marketing and enhancements introduced by existing competitors or new companies entering the markets in whichsupport activities we provide products.believe are necessary to stimulate customer demand and maintain and improve customer satisfaction.
Intellectual Property
We believe that our continued success depends in large part on our proprietary technology, the intellectual skills of our employeestechnical competence and the ability of our employees to continue to innovate. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. As part of the sale of our defense and security business, we transferred to the buyerThe ownership of certain of our intellectual property related torights is an important factor in our business. This includes patents, copyrights, trademarks, service marks, trade dress and other forms of intellectual property rights in the defenseUnited States and security business, includinga number of foreign countries. We currently hold a significant number of patents and have filed numerous additional patent applications and trademarks.
applications. As of December 30, 2017,January 1, 2022, we held 403567 U.S. patents, more than 6501,000 foreign patents, additional design registrations, and have more than 450 patent applications pending worldwide. OurWhile our U.S. patents will beginbegan to expire in 2019.2021, no single intellectual property right is solely responsible for protecting our products. We will continue to file and prosecute patent (or design registration, as applicable) applications when and where appropriate to attempt to protect our rights in our proprietary technologies. We also encourage our employees to continue to invent and develop new technologies so as to maintain our competitiveness in the marketplace. It is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents for our pending patent applications or other inventions we seek to protect. In that regard, we sometimes permit certain intellectual property to lapse or go abandoned under appropriate circumstances, and due to uncertainties inherent in prosecuting patent applications, sometimes patent applications are rejected and we subsequently abandon them.circumstances. It is also possible that we may not develop proprietary products or technologies in the future that are patentable, or that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will harm or altogether preclude our ability to do business.
Our registered U.S. trademarks include iRobot and its stylized logo, Roomba, Clean Base, NorthStar, Create, Clean Map, iAdapt, Aware, Home Base, Looj, Braava, Braava jet, AeroForce, AllergenLock, Better Together, PerfectEdge, Corners. Edges. And the Details in Between., Imprint, Mirra, Root, Terra, vSLAM and Virtual Wall. Our marks iRobot, Roomba, Braava, Braava jet, Better Together, Root, Clean Base, Clean Map, Imprint, PerfectEdge, Terra, Virtual Wall, and certain other trademarks, have also been registered in selected foreign countries.
Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop technology that is similar to ours. Legal protections afford only limited protection for our technology. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to copy aspects of our products or to obtain and use information that we regard as proprietary. In 2017,Some of our competitors seek to compete primarily through aggressive pricing and low-cost structures while infringing on our intellectual property.
On October 15, 2019, we initiated a multi-partypatent infringement lawsuit in federal district court in Massachusetts against SharkNinja Operating LLC and its related entities ("SharkNinja") for infringement of five patents for technology related to robotic vacuum cleaners. In addition, we sought a preliminary injunction against SharkNinja for infringement of three U.S. patents. SharkNinja has in parallel sought declarations of non-infringement of thirteen U.S. patents owned by iRobot. On November 26, 2019, the federal district court in Massachusetts denied iRobot's motion for a preliminary injunction, and the case is currently stayed pending the outcome of one or more appeals from decisions of the U.S. Patent Trial and Appeal Board. On January 28, 2021, we initiated litigation against SharkNinja at the U.S. International Trade Commission ("ITC") as well as in federal district court in Massachusetts based on claims of patent infringement. infringement of five additional U.S. patents related to robotic vacuum cleaners. The trial began in January 2022.
There is no guarantee that we will prevail on these or other patent infringement claims against third parties. Third parties may also design around our proprietary rights, which may render our protected products less valuable, if the design around is favorably received in the marketplace. In addition, if any of our products or the technology underlying our products is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions. We cannot assure you that our products do not infringe patents held by others or that they will not in the future. We have received in the past communications from third parties relating to technologies used in our various robot products that have alleged infringement of patents or violation of other intellectual property rights. Some of these allegations have resulted in actions filed against iRobot in foreign jurisdictions. In response to these communications, we have contacted these third parties to convey our good faith belief that we do not infringe the patents in question or otherwise violate those parties' rights. Although there haveWhere an action has been no additional actions or communications with respect to these allegations,filed, we will defend iRobot against the allegations. We cannot assure you that we will not receive further correspondence from these parties, or not be subject to additional allegations of infringement from others.others, and cannot assure you that iRobot will prevail in any ongoing or
subsequently filed actions. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, misappropriation, or other claims. Any such litigation could result in substantial costs and diversion of our resources. Moreover, any settlement of or adverse judgment resulting from such litigation could require us to obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. Any required licenses may not be available to us on acceptable terms, if at all. If we attempt to design around the technology at issue or to find another provider of suitable alternative technology to permit us to continue offering applicable software or product solutions, our continued supply of software or product solutions could be disrupted or our introduction of new or enhanced software or products could be significantly delayed.
Seasonality
Historically, we have experienced higher revenue in the second half of the year compared to the first half of the year due in large part to seasonal holiday demand. In 2017, 2016For the years ended January 1, 2022, January 2, 2021 and 2015,December 28, 2019, our second-half consumer product revenue represented 60.2%57.3%, 57.5%67.0% and 50.5%59.0% of our annual consumer product revenue, respectively. We have also experienced higher selling and marketing expenses in the second half of the year compared to the first half of the year due to increased marketing campaigns to support seasonal holiday demand. In fiscal years 2021, 2020 and 2019, our selling and marketing expense in the second half of the year represented 56.0%, 67.7% and 58.9% of our selling and marketing expense for full fiscal year, respectively. We expect that the majority of our revenue and selling and marketing expenses will continue to be generated in the second half of any given fiscal year unless or until we successfully introduce new products that have potential to generate stronger sales during the first half of the year.
Regulations
Our business requires compliance with a variety of laws and regulations in the United States and abroad regarding privacy, data protection, and data security. In particular, we are subject to numerous U.S. federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data.data, including the General Data Protection Regulation ("GDPR") and California Consumer Privacy Act. In addition, the global nature of our business operations also creates various domestic and foreign regulatory challenges and subjectsubjects us to laws and regulations such as the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions, and ourjurisdictions. Our products are alsomay be subject to U.S. export controls, including the U.S.United States Department of Commerce’s Export Administration Regulations, and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls.Controls and trade policies and tariffs established by the governments of the United States, China and other jurisdictions where we do business.
The laws in each of these areas - in particular those related to data privacy - are continually changing and evolving in unpredictable ways. New laws and regulations in any of these areas, as well as compliance with these laws (and their derivatives) may have an adverse effect on our business. If we fail to comply with these laws, we may be subject to significant liabilities and other penalties.
We are also subject to international and U.S. federal, state, and local laws and regulations designed to protect the environment, regulate energy efficiency and to regulate the discharge of materials into the environment. We believe that our policies, practices, and procedures are properly designed to prevent unreasonable risk of environmental damage and associated financial liability. To date, environmental control regulations have not had a significant adverse effect on our overall operations.
Prior to our divestiture of the defense and security business unit in April 2016, we were subject to various government regulations, including various U.S. federal government regulations as a contractor and subcontractor to the U.S. federal government. We continue to remain subject to certain of these regulations only as they pertain to matters related to our operation of the defense and security business unit prior to our completion of the sale of this business.
EmployeesHuman Capital
As of December 30, 2017,January 1, 2022, we had 9201,372 full-time employees. Approximately 31%30% of our employees are based outside of the United States. None of our employees in the United States are represented by a labor union. In certain foreign subsidiaries, labor unions or workers’ councils represent some of our employees. WeTo date, we have experienced no work stoppages and believe that we have a good relationship with our employees.
Culture and Work Environment
Over the past three decades, iRobot has created and amplified a unique culture built on fostering invention, discovery and technological exploration in the pursuit of practical and value-add robot products for the next-generation home. iRobot is committed to attracting and retaining the best and brightest talent, leveraging new perspectives, ideas, skills, languages and cultural backgrounds and providing the resources for individuals to reach their full potential. We’ve assembled a global team of talented, motivated and unique individuals by providing our people with opportunities to make a tangible impact in helping our company thrive while also advancing their careers. In addition, iRobot’s culture is further shaped by an ongoing commitment to the future of Science, Technology, Engineering and Math ("STEM") education. This effort spans our educational robots, a range of complementary educational resources and our STEM outreach program, which is focused on engaging and inspiring
students of all ages to learn more about robotics. We communicate regularly with our employees around the world and hold periodic virtual town hall meetings and in-person forums when appropriate to help keep employees informed.
Underpinning our culture is an ongoing commitment to ensuring that our employees, customers and suppliers are treated with dignity and respect. We strive to maintain a workplace that is free from violence, harassment, intimidation and other unsafe or disruptive conditions. Our policy is to provide a safe and healthy workplace and comply with applicable safety and health laws and regulations, as well as internal requirements. Additionally, the safety and health of our employees is of paramount importance to us, particularly as we continue to navigate the direct and indirect challenges associated with the COVID-19 pandemic. Among the many actions taken to support our employees during the pandemic and protect their health and well-being, we have continued to adjust our global travel policies, maintain flexible work from home policies, and implement a wide range of sanitization and cleaning protocols to keep our offices safer. We have also offered special sick leave for employees who have, or whose family have, possible COVID-19 symptoms. During 2022, we plan to require vaccination for those employees with roles that can only be performed in our U.S. offices or for those employees, interns, contractors, partners, service providers, suppliers, and visitors who wish to conduct business in our U.S. offices. In addition, our employees proactively donated time, resources and technology to support healthcare workers on the front lines. We have also supported several COVID-19 relief initiatives, such as donating thousands of masks from our manufacturing facilities to healthcare workers, participating in a project to repurpose Roomba filters for use in personal protective equipment, and releasing numerous free online and offline learning materials for both teachers and students.
Compensation, Rewards and Benefits
In addition to competitive base salaries, we provide incentive-based compensation programs to reward performance relative to key metrics. We also provide compensation in the form of restricted stock unit grants as well as a competitive time-off policy. We offer comprehensive benefit options, including retirement savings plans, medical insurance, prescription drug benefits, dental insurance, vision insurance, life and disability insurance, health savings accounts, flexible spending accounts, and an employee stock purchase plan, among others.
We are committed to the continued development of our people. We offer opportunities for personal and technical development with programs such as our leadership training, management training, mentoring program and educational assistance. We continue to evolve our approach to attracting and retaining our talent – from having a well-defined process for hiring to continuing to enhance our compensation and benefits packages.
Diversity and Inclusion
iRobot is an inclusive organization, seeking out the best and brightest minds to help us meet the global requirements of our business. We are excited to welcome new perspectives, ideas, skills, languages and cultural backgrounds to our global iRobot family.
The iRobot community is built upon the diverse perspectives, beliefs and backgrounds of incredibly talented people from around the world who have all had a hand in shaping who we are as an organization. Strengthening diversity within our global workforce enables iRobot to bring our collective ideas together to invent a future that seamlessly fits the unique, personal and diverse needs of our global consumer base. We have and will continue to take action and hold ourselves accountable to continue to foster equality and diversity on a global scale. Each day we learn from each other, grow and evolve, seeking out new opportunities to strengthen our support for all employees and the communities in which we work. We have taken a number of actions and implemented a range of initiatives to establish an ongoing dialogue with our employees about diversity in the workplace and to help advance inclusivity in our offices.
More Information
Additional information about our efforts to make our company a great place to work, build a career and build an appealing corporate culture that prides itself on diversity and inclusion is available within the Corporate Social Responsibility section of our website as well as within the Careers section of our website.
Available Information
We were incorporated in California in August 1990 under the name IS Robotics, Inc. and reincorporated as IS Robotics Corporation in Massachusetts in June 1994. We reincorporated in Delaware as iRobot Corporation in December 2000. We conduct operations and maintain a number of subsidiaries in the United States and abroad, including operations in Austria, Belgium, China, France, Germany, Hong Kong, Japan, Netherlands, Portugal, Spain, Switzerland and the United Kingdom. We also maintain iRobot Securities Corporation, a Massachusetts securities corporation, to invest our cash balances on a short-term basis. Our website address is www.irobot.com. We have included our website address as an inactive textual reference only. The information on, or that can be accessed through, our website is not part of, or incorporated by reference into, this Annual Report. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are available free of charge through the investor relations page of our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.Commission (the "SEC"). Alternatively, these reports may be accessed at the SEC’s website at www.sec.gov.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. 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. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.
Risks Related to our Business and Industry
We face intense competition from other providers of robots, including diversified technology providers, as well as competition from providers offering alternative products, which could negatively impact our results of operations and cause our market share to decline.
A number of companies have developed or are developing robots that will compete directly with our product offerings. Our competition includes established, well-known sellers of floor cleaning robots such as Ecovacs, SharkNinja, Samsung, Roborock, as well as new market entrants. Many current and potential competitors are larger in size and more broadly diversified with substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance that our current and future competitors will not be more successful than us. We also face competition from manufacturers of lower-cost devices, which has, and may continue to, further drive down the average selling price in the marketplace for floor cleaning products.Moreover, while we believe many of our customers purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners, we also compete with providers of traditional vacuum cleaners.
The global market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting customer needs and expectations and the likely increased introduction of new products. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, operating efficiency and customer support.
We expect that competition will continue to intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us have, and may continue to, introduce products that are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not yet developed or implemented. Increased competitive pressure has resulted and will continue to result in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results.
Many of our competitors have demonstrated an ability to rapidly replicate new features and innovations that we have introduced into the market, and therefore are able to offer a comparable suite of product offerings at lower prices. In addition, some of our competitors aggressively discount their products and services in order to gain market share, which has resulted in pricing pressures, reduced profit margins and lost market share. In addition, new products may have lower selling prices or higher costs than legacy products, which could negatively impact our gross margins and operating results.
We cannot assure you that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering the markets in which we provide products. Our failure to compete successfully could cause our revenue and market share to decline, which would negatively impact our results of operations and financial condition.
We operate in an emerging market, which makes it difficult to evaluate our business and future prospects.
Robots represent a new and emerging market. Accordingly, our business and future prospects are difficult to evaluate. We cannot accurately predict the extent to which demand for consumerfloor cleaning robots will increase, if at all. You should consider the challenges, risks and uncertainties frequently encountered by companies using new and unproven business models in rapidly evolving markets. These challenges include our ability to:
•generate sufficient revenue and gross margin to maintain profitability;
•acquire and maintain market share in our consumer market;
•attract and retain customers of our consumer robots;
•attract and retain engineers and other highly-qualified personnel; and
•expand our product offerings beyond our existing robots.
If we fail to successfully address these and other challenges, risks and uncertainties, our business, results of operations and financial condition would be materially harmed.
Designing new robotic products is complex and requires significant resources, and our ability to remain competitive requires significant continued investment in tools, processes and talent.
To remain competitive, we must increase investment in developing tools and processes to improve the speed at which we are able to develop competitive products, including significant investment in developing a reusable software architecture across multiple product platforms. The development of a reusable software architecture requires the expenditure of significant resources that may not result in the designed efficiencies. Our inability to reduce the cost to develop new products or product variants may substantially impact our ability to offer products that compete favorably.
We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.
Our success depends upon the continued services of our senior management team and key technical employees. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our robots, the loss of any significant number of our existing engineering and project management personnel could have a material adverse effect on our business and operating results. In addition, increased turnover, particularly on the senior management team, with insufficient development of leadership talent and succession plans, could diminish employee confidence and increase risks for retaining key employees.
If we are unable to attract and retain additional skilled personnel, we may be unable to grow our business.
To execute our growth plan, we must attract and retain additional, highly-qualified personnel. Competition for hiring these employees is intense, especially with regard to engineers with high levels of experience in designing, developing and integrating robots and engineers with expertise in artificial intelligence, machine learning, data science and cloud applications. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to attract new technical personnel or fail to retain and motivate our current employees, our business and future growth prospects could be severely harmed.
In addition, we have experienced increased employee turnover as a result of general market conditions and the on-going "great resignation" occurring throughout the U.S. economy, and we expect to continue to experience increased employee turnover in the future. New hires require significant training and, in most cases, take significant time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain significant numbers of qualified individuals. Moreover, we may be forced to adjust salaries or other compensation in order to retain key talent. If our retention efforts are not successful or our team member turnover rate continues to increase in the future, our business, results of operations and financial condition could be materially and adversely affected.
Our business has been, and will continue to be, adversely affected by the ongoing coronavirus pandemic.
The outbreak of the novel coronavirus has evolved into a global pandemic. The coronavirus has already directly and indirectly impacted our business and operating results but the full extent of its impact will depend on future developments that are uncertain and cannot be accurately predicted, including new information that may emerge concerning the coronavirus, including any variants such as the Omicron variant, and the actions to contain the coronavirus or treat its impact, among others.The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change not only with the spread of the disease, but also with the scope and timing of governmental, regulatory, fiscal, monetary and public health responses.
As the coronavirus continues to spread, our business operations could be further disrupted or delayed. The pandemic has already resulted in, and may continue to result in, work stoppages, slowdowns and delays, travel restrictions, event cancellation, and other factors that cause an increase in costs or order cancellations, reductions or delays. For example, our manufacturing supply chain has been and may continue to be adversely affected with production delays or limited manufacturing volumes associated with factory shutdowns or reduced numbers of workers or working hours in the factories, limits on component supplies and diminished capability to implement engineering and design changes in a timely manner. Specifically, travel restrictions have prevented, and may continue to prevent, significant progress in supply chain diversification efforts in Malaysia, which may have a material impact on our ability to mitigate the impact of certain tariffs. In addition, quarantines, stay at home orders and other travel limitations (whether voluntary or required) impede our employees’ ability to efficiently conduct research and development activities or oversee manufacturing activities, which has, and may continue to, slow innovation, lead to higher costs or both. For example, we have already experienced an increase in freight costs and a delay in our supply chain
diversification efforts. Further, if the spread of the coronavirus pandemic continues and our operations continue to be adversely impacted, we risk a delay, default, violation and/or non-compliance under existing agreements.
The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, has had and may continue to have a material economic effect on our business. For example, the pandemic and related measures taken to limit the spread of disease has resulted in higher unemployment and greater economic uncertainty, which may adversely affect consumer purchasing behavior. Further, retail store closures, whether temporary or permanent, as well as limited operating hours and restrictions on foot traffic and maximum capacities in stores may continue to adversely affect sales of our products. Certain retailers, who we rely on for a significant portion of our revenue, have begun, and may continue, to unilaterally stretch payables to us that may increase our accounts receivable, strain our liquidity, and increase the likelihood of our failure to collect on product previously sold.
While the potential economic impact and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruption of global financial markets. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business, our access to needed capital and liquidity, and the value of our common stock. We do not yet know the full extent of potential delays or impacts on our business, our industry or the global economy as a whole. Additionally, while significant efforts are underway to slow the spread of the disease, increase testing and develop and distribute vaccines and therapeutics, it is unclear when or whether progress in any of those areas will translate into an economic recovery that will restore consumer confidence and minimize disruptions to our operations. Accordingly, given that the potential of these effects of the current pandemic on our operations has been and will likely continue to be material, we will continue to monitor the situation closely.
Surges in demand impacting the cost and availability of transportation have had, and we expect will continue to have, an adverse impact on our business, financial condition and results of operations.
Surges in demand related to COVID-19, as well as other factors, have continued to strain the global supply chain network, which has resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times. Demand for Chinese imports has caused shipment receiving and unloading backlogs at many U.S. ports that have been unable to keep pace with unprecedented inbound container volume. The situation has been further exacerbated by COVID-19 illness and protocols at many port locations. Due to the backlog and increasing trade imbalance with China, many shipping containers are not being sent back to China, or are being sent to China empty. With continued increases in demand for containers, limited supply and freight vendors bearing the cost of shipping empty containers, the market cost of inbound freight has increased by several multiples compared to historical averages. To the extent that transportation costs and interruptions continue, we may face increased pressure on gross margins, product delivery delays and an inability to fulfill orders for our products.
If we are not successful in expanding our direct-to-consumer sales channel by driving consumer traffic and consumer purchases through our website, our business and results of operations could be harmed.
We are currently investing in our direct-to-consumer sales channel, primarily through our website and mobile app, and our future growth relies in part on our ability to attract consumers to this channel, which requires significant expenditures in marketing, software development and infrastructure. If we are unable to drive traffic to, and increase sales through, our website and mobile app, our business and results of operations could be harmed. The success of direct-to-consumer sales is subject to risks associated with e-commerce, many of which are outside of our control. Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business via our website may have an adverse impact on our results of operations.
Our success depends solelynearly entirely on our consumer robots, and our sales growth and operating results would be negatively impacted if we are unable to enhance our current consumer robots or develop new consumer robots at competitive prices or in a timely manner, or if the consumer robot market does not achieve broad market acceptance.
For the years ended December 30, 2017, December 31, 2016 and January 2, 2016, we derived 100.0%, 99.3%, and 90.7% ofWe primarily derive our total revenue from our consumer robots, respectively.robot sales. For the foreseeable future, we expect that our revenue will be derived solelynearly entirely from sales of consumer robots in general, and home floor care products in particular.products. Accordingly, our future success depends upon our ability to further penetrate the consumer home care market, to enhance our current consumer products and to develop and introduce new consumer products offering enhanced performance and functionality at competitive prices. The development and application of new technologies involves time, substantial costs and risks. Our inability to achieve significant sales of our newly introduced robots, or to enhance, develop and introduce other products in a timely manner, or at all, would materially harm our sales growth and operating results.
Even if consumer robots gain wide market acceptance, our robots may not adequately address market requirements and may not continue to gain market acceptance. If robots generally, or our robots specifically, do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth, and our revenue and results of operations would suffer.
We face intense competition from other providers
Any efforts to expand our product offerings beyond our current markets or to develop new products may not succeed, which could negatively impact our results ofoperating results.
Efforts to expand our product offerings beyond our current markets are limited and those efforts may not succeed and may divert management resources from existing operations and causerequire us to commit significant financial resources to an unproven business, either of which could significantly impair our operating results. Any new product that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market shareacceptance necessary to decline.generate sufficient revenue. Moreover, efforts to expand beyond our existing markets may never result in new products that achieve market acceptance, create additional revenue or become profitable.
AOn November 15, 2021, we acquired Aeris Cleantec AG, a fast-growing provider of premium air purifiers. This acquisition represents our first major expansion of product offerings beyond consumer robotics. Air purifiers represent a new market segment for us and is subject to intense competition.
Our success in the air purifier market will depend on a number of companiesfactors including our ability to develop innovative solutions, integrate those solutions into our home ecosystem, and market and sell those solutions to our existing and new customers. Establishing a new market segment will require significant investment in R&D and sales & marketing in the near term. These investments may not be successful, and our revenue and profitability may suffer.
If the air purifier business – or any other business we acquire – does not perform as expected or we are unable to effectively integrate the acquired business into our operations or achieve the expected synergies of the acquisition, our operating results could be harmed. Expansion into new market segments involve risks and uncertainties, including, among other things, potential distraction of management from our core robotic floorcare business, greater than expected liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our investigations and evaluations of those acquisitions.
We spend significant amounts on advertising and other marketing campaigns, which may not be successful or cost effective.
We spend significant amounts on advertising and other marketing campaigns, such as television, print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to increase awareness of our consumer robot products. For the years ended January 1, 2022, January 2, 2021 and December 28, 2019, sales and marketing expenses were $289.8 million, $265.5 million and $231.5 million, respectively, representing approximately 18.5%, 18.6%, and 19.1% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to purchase our products, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the conditions and behaviors that drive customer behavior. If any of our advertising campaigns prove less successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet market expectations, either of which could have developed or are developing robots that will compete directly withan adverse effect on our product offerings. Many current and potential competitors have substantially greater financial, marketing, research and manufacturing resources than we possess, and therebusiness. There can be no assurance that our currentadvertising and future competitorsother marketing efforts will not be more successful than us. We also face competition from manufacturers of lower-cost devices, which may drive down the average selling priceresult in the marketplace for floor cleaning products. Moreover, while we believe manyincreased sales of our customers purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners, we also compete in some cases with providers of traditional vacuum cleaners.
The global market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting customer needs and expectations and the likely increased introduction of new products. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development and customer support.
In the event that the robot market expands further, we expect that competition will intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us may introduce products that are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not yet developed or implemented. Increased competitive pressure could result in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results.
Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. In addition, new products may have lower selling prices or higher costs than legacy products, which could negatively impact our gross margins and operating results.
We cannot assure you that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering the markets in which we provide products. Our failure to compete successfully could cause our revenue and market share to decline, which would negatively impact our results of operations and financial condition.
If we fail to enhance our brand, our ability to expand our customer base will be impaired and our operating results may suffer.
We believe that developing and maintaining awareness of the iRobot brand is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new customers. Furthermore, we expect the importance of global brand recognition to increase as competition develops.increases. If customers do not perceive our products to be of high quality, our brand and reputation could be harmed, which could adversely impact our financial results. In addition, brand promotion efforts may not yield significant revenue or increased revenue sufficient to offset the additional expenses incurred in building our brand. Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful. If we fail to successfully maintain, promote, and position our brand and protect our reputation, or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.
Any efforts to expand our product offerings beyond our current markets may not succeed, which could negatively impact our operating results.
Efforts to expand our product offerings beyond our current markets may not succeed and may divert management resources from existing operations and require us to commit significant financial resources to an unproven business, either of which could significantly impair our operating results. Moreover, efforts to expand beyond our existing markets may never result in new products that achieve market acceptance, create additional revenue or become profitable.
Our financial results often vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.
Our quarterly revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter-to-quarter in the future. These fluctuations may be due to numerous factors including:
•the size, timing and mix of orders from retail stores and distributors for our consumer robots;
•the mix of products that we sell in the period;
•disruption of supply of our products from our manufacturers;
•disruptionsRisks Related to our supply chain due to inclement weather, labor disruptions or other factors beyond our control;
•seasonality in the sales of our products;
•the timing of new product introductions;
•unanticipated costs incurred in the introduction of new products;
•costsDependence on Third Parties and availability of labor and raw materials;
•costs of freight;
•changes in our rate of returns for our consumer products;
•our ability to introduce new products and enhancements to our existing products on a timely basis; and
•warranty costs associated with our consumer products.
We cannot be certain that our revenues will grow at rates that will allow us to maintain profitability during every fiscal quarter, or even every fiscal year. We base our current and future expense levels on our internal operating plans and sales forecasts, including forecasts of holiday sales for our consumer products. A significant portion of our operating expenses, such as research and development expenses, certain marketing and promotional expenses and employee wages and salaries, do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a quarter are below our expectations, we might not be able to reduce operating expenses for that quarter. Accordingly, a sales shortfall during a fiscal quarter, and in particular the fourth quarter of a fiscal year, could have a disproportionate effect on our operating results for that quarter or that year. Because of quarterly fluctuations, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Moreover, our operating results may not meet expectations of equity research analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly or over time.Distribution Channels
We depend on single sourcea limited number of manufacturers, and our reputation and results of operations would be harmed if these manufacturers fail to meet our requirements.
We currently depend largely on several single source contracta limited number of manufacturers, employing a dual-source strategy to mitigate potential manufacturing disruptions, and we have safety stock strategies for the manufacture of certainlow-volume products that are not dual sourced. The majority of our products. All contract manufacturersmanufacturing locations for our current robots are currently located in China.China and we added additional manufacturing capacity in Malaysia in late 2019, and we have continued to expand production in Malaysia. Our efforts to diversify manufacturing outside of China has been, and may continue to be, materially impacted as a result of COVID-19 and related travel restrictions. These manufacturers manage the supply substantiallychain for all of the raw materials and provide all facilities and labor required to manufacture our products. If these companies were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, wethere would be unable to manufacturea disruption in manufacturing our products until replacement contract manufacturing services could be obtained or volume transferred to an
alternative manufacturing partner, each of which is a costly and time-consuming process. We cannot assure you that we would be able to establish alternative manufacturing arrangements on acceptable terms or in a timely manner.
We are dependent on a limited number of suppliers for various components used in our products, and we may from time to time have sole source suppliers. The cost, quality and availability of these components are essential to the successful production and sale of our products. We are subject to the risk of, and have already experienced, industry-wide shortages, price fluctuations and long lead times in the supply of these components and other materials, which risk may be increased as a result of COVID-19. If the supply of these components were to be delayed or constrained, or if one or more of our main suppliers were to go out of business, alternative sources or suppliers may not be available on acceptable terms or at all. In the event that any of our suppliers were to discontinue production of our key product components, developing alternate sources of supply for these components would be time consuming, difficult and costly. In the event we are unable to obtain components in sufficient quantities on a timely basis and on commercially reasonable terms, our ability to sell our products in order to meet market demand would be affected and could materially and adversely affect our brand, image, business prospects, financial condition and operating results.
Our reliance on these contract manufacturers involves certain risks, including the following:
•lack of direct control over production capacity and delivery schedules;
•lack of direct control over quality assurance, manufacturing yields and production costs;
•lack of enforceable contractual provisions over the production and costs of consumer products;
•risk of loss of inventory while in transit;
•risks associated with international commerce, including unexpected changes in legal and regulatory requirements, changes in tariffs and trade policies, risks associated with the protection of intellectual property and political and economic instability; and
•risks that our attempts to add additional manufacturing resources may be significantly delayed and thereby create disruptions in production of our products.
Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost sales and revenue and damage to our reputation in the market, all of which would harm our business and results of operations. In addition, whilebecause our contract obligationspurchase contracts with our contract manufacturers in Chinasuppliers are typically denominated in U.S. dollars, changes in currency exchange rates couldmay impact our suppliers who operate in local currency, which may cause our suppliers to seek price concessions on future orders.
If critical components of our products that we currently purchase from a small number of suppliers become unavailable, we may incur delays in shipment, which could damage our business.
We and increase our prices.outsourced manufacturers obtain hardware components, various subsystems, raw materials and batteries from a limited group of suppliers, some of which are sole suppliers. We do not have long-term agreements with these suppliers obligating them to continue to sell components or products to us. If we or our outsourced manufacturers are unable to obtain components from third-party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to terminate their contracts with us, reduce our gross margin and seriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers become financially unstable, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool our products to accommodate components from
different suppliers. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, or at all.
Conflicts with our channel and distribution partners could harm our business and operating results.
The expansion of our direct-to-consumer channel could alienate some of our channel partners and cause a reduction in product sales from these partners. Channel partners may perceive themselves to be at a disadvantage based on the direct-to-consumer sales offered through our website. Due to these and other factors, conflicts in our sales channels could arise and cause channel partners to divert resources away from the promotion and sale of our products. Any of these situations could adversely impact our business and results of operations.
If we fail to maintain or increase consumer robot sales through our distribution channels, our operating results would be negatively impacted.
We do not have long-term contracts regarding purchase volumes with any of our retail partners. As a result, purchases generally occur on an order-by-order basis, and the relationships, as well as particular orders, can generally be terminated or otherwise materially changed at any time prior to delivery, by our retail partners. A decision by a major retail partner, whether motivated by competitive considerations, financial difficulties, economic conditions or otherwise, to decrease its purchases from us, to reduce the shelf space for our products or to change its manner of doing business with us could significantly damage our consumer product sales and negatively impact our business, financial condition and results of operations. In addition, during recent years, various retailers, including some of our partners, have experienced significant changes and difficulties, including consolidation of ownership, increased centralization of purchasing decisions, restructuring, bankruptcies and liquidations. These and other financial problems of some of our retailers increase the risk of extending credit to these retailers. A significant adverse change in a retail partner relationship with us or in a retail partner’s financial position could cause us to limit or discontinue business with that partner, require us to assume more credit risk relating to that partner’s receivables or limit our ability to collect amounts related to previous purchases by that partner, all of which could harm our business and financial condition. Disruption of the iRobot on-line store could also decrease our consumer robot sales.
If critical componentsRisks Related to our Legal and Regulatory Environment
Significant developments in U.S. trade policies have had, and we expect will continue to have, a material adverse effect on our business, financial condition and results of operations.
The U.S. government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. Effective September 24, 2018, the U.S. government implemented a 10% tariff on certain goods imported from China, which include the majority of those imported by the Company. These tariffs were increased to 25% on May 10, 2019 and were slated to further increase to 30% in October 2019 until a last-minute interim deal was reached between the United States and China. Although the United States and China signed a new trade agreement in January 2020, most of the previously-implemented tariffs on goods imported from China remain in place (including the tariffs described above), and uncertainty remains as to the short-term and long-term future of economic relations between the United States and China.
From September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. On April 24, 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products until December 31, 2020 and entitled us to a refund of $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed.
Effective as of January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China.Although we have begun relocating a meaningful portion of our supply chain from China to Malaysia, we again face compression on our margin on products that we currently purchase from a small number of suppliers become unavailable, wesold and pricing pressures on our products. The already-implemented, and any additional or increased, tariffs have caused, and may incur delays in shipment, which could damage our business.
We and our outsourced manufacturers obtain hardware components, various subsystems, raw materials and batteries from a limited group of suppliers, some of which are sole suppliers. We do not have any long-term agreements with these suppliers obligating them to continue to sell components or products to us. If we or our outsourced manufacturers are unable to obtain components from third-party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptablefuture cause, us to further increase prices we may not be able to deliver our products on a timely or cost-effective basis to our customers which we believe has reduced, and in the future may reduce, demand for our products.
On October 4, 2021, the USTR announced its decision to establish a new process for importers to apply for exclusions from Section 301 tariffs in 549 product categories, including robotic vacuum cleaners. Beginning October 12, 2021, the USTR started accepting comments on whether or not reinstating certain tariff exclusions will impact or result in severe economic harm to companies or other interests of the United States. On October 21, 2021, we submitted comments related to the continued application of tariffs on robotic vacuum cleaning products. We cannot say definitively when, or even if, iRobot will be granted additional tariff relief on our products still manufactured in China, nor can we guarantee the terms upon which any tariff relief ultimately may be granted. In addition, our new air purification products are also subject to 25% Section 301 tariffs. We did not submit comments related to the continued application of tariffs on certain air purification products; however, a number of
importers did submit such comments, and we believe any grant of tariff relief would also likely extend to our importation of air purification products.
These tariffs, and other governmental action relating to international trade agreements or policies, have directly or indirectly adversely impacted demand for our products, our costs, customers, suppliers, distributors, resellers and/or the U.S. economy or certain sectors thereof and, as a result, have adversely impacted, and we expect will continue to adversely impact, our business, financial condition and results of operations. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. We cannot predict future trade policy, whether exclusions will be reinstated, or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to further adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could cause customersfurther adversely impact our business, financial condition and results of operations.
In response to terminate their contractsinternational trade policy, as well as other risks associated with us, reduceconcentrated manufacturing in China, we have begun relocating a meaningful portion of our gross marginsupply chain from China to Malaysia. Such relocation activities increase costs and seriously harmrisks associated with establishing new manufacturing facilities.
Global economic conditions and any associated impact on consumer spending could have a material adverse effect on our business, results of operations and financial condition. Moreover, if any
Continued economic uncertainty and reductions in consumer spending, particularly in certain international markets such as the European Union, China and Japan, may result in reductions in sales of our suppliers become financially unstable, weconsumer robots. Additionally, disruptions in credit markets may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool our products to accommodate components from different suppliers. We may experience significant delays in manufacturingmaterially limit consumer credit availability and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, or at all.
Cybersecurity risks could adversely affect our business and disrupt our operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, denial-of-service attacks, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence. In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our
efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation.
If we suffer data breaches involving the designs, schematics or source code for our products, our brand, business and financial results could be adversely affected.
We attempt to securely store our designs, schematics and source code for our products as they are created. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracyrestrict credit availability of our products. If we orretail customers, which would also impact purchases of our partners are subject to data security breaches, we may have a lossconsumer robots. Any reduction in sales of our consumer robots, resulting from reductions in consumer spending or increased costs arising fromcontinued disruption in the restorationavailability of credit to retailers or implementation of additional security measures, either of whichconsumers, could materially and adversely affect our brand, business, results of operations and financial results.condition.
Because we are an increasingly global business that in the years ended January 1, 2022, January 2, 2021 and December 28, 2019 generated approximately 51.8%, 47.9% and 50.3%, respectively, of our total revenue from sales to customers outside of the United States, we are subject to a number of additional risks including foreign currency fluctuations. These foreign currency fluctuations may make our products more expensive to our distributors and end customers, which in turn may impact sales directly or the ability or willingness of our partners to invest in growing product demand.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar could adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and lead us to raise international pricing, which may reduce demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the strengthening of the U.S. dollar, or for any other reason, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, incur losses on our foreign currency derivative instruments, and incur increased operating expenses, thereby limiting any benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.
We collect, store, process,use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or only a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. In addition, our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting counterparties to major financial institutions and use customer data, including certain personalby spreading the risk across several major financial institutions.
We are subject to a variety of U.S. and robot-specific information, which subjects usforeign laws and regulations that are central to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceivedbusiness; our failure to comply with such legal obligationsthese laws and regulations could harm our business.business or our operating results.
Our latest Roomba products, as well as additional productsWe are or may become subject to a variety of laws and regulations in development, collect, store, process,the United States and use certain customer data, whichabroad that involve matters central to our business, including laws and regulations regarding consumer protection, advertising, electronic commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions.
The increasingly global nature of our business operations subjects us to governmental regulationdomestic and foreign laws and regulations such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions. Our products are also subject to U.S. export controls, including the United States Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls. In addition, our recently acquired air purifier business subjects us to additional laws and regulations, such as the Federal Food, Drug, and Cosmetic Act, or FD&C Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the U.S. Toxic Substances Control Act of 1976, U.S. Department of Energy Efficiency regulations, and various similar state and foreign country laws and regulations related to health and safety and other legal obligations relatedapplicable laws required to privacy,manufacture, commercialize, sell or distribute air purification products. In the U.S., certain air purifiers intended for medical use are regulated as medical devices and are subject to regulation by the U.S. Food and Drug Administration, or FDA, under the FD&C Act and its implementing regulations. The FDA regulates, among other things, premarket clearance, establishment registration and device listing, manufacturing, packaging, labeling, servicing, recordkeeping, advertising, promotion, distribution, recalls and field actions, post-marketing monitoring and reporting. In order to commercially distribute certain air purifiers, we will be required to submit a premarket notification, or 510(k), to the FDA and obtain 510(k) clearance.
We are also subject to a variety of laws and regulations regarding information security and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business. We collect, store, process, and use personal information and other user data, and we rely on third parties that are not directly under our control to do so as well. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to or acquire sensitive user data, which may expose us to a risk of loss, litigation, or regulatory proceedings. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to or acquisition of our user data, we may also have obligations to notify users about the incident, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements.privacy. For example, the European Union's ("EU") General Data Protection Regulation (GDPR), which will become effective in May 2018, imposes("GDPR") and the California Consumer Privacy Act, or new interpretations of existing laws and regulations, impose significant new requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance. Compliance with changes inThese current and future data privacy and information security laws and standardsregulations may result in significant expense dueimpede our initiatives designed to increased investment in technologydeliver targeting marketing.
Given the increasing number of foreign laws to which we are subject and the developmenthigh level of new operational processes. Moreover,complexity of these laws, there is a growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve andrisk that some provisions may be inconsistent from one jurisdictioninadvertently breached by us or by our subsidiaries, for example through fraudulent or negligent behavior of individual employees, our failure to another. Complyingcomply with certain formal documentation requirements, or otherwise. If we incur liability for noncompliance under these obligations could causelaws or regulations, we may be forced to implement new measures to reduce our exposure to this liability. This may require us to incurexpend substantial costsresources or to discontinue certain products or services, which would negatively affect our business, financial condition, and could increaseoperating results. In addition, any negative publicity surrounding any incident that compromises user data.
Acquisitionsdirected to us as a result of lawsuits, regulatory proceedings, and potential future acquisitions may be difficult to integrate, divertlegislative proposals could harm our brand or otherwise impact the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.
As partgrowth of our business strategy, we have recently acquired, and we intend to continue to consider additional acquisitionsbusiness. Any costs incurred as a result of companies, technologies and products that we believecompliance efforts or other liabilities under these laws or regulations could accelerate our ability to compete in our core markets or allow us to enter new markets. For example, in April 2017, we acquired the iRobot-related distribution business of Sales On Demand Corporation (SODC), a privately-held corporation based in Tokyo, Japan, and in October 2017, we acquired Robopolis SAS (Robopolis), a privately-held corporation distributing iRobot products in seven European countries.
Acquisitions and combinations are accompanied by a number of risks, including the difficulty of integrating the operations and personnel of the acquired companies, the potential disruption of our ongoing business, the potential distraction of management, potential difficulty in managing and maintaining key customer relationships, expenses related to the acquisition and potential unknown liabilities associated with acquired businesses. Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse impact on our results of operations. In addition, we may not be able to recognize any expected synergies or benefits in connection with our recently completed acquisitions of SODC or Robopolis or any future acquisitions or combinations. If we are not successful in completing acquisitions or combinations that we may pursue in the future, we may incur substantial expenses and devote significant management time and resources without a successful result. In addition, future acquisitions could require use of substantial portions of our available cash or result in dilutive issuances of securities.
Our service providers may experience business interruptions, delays, or quality control issues, which may negatively impactharm our business and operating results.
As we expand our operations, we expect to use additional enterprise resource planning systems and account and technology service providers that may also be essential to managing our business. Our ability to manage our business would suffer if one or more of our providers suffer an interruption in their business, or experience delays, disruptions or quality control problems in their operations, or we have to change or add systems and services. While we conduct reasonable diligence on our service providers, we may not always be able to control the quality of the systems and services we receive from these providers, which could impair our ability to maintain appropriate internal controls over financial reporting and complete timely and accurate financial reporting, and may impact our business, operating results and financial condition.
Our valuation estimates for our recently completed and future acquisitions are based upon assumptions that may differ from actual results.
Charges to earnings as a result of acquisitions may adversely affect our operating results in the foreseeable future, which could have a material and adverse effect on the market value of our common stock. In particular, we have allocated the cost of acquiring businesses to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as acquired technology, acquired trade names and acquired customer relationships based on their respective fair values. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges and adversely affect our operating results and may adversely affect our cash flows:
costs incurred to combine the operations of businesses we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;
impairment of goodwill or intangible assets;
amortization of intangible assets acquired;
a reduction in the useful lives of intangible assets acquired;
identification of or changes to assumed contingent liabilities, both income tax provision and non-incomeother tax related after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;
chargesliabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our operating resultsposition. Additionally, there is no guarantee that we will realize our deferred tax assets.
From time to eliminate certain duplicative pre-merger activities, to restructure our operations or to reduce our cost structure; and
charges to our operating results resulting from expenses incurred to effect the acquisition.
Iftime, we are unableaudited by various federal, state, local and foreign authorities regarding income tax matters. Significant judgment is required to attractdetermine our provision for income taxes and retain additional skilled personnel,our liabilities for federal, state, local and foreign taxes. Although we may be unablebelieve our approach to growdetermine the appropriate tax treatment is supportable and in accordance with relevant authoritative guidance, it is possible that a tax authority will take a final tax position that is materially different than that which is reflected in our business.
To execute our growth plan, we must attract and retain additional, highly-qualified personnel. Competition for hiring these employees is intense, especially with regard to engineers with high levels of experience in designing, developing and integrating robots and engineers with expertise in artificial intelligence, machine learning and cloud applications. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to attract new technical personnel or fail to retain and motivate our current employees, our business and future growth prospects could be severely harmed.
We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.
Our success depends upon the continued services of our senior management team and key technical employees, such as our project management personnel and senior engineers. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our robots, the loss of any significant number of our existing engineering and project management personnelincome tax provision. Such differences could have a material adverse effect on our income tax provision or benefit, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.
The realization of our deferred tax assets ultimately depends on the existence of sufficient income in either the carryback or carryforward periods under the tax law. Due to significant estimates utilized in establishing a valuation allowance and the potential for changes in facts and circumstances, it is possible that we will be required to record a valuation allowance in future reporting periods. Our results of operations would be impacted negatively if we determine that a deferred tax asset valuation allowance is required in a future reporting period.
We may incur costs in complying with changing tax laws in the United States and abroad, which could adversely impact our cash flow, financial condition and results of operations.
We are a U.S.-based company subject to taxes in multiple U.S. and foreign tax jurisdictions. Our profits, cash flow and effective tax rate could be adversely affected by changes in the tax rules and regulations in the jurisdictions in which we do business, unanticipated changes in statutory tax rates and changes to our global mix of earnings.
Environmental laws and regulations and unforeseen costs could negatively impact our future earnings.
The manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations. We also face increasing complexity in our product design as we adjust to legal and regulatory requirements relating to our products. There is no assurance that such existing laws or future laws will not impair future earnings or results of operations.
Business disruptions resulting from international uncertainties could negatively impact our profitability.
We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various European and Asian markets, and Canada. For the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019, sales to non-U.S. customers accounted for 51.8%, 47.9% and 50.3% of total revenue, respectively. We expect that international revenues will continue to account for a significant percentage of our revenues for the foreseeable future. Our international revenue and operations are subject to a number of material risks, including, but not limited to:
•difficulties in staffing, managing and supporting operations in multiple countries;
•difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
•fewer legal protections for intellectual property;
•foreign and U.S. taxation issues, tariffs, and international trade barriers;
•difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
•potential fluctuations in foreign economies;
•government currency control and restrictions on repatriation of earnings;
•fluctuations in the value of foreign currencies and interest rates;
•general economic and political conditions in the markets in which we operate;
•domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future;
•changes in foreign currency exchange rates;
•different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future; and
•our relationships with international distributors, some of whom may be operating without written contracts.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales to customers outside the United States are primarily denominated in Euro and Japanese Yen and fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.
The United Kingdom’s exit from the EU, commonly referred to as "Brexit," has caused significant political and economic uncertainty in the United Kingdom, EU, and elsewhere. The impact of Brexit and the resulting turmoil on the political and economic future of the United Kingdom and the EU is uncertain, and we may be adversely affected in ways we cannot currently anticipate. The United Kingdom and the EU have signed a EU-UK Trade and Cooperation Agreement (the "TCA"), which became provisionally applicable on January 1, 2021 and will become formally applicable once ratified by both the United Kingdom and the EU. The ultimate effects of Brexit will depend, in part, on how the terms of the TCA take effect in practice and on any other agreements the United Kingdom may make with the EU. Brexit also may result in significant changes in the British regulatory environment, now that legislation can diverge from EU legislation in many areas, which could increase our compliance costs. We may find it more difficult to conduct business in the United Kingdom and the EU, as Brexit will result in increased regulatory complexity and increased restrictions on the movement of capital, goods and personnel. Any of these effects of Brexit, and other similar referenda that we cannot anticipate, could disrupt our operations and adversely affect our operating results.
If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.
If we experience a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. As we grow our operations in new geographic regions, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. For example, the COVID-19 pandemic has disrupted and will continue to disrupt our supply chain and manufacturers, resulting in a disruption in manufacturing our products as further discussed in the risk factors entitled "We depend on a limited number of manufacturers, and our reputation and results of operations would be harmed if these manufacturers fail to meet our requirements" below and "Our business has been, and will continue to be, adversely affected by the ongoing coronavirus pandemic" above.
The effects of regulations relating to conflict minerals may adversely affect our business.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to research, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
Risks related to our Intellectual Property and Technology
If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.
Our success depends on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. Significant technology used in our products,
however, is not the subject of any patent protection, and we may be unable to obtain patent protection on such technology in the future. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may afford little or no effective protection of our intellectual property. Patents which may be granted to us in certain foreign countries may be subject to opposition proceedings brought by third parties or result in suits by us, which may be costly and result in adverse consequences for us. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. If we fail to protect our intellectual property and other proprietary rights, our business, results of operations or financial condition could be materially harmed.
In addition, defending our intellectual property rights may entail significant expense. We believe that certain products in the marketplace may infringe our existing intellectual property rights. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. For example, in 2017on October 15, 2019, we initiated a multi-partypatent infringement lawsuit in federal district court in Massachusetts against SharkNinja Operating LLC and its related entities ("SharkNinja") for infringement of five patents for technology related to robotic vacuum cleaners. In addition, we sought a preliminary injunction against SharkNinja for infringement of three U.S. patents. SharkNinja has in parallel sought declarations of non-infringement of thirteen U.S. patents owned by iRobot. On November 26, 2019, the federal district court in Massachusetts denied iRobot's motion for a preliminary injunction. On January 28, 2021, we initiated litigation against SharkNinja at the U.S. International Trade Commission ("ITC") as well as in federal district court in Massachusetts based on claims of patent infringement. infringement of five additional U.S. patents, and on January 5-12, 2022 the ITC held a trial on four of those patents and a final determination has not been made.
There is no guarantee that we will prevail on these or other patent infringement claims against third parties. We may be required to expend significant resources to monitor and protect our intellectual property rights. In addition, any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we were to prevail.
In addition, in the United States certain of our patents have been, and may continue to be, challenged by inter parte review or opposition proceedings. If our patents are subjected to inter parte review or opposition proceedings, we may incur significant costs to defend them. Further, our failure to prevail in any such proceedings could limit the patent protection available for our innovations.
We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming and limit our ability to use certain technologies in the future.
We are currently defendingIn the past we have faced multiple lawsuits based on claims of patent infringement. If the size of our markets increases, we would be more likely to be subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of third parties. In addition, the vendors from which we license technology used in our products could become subject to
similar infringement claims. Our vendors, or we, may not be able to withstand third-party infringement claims. Any claims, with or without merit, could be time-consuming and expensive, and could divert our management’s attention away from the execution of our business plan. Moreover, any settlement or adverse judgment resulting from the claim could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all, that we would be able to develop alternative technology on a timely basis, if at all, or that we would be able to obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our affected product. In addition, we may be required to indemnify our retail and distribution partners for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling in such a claim. An adverse determination could also prevent us from offering our products to others. Infringement claims asserted against us or our vendors may have a material adverse effect on our business, results of operations or financial condition.
Global economicIn addition, we incorporate open source software into our products, and we may continue to incorporate open source software into our products in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and any associated impact on consumer spending could have a material adverse effect onbe subject to significant damages, enjoined from offering or selling our products that contained the open source software and required to comply with the foregoing conditions. Any of the foregoing could disrupt and harm our business results of operations and financial condition.
Continued economic uncertaintyCybersecurity risks could adversely affect our business and reductionsdisrupt our operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in consumer spending, particularly in certain international marketsour operations are vulnerable to cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, distributed denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence. In addition, we may be the European Union, Chinatarget of email scams that attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. These threats may be increased due to the work-from-home policies implemented by us and Japan,our customers, suppliers and distributors as a result of mitigation measures related to the COVID-19 pandemic. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. Our cyber insurance may result in reductionsnot protect against all of the costs and liabilities arising from a cyber attack.
If we suffer data breaches involving the designs, schematics or source code for our products, our brand, business and financial results could be adversely affected.
We attempt to securely store our designs, schematics and source code for our products as they are created. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products. If we or our partners are subject to data security breaches, we may have a loss in sales or increased costs arising from the restoration or implementation of our consumer robots. Additionally, disruptions in credit markets may materially limit consumer credit availability and restrict credit availabilityadditional security measures, either of our retail customers, which would also impact purchases of our consumer robots. Any reduction in sales of our consumer robots, resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our brand, business and financial results.
We operate our business in jurisdictions where intellectual property theft or compromise is common.
Currently, we maintain significant operations in China, where a majority of our products are manufactured. Subject to contractual confidentiality obligations, we are required to share significant product design materials with third-parties necessary for the design and manufacture of our products. We cannot be sure that our data or intellectual property will not be compromised through cyber-intrusion, theft or other means, particularly when the data or intellectual property is held by partners in foreign jurisdictions. Should our intellectual property be compromised, it may be difficult to enforce our rights in China and other foreign jurisdictions in which we operate.
We collect, store, process, and use customer data, including certain personal and robot-specific information, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business.
Our latest floor cleaning robots, as well as additional products in development, collect, store, process, and use certain customer data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business. We collect, store, process, and use personal information and other user data, and we rely on third parties that are not directly under our control to do so as well. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to or acquire sensitive user data, which may expose us to a risk of loss, litigation, or regulatory proceedings. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to or acquisition of our user data, we may also have obligations to notify users about the incident, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the European Union's ("EU") General Data Protection Regulation ("GDPR") and the California Consumer Privacy Act impose significant requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes. Moreover, a growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data.
Further, we may be or become subject to data localization laws mandating that data collected in a foreign country be processed and stored only within that country. Russia adopted such a law in 2014, and a similar law became effective in China in November 2021. If other countries in which we have customers were to adopt a data localization law, we could be required to expand our data storage facilities there or build new ones in order to comply. The expenditure this would require, as well as costs of compliance generally, could harm our financial condition.
Our products are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes.
Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors and may in the future contain defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers for a period of time. These problems have and may continue to result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, mandatory or voluntary recall or product upgrades, damaged customer relationships and harm to our reputation, any of which could materially harm our results of operations and financial condition.
Because weability to achieve market acceptance. Our quality control procedures relating to the raw materials and components that it receives from third-party suppliers as well as our quality control procedures relating to its products after those products are an increasingly global business thatdesigned, manufactured and packaged may not be sufficient. In addition, increased development and warranty costs, including the costs of any mandatory or voluntary recall, could be substantial and could reduce our operating margins. The existence of any defects, errors, or failures in the years ended December 30, 2017, December 31, 2016 and January 2, 2016 generated approximately 48.8%, 51.2% and 56.0%, respectively, of our total revenue from sales to customers outside of the United States, we are subject to a number of additional risks including foreign currency fluctuations. These risks are magnified with our expanding global presence as a result of our recent acquisitions of SODC and Robopolis. These foreign currency fluctuations may make our products more expensivecould also lead to product liability claims or lawsuits against us. A successful product liability claim could result in substantial cost, diminish our distributors,brand and divert management’s attention and resources, which in turn maycould have a negative impact sales directly or the ability or willingness of our distribution partners to invest in growing product demand.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar could adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and lead us to raise international pricing, which may reduce
demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the strengthening of the U.S. dollar, or for any other reason, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, incur losses on our foreign currency derivative instruments, and incur increased operating expenses, thereby limiting any benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.
We use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. In addition, our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting counterparties to major financial institutions and by spreading the risk across several major financial institutions.
We are subject to a variety of U.S. and foreign laws and regulations that are central to our business; our failure to comply with these laws and regulations could harm our business or our operating results.
We are or may become subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including laws and regulations regarding consumer protection, advertising, electronic commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions.
The increasingly global nature of our business operations subjects us to domestic and foreign laws and regulations such as the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions. Our products are also subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls. Given the increasing number of foreign laws to which we are subject and the high level of complexity of these laws, there is a risk that some provisions may be inadvertently breached by us or by our subsidiaries, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. If we incur liability for noncompliance under these laws or regulations, we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or services, which would negatively affect our business, financial condition and operating results. In addition, any negative publicity directedresults of operations.
Risks Related to usOwnership of our Common Stock
The market price of our common stock may fluctuate significantly.
The market price of our common stock has at times experienced substantial price volatility as a result of lawsuits, regulatory proceedings,variations between our actual and legislative proposals could harmanticipated financial results, announcements by us and our brandcompetitors, projections or otherwise impact the growthspeculation about our business or that of our business. Any costs incurredcompetitors by the media or investment analysts or uncertainty about current global economic conditions. The stock market, as a resultwhole, also has experienced extreme price and volume fluctuations that have affected the market price of compliance effortsthe common stock of many technology companies in ways that may have been unrelated to such companies’ operating performance. In addition, the market price of our common stock may be, and we believe recently has been, significantly impacted by investors covering large short positions in our common stock. Furthermore, we believe the market
price of our common stock should reflect future growth and profitability expectations. If we fail to meet these expectations, the market price of our common stock may significantly decline.
In addition, there are many other factors that may cause the market price of our common stock to fluctuate, including:
•actual or anticipated variations in our quarterly operating results, including fluctuations resulting from changes in foreign exchange rates or acquisitions by us, or the quarterly financial results of companies perceived to be similar to us;
•deterioration and decline in general economic, industry and/or market conditions;
•announcements of technological innovations or new products or services by us or our competitors;
•changes in estimates of our financial results or recommendations by market analysts;
•announcements by us or our competitors of significant projects, contracts, acquisitions, strategic alliances or joint ventures; and
•changes in our capital structure, such as future issuances of securities or the incurrence of additional debt.
Our financial results often vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.
Our quarterly revenue and other liabilities under these laws or regulations could harmoperating results have varied in the past and are likely to continue to vary significantly from quarter-to-quarter in the future. These fluctuations may be due to numerous factors including:
•the size, timing and mix of orders from retail stores and distributors for our business and operating results.consumer robots;
Environmental laws and regulations and unforeseen costs could negatively impact our future earnings.•the mix of products that we sell in the period;
The manufacture and sale•disruption of supply of our products from our manufacturers;
•disruptions to our supply chain due to inclement weather, pandemics, labor disruptions or other factors beyond our control, including COVID-19;
•seasonality in the sales of our products;
•the timing of new product introductions;
•unanticipated costs incurred in the introduction of new products;
•costs and availability of labor and raw materials;
•costs of freight and tariffs;
•changes in our rate of returns for our consumer products;
•our ability to introduce new products and enhancements to our existing products on a timely basis; and
•warranty costs associated with our consumer products.
We cannot be certain states and countries may subjectthat our revenues will grow at rates that will allow us to environmentalmaintain profitability during every fiscal quarter, or even every fiscal year. We base our current and other regulations. We also face increasing complexity infuture expense levels on our product design as we adjust to legalinternal operating plans and regulatory requirements relating tosales forecasts, including forecasts of holiday sales for our consumer products. There is no assurance that such existing laws or future laws will not impair future earnings or results of operations.
Business disruptions resulting from international uncertainties could negatively impact our profitability.
We derive, and expect to continue to derive, aA significant portion of our revenue from internationaloperating expenses, such as research and development expenses, certain marketing and promotional expenses and employee wages and salaries, do not vary directly with sales and are difficult to adjust in various European and Far East markets, and Canada, particularly following our acquisitions of SODC and Robopolis. For the fiscal years ended December 30, 2017, December 31, 2016 and, January 2, 2016,short term. As a result, if sales to non-U.S. customers accounted for 48.8%, 51.2% and 56.0% of total revenue, respectively. We expect that international revenues will continue to account for a significant percentage ofquarter are below our revenues for the foreseeable future. Our international revenue and operations are subject to a number of material risks, including, but not limited to:
difficulties in staffing, managing and supporting operations in multiple countries;
difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
fewer legal protections for intellectual property;
foreign and U.S. taxation issues, tariffs, and international trade barriers;
difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
potential fluctuations in foreign economies;
government currency control and restrictions on repatriation of earnings;
fluctuations in the value of foreign currencies and interest rates;
general economic and political conditions in the markets in whichexpectations, we operate;
domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future;
changes in foreign currency exchange rates;
different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future; and
our relationships with international distributors, some of whom may be operating without written contracts.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales, including direct sales to customers outside the United States, are primarily denominated in U.S. dollars, and downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.
Moreover, the United Kingdom (UK) held a referendum on June 23, 2016 in which a majority of voters voted to exit the European Union (EU). Due to the unprecedented nature of the proposed withdrawal, significant uncertainty exists surrounding the timing and terms of the proposed exit. We have operations in the UK and business activities in several EU member states whose currencies, namely British Pound Sterling and Euro, economies, taxation, and trade regulation, among other factors, could be adversely impacted by the negotiations and outcomes of the UK’s leaving the EU, which is likely to be a lengthy and complicated process. While we do not anticipate near term adverse effects on business operations, these events could have a material adverse effect on our business operations, results of operations and financial condition over time.
If we experience a disaster or other business continuity problem, we maymight not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.
If we experiencereduce operating expenses for that quarter. Accordingly, a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. As we grow our operations in new geographic regions, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases.
The effects of regulations relating to conflict minerals may adversely affect our business.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to research, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
Our income tax provision and other tax liabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our position. Additionally, there is no guarantee that we will realize our deferred tax assets.
From time to time, we are audited by various federal, state, local and foreign authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and foreign taxes. Although we believe our approach to determining the appropriate tax treatment is supportablesales shortfall during a fiscal quarter, and in accordance with relevant authoritative guidance it is possible thatparticular the fourth quarter of a tax authority will take a final tax position that is materially different than that which is reflected in our income tax provision. Such differencesfiscal year, could have a material adversedisproportionate effect on our income tax provisionoperating results for that quarter or benefit, in the reporting period in which such determination is made and, consequently, on our resultsthat year. Because of operations, financial position and/or cash flows for such period.
The realizationquarterly fluctuations, we believe that quarter-to-quarter comparisons of our deferred tax assets ultimately depends on the existence of sufficient income in either the carryback or carryforward periods under the tax law. Due to significant estimates utilized in establishing a valuation allowance and the potential for changes in facts and circumstances, it is possible that we will be required to record a valuation allowance in future
reporting periods. Ouroperating results of operations would be impacted negatively if we determine that a deferred tax asset valuation allowance is required in a future reporting period.
The effect of comprehensive U.S. tax reform legislation on us, whether adverse or favorable, is uncertain.
On December 22, 2017, President Trump signed into law H.R. 1, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018" (informally titled the "Tax Cuts and Jobs Act"). Among a number of significant changes to the U.S. federal income tax rules, the Tax Cuts and Jobs Act (the "Act") reduces the marginal U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, limits the deduction for netare not necessarily meaningful. Moreover, our operating losses and eliminates net operating loss carrybacks, modifies or repeals many business deductions and credits, shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. Our net deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in our tax expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the Tax Cuts and Jobs Act on us and our affiliates, whether adverse or favorable, is uncertain, andresults may not become evident for some periodmeet expectations of equity research analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly or over time.
Provisions in our certificate of incorporation and by-laws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Provisions of our certificate of incorporation and by-laws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:
•limitations on the removal of directors;
•a classified board of directors so that not all members of our board are elected at one time;
•advance notice requirements for stockholder proposals and nominations;
•the inability of stockholders to act by written consent or to call special meetings;
•the ability of our board of directors to make, alter or repeal our by-laws; and
•the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.
The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to amend or repeal the above provisions of our certificate of incorporation. In addition, absent approval of our board of directors, our by-laws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.
In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
If significant tariffs or other restrictions are placed on Chinese imports or any related counter-measures are taken by China, our revenues and results of operations may be materially harmed.
The current U.S. administration has signaled it may alter trade agreements and terms between China and the United States, including limiting trade with China and/or imposing a tariff on imports from China. If any such restrictions or tariffs are imposed on products that we import to our customers, we would be required to raise our prices which may result in the loss of customers and harm our business.
Our products are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes.
Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors and may in the future contain defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers
for a period of time. These problems could result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, mandatory or voluntary recall or product upgrades, damaged customer relationships and harm to our reputation, any of which could materially harm our results of operations and ability to achieve market acceptance. Our quality control procedures relating to the raw materials and components that it receives from third-party suppliers as well as our quality control procedures relating to its products after those products are designed, manufactured and packaged may not be sufficient. In addition, increased development and warranty costs, including the costs of any mandatory or voluntary recall, could be substantial and could reduce our operating margins. The existence of any defects, errors, or failures in our products could also lead to product liability claims or lawsuits against us. A successful product liability claim could result in substantial cost, diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and results of operations.
We spend significant amounts on advertising and other marketing campaigns, which may not be successful or cost effective.
We spend significant amounts on advertising and other marketing campaigns, such as television, print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to increase awareness of our consumer robot products. For the years ended December 30, 2017, December 31, 2016 and January 2, 2016, sales and marketing expenses were $162.1 million, $115.1 million and $97.8 million, respectively, representing approximately 18.3%, 17.4%, and 15.9% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to purchase our products, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the conditions and behaviors that drive customer behavior. If any of our advertising campaigns prove less successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products.General Risk Factors
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We anticipate that our current cash, cash equivalents, cash provided by operating activities and funds available through our working capital line of credit facility, will be sufficient to meet our current and anticipated needs for general corporate purposes. We operate in an emerging technology market, however, which makes our prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. In such cases we may need additional financing to execute on our current or future business strategies. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited. In addition, our access to credit through our working capital line of credit facility may be limited by the restrictive financial covenants contained in thatthe agreement, which require us to maintain profitability.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Bedford, Massachusetts, where we lease approximately 209,000270,000 square feet. This lease expires on April 30, 2030. We also lease smaller facilities around the world. We believe that our leased facilities and additional or alternative space available to us will be adequate to meet our needs for the foreseeable future.
ITEM 3. 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. SeeFootnote 13to our consolidated financial statements for a description of certain of our legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
| |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on The Nasdaq Global Select Market under the symbol "IRBT". The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported on The Nasdaq Global Select Market.
|
| | | | | | | |
| | High | | Low |
| Fiscal 2016: | | | |
| First quarter | $ | 36.00 |
| | $ | 28.02 |
|
| Second quarter | $ | 39.00 |
| | $ | 33.90 |
|
| Third quarter | $ | 44.67 |
| | $ | 34.27 |
|
| Fourth quarter | $ | 60.86 |
| | $ | 42.06 |
|
| Fiscal 2017: | | | |
| First quarter | $ | 66.24 |
| | $ | 52.12 |
|
| Second quarter | $ | 104.61 |
| | $ | 65.00 |
|
| Third quarter | $ | 109.78 |
| | $ | 72.63 |
|
| Fourth quarter | $ | 81.93 |
| | $ | 62.96 |
|
"IRBT." As of February 12, 2018,January 28, 2022, there were approximately 27,945,27527,028,927 shares of our common stock outstanding held by approximately 150174 stockholders of record and the last reported sale price of our common stock on The Nasdaq Global Select Market on February 12, 2018 was $61.58 per share.record.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the audited financial statementsInformation about our equity compensation plans is incorporated herein by reference to Item 12 of the Company, and should be read in conjunction with our consolidated financial statements, the related notes and "Management’s Discussion and AnalysisPart III of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative
ITEM 6. [RESERVED]
Not Applicable.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | December 27,
2014 | | December 28,
2013 |
| | (In thousands, except earnings per share amounts) |
| Consolidated Statements of Income: | | | | | | | | | |
| Total revenue | $ | 883,911 |
| | $ | 660,604 |
| | $ | 616,778 |
| | $ | 556,846 |
| | $ | 487,401 |
|
| Gross margin | 433,159 |
| | 319,315 |
| | 288,926 |
| | 258,055 |
| | 221,154 |
|
| Operating income | 72,690 |
| | 57,557 |
| | 60,618 |
| | 53,117 |
| | 32,618 |
|
| Income tax expense | 25,402 |
| | 19,422 |
| | 18,841 |
| | 14,606 |
| | 4,774 |
|
| Net income | 50,964 |
| | 41,939 |
| | 44,130 |
| | 37,803 |
| | 27,641 |
|
| Net Income Per Share Data: | | | | | | | | | |
| Basic | $ | 1.85 |
| | $ | 1.51 |
| | $ | 1.49 |
| | $ | 1.28 |
| | $ | 0.97 |
|
| Diluted | $ | 1.77 |
| | $ | 1.48 |
| | $ | 1.47 |
| | $ | 1.25 |
| | $ | 0.94 |
|
| Shares Used In Per Common Share Calculations: | | | | | | | | | |
| Basic | 27,611 |
| | 27,698 |
| | 29,550 |
| | 29,485 |
| | 28,495 |
|
| Diluted | 28,753 |
| | 28,292 |
| | 30,107 |
| | 30,210 |
| | 29,354 |
|
| Consolidated Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 128,635 |
| | $ | 214,523 |
| | $ | 179,915 |
| | $ | 185,957 |
| | $ | 165,404 |
|
| Short term investments | 37,225 |
| | 39,930 |
| | 33,124 |
| | 36,166 |
| | 21,954 |
|
| Total assets | 691,522 |
| | 507,912 |
| | 521,743 |
| | 493,213 |
| | 416,337 |
|
| Total liabilities | 221,195 |
| | 118,956 |
| | 104,332 |
| | 102,777 |
| | 85,648 |
|
| Total stockholders’ equity | 470,327 |
| | 388,956 |
| | 417,411 |
| | 390,436 |
| | 330,689 |
|
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended or the Exchange Act,(the "Exchange Act"), and are subject to the "safe harbor" created by those sections. In particular, statements contained in this Annual Report on Form 10-K that are not historical facts, including, but not limited to statements concerning new product sales, product development and offerings, ability to address consumer needs, the expansion of our addressable market, factors for differentiation of our products, product integration plans, our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, the impact of our recent acquisitions of SODC and Robopolis, revenue recognition, our profits, growth of our revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, the impact of promotional activity and tariffs, operating expenses, selling and marketing expenses, general and administrative expenses, research and development expenses, and compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, valuation and composition of our stock-based awards, efforts to mitigate supply chain challenges, availability of semiconductor chips, 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. We urge you to consider the risks and uncertainties discussed in greater detail under the heading "Risk Factors" in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.
Overview
iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more both insidemore. With over 30 years of artificial intelligence ("AI") and outsideadvanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the home. The Company's consumer robots help people find smarter ways to clean and accomplish more in their daily lives.world. iRobot's portfolio of solutionshome robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. ForLeveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more than 25 years,efficient, more secure and healthier places to live.
Since our founding in 1990, we have been a pioneer indeveloped the robotics and consumer products industries. We sell our robots through a variety of distribution channels, including chain stores and other national retailers, through our on-line store, and through value-added distributors and resellers worldwide.
Over the past sixteen years, we have sold more than 20 million consumer robots worldwide. During 2016, we took several steps to become more focused on our well established consumer robots business and capitalize on the substantial opportunities available to us within consumer markets. We completed the sale of our defense and security business unit in April 2016. In addition, we reallocated all of the research and development resources from our remote presence business to our consumer business during the first quarter of 2016, and exited the remote presence business during the second quarter of 2016. These actions were taken to solidify our position as the leader in diversified consumer robots and to focus on key technologies, with an emphasis on software, that allow our robots to understand the homes in which they operate. It is our intent to continue investing in these critical technologies and the economic opportunities they unlock.
During 2017, we continued to expand our global operations with the acquisition of two of our major distributors in Japan and Europe. On April 3, 2017, we closed the acquisition of the iRobot-related distribution business of Sales On Demand Corporation (SODC) based in Tokyo, Japan for approximately $16.6 million in cash. The acquisition of SODC will better enable us to maintain our leadership position and accelerate the growth of our business in Japan through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships and customer service. It also expands our presence and customer outreach opportunities in Japan. Additionally, on October 2, 2017, we acquired our largest European distributor, Robopolis SAS, a French company (Robopolis) for approximately $170.1 million in cash, which was offset by acquired cash held by Robopolis and its subsidiaries, resulting in a net cash outlay of approximately $132.1 million. We anticipate that this acquisition will enhance our distribution network, ensure global brand consistency and better serve the needs of European consumers. We expect to drive continued growth in global markets through a consistent approach to all market activities including sales, marketing, branding, channel relationships and customer service. Both acquisitions provide us with more direct control over the go-to-market execution in these key regions.
As of December 30, 2017, we had 920 full-time employees. We have developed expertise in the disciplines necessary to design, build, sell and support 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,create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs, time cost and risk ofother risks associated with product development. OurThese capabilities are amplified by our Genius platform, which leverages our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies to provide consumers with greater control over our products, simple integration with other smart home devices, recommendations that further enhance the cleaning experience and the ability to share and transfer home knowledge across multiple iRobot robots. We believe that the capabilities within Genius will support our ability to build out a larger ecosystem that encompasses a broader range of adjacent robotic and smart home categories. We believe that our significant expertise in robot design, engineering, and engineeringsmart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to expand our total addressable market and capitalize on the anticipated growth we expect in the market for robot-based consumer products.
Our continued success depends upon our ability to respond to a number of future challenges. We believe the most significant of these include increasing competition, and our ability to successfully develop and introduce products and product enhancements into both new and existing markets.
We also achieved a number of significant milestones over the past two years that we believe will assist us in continuing to generate profitable growth and enhance value for our shareholders. In particular, in 2016, we successfully launched Roomba 960, our second 900 series Roomba, that extends mapping, visual navigation and cloud connectivity to a wider range of customers. We also launched the Braava jet mopping robot, with precision jet sprayrobotic and vibrating cleaning head, focused on expanding our wet floor care business. Both the Roomba 900 series and Braava jet are significantly more complex products, delivering enhanced performance enabled by software. The iRobot HOME App, compatible with both the Roomba 900 series and Braava jet, helps users get the most out of their experience by allowing them to choose the appropriate cleaning options for their unique home. We also announced a relationship with Amazon Web Services, or AWS, that we believe will enable iRobot to address significant opportunities within our consumer business and the connected home. AWS Cloud is a managed cloud solution that enables connected devices to interact easily and securely with cloud applications and other devices. The AWS Cloud will enable iRobot to scale the number of connected robots it supports globally and allow for increased capabilities in the Smart Home. Additionally, we implemented new Roomba marketing programs in the United States that resulted in a significant return on our investment and which we plan to leverage as part of our strategy to accelerate growth in international markets. In 2017, we launched Roomba 690 and 890, extending Wi-Fi connectivity to the entire Roomba line. In addition, we launched several connected product features, including push notifications, Clean Map Reports and integrations with Amazon Alexa, Google Assistant and IFTTT platform technology.smart home categories.
Our total revenue for 20172021 was $883.9$1,565.0 million, which represents a 33.8%9.4% increase from 2016 revenue of $660.6 million.$1,430.4 million for 2020. Domestic consumer robots revenue grew $133.2$9.5 million, primarily due toor 1.3%, and international revenue increased sales as a result of significant investments in advertising media and national promotions as well asby $125.1 million, or 18.2%.
Since the strengthintroduction of the Roomba 900 series and Roomba 600 series.
Internationalrobotic vacuum cleaner ("RVC") in 2002, we have sold more than 35 million consumer robots worldwide to become a global, market-leading consumer robotics innovator with a strong presence in a number of major geographic regions worldwide. In 2021, iRobot generated annual revenue grewof $1,565.0 million while navigating very challenging market conditions as the COVID-19 pandemic continued to impact all aspects of our business. Most notably, we have faced supply chain challenges that have limited our ability to increase production to fulfill demand for our products, increased our costs to produce and ship our products and expanded the delivery timeframes required to fulfill orders.
Our commitment to innovation and funding critical research and development projects continued to yield tangible results through new product launches, and new and enhanced product features and functionality:
•We launched two major upgrades of our Genius platform that delivered a wider range of features and functionality to provide users with greater control for where, when and how our Roomba and Braava robots clean. These enhancements also enabled tighter integration between our products and other smart home devices, and the ability for consumers to seamlessly transfer maps to new iRobot robots added into the home.
•We launched the Roomba j7 Series, our first Roomba designed specifically to leverage our Genius platform and our first Roomba with the ability to identify objects. Powered by $94.6 millionGenius and featuring PrecisionVision Navigation technology, the Roomba j7 can detect, identify and avoid an expanding range of objects. We also launched the Roomba i1 Series, a lower-cost RVC that was initially sold at select retailers.
•We introduced the iRobot H1 handheld vacuum, a premium portable vacuum for cleaning hard-to-reach areas.
In November 2021, we acquired Aeris, a fast-growing provider of premium air purifiers. The addition of Aeris helps expand iRobot’s total addressable market with a portfolio of air purifiers that we believe are differentiated by their sophisticated design, quality craftmanship, HEPA filtration, state-of-the-art engineering and software intelligence. Other 2021 highlights included our efforts to mitigate semiconductor chip shortages that constrained production of our floor cleaning robots and address a range of supply chain challenges that resulted in 2017 with increaseshigher-than-expected costs for components, raw materials and transportation. We also continued our process expanding production in most markets, offset byMalaysia. To support the growth of our direct-to-consumer sales channel, we continued to invest in improving the online buying experience on our digital properties and enhancing our marketing systems and tools to improve our efficiency and effectiveness in targeting our connected customers. We also continued to test, refine and expand robot-related subscription services for consumers in the United States, Japan and Europe.
COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") to be a declineglobal pandemic. Since then, COVID-19 has caused significant economic disruption directly and indirectly. In an effort to slow the spread of COVID-19 and improve the health and well-being of its citizens, governments around the world have implemented and continue to implement various measures, including travel restrictions, closure of non-essential businesses, border closures, vaccination-related mandates and social distancing. These actions have altered macroeconomic conditions, created recession-like environments and contributed to rising inflation, which has impacted retailers and consumers around the world. While consumer demand for our Roomba and Braava robots remained robust during 2021, COVID-19 has compounded a myriad of supply chain challenges, ranging from limited availability of certain semiconductor chips and rising component, raw materials and transportation costs. These challenges impacted revenue and profitability during 2021 and are expected to continue at least through the first half of 2022.
Among the many actions taken to support our employees during the pandemic, we have continued to adjust our global travel policies, maintain flexible work from home policies, and implement a wide range of sanitization and cleaning protocols to keep our offices safer. During 2022, we plan to continue to evolve our workplace policies in China.order to help safeguard the health and maximize the productivity of our workforce.
Fiscal Periods
We operate and report using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, our fiscal quarters will end on the Saturday that falls closest to the last day of the third month of each quarter. As used in this Annual Report on Form 10-K, "fiscal 2021" refers to the 52-week fiscal year ending January 1, 2022, "fiscal 2020" refers to the 53-week fiscal year ended January 2, 2021, and "fiscal 2019" refers to the 52-week fiscal year ended December 28, 2019.
Key Financial Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following key metrics, including non-GAAP financial measures, to evaluate and analyze our core operating performance and trends, and to develop short-term and long-term operational plans. The most directly comparable financial measures calculated under U.S. GAAP are Gross Profit and Operating (Loss) Income. In the fiscal years 2021, 2020 and 2019, we had Gross Profit of $550,299, $670,229 and $543,927, respectively, and Operating (Loss) Income of ($1,100), $146,322, and $86,618, respectively. A summary of key metrics and certain non-GAAP financial measures for the fiscal years 2021, 2020 and 2019, is as follows:
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| (dollars in thousands, except average gross selling prices) |
| (unaudited, except for total revenue) |
| Total Revenue | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | |
| | | | | |
| Non-GAAP Gross Profit | $ | 552,573 | | | $ | 637,174 | | | $ | 557,134 | |
| Non-GAAP Gross Margin | 35.3 | % | | 44.5 | % | | 45.9 | % |
| | | | | |
| Non-GAAP Operating Income | $ | 38,256 | | | $ | 149,674 | | | $ | 125,818 | |
| Non-GAAP Operating Margin | 2.4 | % | | 10.5 | % | | 10.4 | % |
| | | | | |
| Total robot units shipped (in thousands) | 5,602 | | | 5,494 | | | 4,989 | |
| Average gross selling prices for robot units | $ | 332 | | | $ | 318 | | | $ | 310 | |
Our non-GAAP financial measures reflect adjustments based on the following items. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.
Amortization of acquired intangible assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in connection with business combinations.
Tariff Refunds: iRobot was granted a Section 301 List 3 Tariff Exclusion in April 2020, which temporarily eliminated tariffs on our products imported from China until December 31, 2020 and entitled us to a refund of all related tariffs previously paid since September 2018. We excluded the refunds for tariffs paid in fiscal 2018 and 2019 from our fiscal 2020 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past had no impact to our fiscal 2020 earnings.
Net Merger, Acquisition and Divestiture (Income) Expense: Net merger, acquisition and divestiture (income) expense primarily consists of transaction fees, professional fees, and transition and integration costs directly associated with mergers, acquisitions and divestitures. It also includes business combination adjustments after the measurement period has ended.
Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.
IP Litigation Expense, Net: IP litigation expense, net relates to legal costs incurred to litigate patent, trademark, copyright and false advertising infringements, or to oppose or defend against interparty actions related to intellectual property. Any settlement payment or proceeds resulting from these infringements are included or netted against the costs.
Gain/Loss on Strategic Investments: Gain/loss on strategic investments includes fair value adjustments, realized gains and losses on the sales of these investments and losses on the impairment of these investments.
Restructuring and Other: Restructuring charges are related to one-time actions associated with workforce reductions, including severance costs, certain professional fees and other costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.
Income tax adjustments: Income tax adjustments include the tax effect of the non-GAAP adjustments, calculated using the appropriate statutory tax rate for each adjustment. We reassess the need for any valuation allowance recorded based on the non-GAAP profitability and have eliminated the effect of the valuation allowance recorded in the U.S. jurisdiction. We also exclude certain tax items, including impact from stock-based compensation windfalls/shortfalls, that are not reflective of income tax expense incurred as a result of current period earnings.
We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies.
The following table reconciles gross profit, operating (loss) income, net income and net income per share on a GAAP and non-GAAP basis for the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019:
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended |
| January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| (in thousands, except per share amounts) |
| GAAP Gross Profit | $ | 550,299 | | | $ | 670,229 | | | $ | 543,927 | |
| Amortization of acquired intangible assets | 1,223 | | | 1,920 | | | 11,721 | |
| Stock-based compensation | 1,321 | | | 1,511 | | | 1,486 | |
| Tariff refunds | (270) | | | (36,486) | | | — | |
| Non-GAAP Gross Profit | $ | 552,573 | | | $ | 637,174 | | | $ | 557,134 | |
| Non-GAAP Gross Margin | 35.3 | % | | 44.5 | % | | 45.9 | % |
| | | | | |
| GAAP Operating (Loss) Income | $ | (1,100) | | | $ | 146,322 | | | $ | 86,618 | |
| Amortization of acquired intangible assets | 2,253 | | | 2,912 | | | 12,772 | |
| Stock-based compensation | 21,694 | | | 29,975 | | | 23,744 | |
| Tariff refunds | (270) | | | (36,486) | | | — | |
| Net merger, acquisition and divestiture expense (income) | 2,059 | | | (566) | | | 466 | |
| IP litigation expense, net | 13,464 | | | 5,444 | | | 2,218 | |
| Restructuring and other | 156 | | | 2,073 | | | — | |
| Non-GAAP Operating Income | $ | 38,256 | | | $ | 149,674 | | | $ | 125,818 | |
| Non-GAAP Operating Margin | 2.4 | % | | 10.5 | % | | 10.4 | % |
| | | | | |
| GAAP Net Income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
| Amortization of acquired intangible assets | 2,253 | | | 2,912 | | | 12,772 | |
| Stock-based compensation | 21,694 | | | 29,975 | | | 23,744 | |
| Tariff refunds | (270) | | | (36,486) | | | — | |
| Net merger, acquisition and divestiture expense (income) | 2,059 | | | (1,241) | | | 466 | |
| IP litigation expense, net | 13,464 | | | 5,444 | | | 2,218 | |
| Restructuring and other | 156 | | | 2,073 | | | — | |
| Gain on strategic investments | (30,063) | | | (43,817) | | | (8,904) | |
| Income tax effect | (1,969) | | | 12,651 | | | (11,576) | |
| Non-GAAP Net Income | $ | 37,714 | | | $ | 118,579 | | | $ | 104,020 | |
| | | | | |
| GAAP Net Income Per Diluted Share | $ | 1.08 | | | $ | 5.14 | | | $ | 2.97 | |
| Dilutive effect of non-GAAP adjustments | 0.26 | | | (1.00) | | | 0.65 | |
| Non-GAAP Net Income Per Diluted Share | $ | 1.34 | | | $ | 4.14 | | | $ | 3.62 | |
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires managementus to make estimates and assumptions that affect the reported amounts of assets, and liabilities, revenue, and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements. Theserelated disclosures. Our estimates and judgments, include butassumptions are not limited to, revenue recognition (specifically sales returns and other allowances); valuation of goodwill and acquired intangible assets; accounting for business combinations; evaluating loss contingencies; and accounting for income taxes and related valuation allowances. We base these estimates and judgmentsbased on historical experience market participant fair value considerations, projected future cash flows and various other factors that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from our estimates.
The accounting policies, whichmethods and estimates used to prepare our financial statements are described in the notesNote 2 Summary of Significant Accounting Policies of Notes to our consolidated financial statements,Consolidated Financial Statements in this Annual Report. We consider the following accounting policies involve a greater degreeto be those that are most important to the portrayal of judgment and complexity. Accordingly, we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and resultsthat require a higher degree of operations.judgment:
•revenue recognition and
•accounting for income taxes.
Revenue Recognition
We primarily derive our revenue from product sales. Until the divestiture of the defense and security business unit in April 2016 (see Note 4), we also generated minimal revenue from government and commercial research and development contracts. We sell products directly to customers and indirectly through resellers and distributors. We recognize revenue from sales of robots under the terms of the customer agreementRevenue is recognized upon transfer of titlecontrol of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Revenue is allocated to distinct performance obligations and riskis recognized net of lossallowances for returns and other credits and incentives. Revenue is recognized only to the customer, netextent that it is probable that a significant reversal of estimated returnsrevenue will not occur and allowances, provided thatwhen collection is determined to be reasonably assuredconsidered probable.
Frequently, our contracts with customers contain multiple promised goods or services. Such contracts may include any of the following, the consumer robot, downloadable app, cloud services, potential future unspecified software upgrades, premium customer care and no significantextended warranties. For these contracts, we account for the promises separately as individual performance obligations remain.
Beginningif they are distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, we consider a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the third quarter of 2015, we introduced our first connected robot. Each sale ofcontract. Our consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a connected robot represents a multiple-element arrangement containingsingle performance obligation. We have determined that the robot, an app, cloud services and potential future unspecified software upgrades. Revenue is allocatedupgrades represent one performance obligation to the deliverablescustomer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). Other services and support are considered distinct and therefore are treated as separate performance obligations.
Significant Judgments
Our contracts with customers may contain multiple promises to transfer products and services as described above. Determining whether products and services are considered distinct may require significant judgment.
Determining the standalone selling price ("SSP") for each distinct performance obligation requires judgment. We allocate revenue to all distinct performance obligations based on their relative SSPs. When available, we use observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect our best estimates of what the selling prices which have been determined using best estimate of sellingthe performance obligations would be if they were sold regularly on a stand-alone basis. Our process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the facts and circumstances related to each performance obligation including, market data or the estimated cost of providing the products or services.
Determining the revenue recognition period for services requires judgment. The transaction price (BESP), as we have not been able to establish vendor specific objective evidence (VSOE) or obtain relevant third party evidence (TPE). Revenue allocated to the app and unspecified software upgradesCloud Services is then deferred and recognized on a straight-line basis over the period in which we expect to provide the upgrades, which is the estimated lifeterm of the robot.Cloud Services. Other services and support are recognized over their service periods.
Sales to retailers of consumer robots are typically subject to agreements allowing for limited rights of return, rebatesEstimating variable consideration such as product returns and price protection.sales incentives requires judgment. We also provide limited rights of returns for direct-to-consumer sales generated through our on-lineits online stores and certain internationalresellers and distributors. Accordingly, we reduce revenueWe record an allowance for our estimates of liabilities for these rights of return, rebates and price protection, as well as discounts and promotions, at the time the related sale is recorded. The estimates for rights of return are directlyproduct returns based on specific terms and conditions included in the customer agreements historical returns experience and various other assumptions that we believe are reasonable under the circumstances. In the case of new product introductions, the estimates for returns applied to the new products are based upon the estimates for the most similar predecessor products until such time that we have enough actual returns experience for the new products, which is typically two holiday return cycles. At that time, we incorporate that data into the development of returns estimates for the new products. We update our analysis of returns on a quarterly basis. If actual returns differ significantly from our estimates, or if modifications to individual customer agreements are entered into that impact their rights of returns, such differences could result in an adjustment to previously established reserves and could have a material impact, either favorably or unfavorably, on our results of operations for the period in which the actual returns become known or the agreement is modified. In 2016, we began selling to one domestic distributor under an agreement that provides product return privileges. As a result, we recognize revenue from sales to this distributor when the product is resold by the distributor. The estimates and adjustments for rebates and price protection are based on specific programs, expected usage and historical experience. Actual results could differ from these estimates. As of December 30, 2017, we have reserves for product returns of $42.7 million, discounts and promotions of $58.2 million and price protection of $3.1 million. As of December 31, 2016, we had reserves for product returns of $27.7 million, discounts and promotions of $22.1 million and price protection of $1.5 million.
Prior to our divestiture of the defense and security business unit in April 2016 (see Note 4), we generated minimal revenue from government contracts. Under cost-plus-fixed-fee (CPFF) type contracts, we recognized revenue based on costs incurred plus a pro rata portion of the total fixed fee. Costs incurred included labor and material that were directly associated with individual CPFF contracts plus indirect overhead and general and administrative type costs based upon billing rates we
submitted to the Defense Contract Management Agency (DCMA). Annually, we submitted final indirect billing rates to DCMA based upon actual costs incurred throughout the year. In the situation where our final actual billing rates are greater than the estimated rates used, we record a cumulative revenue adjustment in the period in which the rate differential is collected from the customer. These final billing rates are subject to audit by the Defense Contract Audit Agency (DCAA), which can occur several years after the final billing rates are submitted and may result in material adjustments to revenue recognized based on estimated final billing rates. As of December 30, 2017, fiscal year 2016 is open for audit by DCAA. In the situation where our anticipated actual billing rates will be lower than the provisional rates used, we record a cumulative revenue adjustment in the period in which the rate differential is identified. Revenue on firm fixed price (FFP) contracts was recognized using the percentage-of-completion method. For government product FFP contracts, revenue was recognized as the product was shipped or in accordance with the contract terms. Costs and estimated gross margins on contracts were recorded as revenue as work was performed based on the percentage that incurred costs compared to estimated total costs utilizing the most recent estimates of costs and funding. Revenue earned in excess of billings, if any, was recorded as unbilled revenue. Billings in excess of revenue earned, if any, were recorded as deferred revenue.
Business Combinations
We account for transactions that represent business combinations under the acquisition method of accounting. We allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition, including identifiable intangible assets. We base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions determined by us and which consider our best estimates of inputs and assumptions that a market participant would use. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which is generally one year from the acquisition date, any adjustment to the assets acquired and liabilities assumed is recorded against goodwill in the period in which the amount is determined. Any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out (FIFO) method. We maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory.
Warranty
We typically provide a one-year warranty (with the exception of European consumer products, which typically have a two-year warranty period) against defects in materials and workmanship and will either repair the goods, provide replacement products at no charge to the customer or refund amounts to the customer for defective products. We record estimated warranty costs, based on historical experience by product,and our expectation of future returns. In addition, we may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as our historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Returns and credits are estimated at the time we recognize product revenue. Actual results could differ from these estimates, which could cause increases or decreases to our warranty reserves in future periods.
Goodwillof sale and Other Long-Lived Assets
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized but rather is assessed for impairmentupdated at the end of each reporting unit level (operating segment or one level below an operating segment) annually or more frequently if we believe indicators of impairment exist. Goodwill impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit.period as additional information becomes available. We complete the annual impairment evaluation during the fourth quarter each year.
Other long-lived assets consist principally of completed technology, tradename, customer relationships, reacquired distribution rights and non-competition agreements. Reacquired distribution rights are amortized on an accelerated basis while all other intangible assets are amortized over their respective estimated useful lives on a straight-line basis, consistent with the pattern in which the economic benefits are being utilized.
We periodicallyregularly evaluate the recoverabilityadequacy of other long-lived assets whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based onour estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
The impairment assessment of goodwillfor product returns and other long-lived assets involves significantcredits and incentives. Future market conditions and product transitions may require us to take action to change such programs and related estimates. When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, and assumptions, which maywe would be unpredictable and inherently uncertain. These estimates and assumptions include identification of reporting units and
asset groups, long-term growth rates, profitability, estimated useful lives, comparable market multiples, and discount rates. Any changes in these assumptions could impactrequired to increase or reduce revenue to reflect the result of the impairment assessment.
Stock-Based Compensation
We account for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings. The fair value of employee stock options is estimated at the grant date using the Black-Scholes option-pricing model. The fair value for restricted stock awards, time-based restricted stock units and performance-based restricted stock units is based on the closing share price of our common stock on the date of grant. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected to vest upon the achievement of the performance conditions. We recognize stock-based compensation as an expense over the requisite service period. We have elected to account for forfeitures as they occur, rather than applying an estimated forfeiture rate, following our adoption of ASU 2016-09 in the first quarter of 2017.impact.
Accounting for Income Taxes
We are subject to income taxes in the United States and other foreign jurisdictions. Significant judgment is required in determining our provision for income taxes, and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis using enacted tax rates in effect in the years in which those temporary differences are expected to be recovered or settled in each jurisdiction. A valuation allowance is provided if, based upon the weight of available evidence, it is more likely than not
that the related benefits will not be realized. The CompanyWe regularly reviewsreview the deferred tax assets for recoverability considering historical profitability, projected future taxable income, future reversals of existing taxable temporary differences, as well as feasible tax planning strategies in each jurisdiction. As of December 30, 2017, the Company recorded a valuation allowance of $0.8 million for certain foreign deferred tax assets for which the Company believes do not meet the "more likely than not" criteria for recognition.
The Company reportsWe report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interestWe evaluate uncertain tax positions on a quarterly basis and penalties, if any, related to unrecognized tax benefits in the income tax provision.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law making significant changes to the Internal Revenue Code. Changesconsider factors that include, but are not limited to, a federal corporatechanges in tax rate decrease from 35%law, measurement of tax positions taken or expected to 21% forbe taken in tax years beginning after December 31, 2017,returns, the transitioneffective settlement of U.S. international taxation from a worldwide tax systemmatters subject to audit, information obtained during in process audit activities and changes in facts or circumstanced related to a territorial system and a one-time transition tax on the mandatory deemed repatriationprovision.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have determined that the $3.0 million of current income tax provision recorded relating to the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 30, 2017. Additional information and analysis is necessary to complete the calculation and accounting relating to the transition tax on the mandatory deemed repatriation of foreign earnings. Any subsequent adjustments to this amount will be recorded to current income tax provision during the measurement period which is not expected to extend beyond one year from the enactment date.
Overview of Results of Operations
The following table sets forth our results of operations for the periods shown:shown (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Revenue | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | |
| Cost of revenue: | | | | | |
| Cost of product revenue | 1,013,465 | | | 758,241 | | | 658,362 | |
| Amortization of acquired intangible assets | 1,223 | | | 1,920 | | | 11,721 | |
| Total cost of revenue | 1,014,688 | | | 760,161 | | | 670,083 | |
| Gross profit | 550,299 | | | 670,229 | | | 543,927 | |
| Operating expenses: | | | | | |
| Research and development | 161,331 | | | 156,670 | | | 141,607 | |
| Selling and marketing | 289,848 | | | 265,475 | | | 231,548 | |
| General and administrative | 99,190 | | | 100,770 | | | 83,103 | |
| Amortization of acquired intangible assets | 1,030 | | | 992 | | | 1,051 | |
| Total operating expenses | 551,399 | | | 523,907 | | | 457,309 | |
| Operating (loss) income | (1,100) | | | 146,322 | | | 86,618 | |
| Other income, net | 29,384 | | | 41,593 | | | 12,215 | |
| Income before income taxes | 28,284 | | | 187,915 | | | 98,833 | |
| Income tax (benefit) expense | (2,106) | | | 40,847 | | | 13,533 | |
| Net income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Revenue | $ | 883,911 |
| | $ | 660,604 |
| | $ | 616,778 |
|
| Cost of revenue: | | | | | |
| Cost of product revenue (1) | 438,114 |
| | 337,832 |
| | 325,295 |
|
| Amortization of intangible assets | 12,638 |
| | 3,457 |
| | 2,557 |
|
| Gross margin | 433,159 |
| | 319,315 |
| | 288,926 |
|
| Operating expenses: | | | | | |
| Research and development (1) | 113,149 |
| | 79,805 |
| | 76,071 |
|
| Selling and marketing (1) | 162,110 |
| | 115,125 |
| | 97,772 |
|
| General and administrative (1) | 84,771 |
| | 66,828 |
| | 53,540 |
|
| Amortization of intangible assets | 439 |
| | — |
| | 925 |
|
| Total operating expenses | 360,469 |
| | 261,758 |
| | 228,308 |
|
| Operating income | 72,690 |
| | 57,557 |
| | 60,618 |
|
| Other income, net | 3,676 |
| | 3,804 |
| | 2,353 |
|
| Income before income taxes | 76,366 |
| | 61,361 |
| | 62,971 |
|
| Income tax expense | 25,402 |
| | 19,422 |
| | 18,841 |
|
| Net income | $ | 50,964 |
| | $ | 41,939 |
| | $ | 44,130 |
|
___________________
| |
(1) | Stock-based compensation recorded in fiscal 2017, 2016 and 2015 breaks down by expense classification as follows: |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Cost of revenue | $ | 1,082 |
| | $ | 760 |
| | $ | 1,076 |
|
| Research and development | 5,009 |
| | 3,646 |
| | 3,256 |
|
| Selling and marketing | 2,571 |
| | 2,008 |
| | 1,457 |
|
| General and administrative | 11,089 |
| | 9,581 |
| | 8,394 |
|
The following table sets forth our results of operations as a percentage of revenue for the periods shown:
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of revenue: | | | | | |
| Cost of product revenue | 64.8 | | | 53.0 | | | 54.2 | |
| Amortization of acquired intangible assets | 0.1 | | | 0.1 | | | 1.0 | |
| Total cost of revenue | 64.9 | | | 53.1 | | | 55.2 | |
| Gross margin | 35.1 | | | 46.9 | | | 44.8 | |
| Operating expenses: | | | | | |
| Research and development | 10.3 | | | 11.0 | | | 11.7 | |
| Selling and marketing | 18.5 | | | 18.6 | | | 19.1 | |
| General and administrative | 6.3 | | | 7.0 | | | 6.8 | |
| Amortization of acquired intangible assets | 0.1 | | | 0.1 | | | 0.1 | |
| Total operating expenses | 35.2 | | | 36.7 | | | 37.7 | |
| Operating (loss) income | (0.1) | | | 10.2 | | | 7.1 | |
| Other income, net | 1.9 | | | 3.0 | | | 1.0 | |
| Income before income taxes | 1.8 | | | 13.2 | | | 8.1 | |
| Income tax (benefit) expense | (0.1) | | | 2.9 | | | 1.1 | |
| Net income | 1.9 | % | | 10.3 | % | | 7.0 | % |
|
| | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of revenue: | | | | | |
| Cost of product revenue | 49.6 |
| | 51.1 |
| | 52.7 |
|
| Amortization of intangible assets | 1.4 |
| | 0.6 |
| | 0.5 |
|
| Total cost of revenue | 51.0 |
| | 51.7 |
| | 53.2 |
|
| Gross margin | 49.0 |
| | 48.3 |
| | 46.8 |
|
| Operating expenses: | | | | | |
| Research and development | 12.8 |
| | 12.1 |
| | 12.3 |
|
| Selling and marketing | 18.3 |
| | 17.4 |
| | 15.9 |
|
| General and administrative | 9.6 |
| | 10.1 |
| | 8.7 |
|
| Amortization of intangible assets | 0.1 |
| | — |
| | 0.1 |
|
| Total operating expenses | 40.8 |
| | 39.6 |
| | 37.0 |
|
| Operating income | 8.2 |
| | 8.7 |
| | 9.8 |
|
| Other income, net | 0.5 |
| | 0.5 |
| | 0.5 |
|
| Income before income taxes | 8.7 |
| | 9.2 |
| | 10.3 |
|
| Income tax expense | 2.9 |
| | 2.9 |
| | 3.1 |
|
| Net income | 5.8 | % | | 6.3 | % | | 7.2 | % |
Comparison of Years Ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019
Revenue
We currentlyprimarily derive our revenue from product sales. Untilsales through distributor and retail sales channels, as well as the divestiture of the defenseonline store on our website and security business unit in April 2016, we also generated minimal revenue from government and commercial research and development contracts.
For the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, approximately 62.7%, 72.8% and 76.6%, respectively, of our consumer robots revenue resulted from sales to 15 customers, which were comprised of both domestic retailers and international distributors. Direct-to-consumer revenue generated through our domestic and international on-line stores accounted for 4.1%, 5.1% and 6.1% of our consumer robots revenue for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. We typically sell our recently launched products direct on-line, and then subsequently offer these products through other channels of distribution.
For the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, sales to non-U.S. customers accounted for 48.8%, 51.2% and 56.0% of total revenue, respectively.
We sell products directly to customers and indirectly through resellers and distributors.Home app. We recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and riskcontrol of losspromised products or services to customers in an amount that reflects the customer, net of estimated returns, provided that collection is determinedconsideration we expect to be reasonably assured and no significant obligations remain.receive in exchange for those products or services.
The following table shows total revenue for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Total Revenue | $ | 883,911 |
| | $ | 660,604 |
| | $ | 616,778 |
| | $ | 223,307 |
| | $ | 43,826 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Revenue | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | | | $ | 134,597 | | | $ | 216,380 | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
Revenue increased 33.8% to $883.9 million in fiscal 2017 from $660.6 million in fiscal 2016. Revenue increased approximately $227.8 million, or 34.7%, in our consumer business while revenue decreased $3.1 million in our defense and security business as a result of its sale in April 2016. The $227.8 million increase in revenue from our consumer business was driven by a 25.7% increase in units shipped and a 10.8% increase in average selling price. In fiscal 2017, domestic consumer revenue increased $133.2 million, or 41.8%, and international consumer revenue increased $94.6 million, or 28.1%, compared to fiscal 2016. Total consumer robots shipped in fiscal 2017 were approximately 3,698,000 units compared to approximately
2,943,000 units in fiscal 2016. The increase in domestic consumer robot revenue was primarily attributable to increased sales as a result of investments in advertising media and national promotions and further adoption of our robots, particularly our Roomba 900 and Roomba 600 series robots. During 2017, we recorded a net benefit to revenue and income before income taxes of $2.2 million related to adjustments to our product returns reserves compared to a net benefit to revenue and income before income taxes of $3.5 million during fiscal 2016. The net adjustments recorded in each period resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
Revenue increased 7.1%9.4% to $660.6$1,565.0 million in fiscal 20162021 from $616.8$1,430.4 million in fiscal 2015. Revenue2020. Despite ongoing semiconductor chip constraints and shipping delays that impacted our ability to fulfill orders in fiscal 2021 during the holiday season, revenue increased approximately $96.2$134.6 million, or 17.2%, in our consumer business while revenue decreased $51.9 million in our defense and security business aswhich was primarily attributable to a result of the sale of our defense and security business unit in April 2016. The $96.2 million4.4% increase in revenue from our consumer business was driven byaverage gross selling price and a 20.8%2.0% increase in units shipped partially offset by a 0.8% decrease in net average selling price. In fiscal 2016, domestic consumer revenue increased $84.2 million, or 35.8%, and international consumer revenue increased $12.0 million, or 3.7%,2021, as compared to fiscal 2015. Total consumer2020. The increase in average gross selling price was primarily driven by a 15.4% growth in sales of our mid and premium tier floor cleaning robots. In fiscal 2021, international revenue increased $125.1 million, or 18.2% due primarily to 21.9% growth in EMEA and a 15.2% increase in Japan, while domestic revenue increased $9.5 million, or 1.3%. Our direct-to-consumer revenue growth of 24.2% to $187.4 million, or 12.0% of total revenue, reflected continued expansion of this channel as we invested in enhancing the online buying experience and upgrading our digital marketing capabilities.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Revenue increased 17.8% to $1,430.4 million in fiscal 2020 from $1,214.0 million in fiscal 2019. Although the initial impact of the COVID-19 pandemic on our sales and manufacturing supply chain activities during the first quarter of 2020 resulted in a revenue decline, demand for our robots increased substantially during the remainder of fiscal 2020 as maintaining a clean home took on greater prominence during the pandemic. We saw significant growth in our direct-to-consumer sales generating 11% of total fiscal 2020 revenue, up from approximately 6% in 2019. The increase in revenue was primarily driven by strong demand with a 10.1% increase in total units shipped in fiscal 2016 were2020 as compared to fiscal 2019. Units shipped increased to approximately 2,943,0005.5 million units compared to approximately 2,436,0005.0 million units in fiscal 2015. The increase in2019. In fiscal 2020, domestic consumer robots revenue was primarily attributable to increased sales as a result of significant investments in advertising media and national promotions as well as$141.0 million, or 23.4%, while international revenue increased sales of the Roomba 900 series robots. Roomba 980 launched in late 2015, with a full year of revenue included in fiscal 2016. Roomba 960 was introduced in the third quarter of 2016. International consumer robots revenue grew 3.7% primarily due to our execution of successful marketing programs in those markets, as well as stronger overseas economies. During 2016, we recorded a net benefit to revenue and income before income taxes of $3.5$75.4 million, related to adjustments to our product returns reserves compared to a net benefit to revenue and income before income taxes of $6.9 million during fiscal 2015. The net adjustments recorded in each period resulted from lower product returns experienceor 12.3%, as compared to estimates usedfiscal 2019. The international revenue growth was driven by increases in revenue from Japan and EMEA of 20% and 8%, respectively, compared to establish reserves in prior periods. Partially offsetting these items in 2016 was a net reduction to revenue and income before income taxes of $6.4 million for pricing support to customers in response to changing market conditions.2019.
Cost of Product Revenue
Cost of product revenue includes theprimarily consists of product cost, of raw materials and labor that go into the development and manufactureincluding costs of our products as well ascontract manufacturers for production and component product costs, inbound and outbound freight, import duties, tariffs, logistics and fulfillment costs, manufacturing overheadand tooling equipment depreciation, hosting costs such as manufacturing engineering, quality assurance, logistics,and warranty third-party consulting, travel and associated direct material costs. Additionally,cost. In addition, we include overheadother expenses such as indirect engineering labor, occupancy costs associated with the project resources, engineering toolssupply chain logistics including personnel-related expenses of salaries and supplies and program management expenses. Raw material costs, which are our most significant cost items, can fluctuate materially on a periodic basis, although many components have been historically stable. Additionally, unit costs can vary significantly depending on the mix of products sold. There can be no assurance that our costs of raw materials will not increase. Labor costs also comprise a significant portion of our cost of revenue.related costs. We outsource the manufacture of our consumer robotsproducts to contract manufacturers in China.southern China and began to diversify our supply chain by adding manufacturing capacity in Malaysia starting November 2019. During 2021, we continued to scale production in Malaysia by qualifying additional contract manufacturers. While labor costs in Chinathese regions traditionally have been favorable compared to labor costs elsewhere in the world, including the United States, they have been increasing for the last few years.years, especially with supply chain challenges driven by the COVID-19 pandemic. In addition, fluctuationsbecause our purchase contract with our contract manufacturers in China and Malaysia are typically denominated in U.S. dollars, changes in currency exchange rates couldmay impact our suppliers and increase the cost of labor. Consequently, the labor costs for our consumer robots could increase in the future.prices.
The following table shows cost of product revenue for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Cost of product revenue | $ | 1,013,465 | | | $ | 758,241 | | | $ | 658,362 | | | $ | 255,224 | | | $ | 99,879 | |
| As a percentage of revenue | 64.8 | % | | 53.0 | % | | 54.2 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Cost of product revenue | $ | 438,114 |
| | $ | 337,832 |
| | $ | 325,295 |
| | $ | 100,282 |
| | $ | 12,537 |
|
| As a percentage of total revenue | 49.6 | % | | 51.1 | % | | 52.7 | % | | | | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
Cost of product revenue increased $100.3 million, or 29.7% to $438.1 million in fiscal 2017, compared to $337.8 million in fiscal 2016. The increase is primarily due to the 33.8% increase in revenue as well as the impact from our acquisitions of the iRobot-related distribution business of SODC in April 2017 and Robopolis in October 2017.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
Cost of product revenue increased $12.5$255.2 million, or 3.9%33.7%, to $337.8$1,013.5 million in fiscal 2016,2021, compared to $325.3$758.2 million in fiscal 2015.2020. The cost of product revenue in fiscal 2021 included $48.3 million in tariff costs, whereas in fiscal 2020, we recognized a benefit of $36.5 million from tariff refunds. The increase in cost of product revenue is also attributable to the 9.4% increase in revenue, as well as higher costs associated with the global supply chain challenges including increased oceanic transport and air freight expenses and higher raw materials and component costs associated with limited semiconductor chip availability. We anticipate these challenges and higher costs to continue at least through the first half of fiscal 2022.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Cost of product revenue increased $99.9 million, or 15.2%, to $758.2 million in fiscal 2020, compared to $658.4 million in fiscal 2019. The increase is primarily due to the 7.1%17.8% increase in revenue, as well as increases in warranty and increasedrework costs, associated with assuming warranty liabilityoffset by the recognition of the tariff refunds of approximately $36.5 million for tariffs paid in 2018 and 2019. On April 24, 2020, we were granted a temporary exclusion, as extended in August 2020, from Section 301 List 3 tariffs by the United States Trade Representative, which temporarily eliminated the 25% tariff on Roomba products imported from China as part of our strategy in that market.
until December 31, 2020.
Gross MarginProfit
Our gross marginprofit as a percentage of revenue, referred to as our gross margin, varies according to the mix of product and contract revenue, the mix of products sold, total sales volume,the channel mix through which we sell our products, the level of defective product returns,promotional activities and levels of other producttariff and duty costs such as warranty, scrap, re-work and manufacturing overhead.imposed by governmental authorities.
The following table shows total gross marginprofit for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Total gross margin | $ | 433,159 |
| | $ | 319,315 |
| | $ | 288,926 |
| | $ | 113,844 |
| | $ | 30,389 |
|
| As a percentage of total revenue | 49.0 | % | | 48.3 | % | | 46.8 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Gross profit | $ | 550,299 | | | $ | 670,229 | | | $ | 543,927 | | | $ | (119,930) | | | $ | 126,302 | |
| Gross margin | 35.1 | % | | 46.9 | % | | 44.8 | % | | | | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
Gross margin increased $113.8 million, or 35.7%, to $433.2 million (49.0% of revenue) in fiscal 2017 from $319.3 million (48.3% of revenue) in fiscal 2016. The increase in gross margin as a percentage of revenue was primarily driven by favorable product and region mix, partially offset by an increase in promotional support to our customers as well as the impact from our acquisitions of the iRobot-related distribution business of SODC in April 2017 and Robopolis in October 2017. During 2017, we recorded a net benefit to revenue and gross margin of $2.2 million related to adjustments to our product returns reserves compared to a net benefit to revenue and gross margin of $3.5 million during fiscal 2016.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
Gross margin increased $30.4profit decreased $119.9 million, or 10.5%17.9%, to $319.3$550.3 million (48.3%(35.1% of revenue) in fiscal 20162021 from $288.9$670.2 million (46.8%(46.9% of revenue) in fiscal 2015.2020. The decrease in gross margin was primarily driven by Section 301 List 3 tariff costs of $48.3 million included in fiscal 2021, while we recognized a benefit of $36.5 million from tariff refunds in fiscal 2020. The remainder of the decrease in gross margin was driven by supply chain headwinds with increases in air and oceanic transportation, higher material costs and pricing and promotional activity.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Gross profit increased $126.3 million, or 23.2%, to $670.2 million (46.9% of revenue) in fiscal 2020 from $543.9 million (44.8% of revenue) in fiscal 2019. The increase in gross margin was primarily related to the recognition of the tariff refunds of $36.5 million for tariffs paid in 2018 and 2019 as a percentagebenefit to cost of revenue was primarily driven by favorable product and region mix in the consumer robots business as well as the success of the higher margin Roomba 900 series robots. These increases wererevenue, partially offset by pricing support to customers in response to changing market conditions as well as increased warranty costs. During 2016, we recorded a net benefit to revenueimpact of price reductions and gross margin of $3.5 million related to adjustments to our product returns reservespromotional activity during fiscal 2020 compared to a net benefit to revenue and gross margin of $6.9 million during fiscal 2015.2019.
Research and Development
Research and development expenses consist primarily of:
•salaries and related costs for our engineers;
•contractors and consulting expenses;
•costs of components and test equipment used for high technology components used in product, tooling and prototype development; and
costs of test equipment used during product development; and
•occupancy and other overhead costs.
Our research and development team develops new software and hardware products as well as improves and enhances our existing software and hardware products to address customer demands and emerging trends. We have significantly expanded our research and development capabilitiesin software intelligence, resulting in recent upgrades to the Genius Home Intelligence platform, along with ongoing investment in AI, home understanding and expect to continue to expand these capabilities in the future.machine vision technologies. We are committed to consistently maintaining theour high level of innovative design and development of new products as we strive to enhance our ability to serve our existing consumer markets as well as new markets for robots. We anticipate that in fiscal 2022, research and development expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue in the foreseeable future.revenue.
The following table shows total research and development costs for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Total research and development | $ | 113,149 |
| | $ | 79,805 |
| | $ | 76,071 |
| | $ | 33,344 |
| | 3,734 |
|
| As a percentage of total revenue | 12.8 | % | | 12.1 | % | | 12.3 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Research and development | $ | 161,331 | | | $ | 156,670 | | | $ | 141,607 | | | $ | 4,661 | | | $ | 15,063 | |
| As a percentage of revenue | 10.3 | % | | 11.0 | % | | 11.7 | % | | | | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
Research and development expenses increased $33.3 million, or 41.8%, to $113.1 million (12.8% of revenue) in fiscal 2017 from $79.8 million (12.1% of revenue) in fiscal 2016. This increase is attributable to increased efforts in product development and continued product enhancements. During 2017, people and program related costs increased $19.7 million and $13.2 million, respectively, compared to fiscal 2016.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
Research and development expenses increased $4.7 million, or 3.0%, to $161.3 million (10.3% of revenue) in fiscal 2021 from $156.7 million (11.0% of revenue) in fiscal 2020. This increase is primarily due to an $8.0 million increase in people-related costs associated with additional headcount and higher program-related costs of $4.6 million during fiscal 2021, offset by lower short-term incentive compensation of $8.0 million resulting from changes in assessments mainly driven by supply chain challenges as further discussed elsewhere in this Annual Report on Form 10-K.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Research and development expenses increased $3.7$15.1 million, or 4.9%10.6%, to $79.8$156.7 million (12.1%(11.0% of revenue) in fiscal 20162020 from $76.1$141.6 million (12.3%(11.7% of revenue) in fiscal 2015.2019. This increase is primarily due to an $8.7 million increase in people-related costs, mostly attributable to increased efforts in product development and continued product enhancements. During 2016, people and program relatedhigher short-term incentive compensation costs, increased $12.0as well as higher program-related costs of $4.3 million compared to 2015. This increase was partially offset by decreases related to defense and security and remote presence headcount and program spend of approximately $6.2 million and $2.1 million, respectively, compared to 2015.during fiscal 2020.
Selling and Marketing
Our selling and marketing expenses consist primarily of:
•salaries and related costs for sales and marketing personnel;
•advertising, marketing and other brand-building costs;
•product display expenses;
•customer service costs; and
travel•technology subscription and related costs.cloud expenses.
We anticipate that in 2018,fiscal 2022, selling and marketing expenses will increase in absolute dollars and as a percentage of revenue due to incremental investment to enhance the consumer's buying experience on our digital properties, support continued growth of our direct-to-consumer channel, build strong, enduring relationships with customers, as we integrate our recent acquisitions, launch new products andwell as continue to build awareness of our consumer robots products.
The following table shows total selling and marketing costs for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Total selling and marketing | $ | 162,110 |
| | $ | 115,125 |
| | $ | 97,772 |
| | $ | 46,985 |
| | 17,353 |
|
| As a percentage of total revenue | 18.3 | % | | 17.4 | % | | 15.9 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Selling and marketing | $ | 289,848 | | | $ | 265,475 | | | $ | 231,548 | | | $ | 24,373 | | | $ | 33,927 | |
| As a percentage of revenue | 18.5 | % | | 18.6 | % | | 19.1 | % | | | | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
Selling and marketing expenses increased by $47.0 million, or 40.8%, to $162.1 million (18.3% of revenue) in fiscal 2017 from $115.1 million (17.4% of revenue) in fiscal 2016. This increase is primarily attributable to increases of $35.3 million in investments in advertising media, national promotions and other selling and marketing costs incurred to support our continued global marketing and branding efforts and approximately $8.7 million in people-related costs including additional headcount related to our recent acquisitions of SODC and Robopolis.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
Selling and marketing expenses increased by $17.4$24.4 million, or 17.7%9.2%, to $115.1$289.8 million (17.4%(18.5% of revenue) in fiscal 20162021 from $97.8$265.5 million (15.9%(18.6% of revenue) in fiscal 2015.2020. This increase was primarily attributable to higher people-related costs of $12.4 million associated with additional headcount, higher marketing spend of $7.8 million associated with increased used of working media to drive sales growth and new launches, as well as $6.5 million higher technology related cost including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities. These increases were offset by lower short-term incentive compensation of $3.3 million resulting from changes in assessments driven by supply chain challenges as further discussed elsewhere in this Annual Report on Form 10-K.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Selling and marketing expenses increased by $33.9 million, or 14.7%, to $265.5 million (18.6% of revenue) in fiscal 2020 from $231.5 million (19.1% of revenue) in fiscal 2019. This increase is primarily attributable to increasesan increase in marketing investments of $12.1$30.7 million primarily related to advertising campaigns in investments in advertising media, national promotions and other sellingall regions during the holiday season and marketing activities to build our direct-to-consumer sales channel, as well as higher people-related costs incurred to support our continued global marketing and branding efforts and approximately $5.1of $2.9 million associated with the go-to market transition in China.mainly driven by short-term incentive compensation.
General and Administrative
Our general and administrative expenses consist primarily of:
•salaries and related costs for executives and administrative personnel;
•professional services costs;
•information systems and infrastructure costs;
•travel and related costs; and
•occupancy and other overhead costs.
The following table shows total general and administrative costs for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2, 2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 | | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| General and administrative | $ | 84,771 |
| | $ | 66,828 |
| | $ | 53,540 |
| | $ | 17,943 |
| | 13,288 |
| General and administrative | $ | 99,190 | | | $ | 100,770 | | | $ | 83,103 | | | $ | (1,580) | | | $ | 17,667 | |
| As a percentage of total revenue | 9.6 | % | | 10.1 | % | | 8.7 | % | | | | | |
| As a percentage of revenue | | As a percentage of revenue | 6.3 | % | | 7.0 | % | | 6.8 | % | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
General and administrative expenses increased by $17.9 million, or 26.8%, to $84.8 million (9.6% of revenue) in fiscal 2017 from $66.8 million (10.1% of revenue) in fiscal 2016. This increase is primarily attributable to an increase of $7.6 million in legal and consulting costs mainly driven by acquisition expense and litigation expense where we continued to defend and protect our intellectual property, as well as increases of $7.0 million in people-related costs including additional headcount related to our recent acquisitions of SODC and Robopolis and $1.2 million related to investments in enterprise hardware and software maintenance, support and services.
Year ended December 31, 2016January 1, 2022 as compared to the year ended January 2, 20162021
General and administrative expenses decreased by $1.6 million, or 1.6%, to $99.2 million (6.3% of revenue) in fiscal 2021 from $100.8 million (7.0% of revenue) in fiscal 2020. This decrease is primarily attributable to lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation of $14.9 million and a $4.6 million decrease in the allowance for credit losses associated with the uncertainty of collection from certain customer accounts resulting from the pandemic. The decrease is offset by an increase of $8.8 million in legal fees driven by higher intellectual property litigation costs and a $4.6 million increase associated with people related cost resulting from additional headcount.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
General and administrative expenses increased by $13.3$17.7 million, or 24.8%21.3%, to $66.8$100.8 million (10.1%(7.0% of revenue) in fiscal 20162020 from $53.5$83.1 million (8.7%(6.8% of revenue) in fiscal 2015.2019. This increase is primarily attributable to increaseshigher short-term incentive compensation and performance-based stock-based compensation of $7.8$11.6 million, in people-related costs, $2.7an increase of $4.8 million in legal advisoryfees driven by higher intellectual property litigation costs, and other consulting costsa $2.6 million increase in the allowance for credit losses associated with the proxy contest initiated by Red Mountain Capital Partners, $1.1 million in legal costs related to patent litigation and $0.9 million related to investments in enterprise hardware and software maintenance, support, and services.uncertainty of collection from certain customer accounts resulting from the pandemic.
Amortization of Acquired Intangible Assets
Amortization of acquired technology and reacquired distribution rights are recorded within cost of revenue whereas the amortization of acquired customer relationships, non-compete agreements and tradenames are recorded within operating expenses. All intangible assets, with the exception of the reacquiredReacquired distribution rights which are being amortized on an accelerated basis, while all other intangible assets are being amortized over their respective estimated useful lives on a straight-line basis, which is consistent whenwith the pattern in which the economic benefits are being utilized.
The following table shows total amortization expense for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Cost of revenue | $ | 1,223 | | | $ | 1,920 | | | $ | 11,721 | | | $ | (697) | | | $ | (9,801) | |
| Operating expense | 1,030 | | | 992 | | | 1,051 | | | 38 | | | (59) | |
| Total amortization expense | $ | 2,253 | | | $ | 2,912 | | | $ | 12,772 | | | $ | (659) | | | $ | (9,860) | |
| As a percentage of revenue | 0.1 | % | | 0.2 | % | | 1.1 | % | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2, 2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Cost of revenue | $ | 12,638 |
| | $ | 3,457 |
| | $ | 2,557 |
| | $ | 9,181 |
| | 900 |
|
| Operating expense | 439 |
| | — |
| | 925 |
| | 439 |
| | (925 | ) |
| Total amortization expense | 13,077 |
| | 3,457 |
| | 3,482 |
| | 9,620 |
| | (25 | ) |
| As a percentage of total revenue | 1.5 | % | | 0.5 | % | | 0.6 | % | | | | |
Year ended December 30, 2017 as compared to the year ended December 31, 2016
The increasedecreases in amortization of acquired intangible assets during fiscal 2017,2021 as compared to fiscal 2016,2020, was primarily related to our recent acquisitionsone of SODC and Robopolis.the acquired technology intangible assets that was fully amortized in the second quarter of 2020. The decrease in amortization of acquired intangible assets during fiscal 2020 as compared to fiscal 2019, was primarily related to the reacquired distribution rights intangible assets that were fully amortized in the fourth quarter of 2019.
Other Income, Netincome, net
Other income, net includes interest income, interest expense, foreign currency gains (losses) as well as gains (losses) from strategic investments. The following table shows other income, net for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
| | | | Fiscal Year Ended | | | | | | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2, 2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 | | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Other income, net | $ | 3,676 |
| | $ | 3,804 |
| | $ | 2,353 |
| | $ | (128 | ) | | $ | 1,451 |
| Other income, net | $ | 29,384 | | | $ | 41,593 | | | $ | 12,215 | | | $ | (12,209) | | | $ | 29,378 | |
| As a percentage of total revenue | 0.5 | % | | 0.5 | % | | 0.5 | % | | | | | |
| As a percentage of revenue | | As a percentage of revenue | 1.9 | % | | 3.0 | % | | 1.0 | % | |
Other income, net amounted to $3.7$29.4 million, $3.8$41.6 million and $2.4$12.2 million for fiscal 2017, 20162021, 2020 and 2015,2019, respectively. OtherDuring fiscal 2021, other income, net, for fiscal 2017 consisted primarilyincludes the gains of a $2.2$30.2 million gain on business acquisition related to our acquisition of SODC, which represents the excess of the fair value of the net assets acquired over the purchase price, as well as a $1.3 million gain associated with our Matterport, Inc. ("Matterport") investment when Matterport completed a merger and we received shares in Matterport, and marking the sale of a cost method investment. Othershares to fair value. During fiscal 2020, other income, net, included the gains of $38.6 million associated with our InTouch Health investment when Teladoc Health, Inc. ("Teladoc") acquired InTouch Health and exchanged our shares of InTouch Health for shares of Teladoc during the third quarter of 2020. During fiscal 2016 consisted primarily of2019, other income,
related to net, included an equity method investment of approximately $1.4$8.4 million defense and security business transition services income of $1.2 million, a gain on sale of a cost method investment of approximately $0.6 million and a gain on the sale of the defense and security business unit of $0.4 million. During fiscal 2015, we recorded a gain of approximately $3.3 million related to the sale of a cost method investment, which was partially offset primarily by foreign currency exchange losses.an equity investment.
Income Tax (Benefit) Provision
The following table shows income tax (benefit) provision for fiscal years 2017, 20162021, 2020 and 20152019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 | | $ Change 2021 vs. 2020 | | $ Change 2020 vs. 2019 |
| Income tax (benefit) provision | $ | (2,106) | | | $ | 40,847 | | | $ | 13,533 | | | $ | (42,953) | | | $ | 27,314 | |
| As a percentage of pre-tax income | (7.4) | % | | 21.7 | % | | 13.7 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2, 2016 | | $ Change 2017 vs. 2016 | | $ Change 2016 vs. 2015 |
| Income tax provision | $ | 25,402 |
| | $ | 19,422 |
| | $ | 18,841 |
| | $ | 5,980 |
| | $ | 581 |
|
| As a percentage of pre-tax income | 33.3 | % | | 31.7 | % | | 29.9 | % | | | | |
Year ended December 30, 2017January 1, 2022 as compared to the year ended January 2, 2021
We recorded an income tax benefit of $2.1 million and income tax provision of $40.8 million for fiscal 2021 and fiscal 2020, respectively. The $2.1 million benefit for fiscal 2021 resulted in an effective income tax rate of (7.4)%. The $40.8 million provision for fiscal 2020 resulted in an effective income tax rate of 21.7%.
Our effective income tax rate of (7.4)% for fiscal 2021 differed from the federal statutory tax rate of 21% primarily due to the impact of tax benefits related to research and development tax credits, the deduction for Foreign Derived Intangible Income and a discrete tax benefit associated with stock-based compensation. The decrease in the effective income tax rate of (7.4)% for fiscal 2021 as compared to 21.7% for fiscal 2020 is primarily driven by lower income in 2021 and the impact of tax benefits during the period.
Year ended January 2, 2021 as compared to the year ended December 31, 201628, 2019
We recorded an income tax provision of $25.4$40.8 million and $19.4$13.5 million for fiscal 20172020 and fiscal 2016,2019, respectively. The effective income tax rate was 33.3% in fiscal 2017, as compared to 31.7% in fiscal 2016. The increase in our effective tax rate is primarily due to jurisdictional mix of earnings and the one-time income tax provision of $11.9$40.8 million related to the enactment of the Act during the fourth quarter of 2017, partially offset by the excess tax benefits of $11.7 million related to ASU 2016-09.
Year ended December 31, 2016 as compared to the year ended January 2, 2016
We recorded an income tax provision of $19.4 million and $18.8 million for fiscal 2016 and fiscal 2015, respectively. The $19.4 million income tax provision for fiscal 2016 was based upon a 20162020 resulted in an effective income tax rate of 31.7%21.7%. The $18.8$13.5 million income tax provision for fiscal 2015 was based upon a 20152019 resulted in an effective income tax rate of 31.3% reduced by a net13.7%.
Our effective income tax benefitrate of $0.9 million21.7% for fiscal 2020 differed from the federal statutory tax rate of 21% primarily resulting from an increase in federaldue to the recognition of state income taxes and statevaluation allowances offset by tax credits upon filing the 2014 tax returns during 2015.
The federalbenefits related to research and development tax credit expired atcredits and the enddeduction for Foreign Derived Intangible Income. The increase in the effective income tax rate of 2014. In December 2015, legislation was enacted that included the permanent extension of the federal research and development21.7% for fiscal 2020 as compared to 13.7% for fiscal 2019 is primarily due to a discrete tax credit. The legislation also retroactively reinstated the research and development tax credit for 2015.benefit associated with stock based compensation in 2019.
Liquidity and Capital Resources
At December 30, 2017,January 1, 2022, our principal sources of liquidity were cash and cash equivalents totaling $128.6$201.5 million and short-term investments of $37.2 million and accounts receivable of $142.8$33.0 million. Our working capital, which represents our total current assets less total current liabilities, was $237.0$393.9 million as of December 30, 2017,January 1, 2022, compared to $271.0$573.7 million as of December 31, 2016.January 2, 2021. Cash and cash equivalents held by our foreign subsidiaries totaled $42.7 million as of January 1, 2022. We expect the cash held overseas to be permanently reinvested outside of the United States, and our U.S. operation to be funded through its own operating cash flows, cash, and if necessary, through borrowing under our working capital credit facility.
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.expansion, and only invest periodically in leasehold improvements a portion of which is often reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to machinery and tooling, leasehold improvements, computers, office furniture, product-specific production tooling, internal usebusiness applications software and testcomputer and equipment. In the fiscal years ended December 30, 2017, December 31, 2016January 1, 2022 and January 2, 2016,2021, we spent $23.4 million, $10.8$29.9 million and $9.4$31.6 million, respectively, on capital equipmentexpenditures.
Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern China and Malaysia to the retailer from Chinaour customers and, alternatively, allows our distributors and certain retail partnerscustomers to take possession of product on a domestic basis. Accordingly, our consumer product inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products, and they typically invoice us when the finished goods are shipped.
AsCash (used in) provided by operating activities
Year ended January 1, 2022 as compared to the year ended January 2, 2021
Net cash used in our operations for the fiscal year ended January 1, 2022 was $32.0 million, of which the principal components were the cash outflow of $86.3 million from change in working capital, partially offset by our net income of $30.4 million and non-cash charges of $23.9 million. The cash outflow from changes in working capital is mainly driven by cash used in inventory of $151.2 million offset by cash inflow from the increase in accounts payable of $82.3 million.
Year ended January 2, 2021 as compared to the year ended December 30, 2017, we held cash, cash equivalents and short-term investments of $165.9 million. 28, 2019
Net cash provided by our operations for the fiscal year ended December 30, 2017January 2, 2021 was $76.3$232.0 million, of which the principal components were our net income of $51.0$147.1 million and non-cash charges of $42.9$41.2 million, partially offset by a net increaseand changes in operating assets and liabilitiesworking capital of $17.5$43.8 million. The increasechanges in net operating assets and liabilities includes an increase in accounts receivable of $53.3 million primarily due to increased sales, partially offset by a $40.9 million increaseworking capital include increases in accounts payable and accrued liabilities primarily dueof $106.0 million, partially offset by increases in inventory of $24.5 million, accounts receivable of $21.9 million and other assets of $15.8 million.
Cash used in investing activities
Year ended January 1, 2022 as compared to growththe year ended January 2, 2021
Net cash used in investing activities for the business and timing of payments to our suppliers. As of December 30, 2017, we did not have any borrowings outstanding under our working capital line of credit and had $1.0 million in letters of credit outstanding under our revolving letter of credit facility.
fiscal year ended January 1, 2022 was $48.1 million. During the year ended December 30, 2017,January 1, 2022, we acquired SODC and RobopolisAeris for a total of $148.8$71.4 million, net of cash acquired, and invested $23.4$29.9 million in the purchase of property and equipment, including machinery and tooling for new products. We also purchased $10.6In addition, we made strategic investments of $10.8 million of marketable securities, while proceeds from the sales and maturities of marketable securities amounted to $13.1$64.0 million. In addition, we received an earn-out payment of $1.3 million from a sold cost method investment.
DuringYear ended January 2, 2021 as compared to the year ended December 30, 2017, we received $10.6 million from the exercise of stock options. Shares issued upon vesting of restricted stock were net of 51,229 shares retained by us to cover employee tax withholdings of $3.0 million.28, 2019
Net cash provided by our operationsused in investing activities for the fiscal year ended December 31, 2016January 2, 2021 was $116.4 million, of which$22.2 million. During the principal components were our net income of $41.9 million and non-cash charges of $28.0 million and a net decrease in operating assets and liabilities of $46.5 million. The decrease in net operating assets and liabilities includes a decrease in accounts receivable of $25.7 million primarily due to the timing of billing in respective periods and a $16.5 million increase in accounts payable and accrued liabilities primarily due to growth in the business and timing of payments to our suppliers. As of December 31, 2016,year ended January 2, 2021, we did not have any borrowings outstanding under our working capital line of credit and had $1.0 million in letters of credit outstanding under our revolving letter of credit facility.
We received $23.5 million for the divestiture of our defense and security business unit, net of a $1.0 million payment to our financial adviser. We invested $10.8$31.6 million in the purchase of property and equipment, in 2016, including machinery and tooling for new products. We purchased $16.6products as well as expansion in Malaysia. In addition, we made strategic investments of $4.2 million of marketable securities in 2016, while proceeds from the sales and maturities of marketable securities amounted to $9.5$13.5 million. We made strategic investments
Cash used in financing activities
Year ended January 1, 2022 as compared to the year ended January 2, 2021
Net cash used in financing activities for the fiscal year ended January 1, 2022 was $148.4 million, which primarily
reflects the repurchase of $2.2 million in the form of preferred shares and notes receivable.
During 2016, we received $9.3 million from the exercise of stock options and $3.0 million from the excess tax benefit related to our stock-based compensation plans. In addition, we repurchased 2,641,1221,198,218 shares of our common stock for $100.0 million under an aggregate purchase priceaccelerated share repurchase agreement during the third quarter of $97.0 million. Shares issued upon vesting2021, and the repurchase of restricted446,954 shares of our common stock were netfor $50.0 million under a stock repurchase program during the second quarter of 39,6762021.
Year ended January 2, 2021 as compared to the year ended December 28, 2019
Net cash used in financing activities for the fiscal year ended January 2, 2021 was $21.3 million, which primarily reflects the repurchase of 663,602 shares retained by us to cover employee tax withholdings of $1.3 million.our common stock for $25.0 million under a stock repurchase program in March
2020.
Working Capital FacilitiesFacility
Credit Facility
We have an unsecured revolving credit facilityIn June 2018, we entered into a new agreement with Bank of America, N.A., whichincreasing the amount of our unsecured revolving line of credit from $75.0 million to $150.0 million and extending the term of the credit facility to June 2023. As of January 1, 2022, we had no outstanding borrowings under our revolving credit facility. The revolving line of credit is available
to fund working capital and other corporate purposes. As of December 30, 2017, the total amount of our credit facility was $75.0 million and the full amount was available for borrowing. The interest on loans under our credit facility accrues, at our election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on our ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender’s base rate. The lender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender’s prime rate and (3) the Eurodollar Rate plus 1.0%. The credit facility will terminate and all amounts outstanding thereunderIn the event USD LIBOR is discontinued as expected in June 2023, we expect the interest rates for our debt following such event will be due and payable in fullbased on December 20, 2018.
As of December 30, 2017,either alternate base rates or agreed upon replacement rates. While we had nodo not expect a LIBOR discontinuation would affect our ability to borrow or maintain already outstanding borrowings, under our revolving credit facility. Thisit could result in higher interest rates.
The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or guarantee 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 maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.
ThisThe 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 December 30, 2017,January 1, 2022, we were in compliance with all covenants under the revolving credit facility.
LetterLines of Credit Facility
We have an unsecured revolving letter of credit facility with Bank of America, N.A. The credit facility is, available to fund letters of credit on our behalf up to an aggregate outstanding amount of $5.0 million. We may terminate at any time, subject to proper notice, or from time to time permanently reduce the amount of the credit facility.
We pay a fee on outstanding letters of credit issued under the credit facility of up to 1.5% per annum of the outstanding letters of credit. The maturity date for letters of credit issued under the credit facility must be no later than 365 days following the maturity date of the credit facility.
As of December 30, 2017,January 1, 2022, we had letters of credit outstanding of $1.0$0.7 million under our revolving letter of credit facility. Thefacility and other lines of credit facility contains customary terms and conditions forwith Bank of America, N.A.
We have an unsecured guarantee line of credit facilitieswith Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of this type, including restrictions on our ability to incur or guarantee 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,250.0 million Japanese Yen. As of January 1, 2022, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.
The credit facility also 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, the lender may accelerate the obligationshad no outstanding balance under the credit facility.
Asguarantee line of December 30, 2017, we were in compliance with all covenants under the revolving letter of credit facility.credit.
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables, expense accruals, capital expenditures and operating leases, all of which we anticipate funding through working capital and funds provided by operating activities and our existing working capital line of credit.activities. We do not currently anticipate significant investment in property, plant and equipment, and we believe that our outsourced approach to manufacturing provides us with flexibility in both managing inventory levels and financing our inventory. We believe our existing cash and cash equivalents, short-term investments, cash provided by operating activities, and funds available through our working capital line of credit facility 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 or decline, the expansion or contraction 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.services, and the impact of COVID-19 on our business. 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. As part of our business strategy, we may consider additional acquisitions of companies, technologies and products, 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 facility, leases for office space, inventory related purchase obligations, and minimum contractual obligations. Other obligations consist primarily of software licensing arrangements.subscription services. The following table describes our commitments to settle contractual obligations in cash as of December 30, 2017:January 1, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Less Than
1 Year | | 1 to 3
Years | | 3 to 5
Years | | More Than
5 Years | | Total |
| Operating leases (1) | $ | 6,317 | | | $ | 13,316 | | | $ | 11,736 | | | $ | 18,992 | | | $ | 50,361 | |
| Inventory-related purchase obligations (2) | 41,910 | | | — | | | — | | | — | | | 41,910 | |
| Minimum contractual payments | 13,281 | | | 25,500 | | | 13,667 | | | — | | | 52,448 | |
| Other obligations | 9,681 | | | 16,516 | | | — | | | — | | | 26,197 | |
| Total | $ | 71,189 | | | $ | 55,332 | | | $ | 25,403 | | | $ | 18,992 | | | $ | 170,916 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Less Than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | More Than 5 Years | | Total |
| | (In thousands) |
| Operating leases | $ | 6,361 |
| | $ | 13,407 |
| | $ | 13,000 |
| | $ | 39,839 |
| | $ | 72,607 |
|
| Minimum contractual payments | 897 |
| | 492 |
| | — |
| | — |
| | 1,389 |
|
| Other obligations | 1,645 |
| | 926 |
| | — |
| | — |
| | 2,571 |
|
| Total | $ | 8,903 |
| | $ | 14,825 |
| | $ | 13,000 |
| | $ | 39,839 |
| | $ | 76,567 |
|
(2) Includes estimated obligations under purchase orders related to inventory. Excludes purchase orders that can be cancelled without penalty.
At December 30, 2017,January 1, 2022, we had outstanding purchase orders aggregating approximately $74.4$363.9 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are generally cancelablecancellable without penalty. In circumstances where we determine that we have financial exposure associated with any of these commitments, we record a liability in the period in which that exposure is identified.
Off-Balance Sheet Arrangements
As of December 30, 2017, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Recently Adopted Accounting Pronouncements
See Note 2 to the accompanying consolidated financial statements for a description of recently adopted accounting standards.
Recently Issued Accounting Pronouncements
See Note 2 to the accompanying consolidated financial statements for a description of certain recently issued accounting standards which may impact our financial statements in future reporting periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Sensitivity
Our international revenue and expenses are denominated in multiple currencies, including Japanese Yen,British Pounds, Canadian Dollars, Chinese Yuan Renminbi, Euros and Euros.Japanese Yen. As such, we have exposure to adverse changes in exchange rates associated with the revenue and operating expenses of our foreign operations. Any fluctuations in other currencies will have minimal direct impact on our international revenue.
In addition to international business conducted in foreign currencies, we have a significant amount of international revenue denominated in U.S. dollars. As the U.S. dollar strengthens or weakens against other currencies, our international distributors may be impacted, which could affect their profitability and our ability to maintain current pricing levels on our international consumer products.
We regularly monitor the forecast of non-U.S. dollar revenue and expenses and the level of non-U.S. dollar monetary asset and liability balances to determine if any actions, including possibly entering into foreign currency forward contracts, or swaps, should be taken to minimize the impact of fluctuating exchange rates on our results of operations. Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. These contracts may or may not be designated as cash flow hedges for accounting purposes. We use cash flow hedges primarily to reduce the effects of foreign exchange rate changes on purchasesales in Euros and sales, primarily in Japanese YenYen. These contracts typically have maturities of three years or less. At January 1, 2022 and Euros. At December 30, 2017 and December 31, 2016,January 2, 2021, we had outstanding cash flow hedges with a total notional value of $73.7$423.3 million and $0.0$431.9 million, respectively.
We also enter into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts have maturities of twotwelve months or less. At December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, we had outstanding economic hedges with a total notional value of $36.6$325.4 million and $8.1$192.2 million, respectively.
A hypothetical changeAt January 1, 2022, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of 10% in exchange ratesour foreign currency contracts would not have a material impact on our financial results.increase or decrease by approximately $45.5 million.
Interest Rate Sensitivity
At December 30, 2017,January 1, 2022, we had unrestricted cash and cash equivalents of $128.6 million and short term investments of $37.2$201.5 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 fair market value of the investment to fluctuate. To minimize this risk in the future, we intendhave the ability to maintain our portfolio of cash equivalentsinvest in a variety of securities including, 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 December 30, 2017,January 1, 2022, all of our cash and cash equivalents were held in demand deposits and money market accounts, and government bonds.funds.
Our exposure to market risk also relates to the increase or decrease in the amount
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
iROBOT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of iRobot Corporation
iRobot Corporation:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of iRobot Corporation and its subsidiaries (the “Company”) as of December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 30, 2017,January 1, 2022, including the related notes (collectively referred to as the "consolidated“consolidated financial statements"statements”). We also have audited the Company's internal control over financial reporting as of December 30, 2017,January 1, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 30, 2017January 1, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,January 1, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control overOver Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded iRobot Japan G.K. and iRobot France SAS (formerly known as Robopolis SAS) from its assessment of internal control over financial reporting as of December 30, 2017, because they were acquired by the Company in purchase business combinations during fiscal 2017. We have also excluded iRobot Japan G.K. and iRobot France SAS (formerly known as Robopolis SAS) from our audit of internal control over financial reporting. iRobot Japan G.K. and iRobot France SAS (formerly known as Robopolis SAS) are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 8.3% and 23.9% of total assets, respectively and approximately 9.9% and 13.0% of total revenues, respectively, of the related consolidated financial statement amounts as of and for the year ended December 30, 2017.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Product Returns
As described in Notes 2 and 3 to the consolidated financial statements, the Company provides limited rights of returns for direct-to-consumer sales generated through its on-line stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and management’s expectation of future returns. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of January 1, 2022, the Company had reserves for product returns of $56.8 million.
The principal considerations for our determination that performing procedures relating to the allowance for product returns is a critical audit matter are (i) the significant judgment by management in developing the allowance for product returns related to management’s expectation of future returns; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the allowance for product returns and management’s expectation of future returns.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the estimation of the allowance for product returns. These procedures also included, among others (i) testing management’s process for developing the allowance for product returns, (ii) evaluating the appropriateness of management’s approach to calculate the allowance for product returns, (iii) testing the completeness and accuracy of underlying historical sales and returns data used by management to develop the allowance for product returns, and (iv) evaluating the reasonableness of management’s expectation of future returns based on historical experience by customer by product.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 201815, 2022
We have served as the Company’s auditor since 1999.
iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| | | | December 30,
2017 | | December 31,
2016 | | | | | | | | | | |
| | (In thousands) | | January 1,
2022 | | January 2,
2021 |
| ASSETS | ASSETS | ASSETS |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 128,635 |
| | $ | 214,523 |
| Cash and cash equivalents | $ | 201,457 | | | $ | 432,635 | |
| Short term investments | 37,225 |
| | 39,930 |
| Short term investments | 33,044 | | | 51,081 | |
| Accounts receivable, net | 142,829 |
| | 73,048 |
| Accounts receivable, net | 160,642 | | | 170,526 | |
| Inventory | 106,932 |
| | 50,578 |
| Inventory | 333,296 | | | 181,756 | |
| Other current assets | 19,105 |
| | 5,591 |
| Other current assets | 61,094 | | | 45,223 | |
| Total current assets | 434,726 |
| | 383,670 |
| Total current assets | 789,533 | | | 881,221 | |
| Property and equipment, net | 44,579 |
| | 27,532 |
| Property and equipment, net | 78,887 | | | 76,584 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 37,609 | | | 43,682 | |
| Deferred tax assets | 31,531 |
| | 30,585 |
| Deferred tax assets | 37,945 | | | 33,404 | |
| Goodwill | 121,440 |
| | 41,041 |
| Goodwill | 173,292 | | | 125,872 | |
| Intangible assets, net | 44,712 |
| | 12,207 |
| Intangible assets, net | 28,410 | | | 9,902 | |
| Other assets | 14,534 |
| | 12,877 |
| Other assets | 38,753 | | | 19,063 | |
| Total assets | $ | 691,522 |
| | $ | 507,912 |
| Total assets | $ | 1,184,429 | | | $ | 1,189,728 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 116,316 |
| | $ | 67,281 |
| Accounts payable | $ | 251,298 | | | $ | 165,779 | |
| Accrued expenses | 73,647 |
| | 40,869 |
| Accrued expenses | 132,618 | | | 131,388 | |
| Deferred revenue and customer advances | 7,761 |
| | 4,486 |
| Deferred revenue and customer advances | 11,767 | | | 10,400 | |
| Total current liabilities | 197,724 |
| | 112,636 |
| Total current liabilities | 395,683 | | | 307,567 | |
| Operating lease liabilities | | Operating lease liabilities | 43,462 | | | 50,485 | |
| Deferred tax liabilities | 9,539 |
| | — |
| Deferred tax liabilities | 3,250 | | | 705 | |
| Other long term liabilities | 13,932 |
| | 6,320 |
| |
| Total long term liabilities | 23,471 |
| | 6,320 |
| |
| Other long-term liabilities | | Other long-term liabilities | 25,311 | | | 26,537 | |
| Total long-term liabilities | | Total long-term liabilities | 72,023 | | | 77,727 | |
| Total liabilities | 221,195 |
| | 118,956 |
| Total liabilities | 467,706 | | | 385,294 | |
| Commitments and contingencies (Note 14): |
| |
| |
| Preferred stock, 5,000,000 shares authorized and none outstanding | — |
| | — |
| |
| Common stock, $0.01 par value, 100,000,000 shares authorized; 27,945,144 and 27,237,870 shares issued and outstanding at December 30, 2017 and December 31, 2016, respectively | 279 |
| | 272 |
| |
| Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | 0 | | 0 |
| Preferred stock, 5,000 shares authorized and none outstanding | | Preferred stock, 5,000 shares authorized and none outstanding | — | | | — | |
| Common stock, $0.01 par value; 100,000 shares authorized; 27,006 and 28,184 shares issued and outstanding, respectively | | Common stock, $0.01 par value; 100,000 shares authorized; 27,006 and 28,184 shares issued and outstanding, respectively | 270 | | | 282 | |
| Additional paid-in capital | 190,067 |
| | 161,885 |
| Additional paid-in capital | 222,653 | | | 205,256 | |
| Retained earnings | 277,989 |
| | 226,950 |
| Retained earnings | 485,710 | | | 599,389 | |
| Accumulated other comprehensive income (loss) | 1,992 |
| | (151 | ) | Accumulated other comprehensive income (loss) | 8,090 | | | (493) | |
| Total stockholders’ equity | 470,327 |
| | 388,956 |
| Total stockholders’ equity | 716,723 | | | 804,434 | |
| Total liabilities and stockholders’ equity | $ | 691,522 |
| | $ | 507,912 |
| Total liabilities and stockholders’ equity | $ | 1,184,429 | | | $ | 1,189,728 | |
See accompanying Notes to Consolidated Financial Statements
iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands, except per share amounts) |
| Revenue | $ | 883,911 |
| | $ | 660,604 |
| | $ | 616,778 |
|
| Cost of revenue: |
|
| |
|
| |
|
|
| Cost of product revenue | 438,114 |
| | 337,832 |
| | 325,295 |
|
| Amortization of intangible assets | 12,638 |
| | 3,457 |
| | 2,557 |
|
| Total cost of revenue(1) | 450,752 |
| | 341,289 |
| | 327,852 |
|
| Gross margin | 433,159 |
| | 319,315 |
| | 288,926 |
|
| Operating expenses: | | | | | |
| Research and development(1) | 113,149 |
| | 79,805 |
| | 76,071 |
|
| Selling and marketing(1) | 162,110 |
| | 115,125 |
| | 97,772 |
|
| General and administrative(1) | 84,771 |
| | 66,828 |
| | 53,540 |
|
| Amortization of intangible assets | 439 |
| | — |
| | 925 |
|
| Total operating expenses | 360,469 |
| | 261,758 |
| | 228,308 |
|
| Operating income | 72,690 |
| | 57,557 |
| | 60,618 |
|
| Other income, net | 3,676 |
| | 3,804 |
| | 2,353 |
|
| Income before income taxes | 76,366 |
| | 61,361 |
| | 62,971 |
|
| Income tax expense | 25,402 |
| | 19,422 |
| | 18,841 |
|
| Net income | $ | 50,964 |
| | $ | 41,939 |
| | $ | 44,130 |
|
| Net income per share | | | | | |
| Basic | $ | 1.85 |
| | $ | 1.51 |
| | $ | 1.49 |
|
| Diluted | $ | 1.77 |
| | $ | 1.48 |
| | $ | 1.47 |
|
| Number of weighted average common shares used in calculations per share | | | | | |
| Basic | 27,611 |
| | 27,698 |
| | 29,550 |
|
| Diluted | 28,753 |
| | 28,292 |
| | 30,107 |
|
__________________________
| |
(1) | Stock-based compensation recorded in fiscal 2017, 2016 and 2015 breaks down by expense classification as follows: |
| | | | | | | | | | Fiscal Year Ended |
| | Fiscal Year Ended | | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | |
| | (In thousands) | |
| Cost of revenue | $ | 1,082 |
| | $ | 760 |
| | $ | 1,076 |
| |
| Revenue | | Revenue | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | |
| Cost of revenue: | | Cost of revenue: | |
| Cost of product revenue | | Cost of product revenue | 1,013,465 | | | 758,241 | | | 658,362 | |
| Amortization of acquired intangible assets | | Amortization of acquired intangible assets | 1,223 | | | 1,920 | | | 11,721 | |
| Total cost of revenue | | Total cost of revenue | 1,014,688 | | | 760,161 | | | 670,083 | |
| Gross profit | | Gross profit | 550,299 | | | 670,229 | | | 543,927 | |
| Operating expenses: | | Operating expenses: | |
| Research and development | 5,009 |
| | 3,646 |
| | 3,256 |
| Research and development | 161,331 | | | 156,670 | | | 141,607 | |
| Selling and marketing | 2,571 |
| | 2,008 |
| | 1,457 |
| Selling and marketing | 289,848 | | | 265,475 | | | 231,548 | |
| General and administrative | 11,089 |
| | 9,581 |
| | 8,394 |
| General and administrative | 99,190 | | | 100,770 | | | 83,103 | |
| Amortization of acquired intangible assets | | Amortization of acquired intangible assets | 1,030 | | | 992 | | | 1,051 | |
| Total operating expenses | | Total operating expenses | 551,399 | | | 523,907 | | | 457,309 | |
| Operating (loss) income | | Operating (loss) income | (1,100) | | | 146,322 | | | 86,618 | |
| Other income, net | | Other income, net | 29,384 | | | 41,593 | | | 12,215 | |
| Income before income taxes | | Income before income taxes | 28,284 | | | 187,915 | | | 98,833 | |
| Income tax (benefit) expense | | Income tax (benefit) expense | (2,106) | | | 40,847 | | | 13,533 | |
| Net income | | Net income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
| Net income per share: | | Net income per share: | | | | | |
| Basic | | Basic | $ | 1.10 | | | $ | 5.23 | | | $ | 3.04 | |
| Diluted | | Diluted | $ | 1.08 | | | $ | 5.14 | | | $ | 2.97 | |
| Number of shares used in per share calculations: | | Number of shares used in per share calculations: | |
| Basic | | Basic | 27,687 | | | 28,101 | | | 28,097 | |
| Diluted | | Diluted | 28,162 | | | 28,618 | | | 28,735 | |
See accompanying Notes to Consolidated Financial Statements
iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | Fiscal Year Ended | | | | | | | | | | | | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | Fiscal Year Ended |
| | (In thousands) | | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Net income | $ | 50,964 |
| | $ | 41,939 |
| | $ | 44,130 |
| Net income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
| Other comprehensive income (loss): |
| |
| |
| |
| Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
| Net foreign currency translation adjustments | 1,994 |
|
| — |
| | — |
| Net foreign currency translation adjustments | (11,730) | | | 14,045 | | | (3,435) | |
| Net unrealized gains on cash flow hedges, net of tax | 490 |
| | — |
| | — |
| |
| Net unrealized gains (losses) on cash flow hedges, net of tax | | Net unrealized gains (losses) on cash flow hedges, net of tax | 23,715 | | | (13,932) | | | 12,363 | |
| Net gains on cash flow hedge reclassified into earnings, net of tax | (295 | ) | | — |
| | — |
| Net gains on cash flow hedge reclassified into earnings, net of tax | (3,398) | | | (3,587) | | | (1,418) | |
| Net unrealized gains (losses) on marketable securities, net of tax | (46 | ) | | 85 |
| | (85 | ) | |
| Net unrealized (losses) gains on marketable securities, net of tax | | Net unrealized (losses) gains on marketable securities, net of tax | (4) | | | (28) | | | 247 | |
| Total comprehensive income | $ | 53,107 |
| | $ | 42,024 |
| | $ | 44,045 |
| Total comprehensive income | $ | 38,973 | | | $ | 143,566 | | | $ | 93,057 | |
See accompanying Notes to Consolidated Financial Statements
iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Stockholders’ Equity |
| | Shares | | Value | |
| | (In thousands, except share data) |
| Balance at December 27, 2014 | 29,644,602 |
| | $ | 297 |
| | $ | 249,409 |
| | $ | 140,881 |
| | $ | (151 | ) | | $ | 390,436 |
|
| Issuance of common stock for exercise of stock options | 390,085 |
| | 4 |
| | 6,460 |
| | | | | | 6,464 |
|
| Conversion of deferred compensation | 14,610 |
| | — |
| | — |
| | | | | | — |
|
| Vesting of restricted stock units | 340,754 |
| | 3 |
| | (3 | ) | | | | | | — |
|
| Tax benefit of excess stock-based compensation deduction | | | | | 822 |
| | | | | | 822 |
|
| Stock-based compensation | | | | | 14,183 |
| | | | | | 14,183 |
|
| Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units | (37,969 | ) | | | | (1,295 | ) | | | | | | (1,295 | ) |
| Other comprehensive loss | | | | | | | | | (85 | ) | | (85 | ) |
| Directors' deferred compensation | | | | | 149 |
| | | | | | 149 |
|
| Stock repurchases | (1,260,276 | ) | | (13 | ) | | (37,380 | ) | | | | | | (37,393 | ) |
| Net income | | | | | | | 44,130 |
| | | | 44,130 |
|
| Balance at January 2, 2016 | 29,091,806 |
| | $ | 291 |
| | $ | 232,345 |
| | $ | 185,011 |
| | $ | (236 | ) | | $ | 417,411 |
|
| Issuance of common stock for exercise of stock options | 456,498 |
| | 4 |
| | 9,340 |
| | | | | | 9,344 |
|
| Conversion of deferred compensation | 6,721 |
| | — |
| | — |
| | | | | | — |
|
| Vesting of restricted stock units | 363,643 |
| | 4 |
| | (4 | ) | | | | | | — |
|
| Tax benefit of excess stock-based compensation deduction | | | | | 2,421 |
| | | | | | 2,421 |
|
| Stock-based compensation | | | | | 15,995 |
| | | | | | 15,995 |
|
| Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units | (39,676 | ) | | | | (1,300 | ) | | | | | | (1,300 | ) |
| Other comprehensive income | | | | | | | | | 85 |
| | 85 |
|
| Directors' deferred compensation | | | | | 82 |
| | | | | | 82 |
|
| Stock repurchases | (2,641,122 | ) | | (27 | ) | | (96,994 | ) | | | | | | (97,021 | ) |
| Net income | | | | | | | 41,939 |
| | | | 41,939 |
|
| Balance at December 31, 2016 | 27,237,870 |
| | $ | 272 |
| | $ | 161,885 |
| | $ | 226,950 |
| | $ | (151 | ) | | $ | 388,956 |
|
| Issuance of common stock for exercise of stock options | 367,267 |
| | 4 |
| | 10,569 |
| | | | | | 10,573 |
|
| Conversion of deferred compensation | 14,901 |
| | — |
| | — |
| | | | | | — |
|
| Vesting of restricted stock units | 376,335 |
| | 4 |
| | (4 | ) | | | | | | — |
|
| Stock-based compensation | | | | | 19,751 |
| | | | | | 19,751 |
|
| Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units | (51,229 | ) | | (1 | ) | | (2,982 | ) | | | | | | (2,983 | ) |
| Other comprehensive income | | | | | | | | | 1,948 |
| | 1,948 |
|
| Directors' deferred compensation | | | | | 65 |
| | | | | | 65 |
|
| Unrealized net gain on derivative financial instruments | | | | | | | | | 195 |
| | 195 |
|
| Cumulative effect of a change in accounting principle related to stock-based compensation | | | | | 783 |
| | 75 |
| | | | 858 |
|
| Net income | | | | | | | 50,964 |
| | | | 50,964 |
|
| Balance at December 30, 2017 | 27,945,144 |
| | $ | 279 |
| | $ | 190,067 |
| | $ | 277,989 |
| | $ | 1,992 |
| | $ | 470,327 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-In
Capital | | | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) ("AOCI") | | Stockholders’
Equity |
| | Shares | | Value | |
| Balance at December 29, 2018 | 27,788 | | | $ | 278 | | | $ | 172,771 | | | | | $ | 367,021 | | | $ | (4,748) | | | $ | 535,322 | |
| Issuance of common stock under employee stock plans | 187 | | | 2 | | | 7,145 | | | | | | | | | 7,147 | |
| | | | | | | | | | | | | |
| Vesting of restricted stock units | 436 | | | 5 | | | (5) | | | | | | | | | — | |
| | | | | | | | | | | | | |
| Stock-based compensation | | | | | 23,744 | | | | | | | | | 23,744 | |
| Stock withheld to cover tax withholdings requirements upon restricted stock vesting | (59) | | | (1) | | | (7,276) | | | | | | | | | (7,277) | |
| Other comprehensive income | | | | | | | | | | | 7,757 | | | 7,757 | |
| Directors' deferred compensation | | | | | 76 | | | | | | | | | 76 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | | | | | | | | | 85,300 | | | | | 85,300 | |
| Balance at December 28, 2019 | 28,352 | | | $ | 284 | | | $ | 196,455 | | | | | $ | 452,321 | | | $ | 3,009 | | | $ | 652,069 | |
| Issuance of common stock under employee stock plans | 151 | | | 1 | | | 5,583 | | | | | | | | | 5,584 | |
| | | | | | | | | | | | | |
| Vesting of restricted stock units | 391 | | | 4 | | | (4) | | | | | | | | | — | |
| | | | | | | | | | | | | |
| Stock-based compensation | | | | | 29,975 | | | | | | | | | 29,975 | |
| Stock withheld to cover tax withholdings requirements upon restricted stock vesting | (46) | | | — | | | (1,845) | | | | | | | | | (1,845) | |
| Other comprehensive loss | | | | | | | | | | | (3,502) | | | (3,502) | |
| Directors' deferred compensation | | | | | 85 | | | | | | | | | 85 | |
| Stock repurchases | (664) | | | (7) | | | (24,993) | | | | | | | | | (25,000) | |
| Net income | | | | | | | | | 147,068 | | | | | 147,068 | |
| Balance at January 2, 2021 | 28,184 | | | $ | 282 | | | $ | 205,256 | | | | | $ | 599,389 | | | $ | (493) | | | $ | 804,434 | |
| Issuance of common stock under employee stock plans | 143 | | | 1 | | | 6,718 | | | | | | | | | 6,719 | |
| | | | | | | | | | | | | |
| Vesting of restricted stock units | 369 | | | 3 | | | (3) | | | | | | | | | — | |
| Stock-based compensation | | | | | 21,694 | | | | | | | | | 21,694 | |
| Stock withheld to cover tax withholdings requirements upon restricted stock vesting | (45) | | | — | | | (5,161) | | | | | | | | | (5,161) | |
| Other comprehensive income | | | | | | | | | | | 8,583 | | | 8,583 | |
| Directors' deferred compensation | | | | | 64 | | | | | | | | | 64 | |
| Stock repurchases | (1,645) | | | (16) | | | (5,915) | | | | | (144,069) | | | | | (150,000) | |
| Net income | | | | | | | | | 30,390 | | | | | 30,390 | |
| Balance at January 1, 2022 | 27,006 | | | $ | 270 | | | $ | 222,653 | | | | | $ | 485,710 | | | $ | 8,090 | | | $ | 716,723 | |
See accompanying Notes to Consolidated Financial Statements
iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Fiscal Year Ended | | | | | | | | | | | | | | | |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 | | Fiscal Year Ended |
| | (In thousands) | | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | |
| Net income | $ | 50,964 |
| | $ | 41,939 |
| | $ | 44,130 |
| Net income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
| Adjustments to reconcile net income to net cash provided by operating activities, net of the effects of acquisitions: | | | | | | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of the effects of acquisitions: | | Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of the effects of acquisitions: | |
| Depreciation and amortization | 25,499 |
| | 13,606 |
| | 15,304 |
| Depreciation and amortization | 33,309 | | | 34,762 | | | 37,159 | |
| Gain on sale of business unit and cost method investment | (1,267 | ) | | (1,067 | ) | | (3,287 | ) | |
| (Income) loss on equity method investment | 65 |
| | (1,376 | ) | | — |
| |
| Impairment on cost method investment | 155 |
| | — |
| | — |
| |
| Gain on business acquisition | (2,243 | ) | | — |
| | — |
| |
| Gain on equity investments | | Gain on equity investments | (30,063) | | | (43,817) | | | (8,439) | |
| | Stock-based compensation | 19,751 |
| | 15,995 |
| | 14,183 |
| Stock-based compensation | 21,694 | | | 29,975 | | | 23,744 | |
| Deferred income taxes, net | (999 | ) | | 3,557 |
| | (985 | ) | Deferred income taxes, net | (6,934) | | | 13,837 | | | (11,118) | |
| Tax benefit of excess stock-based compensation deductions | — |
| | (2,971 | ) | | (1,467 | ) | |
| Non-cash director deferred compensation | 65 |
| | 82 |
| | 149 |
| |
| Other | 1,846 |
| | — |
| | — |
| Other | 5,940 | | | 6,467 | | | 7,267 | |
| Changes in operating assets and liabilities — (use) source | | | | | | Changes in operating assets and liabilities — (use) source | |
| Accounts receivable | (53,251 | ) | | 25,682 |
| | (31,461 | ) | Accounts receivable | 10,290 | | | (21,893) | | | 13,064 | |
| Inventory | (1,470 | ) | | (981 | ) | | (13,978 | ) | Inventory | (151,193) | | | (24,535) | | | 7,307 | |
| Other assets | (10,562 | ) | | 3,187 |
| | 203 |
| Other assets | (19,868) | | | (15,804) | | | (3,310) | |
| Accounts payable | 17,457 |
| | 6,502 |
| | 3,786 |
| Accounts payable | 82,289 | | | 48,699 | | | (20,536) | |
| Accrued liabilities | 23,447 |
| | 10,181 |
| | (3,251 | ) | |
| Deferred revenue and customer advances | 2,149 |
| | 2,996 |
| | (584 | ) | |
| Long term liabilities | 4,709 |
| | (908 | ) | | 3,970 |
| |
| Net cash provided by operating activities | 76,315 |
| | 116,424 |
| | 26,712 |
| |
| Accrued expenses and other liabilities | | Accrued expenses and other liabilities | (7,824) | | | 57,289 | | | (386) | |
| | Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (31,970) | | | 232,048 | | | 130,052 | |
| Cash flows from investing activities: | | | | | | Cash flows from investing activities: | | | | | |
| Additions of property and equipment | (23,371 | ) | | (10,817 | ) | | (9,372 | ) | Additions of property and equipment | (29,928) | | | (31,599) | | | (35,337) | |
| Change in other assets | (1,542 | ) | | (2,093 | ) | | (1,015 | ) | |
| Proceeds from sale of business unit and cost method investment | 1,267 |
| | 24,154 |
| | 5,645 |
| |
| Cash paid for business acquisitions, net of cash acquired | (148,765 | ) | | — |
| | — |
| |
| Purchases of investments | (10,578 | ) | | (16,554 | ) | | (17,755 | ) | |
| Purchase of investments | | Purchase of investments | (10,811) | | | (4,150) | | | (5,436) | |
| Proceeds from sale of equity investments | | Proceeds from sale of equity investments | — | | | — | | | 9,787 | |
| | Cash paid for business acquisition, net of cash acquired | | Cash paid for business acquisition, net of cash acquired | (71,357) | | | — | | | (2,817) | |
| | Sales and maturities of investments | 13,066 |
| | 9,500 |
| | 20,500 |
| Sales and maturities of investments | 63,976 | | | 13,500 | | | 12,880 | |
| Net cash provided by (used in) investing activities | (169,923 | ) | | 4,190 |
| | (1,997 | ) | |
| | Net cash used in investing activities | | Net cash used in investing activities | (48,120) | | | (22,249) | | | (20,923) | |
| Cash flows from financing activities: | | | | | | Cash flows from financing activities: | | | | | |
| Proceeds from employee stock plans | | Proceeds from employee stock plans | 6,719 | | | 5,584 | | | 7,147 | |
| Income tax withholding payment associated with restricted stock vesting | (2,983 | ) | | (1,300 | ) | | (1,295 | ) | Income tax withholding payment associated with restricted stock vesting | (5,161) | | | (1,845) | | | (7,277) | |
| Proceeds from stock option exercises | 10,573 |
| | 9,344 |
| | 6,464 |
| |
| Stock repurchases | — |
| | (97,021 | ) | | (37,393 | ) | Stock repurchases | (150,000) | | | (25,000) | | | — | |
| Tax benefit of excess stock-based compensation deductions | — |
| | 2,971 |
| | 1,467 |
| |
| Net cash provided by (used in) financing activities | 7,590 |
| | (86,006 | ) | | (30,757 | ) | |
| Net cash used in financing activities | | Net cash used in financing activities | (148,442) | | | (21,261) | | | (130) | |
| Effect of exchange rate changes on cash and cash equivalents | 130 |
| | — |
| | — |
| Effect of exchange rate changes on cash and cash equivalents | (2,646) | | | 4,705 | | | 20 | |
| Net increase (decrease) in cash and cash equivalents | (85,888 | ) | | 34,608 |
| | (6,042 | ) | |
| Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (231,178) | | | 193,243 | | | 109,019 | |
| Cash and cash equivalents, at beginning of period | 214,523 |
| | 179,915 |
| | 185,957 |
| Cash and cash equivalents, at beginning of period | 432,635 | | | 239,392 | | | 130,373 | |
| Cash and cash equivalents, at end of period | $ | 128,635 |
| | $ | 214,523 |
| | $ | 179,915 |
| Cash and cash equivalents, at end of period | $ | 201,457 | | | $ | 432,635 | | | $ | 239,392 | |
| Supplemental disclosure of cash flow information | | | | | | Supplemental disclosure of cash flow information | | | | | |
| Cash paid for income taxes | $ | 25,879 |
| | $ | 14,061 |
| | $ | 14,341 |
| Cash paid for income taxes | $ | 20,375 | | | $ | 19,929 | | | $ | 22,582 | |
| Non-cash investing and financing activities: | | | | | | |
| Additions of property and equipment included in accounts payable | $ | 5,001 |
| | $ | 1,550 |
| | $ | 848 |
| |
|
See accompanying Notes to Consolidated Financial Statements
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iRobot Corporation ("iRobot" or the "Company") designs, builds and buildssells robots and home innovations that empower people to do more.make life better. The Company develops robotic technologyCompany's portfolio of home robots and applies it to producesmart home devices features proprietary technologies for the connected home and market consumer robots.advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. iRobot's durable and high-performing robots are designed using the close integration of software, electronics and hardware. The Company’s revenue is primarily generated from product sales.sales through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers worldwide.
|
| | | | |
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation and Foreign Currency Translation
The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany balances and transactions. In addition, certain prior year amounts have been reclassified to conform to the current year presentation. iRobot has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP)("GAAP").
For the Company's subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated into U.S. dollars at period-end foreign exchange rates. Revenues and expenses are translated into U.S. dollars at the average foreign exchange rates for the period. Translation adjustments are excluded from the determination of net income and are recorded in accumulated other comprehensive income (loss), a separate component of stockholders' equity.
Use of Estimates
The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements. These estimates and judgments, include but are not limited to, revenue recognition (specifically sales returns and other allowances); valuation of goodwill and acquired intangible assets; accounting for business combinations; evaluating loss contingencies; and accounting for income taxes and related valuation allowances. The Company bases these estimates and judgments on historical experience, market participant fair value considerations, projected future cash flows and various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Fiscal Year-End
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, the Company’s fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter. As used in the Annual Report on Form 10-K, "fiscal 2021" refers to the 52-week fiscal year ending January 1, 2022, "fiscal 2020" refers to the 53-week fiscal year ended January 2, 2021, and "fiscal 2019" refers to the 52-week fiscal year ended December 28, 2019.
Revenue RecognitionUse of Estimates
The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses. These estimates and judgments, include but are not limited to, revenue recognition, including performance obligations, standalone selling price, variable consideration and other obligations such as sales incentives and product returns; allowance for credit losses; accounting for business combinations; impairment of goodwill and long-lived assets; valuation of non-marketable equity investments; product warranties; loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. The Company bases its estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current conditions, including estimated economic implications of the COVID-19 pandemic and various other factors that the Company believes are reasonable under the circumstances. Actual results and outcomes may differ from the Company’s estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less at the time of purchase to be cash and cash equivalents. The Company invests its excess cash primarily derivesin money market funds or demand deposit accounts of major financial institutions. Accordingly, its revenue from product sales. Untilcash and cash equivalents are subject to minimal credit and market risk. At January 1, 2022 and January 2, 2021, cash and cash equivalents totaled $201.5 million and $432.6 million, respectively. These cash and cash equivalents are carried at cost, which approximates fair value.
Short Term Investments
The Company's short term investments include marketable equity securities with readily determinable fair value and debt securities. The fair value of investments is determined based on quoted market prices at the divestiturereporting date for those instruments. The change in fair value of the defenseCompany's investments in marketable equity securities is recognized as unrealized gains and security business unitlosses in April 2016 (see Note 4),other income, net at the Company also generated minimal revenue from governmentend of each reporting period. The Company’s investments in debt securities were classified as available-for-sale and commercial research and development contracts. The Company sells products directly to customers and indirectly through resellers and distributors. The Company recognizes revenue from saleswere recorded at fair value with any unrealized gain or loss recorded as an element of robots under the termsstockholders’ equity. Investments consisted of the customer agreement upon transferfollowing (in thousands):
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | January 1,
2022 | | January 2,
2021 |
| | Cost | | Fair
Market Value | | Cost | | Fair
Market Value |
| Marketable equity securities | $ | 23,286 | | | $ | 33,044 | | | $ | 46,578 | | | $ | 47,576 | |
| Corporate and government bonds | — | | | — | | | 3,498 | | | 3,505 | |
| Total short term investments | $ | 23,286 | | | $ | 33,044 | | | $ | 50,076 | | | $ | 51,081 | |
On July 22, 2021, Matterport, Inc. ("Matterport"), of loss to the customer, net of estimated returns and allowances, provided that collection is determined to be reasonably assured and no significant obligations remain.
Beginning in the third quarter of 2015, the Company introduced its first connected robot. Each sale of a connected robot represents a multiple-element arrangement containing the robot, an app and potential future unspecified software upgrades. Revenue is allocated to the deliverables based on their relative selling prices which have been determined using best estimate of selling price (BESP), as the Company has not been able to establish vendor specific objective evidence (VSOE) or obtain relevant third party evidence (TPE). Revenue allocated to the app and unspecified software upgrades is then deferred and recognized on a straight-line basis over the period in which the Company expectsheld non-marketable equity securities, completed a merger with a special purpose acquisition company and began trading on Nasdaq under the symbol "MTTR." Prior to provide the upgrades, which ismerger, the estimated lifeCompany accounted for the shares in Matterport as equity securities without readily determinable fair value. Upon consummation of the robot.
Sales to retailersmerger, the Company received 1.6 million shares of consumer robotsMTTR. The post merger Matterport shares received are typically subject to agreements allowingtime based contractual sales restrictions which expire in January 2022. These shares are accounted for limited rightsas marketable equity securities and measured at fair value, less a temporary discount for lack of return, rebatesmarketability, with unrealized gains and losses recognized in other income, net at the end of each reporting period. During the fiscal year ended January 1, 2022, the Company recorded gains of $30.2 million associated with the Matterport investment. As of January 1, 2022, the shares in MTTR were valued at $33.0 million and are recorded in short term investments on the consolidated balance sheet. Subsequent to fiscal 2021, the Company sold all MTTR shares and received a net proceed of $16.2 million and recognized a loss of $16.8 million.
On July 1, 2020, Teladoc Health, Inc. ("Teladoc") closed on its previously announced acquisition of InTouch Health, of which the Company held non-marketable equity securities. In exchange for its shares of InTouch Health, the Company received 0.2 million shares of Teladoc and recorded a gain of $38.6 million to other income, net during the fiscal year ended January 2, 2021. The Teladoc shares received were subject to time based contractual sales restrictions which expired in January 2021. These shares were accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other income, net at the end of each reporting period. As a result, the Company entered into an economic hedge in July 2020 to reduce the Company's exposure to stock price protection. fluctuations during the restricted period. During the first quarter of 2021, the Company received net proceeds of $51.5 million related to the sale of Teladoc shares with gross proceeds of $60.1 million, net of settlement payment of $8.6 million for the related economic hedge.
Allowance for Credit Losses
The Company also providesmaintains an allowance for credit losses for accounts receivable using an expected loss model that requires the use of forward-looking information to calculate credit loss estimate. The expected loss methodology is developed through consideration of factors including, but not limited rightsto, historical collection experience, current customer credit ratings, customer concentrations, current and future economic and market conditions and age of returns for direct-to-consumer sales generated through its on-line stores and certain international distributors. Accordingly,the receivable. Although the Company reduces revenuehistorically has not experienced significant write-offs resulting from credit losses in accounts receivable, the COVID-19 pandemic has caused uncertainty in some customer accounts. As of January 1, 2022 and January 2, 2021, the Company had an allowance for its estimatescredit losses of liabilities$4.6 million and $4.8 million, respectively. During fiscal 2021 and 2020, the Company recorded a bad debt recovery of $0.2 million and a bad debt expense of $3.6 million, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of income.
Accounts receivable allowances
Allowance for these rights of return, rebates, and price protection, as well as discounts and promotions, at the time the related sale is recorded.product returns: The estimatesCompany records an allowance for rights of return are directlyproduct returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns.
Allowance for other credits and incentives: The Company records an allowance related to customer incentives such as discounts, promotions, price protection and other support programs. The allowance is based on specific terms and conditions included in customer agreements, specific programs and historical experience.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to accounts receivable allowances was as follows (in thousands):
historical returns experience | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Allowance for product returns | | | | | |
| Balance at beginning of period | $ | 64,343 | | | $ | 55,191 | | | $ | 53,920 | |
| Provision | 61,014 | | | 68,028 | | | 69,488 | |
| Deduction | (68,518) | | | (58,876) | | | (68,217) | |
| | | | | |
| Balance at end of period | $ | 56,839 | | | $ | 64,343 | | | $ | 55,191 | |
| | | | | |
| Allowance for other credits and incentives | | | | | |
| Balance at beginning of period | $ | 142,173 | | | $ | 134,046 | | | $ | 97,737 | |
| Provision | 267,821 | | | 285,139 | | | 284,084 | |
| Deduction | (308,388) | | | (277,012) | | | (247,775) | |
| | | | | |
| Balance at end of period | $ | 101,606 | | | $ | 142,173 | | | $ | 134,046 | |
Inventory
Inventory primarily consists of finished goods and, variousto a lesser extent, components, which are purchased from contract manufacturers. Inventory is stated at the lower of cost or net realizable value with cost being determined using the standard cost method, which approximates actual costs determined on the first-in, first-out basis. Inventory costs primarily consist of materials, inbound freight, import duties, tariffs, and other assumptions that thehandling fees. The Company believes are reasonable under the circumstances. In the case of new product introductions, the estimateswrites down its inventory for returns applied to the new products areestimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand. Net realizable value is the estimatesestimated selling price less estimated costs of completion, disposal and transportation. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the most similar predecessorperiods presented.
Tariff Refunds
From September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. In April 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products imported from China until such time thatDecember 31, 2020 and entitled us to a refund of approximately $57.0 million in tariffs paid since the Company has enough actual returns experience fordate the new products, which is typically two holiday return cycles. At that time, the Company incorporates that data into the development of returns estimates for the new products.Section 301 List 3 tariffs were imposed. The Company updates its analysisrecognized a benefit of returns on a quarterly basis. If actual returns differ significantly$36.5 million from tariff refund during fiscal year 2020. Effective January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China. For the fiscal year ended January 1, 2022, the incremental Section 301 tariff cost was $48.3 million.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives as follows:
| | | | | |
| Estimated Useful Life |
| Computer and equipment | 2-5 years |
| Furniture and fixtures | 5 |
| Machinery and tooling | 2-5 |
| |
| Business applications software | 3-7 |
| Leasehold improvements | Lesser of economic benefit period or term of lease |
Expenditures for additions and improvements that extend the useful lives of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. As assets are retired or sold, the related cost and accumulated depreciation are removed from the Company's estimates,accounts and any resulting gain or if modificationsloss is recognized.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalization of Cloud Computing Arrangements
The Company incurs costs to individual customer agreementsimplement cloud computing arrangements that are entered into that impact their rights of returns, such differences could resulthosted by third-party vendors. Beginning in an adjustment to previously established reservesfiscal 2020, and could have a material impact, either favorably or unfavorably, on the Company’s results of operations for the period in which the actual returns become known or the agreement is modified. In 2016,continuing through fiscal 2021, the Company began selling to one domestic distributor underinvesting and implementing various new direct-to-consumer and marketing technology and tools. Implementation costs incurred during the application development stage are capitalized until the software is ready for its intended use. The costs are then amortized on a straight-line basis over the term of the associated hosting arrangement and are recognized as an agreement that provides product return privileges. As a result,operating expense within the Company recognizes revenue from sales to this distributor when the product is resold by the distributor. The estimates and adjustments for rebates and price protection are based on specific programs, expected usage and historical experience. Actual results could differ from these estimates. Asconsolidated statements of December 30, 2017, the Company has reserves for product returns of $42.7 million, discounts and promotions of $58.2income. Capitalized costs were $7.4 million and price protection$0.7 million as of $3.1 million. AsJanuary 1, 2022 and January 2, 2021, respectively, and are reported as a component of December 31, 2016, the Company had reserves for product returns of $27.7 million, discounts and promotions of $22.1 million and price protection of $1.5 million.
Prior toother assets on the Company's divestiture of the defense and security business unit in April 2016 (see Note 4), the Company generated minimal revenue from government contracts. Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognized revenue based on costs incurred plus a pro rata portion of the total fixed fee. Costs incurred included labor and material that were directly associated with individual CPFF contracts plus indirect overhead and general and administrative type costs based upon billing rates submitted by the Company to the Defense Contract Management Agency (DCMA)consolidated balance sheets. Annually, the Company submitted final indirect billing rates to DCMA based upon actual costs incurred throughout the year. In the situation where the Company’s final actual billing rates are greater than the estimated rates used, the Company records a cumulative revenue adjustment in the period in which the rate differential is collected from the customer. These final billing rates are subject to audit by the Defense Contract Audit Agency (DCAA), which can occur several years after the final billing rates are submitted and may result in material adjustments to revenue recognized based on estimated final billing rates. As of December 30, 2017, fiscal year 2016 is open for audit by DCAA. In the situation where the Company’s anticipated actual billing rates will be lower than the provisional rates used, the Company records a cumulative revenue adjustment in the period in which the rate differential is identified. Revenue on firm fixed price (FFP) contracts was recognized using the percentage-of-completion method. For government product FFP contracts, revenue was recognized as the product was shipped or in accordance with the contract terms. Costs and estimated gross margins on contracts were recorded as revenue as work was performed based on the percentage that incurred costs compared to estimated total costs utilizing the most recent estimates of costs and funding. Revenue earned in excess of billings, if any, was recorded as unbilled revenue. Billings in excess of revenue earned, if any, were recorded as deferred revenue.
Business Combinations
The Company accounts for transactions that represent business combinations under the acquisition method of accounting. The Company allocates the total consideration paid forpurchase price of each acquisition to the tangible and intangible assets it acquiresacquired and liabilities it assumesassumed based on their estimated fair values as of the date of acquisition, including identifiable intangible assets. The Company basesacquisition. Goodwill is measured as the fairexcess of the purchase price over the value of identifiable intangiblenet identified assets acquired in a business combination on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use.acquired. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired, and liabilities assumed, and contingent consideration, where applicable, at the business combinationacquisition date, its estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which is generally one year from the acquisition date, any adjustment to the assets acquired and liabilities assumed is recorded against goodwill in the period in which the amount is determined. Any adjustment identified subsequent to the measurement period or the Company's final determination of estimated fair value, whichever comes first, is included in operating results in the period in which the amountadjustment is determined.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. The Company invests its excess cash primarily in money market funds or savings accounts of major financial institutions. Accordingly, its cash equivalents are subject to minimal credit and market risk. At December 30, 2017 and December 31, 2016, cash equivalents were comprised of money market funds totaling $3.2 million and $157.0 million, respectively. These cash equivalents are carried at cost, which approximates fair value.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Short Term Investments
The Company’s investments are classified as available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders’ equity. The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. As of December 30, 2017 and December 31, 2016, investments consisted of:
|
| | | | | | | | | | | | | | | |
| | December 30,
2017 | | December 31,
2016 |
| | Cost | | Fair
Market Value | | Cost | | Fair
Market Value |
| | (In thousands) |
| Corporate and government bonds | $ | 37,767 |
| | $ | 37,225 |
| | $ | 40,439 |
| | $ | 39,930 |
|
| Total short term investments | $ | 37,767 |
| | $ | 37,225 |
| | $ | 40,439 |
| | $ | 39,930 |
|
As of December 30, 2017, the Company’s investments had maturity dates ranging from March 2018 to September 2020. The Company invests primarily in investment grade securities and limits the amount of investment in any single issuer.
Accounts receivable allowances
Allowance for product returns: The Company records an allowance for product returns for the estimated amount of product that may be returned. The allowance is based on specific terms and conditions included in the customer agreements, historical returns experience and various other assumptions that the Company believes are reasonable under the circumstances.
Allowance for discounts and promotions: The Company records an allowance for discounts and promotions related to promotional marketing support, contractual discounts, etc. The allowance is based on specific programs, expected usage and historical experience.
Allowance for price protection: The Company records an allowance for price protection for the estimated amount of support expected to be provided to customers for product transitions. The allowance is based on specific programs, expected usage and historical experience.
Allowance for doubtful accounts: The Company records an allowance for doubtful accounts for the estimated amount of accounts receivable that may not be collected. The allowance is based on an assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to accounts receivable allowances was as follows: |
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Allowance for product returns | | | | | |
| Balance at beginning of period | $ | 27,673 |
| | $ | 25,992 |
| | $ | 27,449 |
|
| Acquired balance | 6,088 |
| | — |
| | — |
|
| Provision | 54,981 |
| | 33,992 |
| | 27,432 |
|
| Deduction | (43,831 | ) | | (28,826 | ) | | (21,979 | ) |
| Other adjustments | (2,218 | ) | | (3,485 | ) | | (6,910 | ) |
| Balance at end of period | $ | 42,693 |
| | $ | 27,673 |
| | $ | 25,992 |
|
| | | | | | |
| Allowance for discounts and promotions | | | | | |
| Balance at beginning of period | $ | 22,108 |
| | $ | 23,005 |
| | $ | 10,749 |
|
| Acquired balance | 11,932 |
| | — |
| | — |
|
| Provision | 107,390 |
| | 45,869 |
| | 39,482 |
|
| Deduction | (79,652 | ) | | (46,610 | ) | | (26,587 | ) |
| Other adjustments | (3,567 | ) | | (156 | ) | | (639 | ) |
| Balance at end of period | $ | 58,211 |
| | $ | 22,108 |
| | $ | 23,005 |
|
| | | | | | |
| Allowance for price protection | | | | | |
| Balance at beginning of period | $ | 1,550 |
| | $ | — |
| | $ | — |
|
| Acquired balance | — |
| | — |
| | — |
|
| Provision | 3,215 |
| | 1,550 |
| | — |
|
| Deduction | (1,617 | ) | | — |
| | — |
|
| Other adjustments | — |
| | — |
| | — |
|
| Balance at end of period | $ | 3,148 |
| | $ | 1,550 |
| | $ | — |
|
| | | | | | |
| Allowance for doubtful accounts | | | | | |
| Balance at beginning of period | $ | 29 |
| | $ | 33 |
| | $ | 67 |
|
| Acquired balance | 248 |
| | — |
| | — |
|
| Provision | 1 |
| | — |
| | — |
|
| Deduction | (2 | ) | | (4 | ) | | (34 | ) |
| Other adjustments | — |
| | — |
| | — |
|
| Balance at end of period | $ | 276 |
| | $ | 29 |
| | $ | 33 |
|
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out (FIFO) method. The Company maintains a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory.
Warranty
The Company typically provides a one-year warranty (with the exception of European consumer products, which typically have a two-year warranty period) against defects in materials and workmanship and will either repair the goods, provide replacement products at no charge to the customer or refund amounts to the customer for defective products. The Company records estimated warranty costs, based on historical experience by product, at the time revenue is recognized.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Actual results could differ from these estimates, which could cause increases or decreases to the warranty reserves in future periods.
Property and Equipment
Property and equipment are recorded at cost and consist primarily of computer equipment, leasehold improvements, business applications software and machinery. Depreciation is computed using the straight-line method over the estimated useful lives as follows:
|
| | |
| Estimated Useful Life |
Computer and research equipment | 2-5 years |
|
Furniture | 5 |
|
Machinery | 2-5 |
|
Tooling | 2-5 |
|
Business applications software | 5-7 |
|
Capital leases and leasehold improvements | Lesser of economic benefit period or term of lease |
|
Expenditures for additions, renewals and betterments of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations.
Goodwill and Other Long-Lived Assets
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized but rather is assessed for impairment at the reporting unit level (operating segment or one level below an operating segment) annually during the fourth quarter of each fiscal year or more frequently if the Company believes indicators of impairment exist. Goodwill impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. The Company completes the annual impairment evaluation during the fourth quarter each year.
Other long-lived assets primarily consist principally of completed technology, tradename, customer relationships, reacquired distribution rightsproperty and non-competition agreements. Reacquired distribution rights are amortized on an accelerated basis while all otherequipment, operating lease right-of-use assets and intangible assets are amortized over their respective estimated useful lives on a straight-line basis, consistent with the pattern in which the economic benefits are being utilized.
assets. The Company periodically evaluates the recoverability of other long-lived assets whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
The impairment assessment of goodwill and other long-lived assets involves significant estimates and assumptions, which may be unpredictable and inherently uncertain. These estimates and assumptions include identification of reporting units and asset groups, long-term growth rates, profitability, estimated useful lives, comparable market multiples, and discount rates. Any changes in these assumptions could impact the result of the impairment assessment. There was no impairment of goodwill or other long-lived assets during fiscal 2021, 2020 and 2019.
Other AssetsStrategic Investments
The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The Company monitors non-marketable equity investments for impairment indicators, such as deterioration in the investee's financial condition and business forecasts and lower valuations in recent or proposed financings. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. Changes in fair value of non-marketable equity investments are recorded in other income, net on the consolidated statements of income. At December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, the Company's equity securities without readily determinable fair values totaled $16.3 million and $17.4 million, respectively, and are included in other assets consisted primarily of cost and an equity method investment totaling $14.2 million and $12.9 million, respectively. The Company regularly monitors these investments to determine if facts and circumstances have changed in a manner that would require a change in accounting methodology. Additionally,on the Company regularly evaluates whether or not these investments have been impaired by considering such factors as economic environment, market conditions, operational performance and other specific factors relating to the businesses underlying the investments. If any such impairment is identified, a reduction in the carrying value of the investments would be recorded at that time.
consolidated balance sheets.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Warranty
The Company generally provides a one-year warranty on all of its products except in countries where a two-year warranty is required against defects in materials and workmanship. The Company's standard warranty provides for repair or replacement of the associated products during the warranty period. The Company records estimated warranty costs in the period the related revenue is recognized based on historical experience, expectations of future costs to repair or replace including freight and knowledge of specific product failures outside the Company's historical experience. Actual results could differ from these estimates, which could cause increases or decreases to the warranty reserves in future periods.
Financial Instruments and Hedging Activities
The Company utilizes derivative instruments to hedge specificpartially offset its financial risks includingto foreign exchange risk. The Company does not engage in speculative hedging activity. In order to account for a derivative instrument as a cash flow hedge, specific criteria must be met, including: (i) ensuring at the inception of the hedge that formal documentation exists for both the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge and (ii) at the inception of the hedge and on an ongoing basis, the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated. Further, anCash flow hedge amounts that are included in the assessment of hedge effectiveness are deferred in accumulated other comprehensive income (loss) until the hedged item is required whenever financial statements or earningsrecognized in earnings. Deferred gains and losses associated with cash flow hedges are reported.recognized as a component of net sales in the same period as the related revenue is recognized. Absent meeting these criteria, changes in fair value are recognized in other income, net, in the consolidated statements of income. Once the underlying forecasted transaction is realized, the gain or loss from the derivative designated asThe Company may also enter into non-designated foreign currency contracts to offset a hedge of the transaction is reclassified from accumulated other comprehensive income (loss) to the statement of income, in revenue or cost of revenue. Any ineffective portion of the derivatives designated as cash flow hedges isforeign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies. Changes in fair value are recognized in current earnings.other income, net, in the consolidated statements of income.
Fair Value Measurements
The Company accounts for certain assets and liabilities at fair value. The fair value is established based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. These tiers include:
•Level 1 - observable inputs such as quoted prices for identical instruments in active markets;
•Level 2 - inputs other than quoted prices in active markets that are either directly or indirectly observable; and
•Level 3 - unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Stock-Based Compensation
The Company accounts for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings. The fair value of employee stock options is estimated at the grant date using the Black-Scholes option-pricing model. The fair value for restricted stock awards, time-based restricted stock units and performance-based restricted stock units is based on the closing share price of the Company's common stock on the date of grant. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected to vest upon the achievement of the performance conditions. The Company recognizes stock-based compensation as an expense on a straight-line basis, over the requisite service period. The Company has elected to accountaccounts for forfeitures as they occur, rather than applying an estimated forfeiture rate, following its adoption of ASU 2016-09 in the first quarter of 2017.rate.
Research and Development
Costs incurred in the research and development of the Company’s products are expensed as incurred.
Internal Use SoftwareAdvertising Expense
The Company capitalizesAdvertising costs associated with the developmentare expensed as incurred and implementation of software for internal use. At December 30, 2017 and December 31, 2016, the Company had $12.8 million and $9.5 million, respectively, of costs related to enterprise-wide software included in fixed assets. Capitalized costs are being amortized over the assets’ estimated useful lives. The Company has recorded $1.5 million, $0.4 millionselling and $0.7 million of amortization expense for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.
Advertising Expense
The Company expenses advertising costs as they are incurred.marketing expenses. During the years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019 advertising expense totaled $91.8$147.2 million, $64.4$145.2 million and $54.7$125.0 million, respectively, and are recorded within the selling and marketing expenses line item.respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis using enacted tax rates in effect in the years in which those temporary differences are expected to be recovered or settled in each jurisdiction. A valuation allowance is provided if, based upon the weight of available evidence, it is more likely than not that the related benefits will not be realized. The Company regularly reviews the deferred tax assets for recoverability considering historical profitability, projected future taxable income, future reversals of existing taxable temporary differences, as well as feasible tax planning strategies in each jurisdiction. As of January 1, 2022, January 2, 2021 and December 30, 2017,28, 2019, the Company recordedhad a valuation allowance of $0.8$13.1 million, $7.6 million and $3.8 million, respectively, for certain foreign deferred tax assets for which the Company believes do not meet the "more likely than not" criteria for recognition.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company reports a liability for unrecognizedrecognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits resultingrecognized from uncertain taxsuch positions taken or expected to be taken inare then measured based on the largest benefit that has a tax return.greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the income tax provision.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded a one-time income tax provision of $11.9 million in the fourth quarter of 2017, the period in which the legislation was enacted. The one-time income tax provision includes $8.9 million related to the remeasurement of certain deferred tax assets and liabilities based on the tax rates at which they are expected to reverse in the future. The one-time income tax expense also includes a provisional amount of $3.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have determined that the $3.0 million of current income tax provision recorded relating to the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 30, 2017. Additional information and analysis is necessary to complete the calculation and accounting relating to the transition tax on the mandatory deemed repatriation of foreign earnings. Any subsequent adjustments to this amount will be recorded to current income tax provision during the measurement period which is not expected to extend beyond one year from the enactment date.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts receivable.receivable and cash and cash equivalents. Management believes its credit policies are prudent and reflect normal industry terms and business risk. At December 30, 2017,January 1, 2022 and January 2, 2021, one customer accounted for a total of 11.5%14.5% and 17.6% , respectively, of the Company's accounts receivable balance. AtFor the fiscal years ended January 1, 2022, January 2, 2021, and December 31, 2016, three customers28, 2019, there was one customer that accounted for a10% or more of total of 43.9%revenue, representing 21.8%, 22.7% and 21.3%, of the Company's accounts receivable balance, each of which was greater than 10% of the balance and two of whom secured their balance with guaranteed letters of credit, which together represents 32.5% of the balance. For the fiscal year ended December 30, 2017, the Company generated 13.5% of total revenue, from one of its retailers (Amazon). For the fiscal year ended December 31, 2016, the Company generated 12.9%, 12.3% and 10.4% of total revenue from its distributor in Japan, Sales On Demand Corporation (SODC), Robopolis SAS, a network of affiliated European distributors (Robopolis) and Amazon, respectively. For the fiscal year ended January 2, 2016, the Company generated 13.3% and 12.7% of total revenue from SODC and Robopolis, respectively. On April 3, 2017, the Company acquired the iRobot-related distribution business of SODC, and on October 2, 2017, the Company acquired Robopolis (see Note 3).
The Company maintains its cash in bank deposit accounts and money market funds at high quality financial institutions. The individual balances, at times, may exceed federally insured limits. These deposits may be redeemed upon demand, and management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to cash and cash equivalents.
Net Income Per Shareincome per share:
Basic income per share is calculated using the Company's weighted-average outstanding common shares. Diluted income per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.
The following table presents the calculation of both basic and diluted net income per share:share (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Net income | $ | 30,390 | | | $ | 147,068 | | | $ | 85,300 | |
| Weighted-average shares outstanding | 27,687 | | | 28,101 | | | 28,097 | |
| Dilutive effect of employee stock plans | 475 | | | 517 | | | 638 | |
| Diluted weighted-average shares outstanding | 28,162 | | | 28,618 | | | 28,735 | |
| Basic income per share | $ | 1.10 | | | $ | 5.23 | | | $ | 3.04 | |
| Diluted income per share | $ | 1.08 | | | $ | 5.14 | | | $ | 2.97 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| Net income | $ | 50,964 |
| | $ | 41,939 |
| | $ | 44,130 |
|
| Weighted-average shares outstanding | 27,611 |
| | 27,698 |
| | 29,550 |
|
| Dilutive effect of employee stock options and restricted shares | 1,142 |
| | 594 |
| | 557 |
|
| Diluted weighted-average shares outstanding | 28,753 |
| | 28,292 |
| | 30,107 |
|
| Basic income per share | $ | 1.85 |
| | $ | 1.51 |
| | $ | 1.49 |
|
| Diluted income per share | $ | 1.77 |
| | $ | 1.48 |
| | $ | 1.47 |
|
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
RestrictedEmployee stock units and stock optionsawards representing approximately 0.00.1 million, 0.40.2 million and 0.50.2 million shares of common stock for the fiscal years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 2016,2021 and December 28, 2019, respectively, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.
Recently Adopted Accounting Standards
In May 2017,December 2019, the Financial Accounting Standards Board (FASB)("FASB") issued Accounting Standards update (ASU)Update ("ASU") No. 2017-09, "Stock Compensation – Scope of Modification2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." that clarifies that all changesThe ASU simplifies the accounting for income taxes by removing certain exceptions to share-based payment awards are not necessarily accounted forthe general principles as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changeswell as a result of the change in terms or conditions. This guidance is effective prospectively beginning January 1, 2018, with early adoption permitted. This guidance will apply to any future modifications. During the fourth quarter of 2017, the Company adopted this standard, which did not have an impact on the Company's consolidated financial statementsclarifying and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations; Clarifying the Definition of a Business." ASU 2017-01 clarifies the definition of a business with the objective of addingamending existing guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.improve consistent application. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance isamendments to this ASU are effective for annual periods beginning after December 15, 2017, includingfiscal years, and interim periods within those periods. During the fourth quarter of 2017, the Company adopted this standard, which did not have an impact on the Company's consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other." ASU 2017-04 eliminates step 2 from the goodwill impairment test, instead requiring that an entity recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value. ASU 2017-04 is effective for fiscal years, beginning after December 15, 2019, including interim periods within those fiscal years,2020, with early adoption permitted. During the fourth quarter of 2017, the Company adopted this standard, which did not have a material impactDepending on the Company's consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Earlyamendment, adoption is permitted. During the fourth quarter of 2017, the Company adopted this standard, which did not have a material impactmay be applied on the Company's consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded as a component of the provision for income taxes in the reporting period in which they occur. Additionally, ASU 2016-09 requires that the Company present excess tax benefits on the Statement of Cash Flows as an operating activity.retrospective, modified retrospective or prospective basis. The Company adopted ASU 2016-09 effective January 1, 2017the standard in the first quarter of 2021 and elected to apply this adoption prospectively. Upon the adoption the Company elected to account for forfeitures of share-based payments as they occur prospectively. Prior periods have not been adjusted. As of the adoption date, this standard did not have a materialhad no impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards
In July 2015,October 2021, the FASB issued ASU No. 2015-11, "Inventory: Simplifying2021-08, "Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ASU improves the Measurementaccounting for acquired revenue
contracts with customers by providing specific guidance on recognition of Inventory."contract asset and liability from revenue contracts in a business combination. The amendments to this ASU 2015-11 applies only to inventoryare effective for which cost is determined by methods other than last-in, first-outfiscal years, and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventoryinterim periods within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 effective January 1, 2017. The adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging," that was created to better align accounting rules with a company’s risk management activities, better reflect the economic results of hedging in the financial statements, and simplify hedge accounting treatment. The guidance is effective forthose fiscal years, beginning after December 15, 2018, including interim periods within those fiscal years,2022, with early adoption permitted. For cash flow hedges existing atThe Company intends to adopt the
ASU effective January 1, 2023, and does not expect a material impact to its consolidated financial statements.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company does not believe the adoption of ASU 2016-16 will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." ASU 2016-02 requires lessees to recognize the assets and liabilities on their balance sheet for the rights and obligations created by most leases and continue to recognize expenses on their income statements over the lease term. It will also require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2016-02 on its consolidated financial statements, and currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon its adoption of ASU 2016-02, which will increase the total assets and total liabilities that the Company reports relative to such amounts prior to adoption.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. In July 2015, the FASB voted to defer the effective date of the new accounting guidance related to revenue recognition by one year to December 17, 2017 for annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The standard will be effective for the Company beginning in the first quarter of 2018. The Company will adopt the standard using the modified retrospective method.
The Company primarily derives its revenue from product sales. The adoption is not expected to have a material effect on the timing of recognition or measurement of revenue from the Company’s product sales. The Company also derives revenue from sales of connected robots, which represent arrangements with multiple performance obligations consisting of the robot, the iRobot Home app, potential future unspecified software upgrades and cloud services. ASU 2014-09 requires revenue to be allocated amongst material performance obligations based on stand-alone selling price and recognized based on the transfer of control of the material performance obligations. It is the Company’s position that the app, upgrades and cloud services related to the current offerings constitute a single immaterial performance obligation and therefore, the revenue associated with the robot and services will be recognized upon transfer of control to the customer.
The Company's product sales are typically subject to limited rights of return, rebates, discounts and promotions and price protection. Accordingly, the Company reduces revenue for its estimates of allowances for these rights of return, rebates, discounts and promotions and price protection at the time the related sale is recorded based on contractual term, future expectation and historical experience. The Company does not expect that there will be material changes to the recognition of these allowances, and that these will continue to be recorded at the time the related revenue is recorded for the sales. The Company does expect that upon adoption of the standard, certain compliance-related charges will be estimated and recorded as a reduction of revenue at the time of sale, rather than upon resolution of the validity of the charges, but expects the impact of this to be immaterial to revenue.
The Company does not expect the provisions of the new standard to impact the manner in which it treats certain costs to fulfill contracts (i.e., shipping and handling costs) and costs to acquire new contracts (i.e., commissions). Under the new standard, the Company will elect the practical expedient on shipping and handling costs and continue to treat these costs as fulfillment costs and expense as incurred. Further, commissions will continue to be expensed as incurred as the impact to the consolidated financial statements is immaterial. The new standard will also result in enhanced revenue related disclosures.
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 recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.
|
| | | | |
| 3. | Business CombinationsRevenue Recognition |
AcquisitionThe Company primarily derives its revenue from the sale of Robopolis
On October 2, 2017,consumer robots and accessories. The Company sells products directly to consumers through online stores and indirectly through resellers and distributors. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company closedexpects to receive in exchange for those products or services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and other credits and incentives. Revenue is recognized only to the acquisitionextent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.
Frequently, the Company’s contracts with customers contain multiple promised goods or services. Such contracts may include any of the following, the consumer robot, downloadable app, cloud services, accessories on demand, potential future unspecified software upgrades, premium customer care and extended warranties. For these contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. The Company’s consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one performance obligation to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). Other services and support are considered distinct and therefore are treated as separate performance obligations.
The Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices ("SSPs"). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the facts and circumstances related to each performance obligation including, market data or the estimated cost of providing the products or services. The transaction price allocated to the robot is recognized as revenue at a point in time when control is transferred, generally as title and risk of loss pass, and when collection is considered probable. The transaction price allocated to the Cloud Services is deferred and recognized on a straight-line basis over the estimated term of the Cloud Services. Other services and support are recognized over their service periods. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of January 1, 2022 and January 2, 2021 was $20.9 million and $11.5 million, respectively. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
The Company’s products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees." For contracts with the right to upgrade to a new product after a specified period of time, the Company accounts for this trade-in right as a guarantee obligation under ASC 460. The total transaction price is reduced by the full amount of the trade-in right's fair value and the remaining transaction price is allocated between the performance obligations within the contract.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of January 1, 2022, the Company has reserves for product returns of $56.8 million and other credits and incentives of $101.6 million. As of January 2, 2021, the Company had reserves for product returns of $64.3 million and other credits and incentives of $142.2 million. The Company regularly evaluates the adequacy of its largest European distributor, Robopolis SAS, a French company (Robopolis), subsequently renamed to iRobot France SAS. The initial purchase price was approximately $170.1 million in cash, net of acquired cash of $38.0 million, subject to the finalization of the working capital adjustment in accordance with the stock purchase agreement. The acquisition will better enableestimates for product returns and other credits and incentives. Future market conditions and product transitions may require the Company to maintain its leadership positiontake action to change such programs and grow its business in several Western European countries through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships and customer service. The results of operations for this acquisition have been included inrelated estimates. When the Company’s operating results since the acquisition date.
The estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition datevariables used to estimate these reserves change, or if actual results differ significantly from the fair value of assets acquired and liabilities assumed. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company is continuing to analyze certain pre-acquisition income tax filing positions of Robopolis in various taxing jurisdictions that will assistestimates, the Company would be required to increase or reduce revenue to reflect the impact. During fiscal 2021 and 2020, changes to these estimates related to performance obligations satisfied in finalizing the amounts to record any assumed uncertain income tax positions. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.prior periods were not material.
Disaggregation of Revenue
The following table summarizes the preliminary allocation of the purchase priceprovides information about disaggregated revenue by geographical region (in thousands):
| | | | | | | | | | | |
| January 1, 2022 | January 2, 2021 | December 28, 2019 |
| United States | $ | 754,173 | | $ | 744,648 | | $ | 603,618 | |
| EMEA | 470,475 | | 386,007 | | 357,760 | |
| Japan | 222,772 | | 193,304 | | 160,875 | |
| Other | 117,567 | | 106,431 | | 91,757 | |
| Total revenue | $ | 1,564,987 | | $ | 1,430,390 | | $ | 1,214,010 | |
|
| | | |
| Cash | $ | 37,981 |
|
| Accounts receivable | 21,426 |
|
| Inventory | 36,304 |
|
| Goodwill | 79,558 |
|
| Intangible assets | 36,597 |
|
| Other assets | 2,456 |
|
| Total assets | 214,322 |
|
| | |
| Accounts payable | (29,391 | ) |
| Accrued expenses | (3,376 | ) |
| Deferred tax liabilities | (10,833 | ) |
| Other liabilities | (645 | ) |
| Total liabilities assumed | (44,245 | ) |
| Net assets acquired | $ | 170,077 |
|
Contract Balances
The following table reflectsprovides information about receivables and contract liabilities from contracts with customers (in thousands):
| | | | | | | | | | | |
| January 1, 2022 | | January 2, 2021 |
| Accounts receivable, net | $ | 155,659 | | | $ | 170,526 | |
| Unbilled receivables | 8,747 | | | — | |
| Contract liabilities | 22,996 | | | 17,700 | |
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the fairright to consideration becomes unconditional. Unbilled receivables represent revenue recognized in excess of billings. Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. The change in the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During fiscal 2021and 2020, the Company recognized $12.5 million and $5.5 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.
The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease obligation at the present value of lease payments over the acquired identifiable intangible assets and related estimatesterm. Leases with an initial term of useful lives:
|
| | | | | | |
| | | Useful Life | | Fair Value |
| | | | | (in thousands) |
| Reacquired distribution rights | | 2.25 years | | $ | 29,296 |
|
| Customer relationships | | 14 years | | 7,029 |
|
| Non-competition agreements | | 3 years | | 272 |
|
| Total | | | | $ | 36,597 |
|
The amount assigned to identifiable intangible assets acquired was based12 months or less are not recorded on their fair values determined as of the acquisition date, primarily using the income approach by discounting to present value the free cash flows expected to be generated by each asset over its remaining life. The discount rate used was approximately 14.5%. Reacquired distribution rights are amortized on an accelerated basis while all other intangible assets are amortized over their respective estimated useful livesbalance sheet. Lease expense is recognized on a straight-line basis consistent with the pattern in which the economic benefits are being utilized.
Goodwill represents the excess of the purchase price over the fair valueslease term. The Company's leases typically include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts and excludes all variable lease
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
payments from the net tangiblemeasurement of right-of-use assets and intangible assets acquired. In accordance with current accounting standards, the goodwill islease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements do not being amortized and will be tested for impairment at least annually. None of the goodwill associated with this transaction will be deductible for tax purposes.contain any residual value guarantees or restrictive covenants.
Acquisition of Sales On Demand Corporation
On April 3, 2017,The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company closedestimates its acquisition ofincremental borrowing rate to discount the iRobot-related distribution business of Sales On Demand Corporation (SODC), iRobot Japan G.K., for approximately $16.6 million in cash, equal to the book value of the acquired assets. The acquisition will better enable the Company to maintain its leadership position and accelerate the growth of its business in Japan through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships and customer service. It also expandslease payments. At January 1, 2022, the Company's presence and customer outreach opportunities in Japan. The acquisitionweighted average discount rate was a stock purchase. The results of operations for this acquisition have been included in3.58%, while the Company's operating results since the acquisition date.
During the three months ended September 30, 2017, the Company finalized the purchase price allocation and made measurement period adjustments to the provisional amounts reported as the estimated fair values of assets acquired. These measurement period adjustments resulted in a $2.2 million non-taxable gain on business acquisition which represents the excess of the fair value of the net assets acquired over the purchase price. The gain on business acquisitionweighted average remaining lease term was recorded within other income, net in the consolidated statements of income. The Company believes that the gain on business acquisition was due to the transaction not being subjected to a competitive bidding process and the purchase price being determined based on the net book value of the net assets acquired.7.61 years.
The following table summarizes the final allocationcomponents of the purchase pricelease expense were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| Operating lease cost | $ | 8,510 | | | $ | 9,363 | | | $ | 8,777 | |
| Variable lease cost | 3,633 | | | 3,583 | | | 4,096 | |
| Total lease cost | $ | 12,143 | | | $ | 12,946 | | | $ | 12,873 | |
Supplemental cash flow information related to leases was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 8,762 | | | $ | 9,862 | | | $ | 9,540 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | | |
| Operating leases | $ | — | | | $ | 2,310 | | | $ | 53,227 | |
Maturities of operating lease liabilities were as follows as of January 1, 2022 (in thousands):
| | | | | |
| |
| 2022 | $ | 7,895 | |
| 2023 | 7,623 | |
| 2024 | 6,567 | |
| 2025 | 6,599 | |
| 2026 | 6,680 | |
| Thereafter | 21,849 | |
| Total minimum lease payments | $ | 57,213 | |
| Less: imputed interest | 7,531 | |
| Present value of future minimum lease payments | $ | 49,682 | |
| Less: current portion of operating lease liabilities (Note 7) | 6,220 | |
| Long-term lease liabilities | $ | 43,462 | |
|
| | | |
| Cash | $ | 125 |
|
| Accounts receivable, net (1) | (5,496 | ) |
| Inventory | 18,290 |
|
| Other assets | 2,065 |
|
| Deferred tax assets, net | 409 |
|
| Goodwill | — |
|
| Intangible assets | 8,640 |
|
| Total assets acquired | 24,033 |
|
| | |
| Accrued expenses and other current liabilities | (4,450 | ) |
| Other liabilities | (691 | ) |
| Total liabilities assumed | (5,141 | ) |
| Net assets acquired | $ | 18,892 |
|
| Gain on business acquisition | (2,243 | ) |
| Total purchase price | $ | 16,649 |
|
iROBOT CORPORATION
(1) The accounts receivable balance reflects reserves for product returns, discounts and promotions assumed as part of the acquisition.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives:
|
| | | | | | |
| | | Useful Life | | Fair Value |
| | | | | (in thousands) |
| Customer relationships | | 13 years | | $ | 4,490 |
|
| Reacquired distribution rights | | 9 months | | 4,150 |
|
| Total | | | | $ | 8,640 |
|
Pro Forma Results (Unaudited)
The following table shows unaudited pro forma results of operations as if we had acquired Robopolis on January 3, 2016 (dollars in thousands, except per share amounts):
|
| | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 |
| Revenue | $ | 901,612 |
| | $ | 718,917 |
|
| Net income | $ | 51,887 |
| | $ | 53,320 |
|
| Net income per share: | | | |
| Basic income per share | $ | 1.88 |
| | $ | 1.93 |
|
| Diluted income per share | $ | 1.80 |
| | $ | 1.88 |
|
We have not furnished pro forma financial information relating to our other fiscal 2017 acquisition because such information is not material, individually or in the aggregate, to our financial results. The unaudited pro forma results of operations are not necessarily indicative of the actual results that would have occurred had the transactions taken place at the beginning of the periods indicated.
In April 2016, the Company completed the sale of its defense and security business unit to iRobot Defense Holdings, Inc., a portfolio company of Arlington Capital Partners. The final purchase price, including adjustments for working capital and indebtedness, was $24.5 million. The Company recognized a gain of $0.4 million on the sale of assets. The sale of its defense and security business did not meet the criteria for discontinued operations presentation as it did not represent a strategic shift that had a major effect on the Company's operations and financial results.
The Company and iRobot Defense Holdings, Inc. also entered into a Transition Services Agreement (TSA), pursuant to which the Company continued to perform certain functions on iRobot Defense Holdings Inc.’s behalf during a transition period not to exceed 12 months. The TSA provided for the reimbursement to the Company for direct costs incurred in order to provide such functions and was recorded as a component of other income. The transition period was completed during the three months ended April 1, 2017.
Inventory consists of the following at:
|
| | | | | | | |
| | December 30,
2017 | | December 31,
2016 |
| | (In thousands) |
| Raw materials | $ | 4,036 |
| | $ | 4,717 |
|
| Finished goods | 102,896 |
| | 45,861 |
|
| | $ | 106,932 |
| | $ | 50,578 |
|
Property and equipment consists of the following at:(in thousands):
| | | | | | | | | | | |
| January 1,
2022 | | January 2,
2021 |
| Computer and equipment | $ | 12,723 | | | $ | 13,617 | |
| Furniture and fixtures | 9,329 | | | 8,394 | |
| Machinery and tooling | 97,348 | | | 80,715 | |
| Leasehold improvements | 32,207 | | | 36,459 | |
| Business applications software | 16,048 | | | 19,185 | |
| Other | 4,143 | | | 1,642 | |
| Subtotal | 171,798 | | | 160,012 | |
| Less: accumulated depreciation | 92,911 | | | 83,428 | |
| Property and equipment, net | $ | 78,887 | | | $ | 76,584 | |
|
| | | | | | | |
| | December 30,
2017 | | December 31,
2016 |
| | (In thousands) |
| Computer and equipment | $ | 10,669 |
| | $ | 7,378 |
|
| Furniture | 4,120 |
| | 2,906 |
|
| Machinery | 14,202 |
| | 9,154 |
|
| Tooling | 31,783 |
| | 20,487 |
|
| Leasehold improvements | 26,136 |
| | 21,383 |
|
| Business applications software | 12,757 |
| | 9,471 |
|
| | 99,667 |
| | 70,779 |
|
| Less: accumulated depreciation | 55,088 |
| | 43,247 |
|
| | $ | 44,579 |
| | $ | 27,532 |
|
Depreciation expense for the years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019 was $12.3$31.1 million, $10.0$31.9 million,, and $11.4$24.4 million,, respectively. respectively, which included amortization expense of $2.3 million, $2.1 million and $1.5 million, respectively, for capitalized internal-use software.
|
| | | | |
7.6. | Goodwill and other intangible assets |
The following table summarizes the activity in the carrying amount of goodwill and intangible assets for fiscal years 20172021 and 2016:2020 (in thousands):
| | | | | | | | | | | |
| Goodwill | | Intangible assets |
| Balance as of December 28, 2019 | $ | 118,732 | | | $ | 12,352 | |
| Amortization | — | | | (2,912) | |
| Effect of foreign currency translation | 7,140 | | | 462 | |
| Balance as of January 2, 2021 | 125,872 | | | 9,902 | |
| Acquisition | 52,662 | | | 21,000 | |
| Amortization | — | | | (2,253) | |
| Effect of foreign currency translation | (5,242) | | | (239) | |
| Balance as of January 1, 2022 | $ | 173,292 | | | $ | 28,410 | |
|
| | | |
| | (In thousands) |
| | |
| Balance as of January 2, 2016 | $ | 48,751 |
|
| Divestiture (1) | (7,710 | ) |
| Balance as of December 31, 2016 | 41,041 |
|
| Acquisitions (Note 3) | 79,558 |
|
| Effect of foreign currency translation | 841 |
|
| Balance as of December 30, 2017 | $ | 121,440 |
|
| |
(1) | In April 2016, the Company completed the sale of its defense and security business unit and therefore the goodwill balance assigned to the defense and security business unit was written off during the three months ended July 2, 2016. |
Intangible assets at December 30, 2017 and December 31, 2016 consistedThe Company has included the financial results of the following:business in the consolidated financial statements since the acquisition date, which were not material. The Company has not furnished proforma financial information related to this acquisition because such information is not material to the financial results. Acquisition-related costs associated with the business combination were $2.1 million for fiscal year 2021 and are included in general and administrative expenses in the Company's consolidated statements of income.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2017 | | December 31, 2016 |
| | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| | (In thousands) |
| Completed technology | $ | 26,900 |
| | $ | 18,150 |
| | $ | 8,750 |
| | $ | 26,900 |
| | $ | 14,693 |
| | $ | 12,207 |
|
| Tradename | 100 |
| | 100 |
| | — |
| | 100 |
| | 100 |
| | — |
|
| Customer relationships | 11,594 |
| | 418 |
| | 11,176 |
| | — |
| | — |
| | — |
|
| Reacquired distribution rights | 33,760 |
| | 9,226 |
| | 24,534 |
| | — |
| | — |
| | — |
|
| Non-competition agreements | 275 |
| | 23 |
| | 252 |
| | — |
| | — |
| | — |
|
| Total | $ | 72,629 |
| | $ | 27,917 |
| | $ | 44,712 |
| | $ | 27,000 |
| | $ | 14,793 |
| | $ | 12,207 |
|
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2022 | | January 2, 2021 |
| | Cost | | Accumulated
Amortization | | | | Net | | Cost | | Accumulated
Amortization | | Net |
| Completed technology | $ | 43,727 | | | $ | 27,752 | | | | | $ | 15,975 | | | $ | 28,100 | | | $ | 26,525 | | | $ | 1,575 | |
| Tradename | 100 | | | 100 | | | | | — | | | 100 | | | 100 | | | — | |
| Customer relationships | 16,628 | | | 4,193 | | | | | 12,435 | | | 11,728 | | | 3,401 | | | 8,327 | |
| Reacquired distribution rights | 32,096 | | | 32,096 | | | | | — | | | 34,318 | | | 34,318 | | | — | |
| Non-competition agreements | 260 | | | 260 | | | | | — | | | 280 | | | 280 | | | — | |
| Total | $ | 92,811 | | | $ | 64,401 | | | | | $ | 28,410 | | | $ | 74,526 | | | $ | 64,624 | | | $ | 9,902 | |
Amortization expense related to acquired intangible assets was $13.1$2.3 million, $3.5$2.9 million and $3.5$12.8 million for the fiscal years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 2016,2021 and December 28, 2019, respectively.
The estimated future amortization expense related to current intangible assets in each of the five succeeding fiscal years is expected to be as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Cost of Revenue | | Operating Expenses | | Total |
| 2022 | $ | 3,279 | | | $ | 2,162 | | | $ | 5,441 | |
| 2023 | 2,604 | | | 2,162 | | | 4,766 | |
| 2024 | 2,604 | | | 2,162 | | | 4,766 | |
| 2025 | 2,604 | | | 1,988 | | | 4,592 | |
| 2026 | 2,604 | | | 775 | | | 3,379 | |
| Thereafter | 2,280 | | | 3,186 | | | 5,466 | |
| Total | $ | 15,975 | | | $ | 12,435 | | | $ | 28,410 | |
|
| | | |
| | (In thousands) |
| 2018 | $ | 19,767 |
|
| 2019 | 13,188 |
|
| 2020 | 1,950 |
|
| 2021 | 1,714 |
|
| 2022 | 1,489 |
|
| Thereafter | 6,604 |
|
| Total | $ | 44,712 |
|
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accrued expenses consist of the following at:(in thousands):
| | | | | | | | | | | |
| January 1,
2022 | | January 2,
2021 |
| Accrued warranty | $ | 32,019 | | | $ | 24,392 | |
| Accrued manufacturing and logistics cost | 23,038 | | | 20,093 | |
| Accrued compensation and benefits | 19,029 | | | 17,635 | |
| Accrued bonus | 11,375 | | | 31,523 | |
| Accrued sales and other indirect taxes payable | 9,599 | | | 15,480 | |
| Current portion of operating lease liabilities | 6,220 | | | 6,315 | |
| Derivative liability | 2,600 | | | 4,268 | |
| Accrued income taxes | 1,788 | | | 3,806 | |
| Accrued other | 26,950 | | | 7,876 | |
| $ | 132,618 | | | $ | 131,388 | |
|
| | | | | | | |
| | December 30,
2017 | | December 31,
2016 |
| | (In thousands) |
| Accrued bonus | 20,443 |
| | 14,226 |
|
| Accrued warranty | 11,264 |
| | 8,464 |
|
| Accrued other compensation | 9,071 |
| | 6,789 |
|
| Accrued sales and other taxes | 7,256 |
| | 422 |
|
| Accrued federal and state income taxes | 7,110 |
| | 1,059 |
|
| Accrued sales and marketing | 3,299 |
| | 404 |
|
| Accrued direct fulfillment costs | 1,885 |
| | 1,722 |
|
| Accrued customer deposits | 1,324 |
| | 1,171 |
|
| Accrued accounting fees | 1,221 |
| | 686 |
|
| Accrued rent | — |
| | 327 |
|
| Accrued other | 10,774 |
| | 5,599 |
|
| | $ | 73,647 |
| | $ | 40,869 |
|
|
| | | | |
9.8. | Working Capital FacilitiesFacility |
Credit Facility
TheIn June 2018, the Company has an unsecured revolving credit facilityentered into a new agreement with Bank of America, N.A., whichincreasing the amount of the unsecured revolving line of credit from $75.0 million to $150.0 million and extending the term of the credit facility to June 2023. As of January 1, 2022, the Company had no outstanding borrowings under the revolving credit facility. The revolving line of credit is available to fund working capital and other corporate purposes. As of December 30, 2017, the total amount of the credit facility was $75.0 million and the full amount was available for borrowing. The interest on loans under the credit facility will accrue,accrues, at the Company's election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on the Company's ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender'slender’s base rate. The lender'slender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender'slender’s prime rate and (3) the Eurodollar Rate plus 1.0%. The credit facility will terminate and all amounts outstanding thereunderIn the event USD LIBOR is discontinued as expected in June 2023, the Company expects the interest rates for its debt following such event will be due and payable in fullbased on December 20, 2018.
As of December 30, 2017,either alternate base rates or agreed upon replacement rates. While the Company had nodoes not expect a LIBOR discontinuation would affect its ability to borrow or maintain already outstanding borrowings, under its revolving credit facility. Thisit could result in higher interest rates.
The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on the Company's ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, the Company'sits stock, and consolidate or merge with other entities.
In addition, the Company is required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.
ThisThe 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, the Company's obligations under the credit facility may be accelerated.
As of December 30, 2017, the Company was in compliance with all covenants under its credit facility.
Letter of Credit Facility
The Company has an unsecured revolving letter of credit facility with Bank of America, N.A. The credit facility is available to fund letters of credit on the Company's behalf up to an aggregate outstanding amount of $5 million. The Company may terminate at any time, subject to proper notice, or from time to time permanently reduce the amount of the credit facility.
The Company pays a fee on outstanding letters of credit issued under the credit facility of up to 1.5% per annum of the outstanding letters of credit. The maturity date for letters of credit issued under the credit facility must be no later than 365 days following the maturity date of the credit facility.
As of December 30, 2017, there were letters of credit outstanding of $1.0 million under the revolving letter of credit facility. The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on the Company's ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase stock, and consolidate or merge with other entities. In addition, the Company is required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.
The credit facility also 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, the lender may accelerate the obligations under the credit facility.
As of December 30, 2017,January 1, 2022, the Company was in compliance with all covenants under the revolving credit facility.
Lines of Credit
The Company has an unsecured letter of credit facility.facility with Bank of America, N.A., available to fund letters of credit up to an aggregate outstanding amount of $5.0 million. As of January 1, 2022, the Company had letters of credit outstanding of $0.7 million under the letter of credit facility and other lines of credit with Bank of America, N.A.
The Company has an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of 250.0 million Japanese Yen. As of January 1, 2022, the Company had no outstanding balance under the guarantee line of credit.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | |
10.9. | Derivative Instruments and Hedging Activities |
The Company operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of the Company's operations, primarily the British Pound, Canadian Dollar, Euro and Japanese Yen, Canadian dollar and the Euro.Yen. The Company uses derivative instruments that are designated in cash flow hedge relationships to reduce or eliminate the effects of foreign exchange rate changeschange on purchases and sales. These contracts typically have maturities of fourteen monthsthree years or less. At December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, the Company had outstanding cash flow hedges with a total notional value of $73.7$423.3 million and $0.0$431.9 million, respectively.
The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts typically have maturities of twotwelve months or less. At December 30, 2017As of January 1, 2022 and December 31, 2016,January 2, 2021, the Company had outstanding foreign currency economic hedges with a total notional value of $36.6$325.4 million and $8.1$192.2 million, respectively.
As described in Note 2, during July 2020, the Company entered into a forward sale contract as an economic hedge to
reduce the Company's exposure to stock price fluctuations on one of its marketable equity securities. The contract had a
maturity date of January 2021 and was settled during the first quarter of 2021. The total notional value of this economic hedge
was $51.5 million at January 2, 2021.
The fair values of derivative instruments are as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value |
| Classification | | | | | | January 1, 2022 | | January 2, 2021 |
| Derivatives not designated as hedging instruments: | | | | | | |
| Foreign currency forward contracts | Other current assets | | | | | | $ | 8,362 | | | $ | 261 | |
| Foreign currency forward contracts | Other assets | | | | | | 1,627 | | | — | |
| Foreign currency forward contracts | Accrued expenses | | | | | | 2,377 | | | 2,176 | |
| Forward sale contract | Other current assets | | | | | | — | | | 3,904 | |
| Derivatives designated as cash flow hedges: | | | | | | |
| Foreign currency forward contracts | Other current assets | | | | | | $ | 4,110 | | | $ | 362 | |
| Foreign currency forward contracts | Other assets | | | | | | 9,610 | | | 679 | |
| Foreign currency forward contracts | Accrued expenses | | | | | | 223 | | | 2,092 | |
| Foreign currency forward contracts | Long-term liabilities | | | | | | 407 | | | 8,554 | |
|
| | | | | | | | | |
| | | | Fair Value |
| | Classification | | December 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Derivatives not designated as hedging instruments: | | | | |
| Foreign currency option contracts | Other current assets | | $ | — |
| | $ | 180 |
|
| Foreign currency forward contracts | Other current assets | | 413 |
| | — |
|
| Foreign currency forward contracts | Accrued expenses | | 221 |
| | 43 |
|
| Derivatives designated as cash flow hedges: | | | | |
| Foreign currency forward contracts | Other current assets | | $ | 488 |
| | $ | — |
|
| Foreign currency forward contracts | Other assets | | 116 |
| | — |
|
| Foreign currency forward contracts | Accrued expenses | | 279 |
| | — |
|
Gains (losses)Losses associated with derivative instruments not designated as hedging instruments are as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal year ended |
| Classification | | January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| Gain (loss) recognized in income | Other income, net | | $ | (9,779) | | | $ | (188) | | | $ | 89 | |
The following tables reflect the effect of derivatives designated as cash flow hedging for the years ended (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Gain (loss) recognized in OCI on Derivative (1) |
| | Fiscal year ended |
| | January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| Foreign currency forward contracts | | $ | 31,363 | | | $ | (18,504) | | | $ | 16,483 | |
|
| | | | | | | | | |
| | | | Fiscal year ended |
| | Classification | | December 30, 2017 | | December 31, 2016 |
| | | | (In thousands) |
| Gain (loss) recognized in income | Other income, net | | $ | (444 | ) | | $ | 29 |
|
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
The following tables reflect the effect of foreign exchange forward contracts that are designated as cash flow hedging instruments for the years ended December 30, 2017 and December 31, 2016 (in thousands): | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (loss) recognized in earnings on cash flow hedging instruments |
| | January 1, 2022 | January 2, 2021 | | December 28, 2019 | | |
| | Revenue | | Revenue | | Revenue | | |
| Consolidated statements of income in which the effects of cash flow hedging instruments are recorded | | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | | | |
| | | | | | | | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | | |
| Foreign currency forward contracts: | | | | | | | | |
| Amount of gain reclassified from AOCI into earnings | | $ | 4,493 | | | $ | 4,783 | | | $ | 1,889 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Effective Portion | | Ineffective Portion |
| | | Gain (loss) recognized in OCI on Derivative (1) | | Gain (loss) reclassified from accumulated OCI into income (2) | | Gain (loss) recognized in income (3) |
| | | Fiscal year ended | | | | Fiscal year ended | | | | Fiscal year ended |
| | | December 30, 2017 | | December 31, 2016 | | Classification | | December 30, 2017 | | December 31, 2016 | | Classification | | December 30, 2017 | | December 31, 2016 |
| | | | | | | | | | | | | | | | | |
| Foreign currency forward contracts | | $ | 584 |
| | $ | — |
| | Revenue | | $ | 320 |
| | $ | — |
| | Other income, net | | $ | (5 | ) | | $ | — |
|
| | | | | | | Cost of revenue | | $ | (63 | ) | | $ | — |
| | | | | | |
| | | | | |
(1)10. | The amount represents the change in fair value of derivative contracts due to changes in spot rates. |
| |
(2) | The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings. |
| |
(3) | The amount represents the change in fair value of derivative contracts due to changes in the forward rates. No gains or losses were reclassified as a result of discontinuance of cash flow hedges. |
|
| |
11. | Fair Value Measurements |
The Company’s financial assets and liabilities measured at fair value on a recurring basis at December 30, 2017, were as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| | January 1, 2022 |
| Level 1 | | Level 2 (1) | | Level 3 |
| Assets: | | | | | |
| Money market funds | $ | 33,003 | | | $ | — | | | $ | — | |
| Marketable equity securities, $23,286 at cost (2) | 33,044 | | | — | | | — | |
| | | | | |
| | | | | |
| Derivative instruments (Note 9) | — | | | 23,709 | | | — | |
| Total assets measured at fair value | $ | 66,047 | | | $ | 23,709 | | | $ | — | |
| | | | | |
| Liabilities: | | | | | |
| Derivative instruments (Note 9) | $ | — | | | $ | 3,007 | | | $ | — | |
| Total liabilities measured at fair value | $ | — | | | $ | 3,007 | | | $ | — | |
|
| | | | | | | | | | | |
| | Fair Value Measurements as of |
| | December 30, 2017 |
| Description | Level 1 | | Level 2 (1) | | Level 3 |
| | (In thousands) |
| Assets: | | | | | |
| Money market funds | $ | 3,165 |
| | $ | — |
| | $ | — |
|
| Corporate and government bonds | — |
| | 37,225 |
| | — |
|
| Derivative instruments (Note 10) | — |
| | 1,017 |
| | — |
|
| Total assets measured at fair value | $ | 3,165 |
| | $ | 38,242 |
| | $ | — |
|
| | | | | | |
| Liabilities: | | | | | |
| Derivative instruments (Note 10) | $ | — |
| | $ | 500 |
| | $ | — |
|
| Total liabilities measured at fair value | $ | — |
| | $ | 500 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| | January 2, 2021 |
| Level 1 | | Level 2 (1) | | Level 3 |
| Assets: | | | | | |
| Money market funds | $ | 47,529 | | | $ | — | | | $ | — | |
| Marketable equity securities, $46,578 at cost (2) | 47,576 | | | — | | | — | |
| Corporate and government bonds, $3,498 at cost | — | | | 3,505 | | | — | |
| Derivative instruments (Note 9) | — | | | 5,206 | | | — | |
| Total assets measured at fair value | $ | 95,105 | | | $ | 8,711 | | | $ | — | |
| | | | | |
| Liabilities: | | | | | |
| Derivative instruments (Note 9) | $ | — | | | $ | 12,822 | | | $ | — | |
| Total liabilities measured at fair value | $ | — | | | $ | 12,822 | | | $ | — | |
The Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2016, were as follows:
|
| | | | | | | | | | | |
| | Fair Value Measurements as of |
| | December 31, 2016 |
| Description | Level 1 | | Level 2 (1) | | Level 3 |
| | (In thousands) |
| Assets: | | | | | |
| Money market funds | $ | 156,980 |
| | $ | — |
| | $ | — |
|
| Corporate and government bonds | — |
| | 39,930 |
| | — |
|
| Derivative instruments (Note 10) | — |
| | 180 |
| | — |
|
| Total assets measured at fair value | $ | 156,980 |
| | $ | 40,110 |
| | $ | — |
|
| | | | | | |
| Liabilities: | | | | | |
| Derivative instruments (Note 10) | $ | — |
| | $ | 43 |
| | $ | — |
|
| Total liabilities measured at fair value | $ | — |
| | $ | 43 |
| | $ | — |
|
(1)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2)The related unrealized gain recorded in other income, net was $9.8 million and $1.0 million for the fiscal year ended January 1, 2022 and January 2, 2021, respectively. Marketable equity securities are included in short term investments on the consolidated balance sheet.
|
| | | | |
12.11. | Stockholders' Equity |
Preferred Stock
The Company has authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.01 per share. None of the preferred shares were issued and outstanding at December 30, 2017January 1, 2022 and December 31, 2016.January 2, 2021.
Common Stock
Common stockholders are entitled to one1 vote for each share held and to receive dividends if and when declared by the BoardCompany's board of Directorsdirectors and subject to and qualified by the rights of holders of the preferred stock. Upon dissolution or liquidation of the Company, holders of common stock will be entitled to receive all available assets subject to any preferential rights of any then outstanding preferred stock.
Share Repurchase Activity
On April 2, 2014, the Company announcedThe Company's Board of Directors approved a stock repurchase program. Under the program the Company could purchaseauthorizing up to $50$200.0 million in share repurchases from time to time until September 2021, which was extended until March 31, 2022. As of its common stock from MayJanuary 1, 2014 to April 30, 2015. 2022, $25.0 million remained available for further repurchase under the program.
On March 19, 2015,August 2, 2021, the Company announced an additional stock repurchase program, which authorized the repurchase of $50 million of its common stock from May 1, 2015 to April 30, 2016. On December 28, 2015, the Company replaced the then-current stock repurchase program with a new stock repurchase program, effective January 4, 2016 and ending on December 31, 2016, pursuant to which the Company was authorized to purchase up to one million shares or $40 million of its common stock. On March 1, 2016, the Company replaced the then-current stock repurchase program and entered into an accelerated share repurchase (ASR)("ASR") agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which the Company paid $100.0 million and received an aggregate initial share delivery of 943,285 shares of its common stock, which were immediately retired. In September 2021, Wells Fargo delivered an additional 254,933 shares of the Company's common stock to complete settlement of the ASR agreement. Under this agreement, the Company repurchased a total of 1,198,218 shares of its common stock at an average price of $83.46, totaling $100.0 million during the third quarter of 2021. The final number of shares repurchased was based on the volume-weighted average price of its common stock over the duration of the ASR agreement, less a discount.
On March 11, 2021, the Company entered into a Rule 10b5-1 plan to repurchase an aggregate of $85.0$50.0 million of common stock.
The Company did not repurchase any shares of common stock during fiscal year 2017. During fiscal year 2016 and 2015, the Company repurchased 2,641,122446,954 shares of its common stock at an average price of $111.85, totaling $97.0$50.0 million and 1,260,276during the second quarter of 2021.
In fiscal 2020, the repurchased 663,602 shares of its common stock at an average price of $37.65, totaling $37.4 million, respectively, in the open market under these stock repurchase plans.$25.0 million.
|
| | | | |
13.12. | Stock-Based Compensation |
The Company has awards and options outstanding under three3 stock incentive plans: the 2005 Stock Option and Incentive Plan (the "2005 Plan"), the Evolution Robotics, Inc. 2007 Stock Plan (the "2007 Plan") and the 2015 Stock Option and Incentive Plan (the "2015 Plan") and the 2018 Stock Option and Incentive Plan (the "2018 Plan" and together with the 2005 Plan and the 20072015 Plan, the "Plans"). All options that remained outstanding under the 2004 Stock Option and Incentive Plan as of December 27, 2014 were exercised during fiscal 2015. The 20152018 Plan is the only one of the three plans under which new awards may currently be granted. Under the 20152018 Plan, which became effective on May 20, 2015, 3,100,00023, 2018, 1,750,000 shares were initially reserved for issuance in the form of incentive stock options, non-qualified stock options, stock appreciation rights, deferredrestricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards, performance share awards and dividend equivalent rights. On May 21, 2020, the stockholders approved an amendment to the 2018 Plan to increase the number of aggregate shares authorized for issuance to 2,495,000 shares, an increase of 745,000 shares. Stock awards returned to the Plans, with the exception of those
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
issued under the 20072005 Plan, as a result of their expiration, cancellation or termination are automatically made available for issuance under the 20152018 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. The grant of any full value award (e.g., restricted stock units) under the 2015 Plan is counted against the share reserve for future grants under the 2015 Plan as 1.61 shares for every one share actually subject to such award. As of December 30, 2017,January 1, 2022, there were 590,6551,023,556 shares available for future grant under the 20152018 Plan. The Company recognized $19.8$21.7 million, $16.0$30.0 million and $14.2$23.7 million of stock-based compensation expense during the fiscal years ended December 30, 2017, December 31, 2016, andJanuary 1, 2022, January 2, 2016,2021, and December 28, 2019, respectively.
Stock Options
Options granted under the Plans are exercisable in full at any time subsequent to vesting, generally vest over four years, and expire five or ten years from the date of grant or, if earlier, 90 days from employee termination. The exercise price of stock options is typically equal to the closing price on The Nasdaq Global Select Market on the date of grant.
As of December 30, 2017, the unamortized compensation costs associated with stock options was $4.0 million with a weighted-average remaining recognition period of 2.07 years.
The following table summarizes stock option activity for fiscal years 2017, 2016 and 2015: |
| | | | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value(1) |
| Outstanding at December 27, 2014 | 1,473,320 |
| | $ | 22.89 |
| | | | |
| Granted | 323,104 |
| | 32.58 |
| | | | |
| Exercised | (390,085 | ) | | 16.57 |
| | | | |
| Canceled | (118,789 | ) | | 28.41 |
| | | | |
| Outstanding at January 2, 2016 | 1,287,550 |
| | $ | 26.73 |
| | | | |
| Granted | 314,770 |
| | 38.03 |
| | | | |
| Exercised | (456,498 | ) | | 20.47 |
| | | | |
| Canceled | (57,648 | ) | | 33.28 |
| | | | |
| Outstanding at December 31, 2016 | 1,088,174 |
| | $ | 32.27 |
| | | | |
| Granted | 10,975 |
| | 57.33 |
| | | | |
| Exercised | (367,267 | ) | | 28.79 |
| | | | |
| Canceled | (18,928 | ) | | 36.72 |
| | | | |
| Outstanding at December 30, 2017 | 712,954 |
| | $ | 34.34 |
| | 4.27 years | | $30.2 million |
| Vested and expected to vest at December 30, 2017 | 712,954 |
| | $ | 34.34 |
| | 4.27 years | | $30.2 million |
| Exercisable as of December 30, 2017 | 399,163 |
| | $ | 32.10 |
| | 3.62 years | | $17.8 million |
_________________________
| |
(1) | The aggregate intrinsic value on the table above represents the difference between the Company's closing stock price on December 30, 2017 of $76.70 and the exercise price of the underlying in-the-money option. |
The fair value of each option grant for the fiscal years ended December 30, 2017, December 31, 2016, and January 2, 2016 was computed on the grant date using the Black-Scholes option-pricing model with the following assumptions:
|
| | | | | |
| Fiscal Year Ended |
| December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
Risk-free interest rate | 2.11% | | 1.17% — 1.89% | | 1.47% — 1.75% |
Expected dividend yield | — | | — | | — |
Expected life | 4.01 years | | 4.01 — 4.03 years | | 3.98 — 4.02 years |
Expected volatility | 38.0% | | 38.9% — 42.1% | | 46.5% — 52.4% |
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-based compensation breaks down by expense classification as follows (in thousands):
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which approximates the rate in effect at the time of grant, commensurate with the expected life of the instrument. The dividend yield is zero based upon the fact the Company has never paid and has no present intention to pay cash dividends. The Company utilizes company specific historical data for purposes of establishing expected volatility and expected term. | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Cost of revenue | $ | 1,321 | | | $ | 1,511 | | | $ | 1,486 | |
| Research and development | 9,542 | | | 10,655 | | | 9,186 | |
| Selling and marketing | 4,190 | | | 3,700 | | | 3,323 | |
| General and administrative | 6,641 | | | 14,109 | | | 9,749 | |
| Total | $ | 21,694 | | | $ | 29,975 | | | $ | 23,744 | |
During fiscal years 2017, 2016, and 2015, the total intrinsic value of stock options exercised was $21.8 million, $10.3 million, and $5.9 million, respectively.
The following table summarizes information about stock options outstanding at December 30, 2017:
|
| | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
| Range of Exercise Prices | | Number Outstanding | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | Number Exercisable | | Weighted Average Exercise Price |
| $ 3.54 - $ 26.59 | | 113,447 |
| | 1.90 years | | $ | 23.00 |
| | 113,447 |
| | $ | 23.00 |
|
| 29.60 - 32.38 | | 109,187 |
| | 4.54 | | 31.13 |
| | 55,396 |
| | 31.33 |
|
| 33.14 - 33.14 | | 108,113 |
| | 5.19 | | 33.14 |
| | 39,085 |
| | 33.14 |
|
| 33.29 - 34.30 | | 116,942 |
| | 4.06 | | 34.01 |
| | 66,770 |
| | 33.99 |
|
| 35.43 - 37.08 | | 58,858 |
| | 3.52 | | 35.72 |
| | 49,232 |
| | 35.60 |
|
| 37.62 - 37.62 | | 99,370 |
| | 5.44 | | 37.62 |
| | 31,467 |
| | 37.62 |
|
| 39.09 - 39.09 | | 37,589 |
| | 5.69 | | 39.09 |
| | 9,434 |
| | 39.09 |
|
| 43.35 - 43.35 | | 29,605 |
| | 3.18 | | 43.35 |
| | 27,178 |
| | 43.35 |
|
| 57.33 - 57.33 | | 10,975 |
| | 6.19 | | 57.33 |
| | — |
| | — |
|
| 58.55 - 58.55 | | 28,868 |
| | 5.94 | | 58.55 |
| | 7,154 |
| | 58.55 |
|
| $ 3.54 - $58.55 | | 712,954 |
| | 4.27 years | | $ | 34.34 |
| | 399,163 |
| | $ | 32.10 |
|
0Time-based Restricted Stock Units
RestrictedTime-based restricted stock units entitle the holder to a specific number of shares of common stock upon vesting, typically over a four-yearfour year period. As of December 30, 2017,January 1, 2022, the unamortized compensation costs associated with restricted stock units was $39.3$64.8 million with a weighted-average remaining recognition period of 2.522.78 years.
The following table summarizes the time-based restricted stock unit activity for fiscal years 2017, 20162021, 2020 and 2015:2019:
|
| | | | | | |
| | Number of Shares Underlying Restricted Stock | | Weighted Average Grant Date Fair Value |
| Outstanding at December 27, 2014 | 880,138 |
| | $ | 30.10 |
|
| Granted | 505,277 |
| | 36.88 |
|
| Vested | (340,754 | ) | | 29.13 |
|
| Forfeited | (110,784 | ) | | 30.82 |
|
| Outstanding at January 2, 2016 | 933,877 |
| | $ | 31.42 |
|
| Granted | 458,237 |
| | 37.93 |
|
| Vested | (358,018 | ) | | 30.81 |
|
| Forfeited | (98,917 | ) | | 32.13 |
|
| Outstanding at December 31, 2016 | 935,179 |
| | $ | 35.07 |
|
| Granted | 396,164 |
| | 72.63 |
|
| Vested | (351,543 | ) | | 33.73 |
|
| Forfeited | (41,347 | ) | | 39.52 |
|
| Outstanding at December 30, 2017 | 938,453 |
| | $ | 51.24 |
|
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | |
| Number of
Shares Underlying
Restricted Stock | | Weighted Average
Grant Date Fair
Value |
| Outstanding at December 29, 2018 | 855,889 | | | $ | 63.32 | |
| Granted | 407,325 | | | 79.91 | |
| Vested | (358,119) | | | 54.89 | |
| Forfeited | (85,863) | | | 76.85 | |
| Outstanding at December 28, 2019 | 819,232 | | | 73.83 | |
| Granted | 493,908 | | | 61.53 | |
| Vested | (318,079) | | | 67.95 | |
| Forfeited | (101,028) | | | 75.20 | |
| Outstanding at January 2, 2021 | 894,033 | | | 68.97 | |
| Granted | 523,496 | | | 88.73 | |
| Vested | (314,427) | | | 71.36 | |
| Forfeited | (99,886) | | | 75.82 | |
| Outstanding at January 1, 2022 | 1,003,216 | | | $ | 77.85 | |
The aggregate intrinsic value of outstanding time-based restricted stock units at December 30, 2017January 1, 2022 was $72.0$66.1 million based on the Company's closing stock price on December 30, 2017January 1, 2022 of $76.70,$65.88, with a weighted average remaining contractual term of 1.501.66 years.
Performance BasedPerformance-Based Restricted Stock Units
The Company grants performance-based restricted stock units (PSUs)("PSUs") to certain of its employees.employees that vest on the satisfaction of service and performance conditions. The PSUs have performance metricsconditions are based on certain financial performance of the Company measuredtargets at the end of a three-yearthree year performance period. The performance metric for these awards is operating income percent, with a threshold requirement for a minimum amount of revenue growth. The number of shares actually earnedvested at the end of the three yearthree-year period willmay range from 0% to 200% of the target number of PSUs granted based on the Company’s performance againstactual achievement of the performance conditions.
The unamortized fair value as of December 30, 2017January 1, 2022 associated with performance based restricted stock units was $5.6$4.2 million with a weighted-average remaining recognition period of 1.391.75 years.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the performance basedperformance-based restricted stock unit activity for fiscal years 2017, 20162021, 2020 and 2015:2019:
|
| | | | | | |
| | Number of
Shares Underlying
PSU (1) | | Weighted Average
Grant Date Fair
Value |
| Outstanding at December 27, 2014 | 29,717 |
| | $ | 43.35 |
|
| Granted | 71,133 |
| | 34.30 |
|
| Vested | — |
| | — |
|
| Forfeited | (10,358 | ) | | 38.60 |
|
| Outstanding at January 2, 2016 | 90,492 |
| | $ | 36.78 |
|
| Granted | 82,085 |
| | 33.36 |
|
| Vested | (5,625 | ) | | 34.30 |
|
| Forfeited | (3,041 | ) | | 34.30 |
|
| Outstanding at December 31, 2016 | 163,911 |
| | $ | 35.03 |
|
| Granted | 105,650 |
| | 57.33 |
|
| Vested | (24,792 | ) | | 43.35 |
|
| Forfeited | (2,708 | ) | | 39.71 |
|
| Outstanding at December 30, 2017 | 242,061 |
| | $ | 43.97 |
|
_________________________
(1) Includes the target number of PSUs.
| | | | | | | | | | | |
| Number of
Shares Underlying
PSU | | Weighted Average
Grant Date Fair
Value |
| Outstanding at December 29, 2018 | 274,119 | | | $ | 54.10 | |
| Granted | 70,827 | | | 122.20 | |
| Vested | (78,943) | | | 33.33 | |
| Forfeited | (49,772) | | | 78.29 | |
| Outstanding at December 28, 2019 | 216,231 | | | 78.42 | |
| Granted | 130,284 | | | 46.77 | |
| Vested | (71,734) | | | 61.44 | |
| Forfeited | (45,129) | | | 75.17 | |
| Outstanding at January 2, 2021 | 229,652 | | | 66.41 | |
| Granted | 134,127 | | | 94.74 | |
| Vested | (55,503) | | | 68.41 | |
| Forfeited | (23,154) | | | 71.68 | |
| Outstanding at January 1, 2022 | 285,122 | | | $ | 78.92 | |
The aggregate intrinsic value of outstanding PSUs was $18.6$18.8 million based on the Company's closing stock price on December 30, 2017January 1, 2022 of $76.70$65.88 with a weighted average remaining contractual term of 1.391.75 years.
Employee Stock Purchase Plan
In May 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (ESPP)("ESPP"). The Company reserved a total of 700,000 shares ofEligible employees may purchase the Company’s common stock for issuance under this plan. The ESPP is administered over six-month offering periods beginning November 15 and May 15 of each year. Eligible employees can contribute 1% to 15% of their compensation each period up to $4,000, for the purchase of common stock not to exceed 1,000 shares per the six-month period. On the last business day of each period, shares of common stock are purchasedthrough payroll deductions at a purchase price ofequal to 85% of the lower of the fair market values of the stock as of the beginning andor the end of six-month offering periods beginning November 15 and May 15 of each year. An employee’s payroll deductions under the ESPP are limited to 15% of the employee’s compensation, up to $4,000 each period, for the purchase of common stock not to exceed 1,000 shares per offering period. As of January 1, 2022, there were 465,465 shares reserved for future issuance under the ESPP. The first offering period began November 15, 2017, resulting in an immaterialCompany recognized $1.2 million, $1.0 million, and $1.1 million of stock-based compensation expense forduring the yearfiscal years ended January 1, 2022, January 2, 2021, and December 30, 2017.28, 2019, respectively.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | |
14.13. | Commitments and Contingencies |
Legal Proceedings
From time to time and in the ordinary course of business, the Company is 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.
Lease Obligations
The Company leases its facilities. Rental expense under operating leases for fiscal years 2017, 2016 and 2015 amounted to $8.9 million, $6.0 million, and $4.9 million, respectively. Future minimum rental payments under operating leases were as follows as of December 30, 2017:
|
| | | |
| | Operating Leases |
| 2018 | $ | 6,361 |
|
| 2019 | 6,901 |
|
| 2020 | 6,506 |
|
| 2021 | 6,502 |
|
| 2022 | 6,498 |
|
| Thereafter | 39,839 |
|
| Total minimum lease payments | $ | 72,607 |
|
Outstanding Purchase Orders
At December 30, 2017,January 1, 2022, we had outstanding purchase orders aggregating approximately $74.4$363.9 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are generally cancelablecancellable without penalty. In circumstances where we determine that we have financial exposure associated with any of these commitments, we record a liability in the period in which that exposure is identified.
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 Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, respectively.
Government Contract Contingencies
Prior to the completion of the divestiture of our defense and security business unit during the second quarter of 2016, the Company had several prime contracts with the U.S. federal government which did not contain a limitation of liability provision, creating a risk of responsibility for direct and consequential damages. Several subcontracts with prime contractors hold the prime contractor harmless against liability that stems from our work and do not contain a limitation of liability. These provisions could cause substantial liability for the Company. In addition, the Company is subject to audits by the U.S. federal government as part of routine audits of government contracts. As part of an audit, these agencies may review the Company’s performance on contracts, cost structures and compliance with applicable laws, regulations and standards. If any of its costs are found to be allocated improperly to a specific contract, the costs may not be reimbursed and any costs already reimbursed for such contract may have to be refunded. Accordingly, an audit could result in a material adjustment to our revenue and results of operations. Annually, the Company submitted final indirect billing rates to DCMA based upon actual costs incurred throughout the year. These final billing rates are subject to audit by DCAA. As of December 30, 2017, fiscal year 2016 is open for audit by DCAA.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Warranty
The Company provides warranties on most products and has established a reserve for warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 8)7) in the accompanying consolidated balance sheets.
Activity related to the warranty accrual was as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Balance at beginning of period | $ | 24,392 | | | $ | 13,856 | | | $ | 11,964 | |
| | | | | |
| Provision | 42,430 | | | 28,884 | | | 14,091 | |
| Warranty claims | (34,803) | | | (18,348) | | | (12,199) | |
| Balance at end of period | $ | 32,019 | | | $ | 24,392 | | | $ | 13,856 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Balance at beginning of period | $ | 8,464 |
| | $ | 6,907 |
| | $ | 7,769 |
|
| Liability assumed (1) | 2,186 |
| | — |
| | — |
|
| Provision | 8,591 |
| | 7,494 |
| | 4,598 |
|
| Warranty usage (2) | (7,977 | ) | | (5,937 | ) | | (5,460 | ) |
| Balance at end of period | $ | 11,264 |
| | $ | 8,464 |
| | $ | 6,907 |
|
__________________________________
| | | | | |
(1)14. | Warranty assumed as part of the acquisition of the iRobot-related distribution business of Sales On Demand Corporation (see Note 3). |
| |
(2) | Warranty usage includes costs incurred for warranty obligations and, for the twelve month period ended December 31, 2016, the release of warranty liabilities associated with the divestiture of the defense and security business unit. |
The Company sponsors a retirement plan under Section 401(k) of the Internal Revenue Code (the "Retirement Plan"). All Company employees, with the exception of temporary, contract and international employees are eligible to participate in the Retirement Plan after satisfying age and length of service requirements prescribed by the plan. Under the Retirement Plan,Eligible US employees may make tax-deferred contributions, and the Company, at its sole discretion, and subject to the limits prescribed by the IRS, may make either a nonelective contribution on behalf of all eligible employees or a matching contribution on behalf of all plan participants.
The Company elected to make a matching contribution of approximately $2.4$3.8 million, $1.7$3.0 million and $1.8$2.9 million for the plan years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 2016 ("Plan-Year 2017," "Plan-Year 2016"2021 and "Plan-Year 2015"),December 28, 2019, respectively. The employer contribution represents a matching contribution at a rate of 50% of each employee’s first six6 percent contribution. Accordingly, each employee participating during Plan-Year 2017, Plan-Year 2016 and Plan-Year 2015 is entitled up to a maximum of three3 percent of his or her eligible annual payroll.
Income before provision for income taxes was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Domestic | $ | 8,880 | | | $ | 166,973 | | | $ | 84,225 | |
| Foreign | 19,404 | | | 20,942 | | | 14,608 | |
| Income before income taxes | $ | 28,284 | | | $ | 187,915 | | | $ | 98,833 | |
The components of income tax (benefit) provision were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Current | | | | | |
| Federal | $ | 1,045 | | | $ | 13,593 | | | $ | 13,366 | |
| State | 441 | | | 2,724 | | | 5,004 | |
| Foreign | 7,019 | | | 10,451 | | | 6,941 | |
| Total current income tax provision | $ | 8,505 | | | $ | 26,768 | | | $ | 25,311 | |
| Deferred | | | | | |
| Federal | $ | (8,286) | | | $ | 14,695 | | | $ | (9,345) | |
| State | (690) | | | 2,552 | | | (1,783) | |
| Foreign | (1,635) | | | (3,168) | | | (650) | |
| Total deferred income tax (benefit) provision | (10,611) | | | 14,079 | | | (11,778) | |
| Total income tax (benefit) provision | $ | (2,106) | | | $ | 40,847 | | | $ | 13,533 | |
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income (loss) before provision for income taxes was as follows:
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Domestic | $ | 71,382 |
| | $ | 61,706 |
| | $ | 62,391 |
|
| Foreign | 4,984 |
| | (345 | ) | | 580 |
|
| Income before income taxes | $ | 76,366 |
| | $ | 61,361 |
| | $ | 62,971 |
|
The componentsreconciliation of statutory federal income tax expense were as follows:
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Current | | | | | |
| Federal | $ | 17,555 |
| | $ | 17,639 |
| | $ | 20,033 |
|
| State | 1,691 |
| | 1,054 |
| | 972 |
|
| Foreign | 7,355 |
| | 310 |
| | 121 |
|
| Total current income tax provision | 26,601 |
| | 19,003 |
| | 21,126 |
|
| Deferred | | | | | |
| Federal | $ | 6,664 |
| | $ | 781 |
| | $ | (1,657 | ) |
| State | (2,470 | ) | | (95 | ) | | (628 | ) |
| Foreign | (5,393 | ) | | (267 | ) | | — |
|
| Total deferred income tax provision | (1,199 | ) | | 419 |
| | (2,285 | ) |
| Total income tax provision | $ | 25,402 |
| | $ | 19,422 |
| | $ | 18,841 |
|
Due to the adoption of ASU 2016-09 in 2017, all excess tax benefits and deficiencies are recognized as income tax expense in the Company’s consolidated statement of income. This will result in increased volatility in the Company’s effective tax rate.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company has estimated the(benefit) provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded a one-time income tax provision of $11.9 million as additional income tax provision in the fourth quarter of 2017, the period in which the legislation was enacted. The one-time income tax provision includes $8.9 million related to the remeasurement of certain deferred tax assets and liabilities based on the tax rates at which they are expected to reverse in the future. The one-time income tax expense also includes a provisional amount of $3.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the $3.0 million of current income tax provision recorded relating to the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 30, 2017. Additional information and analysis is necessary to complete the calculation and accounting relating to the transition tax on the mandatory deemed repatriation of foreign earnings. Any subsequent adjustments to this amount will be recorded to current income tax provision during the measurement period which is not expected to extend beyond one year from the enactment date.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the expected tax (benefit) expense computed by applying the federal statutory rate to income before income taxes to actual tax expense is as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | January 1,
2022 | | January 2,
2021 | | December 28,
2019 |
| Statutory federal income tax | $ | 5,940 | | | $ | 39,462 | | | $ | 20,755 | |
| | | | | |
| State taxes (net of federal benefit) | 389 | | | 4,834 | | | 3,999 | |
| Federal and state credits | (7,620) | | | (6,702) | | | (8,152) | |
| | | | | |
| | | | | |
| Excess tax (benefits) expenses from stock-based compensation | (4,160) | | | 313 | | | (6,468) | |
| | | | | |
| Foreign-derived intangible income | (3,253) | | | (3,360) | | | (4,180) | |
| | | | | |
| | | | | |
| Executive compensation | 1,706 | | | 718 | | | 2,081 | |
| Foreign tax rate differential | 264 | | | 1,458 | | | 1,986 | |
| Change in valuation allowance | 4,691 | | | 3,817 | | | 2,678 | |
| Other | (63) | | | 307 | | | 834 | |
| $ | (2,106) | | | $ | 40,847 | | | $ | 13,533 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| | (In thousands) |
| Expected federal income tax | $ | 26,728 |
| | $ | 21,476 |
| | $ | 22,040 |
|
| Miscellaneous permanent items | 2,979 |
| | 516 |
| | 608 |
|
| State taxes (net of federal benefit) | 2,089 |
| | 1,360 |
| | 982 |
|
| Federal and state credits | (4,486 | ) | | (2,233 | ) | | (2,767 | ) |
| Change in valuation allowance | 800 |
| | — |
| | — |
|
| Domestic production activities deduction | (1,528 | ) | | (1,731 | ) | | (2,145 | ) |
| Statute of limitation expirations of uncertain tax positions | (106 | ) | | (167 | ) | | (194 | ) |
| Excess tax benefits relating to stock-based compensation | (11,709 | ) | | — |
| | — |
|
| Tax Cuts and Jobs Act of 2017 | 11,861 |
| | — |
| | — |
|
| Other | (1,226 | ) | | 201 |
| | 317 |
|
| | $ | 25,402 |
| | $ | 19,422 |
| | $ | 18,841 |
|
The components of net deferred tax assets were as follows:follows (in thousands):
| | | | January 1,
2022 | | January 2,
2021 |
| Deferred tax assets | | Deferred tax assets | | | |
| | | | December 30,
2017 | | December 31,
2016 | |
| | (In thousands) | |
| Deferred tax assets | | | | |
| Reserves and accruals | $ | 24,315 |
| | $ | 20,737 |
| |
| Tax credits | 6,666 |
| | 5,999 |
| |
| Property and equipment | 1,382 |
| | 1,934 |
| |
| | Revenue reserves | | Revenue reserves | $ | 22,039 | | | $ | 20,564 | |
| Accruals and other liabilities | | Accruals and other liabilities | 14,518 | | | 14,357 | |
| Operating lease liabilities | | Operating lease liabilities | 11,428 | | | 12,429 | |
| Tax credits and net operating loss carryforwards | | Tax credits and net operating loss carryforwards | 17,326 | | | 12,748 | |
| | Stock-based compensation | 4,277 |
| | 6,150 |
| Stock-based compensation | 3,463 | | | 4,868 | |
| Net operating loss carryforwards | 144 |
| | 1,010 |
| |
| | Other | | Other | 5,476 | | | 3,793 | |
| Gross deferred tax assets | | Gross deferred tax assets | 74,250 | | | 68,759 | |
| Valuation allowance | (800 | ) | | — |
| Valuation allowance | (13,136) | | | (7,643) | |
| Gross deferred tax assets | 35,984 |
| | 35,830 |
| |
| Total deferred tax assets | | Total deferred tax assets | 61,114 | | | 61,116 | |
| | Deferred tax liabilities | | | | Deferred tax liabilities | | | |
| Intangible assets | 13,419 |
| | 4,530 |
| Intangible assets | 5,469 | | | 3,341 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 10,998 | | | 11,443 | |
| Marketable equity securities | | Marketable equity securities | 7,370 | | | 10,676 | |
| Other | 573 |
| | 715 |
| Other | 2,582 | | | 2,957 | |
| Gross deferred tax liabilities | 13,992 |
| | 5,245 |
| |
| Total deferred tax liabilities | | Total deferred tax liabilities | 26,419 | | | 28,417 | |
| Net deferred tax assets | $ | 21,992 |
| | $ | 30,585 |
| Net deferred tax assets | $ | 34,695 | | | $ | 32,699 | |
The Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest all of theseits unremitted foreign earnings, as well as the capital in theseits foreign subsidiaries, indefinitely outside of the U.S. The amount ofAt January 1, 2022, the Company has unremitted foreign earnings and any unrecognized deferred tax liability on these undistributedunremitted earnings would be immaterial.
The Company has fully utilized both the federal and state net operating loss carryforwards as of December 30, 2017. The Company had federal and stateforeign net operating loss carryforwards of $1.0$3.9 million and $8.9$12.7 million, respectively, as of December 31, 2016.January 1, 2022. The Company has fully utilizeda valuation allowance of $2.0 million in the federal researchU.S. and development credita valuation allowance of $5.7 million in certain foreign jurisdictions for net operating loss carryforwards due to statutory limitations as of December 30, 2017 and had $1.0 million of federal research and development credit carryforwards as of December 31, 2016.January 1, 2022. The Company has state research and development credit carryforwards of $10.1$19.4 million and $10.0$16.3 million as of December 30, 2017January 1, 2022 and December 31, 2016,January 2, 2021, respectively, which expire from 20262029 to 2032.2037. Under the Internal Revenue Code and state law, certain substantial changes in the Company’s ownership could result in an annual limitation on the amount of these tax carryforwards which can be utilized in future years. As of January 1, 2022, January 2, 2021 and December 30, 2017,28, 2019, the Company has $1.0had a valuation allowance of $13.1 million, of$7.6 million and $3.8 million, respectively, for state research and development credits related to the acquisition of Evolution Robotics that are limited by Section 382 and Section 383,
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respectively, of the Internal Revenue Code. However, these limitations are not expected to cause any of these state researchdevelopment credit carryforwards and development credits to expire prior to being utilized.
As of December 30, 2017, the Company recorded a valuation allowance of $0.8 million for certain foreign deferred tax assets for which the Company believes do not meet the "more likely than not" criteria for recognition.
A summary of the Company’s adjustments to its gross unrecognized tax benefits in the current year is as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended |
| | January 1, 2022 | | January 2,
2021 | | December 28,
2019 |
| Balance at beginning of period | $ | 8,559 | | | $ | 7,121 | | | $ | 7,119 | |
| Increase for tax positions related to the current year | 914 | | | 765 | | | 770 | |
| | | | | |
| Increase (decrease) for tax positions related to prior years | 369 | | | 1,231 | | | (768) | |
| | | | | |
| Decrease for lapses of statute of limitations | — | | | (558) | | | — | |
| Balance at end of period | $ | 9,842 | | | $ | 8,559 | | | $ | 7,121 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | December 30, 2017 | | December 31,
2016 | | January 2,
2016 |
| | (in thousands) |
| Balance at beginning of period | $ | 5,146 |
| | $ | 6,616 |
| | $ | 2,491 |
|
| Increase for tax positions related to the current year | 580 |
| | 2,851 |
| | 786 |
|
| Increase (decrease) for tax positions related to prior years | (523 | ) | | (4,224 | ) | | 3,533 |
|
| Decreases for settlements with applicable taxing authorities | — |
| | — |
| | — |
|
| Decreases for lapses of statute of limitations | (613 | ) | | (97 | ) | | (194 | ) |
| Balance at end of period | $ | 4,590 |
| | $ | 5,146 |
| | $ | 6,616 |
|
The Company accrues interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense. As of December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019 there were no material accrued interest or penalties. The Company does not expect a significant change in the amount of unrecognized tax benefits within the next 12 months. If all of the Company's unrecognized tax benefits as of January 1, 2022 were to become recognizable in the future, it would record a $11.2 million benefit, inclusive of interest, to the income tax provision.
The Company is subject to taxation in the United States (federal and state) and foreign jurisdictions. The statute of limitations for examinations by the Internal Revenue Service (the "IRS") is closed for fiscal years prior to 2014. The statute of limitations for examinations byand state tax authorities is closed for fiscal years prior to 2013.2014 and fiscal 2016. Federal and state carryforward attributes that were generated prior to fiscal 2014 and 2013, respectively,during fiscal 2016 may still be adjusted upon examination by the federal or state tax authorities if they either have been or will be used in a period for which the statute of limitations is still open. The Company is currently under examination by the IRS for the years 2014 and 2015. The IRS notified the Company doesduring the fourth quarter of fiscal 2020 that it intends to disallow the Company’s deductions related to domestic production activities for those tax years. We currently believe the ultimate disposition of this matter will not expecthave a significant changematerial adverse effect on our consolidated financial position, liquidity or results of operations. There are other ongoing audits in various other jurisdictions that are not material to the Company's financial statements. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the amountCompany's tax audits are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of unrecognizedresolution, settlement, and closure of audits is not certain, it is reasonably possible that certain U.S. federal and non-U.S. tax benefitsaudits may be concluded within the next 12 months. If allmonths, which could increase or decrease the balance of the Company's gross unrecognized tax benefits as of December 30, 2017 were to become recognizable in the future, it would record a $2.0 million benefit, inclusive of interest, to the income tax provision.benefits.
|
| | | | |
17.16. | Industry Segment, Geographic Information and Significant Customers |
Prior to completing the sale of the Company's defense and security business (see Note 4), the Company’s reportable segments consisted of the home business unit and the defense and security business unit. Following this divestiture, which was completed in April 2016, theThe Company now operates as one1 operating segment, consumer robots, the results of which are included in the Company's consolidated statements of income and comprehensive income.segment. The Company's consumer robots products are offered to consumers through a networkvariety of retail businesses throughoutdistribution channels, including chain stores and other national retailers, through the United States, to various countries through international distributorsCompany's own website and app, dedicated e-commerce websites, the online arms of traditional retailers, and through the Company's on-line store.value-added distributors and resellers worldwide.
Geographic Information
For the fiscal years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 2016,2021 and December 28, 2019, sales to non-U.S. customers accounted for 48.8%51.8%, 51.2%47.9% and 56.0%50.3% of total revenue, respectively.
Significant Customers
For the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016 approximately 62.7%, 72.8% and 76.6%, respectively, of consumer robots revenue resulted from sales to 15 customers. For the fiscal year ended December 30, 2017, the Company generated 13.5% of total revenue from one of its retailers (Amazon). For the fiscal year ended December 31, 2016, the Company generated 12.9%, 12.3% and 10.4% of total revenue from its distributor in Japan (Sales On Demand Corporation), a network of affiliated European distributors (Robopolis SAS) and Amazon, respectively. For the fiscal year ended January 2, 2016, the Company generated 13.3% and 12.7% of total revenue from Sales on Demand Corporation and Robopolis SAS, respectively. On April 3, 2017, the Company acquired the iRobot-related distribution business of Sales On Demand Corporation, and on October 2, 2017, the Company acquired Robopolis SAS (see Note 3).
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| |
18. | Quarterly Information (Unaudited) |
The following table provides information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information (dollars in thousands, except per share amounts)about revenue by geographical region (in thousands):
| | | | | | | | | | | | | | | | | |
| January 1, 2022 | | January 2, 2021 | | December 28, 2019 |
| Domestic | $ | 754,173 | | | $ | 744,648 | | | $ | 603,618 | |
| International | 810,814 | | | 685,742 | | | 610,392 | |
| Total | $ | 1,564,987 | | | $ | 1,430,390 | | | $ | 1,214,010 | |
Significant Customers
For the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, there was one customer that accounted for 10% or more of total revenue, representing 21.8%, 22.7% and 21.3%, of total revenue, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended |
| | December 30,
2017 | | September 30,
2017 | | July 1,
2017 | | April 1,
2017 | | December 31,
2016 | | October 1,
2016 | | July 2,
2016 | | April 2,
2016 |
| | (In thousands, except per share amounts) |
| Revenue | $ | 326,897 |
| | $ | 205,399 |
| | $ | 183,148 |
| | $ | 168,467 |
| | $ | 212,494 |
| | $ | 168,610 |
| | $ | 148,696 |
| | $ | 130,804 |
|
| Gross margin | 153,542 |
| | 102,383 |
| | 89,891 |
| | 87,343 |
| | 106,642 |
| | 81,060 |
| | 69,652 |
| | 61,961 |
|
| Net income | 4,620 |
| | 22,082 |
| | 7,903 |
| | 16,359 |
| | 13,681 |
| | 19,512 |
| | 4,814 |
| | 3,932 |
|
| Diluted earnings per share | $ | 0.16 |
| | $ | 0.76 |
| | $ | 0.27 |
| | $ | 0.58 |
| | $ | 0.49 |
| | $ | 0.70 |
| | $ | 0.17 |
| | $ | 0.13 |
|
| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO)("CEO") and our Chief Financial Officer (CFO)("CFO"), of the effectiveness, as of the end of the period covered by this report, of the design and operation of our "disclosure controls and procedures" as defined in Rule 13a-15(e) promulgated by the SEC under the Exchange Act. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures, as of the end of such period, were adequate and effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed the Company’s internal control over financial reporting as of December 30, 2017,January 1, 2022, based on criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We haveCommission. Management excluded the business acquisitions
completed during fiscal year 2017, includingAeris Cleantec AG ("Aeris") from our acquisitions of iRobot Japan G.K. and iRobot France SAS (formerly known as Robopolis SAS), from the assessment of the effectiveness of internal control over financial reporting as of December 30, 2017. iRobot Japan G.K. and iRobot France SAS (formerly known as Robopolis SAS) are wholly-owned subsidiaries whoseJanuary 1, 2022 because the Company acquired it in a business combination in 2021. Aeris' total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 8.3%0.8% and 23.9% of total assets, respectively and approximately 9.9% and 13.0% of total revenues,0.2%, respectively, of the related consolidated financial statement amountsCompany's total assets and total revenues, as of and for the year ended December 30, 2017.January 1, 2022. Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 30, 2017January 1, 2022 based on the specified criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 30, 2017January 1, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 30, 2017,January 1, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
10b51-110b5-1 Trading Plans
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.Act. We have been advised that certain of our officers and directors (including Colin Angle, Chief Executive Officer, and Glen Weinstein, EVP &and Chief Legal Officer, as well as Mohamad Ali, and Deborah Ellinger, and Andrew Miller, each a director)director of the CompanyCompany) have entered into trading plans (each a "Plan" and collectively, the "Plans") covering periods after the date of this Annual Report on Form 10-K in accordance with Rule 10b5-l and our policy 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.
the Company.
We anticipate that, as permitted by Rule 10b5-l10b5-1 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-l10b5-1 and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. We however, undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan, other than in such quarterly and annual reports.herein.
Amendment to LeaseITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
On February 14, 2018, we entered into an Eighth Amendment to Lease (the "Amendment"), with DIV Bedford, LLC, to amend certain provisions of our Lease Agreement for our corporate headquarters located at 4-18 Crosby Drive, Bedford, Massachusetts (the "Property"). The Amendment provides for, among other things, 34,752 square feet of additional leased space at the Property. The Amendment also adjusts the rent payable for the Property. The full text of the Amendment is filed with Exhibit 10.6 to this Annual Report on Form 10-K.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 30, 2017.January 1, 2022.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 30, 2017.January 1, 2022.
| |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 30, 2017.January 1, 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 30, 2017.January 1, 2022.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent public accounting firm is PricewaterhouseCoopers LLP, Boston, Massachusetts, PCAOB Auditor ID 238.
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 30, 2017.January 1, 2022.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)The following are filed as part of this Annual Report on Form 10-K:
1.Financial Statements
The following consolidated financial statements are included in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 30, 2017January 1, 2022 and December 31, 2016January 2, 2021
Consolidated Statements of Income for the Years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019
Consolidated Statements of Comprehensive Income for the Years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019
Consolidated Statements of Stockholders’ Equity for the Years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019
Consolidated Statements of Cash Flows for the Years ended December 30, 2017, December 31, 2016 andJanuary 1, 2022, January 2, 20162021 and December 28, 2019
Notes to Consolidated Financial Statements
| |
2. | Financial Statement Schedules |
2.Financial Statement Schedules
All other schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the Notes thereto.
| |
3. | Exhibits — See item 15(b) of this report below |
3.Exhibits — See item 15(b) of this report below
(b)Exhibits
The following exhibits are filed as part of and incorporated by reference into this Annual Report:
|
| | | | | | | |
Exhibit
Number | | Description |
2.1 | | Asset Purchase Agreement, dated as of February 2, 2016, by and between the Registrant and iRobot Defense Holdings, Inc. (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on February 4, 2016 and incorporated by reference herein) |
2.2 | | Share Purchase Agreement, dated as of July 25, 2017, by and among the Registrant, iRobot UK Ltd., Robopolis SAS, the shareholders of Robopolis SAS named therein, and the Shareholders’ Representative named therein (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 26, 2017 and incorporated by reference herein) |
3.1(1) | | Form of Second Amended and Restated Certificate of Incorporation of the Registrant dated November 15, 2005 |
| | Amended and Restated By-laws of the Registrant (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on March 9, 2016 and incorporated by reference herein) |
| | Specimen Stock Certificate for shares of the Registrant’s Common Stock |
10.1†(1) | | Description of the Registrant's securities registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.2 to the Registrant's Annual Report on Form 10-K filed on February 13, 2020 and incorporated by reference herein) |
| | Form of Amended and Restated Indemnification Agreement between(filed as Exhibit 10.1 to the RegistrantRegistrant’s Current Report on Form 8-K filed on December 9, 2020 (File No. 001-36414) and its Directors and Executive Officersincorporated by reference herein) |
| | Form of Executive Agreement between the Registrant and certain executive officers of the Registrant, as amended (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2010 and incorporated by reference herein) |
| | Employment Agreement between the Registrant and Colin Angle, dated as of January 1, 1997 |
| | 2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 2, 2009 and incorporated by reference herein) |
| | Non-Employee Directors’ Deferred Compensation Program, as amended (filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2007 and incorporated by reference herein) |
|
| | |
10.6* | | Lease Agreement between the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date)through the eighth amendment)
|
10.7† | | Senior Executive Incentive Compensation Plan (filedNinth Amendment to Lease Agreement between the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011 and incorporated by reference herein)of January 28, 2022 |
| | | | | | | | |
10.8† | | Form of Deferred Stock Award Agreement under the 2005 Stock Option and Incentive Plan (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 and incorporated by reference herein) |
10.9† | | Form of Restricted Stock Award Agreement under the 2005 Stock Option and Incentive Plan (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 and incorporated by reference herein) |
10.10#* | | Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as of March 18, 2010 (as amended to date) (filed as Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2017 and incorporated by reference herein) |
10.11 | | Amended and Restated Credit Agreement between the Registrant and Bank of America N.A., dated December 20, 2013 (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 2013 and incorporated by reference herein) |
10.12 | | First Amendment to Amended and Restated Credit Agreement between the Registrant and Bank of America N.A., dated June 29, 2018 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 5, 2018 and incorporated by reference herein) |
| | Amended and Restated Reimbursement Agreement between the Registrant and Bank of America N.A., dated December 20, 2013 (filed as Exhibit 10.16 to the Registrant'sRegistrant’s Annual Report on Form 10-K for the year ended December 28, 2013 and incorporated by reference herein) |
10.13#* | | First Amendment to Amended and Restated Reimbursement Agreement between the Registrant and Bank of America N.A., dated June 29, 2018 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 5, 2018 and incorporated by reference herein) |
| | Manufacturing Services Agreement between the Registrant and Kin Yat Industrial Company Limited, dated as of January 22, 2014 (as amended to date) |
10.14† | | Evolution Robotics, Inc. 2007 Stock Plan and forms of agreements thereunder (filed as Exhibit 10.1610.15 to the Registrant'sRegistrant’s Annual Report on Form 10-K for the year ended December 27, 201429, 2018 and incorporated by reference herein) |
10.15† | | 2015 Stock Option and Incentive Plan and forms of agreements thereunder (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 27, 2015 and incorporated by reference herein) |
10.16 | | Master Confirmation - Uncollared Accelerated Share Repurchase by and between the Registrant and J.P. Morgan Securities LLC, dated March 1, 2016 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2016 and incorporated by reference herein) |
10.17† | | Form of Performance-Based Restricted Stock Unit Award Agreement under the 2015 Stock Option Incentive Plan (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2016 and incorporated by reference herein) |
10.18†* | | iRobot Corporation 2017 Employee Stock Purchase Plan (filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2017 and incorporated by reference herein) |
21.1* | | iRobot Corporation 2018 Stock Option and Incentive Plan (filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 filed on June 7, 2018 (File No. 333-225482) and incorporated by reference herein) |
| | iRobot Corporation Senior Executive Incentive Compensation Plan as Amended and Restated (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2019 and incorporated by reference herein) |
| | Amendment to the iRobot Corporation 2018 Stock Option and Incentive Plan (filed as Exhibit 99.1 to the Registrant's Registration Statement on Form S-8 on June 30, 2020 (File No. 333-239573) and incorporated by reference herein) |
| | Accelerated Share Repurchase Agreement by and between the Registrant and Wells Fargo, National Association, dated August 2, 2021 (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2021 and incorporated by reference herein) |
| | Subsidiaries of the Registrant |
| | Consent of PricewaterhouseCoopers LLP |
| 24.1 | | Power of Attorney (incorporated by reference to the signature page of this report on Form 10-K) |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101*101.SCH* | | The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2017 formatted inInline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statementsTaxonomy Extension Schema Document |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| | | | | | | |
†101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 104* | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
| | | | | |
| † | Indicates a management contract or any compensatory plan, contract or arrangement. |
|
| | | | |
| # | Confidential treatment requested for portions of this document. |
|
| | | | |
(1)## | Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential. |
| | | | | |
| (1) | Incorporated by reference herein to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-126907) |
|
| | | | |
| * | Filed herewith |
| ** | Furnished herewith |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| iROBOT CORPORATION |
| | | |
| iROBOT CORPORATION |
| By: | | | |
| By: | | /s/ Colin M. Angle |
| | | Colin M. Angle
Chairman of the Board,
Chief Executive Officer and Director
|
Date: February 16, 201815, 2022
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Colin M. Angle and Alison Dean,Julie Zeiler, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated on February 16, 2018.15, 2022.
|
| | | | |
| Signature | Title(s) |
/s/ COLIN M. ANGLE | Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer)
|
| Colin M. Angle |
| |
/s/ ALISON DEANJULIE ZEILER | Executive Vice President and Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|
Alison DeanJulie Zeiler |
| |
/s/ MOHAMAD ALIKARIAN WONG | DirectorSVP, Finance (Principal Accounting Officer) |
Mohamad Ali | Karian Wong |
| |
/s/ MICHAEL BELLOHAMAD ALI | Director |
Michael BellMohamad Ali | |
| |
/s/ RONALD CHWANG
| Director |
Ronald Chwang | |
| |
/s/ DEBORAH G. ELLINGER
| Director |
Deborah G. Ellinger | |
| |
/s/ ELISHA FINNEY
| Director |
Elisha Finney | |
| |
|
| |
/s/ MICHAEL BELL | Director |
/s/ ANDREW MILLER
Michael Bell | Director |
Andrew Miller | |
| |
/s/ MICHELLE V. STACY
| Director |
Michelle V. Stacy | |
| |
EXHIBIT INDEX
|
| | |
Exhibit
Number
| | Description |
| | Asset Purchase Agreement, dated as of February 2, 2016, by and between the Registrant and iRobot Defense Holdings, Inc. (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on February 4, 2016 and incorporated by reference herein) |
| | Share Purchase Agreement, dated as of July 25, 2017, by and among the Registrant, iRobot UK Ltd., Robopolis SAS, the shareholders of Robopolis SAS named therein, and the Shareholders’ Representative named therein (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 26, 2017 and incorporated by reference herein) |
| | Form of Second Amended and Restated Certificate of Incorporation of the Registrant dated November 15, 2005 |
| | Amended and Restated By-laws of the Registrant (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on March 9, 2016 and incorporated by reference herein) |
| | Specimen Stock Certificate for shares of the Registrant’s Common Stock |
| | Form of Indemnification Agreement between the Registrant and its Directors and Executive Officers |
| | Form of Executive Agreement between the Registrant and certain executive officers of the Registrant, as amended (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2010 and incorporated by reference herein) |
| | Employment Agreement between the Registrant and Colin Angle, dated as of January 1, 1997 |
| | 2005 Stock Option and Incentive Plan, as amended, and forms of agreements thereunder (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 2, 2009 and incorporated by reference herein) |
| | Non-Employee Directors’ Deferred Compensation Program, as amended (filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2007 and incorporated by reference herein) |
| | Lease Agreement between the Registrant and Boston Properties Limited Partnership for premises located at 4-18 Crosby Drive, Bedford, Massachusetts, dated as of February 22, 2007 (as amended to date) |
| | Senior Executive Incentive Compensation Plan (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011 and incorporated by reference herein) |
| | Form of Deferred Stock Award Agreement under the 2005 Stock Option and Incentive Plan (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 and incorporated by reference herein) |
| | Form of Restricted Stock Award Agreement under the 2005 Stock Option and Incentive Plan (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008 and incorporated by reference herein) |
| | Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as of March 18, 2010 (as amended to date) |
| | Amended and Restated Credit Agreement between the Registrant and Bank of America N.A., dated December 20, 2013 (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 2013 and incorporated by reference herein) |
| | Amended and Restated Reimbursement Agreement between the Registrant and Bank of America N.A., dated December 20, 2013 (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the year ended December 28, 2013 and incorporated by reference herein) |
| | Manufacturing Services Agreement between the Registrant and Kin Yat Industrial Company Limited, dated as of January 22, 2014 (as amended to date) |
| | Evolution Robotics, Inc. 2007 Stock Plan and forms of agreements thereunder (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the year ended December 27, 2014 and incorporated by reference herein) |
| | 2015 Stock Option and Incentive Plan and forms of agreements thereunder (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 27, 2015 and incorporated by reference herein) |
| | Master Confirmation - Uncollared Accelerated Share Repurchase by and between the Registrant and J.P. Morgan Securities LLC, dated March 1, 2016 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2016 and incorporated by reference herein) |
|
| | |
| | Form of Performance-Based Restricted Stock Unit Award Agreement under the 2015 Stock Option Incentive Plan (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2016 and incorporated by reference herein) |
| | iRobot Corporation 2017 Employee Stock Purchase Plan |
| | Subsidiaries of the Registrant |
| | Consent of PricewaterhouseCoopers LLP |
24.1 | | Power of Attorney (incorporated by reference to the signature page of this report on Form 10-K) |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101* | | The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements |
|
| |
†/s/ DEBORAH G. ELLINGER | Indicates a management contract or any compensatory plan, contract or arrangement.Director |
| Deborah G. Ellinger | |
| |
#/s/ KAREN M. GOLZ | Confidential treatment requested for portions of this document.Director |
| Karen M. Golz | |
| |
(1)/s/ RUEY-BIN KAO | Incorporated by reference herein to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-126907)Director |
| Ruey-Bin Kao | |
| |
| | | | | |
| |
*/s/ EVA MANOLIS | Filed herewithDirector |
| Eva Manolis | |
| |
/s/ ANDREW MILLER | Director |
| Andrew Miller | |
| |
/s/ MICHELLE V. STACY | Director |
| Michelle V. Stacy | |
| |
