iRobot

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

(Mark One)

☑

☐

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended January 2, 2021

OR

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)

Delaware
(State or other jurisdiction of
incorporation or organization)

77-0259335
(I.R.S. Employer
Identification No.)

8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices, including zip code)

(781) 430-3000
(Registrant’s telephone number, including area code)
_______________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value

Trading Symbol(s)
IRBT

Name of each exchange on which registered
The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) 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  ☑        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  ☑

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  ☑        No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files).    Yes  ☑        No  ☐

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.

Large accelerated filer

Non-accelerated filer

☑

☐

Accelerated filer

Smaller reporting company

Emerging growth company

☐

☐

☐

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  ☑

The aggregate market value of the Common Stock held by nonaffiliates of the registrant was approximately $2.3 billion based on the last reported sale
of the Common Stock on The Nasdaq Global Select Market on June 26, 2020, the last business day of the registrant's most recently completed second fiscal

quarter.

As of January 29, 2021, there were 28,199,143 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 January 2,

2021. Portions of such Proxy Statement are incorporated by reference into Part III of this Form 10-K.

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iROBOT CORPORATION

ANNUAL REPORT ON FORM 10-K
Year Ended January 2, 2021

TABLE OF CONTENTS

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Part I

Part II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Directors Independence
Principal Accounting Fees and Services

Part III

Item 15.
Item 16.

Exhibits and Financial Statement Schedules
Form 10-K Summary

Part IV

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ITEM 1.    BUSINESS

PART I

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, 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 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. Also, these forward-looking statements speak only as of the
date of this Annual Report, 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, 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 (together with its subsidiaries, "iRobot", the "Company", "we", "us" or "our").

Overview

iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. Our consumer robots help people

find smarter ways to clean and accomplish more in their daily lives. iRobot's portfolio of floor cleaning robots features proprietary technologies for the
connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio,
our engineers are building an ecosystem of robots to help realize the smart home’s potential. For the past two decades, we have been a pioneer and leader in
consumer robotics, robotic floor care and robotic artificial intelligence.

Since our founding in 1990, 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 create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs
and risks associated with product development. These capabilities are amplified by the integration of artificial intelligence, home understanding and
machine vision technologies that further improve cleaning performance and help personalize the cleaning experience, enabling customers to have greater
control over where, when and how our robots clean. We believe that our significant expertise in robot design, engineering, and smart home technologies
and targeted focus on understanding and addressing consumer needs, positions us well to capitalize on the anticipated growth in the market for robot-based
consumer products.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") to be a global pandemic, COVID-19

has resulted in significant economic disruption, and governments around the world have implemented various measures, including travel restrictions,
closure of non-essential businesses, border closures, and social distancing, in an effort to slow the spread of COVID-19. These actions have altered
macroeconomic conditions and created recession-like environments around the world. To protect the health and well-being of our employees, suppliers, and
customers, we have implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely. The
mandated orders to "shelter-in-place" and other social distancing measures have directly and indirectly affected sales and supply chain activities. During the
early months of the COVID-19 pandemic, retailers focused on carefully managing inventory and prioritizing demand for essential products while reducing
operating hours, limiting foot traffic and temporarily closing stores. Starting in the second quarter of 2020, we saw demand for our Roomba and Braava
robots accelerate as maintaining a clean home took on increasing importance to people while they spent more time at home, including as a result of work-
from-home arrangements. At the same time, we navigated a myriad of supply chain challenges that were compounded by COVID-19 to cost-effectively
source sufficient raw materials and components, and increase volume.

2020 Highlights

Since the introduction of the Roomba robotic vacuum cleaner ("RVC") in 2002, we have sold more than 30 million consumer robots worldwide to
become a global, market-leading consumer robotics innovator with a strong presence in major geographic regions worldwide. In 2020, iRobot sold more
than $1.4 billion in consumer robots and navigated very challenging market conditions as the COVID-19 pandemic directly and indirectly impacted all
aspects of our business. Our commitment to innovation and funding critical research and development projects continued to yield tangible results through
new product

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launches and new and enhanced features and functionality. In addition to launching the Roomba i3 and i3+ in North America during 2020, we introduced
the iRobot Genius Home Intelligence ("Genius"), a powerful new platform that delivers an expansive range of digital features and experiences across our
entire line of Wi-Fi connected floor cleaning robots. Genius powers the iRobot HOME App, through which Roomba and Braava users can operate their
WiFi-connected floor cleaning robots. Genius delivers a far greater level of personalization and control over user's floor cleaning robots and enables users
to determine when, where and how their robots clean. In addition, users can receive suggestions from the HOME app about their cleaning activities that
factor in their unique homes, schedules, cleaning preferences and smart home integrations. In addition to these major new product launches, we introduced
the Roomba s9 and s9+ in the Asia Pacific region and the Roomba Combo in select European countries during 2020.

Other 2020 highlights included our efforts to balance cost reductions as the global pandemic began with investments to advance software-based
research and development and support the growth of our direct-to-consumer sales channel. Operationally, we managed through substantial changes in
anticipated demand to align production across our supply chain with substantially higher orders over the course of the year while advancing plans to
expand our manufacturing capacity and overcome pandemic-related delays in Malaysia. Our profitability in 2020 benefited from a temporary exclusion to
United States tariffs on RVCs made in and imported from China which expired on December 31, 2020. We also appointed new leaders to oversee our
finance, accounting and IT; supply chain; commercial; and marketing organizations.

Our total revenue for 2020 was $1,430.4 million, which represents a 17.8% increase from revenue of $1,214.0 million for 2019. Domestic revenue

grew $141.0 million, or 23.4%, and international revenue increased by $75.4 million, or 12.3%, primarily as a result of higher sales of premium robots
priced over $500.

Strategy

Our long-term strategy to drive sustainable, profitable growth is focused on: 1) designing and marketing a portfolio of floor cleaning robots with
differentiated value propositions that appeal to an expanding range of consumers around the world, enabling us to continue increasing category penetration
globally; 2) advancing innovation through the introduction of new models of floor cleaning robots, and new features and enhanced functionality of existing
models of floor cleaning robots that will address the needs of new and existing customers; 3) forging enduring relationships with millions of consumers
worldwide in ways that will ultimately increase their spending with us over the lifetime of those relationships; 4) continuing to diversify our product
portfolio beyond RVCs; and 5) balancing investments in key technology, product development, sales and marketing, manufacturing and other initiatives
with an ongoing focus on controlling costs, increasing productivity and driving efficiency.

The three key elements in our strategy are 1) differentiating the cleaning experience; 2) building long-term, enduring customer relationships; and 3)
nurturing the lifetime value of our customer relationships. By executing on each element of our strategy, we believe we can better position iRobot to build
and defend its category leadership, participate meaningfully in continued category growth, build a stronger direct-to-consumer sales channel to complement
our extensive retail partnerships, and convert our top-line growth into even faster operating profit and earnings per share expansion.

Technology

Since the Roomba’s introduction in 2002, we have continuously pursued innovation and introduced a wide of range of powerful features and
functionality that have been favorably received by customers, helped extend our consumer robot technology and category leadership, and have further
expanded our product portfolio. Over the past several years, we have focused on research and development initiatives that advance overall cleaning
efficacy and performance, increase the autonomy of our products and enable personalized control over how, when and where our robots clean. By
leveraging our robust connectivity and cloud infrastructure through Amazon 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 collect valuable performance data that helps us improve the effectiveness of our support teams,
helps inform our product roadmaps and facilitates integration with other connected devices in the smart home.

Our development roadmaps are shaped by our product management teams, interactions between customers and our support teams, a wide range of
consumer studies and surveys, as well as the aforementioned analysis of extensive performance data of our robots in the field. We believe that the 2020
launch of the Genius platform will continue to play an increasingly important role in our ability to consistently deliver new features and functionality in our
floor cleaning robots to improve performance, continue to address the needs of our customers and advance the smart home experience. 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 better,

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increase the trust that the user places in our products to successfully complete their missions, and tightly integrate our products into the lifestyles of our
users.

Products

We sell various products designed to empower people to do more in and around their homes. We believe our home floor cleaning robots deliver

compelling and unique value to customers by delivering a better way to clean that frees people from repetitive, time consuming home cleaning tasks. To
ensure the continued acceptance of our robots, we plan to continue to invest in the 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 owners. As part of our efforts to control costs, accelerate certain strategic initiatives and
further shift research and development engineering talent from hardware to software, we suspended go-to-market plans for our Terra robot mower during
2020. While we continue to believe that product diversification is an important element of our long-term growth strategy, this specific initiative is expected
to remain on hold for the foreseeable future in part because we believe our ability to successfully and efficiently bring new product categories to market
will be enhanced by our near-term investments to build stronger, enduring customer relationships and nurture the lifetime value of these relationships.

All of our WiFi-connected floor cleaning robots benefit from iRobot Genius Home Intelligence, our powerful robot platform that unlocks an
expansive range of digital features and experiences to give users an unmatched level of personalization and control over their cleaning robots, accounting
for their unique homes, schedules, cleaning preferences and smart home integrations. Our products consist of the following robot families:

Roomba

We currently offer multiple Roomba floor vacuuming robots at varying price points ranging from approximately $250 to $1,099 based upon features

and performance characteristics. The Roomba family of robotic vacuum cleaners encompasses the following product series:

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600 Series: The Roomba 600 series robots offer a three-stage cleaning system that thoroughly vacuums every section of the floor multiple times,
as well as a brush design that enables the robot to handle fibers like hair, pet fur, lint and carpet fuzz. Available since 2012, the 600 Series is
available with and without WiFi connectivity. The WiFi connected version of the 600 Series benefits from certain Genius features.

Combo: Introduced in October 2020 in certain EMEA countries, the Combo consolidates vacuuming and mopping functionality within a single
robot platform at an entry-level price point. This product is Wi-Fi connected and offers a range of personalized cleaning features powered by the
Genius platform.

i3 Series: Introduced in September 2020, the i3 Series provides intelligent navigation, a premium 3-stage cleaning system, and an expanded range
of personalized cleaning features powered by the Genius platform. The i3+ includes all of the features of the i3 as well as the Clean Base®
Automatic Dirt Disposal system, which enables the robot to self-empty debris into an AllergenLock™ bag that is enclosed within the Clean Base.
This level of automation is designed to allow users to forget about vacuuming for weeks at a time.

i7 Series: Introduced in September 2018, and offering personalized cleaning features powered by the Genius platform, the i7 Series brought a new
level of intelligence and automation to robotic vacuum cleaners with the ability to learn, map and adapt to a home’s floor plan and ten times more
suction power than the 600 Series. The Roomba i7+ includes all the features of i7 plus the Clean Base® Automatic Dirt Disposal System.

s9 Series: Introduced in May 2019, and offering personalized cleaning features powered by the Genius platform, the s9 Series represents the most
powerful, deepest cleaning Roomba to date with 40 times more suction power than the 600 Series, advanced sensors to automatically increase
suction on rugs or carpets, new brushes that further improve the robot’s ability to clean corners and along walls, and sophisticated navigation and
mapping capabilities for efficient, customized room cleaning. The Roomba s9+ includes all of the features of the s9 plus the Clean Base®
Automatic Dirt Disposal. The Roomba s9+ also features unique, whole system filtration in which 99% of pollen and mold allergens vacuumed
cannot escape back into the air.

Braava

We currently offer the Braava family of automatic floor mopping robots designed exclusively for hard-surface floors at price points ranging from
$199 to $450. The Braava robots automatically dust 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 cycle to keep the cloth damp. The Braava family of floor
mopping robots encompasses the following product series:

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200 Series: Introduced in 2016, the Braava jet 200 series robot mop navigates under and around objects and furniture, reaches into corners and
uses Precision Jet Spray and a vibrating clean head to remove dirt and stains.

300 Series: With the ability to operate in separate mop or sweep modes, the Braava jet 300 series robot mop offers greater coverage than the 200
Series and is compatible with a wide range of iRobot and third-party cleaning cloths. The 300 Series was first introduced in 2013.

• m Series: Introduced in May 2019, the Braava jet m Series is the most advanced Braava robot mop yet, with Roomba-like features and

functionality, including personalized cleaning features powered by the Genius platform, a dedicated charging station and the same navigation and
mapping technology found in the most advanced Roombas with extensive coverage and strong dirt and stain removal capability. Leveraging
ImprintLink technology allows the Braava jet m Series and Roomba i3, i7, and s9 robots to automatically clean in sequence: vacuuming and then
mopping.

Root

We also offer robots designed to help children learn how to code. These products help broaden the impact of our STEM efforts and reinforces our

commitment to making robotic technology more accessible to educators, students and parents. The Root coding robots, priced at $129 and $199, are
designed to make coding easy and natural to learn. Using the engaging Root Coding App, kids of any age can learn coding fundamentals while they play,
explore, and create.

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 to 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.
In 2019, we began a Smart Home Partner Program that enables select third parties to partner closely with iRobot in using certain data available in iRobot’s
Home Knowledge Cloud to deliver enhanced product features and customer value. 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 alliances with other smart home device companies that will 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 consumer products through distributor and retail sales channels, as well as our on-line store. For the fiscal years ended January 2, 2021,
December 28, 2019 and December 29, 2018, sales to non-U.S. customers accounted for 47.9%, 50.3%, and 48.7% of total revenue, respectively. For the
fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, we generated 22.7%, 21.3% and 17.3% of total revenue, respectively, from
one of our retailers.

In the United States, Canada, Japan and across much of Europe, we sell our consumer products primarily through a network of retailers. To support
these retailers, we maintain in-house sales, marketing and product management teams. Certain smaller retail operations in these regions are supported by
distributors to whom we sell our products directly. 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.
In China, retailers are serviced by three 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.

Our retail and distributor networks are our primary distribution channels for our products. Complementing our retail and distributor networks is a

growing direct-to-consumer sales channel. For the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, direct sales to
consumers accounted for 10.5%, 5.8% and 4.4% of total revenue, respectively. We ended 2020 with nearly 10 million connected customers who have opted
in to our digital communications, up more than 80% over the end of 2019.

Customer Service and Support

We also provide ongoing customer service and support. 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 Roomba 675 and higher models, we can provide customer support directly via the iRobot HOME App and our customer
service representatives can access robot

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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 push new features/fixes to robots in the field.

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 in collaborations with in-country distributors. In addition, we sell directly to consumers through our e-commerce channels around the
world and continually improve the buying experience on our website and 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 plays an important after-sales role for owners seeking spare parts and accessories, as well as for trouble-shooting possible issues and
contacting customer support.

Our marketing strategy is to drive consumer awareness of and interest in iRobot's product portfolio, most notably Roomba robot vacuums and Braava
robot mops, and convert this interest into sales via our retail and direct-to-consumer channels. Our sales and marketing expenses represented 18.6%, 19.1%
and 19.3% of our total revenue in 2020, 2019 and 2018, respectively. We expect to continue to invest in national advertising across a range of media,
consumer and industry trade shows, direct marketing and public relations to drive consumer demand and further build brand awareness.

Marketing highlights in 2020 included advancing an initiative to upgrade our marketing technology infrastructure, enhancing the e-commerce

functionality on iRobot.com and our HOME App, and supporting the launches of the iRobot Genius Home Intelligence Platform and the i3/i3+ Series
Roomba in the United States. In addition, we continued to execute critical marketing, advertising and public relations efforts to build demand generation in
ways that amplify the iRobot and applicable product brands, generate consumer interest in our products and perpetuate customer word-of-mouth, to
encourage repeat purchases by existing customers and inspire new customers to buy our products. During 2021, we expect to continue our efforts to elevate
the iRobot brand while also accelerating investments aimed at enhancing the buying experience on our digital properties and increasing the effectiveness
and efficiency of our demand-generation capabilities targeting our connected customer base.

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 and associated technologies.

Manufacturing a new product requires a close relationship between our product designers, our operations teams and the 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. Our production processes are expected to give us the capacity to produce up to 29,000 robots a day, 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 four contract manufacturers with plants in Southern China. In late 2019, we commenced

manufacturing in Malaysia with one of our existing contract manufacturers. Although the COVID-19 pandemic delayed our efforts to increase production
volume and limited the number of Roomba models manufactured in Malaysia during 2020, one of our top priorities in 2021 is to qualify additional contract
manufacturers, produce more Roomba models and substantially expand manufacturing volumes in Malaysia. By expanding production in Malaysia and
selling those products in the United States, we believe that we will substantially reduce and potentially eliminate our exposure to current U.S. tariffs, and
mitigate the geopolitical risks associated with concentrating production solely in China.

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Research and Development

We believe that our future success depends upon our ability to continue to develop new products and product accessories, and enhance and develop

new applications for our existing products. For the years ended January 2, 2021, December 28, 2019 and December 29, 2018, our research and
development expenses were $156.7 million, $141.6 million and $140.6 million, or 11.0%, 11.7% and 12.9% 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, 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 performance, functionality and features of our
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 robots that 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
Ecovacs, Roborock, Neato and iLife. In addition to dedicated robot vacuum and robot mop products, certain consumers prefer a floor cleaning robot that
consolidates both vacuuming and mopping in a single product. We believe that the principal competitive factors in the market for robots include product
features, performance for the intended mission, total cost of system operation and overall perceived value, including maintenance and support, ease of use,
integration with existing equipment, quality, reliability, customer support, brand and reputation.

Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development and customer

support, particularly as it relates to delivering exceptional value to customers. We remain committed to funding the enhancement of our products and the
development of new products, as well as investing in the various sales, marketing and support activities we 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 technical competence and ability of our employees to

continue to innovate. The ownership of intellectual property rights 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 United States and a number of foreign countries. We currently hold a
significant number of patents and have filed numerous additional patent applications. As of January 2, 2021, we held 538 U.S. patents, more than 1,000
foreign patents, additional design registrations, and have more than 1,500 patent applications pending worldwide. While our U.S. patents will begin to
expire in 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. 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, 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

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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. 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 patent 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 proceeding toward trial.

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 of five additional U.S. patents related to robotic vacuum cleaners.

There is no guarantee that we will prevail on 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. Where an action has been filed, we will defend iRobot against the allegations. We cannot assure you that we will not receive further
correspondence from these parties, not be subject to additional allegations of infringement from 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 increased

demand around the December holiday season. In 2020, 2019 and 2018, our second-half consumer product revenue represented 67.0%, 59.0% and 59.4% of
our annual consumer product revenue, respectively. We believe that the pandemic’s impact on our business, our retail partners and the spending of
consumers worldwide further skewed the balance of revenue in favor of 2020 second-half revenue contribution. 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 increase marketing campaigns to support seasonal
holiday demand. In 2020, 2019 and 2018, our selling and marketing expense in the second half of the year represented 67.7%, 58.9% and 63.3% 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, 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 subjects us to 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 may be subject to U.S. export controls, including the United States Department of
Commerce’s Export Administration Regulations, various economic and trade sanctions regulations established by the Treasury Department’s Office of
Foreign Assets Controls and trade policies and tariffs established by the governments of the United States, China and other jurisdictions where we do
business.

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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.

Human Capital

As of January 2, 2021, we had 1,209 full-time employees. Approximately 29% 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. To 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.

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, we implemented flexible work from home policies,
adopted a wide range of sanitization and cleaning protocols to keep our offices safer and instituted regular virtual town hall meetings to keep employees
informed. In addition, our employees proactively donated time, resources and technology to support healthcare workers on the front lines. We 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, retrofitting Roomba in Italian hospitals with a tripod and phone to connect patients
with their families 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

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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.

As a symbol of our commitment, iRobot Founder, CEO and Chairman Colin Angle signed the CEO Action for Diversity and Inclusion Pledge on

Juneteenth 2020. We are creating opportunities to have an ongoing dialogue with our employees. We have also prioritized a series of training programs to
educate and empower our team, including Creating an Inclusive Workplace and Unconscious Bias. Additionally, we continue to focus on developing new
capabilities and programs that will continue to raise awareness and education around racial equality and discrimination.

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, 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 website as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. 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 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 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.

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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 floor 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;

• maintain market share in our consumer market;

•

•

•

attract and retain customers of our 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 against other robots.

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.

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, 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,

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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 in 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.

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 solely 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.

We primarily derive our revenue from consumer robot sales. For the foreseeable future, we expect that our revenue will be derived solely from sales
of home floor care 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.

Any efforts to expand our product offerings beyond our current markets or to develop new products may not succeed, which could negatively

impact our operating 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 require us to commit significant financial resources to an unproven

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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 acceptance necessary to 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.

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 2, 2021, December 28, 2019 and December 29,
2018, sales and marketing expenses were $265.5 million, $231.5 million and $210.4 million, respectively, representing approximately 18.6%, 19.1%, and
19.3% 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.

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. 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.

Risks Related to our Dependence on Third Parties and Distribution Channels

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.

We depend on a limited number of manufacturers, employing a dual-source strategy to mitigate potential manufacturing disruptions, and we have
safety stock strategies for low-volume products that are not dual sourced. The majority of our contract manufacturing locations for our robots are currently
located in 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 chain 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, there would
be a 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.

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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, because our purchase contracts with suppliers are
typically denominated in U.S. dollars, changes in currency exchange rates may 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 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 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.

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Risks 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. 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 a lowering of our margin on products sold and pricing pressures
on our products. The already-implemented, and any additional or increased, tariffs have caused and may in the future cause us to further increase prices to
our customers which we believe has reduced, and in the future may reduce, demand for our 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 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 further adversely impact our
business, financial condition and results of operations.

In response to international trade policy, as well as other risks associated with concentrated manufacturing in China, we have begun relocating a
meaningful portion of our supply chain from China to Malaysia. Such relocation activities increase costs and risks 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.

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 consumer robots. Additionally, disruptions in credit markets may materially limit consumer credit
availability and restrict credit availability 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 business, results of operations and financial condition.

Because we are an increasingly global business that in the years ended January 2, 2021, December 28, 2019 and December 29, 2018 generated
approximately 47.9%, 50.3% and 48.7%, 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

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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 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 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, 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. 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 directed to us as a result of lawsuits, regulatory proceedings, and legislative proposals could harm
our brand or otherwise impact the growth of our business. Any costs incurred as a result of compliance efforts or other liabilities under these laws or
regulations could harm our business and operating results.

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 2, 2021, December 28, 2019 and December 29, 2018, sales to non-U.S. customers accounted for 47.9%, 50.3%
and 48.7% 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:

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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;

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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

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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, on October 15, 2019, we initiated a patent 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 of five additional U.S. patents.

There is no guarantee that we will prevail on 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.

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.

In 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.

In 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 could be 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 and financial condition.

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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, distributed 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. These threats may be increased due to the work-from-
home policies implemented by us and 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 not 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 additional security measures, either of
which 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"), which became effective in May 2018, and the California Consumer Privacy Act, which became effective in
January 2020, 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 it is expected that China will do so as well. If China or another country 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.

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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 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.

Risks Related to Ownership 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 variations between our actual and anticipated

financial results, announcements by us and our competitors, projections or speculation about our business or that of our competitors by the media or
investment analysts or uncertainty about current global economic conditions. The stock market, as a whole, also has experienced extreme price and volume
fluctuations that have affected the market price of the 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:

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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 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:

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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;

disruptions to our supply chain due to inclement weather, pandemics, labor disruptions or other factors beyond our control, including COVID-19;

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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 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.

We are subject to a variety of securities laws and regulations; any shareholder litigation concerning our compliance with such laws could be

costly and time consuming and, if disposed unfavorably to us, could materially affect our financial condition or results of operations.

A purported class action complaint was filed on October 24, 2019 in the U.S. District Court for the Southern District of New York, alleging that we

and certain of our directors and officers violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder by making false and misleading
statements and omissions concerning the effect of competition and the impact of Section 301 tariffs on our financial performance. The complaint seeks,
among other things, unspecified compensatory damages, including interest, in connection with our allegedly inflated stock price, attorneys’ fees and costs,
and unspecified equitable/injunctive relief. An adverse determination in the securities class action lawsuit or other lawsuits could have a material adverse
effect on us.

We believe that the allegations contained in these complaints are without merit and intend to defend the cases vigorously. Whether or not the

plaintiff’s claims in these lawsuits are successful, this type of litigation is often expensive and diverts management’s attention and resources, and may cause
harm to our public reputation, which could adversely affect the operation of our business. If we are ultimately required to pay significant defense costs,
damages or settlement amounts, such payments could adversely affect our operations and financial condition.

We may also be the target of similar litigation in the future. Any future litigation could result in substantial costs and divert our management’s
attention and resources, which could cause serious harm to our business, operating results and financial condition. We maintain liability insurance,
however, if any costs or expenses associated with this or any other litigation exceed our insurance coverage, we may be forced to bear some or all of these
costs and expenses directly, which could be substantial.

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:

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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;

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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.

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
determine 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 income 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.

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 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 credit facility may be limited by the restrictive financial covenants
contained in the agreement, which require us to maintain profitability.

ITEM 1B.    UNRESOLVED STAFF COMMENTS  

None.

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Table of Contents

ITEM 2.    PROPERTIES 

Our corporate headquarters are located in Bedford, Massachusetts, where we lease approximately 270,000 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. See Footnote 13 to our consolidated financial statements for a description of certain of our legal proceedings.

ITEM 4.    MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

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." As of January 29, 2021, there were approximately

28,199,143 shares of our common stock outstanding held by approximately 167 stockholders of 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

Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.

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ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data are derived from the audited financial statements of the Company, and should be read in
conjunction with our consolidated financial statements, the related notes and "Management’s Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results of future
operations.

January 2,
2021

December 28,
2019

Year Ended
December 29,
2018
(In thousands, except earnings per share amounts)

December 30,
2017

December 31,
2016

Consolidated Statements of Income:
Total revenue
Gross profit
Operating income
Income tax expense
Net income
Net Income Per Share:

Basic
Diluted

Shares Used In Per Share Calculations:

Basic
Diluted

Consolidated Balance Sheet Data:

Cash and cash equivalents
Short term investments
Total assets
Total liabilities
Total stockholders’ equity

$

$
$

$

1,430,390  $
670,229 
146,322 
40,847 
147,068 

1,214,010  $
543,927 
86,618 
13,533 
85,300 

1,092,584  $
555,428 
105,822 
20,630 
87,992 

883,911  $
433,159 
72,690 
25,402 
50,964 

5.23  $
5.14  $

3.04  $
2.97  $

3.18  $
3.07  $

1.85  $
1.77  $

28,101 
28,618 

28,097 
28,735 

27,692 
28,640 

27,611 
28,753 

432,635  $
51,081 
1,189,728 
385,294 
804,434 

239,392  $
17,032 
920,753 
268,684 
652,069 

130,373  $
31,605 
766,961 
231,639 
535,322 

128,635  $
37,225 
691,522 
221,195 
470,327 

660,604 
319,315 
57,557 
19,422 
41,939 

1.51 
1.48 

27,698 
28,292 

214,523 
39,930 
507,912 
118,956 
388,956 

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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 (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, our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue
recognition, our profits, growth of our revenues, composition of our revenues, our cost of revenues, 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, 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. Our consumer robots help people

find smarter ways to clean and accomplish more in their daily lives. iRobot's portfolio of floor cleaning robots features proprietary technologies for the
connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio,
our engineers are building an ecosystem of robots to help realize the smart home’s potential. For more than 30 years, we have been a pioneer and leader in
consumer robotics, robotic floor care and robotic artificial intelligence.

Since our founding in 1990, 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 create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs
and risks associated with product development. These capabilities are amplified by the integration of artificial intelligence, home understanding and
machine vision technologies that further improve cleaning performance and help personalize the cleaning experience, enabling customers to have greater
control over where, when and how our robots clean. We believe that our significant expertise in robot design, engineering, and smart home technologies
and targeted focus on understanding and addressing consumer needs, positions us well to capitalize on the anticipated growth in the market for robot-based
consumer products.

Since the introduction of the Roomba robotic vacuum cleaner ("RVC") in 2002, we have sold more than 30 million consumer robots worldwide to
become a global, market-leading consumer robotics innovator with a strong presence in major geographic regions worldwide. In 2020, iRobot sold more
than $1.4 billion in consumer robots and navigated challenging market conditions as the COVID-19 pandemic directly and indirectly impacted all aspects
of our business. Our commitment to innovation and funding critical research and development projects continued to yield tangible results through new
product launches and new and enhanced features and functionality. In addition to launching the Roomba i3 and i3+ in North America during 2020, we
introduced the iRobot Genius Home Intelligence ("Genius"), a powerful new platform that delivers an expansive range of digital features and experiences
across our entire line of Wi-Fi connected floor cleaning robots. Genius powers the iRobot HOME App, through which Roomba and Braava users can
operate their WiFi-connected floor cleaning robots. Genius delivers a far greater level of personalization and control over their floor cleaning robots, enable
users to determine when, where and how their robots clean. In addition, users can receive suggestions from the HOME app about their cleaning activities
that factors in the user's unique homes, schedules, cleaning preferences and smart home integrations. In addition to these major new product launches, we
introduced the Roomba s9 and s9+ in the Asia Pacific region and the Roomba Combo in select European countries during 2020.

Other 2020 highlights included our efforts to balance cost reductions as the global pandemic began with investments to advance software-based

research and development and support the growth of our direct-to-consumer sales channel.

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Operationally, we managed through substantial changes in anticipated demand to align production across our supply chain with substantially higher orders
over the course of the year while advancing plans to expand our manufacturing capacity and overcome pandemic-related delays in Malaysia. Our
profitability in 2020 benefited from an exclusion to United States tariffs on RVCs made in and imported from China. We also appointed new leaders to
oversee our finance, accounting and IT; supply chain; commercial; and marketing organizations.

Our total revenue for 2020 was $1,430.4 million, which represents a 17.8% increase from revenue of $1,214.0 million for 2019. Domestic revenue

grew $141.0 million, or 23.4%, and international revenue increased by $75.4 million, or 12.3%, primarily as a result of higher sales of our premium robots.

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. The fiscal year ended January 2, 2021 ("fiscal 2020") was a 53-week fiscal year.
The fiscal years ended December 28, 2019 ("fiscal 2019") and December 29, 2018 ("fiscal 2018") were 52-week fiscal years.

Use of Non-GAAP Financial Measures

In addition to our results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we
report non-GAAP financial measures in our quarterly and annual earnings releases, investor presentations and other investor communications. We use these
non-GAAP financial measures to evaluate and analyze our core operating performance, trends and to develop short-term and long-term operational plans.

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. Amortization charges
for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

Tariff Refunds: iRobot was granted a Section 301 List 3 Tariff Exclusion in April 2020, which temporarily eliminates tariffs on the Company’s
products imported from China until December 31, 2020 and entitles the Company to a refund of all related tariffs previously paid since September 2018.
We exclude the refunds for tariff costs expensed during fiscals 2018 and 2019 from our fiscal 2020 non-GAAP measures because those tariff refunds
associated with tariff costs incurred in the past have no impact to our current period 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 that are not reflective of income tax expense incurred as a result
of current period earnings. These certain tax items include, among other non-recurring tax items, impacts from the Tax Cuts and Jobs Act of 2017 and
stock-based compensation windfalls/shortfalls.

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.

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Table of Contents

The following table reconciles gross profit, operating income, net income and net income per share on a GAAP and non-GAAP basis for the fiscal

years ended January 2, 2021, December 28, 2019 and December 29, 2018:

 GAAP Gross Profit
   Amortization of acquired intangible assets
   Stock-based compensation
   Tariff refunds

 Non-GAAP Gross Profit
 Non-GAAP Gross Margin

 GAAP Operating Income
   Amortization of acquired intangible assets
   Stock-based compensation
   Tariff refunds
   Net merger, acquisition and divestiture (income) expense
   IP litigation expense, net
   Restructuring and other

 Non-GAAP Operating Income
 Non-GAAP Operating Margin

 GAAP Net Income
   Amortization of acquired intangible assets
   Stock-based compensation
   Tariff refunds
   Net merger, acquisition and divestiture (income) expense
   IP litigation expense, net
   Restructuring and other
   Gain on strategic investments
   Income tax effect

 Non-GAAP Net Income

 GAAP Net Income Per Diluted Share
   Dilutive effect of non-GAAP adjustments

 Non-GAAP Net Income Per Diluted Share

Critical Accounting Policies and Estimates

January 2, 2021
670,229 
1,920 
1,511 
(36,486)
637,174 

44.5 %

146,322 
2,912 
29,975 
(36,486)
(566)
5,444 
2,073 
149,674 

10.5 %

147,068 
2,912 
29,975 
(36,486)
(1,241)
5,444 
2,073 
(43,817)
12,651 
118,579 

5.14 
(1.00)
4.14 

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Fiscal Year Ended
December 28, 2019
543,927 
11,721 
1,486 
— 
557,134 

45.9 %

86,618 
12,772 
23,744 
— 
466 
2,218 
— 
125,818 

10.4 %

85,300 
12,772 
23,744 
— 
466 
2,218 
— 
(8,904)
(11,576)
104,020 

2.97 
0.65 
3.62 

December 29, 2018
555,428 
18,544 
1,407 
— 
575,379 

52.7 %

105,822 
19,609 
25,804 
— 
138 
3,556 
— 
154,929 

14.2 %

87,992 
19,609 
25,804 
— 
138 
3,556 
— 
(436)
(13,963)
122,700 

3.07 
1.21 
4.28 

$

$

$

$

$

$

$

$

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities, revenue and expenses. These estimates and judgments, include but are not limited to, revenue recognition including
performance obligations, variable consideration and other obligations such as product returns and incentives; allowance for credit losses; product
warranties; valuation of goodwill and acquired intangible assets; valuation of non-marketable equity investments; evaluating loss contingencies; accounting
for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. We base these
estimates and judgments on historical experience, market participant fair value considerations, projected future cash flows and various other factors that we
believe are reasonable under the circumstances. Actual results may differ from our estimates.

We believe that of our significant accounting policies, which are described in the notes to our consolidated financial statements, the following

accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe

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that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of
operations.

Revenue Recognition

We primarily derive our revenue from the sale of consumer robots and accessories. We sell 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, generally as title
and risk of loss pass, in an amount that reflects the consideration we expect to receive in exchange for those products or services. Revenue is recognized
only to the extent 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.

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 single performance obligation, and the revenue is recognized at a point in time when the control is transferred to
distributors, resellers or directly to end customers through online stores. For certain consumer robots with Wi-Fi capability ("connected robots"), each sale
represents an arrangement with multiple promises consisting of the robot, downloadable free app, cloud services and potential future unspecified software
upgrades. We have determined that the app, cloud services and potential future unspecified software upgrades represent one promised service to the
customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services").

For contracts that contain multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative

standalone selling price ("SSP"). We estimate SSP for items that are not sold separately, using market data if available or analysis of the cost of providing
the products or services plus a reasonable margin. The transaction price allocated to the robots is recognized as revenue at a point in time when control is
transferred 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. For contracts with a duration of greater than one year, the transaction price allocated to performance
obligations that are unsatisfied as of January 2, 2021 and December 28, 2019 was $11.5 million and $4.0 million, respectively. We do not disclose the value
of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Our products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. We do not
consider these assurance-type warranties as a separate performance obligation and therefore, we account for such warranties under ASC 460, "Guarantees."
During the fourth quarter of 2020, we began offering our customers the option to purchase an extended warranty for a fee. Amounts paid for the extended
warranty plans are deferred and recognized as revenue on a straight-line basis over the service period.

We provide limited rights of returns for direct-to-consumer sales generated through our on-line stores and certain resellers and distributors. We record

an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience 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 trends and forecasted inventory level in the channels. Overall, these reserves reflect our best
estimates, and the actual amounts of consideration ultimately received may differ from our estimates. Returns and credits are estimated at contract
inception and updated at the end of each reporting period as additional information becomes available. As of January 2, 2021, we had reserves for product
returns of $64.3 million and other credits and incentives of $142.2 million. As of December 28, 2019, we had reserves for product returns of $55.2 million
and other credits and incentives of $134.0 million. Revenue recognized during the years ended January 2, 2021 and December 28, 2019 related to
performance obligations satisfied in a prior period was not material.

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Credit Losses

We are exposed to credit losses primarily through sales of our products. We assess each customer's ability to pay by conducting a credit review which

includes consideration of established credit ratings or an internal assessment of the customer's creditworthiness based on an analysis of their financial
information when a credit rating is not available. We monitor the credit exposure through active review of customer balances. Our expected loss
methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current
customer credit ratings, current and future economic and market conditions and age of the receivable. Although we historically have not experienced
significant credit losses as it relates to trade accounts receivable, the COVID-19 pandemic has caused uncertainty in some customer accounts. We recorded
our estimate of credit losses, resulting in an increase to the reserve and bad debt expense, of $3.6 million during the fiscal year ended January 2, 2021. As
of January 2, 2021 and December 28, 2019, we had an allowance for credit losses of $4.8 million and $1.2 million, respectively.

Our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with
local or global economic recessions or other customer-specific factors. It is possible that there could be a material adverse impact to the carrying amount of
accounts receivables if the liquidity of retailers, resellers and distributors continues to be impacted by disruptions related to the COVID-19 pandemic.

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 annually during our fourth quarter of each fiscal year 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. 

Other long-lived assets primarily consist of property and equipment, operating lease right-of-use assets and intangible assets. We periodically
evaluate 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 2020, 2019 and 2018.

Warranty

We generally provide a one-year warranty on all of our products except in countries where a two-year warranty is required against defects in
materials and workmanship. Our standard warranty provides for repair or replacement of the associated products during the warranty period. We record
estimated warranty costs in the period the related revenue is recognized based on historical experience, expectations of future costs to repair or replace, and
knowledge of specific product failures outside our historical experience. Actual results could differ from these estimates, which could cause increases or
decreases to the warranty reserves in future periods.

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 for 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 on a straight-line basis, over the requisite service
period. We account for forfeitures as they occur, rather than applying an estimated forfeiture rate.

Accounting for 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

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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. We regularly review 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 2, 2021, December 28,
2019 and December 29, 2018, we had a valuation allowance of $7.6 million, $3.8 million and $1.1 million, respectively, for certain deferred tax assets for
which we believe do not meet the "more likely than not" criteria for recognition.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize

interest and penalties, if any, related to unrecognized tax benefits in the income tax provision.

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Table of Contents

Overview of Results of Operations

The following table sets forth our results of operations for the periods shown (in thousands):

Revenue
Cost of revenue:
Cost of product revenue
Amortization of acquired intangible assets

Total cost of revenue

Gross profit
Operating expenses:

Research and development
Selling and marketing
General and administrative
Amortization of acquired intangible assets

Total operating expenses

Operating income
Other income, net
Income before income taxes
Income tax expense
Net income

January 2,
2021
1,430,390  $

$

Fiscal Year Ended
December 28,
2019
1,214,010  $

December 29,
2018
1,092,584 

758,241 
1,920 
760,161 
670,229 

156,670 
265,475 
100,770 
992 
523,907 
146,322 
41,593 
187,915 
40,847 
147,068  $

658,362 
11,721 
670,083 
543,927 

141,607 
231,548 
83,103 
1,051 
457,309 
86,618 
12,215 
98,833 
13,533 
85,300  $

518,612 
18,544 
537,156 
555,428 

140,629 
210,411 
97,501 
1,065 
449,606 
105,822 
2,800 
108,622 
20,630 
87,992 

$

The following table sets forth our results of operations as a percentage of revenue for the periods shown:

Revenue
Cost of revenue:
Cost of product revenue
Amortization of acquired intangible assets

Total cost of revenue

Gross margin
Operating expenses:

Research and development
Selling and marketing
General and administrative
Amortization of acquired intangible assets

Total operating expenses

Operating income
Other income, net
Income before income taxes
Income tax expense
Net income

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

100.0 %

100.0 %

100.0 %

53.0 
0.1 
53.1 
46.9 

11.0 
18.6 
7.0 
0.1 
36.7 
10.2 
3.0 
13.2 
2.9 
10.3 %

54.2 
1.0 
55.2 
44.8 

11.7 
19.1 
6.8 
0.1 
37.7 
7.1 
1.0 
8.1 
1.1 
7.0 %

47.5 
1.7 
49.2 
50.8 

12.9 
19.3 
8.9 
0.1 
41.2 
9.6 
0.3 
9.9 
1.9 
8.0 %

33

 
 
 
 
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Comparison of Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

Revenue

We primarily derive our revenue from product sales through a variety of distribution channels, including chain stores and other national retailers,
through our own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers
worldwide. We recognize revenue upon transfer of control of promised products or services to customers, generally as title and risk of loss pass, in an
amount that reflects total consideration, net of estimated returns and allowances.

The following table shows revenue for fiscal years 2020, 2019 and 2018 (dollars in thousands):

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

Revenue

$

1,430,390  $

1,214,010  $

1,092,584  $

216,380  $

121,426 

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 2020 as compared to fiscal 2019. Units shipped increased to
approximately 5.5 million units compared to approximately 5.0 million units in fiscal 2019. In fiscal 2020, domestic revenue increased $141.0 million, or
23.4%, while international revenue increased $75.4 million, or 12.3%, as compared to fiscal 2019. The international revenue growth was driven by
increases in revenue from Japan and EMEA of 20% and 8%, respectively, compared to 2019.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Revenue increased 11.1% to $1,214.0 million in fiscal 2019 from $1,092.6 million in fiscal 2018. The $121.4 million increase in revenue was driven

by an increase in average selling price of 5.4%. The increase in average selling price was primarily driven by the launch of our new products during the
second half of fiscal 2018 and throughout 2019. Total robots shipped in fiscal 2019 increased 10.0% to approximately 5.0 million units compared to
approximately 4.5 million units in fiscal 2018. In fiscal 2019, domestic revenue increased $42.6 million, or 7.6%, and international revenue increased
$78.8 million, or 14.8%, compared to fiscal 2018. The international revenue growth was driven primarily by increases in revenue from Japan and EMEA of
21% and 15%, respectively, compared to fiscal 2018.

Cost of Product Revenue

Cost of product revenue consists of product cost, including costs of our contract manufacturers for production, freight, import duties, tariffs, logistics

and fulfillment costs, manufacturing and tooling equipment depreciation and warranty cost. We outsource the manufacture of our products to contract
manufacturers in Southern China and added manufacturing capacity in Malaysia during November 2019. While labor costs in these 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. In
addition, because our purchase contract with our contract manufacturers in China and Malaysia are typically denominated in U.S. dollars, changes in
currency exchange rates may impact our suppliers and increase our prices.

The following table shows cost of product revenue for fiscal years 2020, 2019 and 2018 (dollars in thousands):

Cost of product revenue
As a percentage of revenue

$

758,241 

$

658,362 

$

518,612 

$

53.0 %

54.2 %

47.5 %

Year ended January 2, 2021 as compared to the year ended December 28, 2019

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019 vs.
2018
139,750 

99,879  $

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 17.8% increase in revenue, as well as increases in warranty and rework costs, offset 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

34

 
 
 
 
 
 
 
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Trade Representative, which temporarily eliminated the 25% tariff on Roomba products imported from China until December 31, 2020.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Cost of product revenue increased $139.8 million, or 26.9%, to $658.4 million in fiscal 2019, compared to $518.6 million in fiscal 2018. The
increase is primarily due to the 11.1% increase in revenue and higher tariffs on our Roomba products imported into the United States from China. Effective
September 24, 2018, tariffs on our Roomba products were set at 10%, and effective May 10, 2019, tariffs further increased to 25%.

Gross Profit

Our gross profit as a percentage of revenue, referred to as our gross margin, varies according to the mix of products sold, total sales volume, the level

of promotional activities, and levels of other product costs such as warranty, scrap, rework and overhead.

The following table shows gross profit for fiscal years 2020, 2019 and 2018 (dollars in thousands):

Gross profit
Gross margin

$

670,229 

$

543,927 

$

555,428 

$

46.9 %

44.8 %

50.8 %

Year ended January 2, 2021 as compared to the year ended December 28, 2019

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019 vs.
2018
(11,501)

126,302  $

    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
benefit to cost of product revenue, partially offset by impact of price reductions and promotional activity during fiscal 2020 compared to fiscal 2019.

We have not been granted an extension of our tariff exclusion past December 31, 2020 and therefore a 25% tariff on Roombas imported from China
was reinstated at the beginning in fiscal 2021. We expect tariff reinstatement to negatively impact our gross profit. To diversify our supply chain and help
offset the adverse financial impact on our business of the tariff, we plan to substantially increase our production in Malaysia by qualifying additional
contract manufacturers and add new lines by the end of 2021.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Gross profit decreased $11.5 million, or 2.1%, to $543.9 million (44.8% of revenue) in fiscal 2019 from $555.4 million (50.8% of revenue) in fiscal

2018. The decrease in gross margin was primarily related to increased promotional activity and pricing reductions for certain products as well as the
increased tariffs on our Roomba products imported to the United States from China.

Research and Development

Research and development expenses consist primarily of:

•

•

•

•

salaries and related costs for our engineers;

costs for research and development contractors and consultants;

costs of components and test equipment used for product and prototype 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 capabilities including
the introduction of iRobot Genius Home Intelligence, our powerful robot platform that unlocks an expansive range of digital features and experiences to
our customers. We expect to continue to expand these capabilities in the future. We are committed to consistently maintaining the 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 2021 research and development expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue.

35

 
 
 
 
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The following table shows research and development costs for fiscal years 2020, 2019 and 2018 (dollars in thousands):

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

Research and development
As a percentage of revenue

$

156,670 

$

141,607 

$

140,629 

$

15,063  $

978 

11.0 %

11.7 %

12.9 %

Year ended January 2, 2021 as compared to the year ended December 28, 2019

    Research and development expenses increased $15.1 million, or 10.6%, to $156.7 million (11.0% of revenue) in fiscal 2020 from $141.6 million (11.7%
of revenue) in fiscal 2019. This increase is primarily due to an $8.7 million increase in people-related costs, mostly attributable to higher short-term
incentive compensation costs, as well as higher program-related costs of $4.3 million during fiscal 2020.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Research and development expenses increased $1.0 million, or 0.7%, to $141.6 million (11.7% of revenue) in fiscal 2019 from $140.6 million
(12.9% of revenue) in fiscal 2018. This increase is primarily due to an increase in people-related costs of $8.3 million resulting from increased headcount,
partially offset by lower program-related costs of $7.4 million and other efforts to control costs during fiscal 2019.

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;

customer service costs; and

travel and related costs.

We anticipate that in 2021, 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 and support continued growth of our direct-to-consumer channel as well
as continue to build awareness of our products.

The following table shows selling and marketing costs for fiscal years 2020, 2019 and 2018 (dollars in thousands):

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

Selling and marketing
As a percentage of revenue

$

265,475 

$

231,548 

$

210,411 

$

33,927  $

21,137 

18.6 %

19.1 %

19.3 %

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 an increase in marketing investments of $30.7 million primarily related to
advertising campaigns in all regions during the holiday season and marketing activities to build our direct-to-consumer sales channel, as well as higher
people-related costs of $2.9 million mainly driven by short-term incentive compensation.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Selling and marketing expenses increased by $21.1 million, or 10.0%, to $231.5 million (19.1% of revenue) in fiscal 2019 from $210.4 million
(19.3% of revenue) in fiscal 2018. This increase is primarily attributable to an increase in marketing investments of $13.7 million to support our new
product launches and certain promotional and advertising campaigns in all regions as well as higher people-related costs of $6.0 million. These increases
were partially offset by lower incentive compensation and efforts to control overall sales and marketing costs.

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

36

 
 
 
 
 
 
 
 
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•

occupancy and other overhead costs.

The following table shows general and administrative costs for fiscal years 2020, 2019 and 2018 (dollars in thousands):

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

General and administrative
As a percentage of revenue

$

100,770 

$

83,103 

$

97,501 

$

7.0 %

6.8 %

8.9 %

Year ended January 2, 2021 as compared to the year ended December 28, 2019

$ Change 2019 vs.
2018
(14,398)

17,667  $

General and administrative expenses increased by $17.7 million, or 21.3%, to $100.8 million (7.0% of revenue) in fiscal 2020 from $83.1 million
(6.8% of revenue) in fiscal 2019. This increase is primarily attributable to higher short-term incentive compensation and performance-based stock-based
compensation of $11.6 million, an increase of $4.8 million in legal fees driven by higher intellectual property litigation costs, and a $2.6 million increase in
the allowance for credit losses associated with the uncertainty of collection from certain customer accounts resulting from the pandemic.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

General and administrative expenses decreased by $14.4 million, or 14.8%, to $83.1 million (6.8% of revenue) in fiscal 2019 from $97.5 million
(8.9% of revenue) in fiscal 2018. This decrease is primarily attributable to lower short-term and long-term incentive compensation costs of $8.2 million and
a decrease in legal costs of $4.1 million after favorable determination of a previously-disclosed intellectual property litigation suit in the fourth quarter of
2018.

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. 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.

The following table shows total amortization expense for fiscal years 2020, 2019 and 2018 (dollars in thousands):

Cost of revenue
Operating expense
Total amortization expense
As a percentage of revenue

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

$

$

1,920 
992 
2,912 

0.2 %

$

$

11,721 
1,051 
12,772 

1.1 %

$

$

18,544 
1,065 
19,609 

1.8 %

$

$

(9,801) $
(59)
(9,860) $

(6,823)
(14)
(6,837)

The decreases in amortization of acquired intangible assets during fiscal 2020 and fiscal 2019 were primarily related to the reacquired distribution

rights intangible assets which were fully amortized in the fourth quarter of 2019.

Other Income, 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 2020, 2019 and 2018 (dollars in thousands):

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

Other income, net
As a percentage of revenue

$

41,593 

$

12,215 

$

2,800 

$

29,378  $

9,415 

3.0 %

1.0 %

0.3 %

Other income, net, amounted to $41.6 million, $12.2 million and $2.8 million for fiscal 2020, 2019 and 2018, respectively. During fiscal 2020, other

income, net, includes the gains of $38.6 million associated with our InTouch Health investment when Teladoc Health, Inc., or Teladoc, acquired InTouch
Health and exchanged our shares of
InTouch Health for shares of Teladoc during the third quarter of 2020. During fiscal 2019, other income, net, included an $8.4 million gain on sale of an
equity investment.

37

 
 
 
 
 
 
 
 
 
 
 
 
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Income Tax Provision

The following table shows income tax provision for fiscal years 2020, 2019 and 2018 (dollars in thousands):

Income tax provision
As a percentage of pre-tax income

$

40,847 

$

21.7 %

13,533 

$

13.7 %

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$ Change 2020
vs. 2019

$ Change 2019
vs. 2018

20,630 

$

27,314  $

(7,097)

19.0 %

Year ended January 2, 2021 as compared to the year ended December 28, 2019

We recorded an income tax provision of $40.8 million and $13.5 million for fiscal 2020 and fiscal 2019, respectively. The $40.8 million provision for
fiscal 2020 resulted in an effective income tax rate of 21.7%. The $13.5 million provision for fiscal 2019 resulted in an effective income tax rate of 13.7%.

Our effective income tax rate of 21.7% for fiscal 2020 differed from the federal statutory tax rate of 21% primarily due to the recognition of state

income taxes and valuation allowances offset by tax benefits related to research and development tax credits and the deduction for Foreign Derived
Intangible Income. The increase in the effective income tax rate of 21.7% for fiscal 2020 as compared to 13.7% for fiscal 2019 is primarily due to a discrete
tax benefit associated with stock-based compensation in 2019.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

We recorded an income tax provision of $13.5 million and $20.6 million for fiscal 2019 and fiscal 2018, respectively. The $13.5 million provision for
fiscal 2019 resulted in an effective income tax rate of 13.7%. The $20.6 million provision for fiscal 2018 resulted in an effective income tax rate of 19.0%.

Our effective income tax rate of 13.7% for fiscal 2019 differed from the federal statutory tax rate of 21% primarily due to the recognition of tax
benefits related to stock-based compensation. The decrease in the effective income tax rate of 13.7% for fiscal 2019 as compared to 19.0% for fiscal 2018
is primarily due to a discrete tax charge associated with a restructuring of the EMEA business and impacts from the remeasurement of certain deferred tax
charges in fiscal 2018.

Liquidity and Capital Resources

At January 2, 2021, our principal sources of liquidity were cash and cash equivalents totaling $432.6 million and short-term investments of $51.1

million. Our working capital, which represents our total current assets less total current liabilities, was $573.7 million as of January 2, 2021, compared to
$391.7 million as of December 28, 2019.

We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe 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, although we invest periodically in upgrading these facilities, a portion of which investment will
be reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to machinery and tooling, leasehold improvements,
business applications software and computer and equipment. In the fiscal years ended January 2, 2021 and December 28, 2019, we spent $31.6 million and
$35.3 million, respectively, on capital expenditures.

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 our customers and, alternatively, allows our distributors and certain retail customers to
take possession of product on a domestic basis. Accordingly, our 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.

On April 24, 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative. This exclusion,
as extended in August 2020, temporarily eliminated the 25% tariff on Roomba products imported from China until December 31, 2020 and entitled us to a
refund of approximately $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed. In the fiscal year ended January 2, 2021, we
recognized $36.5 million of refunds for tariffs paid in 2018 and 2019 as a benefit to cost of product revenue. As of January 2, 2021, we have received
$47.1 million in cash associated with our tariff refunds from the U.S. government. While tariff refund claims are subject to the approval of U.S. Customs,
we currently expect to receive the remaining refunds of $9.9 million within the next nine months.

38

 
 
 
 
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Cash provided by operating activities

Year ended January 2, 2021 as compared to the year ended December 28, 2019

Net cash provided by our operations for the fiscal year ended January 2, 2021 was $232.0 million, of which the principal components were our net

income of $147.1 million, non-cash charges of $41.2 million and changes in working capital of $43.8 million. The changes in working capital include
increases in accounts payable and accrued liabilities of $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.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Net cash provided by our operations for the fiscal year ended December 28, 2019 was $130.1 million, of which the principal components were our
net income of $85.3 million and non-cash charges of $48.6 million, partially offset by changes in working capital. The changes in working capital include
decreases in accounts receivable of $13.1 million and inventory of $7.3 million, partially offset by a decrease in accounts payable and accrued liabilities of
$20.9 million.

Cash used in investing activities

Year ended January 2, 2021 as compared to the year ended December 28, 2019

Net cash used in investing activities for the fiscal year ended January 2, 2021 was $22.2 million. During the year ended January 2, 2021, we invested

$31.6 million in the purchase of property and equipment, including machinery
and tooling for new products and manufacturing expansion in Malaysia. In addition, we made strategic investments of $4.2 million while proceeds from the
sales and maturities of marketable securities amounted to $13.5 million.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Net cash used in investing activities for the fiscal year ended December 28, 2019 was $20.9 million. During the year ended December 28, 2019, we

invested $35.3 million in the purchase of property and equipment, including machinery and tooling for new products as well as expansion to a new
manufacturing facility in Malaysia. In addition, we made strategic investments of $5.4 million and paid $2.8 million for a business acquisition. This was
partially offset by proceeds of $12.9 million we received from the sales and maturities of marketable securities and $9.8 million upon the sale of an equity
investment.

Cash used in financing activities

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 of our common stock for $25.0 million under our stock repurchase program in March
2020.

Year ended December 28, 2019 as compared to the year ended December 29, 2018

Net cash used in investing activities for the fiscal year ended December 28, 2019 was $0.1 million. During the year ended December 28, 2019, we
received $7.1 million from employee stock plans and paid $7.3 million upon vesting of restricted stock where 59,260 shares were retained by us to cover
employee tax withholdings.

Working Capital Facility

Credit Facility

In June 2018, we entered into a new agreement with Bank of America, N.A., increasing 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 2, 2021, 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. 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%. In the event that LIBOR is discontinued as expected in 2021, we expect the interest rates for our debt
following such event will be based on either alternate base rates or agreed upon replacement rates. While we do not expect a LIBOR discontinuation would
affect our ability to borrow or maintain already outstanding borrowings, it 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

39

Table of Contents

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.

The 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 January 2, 2021, we were in compliance with all covenants under the revolving credit facility.

Lines of Credit

We have an unsecured letter of credit 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 2, 2021, we had letters of credit outstanding of $0.7 million under our letter of credit facility and other lines of credit with Bank
of America, N.A.

We have an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount

of 220.0 million Japanese Yen. As of January 2, 2021, we had no outstanding balance under the guarantee line of 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. We believe 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, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure
needs over at least the next twelve months. In the event 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, the continuing market acceptance
of our products and services, and the impact of COVID-19 on our business. Moreover, to the extent 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 credit facility, leases for

office space and minimum contractual obligations. Other obligations consist primarily of subscription services. The following table describes our
commitments to settle contractual obligations in cash as of January 2, 2021 (in thousands):

Operating leases
Minimum contractual payments
Other obligations
Total

Less Than
1 Year

1 to 3
Years

Payments Due by Period
3 to 5
Years

More Than
5 Years

$

$

8,226  $

10,792 
12,666 
31,684  $

16,280  $
22,013 
14,711 
53,004  $

13,202  $
18,917 
13,054 
45,173  $

28,539  $
— 
— 
28,539  $

Total

66,247 
51,722 
40,431 
158,400 

At January 2, 2021, we had outstanding purchase orders aggregating approximately $341.9 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 cancellable 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 January 2, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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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 British Pounds, Canadian Dollars, Chinese Renminbi,
Euros and 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 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 contracts, 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 sales in Euros and Japanese Yen. These contracts typically have maturities of three years or less. At January 2, 2021 and December 28, 2019,
we had outstanding cash flow hedges with a total notional value of $431.9 million and $424.6 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 twelve months or less.
At January 2, 2021 and December 28, 2019, we had outstanding economic hedges with a total notional value of $192.2 million and $116.5 million,
respectively.

At January 2, 2021, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of our

foreign currency contracts would increase or decrease by approximately $49.9 million.

Interest Rate Sensitivity

At January 2, 2021, we had unrestricted cash and cash equivalents of $432.6 million and short term investments of $51.1 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 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 intend to maintain our portfolio of cash equivalents in a variety of securities, commercial
paper, money market funds, debt securities and certificates of deposit. Due to the short-term nature of these investments, we believe 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 January 2, 2021, all of our cash and
cash equivalents were held in demand deposits and money market funds.

41

 
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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

iROBOT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at January 2, 2021 and December 28, 2019
Consolidated Statements of Income for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018
Consolidated Statements of Comprehensive Income for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018
Consolidated Statements of Stockholders’ Equity for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018
Consolidated Statements of Cash Flows for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018
Notes to Consolidated Financial Statements

Page

44
46
47
47
49
50
51

42

 
Table of Contents

To the Board of Directors and Stockholders of iRobot Corporation

Report of Independent Registered Public Accounting Firm

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 January 2, 2021 and
December 28, 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three
years in the period ended January 2, 2021, including the related notes (collectively referred to as the "consolidated financial statements"). We also have
audited the Company's internal control over financial reporting as of January 2, 2021, 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
January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021
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 January 2, 2021, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

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’s Report on Internal Control Over 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) 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.

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

43

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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 2, 2021, the
Company had reserves for product returns of $64.3 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, 2021

We have served as the Company’s auditor since 1999.

44

iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

ASSETS

January 2,
2021

December 28,
2019

Table of Contents

Current assets:

Cash and cash equivalents
Short term investments
Accounts receivable, net
Inventory
Other current assets

Total current assets

Property and equipment, net
Operating lease right-of-use assets
Deferred tax assets
Goodwill
Intangible assets, net
Other assets

Total assets

Current liabilities:

Accounts payable
Accrued expenses
Deferred revenue and customer advances

Total current liabilities
Operating lease liabilities
Deferred tax liabilities
Other long-term liabilities

Total long-term liabilities
Total liabilities

LIABILITIES AND STOCKHOLDERS’ EQUITY

Commitments and contingencies (Note 13)
Preferred stock, 5,000 shares authorized and none outstanding
Common stock, $0.01 par value; 100,000 shares authorized; 28,184 and 28,352 shares issued and outstanding,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income

Total stockholders’ equity
Total liabilities and stockholders’ equity

See accompanying Notes to Consolidated Financial Statements

45

$

$

$

$

432,635  $
51,081 
170,526 
181,756 
45,223 
881,221 
76,584 
43,682 
33,404 
125,872 
9,902 
19,063 
1,189,728  $

165,779  $
131,388 
10,400 
307,567 
50,485 
705 
26,537 
77,727 
385,294 

— 

282 
205,256 
599,389 
(493)
804,434 
1,189,728  $

239,392 
17,032 
146,161 
157,347 
34,285 
594,217 
75,988 
47,478 
41,791 
118,732 
12,352 
30,195 
920,753 

116,185 
81,768 
4,549 
202,502 
54,928 
912 
10,342 
66,182 
268,684 

— 

284 
196,455 
452,321 
3,009 
652,069 
920,753 

 
Table of Contents

Revenue
Cost of revenue:
Cost of product revenue
Amortization of acquired intangible assets

Total cost of revenue

Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Amortization of acquired intangible assets

Total operating expenses

Operating income
Other income, net
Income before income taxes
Income tax expense
Net income

Net income per share:

Basic
Diluted

Number of shares used in per share calculations:

Basic
Diluted

iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

January 2,
2021
1,430,390  $

$

Fiscal Year Ended
December 28,
2019
1,214,010  $

December 29,
2018
1,092,584 

758,241 
1,920 
760,161 
670,229 

156,670 
265,475 
100,770 
992 
523,907 
146,322 
41,593 
187,915 
40,847 
147,068  $

5.23  $
5.14  $

28,101 
28,618 

658,362 
11,721 
670,083 
543,927 

141,607 
231,548 
83,103 
1,051 
457,309 
86,618 
12,215 
98,833 
13,533 
85,300  $

3.04  $
2.97  $

28,097 
28,735 

518,612 
18,544 
537,156 
555,428 

140,629 
210,411 
97,501 
1,065 
449,606 
105,822 
2,800 
108,622 
20,630 
87,992 

3.18 
3.07 

27,692 
28,640 

$

$
$

See accompanying Notes to Consolidated Financial Statements

46

 
 
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iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Net income

Other comprehensive income:

Net foreign currency translation adjustments
Net unrealized (losses) gains on cash flow hedges, net of tax
Net gains on cash flow hedge reclassified into earnings, net of tax
Net unrealized (losses) gains on marketable securities, net of tax

Total comprehensive income

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

147,068  $

85,300  $

87,992 

14,045 
(13,932)
(3,587)
(28)
143,566  $

(3,435)
12,363 
(1,418)
247 
93,057  $

(5,896)
(327)
(499)
(18)
81,252 

$

See accompanying Notes to Consolidated Financial Statements

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iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

Balance at December 30, 2017
Issuance of common stock under employee stock plans
Vesting of restricted stock units
Stock-based compensation
Stock withheld to cover tax withholdings requirements upon restricted
stock vesting
Other comprehensive loss
Directors' deferred compensation
Cumulative effect of a change in accounting principle related to adoption
of ASC 606
Stock repurchases
Net income
Balance at December 29, 2018
Issuance of common stock under employee stock plans
Vesting of restricted stock units
Stock-based compensation
Stock withheld to cover tax withholdings requirements upon restricted
stock vesting
Other comprehensive income
Directors' deferred compensation
Net income
Balance at December 28, 2019
Issuance of common stock under employee stock plans
Vesting of restricted stock units
Stock-based compensation
Stock withheld to cover tax withholdings requirements upon restricted
stock vesting
Other comprehensive loss
Directors' deferred compensation
Stock repurchases
Net income
Balance at January 2, 2021

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Stockholders’
Equity

Common Stock

Shares

Value

$

27,945 
285 
408 

$

279 
3 
4 

Additional
Paid-In
Capital

190,067 
10,363 
(4)
25,804 

(51)

— 

(3,532)

(799)

$

27,788 
187 
436 

(8)

278 
2 
5 

$

65 

(49,992)

172,771 
7,145 
(5)
23,744 

(59)

(1)

(7,276)

$

28,352 
151 
391 

$

284 
1 
4 

(46)

(664)

— 

(7)

76 

196,455 
5,583 
(4)
29,975 

(1,845)

85 
(24,993)

$

277,989 

$

1,992 

$

1,040 

87,992 
367,021 

$

85,300 
452,321 

$

$

$

(6,740)

(4,748)

$

7,757 

3,009 

$

(3,502)

28,184 

$

282 

$

205,256 

$

147,068 
599,389 

$

(493)

$

470,327 
10,366 
— 
25,804 

(3,532)
(6,740)
65 

1,040 
(50,000)
87,992 
535,322 
7,147 
— 
23,744 

(7,277)
7,757 
76 
85,300 
652,069 
5,584 
— 
29,975 

(1,845)
(3,502)
85 
(25,000)
147,068 
804,434 

See accompanying Notes to Consolidated Financial Statements

48

 
 
Table of Contents

iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities, net of the effects of acquisition:
Depreciation and amortization
Gain on equity investment
Stock-based compensation
Deferred income taxes, net
Other
Changes in operating assets and liabilities — (use) source

Accounts receivable
Inventory
Other assets
Accounts payable
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions of property and equipment
Change in other assets
Proceeds from sale of equity investments
Cash paid for business acquisition, net of cash acquired
Purchases of investments
Sales and maturities of investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from employee stock plans
Income tax withholding payment associated with restricted stock vesting
Stock repurchases
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, at beginning of period
Cash and cash equivalents, at end of period

Supplemental disclosure of cash flow information
Cash paid for income taxes

$

147,068 

$

85,300 

$

34,762 
(43,817)
29,975 
13,837 
6,467 

(21,893)
(24,535)
(15,804)
48,699 
57,289 
232,048 

(31,599)
(4,150)
— 
— 
— 
13,500 
(22,249)

5,584 
(1,845)
(25,000)
(21,261)
4,705 
193,243 
239,392 
432,635 

19,929 

$

$

37,159 
(8,439)
23,744 
(11,118)
7,267 

13,064 
7,307 
(3,310)
(20,536)
(386)
130,052 

(35,337)
(5,436)
9,787 
(2,817)
— 
12,880 
(20,923)

7,147 
(7,277)
— 
(130)
20 
109,019 
130,373 
239,392 

22,582 

$

$

$

$

87,992 

36,574 
— 
25,804 
(10,848)
1,837 

(23,920)
(58,546)
(8,533)
22,470 
(1,145)
71,685 

(32,422)
(2,363)
856 
— 
(6,438)
14,000 
(26,367)

10,366 
(3,532)
(50,000)
(43,166)
(414)
1,738 
128,635 
130,373 

39,517 

See accompanying Notes to Consolidated Financial Statements

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Table of Contents

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Nature of the Business

iRobot Corporation ("iRobot" or the "Company") designs and builds robots that empower people to do more. iRobot's consumer robots help people
find smarter ways to clean and accomplish more in their daily lives. The Company's portfolio of floor cleaning robots features proprietary technologies for
the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio,
our engineers are building an ecosystem of robots to help realize the smart home's potential. The Company’s revenue is primarily generated from product
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. iRobot has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America ("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.

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. The fiscal year ended January 2, 2021 ("fiscal 2020") was a
53-week fiscal year. The fiscal years ended December 28, 2019 ("fiscal 2019") and December 29, 2018 ("fiscal 2018") were 52-week fiscal years.

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 and revenue and expenses. These estimates and judgments, include but are not limited to, revenue recognition,
including performance obligations, variable consideration and other obligations such as product returns and incentives; allowance for credit losses; product
warranties; valuation of goodwill and acquired intangible assets; valuation of non-marketable equity investments; evaluating loss contingencies; accounting
for stock-based compensation including performance-based assessments; 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.

As of January 2, 2021, the impact of the COVID-19 pandemic remains dynamic and the nature and extent of its full impact will depend on several

factors, including but not limited to, the duration and severity of the pandemic, advances in treatment and prevention, as well as the macroeconomic impact
resulting from global responses to slow the spread. As a result, certain of our estimates and assumptions, including the allowance for credit losses and the
valuation of non-marketable equity securities, including our impairment assessment, require increased judgment and carry a higher degree of variability
and volatility that could result in material changes to our estimates in future periods.

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 in money market funds or demand deposit accounts of major financial institutions. Accordingly, its cash and
cash equivalents are subject to minimal credit and market risk. At January 2, 2021 and December 28, 2019, cash and cash equivalents totaled $432.6
million and $239.4 million, respectively. These cash and cash equivalents are carried at cost, which approximates fair value.

50

 
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Short Term Investments

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

iROBOT CORPORATION

The Company's short term investments include debt securities and marketable equity securities with readily determinable fair value. The Company’s

investments in debt securities 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 change in fair value of the Company's investments in marketable equity securities is recognized as unrealized gains and losses in
other income, net at the end of each reporting period. The fair value of investments is determined based on quoted market prices at the reporting date for
those instruments. Investments consisted of the following (in thousands):

Corporate and government bonds
Marketable equity securities

Total short term investments

January 2,
2021

December 28,
2019

Cost

Fair
Market Value

Cost

Fair
Market Value

$

$

3,498  $

46,578 
50,076  $

3,505  $

47,576 
51,081  $

17,016  $
— 
17,016  $

17,032 
— 
17,032 

    As of January 2, 2021, the Company’s bond investment had a maturity date of March 2021. The Company invests primarily in investment grade

securities and limits the amount of investment in any single issuer.

Credit Losses

The Company is exposed to credit losses primarily through sales of its products. The Company assesses each customer's ability to pay by conducting
a credit review which includes consideration of established credit ratings or an internal assessment of the customer's creditworthiness based on an analysis
of their financial information when a credit rating is not available. The Company monitors the credit exposure through active review of customer balances.
The Company's expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical
collection experience, current customer credit ratings, current and future economic and market conditions and age of the receivable. Although the Company
historically has not experienced significant credit losses as it relates to trade accounts receivable, the COVID-19 pandemic has caused uncertainty in some
customer accounts. The Company recorded its estimate of credit losses, resulting in an increase to the reserve and bad debt expense, of $3.6 million during
the fiscal year ended January 2, 2021. As of January 2, 2021 and December 28, 2019, the Company had an allowance for credit losses of $4.8 million and
$1.2 million, respectively.

The  Company's  exposure  to  credit  losses  may  increase  if  its  customers  are  adversely  affected  by  changes  in  economic  pressures  or  uncertainty
associated with local or global economic recessions or other customer-specific factors. It is possible that there could be a material adverse impact to the
carrying amount of accounts receivables if the liquidity of retailers, resellers and distributors continues to be impacted by disruptions related to the COVID-
19 pandemic.

Accounts receivable allowances

Allowance for product returns: 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.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

iROBOT CORPORATION

Activity related to accounts receivable allowances was as follows (in thousands):

Allowance for product returns
Balance at beginning of period
Provision
Deduction

Balance at end of period

Allowance for other credits and incentives
Balance at beginning of period
Adjustment related to adoption of ASC 606
Provision
Deduction

Balance at end of period

Inventory

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$

$

$

55,191  $
68,028 
(58,876)
64,343  $

53,920  $
69,488 
(68,217)
55,191  $

134,046  $
— 
285,139 
(277,012)
142,173  $

97,737  $
— 
284,084 
(247,775)
134,046  $

42,693 
67,391 
(56,164)
53,920 

61,359 
1,192 
196,858 
(161,672)
97,737 

Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out method. The Company writes

down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand.
Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the periods presented. Inventory
primarily consists of finished goods at January 2, 2021 and December 28, 2019.

Tariff Refunds

On April 24, 2020, the Company was 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 December 31, 2020 and
entitled the Company to a refund of approximately $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed. The Section 301
tariffs from which these products were excluded were implemented at 10% beginning in September 2018 and increased to 25% in June 2019. As a result,
the Company recognized approximately $36.5 million of refunds for tariffs expensed in 2018 and 2019 as operating income (reduction to cost of product
revenue) during the fiscal year ended January 2, 2021. As of January 2, 2021, the Company had received $47.1 million of the tariff refund and the
outstanding refund receivable was approximately $9.9 million which is recorded in other current assets on the consolidated balance sheet. While tariff
refund claims are subject to the approval of U.S. Customs, the Company currently expects to recover the entire remaining balance of $9.9 million within
the next nine months.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives as follows:

Computer and equipment
Furniture and fixtures
Machinery and tooling
Business applications software
Leasehold improvements

Estimated Useful Life

2-5 years
5 
2-5
3-7
Lesser of economic benefit period or term of lease

Expenditures for additions 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 recognized.

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iROBOT CORPORATION

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 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. 

Other long-lived assets primarily consist of property and equipment, operating lease right-of-use assets and intangible 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 2020, 2019 and 2018.

Strategic 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. 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 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. At January 2, 2021 and December 28,
2019, the Company's equity securities without readily determinable fair values totaled $17.4 million and $21.0 million, respectively, and are included in
other assets on the consolidated balance sheets.

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 are subject to time based contractual sales
restrictions which expire in January 2021. These shares are 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 fluctuations during the restricted period. During the fiscal year ended January 2, 2021, the Company
recorded a net gain of $4.9 million from the remeasurements of Teladoc shares and related hedge. As of January 2, 2021, the shares in Teladoc were valued
at $47.6 million and are recorded in short term investments on the consolidated balance sheet. Subsequent to fiscal 2020, the Company received net
proceeds of $51.5 million related to the sale of Teledoc shares and settlement of the related hedge during January 2021.

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 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.

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iROBOT CORPORATION

Financial Instruments and Hedging Activities

The Company utilizes derivative instruments to partially offset its financial risks to 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. Cash 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 recognized in earnings.
Deferred gains and losses associated with cash flow hedges are 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. The
Company may also enter into non-designated foreign currency contracts to offset a portion of the foreign 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 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. 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 for 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 accounts for forfeitures as they occur, rather than applying an estimated forfeiture rate.

Research and Development

Costs incurred in the research and development of the Company’s products are expensed as incurred.

Advertising Expense

The Company expenses advertising costs as they are incurred. During the years ended January 2, 2021, December 28, 2019 and December 29, 2018
advertising expense totaled $145.2 million, $125.0 million and $114.0 million, respectively, and are recorded within the selling and marketing expenses in
its consolidated statements of income.

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 2, 2021, December 28, 2019 and December 29, 2018, the
Company had a valuation allowance of $7.6 million, $3.8 million and $1.1 million, respectively, for certain deferred tax assets for which the Company
believes do not meet the "more likely than not" criteria for recognition.

The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The

Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the income tax provision.

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iROBOT CORPORATION

Concentration of Credit Risk and Significant Customers

Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts receivable and cash and cash

equivalents. Management believes its credit policies are prudent and reflect normal industry terms and business risk. At January 2, 2021, one customer
accounted for 17.6% of the Company's accounts receivable balance. At December 28, 2019, two customers accounted for a total of 26.6% of the
Company's accounts receivable balance. For the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, there was one customer
that accounted for 10% or more of total revenue, representing 22.7%, 21.3% and 17.3%, of the Company's total revenue, respectively.

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 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 (in thousands, except per share amounts):

Net income

Weighted-average shares outstanding
Dilutive effect of employee stock plans
Diluted weighted-average shares outstanding

Basic income per share
Diluted income per share

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$
$

147,068  $

85,300  $

28,101 
517 
28,618 

5.23  $
5.14  $

28,097 
638 
28,735 

3.04  $
2.97  $

87,992 

27,692 
948 
28,640 

3.18 
3.07 

Employee stock awards representing approximately 0.2 million, 0.2 million and 0.0 million shares of common stock for the fiscal years ended
January 2, 2021, December 28, 2019 and December 29, 2018, respectively, were excluded from the computation of diluted earnings per share as their effect
would have been antidilutive.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Measurement of

Credit Losses on Financial Instruments," which amends the impairment model by requiring entities to use a forward-looking approach based on expected
losses rather than incurred losses to estimate credit losses on certain types of financial instruments. The Company adopted the standard effective December
29, 2019 which resulted in no adjustment to the allowance for credit losses upon adoption. See the description of the Company’s "Credit Losses"
accounting policy above.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement." The amendment modifies disclosure requirements related to fair value measurement. The Company adopted this standard
effective December 29, 2019 which did not have a material impact on the Company's consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." The new standard aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The
Company adopted the standard using the prospective method effective December 29, 2019 which did not have a material impact on the Company's
consolidated financial statements.

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Recently Issued Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." The ASU simplifies the

accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending existing guidance to improve
consistent application. The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective
basis. The Company will adopt the ASU effective January 3, 2021, and has concluded that there is no impact to the consolidated financial statements upon
adoption.

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.

Revenue Recognition

The Company primarily derives its revenue from the sale of 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, generally as title and risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those
products or services. Revenue is recognized only to the extent 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.

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, and the revenue is recognized at a point in time when the control is
transferred to distributors, resellers or directly to end customers through online stores. For certain consumer robots with Wi-Fi capability ("connected
robots"), each sale represents an arrangement with multiple promises consisting of the robot, downloadable free app, cloud services and potential future
unspecified software upgrades. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one
promised service to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services").

For contracts that contain multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative
standalone selling price ("SSP"). The Company estimates SSP for items that are not sold separately, using market data if available or analysis of the cost of
providing the products or services plus a reasonable margin. The transaction price allocated to the robots is recognized as revenue at a point in time when
control is transferred 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. For contracts with a duration of greater than one year, the transaction price allocated to
performance obligations that are unsatisfied as of January 2, 2021 and December 28, 2019 was $11.5 million and $4.0 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." During the fourth quarter of 2020, the Company began offering its customers the option to purchase an extended
warranty for a fee. Amounts paid for the extended warranty plans are deferred and recognized as revenue on a straight-line basis over the service period.

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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 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 2, 2021, the Company has reserves for product returns of $64.3 million and other credits and incentives of $142.2
million. As of December 28, 2019, the Company had reserves for product returns of $55.2 million and other credits and incentives of $134.0 million.
Revenue recognized during the years ended January 2, 2021 and December 28, 2019 related to performance obligations satisfied in a prior period was not
material.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by geographical region (in thousands):

United States
EMEA
Japan
Other

Total revenue

Contract Balances

January 2, 2021

December 28, 2019

December 29, 2018

$

$

744,648  $
386,007 
193,304 
106,431 
1,430,390  $

603,618  $
357,760 
160,875 
91,757 
1,214,010  $

560,995 
311,659 
132,813 
87,117 
1,092,584 

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):

Accounts receivable, net
Contract liabilities

January 2, 2021

December 28, 2019

$

170,526  $
17,700 

146,161 
6,991 

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration

becomes unconditional. 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 the years
ended January 2, 2021 and December 28, 2019, the Company recognized $5.5 million and $5.8 million, respectively, of the contract liability balance as
revenue upon transfer of the products or services to customers.

4.

Leases

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 term. Leases with an initial term of 12 months or
less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease 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 nonlease components of contracts and excludes all variable lease payments from the measurement of right-of-use
assets and lease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements
do not contain any residual value guarantees or restrictive covenants.

The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate

to discount the lease payments based on information available at December 30, 2018 (date of initial

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iROBOT CORPORATION

application) or the lease commencement date for new leases post adoption. At January 2, 2021, the Company's weighted average discount rate was 3.56%,
while the weighted average remaining lease term was 8.30 years.

The components of lease expense were as follows (in thousands):

Operating lease cost
Variable lease cost

Total lease cost

January 2, 2021

December 28, 2019

$

$

9,363  $
3,583 
12,946  $

8,777 
4,096 
12,873 

Supplemental cash flow information related to leases was as follows (in thousands):

January 2, 2021

December 28, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

$

$

9,862  $

2,310  $

Maturities of operating lease liabilities were as follows as of January 2, 2021 (in thousands):

2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: imputed interest
Present value of future minimum lease payments
Less: current portion of operating lease liabilities (Note 7)

Long-term lease liabilities

Financial Statement Impact of Adopting ASC 842

$

$

$

$

9,540 

53,227 

8,226 
8,633 
7,647 
6,590 
6,612 
28,539 
66,247 
9,447 
56,800 
6,315 
50,485 

The Company adopted ASC 842 effective December 30, 2018 using the alternative transition method. Under this alternative transition method, a
company is permitted to use its effective date as the date of initial application without restating comparative period financial statements. The Company
elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments
of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company elected the practical expedient to
use hindsight in determining lease term. The adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of
approximately $52.8 million and $67.3 million, respectively. The standard did not materially impact the Company's consolidated income or cash flows.

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5.

Property and Equipment

Property and equipment consists of the following (in thousands):

Computer and equipment
Furniture and fixtures
Machinery and tooling
Leasehold improvements
Business applications software
Other

Subtotal

Less: accumulated depreciation

Property and equipment, net

January 2,
2021

December 28,
2019

$

$

13,617  $
8,394 
80,715 
36,459 
19,185 
1,642 
160,012 
83,428 
76,584  $

13,588 
6,494 
79,213 
39,538 
17,933 
— 
156,766 
80,778 
75,988 

As of January 2, 2021 and December 28, 2019, the net book value of capitalized internal-use software costs was $6.5 million and $6.8 million,

respectively, which are included within business applications software.

Depreciation expense for the years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $31.9 million, $24.4 million, and
$17.0 million, respectively, which included amortization expense of $2.1 million, $1.5 million and $1.2 million, respectively, for capitalized internal-use
software.

6.

Goodwill and other intangible assets

The following table summarizes the activity in the carrying amount of goodwill and intangible assets for fiscal years 2020 and 2019 (in thousands):

Balance as of December 29, 2018
Acquisition
Effect of foreign currency translation
Balance as of December 28, 2019
Effect of foreign currency translation

Balance as of January 2, 2021

Intangible assets consisted of the following (in thousands):

Completed technology
Tradename
Customer relationships
Reacquired distribution rights
Non-competition agreements

Total

$

$

$

$

January 2, 2021
Accumulated
Amortization

December 28, 2019
Accumulated
Amortization

Cost
28,100  $
100 
11,728 
34,318 
280 
74,526  $

26,525  $
100 
3,401 
34,318 
280 
64,624  $

Net

1,575  $
— 
8,327 
— 
— 
9,902  $

Cost
28,100  $
100 
11,095 
31,680 
256 
71,231  $

24,605  $
100 
2,302 
31,680 
192 
58,879  $

118,896 
2,050 
(2,214)
118,732 
7,140 
125,872 

Net

3,495 
— 
8,793 
— 
64 
12,352 

Amortization expense related to acquired intangible assets was $2.9 million, $12.8 million and $19.6 million for the fiscal years ended January 2,

2021, December 28, 2019 and December 29, 2018, respectively.

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The estimated future amortization expense related to current intangible assets in each of the five succeeding fiscal years is expected to be as follows

(in thousands):

2021
2022
2023
2024
2025
Thereafter
Total

Cost of Revenue

Operating Expenses

Total

900  $
675 
— 
— 
— 
— 
1,575  $

823  $
823 
823 
823 
823 
4,212 
8,327  $

1,723 
1,498 
823 
823 
823 
4,212 
9,902 

$

$

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7.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Accrued bonus
Accrued warranty
Accrued manufacturing and logistics cost
Accrued compensation and benefits
Accrued sales and other indirect taxes payable
Current portion of operating lease liabilities
Accrued income taxes
Accrued other

8.

Working Capital Facility

Credit Facility

January 2,
2021

December 28,
2019

$

$

31,523  $
24,392 
20,093 
17,635 
15,480 
6,315 
3,806 
12,144 
131,388  $

12,541 
13,856 
14,383 
13,331 
12,440 
6,843 
3,378 
4,996 
81,768 

In June 2018, the Company entered into a new agreement with Bank of America, N.A., increasing 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 2, 2021, 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.
The interest on loans under the credit facility 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’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%. In the event that LIBOR is discontinued as expected
in 2021, the Company expects the interest rates for its debt following such event will be based on either alternate base rates or agreed upon replacement
rates. While the Company does not expect a LIBOR discontinuation would affect its ability to borrow or maintain already outstanding borrowings, it 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, its 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 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 January 2, 2021, 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 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 2, 2021, 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 220.0 million Japanese Yen. As of January 2, 2021, the Company had no outstanding balance under the guarantee line of credit. 

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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. The Company uses derivative instruments that are designated in cash flow hedge
relationships to reduce or eliminate the effects of foreign exchange rate change on sales. These contracts typically have maturities of three years or less. At
January 2, 2021 and December 28, 2019, the Company had outstanding cash flow hedges with a total notional value of $431.9 million and $424.6 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 twelve months or
less. As of January 2, 2021 and December 28, 2019, the Company had outstanding foreign currency economic hedges with a total notional value of $192.2
million and $116.5 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 has a maturity date of January 2021. At January 2, 2021, the total
notional value of this economic hedge was $51.5 million.

The fair values of derivative instruments are as follows (in thousands):

Derivatives not designated as hedging instruments:
Foreign currency forward contracts
Foreign currency forward contracts
Forward sale contract
Derivatives designated as cash flow hedges:
Foreign currency forward contracts
Foreign currency forward contracts
Foreign currency forward contracts
Foreign currency forward contracts

Classification

January 2, 2021

December 28, 2019

Fair Value

$

$

Other current assets
Accrued expenses
Other current assets

Other current assets
Other assets
Accrued expenses
Long-term liabilities

261  $

2,176 
3,904 

362  $
679 
2,092 
8,554 

1,855 
297 
— 

4,347 
9,112 
47 
414 

Gains (losses) associated with derivative instruments not designated as hedging instruments are as follows (in thousands):

Fiscal year ended

Gain (loss) recognized in income

Classification
Other income, net

$

January 2, 2021

December 28, 2019
89 

(188) $

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 2, 2021

December 28, 2019

Foreign currency forward contracts

$

(18,504) $

16,483 

(1) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

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iROBOT CORPORATION

Consolidated statements of income in which the effects of cash flow hedging
instruments are recorded

Gain or (loss) on cash flow hedging relationships:

Foreign currency forward contracts:

Amount of gain (loss) reclassified from AOCI into earnings

$

$

Gain (loss) recognized in earnings on cash flow hedging instruments

January 2, 2021
Revenue

December 28, 2019
Revenue

1,430,390  $

1,214,010 

4,783  $

1,889 

10.

Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

Assets:

Money market funds
Marketable equity securities, $46,578 at cost (2)
Corporate bonds, $3,498 at cost (3)
Derivative instruments (Note 9)
Total assets measured at fair value

Liabilities:

Derivative instruments (Note 9)
Total liabilities measured at fair value

Fair Value Measurements as of
January 2, 2021
Level 2 (1)

Level 3

Level 1

$

$

$
$

47,529  $
47,576 
— 
— 
95,105  $

—  $
— 
3,505 
5,206 
8,711  $

—  $
—  $

12,822  $
12,822  $

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

Assets:

Corporate and government bonds, $17,016 at cost
Derivative instruments (Note 9)
Total assets measured at fair value

Liabilities:

Derivative instruments (Note 9)
Total liabilities measured at fair value

Fair Value Measurements as of
December 28, 2019
Level 2 (1)

Level 3

Level 1

$

$

$
$

—  $
— 
—  $

—  $
—  $

17,032  $
15,314 
32,346  $

758  $
758  $

— 
— 
— 
— 
— 

— 
— 

— 
— 
— 

— 
— 

(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.

(2) The related unrealized gain recorded in Other income, net was $1.0 million for the fiscal year ended January 2, 2021. Marketable equity securities

are included in short term investments on the consolidated balance sheet.

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iROBOT CORPORATION

(3) As of January 2, 2021, the Company’s investment had a maturity date of March 2021.

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 January 2, 2021 and December 28, 2019.

Common Stock

Common stockholders are entitled to one vote for each share held and to receive dividends if and when declared by the Company's board of directors

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

The Company's Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases from time to time
until September 2021. On March 10, 2020, the Company entered into a Rule 10b5-1 plan to repurchase $25.0 million of common stock in the aggregate
beginning March 13, 2020 and ending April 30, 2020. The Company repurchased 663,602 shares of its common stock at an average price of $37.65,
totaling $25.0 million in March 2020.

12.

Stock-Based Compensation

The Company has awards and options outstanding under three stock incentive plans: the 2005 Stock Option and Incentive Plan (the "2005 Plan"), the

2015 Stock Option and Incentive Plan (the "2015 Plan") and the 2018 Stock Option and Incentive Plan (the "2018 Plan" and together with 2005 Plan and
the 2015 Plan, the "Plans"). The 2018 Plan is the only one of the three plans under which new awards may currently be granted. Under the 2018 Plan,
which became effective on May 23, 2018, 1,750,000 shares were initially reserved for issuance in the form of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based 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 issued under the 2005 Plan, as a result of
their expiration, cancellation or termination are automatically made available for issuance under the 2018 Plan. As of January 2, 2021, there were 1,562,092
shares available for future grant under the 2018 Plan. The Company recognized $30.0 million, $23.7 million and $25.8 million of stock-based
compensation expense during the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Stock-based compensation breaks down by expense classification as follows (in thousands):

Cost of revenue
Research and development
Selling and marketing
General and administrative

Total

Stock Options

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$

1,511  $

10,655 
3,700 
14,109 
29,975  $

1,486  $
9,186 
3,323 
9,749 
23,744  $

1,407 
7,494 
2,842 
14,061 
25,804 

Options granted under the Plans are exercisable in full at any time subsequent to vesting, generally vest over four years, and expire five years 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 Company's
closing stock price on the date of grant.

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iROBOT CORPORATION

The following table summarizes stock option activity for fiscal years 2020, 2019 and 2018:

Number of
Shares

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value (1)

Outstanding at December 30, 2017
Granted
Exercised
Canceled
Outstanding at December 29, 2018
Granted
Exercised
Canceled
Outstanding at December 28, 2019
Granted
Exercised
Canceled
Outstanding at January 2, 2021

Vested and expected to vest at January 2, 2021
Exercisable as of January 2, 2021

 _________________________

712,954  $
— 
(239,830)
(10,863)
462,261 
— 
(127,024)
(12,329)
322,908 
— 
(88,292)
(1,938)
232,678  $
232,678  $
232,116  $

34.34 
— 
33.40 
46.20 
34.55 
— 
32.95 
37.03 
35.08 
— 
31.40 
45.89 

36.39 
36.39 
36.34 

1.75 years
1.75 years
1.75 years

$10.21 million
$10.21 million
$10.20 million

(1) The aggregate intrinsic value on the table above represents the difference between the Company's closing stock price on January 2, 2021 of $80.29

and the exercise price of the underlying in-the-money option.

During fiscal years 2020, 2019 and 2018, the total intrinsic value of stock options exercised was $2.6 million, $8.9 million, and $14.9 million,

respectively. As of January 2, 2021, the unamortized compensation costs associated with stock options was $0.01 million with a weighted-average
remaining recognition period of 0.18 years.

Time-based Restricted Stock Units

Time-based restricted stock units entitle the holder to a specific number of shares of common stock upon vesting, typically over a four year period.

As of January 2, 2021, the unamortized compensation costs associated with restricted stock units was $49.4 million with a weighted-average remaining
recognition period of 2.69 years.

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iROBOT CORPORATION

The following table summarizes the time-based restricted stock unit activity for fiscal years 2020, 2019 and 2018:

Outstanding at December 30, 2017
Granted
Vested
Forfeited
Outstanding at December 29, 2018
Granted
Vested
Forfeited
Outstanding at December 28, 2019
Granted
Vested
Forfeited
Outstanding at January 2, 2021

Number of
Shares Underlying
Restricted Stock

Weighted Average
Grant Date Fair
Value

938,453  $
307,614 
(351,816)
(38,362)
855,889 
407,325 
(358,119)
(85,863)
819,232 
493,908 
(318,079)
(101,028)
894,033  $

51.24 
81.55 
47.30 
60.62 
63.32 
79.91 
54.89 
76.85 
73.83 
61.53 
67.95 
75.20 

68.97 

The aggregate intrinsic value of outstanding time-based restricted stock units at January 2, 2021 was $71.8 million based on the Company's closing

stock price on January 2, 2021 of $80.29, with a weighted average remaining contractual term of 1.58 years.

Performance-Based Restricted Stock Units

The Company grants performance-based restricted stock units ("PSUs") to certain of its employees. The PSUs have performance metrics based on

financial performance of the Company measured at the end of a three year performance period. The number of shares actually earned at the end of the
three-year period will range from 0% to 200% of the target number of PSUs granted based on the Company’s performance against the performance
conditions.

    The unamortized fair value as of January 2, 2021 associated with performance based restricted stock units was $9.1 million with a weighted-

average remaining recognition period of 1.50 years.

    The following table summarizes the performance-based restricted stock unit activity for fiscal years 2020, 2019 and 2018:

Outstanding at December 20, 2017
Granted
Vested
Forfeited
Outstanding at December 29, 2018
Granted
Vested
Forfeited
Outstanding at December 28, 2019
Granted
Vested
Forfeited
Outstanding at January 2, 2021

Number of
Shares Underlying
PSU

Weighted Average
Grant Date Fair
Value

242,061  $
91,538 
(56,259)
(3,221)
274,119 
70,827 
(78,943)
(49,772)
216,231 
130,284 
(71,734)
(45,129)
229,652  $

43.97 
68.41 
34.30 
45.71 
54.10 
122.20 
33.33 
78.29 
78.42 
46.77 
61.44 
75.17 

66.41 

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iROBOT CORPORATION

The aggregate intrinsic value of outstanding PSUs was $18.4 million based on the Company's closing stock price on January 2, 2021 of $80.29 with a

weighted average remaining contractual term of 1.50 years.

Employee Stock Purchase Plan

In May 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan ("ESPP"). Eligible employees may purchase the
Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or 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 2, 2021, there were 508,667 shares reserved for future issuance under the ESPP. The Company recognized $1.0 million, $1.1 million, and
$1.0 million of stock-based compensation expense during the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018,
respectively.

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. For the following litigation matters, a liability is not probable or the amount cannot be reasonably estimated and
therefore accruals have not been made.

On October 24, 2019, purported Company shareholder Miramar Firefighters’ Pension Fund filed a putative class action in the U.S. District Court for

the Southern District of New York against the Company and certain of its directors and officers, captioned Miramar Firefighters’ Pension Fund v. iRobot
Corporation, et al., No. 1:19-cv-09837.  The case has been transferred to the U.S. District Court for the District of Massachusetts. A similar case captioned
Campbell v. iRobot Corporation, et al., No. 1:19-cv-12483 was also filed in the U.S. District Court for the Southern District of New York and subsequently
transferred to the U.S. District Court for the District of Massachusetts. On January 24, 2020, the Court consolidated the Miramar and Campbell cases (the
consolidated cases together, the "Securities Class Action") and appointed a lead plaintiff and lead plaintiff's Counsel. On April 3, 2020, the plaintiff filed an
amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder based on allegedly
false and misleading statements and omissions concerning the impact of competition and Section 301 tariffs on the Company’s financial performance, and
the Company has filed a motion to dismiss the case. A hearing was held on the Company’s motion to dismiss on September 17, 2020, and the Company is
currently awaiting a ruling on its motion to dismiss.

On December 20, 2019, purported Company shareholders David Katz and Thomas Wightman, derivatively on behalf of iRobot Corporation, filed a
complaint in the U.S. District Court for Southern District of New York against the Company and certain of its directors and officers, captioned David Katz
and Thomas Wightman, on behalf of iRobot Corporation v. iRobot Corporation, et al., No. 1:19-cv-11692. The complaint alleges breaches of fiduciary
duties, unjust enrichment, violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder based on allegedly false and misleading
statements and omissions concerning the Company's acquisitions of Sales on Demand Corporation and Robopolis SAS and the Company's subsequent
financial performance. The complaint seeks, among other things, unspecified compensatory damages, including interest, in connection with the Company's
allegedly inflated stock price, attorneys' fees and costs, and unspecified equitable/injunctive relief. This case has been transferred to the U.S. District Court
for the District of Massachusetts. Similarly, additional derivative litigations -- namely: Robert Truman, on behalf of iRobot Corporation v. iRobot
Corporation, et al., No. 1:20-cv-10034; Alexa Ruhfass, on behalf of iRobot Corporation v. iRobot Corporation, et al., No. 1:20-cv-10133; and William
Tasco, derivatively on behalf of iRobot Corporation v. iRobot Corporation, et al., No. 1:20-cv-10253 - were filed in the U.S. District Court for the District
of Massachusetts. All of these cases have been consolidated in a case captioned as In re iRobot Corporation Derivative litigation, No. 1:20-cv-10034, and
have been stayed pending a ruling on the motion to dismiss in the Securities Class Action.

Outstanding Purchase Orders

At January 2, 2021, we had outstanding purchase orders aggregating approximately $341.9 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 cancellable 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.

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iROBOT CORPORATION

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 January 2, 2021 and December 28, 2019, respectively.

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 7) in the accompanying consolidated balance sheets.

Activity related to the warranty accrual was as follows (in thousands):

Balance at beginning of period
Provision
Warranty usage
Balance at end of period

14.

Employee Benefits

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$

13,856  $
28,884 
(18,348)
24,392  $

11,964  $
14,091 
(12,199)
13,856  $

11,264 
10,798 
(10,098)
11,964 

The Company sponsors a retirement plan under Section 401(k) of the Internal Revenue Code (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 $3.0 million, $2.9 million and $2.8 million for the plan years ended
January 2, 2021, December 28, 2019 and December 29, 2018, respectively. The employer contribution represents a matching contribution at a rate of 50%
of each employee’s first six percent contribution. Accordingly, each employee participating is entitled up to a maximum of three percent of his or her
eligible annual payroll.

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15.

Income Taxes

Income (loss) before provision for income taxes was as follows (in thousands):

Domestic
Foreign

Income before income taxes

The components of income tax expense were as follows (in thousands):

Current

Federal
State
Foreign

Total current income tax provision

Deferred

Federal
State
Foreign

Total deferred income tax provision
Total income tax provision

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

166,973  $
20,942 
187,915  $

84,225  $
14,608 
98,833  $

113,078 
(4,456)
108,622 

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

13,593  $
2,724 
10,451 
26,768  $

14,695  $
2,552 
(3,168)
14,079 
40,847  $

13,366  $
5,004 
6,941 
25,311  $

(9,345) $
(1,783)
(650)
(11,778)
13,533  $

17,627 
3,676 
10,732 
32,035 

(2,475)
(1,149)
(7,781)
(11,405)
20,630 

$

$

$

$

$

$

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic.
The CARES Act contains several income and payroll tax provisions, such as the deduction and deferral of employer portion of certain payroll taxes, repeal
of the 80% limitation with respect to net operating losses arising in taxable years 2018, 2019, and 2020, and additional depreciation deductions related to
qualified improvement property. The Company has concluded that the current provisions of the CARES Act, enacted to date, did not have a material impact
on the Company's financial results during fiscal 2020.

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The reconciliation of statutory federal income tax to actual tax expense is as follows (in thousands):

Statutory federal income tax
State taxes (net of federal benefit)
Federal and state credits
Excess tax expense (benefits) relating to stock-based compensation
Tax Cuts and Jobs Act of 2017
Foreign-derived intangible income deduction
EMEA business restructuring
Executive compensation
Tax impact of foreign earnings
Change in valuation allowance
Other

The components of net deferred tax assets were as follows (in thousands):

Deferred tax assets
Revenue reserves
Accruals and other liabilities
Operating lease liabilities
Tax credits and net operating loss carryforwards
Stock-based compensation
Other
Gross deferred tax assets
Valuation allowance

Total deferred tax assets

Deferred tax liabilities

Intangible assets
Operating lease right-of-use assets
Marketable equity securities
Other
Total deferred tax liabilities
Net deferred tax assets

January 2,
2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$

39,462  $
4,834 
(6,702)
313 
— 
(3,360)
— 
718 
1,458 
3,817 
307 
40,847  $

20,755  $
3,999 
(8,152)
(6,468)
— 
(4,180)
— 
2,081 
1,986 
2,678 
834 
13,533  $

22,812 
4,312 
(5,638)
(6,529)
2,127 
(2,678)
2,292 
745 
1,336 
348 
1,503 
20,630 

January 2,
2021

December 28,
2019

$

$

20,564  $
14,357 
12,429 
12,748 
4,868 
3,793 
68,759 
(7,643)
61,116 

3,341 
11,443 
10,676 
2,957 
28,417 
32,699  $

21,355 
8,225 
14,117 
8,814 
4,981 
5,068 
62,560 
(3,826)
58,734 

3,838 
13,249 
— 
768 
17,855 
40,879 

The Company intends to continue to invest all of its unremitted foreign earnings, as well as the capital in its foreign subsidiaries, indefinitely outside

of the U.S. At January 2, 2021, the Company has unremitted foreign earnings and any unrecognized deferred tax liability on these unremitted earnings
would be immaterial.

The Company has federal net operating loss carryforwards of $1.7 million as of January 2, 2021. The Company has foreign net operating loss
carryforwards of $3.5 million as of January 2, 2021 that have no expiration period. The Company has state research and development credit carryforwards
of $16.3 million and $13.1 million as of January 2, 2021 and December 28, 2019, respectively, which expire from 2028 to 2036. 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 2, 2021, December 28, 2019 and December 29, 2018, the Company had a valuation
allowance of $7.6 million, $3.8 million and $1.1 million, respectively, for state research and development credit carryforwards

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iROBOT CORPORATION

and 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 (in thousands):

Balance at beginning of period

Increase for tax positions related to the current year
Increase for tax positions related to acquisition
Increase (decrease) for tax positions related to prior years
Decrease for settlements with applicable taxing authorities
Decrease for lapses of statute of limitations

Balance at end of period

January 2, 2021

Fiscal Year Ended
December 28,
2019

December 29,
2018

$

$

7,121  $
765 
— 
1,231 
— 
(558)
8,559  $

7,119  $
770 
— 
(768)
— 
— 
7,121  $

4,590 
2,891 
1,493 
407 
(2,262)
— 
7,119 

The Company accrues interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense. As of January 2,

2021, December 28, 2019 and December 29, 2018 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 2, 2021 were to
become recognizable in the future, it would record a $9.5 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") and state tax authorities is closed for fiscal years prior to 2014 and fiscal 2016. Federal and state carryforward
attributes that were generated prior to fiscal 2014 and 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 during 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 have a material 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 Company'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 resolution, settlement, and closure of audits is not certain,
it is reasonably possible that certain U.S. federal and non-U.S. tax audits may be concluded within the next 12 months, which could increase or decrease
the balance of the Company's gross unrecognized tax benefits.

16.

Industry Segment, Geographic Information and Significant Customers

The Company operates as one operating segment. The Company's consumer robots are offered to consumers 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.

Geographic Information

For the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, sales to non-U.S. customers accounted for 47.9%, 50.3%

and 48.7% of total revenue, respectively.

71

 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

iROBOT CORPORATION

The following table provides information about revenue by geographical region (in thousands):

Domestic
International

Total

Significant Customers

January 2, 2021

December 28, 2019

December 29, 2018

$

$

744,648  $
685,742 
1,430,390  $

603,618  $
610,392 
1,214,010  $

560,995 
531,589 
1,092,584 

For the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, there was one customer that accounted for 10% or more of

total revenue, representing 22.7%, 21.3% and 17.3%, of total revenue, respectively.

17.

Quarterly Information (Unaudited)

The following 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 (in thousands, except per share amounts):

Revenue
Gross profit
Net income (loss)
Diluted income
(loss) per share

$

$

January 2,
2021
544,827  $
215,421 
13,335 

September 26,
2020

413,145  $
198,841 
93,252 

June 27,
2020
279,883  $
178,012 
58,616 

March 28,
2020
192,535  $
77,955 
(18,135)

December 28,
2019
426,778  $
169,370 
20,041 

September 28,
2019

289,399  $
136,841 
35,532 

June 29,
2019
260,172  $
118,170 
7,207 

March 30,
2019
237,661 
119,546 
22,520 

Fiscal Quarter Ended

0.46  $

3.27  $

2.07  $

(0.64) $

0.70  $

1.24  $

0.25  $

0.78 

72

 
 
 
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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") and our Chief Financial Officer ("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 January 2, 2021, 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. Based on this assessment,
management concluded that the Company maintained effective internal control over financial reporting as of January 2, 2021 based on the specified
criteria.

The effectiveness of the Company’s internal control over financial reporting as of January 2, 2021 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 January 2, 2021, 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.

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Table of Contents

ITEM 9B.    OTHER INFORMATION

10b5-1 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 Exchange 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,
Elisha Finney, Rueybin Kao and Michelle Stacy, each a director of the Company) have entered into trading plans (each a "Plan" and collectively, the
"Plans") covering periods after the date of this Annual Report on Form 10-K in accordance with Rule 10b5-l and our policy 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 the
Company.

We anticipate that, as permitted by Rule 10b5-1 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 10b5-1 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 undertake no obligation to update or revise the information provided herein.

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 January 2, 2021.

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 January 2, 2021. 

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 January 2, 2021.

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 January 2, 2021.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

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 January 2, 2021.

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Table of Contents

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

(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 January 2, 2021 and December 28, 2019

Consolidated Statements of Income for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Comprehensive Income for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Stockholders’ Equity for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Cash Flows for the Years ended January 2, 2021, December 28, 2019 and December 29, 2018

Notes to Consolidated Financial Statements

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

(b) Exhibits

The following exhibits are filed as part of and incorporated by reference into this Annual Report:

Exhibit
Number
3.1(1)
3.2

4.1(1)
4.2

10.1†

10.2†

10.3†(1)
10.4†

10.5†

10.6

Description

  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

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 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
on December 9, 2020 (File No. 001-36414) and incorporated 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)
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) (filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-
K for the year ended December 30, 2017 and incorporated by reference herein)

75

 
 
 
 
 
 
 
 
Table of Contents

10.7†

10.8†

10.9#

10.10

10.11

10.12

10.13

10.14#

10.15†

10.16†

10.17†

10.18†

10.19†

10.20†

21.1*
23.1*
24.1
31.1*
31.2*
32.1**
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*

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)
(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)
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)
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’s Annual Report on Form 10-K for the year ended December 28, 2013 and incorporated by reference
herein)
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 (filed
as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2018 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)
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 (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)
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)
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP
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
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
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.

76

Table of Contents

#

(1)

*
**

Confidential treatment requested for portions of this document.

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

77

Table of Contents

ITEM 16.    FORM 10-K SUMMARY

    Not applicable.

78

Table of Contents

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.

SIGNATURES

iROBOT CORPORATION

By:

/s/    Colin M. Angle
Colin M. Angle
Chairman of the Board,
Chief Executive Officer and Director

Date: February 16, 2021

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Colin M. Angle and 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, 2021.

Signature

Title(s)

/s/    COLIN M. ANGLE

Colin M. Angle

/s/    JULIE ZEILER

Julie Zeiler

/s/    KARIAN WONG

Karian Wong

/s/    MOHAMAD ALI
Mohamad Ali

/s/    MICHAEL BELL
Michael Bell

/s/    DEBORAH G. ELLINGER
Deborah G. Ellinger

/s/    ELISHA FINNEY
Elisha Finney

/s/    RUEY-BIN KAO
Ruey-Bin Kao

Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer)

Executive Vice President and Chief Financial Officer (Principal Financial
Officer)

VP, Finance (Principal Accounting Officer)

Director

Director

Director

Director

Director

79

 
 
Table of Contents

/s/    EVA MANOLIS
Eva Manolis

/s/    ANDREW MILLER
Andrew Miller

/s/    MICHELLE V. STACY
Michelle V. Stacy

Director

Director

Director

80

iROBOT CORPORATION
SUBSIDIARIES OF THE REGISTRANT

Exhibit 21.1

Subsidiary Legal Name

Jurisdiction of Incorporation/Formation

iRobot Securities Corporation
iRobot US Holdings Inc.
iRobot Holdings LLC.
iRobot (India) Private Limited
Guangzhou iRobot Technology Consulting Company Limited
Shanghai iRobot Robot Trading Co., Ltd.
iRobot (HK) Limited
iRobot Japan G.K.
iRobot UK Ltd.
iRobot France SAS
iRobot Belgium SPRL
iRobot Portugal, Unipessoal Lda
iRobot Austria GmbH
iRobot Germany GmbH
iRobot Netherlands B.V.
iRobot Iberia SL
iRobot italia S.r.l.

Massachusetts
Delaware
Delaware
India
China
China
Hong Kong
Japan
United Kingdom
France
Belgium
Portugal
Austria
Germany
Netherlands
Spain
Italy

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.1

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-239573, 333-225482, 333-219686, 333-204669,
333-193998, 333-186700, 333-184320, 333-179593, 333-172333, 333-164993, 333-157306, 333-149373, 333-140707, 333-129576) of iRobot Corporation
of our report dated February 16, 2021 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting,
which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2021

Exhibit 31.1

I, Colin M. Angle, certify that:

Certifications

1.    I have reviewed this Annual Report on Form 10-K of iRobot Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The  registrant's  other  certifying  officer  and  I  are  responsible  for  establishing  and  maintaining  disclosure  controls  and  procedures  (as  defined  in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a)        Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and  procedures  to  be  designed  under  our  supervision,  to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b)        Designed  such  internal  control  over  financial  reporting,  or  caused  such  internal  control  over  financial  reporting  to  be  designed  under  our
supervision, 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;

c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control

over financial reporting.

Date: February 16, 2021

/s/ COLIN M. ANGLE
Colin M. Angle
Chief Executive Officer

 
 
Exhibit 31.2

I, Julie Zeiler, certify that:

Certifications

1.    I have reviewed this Annual Report on Form 10-K of iRobot Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.        The  registrant's  other  certifying  officer  and  I  are  responsible  for  establishing  and  maintaining  disclosure  controls  and  procedures  (as  defined  in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a)        Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and  procedures  to  be  designed  under  our  supervision,  to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b)        Designed  such  internal  control  over  financial  reporting,  or  caused  such  internal  control  over  financial  reporting  to  be  designed  under  our
supervision, 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;

c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness

of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control

over financial reporting.

Date: February 16, 2021

/s/ JULIE ZEILER
Julie Zeiler
Chief Financial Officer

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In connection with the Annual Report on Form 10-K of iRobot Corporation (the "Company") for the year ended January 2, 2021 as filed with the

Securities and Exchange Commission on the date hereof (the "Report"), we, Colin M. Angle, the Chief Executive Officer of the Company and Julie Zeiler,
the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to our knowledge, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for

any purpose whatsoever.

Dated

February 16, 2021

Dated

February 16, 2021

/s/ COLIN M. ANGLE
Colin M. Angle
Chief Executive Officer

/s/ JULIE ZEILER
Julie Zeiler
Chief Financial Officer