iRobot
Annual Report 2010

Plain-text annual report

DearStockholder:April13,2011YouarecordiallyinvitedtoattendtheannualmeetingofstockholdersofiRobotCorporationtobeheldat10:00a.m.,localtime,onWednesday,May25,2011atiRobotCorporationheadquarterslocatedat8CrosbyDrive,Bedford,Massachusetts01730.Atthisannualmeeting,youwillbeaskedtoelectthree(3)classIIIdirectorsforthree-yearterms,toapproveourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,toratifytheappointmentofourindependentregisteredpublicaccountants,tocastanadvisoryvoteonthecompensationofournamedexecutiveofficersandtocastanadvisoryvoteonthefrequencyofholdingfutureadvisoryvotesonthecompensationofournamedexecutiveofficers.TheboardofdirectorsunanimouslyrecommendsthatyouvoteFORelectionofthedirectornominees,FORapprovalofourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,FORratificationofappointmentofourindependentregisteredpublicaccountants,FORapproval,onanadvisorybasis,ofthecompensationofournamedexecutiveofficersandFORapproval,onanadvisorybasis,oftheproposaltoholdfutureadvisoryvotesonthecompensationofournamedexecutiveofficersonatriennialbasis.Detailsregardingthematterstobeacteduponatthisannualmeetingappearintheaccompanyingproxystatement.Pleasegivethismaterialyourcarefulattention.Whetherornotyouplantoattendtheannualmeeting,weurgeyoutosignandreturntheenclosedproxysothatyourshareswillberepresentedattheannualmeeting.Ifyouattendtheannualmeeting,youmayvoteinpersonevenifyouhavepreviouslyreturnedyourproxycard.Yourpromptcooperationwillbegreatlyappreciated.Verytrulyyours,COLINM.ANGLEChiefExecutiveOfficer&ChairmanoftheBoardProxyStatementiROBOTCORPORATION8CrosbyDriveBedford,Massachusetts01730(781)430-3000NOTICEOFANNUALMEETINGOFSTOCKHOLDERSToBeHeldonMay25,2011TotheStockholdersofiRobotCorporation:TheannualmeetingofstockholdersofiRobotCorporation,aDelawarecorporation(the“Company”),willbeheldonWednesday,May25,2011,at10:00a.m.,localtime,atiRobotCorporationheadquarterslocatedat8CrosbyDrive,Bedford,Massachusetts01730,forthefollowingpurposes:1.Toelectthree(3)classIIIdirectors,nominatedbytheBoardofDirectors,eachtoserveforathree-yeartermanduntilhisorhersuccessorhasbeendulyelectedandqualifiedoruntilhisorherearlierresignationorremoval;2.ToapproveourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated;3.ToratifytheappointmentoftheaccountingfirmofPricewaterhouseCoopersLLPastheCompany’sindependentregisteredpublicaccountantsforthecurrentfiscalyear;4.Toholdanadvisoryvoteonthecompensationofournamedexecutiveofficers;5.Toholdanadvisoryvoteonthefrequencyofholdingfutureadvisoryvotesonthecompensationofournamedexecutiveofficers;and6.Totransactsuchotherbusinessasmayproperlycomebeforetheannualmeetingandanyadjournmentsorpostponementsthereof.Proposal1relatessolelytotheelectionofthree(3)classIIIdirectorsnominatedbytheboardofdirectorsanddoesnotincludeanyothermattersrelatingtotheelectionofdirectors,includingwithoutlimitation,theelectionofdirectorsnominatedbyanystockholderoftheCompany.OnlystockholdersofrecordatthecloseofbusinessonApril7,2011,areentitledtonoticeofandtovoteattheannualmeetingandatanyadjournmentorpostponementthereof.Allstockholdersarecordiallyinvitedtoattendtheannualmeetinginperson.However,toassureyourrepresentationattheannualmeeting,weurgeyou,whetherornotyouplantoattendtheannualmeeting,tosignandreturntheenclosedproxysothatyourshareswillberepresentedattheannualmeeting.Ifyouattendtheannualmeeting,youmayvoteinpersonevenifyouhavepreviouslyreturnedyourproxycard.DirectionstoiRobotCorporationheadquarterscanbefoundattheCompany’swebsite,http://www.irobot.com.ByOrderoftheBoardofDirectors,GLEND.WEINSTEINSeniorVicePresident,GeneralCounselandSecretaryBedford,MassachusettsApril13,2011IMPORTANTNOTICEREGARDINGTHEAVAILABILITYOFPROXYMATERIALSFORTHESHAREHOLDERMEETINGTOBEHELDONMAY25,2011.THEPROXYSTATEMENTANDANNUALREPORTTOSHAREHOLDERSAREAVAILABLEAThttps://materials.proxyvote.com/462726.WHETHERORNOTYOUEXPECTTOATTENDTHEANNUALMEETING,PLEASECOMPLETE,DATEANDSIGNTHEENCLOSEDPROXYCARDANDMAILITPROMPTLYINTHEENCLOSEDENVELOPEINORDERTOASSUREREPRESENTATIONOFYOURSHARES.NOPOSTAGENEEDBEAFFIXEDIFTHEPROXYCARDISMAILEDINTHEUNITEDSTATES.INACCORDANCEWITHOURSECURITYPROCEDURES,ALLPERSONSATTENDINGTHEANNUALMEETINGWILLBEREQUIREDTOPRESENTPICTUREIDENTIFICATION.ProxyStatementTABLEOFCONTENTSPROXYSTATEMENT.............................................................1SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENT..........3PROPOSAL1—ELECTIONOFDIRECTORS..........................................6Nominees.....................................................................6RecommendationoftheBoard......................................................6DIRECTORSANDEXECUTIVEOFFICERS............................................7CORPORATEGOVERNANCEANDBOARDMATTERS..................................11BoardLeadershipStructure........................................................11IndependenceofMembersoftheBoardofDirectors.....................................11ExecutiveSessionsofIndependentDirectors...........................................11TheBoardofDirectors’RoleinRiskOversight.........................................11PoliciesGoverningDirectorNominations..............................................11PolicyGoverningSecurityHolderCommunicationswiththeBoardofDirectors.................13PolicyGoverningDirectorAttendanceatAnnualMeetingsofStockholders....................14BoardofDirectorsEvaluationProgram...............................................14CodeofEthics.................................................................14THEBOARDOFDIRECTORSANDITSCOMMITTEES..................................14BoardofDirectors..............................................................14AuditCommittee................................................................15CompensationCommittee.........................................................15NominatingandCorporateGovernanceCommittee.......................................16CompensationCommitteeInterlocksandInsiderParticipation...............................16REPORTOFTHEAUDITCOMMITTEEOFTHEBOARDOFDIRECTORS...................17REPORTOFTHECOMPENSATIONCOMMITTEEOFTHEBOARDOFDIRECTORS...........18COMPENSATIONANDOTHERINFORMATIONCONCERNINGDIRECTORSANDOFFICERS...19CompensationDiscussion&Analysis................................................19SUMMARYCOMPENSATIONTABLE................................................26GRANTSOFPLAN-BASEDAWARDS—2010..........................................27DiscussionofSummaryCompensationandGrantsofPlan-BasedAwardsTables.................27OUTSTANDINGEQUITYAWARDSATFISCALYEAREND—2010........................28OPTIONEXERCISESANDSTOCKVESTED—2010....................................29PotentialBenefitsUponTerminationorChangeinControl.................................29DirectorCompensation...........................................................30DIRECTORCOMPENSATIONTABLE—2010..........................................32TransactionswithRelatedPersons...................................................33PROPOSAL2—APPROVALOFTHECOMPANY’SSENIOREXECUTIVEINCENTIVECOMPENSATIONPLAN,ASAMENDEDANDRESTATED..............................34SummaryoftheIncentivePlan.....................................................34Purpose.......................................................................34Administration.................................................................34Eligibility.....................................................................34IncentiveAwardsandPerformanceGoals..............................................34EffectiveDate;TerminationandAmendment...........................................35NewPlanBenefits...............................................................35ProxyStatementPROPOSAL3—RATIFICATIONOFAPPOINTMENTOFINDEPENDENTREGISTERED.........36PricewaterhouseCoopersLLPFees...................................................36RecommendationoftheBoard......................................................37PROPOSAL4—ADVISORYVOTEONTHECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERS....................................................................38RecommendationoftheBoard......................................................38PROPOSAL5—ADVISORYVOTEONTHEFREQUENCYOFHOLDINGFUTUREADVISORYVOTESONTHECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERS..............39RecommendationoftheBoard......................................................39OTHERMATTERS...............................................................39STOCKHOLDERPROPOSALS......................................................39SECTION16(a)BENEFICIALOWNERSHIPREPORTINGCOMPLIANCE.....................40EXPENSESANDSOLICITATION....................................................40HOUSEHOLDINGOFPROXYMATERIALS............................................40AppendixA.....................................................................A-1iROBOTCORPORATION8CrosbyDriveBedford,Massachusetts01730PROXYSTATEMENTFortheAnnualMeetingofStockholdersToBeHeldonMay25,2011April13,2011ThisproxystatementisfurnishedinconnectionwiththesolicitationofproxiesbytheboardofdirectorsofiRobotCorporation,aDelawarecorporation(the“Company”),foruseattheannualmeetingofstockholderstobeheldonWednesday,May25,2011,at10:00a.m.,localtime,atiRobotCorporationheadquarterslocatedat8CrosbyDrive,Bedford,Massachusetts01730,andanyadjournmentsorpostponementsthereof.Anannualreporttostockholders,containingfinancialstatementsforthefiscalyearendedJanuary1,2011,isbeingmailedtogetherwiththisproxystatementtoallstockholdersentitledtovoteattheannualmeeting.ThisproxystatementandtheformofproxyareexpectedtobefirstmailedtostockholdersonoraboutApril21,2011.Thepurposesoftheannualmeetingaretoelectthree(3)classIIIdirectorsforthree-yearterms,toapproveourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,toratifytheappointmentoftheCompany’sindependentregisteredpublicaccountants,toholdanadvisoryvoteonthecompensationofournamedexecutiveofficersandtoholdanadvisoryvoteonthefrequencyofholdingfutureadvisoryvotesonthecompensationofournamedexecutiveofficers.OnlystockholdersofrecordatthecloseofbusinessonApril7,2011willbeentitledtoreceivenoticeofandtovoteattheannualmeeting.AsofMarch31,2011,26,301,866sharesofcommonstock,$.01parvaluepershare,oftheCompanywereissuedandoutstanding.Theholdersofcommonstockareentitledtoonevotepershareonanyproposalpresentedattheannualmeeting.Stockholdersmayvoteinpersonorbyproxy.Ifyouattendtheannualmeeting,youmayvoteinpersonevenifyouhavepreviouslyreturnedyourproxycard.Anyproxygivenpursuanttothissolicitationmayberevokedbythepersongivingitatanytimebeforeitisvoted.Proxiesmayberevokedby(i)filingwiththeSecretaryoftheCompany,beforethetakingofthevoteattheannualmeeting,awrittennoticeofrevocationbearingalaterdatethantheproxy,(ii)dulycompletingalater-datedproxyrelatingtothesamesharesanddeliveringittotheSecretaryoftheCompanybeforethetakingofthevoteattheannualmeeting,or(iii)attendingtheannualmeetingandvotinginperson(althoughattendanceattheannualmeetingwillnotinandofitselfconstitutearevocationofaproxy).AnywrittennoticeofrevocationorsubsequentproxyshouldbesentsoastobedeliveredtoiRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730,Attention:Secretary,beforethetakingofthevoteattheannualmeeting.Therepresentationinpersonorbyproxyofatleastamajorityoftheoutstandingsharesofcommonstockentitledtovoteattheannualmeetingisnecessarytoconstituteaquorumforthetransactionofbusiness.Voteswithheldfromanynominee,abstentionsandbroker“non-votes”arecountedaspresentorrepresentedforpurposesofdeterminingthepresenceorabsenceofaquorumfortheannualmeeting.A“non-vote”occurswhenanomineeholdingsharesforabeneficialownervotesononeproposalbutdoesnotvoteonanotherproposalbecause,withrespecttosuchotherproposal,thenomineedoesnothavediscretionaryvotingpowerandhasnotreceivedinstructionsfromthebeneficialowner.ForProposal1,theelectionofclassIIIdirectors,thenomineesreceivingthehighestnumberofaffirmativevotesofthesharespresentorrepresentedandentitledtovoteattheannualmeetingshallbeelectedasdirectors.ForProposal2,theapprovalofourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,forProposal3,theratificationoftheappointmentofPricewaterhouseCoopersLLPastheCompany’sindependentregisteredpublicaccountantsforthecurrentfiscalyear,andforProposal4,theadvisoryvoteonthecompensationofournamedexecutiveofficers,anaffirmativevoteofamajorityofthesharespresent,inpersonorrepresentedbyproxy,andvotingoneachsuchmatterisrequiredforapproval.ForProposal5,theadvisoryvoteonthefrequencyofholdingfutureadvisoryvotesonthecompensationofourProxyStatementnamedexecutiveofficers,thefrequencythatreceivesthehighestnumberofaffirmativevotesofthesharespresentorrepresentedandentitledtovoteattheannualmeetingshallbedeemedapproved.Abstentionsareincludedinthenumberofsharespresentorrepresentedandvotingoneachmatter.Broker“non-votes”arenotconsideredvotedfortheparticularmatterandhavetheeffectofreducingthenumberofaffirmativevotesrequiredtoachieveamajorityforsuchmatterbyreducingthetotalnumberofsharesfromwhichthemajorityiscalculated.Thepersonnamedasattorney-in-factintheproxies,GlenD.Weinstein,wasselectedbytheboardofdirectorsandisanofficeroftheCompany.Allproperlyexecutedproxiesreturnedintimetobecountedattheannualmeetingwillbevotedbysuchpersonattheannualmeeting.Whereachoicehasbeenspecifiedontheproxywithrespecttotheforegoingmatters,thesharesrepresentedbytheproxywillbevotedinaccordancewiththespecifications.Ifnosuchspecificationsareindicated,suchproxieswillbevotedFORelectionofthedirectornominees,FORapprovalofourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,FORratificationoftheappointmentofourindependentregisteredpublicaccountants,FORtheapproval,onanadvisorybasis,ofthecompensationofournamedexecutiveofficersandFORtheholdingoffutureadvisoryvotesonthecompensationofournamedexecutiveofficersonatriennialbasis.Asidefromtheelectionofdirectors,theapprovalofourSeniorExecutiveIncentiveCompensationPlan,asamendedandrestated,theratificationoftheappointmentoftheindependentregisteredpublicaccountants,theadvisoryvoteonthecompensationofournamedexecutiveofficersandtheadvisoryvoteonthefrequencyofholdingoffutureadvisoryvotesonthecompensationofournamedexecutiveofficers,theboardofdirectorsknowsofnoothermatterstobepresentedattheannualmeeting.Ifanyothermattershouldbepresentedattheannualmeetinguponwhichavoteproperlymaybetaken,sharesrepresentedbyallproxiesreceivedbytheboardofdirectorswillbevotedwithrespecttheretoinaccordancewiththejudgmentofthepersonnamedasattorney-in-factintheproxies.2SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTThefollowingtablesetsforthcertaininformationregardingbeneficialownershipoftheCompany’scommonstockasofMarch31,2011:(i)byeachpersonwhoisknownbytheCompanytobeneficiallyownmorethan5%oftheoutstandingsharesofcommonstock;(ii)byeachdirectorornomineeoftheCompany;(iii)byeachnamedexecutiveofficeroftheCompany;and(iv)byalldirectorsandexecutiveofficersoftheCompanyasagroup.Unlessotherwisenotedbelow,theaddressofeachpersonlistedonthetableisc/oiRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730.NameofBeneficialOwnerSharesBeneficiallyOwned(1)PercentageofSharesBeneficiallyOwned(2)FMRLLC(3)....................................3,815,84414.51%82DevonshireStreetBoston,MA02109OppenheimerFunds,Inc.(4)..........................1,500,6005.71%2WorldFinancialCenter225LibertyStreetNewYork,NY10281-1008ColinM.Angle(5)................................963,7123.65%JohnJ.Leahy(6).................................121,384*JosephW.Dyer(7)................................117,404*JeffreyA.Beck(8)................................33,675*RobertL.Moses(9)...............................32,578*RussellJ.Campanello.............................0*AlisonDean(10)..................................43,530*GlenD.Weinstein(11).............................115,907*RodneyA.Brooks,Ph.D.(12)........................599,6922.28%RonaldChwang(13)...............................515,2351.96%JacquesS.Gansler(14).............................81,400*AndreaGeisser(15)................................104,153*HelenGreiner(16)................................712,6832.71%GeorgeC.McNamee(17)...........................153,129*PeterT.Meekin(18)...............................60,798*PaulJ.Kern(19)..................................75,534*PaulSagan(20)...................................10,266*GailDeegan.....................................0*Allexecutiveofficers,directorsandnomineesasagroup(21)(18persons)................................3,741,08013.70%*Representslessthan1%oftheoutstandingcommonstock.(1)BeneficialownershipisdeterminedinaccordancewiththerulesoftheSecuritiesandExchangeCommis-sionandincludesvotingandinvestmentpowerwithrespecttoshares.Unlessotherwiseindicatedbelow,totheknowledgeoftheCompany,allpersonslistedbelowhavesolevotingandinvestmentpowerwithrespecttotheirsharesofcommonstock,excepttotheextentauthorityissharedbyspousesunderappli-cablelaw.PursuanttotherulesoftheSecuritiesandExchangeCommission,thenumberofsharesofcommonstockdeemedoutstandingincludes(i)sharesissuablepursuanttooptionsheldbytherespectivepersonorgroupthatarecurrentlyexercisableormaybeexercisedwithin60daysofMarch31,2011and(ii)sharesissuablepursuanttorestrictedstockunitsheldbytherespectivepersonorgroupthatvestwithin60daysofMarch31,2011.(2)ApplicablepercentageofownershipasofMarch31,2011isbasedupon26,301,866sharesofcommonstockoutstanding.3ProxyStatement(3)FMRLLCandEdwardC.Johnson3deachhavesoledispositivepowerwithrespecttoalloftheshares.FidelityManagement&ResearchCompany(“Fidelity”),awhollyownedsubsidiaryofFMRLLCandaninvestmentadviser,isabeneficialownerofalloftheshares,1,615,286ofwhichareattributabletoFidelityOTCPortfolio,aninvestmentcompanyregisteredundertheInvestmentCompanyActof1940.NeitherFMRLLCnorEdwardC.Johnson3dhasthesolepowertovoteordirectthevotingofthesharesowneddirectlybytheFidelityFunds,whichpowerresideswiththeFunds’BoardsofTrustees.FidelitycarriesoutthevotingofthesharesunderwrittenguidelinesestablishedbytheFunds’BoardsofTrustees.Theaddressofeachreportingentityis82DevonshireStreet,Boston,MA02109.Thisinforma-tionhasbeenobtainedfromaSchedule13GfiledbyFMRLLCandEdwardC.Johnson3dwiththeSecuritiesandExchangeCommissiononFebruary14,2011.(4)OppenheimerFunds,Inc.hassharedvotingpowerandshareddispositivepowerwithrespecttoalloftheseshares.ThisinformationhasbeenobtainedfromaSchedule13G/AfiledbyOppenheimerFunds,Inc.withtheSecuritiesandExchangeCommissiononFebruary10,2011,andincludes1,500,600sharesoverwhichOppenheimerGlobalOpportunityFundhassharedvotingandshareddispositivepower.TheaddressofOppenheimerGlobalOpportunityFundis6803S.TucsonWay,Centennial,CO80112.(5)Includes110,850sharesissuabletoMr.Angleuponexerciseofstockoptionsand7,563sharesissuabletoMr.Angleuponvestingofrestrictedstockunits.(6)Includes95,448sharesissuabletoMr.Leahyuponexerciseofstockoptionsand3,088sharesissuabletoMr.Leahyuponvestingofrestrictedstockunits.(7)Includes99,616sharesissuabletoMr.Dyeruponexerciseofstockoptions,2,925sharesissuabletoMr.Dyeruponvestingofrestrictedstockunitsand100sharesownedbyMr.Dyer’sstepson.Mr.Dyerdisclaimsbeneficialownershipofthe100sharesownedbyhisstepson,excepttotheextentofhispecuni-aryinterest,ifany.(8)Includes14,750sharesissuabletoMr.Beckuponexerciseofstockoptionsand10,175sharesissuabletoMr.Beckuponvestingofrestrictedstockunits.(9)Includes29,925sharesissuabletoMr.Mosesuponexerciseofstockoptionsand988sharesissuabletoMr.Mosesuponvestingofrestrictedstockunits.(10)Includes39,029sharesissuabletoMs.Deanuponexerciseofstockoptionsand725sharesissuabletoMs.Deanuponvestingofrestrictedstockunits.(11)Includes99,740sharesissuabletoMr.Weinsteinuponexerciseofstockoptionsand1,575sharesissuabletoMr.Weinsteinuponvestingofrestrictedstockunits.(12)Includes19,333sharesissuabletoDr.Brooksuponexerciseofstockoptions.(13)Includesanaggregateof326,525sharesheldbyiD5Fund,L.P.Dr.ChwangisageneralpartnerofthemanagementcompanyforiD5Fund,L.P.andmaybedeemedtosharevotingandinvestmentpowerwithrespecttoallsharesheldbyiD5Fund,L.P.Dr.Chwangdisclaimsbeneficialownershipofsuchsharesexcepttotheextentofhispecuniaryinterest,ifany.Alsoincludes65,000sharesissuabletoDr.Chwanguponexerciseofstockoptionsand123,710sharesheldinatrustforthebenefitofcertainofhisfamilymembers.Asco-trusteesofthefamilytrust,Dr.Chwangsharesvotinganddispositivepoweroverthesharesheldbythetrustwithhisspouse.(14)Includes80,000sharesissuabletoDr.Gansleruponexerciseofstockoptions.(15)Includes80,000sharesissuabletoMr.Geisseruponexerciseofstockoptionsand11,247sharesissuabletoMr.Geisseruponterminationofservice.(16)Includes31,333sharesissuabletoMs.Greineruponexerciseofstockoptionsand228sharesissuabletoMs.Greineruponterminationofservice.(17)Includes80,000sharesissuabletoMr.McNameeuponexerciseofstockoptionsand3,489sharesissu-abletoMr.McNameeuponterminationofservice.4(18)Includes40,000sharesissuabletoMr.Meekinuponexerciseofstockoptions,9,780sharesissuabletoMr.Meekinuponterminationofserviceand500sharesownedbyMr.Meekin’sIRA.Mr.Meekin’sspousesharesvotinganddispositivepoweroverthenon-IRAshares.(19)Consistsof70,000sharesissuabletoGen.Kernuponexerciseofstockoptionsand5,534sharesissuabletoGen.Kernuponterminationofservice.(20)Includes10,000sharesissuabletoMr.Saganuponexerciseofstockoptionsand266sharesissuabletoMr.Saganuponterminationofservice.(21)Includesanaggregateof965,024sharesissuableuponexerciseofstockoptionsheldbysixteen(16)exec-utiveofficersanddirectors,anaggregateof27,039sharesissuableuponvestingofrestrictedstockunitsheldbyseven(7)executiveofficersandanaggregateof30,544sharesissuableuponterminationofser-vicetosix(6)directors.5ProxyStatementPROPOSAL1ELECTIONOFDIRECTORSNomineesOurboardofdirectorscurrentlyconsistsoftenmembers.Ouramendedandrestatedcertificateofincorporationdividestheboardofdirectorsintothreeclasses.Oneclassiselectedeachyearforatermofthreeyears.Theboardofdirectors,upontherecommendationofthenominatingandcorporategovernancecommittee,hasnominatedGailDeegan,AndreaGeisserandJacquesS.Gansler,Ph.D.andrecommendedthateachbeelectedtotheboardofdirectorsasaclassIIIdirector,eachtoholdofficeuntiltheannualmeetingofstockholderstobeheldintheyear2014anduntilhisorhersuccessorhasbeendulyelectedandqualifiedoruntilhisorherearlierdeath,resignationorremoval.Dr.GanslerandMr.GeisserareclassIIIdirectorswhosetermsexpireatthisannualmeeting.Theboardofdirectorsisalsocomposedof(i)threeclassIdirectors(ColinM.Angle,RonaldChwang,Ph.D.,andPaulJ.Kern,Gen.U.S.Army(ret.)),whosetermsexpireupontheelectionandqualificationofdirectorsattheannualmeetingofstockholderstobeheldin2012,(ii)fourclassIIdirectors(HelenGreiner,GeorgeC.McNamee,PeterT.Meekin,andPaulSagan)whosetermsexpireupontheelectionandqualificationofdirectorsattheannualmeetingofstockholderstobeheldin2013,and(iii)RodneyA.Brooks,Ph.D.,currentlyaclassIIIdirector,whohasinformedusthathewillretireupontheexpirationofhisterm,thedateofthisannualmeeting,andwillthereforenotstandforre-election.Theboardofdirectorsknowsofnoreasonwhyanyofthenomineeswouldbeunableorunwillingtoserve,butifanynomineeshouldforanyreasonbeunableorunwillingtoserve,theproxieswillbevotedfortheelectionofsuchotherpersonfortheofficeofdirectorastheboardofdirectorsmayrecommendintheplaceofsuchnominee.Unlessotherwiseinstructed,theproxyholderswillvotetheproxiesreceivedbythemforthenomineesnamedbelow.RecommendationoftheBoardTHEBOARDOFDIRECTORSUNANIMOUSLYRECOMMENDSTHATYOUVOTE“FOR”THENOMINEESLISTEDBELOW.Thefollowingtablesetsforththenomineestobeelectedattheannualmeetingandcontinuingdirectors,theyeareachsuchnomineeordirectorwasfirstelectedadirector,thepositionswithuscurrentlyheldbyeachnomineeanddirector,theyeareachnominee’sordirector’scurrenttermwillexpireandeachnominee’sanddirector’scurrentclass:Nominee’sorDirector’sNameandYearFirstBecameaDirectorPosition(s)withtheCompanyYearCurrentTermWillExpireCurrentClassofDirectorNomineesforClassIIIDirectors:GailDeegan...........................N/AN/AN/AAndreaGeisser.........................2004Director2011IIIJacquesS.Gansler,Ph.D...................2003Director2011IIIContinuingDirectors:ColinM.Angle.........................1992ChairmanoftheBoard,ChiefExecutiveOfficerandDirector2012IRonaldChwang,Ph.D.....................1998Director2012IPaulJ.Kern,Gen.U.S.Army(ret.)...........2006Director2012IHelenGreiner..........................1994Director2013IIGeorgeC.McNamee.....................1999Director2013IIPeterT.Meekin.........................2003Director2013IIPaulSagan............................2010Director2013II6DIRECTORSANDEXECUTIVEOFFICERSThefollowingtablesetsforththedirectornomineestobeelectedattheannualmeeting,thedirectorsandtheexecutiveofficersoftheCompany,theiragesimmediatelypriortotheannualmeeting,andthepositionscurrentlyheldbyeachsuchpersonwiththeCompany.NameAgePositionColinM.Angle.....................43ChairmanoftheBoard,ChiefExecutiveOfficerandDirectorJohnJ.Leahy......................52ExecutiveVicePresident,ChiefFinancialOfficerandTreasurerJosephW.Dyer.....................64ChiefOperatingOfficerJeffreyA.Beck.....................48President,HomeRobotsRobertL.Moses....................56President,GovernmentandIndustrialRobotsRussellCampanello..................55SeniorVicePresident,HumanResourcesAlisonDean.......................46SeniorVicePresident,CorporateFinanceGlenD.Weinstein...................40SeniorVicePresident,GeneralCounselandSecretaryRodneyA.Brooks,Ph.D.(1)............56DirectorRonaldChwang,Ph.D.(2)..............63DirectorJacquesS.Gansler,Ph.D.(3)............76DirectorAndreaGeisser(4)...................68DirectorHelenGreiner......................43DirectorGeorgeC.McNamee(2)(4).............64DirectorPeterT.Meekin(3)(4)................61DirectorPaulJ.Kern,Gen.U.S.Army(ret)(2).....65DirectorPaulSagan(3)......................52DirectorGailDeegan.......................64DirectorNominee(1)Dr.Brooksisretiringfromtheboardofdirectorsandthereforeisnotstandingforre-electionatthisannualmeeting(2)Memberofcompensationcommittee(3)Memberofnominatingandcorporategovernancecommittee(4)MemberofauditcommitteeColinM.Angle,aco-founderofiRobot,hasservedaschairmanoftheboardsinceOctober2008,aschiefexecutiveofficersinceJune1997,andpriortothat,asourpresidentsinceNovember1992.Mr.AnglehasalsoservedasadirectorsinceOctober1992.Mr.AnglealsoworkedattheNationalAeronauticalandSpaceAdministration’sJetPropulsionLaboratorywhereheparticipatedinthedesignofthebehavior-controlledroversthatledtoSojournerexploringMarsin1997.Mr.AngleholdsaB.S.inElectricalEngineeringandanM.S.inComputerScience,bothfromMIT.Asaco-founderandchiefexecutiveofficer,Mr.AngleprovidesacriticalcontributiontotheboardofdirectorsreflectinghisdetailedknowledgeoftheCompany,ouremployees,ourclientbase,ourprospects,thestrategicmarketplaceandourcompetitors.JohnJ.Leahyhasservedasourexecutivevicepresident,chieffinancialofficerandtreasurersinceJune2008.FromAugust2007toSeptember2007,Mr.Leahyservedasexecutivevicepresident,chieffinancialofficer,principalfinancial/accountingofficerandassistanttreasurerofTheHanoverInsuranceGroup,Inc.From1999to2007,Mr.LeahyservedasexecutivevicepresidentandchieffinancialofficerofKeane,Inc.,andservedasinterimpresidentandchiefexecutiveofficerfromMay2006toJanuary2007.From1982to1999,Mr.LeahyservedinanumberoffinancialpositionsforPepsico,Inc.HereceivedaB.S.inFinancefromMerrimackCollegeandanM.B.A.fromBostonCollege.JosephW.DyerhasservedasourchiefoperatingofficersinceAugust2010.Mr.DyerpreviouslyservedasthepresidentofourgovernmentandindustrialrobotsdivisionfromJuly2006toAugust2010.Mr.DyerservedasexecutivevicepresidentandgeneralmanagerofourgovernmentandindustrialrobotsdivisionfromSeptember2003untilJuly2006.PriortojoiningiRobot,Mr.Dyerservedfor32yearsintheU.S.Navy.From7ProxyStatementJuly2000untilJuly2003,heservedasViceAdmiralcommandingtheNavalAirSystemsCommandatwhichhewasresponsibleforresearchanddevelopment,procurementandin-servicesupportfornavalaircraft,weaponsandsensors.HeisanelectedfellowintheSocietyofExperimentalTestPilotsandtheNationalAcademyofPublicAdministration.HealsochairsNASA’sAerospaceSafetyAdvisoryPanel.Mr.DyerholdsaB.S.inChemicalEngineeringfromNorthCarolinaStateUniversityandanM.S.inFinancefromtheNavalPostgraduateSchool,Monterey,California.JeffreyA.BeckhasservedasthepresidentofourhomerobotsdivisionsinceApril2009.PriortojoiningiRobot,Mr.BeckservedatAMETEKCorporationasseniorvicepresidentandgeneralmanager,Aerospace&Defensefrom2008to2009andasvicepresident&generalmanager,PowerSystemsandInstrumentsDivisionfrom2004to2008.From1996to2004,Mr.BeckservedinanumberofpositionsatDanaherCorporation,includingpresident,DanaherPrecisionSystemsDivisionandvicepresidentofsales,KollmorgenI&CDivision.Mr.BeckholdsaB.S.inMechanicalEngineeringfromtheNewJerseyInstituteofTechnologyandanM.B.A.fromBostonUniversity.RobertL.MoseshasservedaspresidentofourgovernmentandindustrialrobotsdivisionsinceAugust2010.Previously,heservedasthedivision’sseniorvicepresidentofoperationsfromApril2008toAugust2010andvicepresidentofoperationsfromApril2006toMarch2008.PriortojoiningiRobotasdirectorofoperationsofourgovernmentandindustrialrobotsdivisionin2003,Mr.Mosesservedasacareernavalofficer,mostrecentlyasdirectorofcontractsfortheNavalAirSystemsCommand.Mr.Mosesholdsabachelor’sdegreeinbusinessadministrationfromtheUniversityofMississippiandamaster’sdegreeinacquisitionandcontractadministrationfromtheNavalPostgraduateSchoolinMonterey,California.RussellCampanellohasservedasourseniorvicepresident,humanresourcessinceNovember2010.PriortojoiningiRobot,Mr.Campanelloservedasseniorvicepresident,humanresourcesandadministrationatPhaseForward,Inc.fromApril2008untilSeptember2010.Mr.CampanellopreviouslyservedasseniorvicepresidentofhumanresourcesandmarketingatKeane,Inc.,abusinessprocessandinformationtechnologyconsultingfirm,fromSeptember2003toOctober2007.PriortoKeane,Mr.CampanelloservedaschiefpeopleofficeratNerveWirefromAugust2000toFebruary2003.PriortoNerveWire,heservedasseniorvicepresident,humanresourcesatGenzymeCorp.fromNovember1997toJuly2000.Earlierinhiscareer,Mr.CampanellospentnineyearsasvicepresidentofhumanresourcesatLotusDevelopmentCorporation.HeattendedSuffolkUniversity’sExecutiveMBAprogram,andholdsaB.S.degreeinBusinessAdministrationfromtheUniversityofMassachusettsAlisonDeanhasservedasourseniorvicepresident,corporatefinancesinceFebruary2010.FromMarch2007untilFebruary2010,Ms.Deanservedasourprincipalaccountingofficerandvicepresident,financialcontrols&analysis.FromAugust2005untilMarch2007,Ms.Deanservedasourvicepresident,financialplanning&analysis.From1995toAugust2005,Ms.Deanservedinanumberofpositionsat3ComCorporation,includingvicepresidentandcorporatecontrollerfrom2004to2005andvicepresidentoffinance—worldwidesalesfrom2003to2004.Ms.DeanholdsaB.A.inBusinessEconomicsfromBrownUniversityandanM.B.A.fromBostonUniversity.GlenD.WeinsteinhasservedasourgeneralcounselsinceJuly2000.SinceFebruary2005,Mr.Weinsteinhasalsoservedasaseniorvicepresident,andheservedasavicepresidentfromFebruary2002toJanuary2005.SinceMarch2004,hehasalsoservedasoursecretary.PriortojoiningiRobot,Mr.WeinsteinwaswithCovington&Burling,alawfirminWashington,D.C.Mr.WeinsteinholdsaB.S.inMechanicalEngineeringfromMITandaJ.D.fromtheUniversityofVirginiaSchoolofLaw.RodneyA.Brooks,Ph.D.,aco-founderofiRobot,hasservedasadirectorsinceourinceptioninAugust1990,andfrominceptionuntilFebruary2004,asthechairmanoftheboardofdirectors.Dr.BrooksheldvariouspositionsatiRobotsinceourinception,includingchieftechnologyofficerfromJune1997untilSeptember2008,andpriortothat,treasurerandpresident.InSeptember2008,Dr.Brooksco-foundedHeartlandRoboticstodeveloplow-costindustrialrobotsthatwillempowerworkersandservesasitschairmanandchieftechnologyofficer.Dr.BrooksalsoservesaspresidentofBrooksLabLLC.Dr.BrooksisthePanasonicProfessorofRoboticsEmeritusatMIT.FromJune2003untilJune2007,Dr.BrookswasdirectoroftheMITComputerScienceandArtificialIntelligenceLaboratory.FromAugust1997untilJune2003,hewas8thedirectoroftheMITArtificialIntelligenceLaboratory.Dr.BrooksisamemberoftheNationalAcademyofEngineering.Dr.BrooksholdsadegreeinpuremathematicsfromtheFlindersUniversityofSouthAustraliaandaPh.D.inComputerSciencefromStanfordUniversity.Asaco-founderandformerchieftechnologyofficer,Dr.Brooksprovidesacriticalcontributiontotheboardofdirectorsreflectinghisdetailedknowledgeoftheroboticsindustry.RonaldChwang,Ph.D,hasservedasadirectorsinceNovember1998.Dr.ChwangisthechairmanandpresidentofiDVenturesAmerica,LLC(formerlyknownasAcerTechnologyVentures)undertheiDSoftCapitalGroup,aventureinvestmentandmanagementconsultingservicegroupformedinJanuary2005.FromAugust1998untilDecember2004,Dr.ChwangwasthechairmanandpresidentofAcerTechnologyVentures,LLC,managinghigh-techventureinvestmentactivitiesinNorthAmerica.Dr.ChwangalsoservesontheboardofdirectorsofAUOptronicsandanumberofotherprivatehightechcompaniesandisaformerdirectorofSiliconStorageTechnologies.Dr.ChwangholdsaB.Eng.(withhonors)inElectricalEngineeringfromMcGillUniversityandaPh.D.inElectricalEngineeringfromtheUniversityofSouthernCalifornia.Dr.Chwangbringstotheboardofdirectorshisextensiveexperienceinthetechnologyindustry,throughbothcompanyoperationsandventurecapitalinvestment.GailDeeganhasbeennominatedtoserveasadirector.FromFebruary1996untilherretirementinSeptember2001,Ms.DeeganservedasexecutivevicepresidentandchieffinancialofficerofHoughtonMifflinCompany,apublishingcompany.FromFebruary1995toFebruary1996,Ms.DeeganwasseniorvicepresidentofregulatoryandgovernmentaffairsforNYNEXNewEngland,andfromNovember1991toJanuary1995,wasvicepresidentandchieffinancialofficerofNewEnglandTelephone.From1988toJanuary1990,Ms.Deeganwasseniorvicepresident,chieffinancialofficerandtreasurerofEasternEnterprises,andfromFebruary1990toMay1991,wasseniorvicepresident,chieffinancialofficerandchiefadministrativeofficer.Ms.DeeganisadirectorofEMCCorporationandaformerdirectorofTJXCompanies,Inc.Ms.Deeganholdsabachelor’sdegreeinelementaryeducationfromTheCollegeofSaintRose,amaster’sdegreeinHistoryfromOhioStateUniversity,andanMBAfromSimmonsCollegeSchoolofManagement.Ifelected,Ms.Deeganwillbringtoourboardofdirectorsherextensiveexperiencewithfinancialaccountingmattersforcomplexorganizationsandoversightofthefinancialreportingprocessofpubliccompanies.JacquesS.Gansler,Ph.D.hasservedasadirectorsinceJuly2004.Dr.GanslerhasbeenaprofessorattheUniversityofMaryland,whereheleadstheschool’sCenterforPublicPolicyandPrivateEnterprise,sinceJanuary2001.FromNovember1997untilJanuary2001,Dr.GanslerservedastheUnderSecretaryofDefenseforAcquisition,TechnologyandLogisticsfortheU.S.federalgovernment.Dr.GansleralsoservesontheboardofdirectorsofTTMTechnologies,Inc..Dr.GanslerholdsaB.E.inelectricalengineeringfromYaleUniversity,anM.S.inElectricalEngineeringfromNortheasternUniversity,anM.A.inPoliticalEconomyfromNewSchoolforSocialResearch,andaPh.D.inEconomicsfromAmericanUniversity.Dr.Ganslerbringstotheboardofdirectorshisexperienceworkingwiththefederalgovernmentandinthedefenseindustry.AndreaGeisserhasservedasadirectorsinceMarch2004.Mr.GeisseriscurrentlyasenioradvisortoZephyrManagementInc.,aglobalprivateequityfirmthatspecializesinemergingmarkets(Africa,India)andamemberoftheinvestmentcommitteeofsomeofthosefunds.From1995to2005,Mr.GeisserwasamanagingdirectorofFenwayPartners.PriortofoundingFenwayPartners,Mr.GeisserwasamanagingdirectorofButlerCapitalCorporation.Priortothat,hewasamanagingdirectorofOnexInvestmentCorporation,aCanadianmanagementbuyoutcompany.From1974to1986,hewasaseniorofficerofExorAmerica.Mr.Geisserhasbeenaboardmemberandauditcommitteememberofseveralprivatecompanies.Mr.Geisserholdsabachelor’sdegreefromBocconiUniversityinMilan,ItalyandaP.M.D.fromHarvardBusinessSchool.Mr.Geisserbringstotheboardofdirectorshisextensiveexperienceregardingthemanagementofcompanies,aswellashisfinancialexpertise.HelenGreiner,aco-founderofiRobot,hasservedasadirectorsinceJuly1994.Ms.GreineralsoservedaspresidentofiRobotfromJune1997untilFebruary2004andaschairmanoftheboardfromFebruary2004untilOctober2008.InOctober2008,Ms.GreinerresignedasanemployeeofiRobotandaschairmanoftheboardtobecomechairman,president&CEOofCyPhyWorks.PriortojoiningiRobot,Ms.Greinerfounded9ProxyStatementCaliforniaCybernetics,acompanycommercializingJetPropulsionLaboratorytechnology.ShehasbeenhonoredbyTechnologyReviewMagazineasan“InnovatorfortheNextCentury.”Ms.GreinerholdsaB.S.inMechanicalEngineeringandanM.S.inComputerScience,bothfromMIT.Ms.Greinerhasextensiveknowledgeoftheroboticsindustry,andasaco-founderandformerexecutiveofficeroftheCompany,Ms.GreinerprovidesacriticalcontributiontotheboardofdirectorsreflectingherdetailedknowledgeoftheCompany,thestrategicmarketplaceandourcompetitors.GeorgeC.McNameehasservedasadirectorsinceAugust1999.Mr.McNameeisamanagingpartnerofFATechnologyVentures,aninformationandenergytechnologyventurecapitalfirm.HealsoservesaschairmanoftheboardofdirectorsofPlugPowerInc.,aleadingfuelcelldeveloper,andisadirectorofseveralprivatecompanies,amemberoftheYaleDevelopmentBoardandaTrusteeoftheAlbanyAcademiesandTheAmericanFriendsofEtonCollege.Mr.McNameepreviouslyservedontheboardofdirectorsofBroadpoint(nowGleacher)Securitiesaswellasservingfrom1984to2007aschairmanofitspredecessorFirstAlbanyCompaniesandwasalsoaboardmemberoftheNewYorkStockExchangeInc.,MapInfo,HomeShoppingNetworkandtheMetaGroup.HereceivedhisBachelorofArtsdegreefromYaleUniversity.Mr.McNameebringstotheboardofdirectorshisextensiveexperienceregardingthemanagementofpublicandprivatecompanies,aswellashisfinancialexpertise.PeterT.MeekinhasservedasadirectorsinceFebruary2003.Mr.MeekinhasbeenamanagingdirectorofTridentCapital,aventurecapitalfirm,since1998.PriortojoiningTridentCapital,hewasvicepresidentofventuredevelopmentatEnterpriseAssociates,LLC,theventurecapitaldivisionofIMSHealth.Previously,Mr.MeekinheldseniortechnologyandmanagementpositionswithDun&BradstreetCorporation,LotusDevelopmentCorporationandIBM.Mr.MeekinholdsaB.S.inMathematicsfromtheStateUniversityofNewYorkatNewPaltz.Mr.Meekinbringstotheboardofdirectorshisextensiveexperienceregardingthemanagementofcompanies,hisfinancialexpertise,andhisexperienceasanentrepreneur,executiveandinvestorinthesoftware,informationservicesandinformationtechnologyconsultingsectors.PaulJ.Kern,Gen.U.S.Army(ret.)hasservedasadirectorsinceMay2006.Gen.KernhasservedasaseniorcounselortoTheCohenGroup,aninternationalstrategicbusinessconsultingfirm,sinceJanuary2005.Gen.KernalsoservedaspresidentandchiefoperatingofficerofAMGeneralLLCfromAugust2008untilJanuary2010.From1963to2004,Gen.KernservedintheU.S.Armyand,fromOctober2001toNovember2004,asCommandingGeneraloftheU.S.ArmyMaterielCommand.PriortohiscommandintheU.S.ArmyMaterielCommand,heservedasthemilitarydeputytotheAssistantSecretaryoftheArmyforAcquisition,LogisticsandTechnology.Gen.KernalsoservesontheboardofdirectorsofITTCorporationandisaformerdirectorofEDOCorporationandAnteonInternationalCorporation.HeholdsaB.S.fromtheUnitedStatesMilitaryAcademyatWestPoint,anM.S.inCivilEngineeringfromtheUniversityofMichiganandanM.S.inMechanicalEngineeringfromtheUniversityofMichigan.Gen.Kernbringstotheboardofdirectorshisextensiveexperienceinthemilitaryanddefenseindustry.PaulSaganhasservedasadirectorsinceFebruary2010.HebecameAkamaiTechnology,Inc.’s(NASDAQ:AKAM)chiefexecutiveofficerinApril2005andhasservedasitspresidentsinceMay1999.Mr.SaganbecameamemberofAkamai’sboardofdirectorsinJanuary2005.Akamaiistheleaderinprovidingmanagedservicesforpoweringvideo,dynamictransactionsandenterpriseapplicationsonline.FromJuly1997toAugust1998,Mr.SaganwassenioradvisortotheWorldEconomicForum,aGeneva,Switzerland-basedorganizationthatprovidesacollaborativeframeworkforleaderstoaddressglobalissues.Previously,Mr.SaganheldseniorexecutivepositionsatTimeWarnerCableandTimeInc.,affiliatesofTimeWarnerInc.,andatCBS,Inc.Mr.SaganalsoservesontheboardofdirectorsofEMCCorporationandisaformermemberoftheboardofdirectorsofDowJones&Company,Inc.andDigitas,Inc.Mr.Saganbringstotheboardofdirectorshisextensiveexperiencewithcomplexglobalorganizations,combinedwithhisoperationalandcorporategovernanceexpertise.Ourexecutiveofficersareelectedbytheboardofdirectorsonanannualbasisandserveuntiltheirsuccessorshavebeendulyelectedandqualifiedoruntiltheirearlierdeath,resignationorremoval.10CORPORATEGOVERNANCEANDBOARDMATTERSBoardLeadershipStructureMr.Angleservesasourchiefexecutiveofficerandchairmanoftheboard.Theboardofdirectorsbelievesthathavingourexecutiveofficeraschairmanoftheboardfacilitatestheboardofdirectors’decision-makingprocessbecauseMr.Anglehasfirst-handknowledgeofouroperationsandthemajorissuesfacingus.ThisalsoenablesMr.Angletoactasthekeylinkbetweentheboardofdirectorsandothermembersofmanagement.Toassureeffectiveindependentoversight,theboardofdirectorsannuallyappointsaleadindependentdirector,asdiscussedfurtherin“ExecutiveSessionsofIndependentDirectors”below.IndependenceofMembersoftheBoardofDirectorsTheboardofdirectorshasdeterminedthatDrs.ChwangandGansler,Ms.DeeganandMessrs.Geisser,McNamee,Meekin,Kern,andSaganareindependentwithinthemeaningofthedirectorindependencestandardsofTheNASDAQStockMarket,Inc.,orNASDAQ,andtheSecuritiesandExchangeCommission,includingRule10A-3(b)(1)undertheSecuritiesExchangeActof1934,asamended,ortheExchangeAct.Furthermore,theboardofdirectorshasdeterminedthateachmemberofeachofthecommitteesoftheboardofdirectorsisindependentwithinthemeaningofthedirectorindependencestandardsofNASDAQandtheSecuritiesandExchangeCommission.ExecutiveSessionsofIndependentDirectorsExecutivesessionsoftheindependentdirectorsareheldpriortoeachregularlyscheduledin-personmeetingoftheboardofdirectors.Executivesessionsdonotincludeanyofournon-independentdirectorsandarechairedbyaleadindependentdirectorwhoisappointedannuallybytheboardofdirectorsfromourindependentdirectors.Mr.McNameecurrentlyservesastheleadindependentdirector.Inthisrole,Mr.McNameeservesaschairpersonoftheindependentdirectorsessionsandassiststheboardinassuringeffectivecorporategovernance.Theindependentdirectorsoftheboardofdirectorsmetinexecutivesessionfour(4)timesin2010.TheBoardofDirectors’RoleinRiskOversightTheboardofdirectorsoverseesourriskmanagementprocess.Thisoversightisprimarilyaccomplishedthroughtheboardofdirectors’committeesandmanagement’sreportingprocesses,includingreceivingregularreportsfrommembersofseniormanagementonareasofmaterialrisktothecompany,includingoperational,financial,legalandregulatory,andstrategicandreputationalrisks.Theauditcommitteefocusesonriskrelatedtoaccounting,internalcontrols,andfinancialandtaxreporting.Theauditcommitteealsoassesseseconomicandbusinessrisksandmonitorscompliancewithethicalstandards.Thecompensationcommitteeidentifiesandoverseesrisksassociatedwithourexecutivecompensationpoliciesandpractices,andthenominatingandcorporategovernancecommitteeidentifiesandoverseesrisksassociatedwithdirectorindependence,relatedpartytransactionsandtheimplementationofcorporategovernancepolicies.PoliciesGoverningDirectorNominationsDirectorQualificationsThenominatingandcorporategovernancecommitteeoftheboardofdirectorsisresponsibleforreviewingwiththeboardofdirectorsfromtimetotimetheappropriatequalities,skillsandcharacteristicsdesiredofmembersoftheboardofdirectorsinthecontextoftheneedsofthebusinessandcurrentmake-upoftheboardofdirectors.Thisassessmentincludesconsiderationofthefollowingminimumqualificationsthatthenominatingandcorporategovernancecommitteebelievesmustbemetbyalldirectors:(cid:129)nomineesmusthaveexperienceatastrategicorpolicymakinglevelinabusiness,government,non-profitoracademicorganizationofhighstanding;11ProxyStatement(cid:129)nomineesmustbehighlyaccomplishedinhisorherrespectivefield,withsuperiorcredentialsandrecognition;(cid:129)nomineesmustbewellregardedinthecommunityandshallhavealong-termreputationforthehighestethicalandmoralstandards;(cid:129)nomineesmusthavesufficienttimeandavailabilitytodevotetotheaffairsoftheCompany,particularlyinlightofthenumberofboardsonwhichthenomineemayserve;(cid:129)nomineesmustbefreeofconflictsofinterestandpotentialconflictsofinterest,inparticularwithrelationshipswithotherboards;and(cid:129)nomineesmust,totheextentsuchnomineeservesorhaspreviouslyservedonotherboards,demonstrateahistoryofactivelycontributingatboardmeetings.Wedonothaveaformaldiversitypolicy.However,pursuanttothePolicyGoverningDirectorQualificationsandNominations,aspartofitsevaluationofpotentialdirectorcandidatesandinadditiontootherstandardsthenominatingandcorporategovernancecommitteemaydeemappropriatefromtimetotimefortheoverallstructureandcompositionoftheboardofdirectors,thenominatingandcorporategovernancecommitteemayconsiderwhethereachcandidate,ifelected,assistsinachievingamixofboardmembersthatrepresentadiversityofbackgroundandexperience.Accordingly,theboardofdirectorsseeksmembersfromdiverseprofessionalbackgroundswhocombineabroadspectrumofrelevantindustryandstrategicexperienceandexpertisethat,inconcert,offerusandourstockholdersdiversityofopinionandinsightintheareasmostimportantusandourcorporatemission.Inaddition,nomineesfordirectorareselectedtohavecomplementary,ratherthanoverlapping,skillsets.Allcandidatesfordirectornomineemusthavetimeavailabletodevotetotheactivitiesoftheboardofdirectors.Thenominatingandcorporategovernancecommitteealsoconsiderstheindependenceofcandidatesfordirectornominee,includingtheappearanceofanyconflictinservingasadirector.Candidatesfordirectornomineewhodonotmeetallofthesecriteriamaystillbeconsideredfornominationtotheboardofdirectors,ifthenominatingandcorporategovernancecommitteebelievesthatthecandidatewillmakeanexceptionalcontributiontousandourstockholders.ProcessforIdentifyingandEvaluatingDirectorNomineesTheboardofdirectorsisresponsibleforselectingitsownmembers.Theboardofdirectorsdelegatestheselectionandnominationprocesstothenominatingandcorporategovernancecommittee,withtheexpectationthatothermembersoftheboardofdirectors,andofmanagement,willberequestedtotakepartintheprocessasappropriate.Generally,thenominatingandcorporategovernancecommitteeidentifiescandidatesfordirectornomineeinconsultationwithmanagement,throughtheuseofsearchfirmsorotheradvisors,throughtherecommenda-tionssubmittedbystockholdersorthroughsuchothermethodsasthenominatingandcorporategovernancecommitteedeemstobehelpfultoidentifycandidates.Oncecandidateshavebeenidentified,thenominatingandcorporategovernancecommitteeconfirmsthatthecandidatesmeetalloftheminimumqualificationsfordirectornomineesestablishedbythenominatingandcorporategovernancecommittee.Thenominatingandcorporategovernancecommitteemaygatherinformationaboutthecandidatesthroughinterviews,detailedquestionnaires,comprehensivebackgroundchecksoranyothermeansthatthenominatingandcorporategovernancecommitteedeemstobehelpfulintheevaluationprocess.Thenominatingandcorporategovernancecommitteethenmeetsasagrouptodiscussandevaluatethequalitiesandskillsofeachcandidate,bothonanindividualbasisandtakingintoaccounttheoverallcompositionandneedsoftheboardofdirectors.Basedontheresultsoftheevaluationprocess,thenominatingandcorporategovernancecommitteerecommendscandidatesfortheboardofdirectors’approvalasdirectornomineesforelectiontotheboardofdirectors.Thenominatingandcorporategovernancecommitteealsorecommendscandidatestotheboardofdirectorsforappointmenttothecommitteesoftheboardofdirectors.12ProceduresforRecommendationofDirectorNomineesbyStockholdersThenominatingandcorporategovernancecommitteewillconsiderdirectornomineecandidateswhoarerecommendedbyourstockholders.Stockholders,insubmittingrecommendationstothenominatingandcorporategovernancecommitteefordirectornomineecandidates,shallfollowthefollowingprocedures:Thenominatingandcorporategovernancecommitteemustreceiveanysuchrecommendationfornominationnotlaterthanthecloseofbusinessonthe120thdaynorearlierthanthecloseofbusinessonthe150thdaypriortothefirstanniversaryofthedateoftheproxystatementdeliveredtostockholdersinconnectionwiththeprecedingyear’sannualmeeting.Allrecommendationsfornominationmustbeinwritingandincludethefollowing:(cid:129)Nameandaddressofthestockholdermakingtherecommendation,astheyappearonourbooksandrecords,andofsuchrecordholder’sbeneficialowner;(cid:129)Numberofsharesofourcapitalstockthatareownedbeneficiallyandheldofrecordbysuchstockholderandsuchbeneficialowner;(cid:129)Name,age,businessandresidentialaddress,educationalbackground,currentprincipaloccupationoremployment,andprincipaloccupationoremploymentfortheprecedingfivefullfiscalyearsoftheindividualrecommendedforconsiderationasadirectornominee;(cid:129)Allotherinformationrelatingtotherecommendedcandidatethatwouldberequiredtobedisclosedinsolicitationsofproxiesfortheelectionofdirectorsorisotherwiserequired,ineachcasepursuanttoRegulation14AundertheExchangeAct,includingtherecommendedcandidate’swrittenconsenttobeingnamedintheproxystatementasanomineeandtoservingasadirectorifapprovedbytheboardofdirectorsandelected;and(cid:129)Awrittenstatementfromthestockholdermakingtherecommendationstatingwhysuchrecommendedcandidatemeetsourcriteriaandwouldbeabletofulfillthedutiesofadirector.NominationsmustbesenttotheattentionofoursecretarybyU.S.mail(includingcourierorexpediteddeliveryservice)to:iRobotCorporation8CrosbyDriveBedford,Massachusetts01730Attn:SecretaryofiRobotCorporationOursecretarywillpromptlyforwardanysuchnominationstothenominatingandcorporategovernancecommittee.Oncethenominatingandcorporategovernancecommitteereceivesthenominationofacandidateandthecandidatehascompliedwiththeminimumproceduralrequirementsabove,suchcandidacywillbeevaluatedandarecommendationwithrespecttosuchcandidatewillbedeliveredtotheboardofdirectors.PolicyGoverningSecurityHolderCommunicationswiththeBoardofDirectorsTheboardofdirectorsprovidestoeverysecurityholdertheabilitytocommunicatewiththeboardofdirectorsasawholeandwithindividualdirectorsontheboardofdirectorsthroughanestablishedprocessforsecurityholdercommunicationasfollows:Forcommunicationsdirectedtotheboardofdirectorsasawhole,securityholdersmaysendsuchcommunicationstotheattentionofthechairmanoftheboardofdirectorsbyU.S.mail(includingcourierorexpediteddeliveryservice)to:iRobotCorporation8CrosbyDriveBedford,Massachusetts01730Attn:ChairmanoftheBoard,c/oSecretary13ProxyStatementForsecurityholdercommunicationsdirectedtoanindividualdirectorinhisorhercapacityasamemberoftheboardofdirectors,securityholdersmaysendsuchcommunicationstotheattentionoftheindividualdirectorbyU.S.mail(includingcourierorexpediteddeliveryservice)to:iRobotCorporation8CrosbyDriveBedford,Massachusetts01730Attn:[Nameofthedirector],c/oSecretaryWewillforwardanysuchsecurityholdercommunicationtothechairmanoftheboard,asarepresentativeoftheboardofdirectors,ortothedirectortowhomthecommunicationisaddressed,onaperiodicbasis.WewillforwardsuchcommunicationsbycertifiedU.S.mailtoanaddressspecifiedbyeachdirectorandthechairmanoftheboardforsuchpurposesorbysecureelectronictransmission.PolicyGoverningDirectorAttendanceatAnnualMeetingsofStockholdersOurpolicyistoschedulearegularmeetingoftheboardofdirectorsonthesamedateasourannualmeetingofstockholdersand,accordingly,directorsareencouragedtobepresentatourstockholdermeetings.Theten(10)boardmembers,whoweredirectorsatthetimeoftheannualmeetingofstockholdersheldin2010,attendedthemeeting.BoardofDirectorsEvaluationProgramTheboardofdirectorsperformsannualself-evaluationsofitscompositionandperformance,includingevaluationsofitsstandingcommitteesandindividualevaluationsforeachdirector.Inaddition,eachofthestandingcommitteesoftheboardofdirectorsconductsitsownself-evaluation,whichisreportedtotheboardofdirectors.Theboardofdirectorsretainstheauthoritytoengageitsownadvisorsandconsultants.Formorecorporategovernanceinformation,youareinvitedtoaccesstheCorporateGovernancesectionofourwebsiteavailableathttp://www.irobot.com.CodeofEthicsWehaveadopteda“codeofethics,”asdefinedbyregulationspromulgatedundertheSecuritiesActof1933,asamended,andtheExchangeAct,thatappliestoallofourdirectorsandemployeesworldwide,includingourprincipalexecutiveofficer,principalfinancialofficer,principalaccountingofficerandcontroller,orpersonsperformingsimilarfunctions.AcurrentcopyoftheCodeofBusinessConductandEthicsisavailableattheCorporateGovernancesectionofourwebsiteathttp://www.irobot.com.AcopyoftheCodeofBusinessConductandEthicsmayalsobeobtained,freeofcharge,fromusuponarequestdirectedto:iRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730,Attention:InvestorRelations.WeintendtodiscloseanyamendmenttoorwaiverofaprovisionoftheCodeofBusinessConductandEthicsthatappliestoourprincipalexecutiveofficer,principalfinancialofficer,principalaccountingofficerorcontroller,orpersonsperformingsimilarfunctions,bypostingsuchinformationonitswebsiteavailableathttp://www.irobot.comand/orinourpublicfilingswiththeSecuritiesandExchangeCommission.Formorecorporategovernanceinformation,youareinvitedtoaccesstheCorporateGovernancesectionofourwebsiteavailableathttp://www.irobot.com.THEBOARDOFDIRECTORSANDITSCOMMITTEESBoardofDirectorsTheboardofdirectorsmetsix(6)timesduringthefiscalyearendedJanuary1,2011,andtookactionbyunanimouswrittenconsenttwo(2)times.Eachofthedirectorsattendedatleast75%oftheaggregateofthetotalnumberofmeetingsoftheboardofdirectorsandthetotalnumberofmeetingsofallcommitteesoftheboardofdirectorsonwhichtheyservedduringfiscal2010.Theboardofdirectorshasthefollowingstanding14committees:auditcommittee;compensationcommittee;andnominatingandcorporategovernancecommittee,eachofwhichoperatespursuanttoaseparatecharterthathasbeenapprovedbytheboardofdirectors.Acurrentcopyofeachcharterisavailableathttp://www.irobot.com.Eachcommitteereviewstheappropriate-nessofitscharteratleastannually.Eachcommitteeretainstheauthoritytoengageitsownadvisorsandconsultants.Thecompositionandresponsibilitiesofeachcommitteearesummarizedbelow.AuditCommitteeTheauditcommitteeoftheboardofdirectorscurrentlyconsistsofMessrs.Geisser,McNameeandMeekin,eachofwhomisanindependentdirectorwithinthemeaningofthedirectorindependencestandardsofNASDAQandtheSecuritiesandExchangeCommission,orSEC,includingRule10A-3(b)(1)undertheSecuritiesExchangeActof1934,asamended,ortheExchangeAct.Mr.Geisserservesasthechairmanoftheauditcommittee.Inaddition,theboardofdirectorshasdeterminedthatMr.GeisserisfinanciallyliterateandthatMr.Geisserqualifiesasan“auditcommitteefinancialexpert”undertherulesoftheSEC.StockholdersshouldunderstandthatthisdesignationisadisclosurerequirementoftheSECrelatedtoMr.Geisser’sexperienceandunderstandingwithrespecttocertainaccountingandauditingmatters.ThedesignationdoesnotimposeuponMr.Geisseranyduties,obligationsorliabilitythataregreaterthanaregenerallyimposedonhimasamemberoftheauditcommitteeandtheboardofdirectors,andhisdesignationasanauditcommitteefinancialexpertpursuanttothisSECrequirementdoesnotaffecttheduties,obligationsorliabilityofanyothermemberoftheauditcommitteeortheboardofdirectors.Theauditcommitteemetfive(5)timesduringthefiscalyearendedJanuary1,2011.Theauditcommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors,acurrentcopyofwhichisavailableattheCorporateGovernancesectionofourwebsiteathttp://www.irobot.com.Asdescribedmorefullyinitscharter,theauditcommitteeoverseesouraccountingandfinancialreportingprocesses,internalcontrolsandauditfunctions.Infulfillingitsrole,theauditcommitteeresponsibil-itiesinclude:(cid:129)appointing,approvingthecompensationof,andassessingtheindependenceofourindependentregisteredpublicaccountingfirm;(cid:129)pre-approvingauditingandpermissiblenon-auditservices,andthetermsofsuchservices,tobeprovidedbyourindependentregisteredpublicaccountingfirm;(cid:129)reviewinganddiscussingwithmanagementandtheindependentregisteredpublicaccountingfirmourannualandquarterlyfinancialstatementsandrelateddisclosures;(cid:129)coordinatingtheoversightandreviewingtheadequacyofourinternalcontroloverfinancialreporting;(cid:129)establishingpoliciesandproceduresforthereceiptandretentionofaccountingrelatedcomplaintsandconcerns;and(cid:129)preparingtheauditcommitteereportrequiredbySECrulestobeincludedinourannualproxystatement.CompensationCommitteeThecompensationcommitteeoftheboardofdirectorscurrentlyconsistsofMr.McNamee,Gen.Kern,andDr.Chwang,eachofwhomisanindependentdirectorwithinthemeaningofthedirectorindependencestandardsofNASDAQ,anon-employeedirectorasdefinedinRule16b-3oftheExchangeAct,andanoutsidedirectorpursuanttoRule162(m)oftheInternalRevenueCode.Mr.McNameeservesasthechairmanofthecompensationcommittee.Thecompensationcommittee’sresponsibilitiesinclude:(cid:129)annuallyreviewingandapprovingcorporategoalsandobjectivesrelevanttocompensationofourchiefexecutiveofficer;(cid:129)evaluatingtheperformanceofourchiefexecutiveofficerinlightofsuchcorporategoalsandobjectivesanddeterminingthecompensationofourchiefexecutiveofficer;15ProxyStatement(cid:129)overseeingandadministeringourcompensation,welfare,benefitandpensionplansandsimilarplansanddeterminingthecompensationofallexecutiveofficers;and(cid:129)reviewingandmakingrecommendationstotheboardwithrespecttodirectorcompensation.Thecompensationcommitteemetfour(4)timesandtookactionbyunanimouswrittenconsentfour(4)timesduringthefiscalyearendedJanuary1,2011.Thecompensationcommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors,acurrentcopyofwhichisavailableattheCorporateGovernancesectionofourwebsiteathttp://www.irobot.com.NominatingandCorporateGovernanceCommitteeThenominatingandcorporategovernancecommitteeoftheboardofdirectorscurrentlyconsistsofDr.GanslerandMessrs.MeekinandSagan,eachofwhomisanindependentdirectorwithinthemeaningofthedirectorindependencestandardsofNASDAQandapplicablerulesoftheSEC.InMay2010,Mr.SaganreplacedMr.McNameeonthiscommittee.Dr.Ganslerservesasthechairmanofthenominatingandcorporategovernancecommittee.Thenominatingandcorporategovernancecommittee’sresponsibilitiesinclude:(cid:129)developingandrecommendingtotheboardcriteriaforboardandcommitteemembership;(cid:129)establishingproceduresforidentifyingandevaluatingdirectorcandidatesincludingnomineesrecom-mendedbystockholders;(cid:129)identifyingindividualsqualifiedtobecomeboardmembers;(cid:129)recommendingtotheboardthepersonstobenominatedforelectionasdirectorsandtoeachoftheboard’scommittees;(cid:129)developingandrecommendingtotheboardacodeofbusinessconductandethicsandasetofcorporategovernanceguidelines;and(cid:129)overseeingtheevaluationoftheboardandmanagement.Thenominatingandcorporategovernancecommitteemetthree(3)timesduringthefiscalyearendedJanuary1,2011.Thenominatingandcorporategovernancecommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors,acurrentcopyofwhichisavailableattheCorporateGovernancesectionofourwebsiteathttp://www.irobot.com.CompensationCommitteeInterlocksandInsiderParticipationDuring2010,Dr.Chwang,Gen.KernandMr.McNameeservedasmembersofthecompensationcommittee.Nomemberofthecompensationcommitteewasanemployeeorformeremployeeofusoranyofoursubsidiaries,orhadanyrelationshipwithusrequiringdisclosureherein.Duringthelastyear,noexecutiveofficeroftheCompanyservedas:(i)amemberofthecompensationcommittee(orothercommitteeoftheboardofdirectorsperformingequivalentfunctionsor,intheabsenceofanysuchcommittee,theentireboardofdirectors)ofanotherentity,oneofwhoseexecutiveofficersservedonourcompensationcommittee;(ii)adirectorofanotherentity,oneofwhoseexecutiveofficersservedonourcompensationcommittee;or(iii)amemberofthecompensationcommittee(orothercommitteeoftheboardofdirectorsperformingequivalentfunctionsor,intheabsenceofanysuchcommittee,theentireboardofdirectors)ofanotherentity,oneofwhoseexecutiveofficersservedasadirectoroftheCompany.16REPORTOFTHEAUDITCOMMITTEEOFTHEBOARDOFDIRECTORSNoportionofthisauditcommitteereportshallbedeemedtobeincorporatedbyreferenceintoanyfilingundertheSecuritiesActof1933,asamended,ortheSecuritiesExchangeActof1934,asamended,throughanygeneralstatementincorporatingbyreferenceinitsentiretytheproxystatementinwhichthisreportappears,excepttotheextentthattheCompanyspecificallyincorporatesthisreportoraportionofitbyreference.Inaddition,thisreportshallnotbedeemedfiledundereithertheSecuritiesActortheExchangeAct.Thisreportissubmittedbytheauditcommitteeoftheboardofdirectors.TheauditcommitteecurrentlyconsistsofMessrs.Geisser(chairman),McNameeandMeekin.NoneofthemembersoftheauditcommitteeisanofficeroremployeeoftheCompany,andtheboardofdirectorshasdeterminedthateachmemberoftheauditcommitteemeetstheindependencerequirementspromulgatedbyNASDAQandtheSecuritiesandExchangeCommission,includingRule10A-3(b)(1)undertheExchangeAct.Mr.Geisserisan“auditcommitteefinancialexpert”asiscurrentlydefinedunderSECrules.Theauditcommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors.TheauditcommitteeoverseestheCompany’saccountingandfinancialreportingprocessesonbehalfoftheboardofdirectors.TheCompany’smanagementhastheprimaryresponsibilityforthefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforassessingtheeffectivenessofinternalcontroloverfinancialreporting.Infulfillingitsoversightresponsibilities,theauditcommitteehasreviewedanddiscussedwithmanagementtheCompany’sconsolidatedfinancialstatementsforthefiscalyearendedJanuary1,2011,includingadiscussionof,amongotherthings,thequalityoftheCompany’saccountingprinciples,thereasonable-nessofsignificantestimatesandjudgments,andtheclarityofdisclosuresintheCompany’sfinancialstatements.TheauditcommitteealsoreviewedwithPricewaterhouseCoopersLLP,theCompany’sindependentregisteredpublicaccountingfirm,theresultsoftheirauditanddiscussedmattersrequiredtobediscussedbytheStatementonAuditingStandardsNo.61asamended(AICPA,ProfessionalStandards,Vol.1,AUsection380),otherstandardsofthePublicCompanyAccountingOversightBoard,rulesoftheSecuritiesandExchangeCommissionandotherapplicableregulations.TheauditcommitteehasreviewedpermittedservicesunderrulesoftheSecuritiesandExchangeCommissionascurrentlyineffectanddiscussedwithPricewaterhouseCoopersLLPtheirindependencefrommanagementandtheCompany,includingthemattersinthewrittendisclosuresandtheletterfromtheindependentregisteredpublicaccountingfirmrequiredbyapplicablerequirementsofthePublicCompanyAccountingOversightBoardregardingtheindependentaccountant’scommunicationswiththeauditcommitteeconcerningindependence,andhasconsideredanddiscussedthecompatibilityofnon-auditservicesprovidedbyPricewaterhouseCoopersLLPwiththatfirm’sindependence.Theauditcommitteemeetswiththeindependentregisteredpublicaccountingfirm,withandwithoutmanagementpresent,todiscusstheresultsoftheirexaminations;theirevaluationsoftheCompany’sinternalcontrol,includinginternalcontroloverfinancialreporting;andtheoverallqualityoftheCompany’sfinancialreporting.Basedonitsreviewofthefinancialstatementsandtheaforementioneddiscussions,theauditcommitteeconcludedthatitwouldbereasonabletorecommend,andonthatbasisdidrecommend,totheboardofdirectorsthattheauditedfinancialstatementsbeincludedintheCompany’sAnnualReportonForm10-KfortheyearendedJanuary1,2011.TheauditcommitteehasalsoevaluatedtheperformanceofPricewaterhouseCoopersLLP,including,amongotherthings,theamountoffeespaidtoPricewaterhouseCoopersLLPforauditandnon-auditservicesin2010.InformationaboutPricewaterhouseCoopersLLP’sfeesfor2010isdiscussedbelowinthisproxystatementunder“Proposal3—RatificationofAppointmentofIndependentRegisteredPublicAccountants.”Basedonitsevaluation,theauditcommitteehasrecommendedthattheCompanyretainPricewaterhouseCoopersLLPtoserveastheCompany’sindependentregisteredpublicaccountingfirmforthe2011fiscalyear.RespectfullysubmittedbytheAuditCommittee,AndreaGeisser(chairman)GeorgeC.McNameePeterT.Meekin17ProxyStatementREPORTOFTHECOMPENSATIONCOMMITTEEOFTHEBOARDOFDIRECTORSNoportionofthiscompensationcommitteereportshallbedeemedtobeincorporatedbyreferenceintoanyfilingundertheSecuritiesActof1933,asamended,ortheSecuritiesExchangeActof1934,asamended,throughanygeneralstatementincorporatingbyreferenceinitsentiretytheproxystatementinwhichthisreportappears,excepttotheextentthattheCompanyspecificallyincorporatesthisreportoraportionofitbyreference.Inaddition,thisreportshallnotbedeemedfiledundereithertheSecuritiesActortheExchangeAct.Thecompensationcommitteeoftheboardofdirectors,whichiscomprisedsolelyofindependentdirectorswithinthemeaningofapplicablerulesofTheNASDAQStockMarket,Inc.,outsidedirectorswithinthemeaningofSection162oftheInternalRevenueCodeof1986,asamended,andnon-employeedirectorswithinthemeaningofRule16b-3undertheSecuritiesExchangeActof1934,asamended,isresponsiblefordevelopingexecutivecompensationpoliciesandadvisingtheboardofdirectorswithrespecttosuchpoliciesandadministeringtheCompany’scashincentive,stockoptionandemployeestockpurchaseplans.Thecompensationcommitteesetsperformancegoalsandobjectivesforthechiefexecutiveofficerandtheotherexecutiveofficers,evaluatestheirperformancewithrespecttothosegoalsandsetstheircompensationbasedupontheevaluationoftheirperformance.Inevaluatingexecutiveofficerpay,thecompensationcommitteemayretaintheservicesofacompensationconsultantandconsiderrecommendationsfromthechiefexecutiveofficerwithrespecttogoalsandcompensationoftheotherexecutiveofficers.Thecompensationcommitteeassessestheinformationitreceivesinaccordancewithitsbusinessjudgment.Thecompensationcommitteealsoperiodicallyreviewsdirectorcompensation.Alldecisionswithrespecttoexecutiveanddirectorcompen-sationareapprovedbythecompensationcommitteeandrecommendedtothefullboardforratification.GeorgeMcNamee,PaulKernandRonaldChwangarethecurrentmembersofthecompensationcommittee.ThecompensationcommitteehasreviewedanddiscussedtheCompensationDiscussionandAnalysis(the“CD&A”)fortheyearendedJanuary1,2011withmanagement.Inrelianceonthereviewsanddiscussionsreferredtoabove,thecompensationcommitteerecommendedtotheboardofdirectors,andtheboardofdirectorshasapproved,thattheCD&AbeincludedintheproxystatementfortheyearendedJanuary1,2011forfilingwiththeSEC.RespectfullysubmittedbytheCompensationCommittee,GeorgeC.McNamee(chairman)PaulJ.KernRonaldChwang18COMPENSATIONANDOTHERINFORMATIONCONCERNINGDIRECTORSANDOFFICERSCompensationDiscussion&AnalysisOverviewOurcompensationphilosophyisbasedonadesiretobalanceretentionofexecutivetalentwithpayforperformance-basedincentivecompensation,whichisdesignedtorewardournamedexecutiveofficersforcontinuedserviceandoursustainedfinancialandoperatingperformance.Webelievethatthecompensationofournamedexecutiveofficersshouldalignourexecutives’interestswiththoseofourstockholdersandfocusexecutivebehaviorontheachievementofbothnear-termcorporatetargetsaswellaslong-termbusinessobjectivesandstrategies.Itistheresponsibilityofthecompensationcommitteeofourboardofdirectorstoadministerourcompensationpracticestoensurethattheyarecompetitiveandincludeincentivesthataredesignedtoappropriatelydriveourperformance,includingourAdjustedEBITDA,revenue,operatingcashflowandworkingcapital.Ourcompensationcommitteereviewsandapprovesallofourexecutivecompensa-tionpolicies,includingexecutiveofficersalaries,cashincentivesandequityawards.ObjectivesofOurCompensationProgramsOurcompensationprogramsforourexecutiveofficersaredesignedtoachievethefollowingobjectives:(cid:129)toprovidecompetitivecompensationthatattracts,motivatesandretainsthebesttalentandthehighestcaliberexecutivestoserveusandhelpustoachieveourstrategicobjectives;(cid:129)toalignmanagement’sinterestwithoursuccess;(cid:129)toconnectasignificantportionofthetotalpotentialcashcompensationpaidtoexecutivestoourannualfinancialperformanceorthedivision,regionorsegmentofourbusinessforwhichanexecutivehasmanagementresponsibilitybybasingcashincentivecompensationoncorrespondingfinancialtargets;(cid:129)toalignmanagement’sinterestwiththeinterestsofstockholdersthroughlong-termequityincentives;and(cid:129)toprovidemanagementwithperformancegoalsthataredirectlylinkedtoourannualplanforgrowthandprofit.Webelievethatthecompensationofournamedexecutiveofficersshouldreflecttheirsuccessasamanagementteam,ratherthanasindividuals,inattainingkeyoperatingobjectives,suchasimprovedAdjustedEBITDAperformanceandoperatingcashflow,aswellaslonger-termstrategicobjectives,suchasinvention,productdevelopmentandevaluationofpotentialacquisitions.WedefineAdjustedEBITDAasearningsbeforeinterest,taxes,depreciationandamortization,mergerandacquisitionexpenses,andnon-cashstockcompensation.Wealsobelievethattheircompensationshouldnotbebasedontheshort-termperformanceofourstock,whetherfavorableorunfavorable,butratherthatthepriceofourstockwill,inthelong-term,reflectouroperatingperformance,andultimately,themanagementofthecompanybyournamedexecutiveofficers.Weseektohavethelong-termperformanceofourstockreflectedinexecutivecompensationthroughourstockoptionandotherequityincentiveprograms.MethodologiesforEstablishingExecutiveCompensationThecompensationcommittee,whichiscomprisedentirelyofindependentdirectors,reviewsthecompen-sationpackagesforournamedexecutiveofficers,includingananalysisofallelementsofcompensationseparatelyandintheaggregate.Indeterminingtheappropriatecompensationlevelsforourchiefexecutiveofficer,thecompensationcommitteemeetsoutsidethepresenceofallourexecutiveofficers.Withrespecttothecompensationlevelsofallothernamedexecutiveofficers,thecompensationcommitteemeetsoutsidethe19ProxyStatementpresenceofallexecutiveofficersexceptourchiefexecutiveofficer.Ourchiefexecutiveofficerannuallyreviewseachothernamedexecutiveofficer’sperformancewiththecompensationcommittee.Withtheinputofourhumanresourcesdepartmentandcompensationconsultants,thechiefexecutiveofficermakesrecommendationstothecompensationcommitteeregardingbasesalarylevels,targetincentiveawards,performancegoalsforincentivecompensationandequityawardsfornamedexecutiveofficers,otherthanMr.Angle.InconjunctionwiththeannualperformancereviewofeachnamedexecutiveofficerinJanuaryofeachyear,thecompensationcommitteecarefullyconsiderstherecommendationsofthechiefexecutiveofficerwhensettingbasesalary,bonuspaymentsundertheprioryear’sincentivecompensationplan,targetamountsandperformancegoalsforthecurrentyear’sincentivecompensationplan,andanyotherspecialadjustmentsorbonuses.Inaddition,thecompensationcommitteesimilarlydeterminesequityincentiveawards,ifany,foreachnamedexecutiveofficer.Ourcompensationplansaredeveloped,inpart,byutilizingpubliclyavailablecompensationdataandsubscriptioncompensationsurveydatafornationalandregionalcompaniesinthetechnology,defense,householddurablesandroboticsindustries.Webelievethatthepracticesofthisgroupofcompaniesprovideuswithappropriatecompensationbenchmarks,becausethesecompanieshavesimilarorganizationalstructuresandtendtocompetewithustoattractexecutivesandotheremployees.Forbenchmarkingexecutivecompensation,wetypicallyreviewthecompensationdatawehavecollectedfromthecompletegroupofcompanies,aswellasasubsetofthedatafromcompanieswithrevenues,numbersofemployeesandmarketcapitalizationssimilartoourprofile.Withrespectto2010basesalary,cashincentivecompensation,andlong-termincentives,wereviewedcompanieswithsimilar-sizedrevenuesofgreaterthan$228millionandlessthan$1.1billionandmarketcapitalizationsofbetween$146millionto$11.6billion,inparticular:AccurayInc.,Aerovironment,Inc.,AmericanScience&Engineering,ArgonST,Inc.,AudiovoxCorp.,BrukerCorp.,CognexCorp.,ICxTechnologies,Inc.,IntuitiveSurgical,Inc.,OrbitalSciencesCorp,Plantronics,Inc.,Synaptics,Inc.,Tivo,Inc.,TrimbleNavigiationLtd.,andUniversalElectronicsInc.Thesefifteencompanies,atthetimeoftheanalysis,hadanaverageannualrevenuesof$366millionandanaveragemarketcapitalizationof$702million.Thecompensationcommitteeengagedaconsultant,PearlMeyer&Partners,LLC,tohelpevaluatepeercompaniesforcashcompensationandlong-termincentivepurposes,analyzeapplicablecompensationdataanddetermineappropriatecompensationlevelsforourexecutiveofficers.NeitherthecompensationcommitteenortheCompanyhasretainedPearlMeyer&Partners,LLCforanyotherpurpose.Wewillannuallyreassesstherelevanceofourpeergroupandmakechangeswhenjudgedappropriate.Webelievethattheuseofbenchmarkingisanimportantfactorinremainingcompetitivewithourpeersandfurtheringourobjectiveofattracting,motivatingandretaininghighlyqualifiedpersonnel.Thecompensationcommitteereviewsallcomponentsofcompensationfornamedexecutiveofficers.Inaccordancewithitscharter,thecompensationcommitteealso,amongotherresponsibilities,administersourincentivecompensationplan,andreviewsandmakesrecommendationstomanagementoncompany-widecompensationprogramsandpractices.Insettingcompensationlevelsforourexecutiveofficersinfiscal2010,thecompensationcommitteeconsideredmanyfactorsinadditiontobenchmarkingdescribedabove,including,butnotlimitedto:(cid:129)thescopeandstrategicimpactoftheexecutiveofficer’sresponsibilities,(cid:129)ourpastbusinessandsegmentperformanceandfutureexpectations,(cid:129)ourlong-termgoalsandstrategies,(cid:129)theperformanceandexperienceofeachindividual,(cid:129)pastsalarylevelsofeachindividualandofthenamedexecutiveofficersasagroup,(cid:129)relativelevelsofpayamongtheexecutiveofficers,20(cid:129)theamountofbasesalaryinthecontextoftheexecutiveofficer’stotalcompensationandotherbenefits,(cid:129)foreachnamedexecutiveofficer,otherthanthechiefexecutiveofficer,theevaluationsandrecommen-dationsofthechiefexecutiveofficer,and(cid:129)thecompetitivenessofthecompensationpackagesrelativetotheselectedbenchmarksashighlightedbytheindependentcompensationconsultant’sanalysis.Thecompensationcommitteedeterminescompensationforourchiefexecutiveofficerusingthesamefactorsitusesforotherexecutiveofficers,placingrelativelylessemphasisonbasesalary,andinstead,creatinggreaterperformance-basedopportunitiesthroughlong-termequityandshorttermcashincentivecompensation,whichwebelievebetteralignsourchiefexecutiveofficer’sinterestswithoursuccessandtheinterestsofourstockholders.Inassessingthecompensationpaidtoourchiefexecutiveofficer,thecompensationcommitteereliesonbothinformationfromourselectedbenchmarksanditsjudgmentwithrespecttothefactorsdescribedabove.ElementsofCompensationOurexecutivecompensationprogramconsistsofthreeprimaryelements:salary,long-termequityinterest,primarilyintheformofstockoptionsandawardsofrestrictedstockunits,andanannualcashincentiveprogrambasedonbothcorporateand,ifappropriate,divisionalperformance.Allofourexecutiveofficersalsoareeligibleforcertainbenefitsofferedtoemployeesgenerally,includinglife,health,disabilityanddentalinsurance,aswellastoparticipateinour401(k)plan.Wehavealsoenteredintoexecutiveagreementswithourexecutiveofficersthatprovideforcertainseverancebenefitsuponterminationofemployment,includingaterminationfollowingachangeincontroloftheCompany.AnnualCashCompensationBaseSalary.Thecompensationcommitteebelievesthatourexecutiveofficers,includingourchiefexecutiveofficer,arepaidsalariesinlinewiththeirqualifications,experienceandresponsibilities.Salariesarestructuredsothattheyarecomparablewithsalariespaidbythepeercompaniesreviewedbythecompensationcommitteeinthetechnologyandroboticsindustry.Wetargetbasesalariesforeachofourexecutivesatthemarketmedian(50thpercentile)inthetechnologyandroboticsindustryandalsotakeintoconsiderationmanyadditionalfactors(describedbelow)thatwebelieveenableustoattract,motivateandretainourleadershipteaminanextremelycompetitiveenvironment.Salariesarereviewedgenerallyonanannualbasis.Thecompensationcommitteereviewedthebasesalariesforeachofourexecutiveofficers,takingintoaccountanassessmentoftheindividual’sresponsibilities,experience,individualperformanceandcontributiontoourperformance,andalsogenerallytakeintoaccountthecompetitiveenvironmentforattractingandretainingexecutivesconsistentwithourbusinessneeds.Inaddition,thecompensationcommitteetookintoconsiderationthefactthatnocompensationadjustmentshadbeenmadeforourexecutiveofficerssinceFebruary2008.Withrespecttoeachofourexecutiveofficers,otherthanMr.Angle,Mr.Angleprovidedadetailedevaluationandrecommendationrelatedtobasesalaryadjustments,ifany.Inlightoftheconsiderationsdiscussedabove,thebasesalariesofournamedexecutiveofficerswereincreasedforfiscalyear2010asfollows:2009BaseSalary2010BaseSalaryChiefExecutiveOfficer................................$378,769$475,000ChiefFinancialOfficer................................$350,012$362,262ChiefOperatingOfficer................................$325,000$362,000President,HomeRobotsDivision.........................$325,000$332,312Thebasesalaryofourseniorvicepresident,humanresources,whojoinedtheCompanyinNovember2010,was$300,000.Webelievethatthebasesalariespaidtoourexecutiveofficersduringourfiscalyear2010helpedtoachieveourexecutivecompensationobjectives,comparefavorablytoourpeergroupand,in21ProxyStatementlightofouroverallcompensationprogram,arewithinourtargetofprovidingtotalcompensationatthemarketmedian.CashIncentiveCompensationThecompensationcommitteebelievesthatsomeportionofoverallcashcompensationforexecutiveofficersshouldbe“atrisk,”i.e.,contingentuponsuccessfulachievementofsignificantfinancialandbusinessobjectivesandimplementationofourbusinessstrategy.Forournamedexecutiveofficers,includingourchiefexecutiveofficer,thegrantingofcashincentivepaymentsisbasedonanevaluationofachievementagainstpredeterminedfinancialandoperationalmetricsinaccordancewithourSeniorExecutiveIncentiveCompensa-tionPlanthatwasadoptedbythecompensationcommittee.Targetcashincentivesfornamedexecutiveofficersaregenerallytargetedatthe50thpercentileofsimilarcashincentivesprovidedtoofficersinpeercompaniesreviewedbythecompensationcommitteeinthetechnologyandroboticsindustries.Theamountofcashincentivespaidtothenamedexecutiveofficers,however,issubjecttothediscretionofthecompensationcommitteebasedonitsassessmentofourperformanceingeneralortheachievementofspecificgoals.Forfiscal2010,thetargetbonusawardsunderourSeniorExecutiveIncentiveCompensationPlanforeachofournamedexecutiveofficers,asapercentageofbasesalaryearnedduringthefiscalyear,were85%forourchiefexecutiveofficer,65%forourchieffinancialofficer,65%forourchiefoperatingofficer,and65%forthepresidentofourhomerobotsdivision.Becauseourseniorvicepresident,humanresourcesjoineduslateintheyear,hewasnoteligibletoparticipateintheSeniorExecutiveIncentiveCompensationPlan.Thesetargetpayoutamountsweresetatlevelsthecompensationcommitteedeterminedwereappropriateinordertoachieveourobjectiveofretainingthoseexecutiveswhoperformatorabovethelevelsnecessaryforustoachieveourbusinessplan,which,amongotherthings,involvedgrowingourcompanyinacost-effectiveway.WedesignedourSeniorExecutiveIncentiveCompensationPlantofocusourexecutivesonachievingkeycorporatefinancialobjectivesandstrategicmilestones,andtorewardsubstantialachievementofthesecompanyfinancialobjectivesandstrategicmilestones.The2010performancegoalsandcashincentivepaymentcriteriaestablishedbythecompensationcommitteeunderourSeniorExecutiveIncentiveCompensa-tionPlanweredesignedtorequiresignificanteffortandoperationalsuccessonthepartofusandournamedexecutiveofficersforachievement.WhiletheSeniorExecutiveIncentiveCompensationPlanisdesignedtoprovidecashincentivepaymentsbaseduponobjectivelydeterminableformulasthattiecashincentivepaymentstospecificfinancialgoalsandstrategicmilestones,thecompensationcommitteeretainsthediscretiontoadjustcashincentivepaymentsundertheSeniorExecutiveIncentiveCompensationPlanbaseduponadditionalfactors.Foreachexecutiveofficer,100%ofhistargetcashincentivecompensationin2010wastiedtokeyfinancialandoperatingperformancemeasures.Forourchiefexecutiveofficerandchieffinancialofficer75%ofthetargetcashincentivewastiedtoachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$38.0million,withtheabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$47.5million.Inaddition,15%ofthetargetcashincentivewastiedtoachievingoperatingcashflowof$25.7million,withtheabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievinganoperatingcashflowof$32.1million.Finally,10%ofthetargetcashincentivewastiedtoachievingrevenueof$363.5million,withtheabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievingrevenueof$454.4million.Forourpresident,homerobots,histargetcashincentivehadtwoelements:(cid:129)50%ofhistargetcashincentivewastiedtoachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$38.0million,withtheabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$47.5million.22(cid:129)50%ofhistargetcashincentivewastiedtoachievingatargetlevelofdivisionalcontributionmarginwiththeabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievingadivisionalcontributionmargininexcessofthistarget.Generally,contributionmarginwascalculatedasdivisionspecificrevenuelesscostofsalesandoperatingexpenses,excludingcashincentiveandstockbasedcompensation.Sincethespecificcontributionmargintargetsarehighlyconfidential,wedonotpubliclydisclosethesetargets.Disclosingthecontributionmargintargetswouldprovidecompetitorsandotherthirdpartieswithinsightsintoourinternalconfidentialstrategicandplanningprocesses,salesandmarketingbudgetsandotherconfidentialmatters,whichmightallowourcompetitorstopredictcertainbusinessstrategies,therebycausingcompetitiveharm.Thecontributionmargintargetswerepositionedtobeaggressive,butachievable.Forourchiefoperatingofficer,whountilAugust5,2010wasourpresident,government&industrialrobots,histargetcashincentivehadtwoelements:(cid:129)50%ofhistargetcashincentivewastiedtoachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$38.0million,withtheabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievinganAdjustedEBITDA,excludingcashincentivecompensationexpense,of$47.5million.(cid:129)50%ofhistargetcashincentivewastiedtoachievingatargetlevelofdivisionalcontributionmarginwiththeabilitytoearn150%ofthetargetcashincentiveforthiselementbyachievingadivisionalcontributionmargininexcessofthistarget.Generally,contributionmarginwascalculatedasdivisionspecificrevenuelesscostofsalesandoperatingexpenses,excludingcashincentiveandstockbasedcompensation.Sincethespecificcontributionmargintargetsarehighlyconfidential,wedonotpubliclydisclosethesetargets.Disclosingthecontributionmargintargetswouldprovidecompetitorsandotherthirdpartieswithinsightsintoourinternalconfidentialstrategicandplanningprocesses,salesandmarketingbudgetsandotherconfidentialmatters,whichmightallowourcompetitorstopredictcertainbusinessstrategies,therebycausingcompetitiveharm.Thecontributionmargintargetswerepositionedtobeaggressive,butachievable.Thecompensationcommitteechosethismixoffinancialtargetsforcashincentivecompensationbecauseitbelievedthatexecutiveofficersshouldbefocusedonasmallsetofcriticalfinancialandoperatingmetricsthatreflectbothcorporateanddivisionalstrategiesinamannerthatreinforcetheexecutive’sroleandimpact.Moreover,thecompensationcommitteebelievedthatthemetricsshouldencouragecollaborationandaccount-abilitywithindivisionsandwithcorporatefunctions.Identicalfinancialmeasures,althoughwithdifferingweightings,wereusedforthecompany’sperfor-manceincentiveplan,whichisthecashincentiveprogramthatappliestoallemployeesatthemanagerlevelandabove.Thefollowingtableshowsthecompany’sachievementagainstthevariousmetricsusedforcalculatingthecashincentivecompensationforournamedexecutiveofficers:MetricMinimum(50%earned)Target(100%)Maximum(150%)PerformancePercentageEarned$inmillionsAdjustedEBITDA,excludingcashincentivecompensationexpense.................$30.4$38.0$47.5$60.5150%OperatingCashFlow...................$20.5$25.7$32.1$49.2150%CompanyRevenue.....................$290.8$363.5$454.4$401.0126%HomeRobotsDivisionalRevenue..........$150.8$188.6$235.7$229.4144%Government&IndustrialDivisionalRevenue...........................$140.0$175.0$218.7$171.695%HomeRobotsDivisionalContributionMargin............................****150%Government&IndustrialDivisionalContributionMargin..................****112%23ProxyStatementBasedontheseelements,thechiefexecutiveofficer,chieffinancialofficer,chiefoperatingofficer,andpresident,homerobotsachieved148%,148%,131%,and150%,respectively,ofeachexecutive’stotaltargetcashincentivecompensationamount.BaseduponitsdiscretionundertheSeniorExecutiveIncentiveCompensationPlan,thecompensationcommitteedeterminedthatanadditionalbonusof$27,808shouldbepaidtothechiefoperatingofficer,baseduponanumberoffactorsincludingcompletionofsignificantbusinessandoperationalmilestoneswhileactingaspresident,government&industrialrobots.Inaddition,baseduponitsdiscretionundertheSeniorExecutiveIncentiveCompensationPlan,thecompensationcommitteedeter-minedthatanadditionalbonusof$5,000shouldbepaidtothepresident,homerobots,baseduponanumberoffactorsincludingcompletionofsignificantbusinessandoperationalmilestonesandthecomparablecashincentivecompensationofcompanieswithinourpeergroup.Basedonthesefactors,thecompensationcommitteedeterminedthatourchiefexecutiveofficer,chieffinancialofficer,chiefoperatingofficer,andpresident,homerobots,shouldreceive$578,926,$346,683,$319,412,and$327,908,respectively,whichcorrespondsto148%,148%,143%,and152%,respectively,ofeachexecutive’stotaltargetcashincentivecompensationamount.Long-TermIncentivesExecutiveofficers(andotheremployees)areeligibletoreceiverestrictedstock,stockoptiongrants,deferredstockawardsandotherstockawardsthatareintendedtopromotesuccessbyaligningemployeefinancialinterestswithlong-termshareholdervalue.Thesestock-basedincentivesarebasedonvariousfactorsprimarilyrelatingtotheresponsibilitiesoftheindividualofficeroremployee,theirpastperformance,anticipatedfuturecontributionsandprioroptiongrants.Ingeneral,ourcompensationcommitteebasesitsdecisionstograntstock-basedincentivesonrecommendationsofmanagementandthecompensationcommittee’sanalysisofpeergroupcompensationinformation,withtheintentionofkeepingtheexecutives’overallcompensation,includingtheequitycomponentofthatcompensation,atacompetitivelevelwiththecomparatorcompaniesreviewedbythecompensationcommitteeinthetechnologyandroboticsindustries.Ourcompensationcommitteealsoconsidersthenumberofsharesofcommonstockoutstanding,thenumberofsharesofcommonstockauthorizedforissuanceunderitsequitycompensationplans,thenumberofoptionsandsharesheldbytheexecutiveofficerforwhomanawardisbeingconsideredandtheotherelementsoftheofficer’scompensation,aswellasourcompensationobjectivesandpoliciesdescribedabove.Duringfiscalyear2010,stockoptionsandrestrictedstockunitawardsweregrantedtoournamedexecutiveofficers.Aswiththedeterminationofbasesalariesandshorttermincentivepayments,thecompensationcommitteeexercisessubjectivejudgmentanddiscretioninviewoftheabovecriteria.OtherCompensationWealsohavevariousbroad-basedemployeebenefitplans.Ourexecutiveofficersparticipateintheseplansonthesametermsasothereligibleemployees,subjecttoanylegallimitsontheamountsthatmaybecontributedorpaidtoexecutiveofficersundertheseplans.Weoffera401(k)plan,whichallowsouremployeestoinvestinawidearrayoffundsonapre-taxbasis.Wedonotprovidepensionarrangementsorpost-retirementhealthcoverageforournamedexecutiveofficersorotheremployees.Wealsomaintaininsuranceandotherbenefitplansforouremployees.Executiveofficersreceivehigherlife,accidentaldeathanddismembermentanddisabilityinsurancebenefitsthanotheremployees.Inaddition,twoexecutiveofficersreceiveamountsallocabletouseofourcorporateapartment.Wealsoenterintoexecutiveagreementswithourexecutiveofficersprovidingforcertainseverancebenefitswhichmaybetriggeredasaresultoftheterminationofsuchofficer’semploymentundercertaincircumstances.Weoffernoperquisites,otherthantheuseofourcorporateapartment,thatarenototherwiseavailabletoallofouremployees.ExecutiveAgreementsWehaveenteredintoexecutiveagreementswitheachofourexecutiveofficers.Theexecutiveagreementsprovideforseverancepaymentsequalto50%ofsuchofficer’sannualbasesalary,aswellascertaincontinuedhealthbenefits,intheeventthatweterminatehisorheremploymentotherthanforcause.Inaddition,theseexecutiveagreementsprovidethatifweexperienceachangeincontrolandtheemploymentofsuchofficeris24terminatedwithoutcause,orifsuchofficerterminateshisorheremploymentforcertainreasonsincludingasubstantialreductioninsalaryorbonusorgeographicmovementduringtheone-yearperiodfollowingthechangeincontrol,thenallunvestedstockoptionsheldbysuchofficerbecomefully-vestedandimmediatelyexercisableandsuchofficerisentitledtoseverancepaymentsequalto200%ofhisorherannualbasesalaryand200%ofsuchofficer’sannualbonus,aswellascertaincontinuedhealthbenefits.Itisthebeliefofthecompensationcommitteethattheseprovisionsareconsistentwithexecutiveseverancearrangementsthatarecustomaryforpubliccompaniesatourstageofdevelopmentandwerenecessaryinordertohireand/orretaintheexecutives.TaxDeductibilityofExecutiveCompensationIngeneral,underSection162(m)oftheInternalRevenueCodeof1986,asamended,ortheCode,wecannotdeduct,forfederalincometaxpurposes,compensationinexcessof$1,000,000paidtocertainexecutiveofficers.Thisdeductionlimitationdoesnotapply,however,tocompensationthatconstitutes“qualifiedperformance-basedcompensation”withinthemeaningofSection162(m)oftheCodeandtheregulationspromulgatedthereunder.WehaveconsideredthelimitationsondeductionsimposedbySection162(m)oftheCodeanditisourpresentintention,forsolongasitisconsistentwithouroverallcompensationobjective,tostructureexecutivecompensationtominimizeapplicationofthedeductionlimitationsofSection162(m)oftheCode.RiskOversightofCompensationProgramsThecompensationcommitteebelievesthatourcompensationprogramforexecutiveofficersisnotstructuredtobereasonablylikelytopresentamaterialadverserisktousbasedonthefollowingfactors:(cid:129)Ourcompensationprogramforexecutiveofficersisdesignedtoprovideabalancedmixofcashandequity,annualandlonger-termincentives,andperformancetargets.(cid:129)Thebasesalaryportionofcompensationisdesignedtoprovideasteadyincomeregardlessofourstockpriceperformancesothatexecutivesdonotfeelpressuredtofocusprimarilyonstockpriceperformancetothedetrimentofotherimportantbusinessmetrics.(cid:129)Ourstockoptiongrants,restrictedstockawardsandrestrictedstockunitgrantsgenerallyvestoverfouryearsand,inthecaseofstockoptions,areonlyvaluableifourstockpriceincreasesovertime.(cid:129)Maximumpayoutlevelsforthecashincentivecompensationarecapped.25ProxyStatementExecutiveCompensationSummaryThefollowingtablesetsforthsummarycompensationinformationforourchiefexecutiveofficer,chieffinancialofficerandthethreeothermosthighlycompensatedexecutiveofficers:SUMMARYCOMPENSATIONTABLENameandPrincipalPositionYearSalary($)(1)Bonus($)StockAwards($)(2)OptionAwards($)(2)Non-EquityIncentivePlanCompensation($)AllOtherCompensation($)(3)(4)Total($)ColinM.Angle...............2010463,897—439,230817,477578,9267,3502,306,880Chairman,ChiefExecutive2009386,053—274,999270,790410,1807,3501,349,372OfficerandDirector2008372,288105,714279,219217,935—6,900982,056JohnJ.Leahy................2010360,849—179,322333,950346,6837,3501,228,154ExecutiveVicePresident,2009356,743—58,33257,441289,8547,350769,720ChiefFinancialOfficerandTreasurer2008195,199122,504843,0001,384,540—5,6542,550,897JosephW.Dyer(5)............2010343,88527,808239,876446,512291,6067,3501,357,037ChiefOperatingOfficer2009331,25045,546116,998115,209202,3947,350818,7472008322,074153,380196,995117,349—6,900796,698JeffreyA.Beck(6).............2010331,4695,00082,764154,241322,9087,350903,732PresidentandGeneral2009250,000—343,000695,745187,0116,7501,482,506ManagerHomeRobotsRussellJ.Campanello(7)........201051,923—858,5501,257,380——2,167,853SeniorVicePresident,HumanResources(1)Representssalaryearnedinthefiscalyearspresentedwhichcovered52weeks,53weeksand52weeksrespectively,forfiscalyears2010,2009and2008.(2)RepresentstheaggregategrantdatefairvalueforstockandoptionawardsgrantedinthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,asappropriate,inaccordancewithFASBASCTopic718.Seetheinformationappearinginnote9toourconsolidatedfinancialstatementsincludedaspartofourAnnualReportonForm10-KforthefiscalyearendedJanuary1,2011forcertainassumptionsmadeinthevaluationofstockandoptionawards.(3)Excludesmedical,grouplifeinsuranceandcertainotherbenefitsreceivedbythenamedexecutiveofficersthatareavailablegenerallytoallofoursalariedemployeesandcertainprerequisitesandotherpersonalbenefitsreceivedbythenamedexecutiveofficerswhichdonotexceed$10,000.(4)Represents401(k)matchingcontributions.(5)Mr.Dyerreceivedbonuspaymentsof$27,808and$45,546forfiscalyears2010and2009,respectively,baseduponanumberoffactorsincludingcompletionofsignificantbusinessandoperationalmilestonesandthecomparablecashincentivecompensationofcompanieswithinourpeergroup.(6)Mr.Beckreceivedabonuspaymentof$5,000forfiscal2010baseduponanumberoffactorsincludingcompletionofsignificantbusinessandoperationalmilestonesandthecomparablecashincentivecompen-sationofcompanieswithinourpeergroup.(7)Mr.CampanellojoinedasSeniorVicePresident,HumanResourcesonNovember1,2010.26GrantsofPlan-BasedAwardsin2010Thefollowingtablesetsforth,foreachofthenamedexecutiveofficers,informationaboutgrantsofplan-basedawardsduringfiscalyear2010.GRANTSOFPLAN-BASEDAWARDS—2010NameGrantDateThreshold($)Target($)Maximum($)AllOtherStockAwards:NumberofSharesofStockorUnits(#)(2)AllOtherOptionAwards:NumberofSecuritiesUnderlyingOptions(#)(2)ExerciseorBasePriceofOptionAwards($/Sh)GrantDateFairValueofStockandOptionAwards($)EstimatedPossiblePayoutsUnderNon-EquityIncentivePlanAwards(1)ColinM.Angle.......—195,583391,166782,332————4/2/2010———30,250—14.52439,2304/2/2010————113,95014.52817,477JohnJ.Leahy.........—117,123234,246468,492————4/2/2010———12,350—14.52179,3224/2/2010————46,55014.52333,950JosephW.Dyer.......111,300222,600445,200————4/2/2010———11,700—14.52169,8844/2/2010————44,15014.52316,73210/1/2010———3,761—18.6169,99210/1/2010————13,84518.61129,780JeffreyA.Beck.......—107,636215,272430,544————4/2/2010———5,700—14.5282,7644/2/2010————21,50014.52154,241RussellJ.Campanello...———————12/30/2010———35,000—24.53858,55012/30/2010————100,00024.531,257,380(1)Thisreflectsthethreshold,targetandmaximumincentivecashpayoutlevelsestablishedunderourSeniorExecutiveIncentiveCompensationPlan.Theactualamountspaidforfiscalyear2010aredisclosedinthe“Non-EquityIncentivePlanCompensation”columnoftheSummaryCompensationTable.(2)Allstockawardsandoptionawardsweremadepursuanttoour2005StockOptionandIncentivePlan(the“2005Plan”).DiscussionofSummaryCompensationandGrantsofPlan-BasedAwardsTablesThecompensationpaidtothenamedexecutiveofficersincludessalary,cashincentivecompensationandequityincentivecompensation.Inaddition,eachnamedexecutiveofficeriseligibletoreceivecontributionstohisorheramountunderourmatchingcontributionprogramunderour401(k)plan.In2010,salarywasapproximately20.1%,29.4%,25.3%,36.7%and2.4%ofthetotalcompensationforMessrs.Angle,Leahy,Dyer,BeckandCampanellorespectively.In2009,salarywasapproximately28.6%,46.3%,40.5%and16.9%ofthetotalcompensationforMessrs.Angle,Leahy,Dyer,andBeck,respectively.In2008,salarywasapproximately37.9%,7.7%and40.4%ofthetotalcompensationforMessrs.Angle,Leahy,andDyer,respectively.OurnamedexecutiveofficersareeligibletoparticipateinourSeniorExecutiveIncentiveCompensationPlan,whichprovidesforcashincentivepaymentsbasedonanevaluationoftheachievementagainstpredeterminedmeasurablefinancialandoperationalmetricsinaccordancewiththetermsoftheplanasadoptedbythecompensationcommittee.Ournamedexecutiveofficersarealsoeligibletoreceiverestrictedstock,stockoptiongrantsandotherstockawards.Thesestock-basedincentivesarebasedonvariousfactors27ProxyStatementprimarilyrelatingtotheresponsibilitiesoftheindividualofficer,theirpastperformance,anticipatedfuturecontributionsandprioroptiongrants.Seeadditionalinformationregardingthecashincentiveandequitycompensationofournamedexecutiveofficersunder“CompensationDiscussion&Analysis—ElementsofCompensation”above.OutstandingEquityAwardsatFiscalYearEndThefollowingtablesetsforth,foreachofthenamedexecutiveofficers,informationaboutunexercisedoptionawardsandunvestedrestrictedstockandrestrictedstockunitawardsthatwereheldasofJanuary1,2011.OUTSTANDINGEQUITYAWARDSATFISCALYEAREND—2010NameGrantDateNumberofSecuritiesUnderlyingUnexercisedOptions(#)ExercisableNumberofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable(1)OptionExercisePrice($)OptionExpirationDateNumberofSharesorUnitsofStockThatHaveNotVested(#)(2)MarketValueofSharesorUnitsofStockThatHaveNotVested($)(3)OptionAwardsStockAwardsColinM.Angle.....5/25/0718,6672,66616.035/25/20141,33333,1653/28/0817,8758,12517.133/28/20158,150202,7722/20/0932,30141,5287.762/20/201626,578661,2614/2/10—113,95014.524/2/201730,250752,620JohnJ.Leahy.......6/27/08125,00075,00014.056/27/201530,000746,4002/20/096,8528,8097.762/20/20165,637140,2494/2/10—46,55014.524/2/201712,350307,268JosephP.Dyer......2/18/0443,839—2.332/18/2014——2/18/0432,082—2.332/18/2014——9/17/0468,328—2.789/17/2014——5/25/078,3331,66616.035/25/201483320,7253/28/089,6254,37517.133/28/20155,750143,0602/20/0913,74317,6687.762/20/201611,307281,3184/2/10—44,15014.524/2/201711,700291,09610/1/10—13,84518.6110/1/20173,76193,574JeffreyA.Beck.....4/24/09—93,7509.804/24/201626,250653,1004/2/10—21,50014.524/2/20175,700141,816RussellJ.Campanello..12/30/10—100,00024.5312/30/201735,000870,800(1)Stockoptiongrantsvestoverafour-yearperiod,atarateoftwenty-fivepercent(25%)onthefirstanniver-saryofthegrant,andquarterlythereafter.(2)Restrictedstockandrestrictedstockunitawardsvestoverafour-yearperiod,atarateoftwenty-fivepercent(25%)oneachanniversaryofthegrant.(3)Amountsdisclosedinthiscolumnwerecalculatedbasedonthefairmarketvalueofourcommonstock.28OptionExercisesandStockVestedThefollowingtablesetsforth,foreachofthenamedexecutiveofficers,informationwithrespecttotheexerciseofstockoptionsandthevestingofrestrictedstockandrestrictedstockunitawardsduringtheyearendedJanuary1,2011,aswellastheyear-endvalueofexercisedoptionsandvestedrestrictedstockandrestrictedstockunits.OPTIONEXERCISESANDSTOCKVESTED—2010NameSharesAcquiredonExercise(#)ValueRealizedonExercise($)(1)NumberofSharesAcquiredonVesting(#)ValueRealizedonVesting($)(2)OptionAwardsStockAwardsColinM.Angle..................——14,268244,633JohnJ.Leahy...................——16,880340,700JosephW.Dyer..................70,0001,400,0277,478127,107JeffreyA.Beck..................56,250590,0958,750140,963RussellJ.Campanello.............————(1)Amountsdisclosedinthiscolumnwerecalculatedbasedonthedifferencebetweenthefairmarketvalueofourcommonstockonthedateofexerciseandtheexercisepriceoftheoptionsinaccordancewithregu-lationspromulgatedundertheExchangeAct.(2)Amountsdisclosedinthiscolumnwerecalculatedbasedonthefairmarketvalueofthesharesonthevest-ingdate(forrestrictedstock)orthedateofsettlementuponvesting(forrestrictedstockunits).PotentialBenefitsUponTerminationorChangeinControlSeveranceandChangeinControlArrangementsinGeneralTheexecutiveagreementsdescribedinthe“CompensationDiscussionandAnalysis”sectionprovidethat,uponterminationoftheexecutiveofficer’semploymentwithoutcause,theexecutiveofficerisentitledtoseverancepaymentsequalto50%oftheexecutiveofficer’sbasesalary,continuedhealthplanpremiumpaymentsforuptosixmonths,andanyunpaidcompensation,benefitsorunusedvacationaccrued.Theexecutiveagreementsalsoprovidethat,uponaninvoluntaryterminationuponachangeincontrol,oruponaresignationforgoodreasonuponachangeincontrol,theexecutiveofficerisentitledto200%oftheexecutiveofficer’sbasesalary,200%oftheexecutiveofficer’stargetcashincentivecompensationorotherperformance,profit-sharingoranyothersimilararrangement,continuedhealthplanpremiumpaymentsforuptotwoyears,fullvestingofallunvestedstock,stockoptions,awardsandrights,andanyunpaidcompensation,benefitsorunusedvacationaccrued.CashPaymentsand/orAccelerationofVestingFollowingCertainTerminationEventsAssumingtheemploymentofournamedexecutiveofficerswasterminatedinvoluntarilyandwithoutcause(notinconnectionwithachangeincontrol)onJanuary1,2011,ournamedexecutiveofficerswouldbeentitledtocashpaymentsintheamountssetforthoppositetheirnamesinthebelowtables,subjecttoanydeferralsrequiredunderSection409AoftheInternalRevenueCodeof1986,asamended.NameBaseSalary($)ContinuationofHealthPlanPremiumPayments($)AccruedVacationPay($)Total($)ColinM.Angle....................237,5009,975—247,475JohnJ.Leahy.....................181,13110,12694191,351JosephW.Dyer....................181,00027527,846209,121JeffreyA.Beck....................166,1569,729—175,885RussellJ.Campanello...............150,00010,1262,999163,12529ProxyStatementAssumingtheemploymentofournamedexecutiveofficerswasterminatedinvoluntarilyandwithoutcause,orsuchofficersresignedwithgoodreason,duringtheone-yearperiodfollowingachangeincontrolonJanuary1,2011,ournamedexecutiveofficerswouldbeentitledtocashpaymentsintheamountssetforthoppositetheirnamesinthebelowtable,subjecttoanydeferralsrequiredunderSection409AoftheInternalRevenueCodeof1986,asamended,andaccelerationofvestingassetforthinthebelowtable.ThetotalamountpayabletoeachexecutiveofficerissubjecttoreductionincertaincircumstancesiftheamountwouldcausetheexecutiveofficertoincuranexcisetaxunderSection4999oftheInternalRevenueCodeof1986,asamended.Thefollowingtableprovidesthemarketvalue(thatis,thevaluebaseduponourstockpriceonJanuary1,2011,minustheexerciseprice)ofstockoptionsthatwouldbecomeexercisableorvestedasaresultoftheseaccelerationeventsasofJanuary1,2011.NameBaseSalary($)Bonus($)ContinuationofHealthPlanPremiumPayments($)AccruedVacationPay($)MarketValueofStockOptions($)MarketValueofRestrictedStockandRestrictedStockUnits($)Total($)ColinM.Angle.........950,000807,50039,898—1,978,0441,649,8185,425,260JohnJ.Leahy...........724,525470,94140,503941,445,3181,193,9173,875,298JosephW.Dyer.........724,000470,6001,10027,846895,329829,7732,948,648JeffreyA.Beck.........664,625432,00638,914—1,636,490794,9163,566,951RussellJ.Campanello....600,000300,00040,5032,99935,000870,8001,849,302DirectorCompensationInconnectionwithoureffortstoattractandretainhighly-qualifiedindividualstoserveonourboardofdirectors,wemaintainacashandequitycompensationpolicyforournon-employeemembersofourboardofdirectors.In2010,eachofournon-employeemembersofourboardofdirectorswasentitledtothefollowingcashcompensation:AnnualretainerforBoardmembership.......................................$30,000AuditCommitteeAnnualretainerforcommitteemembership..................................$10,000Additionalretainerforcommitteechair.....................................$10,000CompensationCommitteeAnnualretainerforcommitteemembership..................................$7,500Additionalretainerforcommitteechair.....................................$7,500NominatingandCorporateGovernanceCommitteeAnnualretainerforcommitteemembership..................................$5,000Additionalretainerforcommitteechair.....................................$5,00030In2011,eachofournon-employeemembersofourboardofdirectorswillbeentitledtothefollowingcashcompensation:AnnualretainerforBoardmembership.......................................$35,000Annualretainerforleadindependentdirector..................................$7,000AuditCommitteeAnnualretainerforcommitteemembership..................................$10,000Additionalretainerforcommitteechair.....................................$10,000CompensationCommitteeAnnualretainerforcommitteemembership..................................$7,500Additionalretainerforcommitteechair.....................................$7,500NominatingandCorporateGovernanceCommitteeAnnualretainerforcommitteemembership..................................$5,000Additionalretainerforcommitteechair.....................................$5,000PursuanttoourNon-employeeDirectors’DeferredCompensationProgram,eachnon-employeedirectormayelectinadvancetodeferthereceiptofthesecashfees.Duringthedeferralperiod,thecashfeeswillbedeemedinvestedinstockunits.Thedeferredcompensationwillbesettledinsharesofourcommonstockupontheterminationofserviceofthedirectororsuchothertimeasmayhavebeenpreviouslyelectedbythedirector.Theshareswillbeissuedfromour2005Plan.In2010,eachofournon-employeemembersofourboardofdirectorswasentitledtothefollowingequitycompensationunderour2005Plan:(cid:129)Uponinitialelectiontotheboardofdirectors,anon-employeedirectorwillreceiveaone-timeoptiontopurchase40,000sharesofourcommonstock,whichwillvestoverafour-yearperiodatarateoftwenty-fivepercent(25%)onthefirstanniversaryofthegrant,andquarterlythereafter.(cid:129)Attheendofthefiscalquarterinwhichourannualmeetingofstockholdersoccurs,eachnon-employeedirectorwillreceiveastockoptionawardtopurchase10,000sharesofourcommonstock,whichwillvestonthedateofthefirstanniversaryofsuchgrant.In2011,eachofournon-employeemembersofourboardofdirectorswillbeentitledtothefollowingequitycompensationunderour2005Plan:(cid:129)Uponinitialelectiontotheboardofdirectors,anon-employeedirectorwillreceiveaone-timegrantofrestrictedstockunitshavingafairmarketvalueof$220,000,measuredasofthelastdayofthefiscalquarterinwhichthedirectorwaselected,whichwillvestoverafour-yearperiodatarateoftwenty-fivepercent(25%)oneachofthefirstfouranniversariesofthegrant.(cid:129)Attheendofthefiscalquarterinwhichourannualmeetingofstockholdersoccurs,eachnon-employeedirectorwillreceiveagrantofrestrictedstockunitshavingafairmarketvalueof$110,000,whichwillvestonthedateofthefirstanniversaryofsuchgrant.Allofourdirectorsarereimbursedforreasonableout-of-pocketexpensesincurredinattendingmeetingsoftheboardofdirectors.31ProxyStatementThefollowingtableprovidescompensationinformationforthefiscalyearendedJanuary1,2011foreachnon-employeememberofourboardofdirectors.Nomemberofourboardofdirectorsemployedbyusreceivesseparatecompensationforservicesrenderedasamemberofourboardofdirectors.DIRECTORCOMPENSATIONTABLE—2010NameFeesEarnedorPaidinCash($)OptionAwards($)(2)(3)Total($)RodneyA.Brooks,Ph.D.........................30,00080,514110,514RonaldChwang,Ph.D...........................37,50080,514118,014JacquesS.Gansler,Ph.D.........................40,00080,514120,514AndreaGeisser................................50,000(1)80,514130,514HelenGreiner.................................30,00080,514110,514PaulJ.Kern,Gen.U.S.Army(ret.).................37,500(1)80,514118,014GeorgeC.McNamee...........................60,00080,514140,514PeterT.Meekin...............................45,000(1)80,514125,514PaulL.Sagan.................................30,000367,474397,474(1)Messrs.Geisser,KernandMeekindeferredalloftheir2010cashcompensationpursuanttoourNon-employeeDirectors’DeferredCompensationProgramunderwhichtheyreceivedstockunitsinlieuofcash.(2)RepresentsthegrantdatefairvalueofstockoptionawardsgrantedinthefiscalyearendedJanuary1,2011inaccordancewithFASBASCTopic718.Seetheinformationappearinginnote9toourconsoli-datedfinancialstatementsincludedaspartofourAnnualReportonForm10-KforthefiscalyearendedJanuary1,2011forcertainassumptionsmadeinthevaluationofstockoptionawards.(3)Thenon-employeemembersofourboardofdirectorswhoheldsuchpositiononJanuary1,2011heldthefollowingaggregatenumberofunexercisedoptionsasofsuchdate:NameNumberofSecuritiesUnderlyingUnexercisedOptionsRodneyA.Brooks,Ph.D.............29,333RonaldChwang,Ph.D...............90,000JacquesS.Gansler,Ph.D.............100,000AndreaGeisser....................90,000HelenGreiner.....................41,333PaulJ.Kern,Gen.U.S.Army(ret.).....90,000GeorgeC.McNamee................90,000PeterT.Meekin....................50,000PaulL.Sagan.....................50,00032Thefollowingtablepresentsthefairvalueofeachgrantofstockoptionsin2010tothenon-employeemembersofourboardofdirectors,computedinaccordancewithFASBASCTopic718:NameGrantDateNumberofSecuritiesUnderlyingOptionsExercisePriceofOptionAwards($)GrantDateFairValueofOptions($)RodneyA.Brooks,Ph.D.............7/2/201010,00017.7080,514RonaldChwang,Ph.D...............7/2/201010,00017.7080,514JacquesS.Gansler,Ph.D.............7/2/201010,00017.7080,514AndreaGeisser....................7/2/201010,00017.7080,514HelenGreiner.....................7/2/201010,00017.7080,514PaulJ.Kern,Gen.U.S.Army(ret.).....7/2/201010,00017.7080,514GeorgeC.McNamee................7/2/201010,00017.7080,514PeterT.Meekin....................7/2/201010,00017.7080,514PaulL.Sagan.....................4/2/201040,00014.52286,9607/2/201010,00017.7080,514TransactionswithRelatedPersonsOtherthancompensationagreementsandotherarrangementswhicharedescribedin“CompensationDiscussion&Analysis,”in2010,therehasnotbeen,andthereisnotcurrentlyproposed,anytransactionorseriesofsimilartransactionstowhichwewereorwillbeapartyinwhichtheamountinvolvedexceededorwillexceed$120,000andinwhichanydirector,executiveofficer,holderoffivepercentormoreofanyclassofourcapitalstockoranymemberoftheirimmediatefamilyhadorwillhaveadirectorindirectmaterialinterest.Ourboardofdirectorshasadoptedawrittenrelatedpartytransactionapprovalpolicy,whichsetsforthourpolicesandproceduresforthereview,approvalorratificationofanytransactionrequiredtobereportedinourfilingswiththeSecuritiesandExchangeCommission.Ourpolicywithregardtorelatedpartytransactionsisthatallrelatedpartytransactionsaretobereviewedbyourgeneralcounsel,whowilldeterminewhetherthecontemplatedtransactionorarrangementrequirestheapprovaloftheboardofdirectors,thenominatingandcorporategovernancecommittee,bothorneither.33ProxyStatementPROPOSAL2APPROVALOFTHECOMPANY’SSENIOREXECUTIVEINCENTIVECOMPENSATIONPLAN,ASAMENDEDANDRESTATEDOnApril6,2011,ourboardofdirectorsamendedandrestatedtheSeniorExecutiveIncentiveCompen-sationPlan(the“IncentivePlan”)sothatincentivepaymentsmadeundertheIncentivePlanconstituteperformance-basedcompensationandthereforenotsubjecttothecompensationcapimposedbySection162(m)oftheInternalRevenueCodeof1986,asamended(the“Code”).SummaryoftheIncentivePlanThefollowingdescriptionoftheIncentivePlanisonlyasummaryofcertainprovisionsthereofandisqualifiedinitsentiretybyreferencetoitsfulltext,acopyofwhichattachedasAppendixAtothisProxyStatement.PurposeSection162(m)oftheCodegenerallydoesnotallowpubliclyheldcompaniestoobtaintaxdeductionsforcompensationofmorethan$1,000,000paidinanyfiscalyeartotheirchiefexecutiveofficer,oranyofthethreemosthighlycompensatedexecutiveofficers,otherthanthechieffinancialofficer(“CoveredEmploy-ees”),unlesssuchpaymentsare“performance-based”inaccordancewithconditionsspecifiedunderSection162(m)oftheCodeandtheTreasuryRegulationspromulgatedthereunder.OneofthoseconditionsrequirestheCompanytoobtainstockholderapprovalofthematerialtermsoftheperformancegoalssetbyacommitteeofoutsidedirectors.Stockholderapprovalmustbeobtainedinitiallyandeveryfiveyearsthereafter.ThepurposeoftheIncentivePlanistoestablishaprogramofincentivecompensationforCoveredEmployeesandotherkeyemployeesoftheCompanyanditssubsidiariesthatisdirectlyrelatedtoattainmentofpre-selectedperformancegoalsoftheCompany.IncentivepaymentsmadetoCoveredEmployeesundertheIncentivePlanareintendedtoqualifyas“performance-based”compensationandthereforeallowstheCompanytoobtainfederalincometaxdeductionsforsuchpayments,withoutregardtothelimitationsofSection162(m)oftheCode.AdministrationTheIncentivePlanisadministeredbythecompensationcommittee.Eachmemberofthecompensationcommitteeisrequiredtobean“outsidedirector”(withinthemeaningofSection162(m)oftheCode).ThecompensationcommitteehasalltheauthoritythatmaybenecessaryorhelpfultoenableittodischargeitsresponsibilitieswithrespecttotheIncentivePlan,includingauthoritytodetermineeligibilityforparticipation,establishthemaximumawardwhichmaybeearnedbyeachParticipant(whichmaybeexpressedintermsofdollaramount,percentageofsalaryoranyothermeasurement),establishgoalsforeachparticipant,calculateanddetermineeachparticipant’slevelofattainmentofsuchgoals,andcalculatetheincentiveawardforeachparticipantbaseduponsuchlevelofattainment.Thecompensationcommitteehasfullpowerandauthoritytoconstrue,interpret,andadministertheIncentivePlan.EligibilityAnyofficerorotherkeyemployeeoftheCompanyanditssubsidiariesselectedbythecompensationcommittee,initssolediscretion,shallbeeligibletoparticipateintheIncentivePlan.AsofJanuary2,2011,therewereapproximately8employeesoftheCompanywhocould,ifselectedbythecompensationcommittee,participateintheIncentivePlan.IncentiveAwardsandPerformanceGoalsTheIncentivePlanprovidesthatthecompensationcommitteeshalldesignateforeach“PerformancePeriod”(whichistheperiodduringwhichperformanceismeasuredtodeterminethelevelofattainmentofan34award)whichparticipantswillbeeligibleforincentiveawards.ThePerformancePeriodisthefiscalyearoftheCompany.Thecompensationcommitteewillestablishwithinthefirst90daysofeachPerformancePeriodathreshold,targetandmaximumawardforeachparticipantandthegoalsrelatingtotheCompany,subsidiaryordivisionperformanceforeachparticipant(the“PerformanceGoals”).ParticipantswillearnincentiveawardsbaseduponthelevelofattainmentoftheapplicablePerformanceGoalsduringtheapplicablePerformancePeriod,asandtotheextentestablishedbythecompensationcommittee.ThePerformanceGoalswillbebasedonattainmentofspecificlevelsofperformanceoftheCompany(orofasubsidiaryordivisionthereof)withreferencetooneormoreofthefollowingcriteria:revenue,earningspershare,AdjustedEBITDA(earningsbeforeinterest,taxes,depreciationandamortization,mergerandacquisitionexpensesandnon-cashstockcompensation),operatingcashflow,operatingincome,operatingexpenses,grossmargins,returnonequity,investment,capitalorassets,divisioncontributionmargin,inventorylevel,workingcapitalandspecificstrategicmilestones.AssoonaspracticablefollowingtheendoftheapplicablePerformancePeriod,theCompensationCommitteewillcertifytheattainmentofthePerformanceGoalsandwillcalculatetheincentiveaward,ifany,payabletoeachparticipant.Incentiveawardswillbepaidinalumpsumpaymentassoonaspracticablefollowingthedeterminationoftheamountthereofbythecompensationcommittee,butnotlaterthanMarch15.Thecompensationcommitteeretainstherighttoreducetheamountofanyincentiveawardinitsdiscretion.Themaximumincentiveawardpayabletoaparticipantforanyperformanceperiodis200percentofhisbonusopportunityor$2million,ifless.EffectiveDate;TerminationandAmendmentIfapprovedbythestockholdersoftheCompany,theIncentivePlanwillremainineffect.Thecompensationcommitteemayamend,suspendorterminatetheIncentivePlanatanytime,provided,however,thatnoamendmentmaybemadewithouttheapprovaloftheCompany’sstockholderstotheextentdeterminedbythecompensationcommitteetoberequiredbytheCodetoensurethatpaymentsundertheIncentivePlanqualifyas“performance-based”compensationunderSection162(m)oftheCode.NewPlanBenefitsBecauseamountspayableundertheIncentivePlanarebasedonsatisfactionofcertainPerformanceGoalsineachapplicablePerformancePeriod,itcannotbedeterminedatthistimewhatamounts,ifany,willbereceivedbyanyparticipantsundertheIncentivePlan.TheamountsearnedundertheIncentivePlanforfiscalyears2008,2009and2010toourNamedExecutiveOfficeraresetforthintheSummaryCompensationTableonpage26.THEBOARDOFDIRECTORSUNANIMOUSLYRECOMMENDSAVOTE“FOR”THEAPPROVALOFTHEiROBOTCORPORATIONSENIOREXECUTIVEINCENTIVECOMPENSATIONPLAN,ASAMENDEDANDRESTATED.35ProxyStatementPROPOSAL3RATIFICATIONOFAPPOINTMENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTANTSTheauditcommitteeoftheboardofdirectorshasretainedthefirmofPricewaterhouseCoopersLLP,independentregisteredpublicaccountants,toserveasindependentregisteredpublicaccountantsforour2011fiscalyear.PricewaterhouseCoopersLLPhasservedasourindependentregisteredpublicaccountingfirmsince1999.Theauditcommitteereviewedanddiscusseditsselectionof,andtheperformanceof,Pricewaterhouse-CoopersLLPforour2010fiscalyear.Asamatterofgoodcorporategovernance,theauditcommitteehasdeterminedtosubmititsselectiontostockholdersforratification.Iftheselectionofindependentregisteredpublicaccountantsisratified,theauditcommitteeinitsdiscretionmayselectadifferentindependentregisteredpublicaccountingfirmatanytimeduringtheyearifitdeterminesthatsuchachangewouldbeinthebestinterestsofusandourstockholders.Theauditcommitteeoftheboardofdirectorshasimplementedproceduresunderourauditcommitteepre-approvalpolicyforauditandnon-auditservices,orthePre-ApprovalPolicy,toensurethatallauditandpermittednon-auditservicestobeprovidedtoushavebeenpre-approvedbytheauditcommittee.Specifically,theauditcommitteepre-approvestheuseofPricewaterhouseCoopersLLPforspecifiedauditandnon-auditservices,withinapprovedmonetarylimits.Ifaproposedservicehasnotbeenpre-approvedpursuanttothePre-ApprovalPolicy,thenitmustbespecificallypre-approvedbytheauditcommitteebeforeitmaybeprovidedbyPricewaterhouseCoopersLLP.Anypre-approvedservicesexceedingthepre-approvedmonetarylimitsrequirespecificapprovalbytheauditcommittee.ForadditionalinformationconcerningtheauditcommitteeanditsactivitieswithPricewaterhouseCoopersLLP,see“TheBoardofDirectorsandItsCommit-tees”and“ReportoftheAuditCommitteeoftheBoardofDirectors.”RepresentativesofPricewaterhouseCoopersLLPattendedallofthemeetingsoftheauditcommitteein2010.WeexpectthatarepresentativeofPricewaterhouseCoopersLLPwillattendtheannualmeeting,andtherepresentativewillhaveanopportunitytomakeastatementifheorshesodesires.Therepresentativewillalsobeavailabletorespondtoappropriatequestionsfromstockholders.PricewaterhouseCoopersLLPFeesThefollowingtableshowstheaggregatefeesforprofessionalservicesrenderedbyPricewaterhouseCoop-ersLLPtousduringthefiscalyearsendedJanuary1,2011andJanuary2,2010.20102009AuditFees.................................................$725,756$710,848Audit-RelatedFees...........................................3,01331,653TaxFees...................................................45,000—AllOtherFees..............................................3,3943,075Total......................................................$777,163$745,576AuditFeesAuditFeesforbothyearsconsistoffeesforprofessionalservicesassociatedwiththeannualconsolidatedfinancialstatementsaudit,statutoryfilings,consentsandassistancewithandreviewofdocumentsfiledwiththeSecuritiesandExchangeCommission.Audit-RelatedFeesConsistsoffeesforaccountingconsultationsandotherservicesthatwerereasonablyrelatedtotheperformanceofauditsorreviewsofourfinancialstatementsandwerenotreportedaboveunder“AuditFees.”36TaxFeesTaxFeesconsistoffeesforprofessionalservicesrenderedforassistancewithfederal,state,localandinternationaltaxcompliance.AllOtherFeesAllotherfeesincludelicensestotechnicalaccountingresearchsoftware.TheauditcommitteehasdeterminedthattheprovisionofservicesdescribedabovetousbyPricewaterhouseCoopersLLPiscompatiblewithmaintainingtheirindependence.RecommendationoftheBoardTHEBOARDOFDIRECTORSUNANIMOUSLYRECOMMENDSTHATYOUVOTE“FOR”THERATIFICATIONOFPRICEWATERHOUSECOOPERSLLPASiROBOT’SINDEPENDENTREGISTEREDPUBLICACCOUNTANTSFOR2011.37ProxyStatementPROPOSAL4ADVISORYVOTEONTHECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERSThefollowingproposal,commonlyknownasasay-on-payproposal,givesourstockholderstheopportu-nitytovotetoapproveornotapprove,onanadvisorybasis,thecompensationofournamedexecutiveofficers.Thisvoteisnotintendedtoaddressanyspecificitemofcompensationorthecompensationofanyparticularofficer,butrathertheoverallcompensationofournamedexecutiveofficersandourcompensationphilosophy,policiesandpractices,asdiscussedinthisproxystatement.Accordingly,weareaskingourstockholderstovote“FOR”thefollowingresolutionatourannualmeetingofstockholders:“RESOLVED,thattheCompany’sstockholdersapprove,onanadvisorybasis,thecompensationoftheCompany’snamedexecutiveofficers,asdisclosedinthisproxystatement,includingtheCompensationDiscussionandAnalysis,compensationtablesandnarrativediscussion.”Thisvoteisadvisory,andthereforenotbindingontheCompany,thecompensationcommitteeorourboardofdirectors.However,ourboardofdirectorsandourcompensationcommitteevaluetheopinionsofourstockholdersandintendtotakeintoaccounttheoutcomeofthevotewhenconsideringfuturecompensationdecisionsforournamedexecutiveofficers.RecommendationoftheBoardTHEBOARDOFDIRECTORSUNANIMOUSLYRECOMMENDSTHATYOUVOTE“FOR”THEAPPROVALOF,ONANADVISORYBASIS,THECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERSASDISCLOSEDINTHISPROXYSTATEMENT.38PROPOSAL5ADVISORYVOTEONTHEFREQUENCYOFHOLDINGFUTUREADVISORYVOTESONTHECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERSSection14AoftheExchangeActrequiresustosubmitanon-binding,advisoryresolution,commonlyknownasasay-on-frequencyproposal,tostockholdersatleastonceeverysixyearstodeterminewhetheradvisoryvotesonexecutivecompensation,suchasProposal4ofthisproxystatement,shouldbeheldeveryone,twoorthreeyears.Aftercarefulconsideration,ourboardofdirectorshasdeterminedthatanadvisoryvoteonthecompensationofournamedexecutiveofficersthatoccurseverythreeyears,oratriennialvote,isthemostappropriatealternativefortheCompany,andthereforeourboardofdirectorsrecommendsthatyouvoteforathree-yearintervalforthesay-on-frequencyproposal.Itshouldbenoted,however,thatyouarenotvotingtoapproveordisapproveourboardofdirectors’recommendationonthismatter.Ourboardofdirectorsbelievesthatatriennialvotecomplementsourgoaltocreateacompensationprogramthatenhanceslong-termstockholdervalue.Afrequencyofthreeyearsencourageslong-termpaypracticesanddiscouragesshort-termthinking.Moreover,ashortreviewcyclewillnotallowforameaningfulevaluationofourperformanceagainstourcompensationpractices,asanyadjustmentinpaypracticeswouldtaketimetoimplementandtobereflectedinourfinancialperformanceandinthepriceofourcommonstock.Lastly,atriennialvotewouldallowusadequatetimetocompilemeaningfulinputfromstockholdersonourpaypracticesandrespondappropriately,whichmaybedifficulttodoonanannualorbiennialbasis.Thisvoteisadvisory,andthereforenotbindingontheCompany,thecompensationcommitteeorourboardofdirectors.However,ourboardofdirectorsandourcompensationcommitteevaluetheopinionsofourstockholdersandintendtotakeintoaccounttheoutcomeofthevotewhenconsideringthefrequencyofholdingfutureadvisoryvotesonthecompensationofournamedexecutiveofficers.RecommendationoftheBoardTHEBOARDOFDIRECTORSUNANIMOUSLYRECOMMENDSTHATYOUVOTE,ONANADVISORYBASIS,FORAVOTEONTHECOMPENSATIONOFOURNAMEDEXECUTIVEOFFICERSTOBEHELDEVERY“3YEARS”.OTHERMATTERSTheboardofdirectorsknowsofnoothermatterstobebroughtbeforetheannualmeeting.Ifanyothermattersareproperlybroughtbeforetheannualmeeting,thepersonsappointedintheaccompanyingproxyintendtovotethesharesrepresentedtherebyinaccordancewiththeirbestjudgmentonsuchmatters,underapplicablelaws.STOCKHOLDERPROPOSALSProposalsofstockholdersintendedforinclusionintheproxystatementtobefurnishedtoallstockholdersentitledtovoteatour2011annualmeetingofstockholders,pursuanttoRule14a-8promulgatedundertheExchangeActbytheSecuritiesandExchangeCommission,mustbereceivedattheCompany’sprincipalexecutiveofficesnotlaterthanDecember15,2011.Stockholderswhowishtomakeaproposalatthe2012annualmeeting—otherthanonethatwillbeincludedintheCompany’sproxystatement—mustnotifyusbetweenJanuary26,2012andFebruary25,2012.IfastockholderwhowishestopresentaproposalfailstonotifyusbyFebruary25,2012andsuchproposalisbroughtbeforethe2012annualmeeting,thenundertheSecuritiesandExchangeCommission’sproxyrules,theproxiessolicitedbymanagementwithrespecttothe2012annualmeetingwillconferdiscretionaryvotingauthoritywithrespecttothestockholder’sproposalonthepersonsselectedbymanagementtovotetheproxies.Ifastockholdermakesatimelynotification,theproxiesmaystillexercisediscretionaryvotingauthorityundercircumstancesconsistentwiththeSecuritiesand39ProxyStatementExchangeCommission’sproxyrules.Inordertocurtailcontroversyastothedateonwhichwereceivedaproposal,itissuggestedthatproponentssubmittheirproposalsbyCertifiedMail,ReturnReceiptRequested,toiRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730,Attention:Secretary.SECTION16(a)BENEFICIALOWNERSHIPREPORTINGCOMPLIANCESection16(a)oftheExchangeActrequiresourdirectors,executiveofficersandpersonswhoownmorethantenpercentofaregisteredclassofourequitysecuritiestofilereportsofownershipandchangesinownershipwiththeSecuritiesandExchangeCommission.SuchpersonsarerequiredbyregulationsoftheSecuritiesandExchangeCommissiontofurnishuswithcopiesofallsuchfilings.BasedsolelyonourreviewofcopiesofsuchfilingswebelievethatallsuchpersonscompliedonatimelybasiswithallSection16(a)filingrequirementsduringthefiscalyearendedJanuary1,2011,exceptthateachofAlisonDean,HelenGreiner,PeterMeekinandRobertMosesdidnottimelyfileaForm4withrespecttoonetransaction.EXPENSESANDSOLICITATIONThecostofsolicitationofproxieswillbebornebyusand,inadditiontosolicitingstockholdersbymailthroughitsregularemployees,wemayrequestbanks,brokersandothercustodians,nomineesandfiduciariestosolicittheircustomerswhohaveourstockregisteredinthenamesofanomineeand,ifso,willreimbursesuchbanks,brokersandothercustodians,nomineesandfiduciariesfortheirreasonableout-of-pocketcosts.Solicitationbyourofficersandemployeesmayalsobemadeofsomestockholdersinpersonorbymail,telephone,e-mailortelegraphfollowingtheoriginalsolicitation.Wemayalsoretainanindependentproxysolicitationfirmtoassistinthesolicitationofproxies.HOUSEHOLDINGOFPROXYMATERIALSOur2010AnnualReport,includingauditedfinancialstatementsforthefiscalyearendedJanuary1,2011,isbeingmailedtoyoualongwiththisproxystatement.Inordertoreduceprintingandpostagecosts,BroadridgeFinancialSolutionshasundertakenanefforttodeliveronlyoneAnnualReportandoneproxystatementtomultipleshareholderssharinganaddress.Thisdeliverymethod,called“householding,”isnotbeingused,however,ifBroadridgehasreceivedcontraryinstructionsfromoneormoreofthestockholderssharinganaddress.IfyourhouseholdhasreceivedonlyoneAnnualReportandoneproxystatement,wewilldeliverpromptlyaseparatecopyoftheAnnualReportandtheproxystatementtoanyshareholderwhosendsawrittenrequesttoiRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730,Attention:Secretary,OfficeoftheGeneralCounsel,(781)430-3000.IfyourhouseholdisreceivingmultiplecopiesofourAnnualReportorproxystatementandyouwishtorequestdeliveryofasinglecopy,youmaysendawrittenrequesttoiRobotCorporation,8CrosbyDrive,Bedford,Massachusetts01730,Attention:Secretary,OfficeoftheGeneralCounsel.40AppendixAiRobotCorporationSeniorExecutiveIncentiveCompensationPlan,asamendedandrestatedasofApril6,2011IROBOTCORPORATIONSENIOREXECUTIVEINCENTIVECOMPENSATIONPLANASAMENDEDANDRESTATED1.PurposeThisSeniorExecutiveIncentiveCompensationPlan(the“IncentivePlan”)isintendedtoprovideanincentiveforsuperiorworkandtomotivateeligibleexecutivesofiRobotCorporation(the“Company”)anditssubsidiariestowardevenhigherachievementandbusinessresults,totietheirgoalsandintereststothoseoftheCompanyanditsstockholdersandtoenabletheCompanytoattractandretainhighlyqualifiedexecutives.TheIncentivePlanisforthebenefitofCoveredExecutives(asdefinedbelow).TheIncentivePlanisamendedandrestatedasofJanuary2,2011inordertoensurethatfuturepaymentsundertheIncentivePlanqualifyas“performance-based”compensationunderSection162(m)oftheInternalRevenueCodeof1986,asamended(the“Code”).2.CoveredExecutivesFromtimetotime,theCompensationCommitteeoftheBoardofDirectorsoftheCompany(the“CompensationCommittee”)mayselectcertainkeyexecutives(the“CoveredExecutives”)tobeeligibletoreceivebonuseshereunder.3.AdministrationEachmemberoftheCompensationCommitteemustbean“outsidedirector”withinthemeaningofSection162(m)oftheCode.TheCompensationCommitteeshallhavethesolediscretionandauthoritytoadministerandinterprettheIncentivePlan.TheCompensationCommitteeinitsdiscretionmaydecreasebutnotincreasetheamountofthebonuspaymenttoanyCoveredExecutive.4.BonusDeterminationsa.ACoveredExecutivemayreceiveabonuspaymentundertheIncentivePlanbasedupontheattainmentofperformancetargetsthatareapprovedbytheCompensationCommitteeandrelatetothefollowingfinancialandoperationalmetricswithrespecttotheCompanyoranyofitssubsidiariesordivisions(the“PerformanceGoals”)relatingtoanyoranycombinationofthefollowing(measuredabsolutelyorbyreferencetoaselectgroupofcompanies,anindexorindicesanddeterminedeitheronaconsolidatedbasisor,asthecontextpermits,onadivisional,subsidiary,lineofbusiness,projectorgeographicalbasisorincombinationsthereof):revenue,earningspershare,AdjustedEBITDA(earningsbeforeinterest,taxes,depreciationandamortization,mergerandacquisitionexpensesandnon-cashstockcompensation),operatingcashflow,operatingincome,operatingexpenses,grossmargins,returnonequity,investment,capitalorassets,divisioncontributionmargin,inventorylevel,workingcapital,andspecificstrategicmilestonesincludingacquisitionsandproductlaunch.b.(i)AnybonusespaidtoCoveredExecutivesundertheIncentivePlanshallbebaseduponobjectivelydeterminablebonusformulasapprovedbytheCompensationCommitteethattiesuchbonusestooneormoreperformancetargetsrelatingtothePerformanceGoals,(ii)bonusformulasandperformancetargetsforCoveredExecutivesshallbeadoptedwithinthefirst90daysofeachperformanceperiodbytheCompensationCommitteeand(iii)nobonusesshallbepaidtoCoveredExecutivesunlessanduntiltheCompensationCommitteehascertifiedthelevelofattainmentofthePerformanceGoals.c.EachCoveredExecutiveshallhaveatargetedbonusopportunityforeachperformanceperiod.ThemaximumbonuspayabletoaCoveredExecutiveunderthisIncentivePlanis200percentoftheCoveredExecutive’sbonusopportunity,butnotinexcessof$2million.A-1ProxyStatementd.ThepaymentofabonustoaCoveredExecutivewithrespecttoaperformanceperiodshallbeconditionedupontheCoveredExecutive’semploymentbytheCompanyonthelastdayoftheperformanceperiod;provided,however,thattheCompensationCommitteemaymakeexceptionstothisrequirement,initssolediscretion,including,withoutlimitation,inthecaseofaCoveredExecutive’sterminationofemployment,retirement,deathordisability.e.TheperformanceperiodundertheIncentivePlanshallbetheCompany’sfiscalyear.5.StockholderApprovalNopaymentsmaybemadeunderthisIncentivePlantoanyCoveredExecutivewhoisa“coveredemployee”withinthemeaningofSection162(m)oftheCodeunlessanduntilthestockholdersoftheCompanyhaveapprovedtheIncentivePlan(andtotheextentrequiredbySection162(m)oftheCode,re-approvedtheIncentivePlan)inamannerthatcomplieswiththestockholderapprovalrequirementsofSection162(m)oftheCode.6.TimingofPayment&TaxWithholdingThePerformanceGoalswillbemeasuredattheendofeachfiscalyearaftertheCompany’sfinancialreportshavebeenpublished.IfthePerformanceGoalsaremet,paymentswillbemadewithin30daysthereafter,butnotlaterthanMarch15.AllpaymentsunderthePlanshallbesubjecttoreductionforapplicabletaxandotherlegallyorcontractuallyrequiredwithholdings.7.AmendmentandTerminationTheCompanyreservestherighttoamendorterminatetheIncentivePlanatanytimeinitssolediscretion;provided,however,thatplanamendmentshallbesubjecttotheapprovaloftheCompany’sstockholderstotheextentdeterminedbytheCompensationCommitteetoberequiredbytheCodetoensurethatpaymentsundertheIncentivePlanqualifyas“performance-based”compensationunderSection162(m)oftheCode.A-2UNITEDSTATESSECURITIESANDEXCHANGECOMMISSIONWashington,D.C.20549Form10-K(MarkOne)¥ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934ForthefiscalyearendedJanuary1,2011ORnTRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934Commissionfileno.000-51598iROBOTCORPORATION(Exactnameofregistrantasspecifiedinitscharter)Delaware77-0259335(Stateorotherjurisdictionofincorporationororganization)(I.R.S.EmployerIdentificationNo.)8CrosbyDrive,Bedford,MA(Addressofprincipalexecutiveoffices)01730(ZipCode)(781)430-3000(Registrant’stelephonenumber,includingareacode)SECURITIESREGISTEREDPURSUANTTOSECTION12(b)OFTHEACT:CommonStock,$0.01parvaluepershareTheNASDAQStockMarketLLCSECURITIESREGISTEREDPURSUANTTOSECTION12(g)OFTHEACT:NoneIndicatebycheck-markiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesnNo¥Indicatebycheck-markiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesnNo¥Indicatebycheckmarkwhethertheregistrant:(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes¥NonIndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesnNonIndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.nIndicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and“smallerreportingcompany”inRule12b-2oftheExchangeAct.(Checkone):LargeacceleratedfilernAcceleratedfiler¥Non-acceleratedfilern(Donotcheckifasmallerreportingcompany)SmallerreportingcompanynIndicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesnNo¥TheaggregatemarketvalueoftheCommonStockheldbynonaffiliatesoftheregistrantwasapproximately$383,300,000basedonthelastreportedsaleoftheCommonStockontheNASDAQGlobalMarketonJuly2,2010.AsofFebruary14,2011,therewere26,034,629sharesoftheregistrant’sCommonStockoutstanding.DOCUMENTSINCORPORATEDBYREFERENCETheregistrantintendstofileadefinitiveProxyStatementpursuanttoRegulation14Awithin120daysoftheendofthefiscalyearendedJanuary1,2011.PortionsofsuchProxyStatementareincorporatedbyreferenceintoPartIIIofthisForm10-K.Form10-KiROBOTCORPORATIONANNUALREPORTONFORM10-KYearEndedJanuary1,2011TABLEOFCONTENTSPagePartIItem1.Business...............................................................3Item1A.RiskFactors............................................................13Item1B.UnresolvedStaffComments.................................................25Item2.Properties..............................................................25Item3.LegalProceedings........................................................25Item4.(RemovedandReserved)...................................................25PartIIItem5.MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities.......................................................26Item6.SelectedFinancialData....................................................26Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations...28Item7A.QuantitativeandQualitativeDisclosuresaboutMarketRisk.........................45Item8.FinancialStatementsandSupplementaryData...................................46Item9.ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure...75Item9A.ControlsandProcedures...................................................75Item9B.OtherInformation........................................................76PartIIIItem10.Directors,ExecutiveOfficersandCorporateGovernance............................76Item11.ExecutiveCompensation...................................................76Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters................................................................76Item13.CertainRelationshipsandRelatedTransactions,andDirectorsIndependence.............76Item14.PrincipalAccountingFeesandServices........................................77PartIVItem15.Exhibits,FinancialStatementSchedules........................................772PARTIITEM1.BUSINESSThisAnnualReportonForm10-Kcontainsforward-lookingstatements.AllstatementsotherthanstatementsofhistoricalfactscontainedinthisAnnualReportonForm10-K,includingstatementsregardingourfutureresultsofoperationsandfinancialposition,businessstrategy,plansandobjectivesofmanagementforfutureoperations,andplansforproductdevelopmentandmanufacturingareforward-lookingstatements.Thesestatementsinvolveknownandunknownrisks,uncertaintiesandotherfactorsthatmaycauseouractualresults,performanceorachievementstobemateriallydifferentfromanyfutureresults,performanceorachievementsexpressedorimpliedbytheforward-lookingstatements.Wediscusscertainoftheserisksingreaterdetailinthe“RiskFactors”sectionandelsewhereinthisAnnualReportonForm10-K.Also,theseforward-lookingstatementsspeakonlyasofthedateofthisAnnualReportonForm10-K,andwehavenoplanstoupdateourforward-lookingstatementstoreflecteventsorcircumstancesoccurringafterthedateofthisAnnualReport.Wecautionreadersnottoplaceunduerelianceuponanysuchforward-lookingstatements.iRobot,Roomba,Scooba,iRobotDirtDog,PackBot,Warrior,Looj,Verro,Create,Negotiator,VirtualWall,HomeBase,andAwarearetrademarksofiRobotCorporation.OverviewiRobotCorporation(“iRobot”orthe“Company”or“we”)designsandbuildsrobotsthatmakeadifference.Forover20years,wehavedevelopedproprietarytechnologyincorporatingadvancedconceptsinnavigation,mobility,manipulationandartificialintelligencetobuildindustry-leadingrobots.Ourhomecarerobotsperformtime-consumingdomesticchoreswhileourgovernmentandindustrialrobotsperformtaskssuchasbattlefieldreconnaissanceandbombdisposal,multi-purposetasksforlocalpoliceandfirstresponders,andlong-enduranceoceanicmissions.Wesellourrobotstoconsumersthroughavarietyofdistributionchannels,includingchainstoresandothernationalretailers,andthroughouron-linestore,andtotheU.S.militaryandothergovernmentagenciesworldwide.WemaintaincertificationsforAS9100andCapabilityMaturityModelIntegration,orCMMI,whichenableustoserviceourmilitaryproductsandservices.Sinceourfounding,wehaveaccumulatedexpertiseinallthedisciplinesnecessarytodesignandbuilddurable,high-performanceandcost-effectiverobotsthroughthecloseintegrationofsoftware,electronicsandhardware.Ourcoretechnologiesserveasreusablebuildingblocksthatweadaptandexpandtodevelopnextgenerationandnewproducts,reducingthetime,costandriskofproductdevelopment.Oursignificantexpertiseinrobotdesignandengineering,combinedwithourmanagementteam’sexperienceinmilitaryandconsumermarkets,positionsustocapitalizeonthegrowthweexpectinthemarketforrobot-basedproducts.Webelievethatthesophisticatedtechnologiesinourexistingconsumerandmilitaryapplicationsareadaptabletoabroadarrayofmarketssuchaslawenforcement,homelandsecurity,commercialcleaning,eldercare,oilservices,homeautomation,landscaping,agriculture,constructionandotherverticalmarkets.Overthepasteightyears,wesoldapproximately6millionofourhomecarerobots.Wealsosoldduringthattimemorethan3,500ofourtacticalmilitaryrobots,mostofwhichhavebeensoldtotheU.S.militaryanddeployedonmissionsinAfghanistanandIraq.StrategyOurgoalistodesignandbuildinnovativerobotsthatmakeadifferenceandareadaptableforuseinabroadrangeofapplications.Weintendtoincreasethepenetrationofourproductsinexistingmarkets,expandexistingproductsintonewmarkets,anddevelopandlaunchnewproductsintocurrentandadjacentmarkets.Ourstrategyistomaintainaleadershippositionbyquicklydeliveringrobotictechnology-basedremotepresenceandautomatedhomemaintenancesolutionsthatdelightourcustomersandanticipatetheirneeds,whileextendingourtechnicalleadershipintheareasofrobotautonomy,manipulationandplatforms.Remotepresenceisthecoreofourmilitaryrobotswhichsavelivesbykeepingwarfightersatsafestandoffdistancesfromhazardswhiletheyperformdangerous,difficultandpersistentmissions.Withincreasinglevelsofautonomy,continuedmobilityimprovements,moresophisticatedsensorsuitesandadvancedhumaninterfaces,remotepresencesystemswillexpandin3Form10-Keffectivenessandefficiencyandreducetherequirementsforactualphysicaloperatorpresenceandcontrol.Intheareaofautomatedhomemaintenance,weseektoenablehomeenvironmentsthatarepersistentlysanitaryandsafewhilerequiringaslittlehumanphysicalinterventionaspossible.Keyelementsofourstrategyinclude:LeverageCommonPlatformsandSoftware:Bycommittinglong-termtoagivenplatformandprovidingincrementalupgrades,wecreateavaluableinstalledbasethatsupportsthird-partydevelopmentandgreatlysimplifiesserviceandsupport.Whenenteringnewproductareasthatcannotbeservicedwithexistingplatforms,weintendtodevelopamulti-generationalplatformstrategythatallowsforrapidlearningandlong-termincrementalimprovements.Throughtheuseanddevelopmentofacommonsoftwarearchitecture,weintendtocreatearobotintelligencesystemofenduringvalueandbuildaformidableadvantagethatstiflescompetition.Ourcommonsoftwarewillallowhighreuse,reducingdevelopmentcostsofnewsystemsandpayloads,aswellasreducingdevelopmenttimelines.ContinuedGrowththroughProfitability,OperationalExcellenceandCustomerFocus.Weintendtocon-sistentlyimproveourprofitabilitythroughdisciplinedallocationofresourcesandbyreducingcostsofmaterials,adjustingprices,optimizingourproductandchannelmix,focusingonourdiscretionaryspendingandreducingourseasonality.Wewillcontinuetofocusonimprovingthescalabilityandefficiencyofoursupplychainprocessandonmitigatingsinglesourcesupplyexposure.Wewillidentify,developandenhanceproductfeaturesandfunctionalitywhilealsoaggressivelyfocusingonproductreliability.LeverageResearchandDevelopmentAcrossDifferentProductsandMarkets.Weleverageourresearchanddevelopmentacrossallofourproductsandmarkets.Forexample,weusetechnologicalexpertisedevelopedthroughgovernment-fundedresearchanddevelopmentprojectsacrossourotherproductdevelopmentefforts.Similarly,expertisedevelopedwhiledesigningconsumerproductsisusedindesigningproductsforgovernmentandindustrialapplications.Thisstrategyhelpsusavoidtheneedtostarteachrobotprojectfromscratch,developingrobotsinacost-effectivemannerandminimizingtimetomarket.ContinuetoStrengthenOurBrand.Ourrobots’performanceanduniquenesshaveenabledustoobtainstrongword-of-mouthandextensivepresscoverageleadingtoincreasingbrandawareness,brandpersonalityandmomentum.Weintendtocontinuetoinvestinourmarketingprogramstostrengthenourbrandrecognitionandreinforceourmessageofinnovation,reliability,safetyandvalue.ComplementCoreCompetencieswithStrategicAlliances.Ourcorecompetenciesarethedesign,develop-mentandmarketingofrobots.Werelyonstrategicalliancestoprovidecomplementarycompetenciesthatweintegrateintoourproductsandtoenhancemarketaccess.Weoutsourcecertainnon-coreactivities,suchasmanufacturingandback-officefunctions,whichhelpsusfocusourresourcesonourcorecompetencies.DevelopaCommunityofThird-PartyDevelopersAroundOurPlatforms.Wehavedevelopedproductsaroundwhichcommunitiesofthird-partydeveloperscancreaterelatedaccessories,softwareandcomplementaryproducts.Weintendtofosterthiscommunitybymakingourproductsintoextensibleplatformswithopeninterfacesdesignedtocarrypayloads.TechnologyWearefocusedonbehavior-based,artificially-intelligentsystemsdevelopedtomeetcustomerrequirementsinmultiplemarketsegments.Incontrasttoroboticmanufacturingequipmentorentertainmentsystemsthataredesignedtorepeatactionsinspecific,knownenvironments,oursystemsaredesignedtocompletemissionsincomplexanddynamicreal-worldenvironments.Ourrobotsrelyontheinterplayamongbehavior-basedartificiallyintelligentsystems,real-worlddynamicsensors,user-friendlyinterfacesandtightly-integrated,electromechanicaldesignstoaccomplishtheirmissionsefficiently.AWARERobotIntelligenceSystems.OurproprietaryAWARERobotIntelligenceSystemsarecodebasesthatenablethebehavioralcontrolofrobots.Moreover,theAWAREsystemsincludemodulesthatcontrolbehaviors,sensorfusion,powermanagementandcommunication.OurAWAREsystemsallowourRoombafloorvacuumingrobotandourScoobafloorwashingrobottocleananentirefloorwhileavoidingobstaclesandnotfallingdown4stairs,andalsoallowourPackBotrobotsandourotherunmannedgroundvehiclestoaccomplishcomplexmissionssuchaswaypointnavigationandreal-timeobstacleavoidance.Real-World,DynamicSensing.Thedegreeofintelligencethatourrobotsdisplayisdirectlyattributabletotheirabilitytoperceive—orsense—theworldaroundthem.Usingspecializedhardwareandsignalprocessing,wehavedevelopedsensorsthatfitparticularcost-performancecriteria.Inothercases,weuseoff-the-shelfsensinghardware,suchaslaserscanners,camerasandopticalsensors.User-FriendlyInterfaces.Ourrobotsrequirethatusersinteractandinstructourrobotsinintuitivewayswithoutextensiveend-userset-up,installation,trainingorinstruction.Forexample,ourRoombarobotsrequireonlyonebuttontohavetherobotbeginitsmission,determinethesizeoftheroomtobecleaned,thoroughlycleantheroomandreturntoitsre-charger,rightoutoftheboxwithoutanypre-programmedknowledgeoftheuser’shome.Similarly,ourPackBotrobotsuseintuitivecontrollers,interoperablebetweensystems,thatintegratehigh-levelsupervisorycommandsfromtheuserintothebehaviorsoftherobot.Tightly-Integrated,ElectromechanicalDesign.Ourproductsrelyonourabilitytobuildinherentlyrobustintegratedelectricalandmechanicalcomponentsintorequiredformfactors.Forinstance,thecomputerthatpowersthePackBottacticalmilitaryrobotmustwithstandbeingdroppedfrommorethantenfeetontoconcrete.Suchhighperformancespecificationsrequiretightdesignintegration.Combiningthesefourcomponents,wehavecreatedproprietary,reusablebuildingblocksofroboticscapabilities,includingmobilityplatforms,manipulators,navigationandcontrolalgorithmsanduserinterfaces.Ourtechnologybuildingblockstypicallyallowustotakeaknownplatformandmodifyitforanewmissioninsteadofstartingfromscratchforeachapplication.Webelievethisallowsustodesignanddevelopinnovativerobotscost-effectively.ProductsandDevelopmentContractsWedesignandbuildrobotsfortheconsumerandgovernmentandindustrialmarkets.Withtwodecadesofleadershipintherobotindustry,weremaincommittedtoestablishingrobotandsoftwareplatformsforinventionanddiscovery,buildingkeypartnershipstodevelopmission-criticalpayloadsandcreatingrobotsthatimprovethestandardsofsafetyandlivingworldwide.ConsumerProductsWesellvariousproductsthataredesignedforuseinandaroundthehome.Ourcurrentconsumerproductsarefocusedonbothindoorandoutdoorcleaningapplications.Webelieveourconsumerproductsprovidevaluetoourcustomersbydeliveringbettercleaningsolutionsatanaffordablepriceandbyfreeingpeoplefromrepetitivehomecleaningtasks.WecurrentlyoffermultipleRoombafloorvacuumingrobotsandScoobafloorwashingrobotswithvaryingpricepointsandperformancecharacteristics.OurRoombarobot’scompactdiscshapeallowsittocleanunderbedsandotherfurniture,resultingincleanerfloorssincetheRoombacanaccessmoreofthefloorthanstandarduprightvacuumcleaners.Roombaisprogrammedtokeepoperatinguntilthefloorisclean.Inaddition,Roombaeliminatestheneedtopushavacuum—itcleansautomaticallyuponthepushofabutton.OurScoobarobot’sinnovativecleaningprocessallowstherobottosimultaneouslysweep,wash,scrubanddryhardfloors,allatthetouchofabutton.Unlikeaconventionalmopthatspreadsdirtywateronthefloor,Scoobawillapplyonlyfreshwaterandcleaningsolutiontothefloorfromacleantank.Scoobawillcleandirtandgrime,issafeforuseonallsealed,hardfloorsurfaces,includingwoodandtile,andissmartenoughtoavoidcarpet.OurVerroPoolCleaningRobotisusedtocleanastandardsizepoolinaboutanhourwhileremovingdebrisassmallastwomicronsfromthepoolfloor,wallsandstairs.VerroisbroughttomarketundertheiRobotbrandthrougharelationshipwiththeAquaProductsGroupcompaniesincludingAquaJetLLCandAquatron,Inc.,whichdevelopedthepoolcleaningrobots.Therearethreemodelsavailable.OurLoojGutterCleaningRobotwasdesignedtosimplifythedifficultanddangerousjobofguttercleaning.TheLoojcleansanentirestretchofgutter,reducingthenumberoftimesaladdermustberepositionedandclimbed5Form10-Kduringguttercleaning.TheLoojalsofeaturesadetachablehandlethatdoublesasawirelessremotecontrol,providingfullcontroloftherobotwhilecleaning.OurCreateProgrammableRobotisafullyassembledprogrammablerobot.TheCreatehastenbuilt-indemosand32sensorsthatallowuserstoexperimentwithrobotics.Anopencargobayallowstheusertoaddtheirgrippers,wirelessconnections,computersorotherhardware.TheCreateisbasedontheiRobotRoombatechnologyandiscompatiblewithRoomba’sre-chargeablebatteries,remotecontrolandotheraccessories.GovernmentandIndustrialProductsIngovernmentandindustrialproductmarkets,wecurrentlyofferbothgroundandmaritimeunmannedvehicles.Ourtacticalgroundrobotsincludethecombat-tested510PackBotlineofsmall,unmannedgroundrobots,the310SUGVand320SUGV(SmallUnmannedGroundVehicle)multi-purposegroundrobotsandthelow-cost210Negotiatorforstateandlocalpoliceandfirstresponders.ThePackBot,SUGV,andNegotiatorrobotseriesmakeupafamilyofrobotsusingmanycommonplatformcomponentsandofferourpatentedflippertechnologythatenablesrobotstoeasilyclimbstairs,navigaterubble,andpenetrateinaccessibleareas.Theserobotsaredesignedtokeepwarfightersandpublicsafetyofficialsoutofharm’swayandaredesignedforhigh-performance,durabilityandeaseofusewhileperformingsearch,reconnaissance,mapping,bombdisposalandotherdangerousmissions.AsofJanuary1,2011,morethan3,500robotshavebeendeliveredtomilitaryandcivildefenseforcesworldwide.Therobotsarecurrentlypricedbetweenapproximately$20,000and$195,000perunit,dependingonconfigurationandquantitiesordered.WecontinuetorefinethePackBotproductline,focusingonenhancedmodularityandprovidingnewcapabilitiestosupportnewmissionareas.OuruniqueAware2softwareisincorporatedintotheadvanced510PackBotchassisandoperatorcontrolunit.Asaresult,PackBotcansupportmultipleconfigurationsandpayloadswiththesamechassisandoperatorcontrolunit,providingcustomerswithasinglerobotcapableofmultiplemissions.iRobotalsoutilizesConfigure-To-Order(CTO)procurementoptionsforourcommercial510PackBot,allowingcustomerstotailortheproducttotheirspecificmissionneeds.ThecombinedbenefitsoftheAware2softwareandCTOprocurementoptionsestablishthe510PackBotasatrulymodularmulti-missionroboticplatform.The310and320SUGVcontinuetoseestrongdemandasafamilyoflightweightbackpackablerobotswellsuitedtodismountedoperationsinAfghanistan.Over300310SUGVmini-EODsweredeliveredin2010andfollow-ondeliveriestotheU.S.AirForcearecurrentlyinprogress.The320SUGV(ArmydesignationXM1216)IncrementIinfantryrobotcompleteddevelopmentandasuccessfulLimitedUserTest(LUT)leadingtodeliveryof30LowRateInitialProduction(LRIP)unitsinthefourthquarter.Increment2developmenteffortscontinuedin2010leadingtoanexpectedcriticaldesignreviewin2011.Withinourmaritimebusiness,the1KaSeagliderisalongenduranceautonomousunderwatervehicledesignedforoceanicmissionstomeasuretemperature,salinity,depth-averagedcurrentandotherdataforscientificandmilitaryplanners.During2010andaspartofOperationCleanSweep,iRobotSeagliderrobotsweredeployedtoandassistedinmonitoringtheGulfofMexicooilspilldisaster.TheseSeagliderswereequippedwithsensorsthataidedindeterminingthepresenceofsuspendedoilbelowthesurfaceandalsomeasureddissolvedoxygenlevelstohelppredictimpactsonsealife.ContractResearchandDevelopmentProjectsWeareinvolvedinseveralcontractdevelopmentprojectswithvariousU.S.governmentalagenciesanddepartments.Thedurationsoftheseprojectsrangefromafewmonthstoseveralyears.Theseprojectsareusuallyfundedaseithercost-plus,firmfixedprice,ortimeandmaterialscontracts.Inacost-pluscontract,weareallowedtorecoverouractualcostsplusafixedfee.Thetotalpriceofacost-pluscontractisbasedprimarilyonallowablecostsincurred,butgenerallyissubjecttoamaximumcontractfundinglimit.Underafirmfixedpricecontract,wereceiveafixedamountuponsatisfyingcontractuallydefineddeliverables.Onourtimeandmaterialscontracts,werecoveraspecificamountperhourworkedbasedonabillrateschedule,plusthecostofdirectmaterials,subcontracts,andothernon-laborcosts,includinganagreed-uponmark-up.Atimeandmaterialscontractmayprovideforanot-to-exceedpriceceiling,aswellasthepotentialthatwewillabsorbanycostoverrun.6StrategicAlliancesStrategicalliancesareanimportantpartofourproductdevelopmentanddistributionstrategies.Werelyonstrategicalliancestoprovidetechnology,complementaryproductofferingsandincreasedandquickeraccesstomarkets.Weseektoformrelationshipswithorganizationsthatcanprovidebest-in-classtechnologyormarketadvantagesforestablishingiRobottechnologyinnewmarketsegments.Ourstrategyofworkingcloselywiththirdpartiesextendstothedesignofourproducts.Byofferingextensibleplatformsdesignedtocarrypayloads,wehavedesignedandmanufacturedourproductstoleveragetheworkofthoseindividualsandorganizationsthatofferspecializedtechnologicalexpertise.ThePackBot,theRoombaandtheScoobarobotsaredesignedwithopeninterfacesthatallowthird-partydeveloperstoaddpayloadstoourrobots,improvingtheirfunctionality.SalesandDistributionChannelsWesellourproductsthroughdistinctsaleschannelstotheconsumerandgovernmentandindustrialmarkets.ForthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,salestonon-U.S.customersaccountedfor41.1%,33.3%and23.4%oftotalrevenue,respectively.Duringthistimeperiod,salestonon-U.S.customersinanysinglecountrydidnotaccountformorethan10%oftotalrevenueinanyfiscalyear.ForthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,U.S.federalgovernmentorders,contractsandsubcontractsaccountedfor38.4%,36.9%and40.3%oftotalrevenue,respectively.ForthefiscalyearendedJanuary1,2011,wegenerated17.4%oftotalrevenuefromTheBoeingCompanyasasubcontractorunderU.S.federalgovernmentcontracts.HomeRobotsIntheUnitedStatesandCanada,wesellourconsumerproductsthroughanetworkofnationalretailers.In2010,thisnetworkconsistedofmorethan30retailerswhichoftenselleitheroneorsomecombinationofourproducts.Certainsmallerdomesticretailoperationsaresupportedbydistributorstowhomwesellproductdirectly.Insupportofthesesalesactivities,wemaintainanin-housesalesandproductmanagementteam.Internationally,ourproductshavebeensoldinapproximately40countries,primarilythroughanetworkofin-countrydistributorswhoreselltoretailstoresintheirrespectivecountries.Thesedistributorsaresupportedbyourinternationalsalesandproductmarketingteam.Ourretailanddistributornetworksareourprimarydistributionchannelsforourconsumerproducts.Wealsoofferproductsdirect-to-consumerthroughourdomesticandinternationalon-linestores,representing11.5%and17.1%oftotalhomerobotsdivisionrevenueforfiscal2010and2009,respectively.Wehaveestablishedvaluabledatabasesandcustomerliststhatallowustotargetdirectlythoseconsumersmostlikelytopurchaseanewrobotorupgrade.Webelievewemaintainacloseconnectionwithourcustomersineachofourmarkets,whichprovidesanenhancedpositionfromwhichtoimproveourdistributionandproductofferings.GovernmentandIndustrialWesellourgovernmentandindustrialproductsdirectlytoendusersandindirectlythroughprimecontractorsanddistributors.WhilethemajorityofgovernmentandindustrialproductshavebeensoldtodatetovariousoperationswithintheU.S.federalgovernment,wealsoselltostateandlocalaswellastointernationalgovernmentorganizations.OurmilitaryproductsaresoldoverseasincompliancewiththeInternationalTrafficinArmsRegulations,orITAR.Wehavesoldourproductstothegovernmentsofvariouscountriesinthepastseveralyears,includingtheUnitedKingdom,France,Germany,Sweden,Norway,Israel,Australia,RepublicofKorea,Singapore,Bosnia,Lithuania,Pakistan,Qatar,Taiwan,SouthAfricaandCanada.Ourgovernmentproductsaresoldbyateamofsalesspecialistswithsignificantexperienceinsellingtogovernmentanddefenseagencies.Alloftheseindividualshaveyearsofexperiencesellingmilitaryproductstogovernmentprocurementoffices,bothintheUnitedStatesandinternationally.WemaintainadirectsalesandsupportpresenceinEurope.7Form10-KCustomerServiceandSupportWealsoinvestinourongoingcustomerserviceandsupport.Consumercustomerservicerepresentatives,themajorityofwhomareemployeesofoutsourcedserviceorganizations,areextensivelytrainedonthetechnicalintricaciesofourconsumerproducts.Governmentandindustrialcustomerrepresentativesareusuallyformermilitarypersonnelwhoareexperiencedinlogisticalandtechnicalsupportrequirementsformilitaryoperations.MarketingandBrandWemarketourhomerobotstoend-usercustomersthroughoursalesandmarketingteamsaswellasthroughourextensivenetworkofretailersandin-countrydistributors.Wemarketourgovernmentandindustrialproductsdirectlythroughourteamofgovernmentsalesspecialiststoendusersandindirectlythroughprimecontractors.Ourwebsiteisalsoplayinganincreasingroleinsupportingbrandawareness,addressingcustomerquestionsandservingasashowcaseforourproducts.OurmarketingstrategyistoincreaseourbrandawarenessandassociatetheiRobotbrandwithinnovation,reliability,safetyandvalue.Oursalesandmarketingexpensesrepresented12.6%,13.7%and15.2%ofourtotalrevenuein2010,2009and2008,respectively.Weexpecttocontinuetoinvestinnationaladvertising,consumerandindustrytradeshows,directmarketingandpublicrelationstofurtherbuildbrandawareness.Webelievethatwehavebuiltatrusted,recognizedbrandbyprovidinghigh-qualityrobots.Webelievethatcustomerword-of-mouthhasbeenasignificantdriverofourbrand’ssuccesstodate,whichcanworkverywellforproductsthatinspireahighlevelofuserloyaltybecauseusersarelikelytosharetheirpositiveexperiences.Ourgrass-rootsmarketingeffortsfocusonfeedingthisword-of-mouthmomentumandweusepublicrelationsaswellasadvertisingtopromoteourproducts.Ourinnovativerobotsandpublicrelationscampaignshavegeneratedextensivepresscoverage.Inaddition,iRobotandourconsumerrobotshavewonseveralawardsandourinclusionamongthefirst-tierpartnersontheU.S.Army’sBrigadeCombatTeamModernizationprogramhasgreatlyenhancedourbrandandawarenessamonggovernmentandindustrialcustomers.Throughtheseefforts,wehavebeenabletobuildourbrand,andweexpectthatourreputationforinnovativeproductsandcustomersupportwillcontinuetoplayasignificantroleinourgrowthandsuccess.ManufacturingOurcorecompetenciesarethedesign,developmentandmarketingofrobots.Ourmanufacturingstrategyistooutsourcenon-corecompetencies,suchastheproductionofourrobots,tothird-partyentitiesskilledinmanu-facturing.Byrelyingontheoutsourcedmanufactureofbothourconsumerandmilitaryrobots,wecanfocusourengineeringexpertiseonthedesignofrobots.Manufacturinganewproductrequiresacloserelationshipbetweenourproductdesignersandthemanufac-turingorganizations.Usingmultipleengineeringtechniques,ourproductsareintroducedtotheselectedproductionfacilityatanearly-developmentstageandthefeedbackprovidedbymanufacturingisincorporatedintothedesignbeforetoolingisfinalizedandmassproductionbegins.Asaresult,webelievethatwecansignificantlyreducethetimerequiredtomoveaproductfromitsdesignphasetomassproductiondeliveries,withimprovedqualityandyields.Weoutsourcethemanufacturingofourconsumerproductstothreecontractmanufacturers,eachofwhichmanufacturesatasingleplantinChina.OurPackBot,SmallUnmannedGroundVehicle(SUGV)andMaritimefamiliesofgovernmentandindustrialproductsareeachmanufacturedbyseparatecontractmanufacturerslocatedintheUnitedStates.ThemanufacturingofourNegotiatorfamilyofproductsisoutsourcedtoacontractmanufacturerinIndia.ResearchandDevelopmentWebelievethatourfuturesuccessdependsuponourabilitytocontinuetodevelopnewproductsandproductaccessories,andenhancementstoandapplicationsforourexistingproducts.FortheyearsendedJanuary1,2011,8January2,2010andDecember27,2008,ourresearchanddevelopmentexpenseswere$24.8million,$14.7millionand$17.6million,respectively.Inadditiontoourinternalresearchanddevelopmentactivities,fortheyearsendedJanuary1,2011,January2,2010andDecember27,2008,wehaveincurredresearchanddevelopmentexpensesunderfundeddevelopmentarrangementswithgovernmentsandindustrialthirdpartiesof$27.1million,$30.8millionand$23.9million,respectively.Ofourtotalresearchanddevelopmentspendingin2010,2009and2008,approximately50.4%,63.9%and51.7%,respectivelywasfundedbygovernment-sponsoredresearchanddevelopmentcontracts.FortheyearsendedJanuary1,2011,January2,2010andDecember27,2008,thecombinedinvestmentinfuturetechnologies,classifiedascostofrevenueandresearchanddevelopmentexpense,was$51.9million,$45.5millionand$41.5million,respectively.Weintendtocontinueourinvestmentinresearchanddevelopmenttorespondtoandanticipatecustomerneeds,andtoenableustointroducenewproductsoverthenextfewyearsthatwillcontinuetoaddressourexistingmarketsectors.Ourresearchanddevelopmentisconductedbysmallteamsdedicatedtoparticularprojects,examplesofwhichincludetheRoombateam,Scoobateam,WarriorteamandPackBotteam.OurdomesticresearchanddevelopmenteffortsareprimarilylocatedatourheadquartersinBedford,Massachusetts,ourofficeinDurham,NorthCarolina,andourspecialprojectsengineeringofficeinSanLuisObispo,California.Ourresearchanddevelopmenteffortsforournext-generationproductsaresupportedbyavarietyofsources.Ournext-generationmilitaryproductsarepredominatelysupportedbyU.S.governmentalresearchorganizations.Governmentfundingisprovidedtofurtherthedevelopmentofrobottechnologieswiththeexpectationthatiftheprojectsresultinthedevelopmentoftechnicallyviableprototypes,thegovernmentwillpurchasemultipleproductionunitsforfutureuseinthefield.Thegovernmentfundingthatwereceiveallowsustoacceleratethedevelopmentofmultipletechnologies.WhiletheU.S.governmentretainscertainrightstomilitaryprojectsthatithasfunded,suchastherighttouseinventionsanddisclosetechnicaldatarelatingtothoseprojectswithoutconstrainingtherecipient’suseofthatdata,weretainownershipofpatentsandknow-howandaregenerallyfreetodevelopothercommercialproducts,bothconsumerandindustrial,utilizingthetechnologiesdevelopedduringtheseprojects.Therightswhichthegovernmentretains,however,mayallowittoprovideuseofpatentrightsandknow-howtoothers,andsomeoftheknow-howmightbeusedbythesethirdpartiesfortheirowndevelopmentofconsumerandindustrialproducts.Similarly,expertisedevelopedwhiledesigningconsumerproductsisusedindesigningproductsforgovernmentandindustrialapplications.Wealsoworkwithstrategiccollaboratorstodevelopindustry-specifictechnologies.CompetitionThemarketforrobotsishighlycompetitive,rapidlyevolvingandsubjecttochangingtechnologies,shiftingcustomerneedsandexpectationsandthelikelyincreasedintroductionofnewproducts.Webelievethatanumberofestablishedcompanieshavedevelopedoraredevelopingrobotsthatwillcompetedirectlywithourproductofferings,andmanyofourcompetitorshavesignificantlymorefinancialandotherresourcesthanwepossess.Ourcompetitorsincludedevelopersofrobotfloorcleaningproducts,developersofsmallunmannedgroundvehicles,establishedgovernmentcontractorsworkingonunmannedsystems,anddevelopersofsmallunmannedunderwatervehicles.WhilewebelievemanyofourcustomerspurchaseourRoombafloorvacuumingrobotsandScoobafloorwashingrobotsasasupplementto,ratherthanareplacementfor,theirtraditionalvacuumcleanersandwetfloorcleaningmethods,wedocompeteinsomecaseswithprovidersoftraditionalcleaningproducts.Webelievethattheprincipalcompetitivefactorsinthemarketforrobotsincludeproductfeatures,perfor-mancefortheintendedmission,costofpurchase,totalcostofsystemoperation,includingmaintenanceandsupport,easeofuse,integrationwithexistingequipment,quality,reliability,customersupport,brandandreputation.Ourabilitytoremaincompetitivewilldependtoagreatextentuponourongoingperformanceintheareasofproductdevelopmentandcustomersupport.Wecannotassureyouthatourproductswillcontinuetocompetefavorablyorthatwewillbesuccessfulinthefaceofincreasingcompetitionfromnewproductsandenhancementsintroducedbyexistingcompetitorsornewcompaniesenteringthemarketsinwhichweprovideproducts.9Form10-KIntellectualPropertyWebelievethatourcontinuedsuccessdependsinlargepartonourproprietarytechnology,theintellectualskillsofouremployeesandtheabilityofouremployeestocontinuetoinnovate.Werelyonacombinationofpatent,copyright,trademarkandtradesecretlaws,aswellasconfidentialityagreements,toestablishandprotectourproprietaryrights.AsofJanuary1,2011,weheld82U.S.patentsandmorethan150pendingU.S.patentapplications.Also,weheld34foreignpatents,additionaldesignregistrations,andmorethan100pendingforeignapplications.OurU.S.patentswillbegintoexpirein2019.Wewillcontinuetofileandprosecutepatent(ordesignregistration,asapplicable)applicationswhenandwhereappropriatetoattempttoprotectourrightsinourproprietarytechnologies.Wealsoencourageouremployeestocontinuetoinventanddevelopnewtechnologiessoastomaintainourcompetitivenessinthemarketplace.Itispossiblethatourcurrentpatents,orpatentswhichwemaylateracquire,maybesuccessfullychallengedorinvalidatedinwholeorinpart.Itisalsopossiblethatwemaynotobtainissuedpatentsforourpendingpatentapplicationsorotherinventionsweseektoprotect.Inthatregard,wesometimespermitcertainintellectualpropertytolapseorgoabandonedunderappropriatecircumstancesandduetouncertaintiesinherentinprosecutingpatentapplications,sometimespatentapplicationsarerejectedandwesubsequentlyabandonthem.Itisalsopossiblethatwemaynotdevelopproprietaryproductsortechnologiesinthefuturethatarepatentable,orthatanypatentissuedtousmaynotprovideuswithanycompetitiveadvantages,orthatthepatentsofotherswillharmoraltogetherprecludeourabilitytodobusiness.OurregisteredU.S.trademarksincludeiRobot,Roomba,Scooba,iRobotDirtDog,Create,PackBot,Negotiator,Aware,HomeBase,Looj,Verro,VirtualWall,andWarrior.Ourmarks,iRobot,Roomba,Scooba,andcertainothertrademarks,havealsobeenregisteredinselectedforeigncountries.Ourmeansofprotectingourproprietaryrightsmaynotbeadequateandourcompetitorsmayindependentlydeveloptechnologythatissimilartoours.Legalprotectionsaffordonlylimitedprotectionforourtechnology.ThelawsofmanycountriesdonotprotectourproprietaryrightstoasgreatanextentasdothelawsoftheUnitedStates.Despiteoureffortstoprotectourproprietaryrights,unauthorizedpartieshaveinthepastattempted,andmayinthefutureattempt,tocopyaspectsofourproductsortoobtainanduseinformationthatweregardasproprietary.Thirdpartiesmayalsodesignaroundourproprietaryrights,whichmayrenderourprotectedproductslessvaluable,ifthedesignaroundisfavorablyreceivedinthemarketplace.Inaddition,ifanyofourproductsorthetechnologyunderlyingourproductsiscoveredbythird-partypatentsorotherintellectualpropertyrights,wecouldbesubjecttovariouslegalactions.Wecannotassureyouthatourproductsdonotinfringepatentsheldbyothersorthattheywillnotinthefuture.WehavereceivedinthepastcommunicationsfromthirdpartiesrelatingtotechnologiesusedinourRoombafloorvacuumingrobotsthathaveallegedinfringementofpatentsorviolationofotherintellectualpropertyrights.Inresponsetothesecommunications,wehavecontactedthesethirdpartiestoconveyourgoodfaithbeliefthatwedonotinfringethepatentsinquestionorotherwiseviolatethoseparties’rights.Althoughtherehavebeennoadditionalactionsorcommunicationswithrespecttotheseallegations,wecannotassureyouthatwewillnotreceivefurthercorrespondencefromtheseparties,ornotbesubjecttoadditionalallegationsofinfringementfromothers.Litigationmaybenecessarytoenforceourintellectualpropertyrights,toprotectourtradesecrets,todeterminethevalidityandscopeoftheproprietaryrightsofothers,ortodefendagainstclaimsofinfringementorinvalidity,misappropriation,orotherclaims.Anysuchlitigationcouldresultinsubstantialcostsanddiversionofourresources.Moreover,anysettlementoforadversejudgmentresultingfromsuchlitigationcouldrequireustoobtainalicensetocontinuetousethetechnologythatisthesubjectoftheclaim,orotherwiserestrictorprohibitouruseofthetechnology.Anyrequiredlicensesmaynotbeavailabletousonacceptableterms,ifatall.Ifweattempttodesignaroundthetechnologyatissueortofindanotherproviderofsuitablealternativetechnologytopermitustocontinueofferingapplicablesoftwareorproductsolutions,ourcontinuedsupplyofsoftwareorproductsolutionscouldbedisruptedorourintroductionofneworenhancedsoftwareorproductscouldbesignificantlydelayed.10RegulationsWearesubjecttovariousgovernmentregulations,includingvariousU.S.federalgovernmentregulationsasacontractorandsubcontractortotheU.S.federalgovernment.AmongthemostsignificantU.S.federalgovernmentregulationsaffectingourbusinessare:(cid:129)theFederalAcquisitionRegulationsandsupplementalagencyregulations,whichcomprehensivelyregulatetheformationandadministrationof,andperformanceundergovernmentcontracts;(cid:129)theTruthinNegotiationsAct,whichrequirescertificationanddisclosureofallcostandpricingdatainconnectionwithcontractnegotiations;(cid:129)theCostAccountingStandards,whichimposeaccountingrequirementsthatgovernourrighttoreimburse-mentundercost-basedgovernmentcontracts;(cid:129)theForeignCorruptPracticesAct,whichprohibitsU.S.companiesfromprovidinganythingofvaluetoaforeignofficialtohelpobtain,retainordirectbusiness,orobtainanyunfairadvantages;(cid:129)theFalseClaimsActandtheFalseStatementsAct,which,respectively,imposepenaltiesforpaymentsmadeonthebasisoffalsefactsprovidedtothegovernment,andimposepenaltiesonthebasisoffalsestatements,eveniftheydonotresultinapayment;and(cid:129)laws,regulationsandexecutiveordersrestrictingtheuseanddisseminationofinformationclassifiedfornationalsecuritypurposesandtheexportationofcertainproductsandtechnicaldata.WealsoneedspecialsecurityclearancestocontinueworkingonandadvancingcertainofourprojectswiththeU.S.federalgovernment.ClassifiedprogramsgenerallywillrequirethatwecomplywithvariousExecutiveOrders,federallawsandregulationsandcustomersecurityrequirementsthatmayincluderestrictionsonhowwedevelop,store,protectandshareinformation,andmayrequireouremployeestoobtaingovernmentclearances.Thenatureoftheworkwedoforthefederalgovernmentmayalsolimitthepartieswhomayinvestinoracquireus.Exportlawsmaykeepusfromprovidingpotentialforeignacquirerswithareviewofthetechnicaldatatheywouldbeacquiring.Inaddition,therearespecialrequirementsforforeignpartieswhowishtobuyoracquirecontrolorinfluenceovercompaniesthatcontroltechnologyorproducegoodsinthesecurityinterestsoftheUnitedStates.TheremayneedtobeareviewundertheExon-FlorioprovisionsoftheDefenseProductionAct.Finally,thegovernmentmayrequireaprospectiveforeignownertoestablishintermediariestoactuallyrunthatpartofthecompanythatdoesclassifiedwork,andestablishingasubsidiaryanditsseparateoperationmaymakesuchanacquisitionlessappealingtosuchpotentialacquirers.Inaddition,theexportfromtheUnitedStatesofmanyofourproductsmayrequiretheissuanceofalicensebytheU.S.DepartmentofCommerceundertheExportAdministrationAct,asamended,anditsimplementingRegulationsaskeptinforcebytheInternationalEmergencyEconomicPowersActof1977,asamended.SomeofourproductsmayrequiretheissuanceofalicensebytheU.S.DepartmentofStateundertheArmsExportControlActanditsimplementingRegulations,whichlicensesaregenerallyhardertoobtainandtakelongertoobtainthandoExportAdministrationActlicenses.Ourbusinessmayrequirethecompliancewithstateorlocallawsdesignedtolimittheusesofpersonaluserinformationgatheredonlineorrequireonlineservicestoestablishprivacypolicies.GovernmentandIndustrialProductBacklogOurgovernmentandindustrialproductbacklogconsistsofwrittenordersorcontractstopurchaseourproductsreceivedfromourgovernmentandindustrialcustomers.Totalbacklogofproductsalestogovernmentandindustrialcustomers,whichincludesfederal,state,localandforeigngovernments,andnon-governmentcustomers,asofJanuary1,2011andJanuary2,2010amountedtoapproximately$23.9millionand$42.2million,respectively.Ourfundedresearchanddevelopmentcontractsmaybecancelledordelayedatanytimewithoutsignificant,ifany,penalty.Asaresult,webelievethatbacklogwithrespecttoourfundedresearchanddevelopmentisnotmeaningful.Therecanbenoassurancethatanyofourbacklogwillresultinrevenue.11Form10-KEmployeesAsofJanuary1,2011,wehad657full-timeemployeeslocatedintheUnitedStatesandabroad,ofwhom304areinresearchanddevelopment,156areinoperations,78areinsalesandmarketingand119areingeneralandadministration.Webelievethatwehaveagoodrelationshipwithouremployees.AvailableInformationWewereincorporatedinCaliforniainAugust1990underthenameISRobotics,Inc.andreincorporatedasISRoboticsCorporationinMassachusettsinJune1994.WereincorporatedinDelawareasiRobotCorporationinDecember2000.WeconductoperationsandmaintainanumberofsubsidiariesintheUnitedStatesandabroad,includingoperationsinHongKong,theUnitedKingdom,ChinaandIndia.WealsomaintainiRobotSecuritiesCorporation,aMassachusettssecuritiescorporation,toinvestourcashbalancesonashort-termbasis.Ourwebsiteaddressiswww.irobot.com.OurAnnualReportonForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-KandamendmentstothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheSecuritiesExchangeActof1934areavailablefreeofchargethroughtheinvestorrelationspageofourinternetwebsiteassoonasreasonablypracticableafterweelectronicallyfilesuchmaterialwith,orfurnishitto,theSecuritiesandExchangeCommission.12ITEM1A.RISKFACTORSWeoperateinarapidlychangingenvironmentthatinvolvesanumberofrisks,someofwhicharebeyondourcontrol.Thisdiscussionhighlightssomeoftheriskswhichmayaffectfutureoperatingresults.Thesearetherisksanduncertaintieswebelievearemostimportantforyoutoconsider.Additionalrisksanduncertaintiesnotpresentlyknowntous,whichwecurrentlydeemimmaterialorwhicharesimilartothosefacedbyothercompaniesinourindustryorbusinessingeneral,mayalsoimpairourbusinessoperations.Ifanyofthefollowingrisksoruncertaintiesactuallyoccurs,ourbusiness,financialconditionandoperatingresultswouldlikelysuffer.RisksRelatedtoOurBusinessWeoperateinanemergingmarket,whichmakesitdifficulttoevaluateourbusinessandfutureprospects.Robotsrepresentanewandemergingmarket.Accordingly,ourbusinessandfutureprospectsaredifficulttoevaluate.Wecannotaccuratelypredicttheextenttowhichdemandforconsumerrobotswillincrease,ifatall.Moreover,thereareonlyalimitednumberofmajorprogramsunderwhichtheU.S.federalgovernmentiscurrentlyfundingthedevelopmentorpurchaseofmilitaryrobots.Youshouldconsiderthechallenges,risksanduncertaintiesfrequentlyencounteredbycompaniesusingnewandunprovenbusinessmodelsinrapidlyevolvingmarkets.Thesechallengesincludeourabilityto:(cid:129)generatesufficientrevenueandgrossmargintomaintainprofitability;(cid:129)acquireandmaintainmarketshareinourconsumerandmilitarymarkets;(cid:129)managegrowthinouroperations;(cid:129)attractandretaincustomersofourconsumerrobots;(cid:129)developandrenewgovernmentcontractsforourmilitaryrobots;(cid:129)attractandretainadditionalengineersandotherhighly-qualifiedpersonnel;(cid:129)expandourproductofferingsbeyondourexistingrobots;(cid:129)adapttoneworchangingpoliciesandspendingprioritiesofgovernmentsandgovernmentagencies;and(cid:129)accessadditionalcapitalwhenrequiredandonreasonableterms.Ifwefailtosuccessfullyaddresstheseandotherchallenges,risksanduncertainties,ourbusiness,resultsofoperationsandfinancialconditionwouldbemateriallyharmed.Ourfinancialresultsoftenvarysignificantlyfromquarter-to-quarterduetoanumberoffactors,whichmayleadtovolatilityinourstockprice.Ourquarterlyrevenueandotheroperatingresultshavevariedinthepastandarelikelytocontinuetovarysignificantlyfromquarter-to-quarter.Thesefluctuationswillbeduetonumerousfactorsincluding:(cid:129)thesizeandtimingofordersfrommilitaryandothergovernmentagencies;(cid:129)thesize,timingandmixofordersfromretailstoresandinternationaldistributorsforourhomecarerobots;(cid:129)themixofproductsthatwesellintheperiod;(cid:129)disruptionofsupplyofourproductsfromourmanufacturers;(cid:129)seasonalityinthesalesofourconsumerproducts,whichhavehistoricallybeenheavilyweightedinthesecondhalfoftheyear;(cid:129)theinabilitytoattractandretainqualified,revenue-generatingpersonnel;(cid:129)unanticipatedcostsincurredintheintroductionofnewproducts;(cid:129)costsandavailabilityoflaborandrawmaterials;13Form10-K(cid:129)costsoffreight;(cid:129)changesinourrateofreturnsforourconsumerproducts;(cid:129)ourabilitytointroducenewproductsandenhancementstoourexistingproductsonatimelybasis;(cid:129)warrantycostsassociatedwithourconsumerproducts;(cid:129)theamountofgovernmentfundingandthepolitical,budgetaryandpurchasingconstraintsofourgovern-mentagencycustomers;and(cid:129)cancellations,delaysorcontractamendmentsbygovernmentagencycustomers.Wecannotbecertainthatourrevenueswillgrowatratesthatwillallowustomaintainprofitabilityduringeveryfiscalquarter,oreveneveryfiscalyear.Webaseourcurrentandfutureexpenselevelsonourinternaloperatingplansandsalesforecasts,includingforecastsofholidaysalesforourconsumerproducts.Asignificantportionofouroperatingexpenses,suchasresearchanddevelopmentexpenses,certainmarketingandpromotionalexpensesandemployeewagesandsalaries,donotvarydirectlywithsalesandaredifficulttoadjustintheshortterm.Asaresult,ifsalesforaquarter,particularlythefinalquarterofafiscalyear,arebelowourexpectations,wemightnotbeabletoreduceoperatingexpensesforthatquarterand,therefore,wewouldnotbeabletoreduceouroperatingexpensesforthefiscalyear.Accordingly,asalesshortfallduringafiscalquarter,andinparticularthefourthquarterofafiscalyear,couldhaveadisproportionateeffectonouroperatingresultsforthatquarterorthatyear.Becauseofquarterlyfluctuations,webelievethatquarter-to-quartercomparisonsofouroperatingresultsarenotnecessarilymeaningful.Moreover,ouroperatingresultsmaynotmeetexpectationsofequityresearchanalystsorinvestors.Ifthisoccurs,thetradingpriceofourcommonstockcouldfallsubstantiallyeithersuddenlyorovertime.Globaleconomicconditionsandanyassociatedimpactonconsumerspendingcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsandfinancialcondition.Continuedeconomicuncertaintyandreductionsinconsumerspendingmayresultinreductionsinsalesofourconsumerrobots.Additionally,disruptionsincreditmarketsmaymateriallylimitconsumercreditavailabilityandrestrictcreditavailabilityofourretailcustomers,whichwouldalsoimpactpurchasesofourconsumerrobots.Anyreductioninsalesofourconsumerrobots,resultingfromreductionsinconsumerspendingorcontinueddisruptionintheavailabilityofcredittoretailersorconsumers,couldmateriallyandadverselyaffectourbusiness,resultsofoperationsandfinancialcondition.Ourbusinesscurrentlydependsonourconsumerrobots,andoursalesgrowthandoperatingresultswouldbenegativelyimpactedifweareunabletoenhanceourcurrentconsumerrobotsordevelopnewconsumerrobotsatcompetitivepricesorinatimelymanner.FortheyearsendedJanuary1,2011andJanuary2,2010,wederived57.2%and55.5%ofourtotalrevenuefromourconsumerrobots,respectively.Fortheforeseeablefuture,weexpectthatasignificantportionofourrevenuewillbederivedfromsalesofconsumerrobotsingeneralandhomefloorcareproductsinparticular.Accordingly,ourfuturesuccessdependsuponourabilitytofurtherpenetratetheconsumerhomecaremarket,toenhanceourcurrentconsumerproductsanddevelopandintroducenewconsumerproductsofferingenhancedperformanceandfunctionalityatcompetitiveprices.Thedevelopmentandapplicationofnewtechnologiesinvolvetime,substantialcostsandrisks.Ourinabilitytoachievesignificantsalesofournewlyintroducedrobots,ortoenhance,developandintroduceotherproductsinatimelymanner,oratall,wouldmateriallyharmoursalesgrowthandoperatingresults.WedependontheU.S.federalgovernmentforasignificantportionofourrevenue,andanyreductionintheamountofbusinessthatwedowiththeU.S.federalgovernmentwouldnegativelyimpactouroperatingresultsandfinancialcondition.FortheyearsendedJanuary1,2011andJanuary2,2010,wederived38.4%and36.9%ofourtotalrevenue,respectively,directlyorindirectly,fromtheU.S.federalgovernmentanditsagencies.Anyreductionintheamount14ofrevenuethatwederivefromalimitednumberofU.S.federalgovernmentagencieswithoutanoffsettingincreaseinnewsalestoothercustomerswouldhaveamaterialadverseeffectonouroperatingresults.U.S.Governmentprogramsinwhichweparticipate,orinwhichwemayseektoparticipateinthefuture,mustcompetewithotherprogramsforconsiderationduringournation’sbudgetformulationandappropriationprocesses,andmaybeaffectedbychangesingeneraleconomicconditions.Budgetdecisionsmadeinthisenvironmentmayhavelong-termconsequencesforoursizeandstructureandthatofthedefenseindustry.Itispossiblethatoneormoreofourprogramswillbereduced,extended,orterminated.Reductionsinourexistingprograms,unlessoffsetbyotherprogramsandopportunities,couldadverselyaffectourabilitytogrowoursalesandprofitability.OurparticipationinspecificmajorU.S.federalgovernmentprogramsiscriticaltoboththedevelopmentandsaleofourmilitaryrobots.Forexample,intheyearsendedJanuary1,2011andJanuary2,2010,62.7%and40.3%ofourtotalcontractrevenuewasderivedfromourparticipationintheU.S.Army’sBCTMprogram,respectively.FuturesalesofourmilitaryrobotswilldependlargelyonourabilitytosecurecontractswiththeU.S.militaryunderitsrobotprograms.WeexpectthattherewillcontinuetobeonlyalimitednumberofmajorprogramsunderwhichU.S.federalgovernmentagencieswillseektofundthedevelopmentof,orpurchase,robots.Ourbusinesswill,therefore,sufferifwearenotawarded,eitherdirectlyorindirectlythroughthird-partycontractors,governmentcontractsforrobotsthatwearequalifiedtodeveloporbuild.Inaddition,iftheU.S.federalgovernmentorgovernmentagenciesterminateorreducetherelatedprimecontractunderwhichweserveasasubcontractor,revenuesthatwederiveunderthatcontractcouldbelost,whichwouldnegativelyimpactourbusinessandfinancialresults.Moreover,itisdifficulttopredictthetimingoftheawardofgovernmentcontractsandourrevenuecouldfluctuatesignificantlybasedonthetimingofanysuchawards.Evenifwecontinuetoreceivefundingforresearchanddevelopmentunderthesecontracts,therecanbenoassurancethatwewillsuccessfullycompletethedevelopmentofrobotspursuanttothesecontractsorthat,ifsuccessfullydeveloped,theU.S.federalgovernmentoranyothercustomerwillpurchasetheserobotsfromus.TheU.S.federalgovernmenthastherightwhenitcontractstousethetechnologydevelopedbyustohaverobotssuppliedbythirdparties.Anyfailurebyustocompletethedevelopmentoftheserobots,ortoachievesuccessfulsalesoftheserobots,wouldharmourbusinessandresultsofoperations.Ourbusinessandresultsofoperationscouldbenegativelyaffectedbysignificantchangesinthepoliciesandspendingprioritiesofgovernmentsandgovernmentagencies.Manyofourgovernmentcustomersaresubjecttostringentbudgetaryconstraintsandourcontinuedperformanceunderthesecontracts,orawardofadditionalcontractsfromtheseagencies,couldbejeopardizedbyspendingreductionsorbudgetcutbacksattheseagencies.OurcontractswiththeU.S.federalgovernmentcontaincertainprovisionsthatmaybeunfavorabletousandsubjectustogovernmentaudits,whichcouldmateriallyharmourbusinessandresultsofoperations.OurcontractsandsubcontractswiththeU.S.federalgovernmentsubjectustocertainrisksandgivetheU.S.federalgovernmentrightsandremediesnottypicallyfoundincommercialcontracts,includingrightsthatallowtheU.S.federalgovernmentto:(cid:129)terminatecontractsforconvenience,inwholeorinpart,atanytimeandforanyreason;(cid:129)reduceormodifycontractsorsubcontractsifitsrequirementsorbudgetaryconstraintschange;(cid:129)cancelmulti-yearcontractsandrelatedordersiffundsforcontractperformanceforanysubsequentyearbecomeunavailable;(cid:129)exerciseproductionpriorities,whichallowittorequirethatweacceptgovernmentpurchaseordersorproduceproductsunderitscontractsbeforeweproduceproductsunderothercontracts,whichmaydisplaceordelayproductionofmoreprofitableorders;(cid:129)claimcertainrightsinproductsprovidedbyus;and(cid:129)controlorprohibittheexportofcertainofourproducts.SeveralofourprimecontractswiththeU.S.federalgovernmentdonotcontainalimitationofliabilityprovision,creatingariskofresponsibilityfordirectandconsequentialdamages.Severalsubcontractswithprimecontractorsholdtheprimecontractorharmlessagainstliabilitythatstemsfromourworkanddonotcontaina15Form10-Klimitationofliability.Theseprovisionscouldcausesubstantialliabilityforus,especiallygiventheusetowhichourproductsmaybeput.Inaddition,wearesubjecttoauditsbytheU.S.federalgovernmentaspartofroutineauditsofgovernmentcontracts.Aspartofanaudit,theseagenciesmayreviewourperformanceoncontracts,coststructuresandcompliancewithapplicablelaws,regulationsandstandards.Ifanyofourcostsarefoundtobeallocatedimproperlytoaspecificcontract,thecostsmaynotbereimbursedandanycostsalreadyreimbursedforsuchcontractmayhavetoberefunded.Accordingly,anauditcouldresultinamaterialadjustmenttoourrevenueandresultsofoperations.Moreover,ifanaudituncoversimproperorillegalactivities,wemaybesubjecttocivilandcriminalpenaltiesandadministrativesanctions,includingterminationofcontracts,forfeitureofprofits,suspensionofpayments,finesandsuspensionordebarmentfromdoingbusinesswiththegovernment.Ifanyoftheforegoingweretooccur,oriftheU.S.federalgovernmentotherwiseceaseddoingbusinesswithusordecreasedtheamountofbusinesswithus,ourbusinessandoperatingresultscouldbemateriallyharmedandthevalueofyourinvestmentinourcommonstockcouldbeimpaired.SomeofourcontractswiththeU.S.federalgovernmentallowittouseinventionsdevelopedunderthecontractsandtodisclosetechnicaldatatothirdparties,whichcouldharmourabilitytocompete.SomeofourcontractsallowtheU.S.federalgovernmentrightstouse,orhaveothersuse,patentedinventionsdevelopedunderthosecontractsonbehalfofthegovernment.Someofthecontractsallowthefederalgovernmenttodisclosetechnicaldatawithoutconstrainingtherecipientinhowthatdataisused.Theabilityofthirdpartiestousepatentsandtechnicaldataforgovernmentpurposescreatesthepossibilitythatthegovernmentcouldattempttoestablishadditionalsourcesfortheproductsweprovidethatstemfromthesecontracts.Itmayalsoallowthegovernmenttheabilitytonegotiatewithustoreduceourpricesforproductsweprovidetoit.Thepotentialthatthegovernmentmayreleasesomeofthetechnicaldatawithoutconstraintcreatesthepossibilitythatthirdpartiesmaybeabletousethisdatatocompetewithusinthecommercialsector.Wedependonsinglesourcemanufacturers,andourreputationandresultsofoperationswouldbeharmedifthesemanufacturersfailtomeetourrequirements.Wecurrentlydependlargelyonseveralsinglesourcecontractmanufacturers,forthemanufactureofourvariousfamiliesofhomecareandgovernmentproducts.AllcontractmanufacturersforourhomerobotsarelocatedinChina.Thesemanufacturerssupplysubstantiallyalloftherawmaterialsandprovideallfacilitiesandlaborrequiredtomanufactureourproducts.Ifthesecompaniesweretoterminatetheirarrangementswithusorfailtoprovidetherequiredcapacityandqualityonatimelybasis,wewouldbeunabletomanufactureourproductsuntilreplacementcontractmanufacturingservicescouldbeobtained,whichisacostlyandtime-consumingprocess.Wecannotassureyouthatwewouldbeabletoestablishalternativemanufacturingrelationshipsonacceptableterms.Ourrelianceonthesecontractmanufacturersinvolvescertainrisks,includingthefollowing:(cid:129)lackofdirectcontroloverproductioncapacityanddeliveryschedules;(cid:129)lackofdirectcontroloverqualityassurance,manufacturingyieldsandproductioncosts;(cid:129)lackofenforceablecontractualprovisionsovertheproductionandcostsofconsumerproducts;(cid:129)riskoflossofinventorywhileintransit;(cid:129)risksassociatedwithinternationalcommerce,includingunexpectedchangesinlegalandregulatoryrequirements,changesintariffsandtradepolicies,risksassociatedwiththeprotectionofintellectualpropertyandpoliticalandeconomicinstability;and(cid:129)ourattemptstoaddadditionalmanufacturingresourcesmaybesignificantlydelayedandtherebycreatedisruptionsinproductionofourproducts.Anyinterruptioninthemanufactureofourproductswouldbelikelytoresultindelaysinshipment,lostsalesandrevenueanddamagetoourreputationinthemarket,allofwhichwouldharmourbusinessandresultsof16operations.Inaddition,whileourcontractobligationswithourcontractmanufacturersinChinaaretypicallydenominatedinU.S.dollars,changesincurrencyexchangeratescouldimpactoursuppliersandincreaseourprices.Anyeffortstoexpandourproductofferingsbeyondourcurrentmarketsmaynotsucceed,whichcouldnegativelyimpactouroperatingresults.Wehavefocusedonsellingourrobotsinthehomefloorcareandmilitarymarkets.Weplantoexpandintoothermarkets.Effortstoexpandourproductofferingsbeyondthemarketsthatwecurrentlyserve,however,maydivertmanagementresourcesfromexistingoperationsandrequireustocommitsignificantfinancialresourcestoanunprovenbusiness,eitherofwhichcouldsignificantlyimpairouroperatingresults.Moreover,effortstoexpandbeyondourexistingmarketsmayneverresultinnewproductsthatachievemarketacceptance,createadditionalrevenueorbecomeprofitable.Ifweareunabletoimplementappropriatecontrolsandprocedurestomanageourgrowth,wemaynotbeabletosuccessfullyimplementourbusinessplan.Ourheadcountandoperationshavegrownrapidly.Thisrapidgrowthhasplaced,andwillcontinuetoplace,asignificantstrainonourmanagement,administrative,operationalandfinancialinfrastructure.FromJanuary2,2010toJanuary1,2011,thenumberofouremployeesincreasedfrom538to657.Weanticipatefurthergrowthwillberequiredtoaddressincreasesinourproductofferingsonthegeographicscopeofourcustomerbase.Oursuccesswilldependinpartupontheabilityofourseniormanagementtomanagethisgrowtheffectively.Todoso,wemustcontinuetohire,train,manageandintegrateasignificantnumberofqualifiedmanagersandemployees.Ifournewemployeesperformpoorly,orifweareunsuccessfulinhiring,training,managingandintegratingthesenewemployees,orretainingtheseorourexistingemployees,ourbusinessmaysuffer.Inaddition,wefacerisksassociatedwithmanagingoperationsoutsidetheUnitedStates.Wewillneedtocontinuetoimproveourinformationtechnologyinfrastructure,operational,financialandmanagementcontrolsandreportingsystemsandprocedures,andmanageexpandedoperationsingeographicallydistributedlocations.Ourexpectedadditionalheadcountandcapitalinvestmentswillincreaseourcosts,whichwillmakeitmoredifficultforustooffsetanyfuturerevenueshortfallsbyoffsettingexpensereductionsintheshortterm.Ifwefailtosuccessfullymanageourgrowth,wewillbeunabletosuccessfullyexecuteourbusinessplan,whichcouldhaveanegativeimpactonourbusiness,financialconditionorresultsofoperations.Iftheconsumerrobotmarketdoesnotexperiencesignificantgrowthorifourproductsdonotachievebroadacceptanceorifwefailtomaintainorincreaseourconsumerrobotsalesthroughourdistributionchannels,wewillnotbeabletoachieveouranticipatedlevelofgrowth.Wederiveasubstantialportionofourrevenuefromsalesofourconsumerrobots,includingourhomecarerobots.FortheyearsendedJanuary1,2011andJanuary2,2010,consumerrobotsaccountedfor57.2%and55.5%,respectively,ofourtotalrevenue.Wefacechallengesinpredictingthefuturegrowthrateorthesizeoftheconsumerrobotmarketingeneralorthehomecarerobotmarketinparticular.Demandforhomecarerobotsmaynotincrease,ormaydecrease,eithergenerallyorinspecificgeographicmarkets,forparticulartypesofrobotsorduringparticulartimeperiods.Wedonothavelong-termcontractsregardingpurchasevolumeswithanyofourretailpartners.Asaresult,purchasesgenerallyoccuronanorder-by-orderbasis,andtherelationships,aswellasparticularorders,cangenerallybeterminatedorotherwisemateriallychangedatanytimebyourretailpartners.Adecisionbyamajorretailpartner,whethermotivatedbycompetitiveconsiderations,financialdifficulties,economicconditionsorotherwise,todecreaseitspurchasesfromus,toreducetheshelfspaceforourproductsortochangeitsmannerofdoingbusinesswithuscouldsignificantlydamageourconsumerproductsalesandnegativelyimpactourbusiness,financialconditionandresultsofoperations.Inaddition,duringrecentyears,variousretailers,includingsomeofourpartners,haveexperiencedsignificantchangesanddifficulties,includingconsolidationofownership,increasedcentralizationofpurchasingdecisions,restructurings,bankruptciesandliquidations.Theseandotherfinancialproblemsofsomeofourretailersincreasetheriskofextendingcredittotheseretailers.Asignificantadversechangeinaretailpartnerrelationshipwithusorinaretailpartner’sfinancialpositioncouldcauseustolimitordiscontinue17Form10-Kbusinesswiththatpartner,requireustoassumemorecreditriskrelatingtothatpartner’sreceivablesorlimitourabilitytocollectamountsrelatedtopreviouspurchasesbythatpartner,allofwhichcouldharmourbusinessandfinancialcondition.DisruptionoftheiRoboton-linestorecouldalsodecreaseourhomecarerobotsales.Evenifconsumerrobotsgainwidemarketacceptance,ourrobotsmaynotadequatelyaddressmarketrequirementsandmaynotcontinuetogainmarketacceptance.Ifrobotsgenerally,orourrobotsspecifically,donotgainwidemarketacceptance,wemaynotbeabletoachieveouranticipatedlevelofgrowth,andourrevenueandresultsofoperationswouldsuffer.Wefaceintensecompetitionfromotherprovidersofrobots,includingdiversifiedtechnologyproviders,aswellascompetitionfromprovidersofferingalternativeproducts,whichcouldnegativelyimpactourresultsofoperationsandcauseourmarketsharetodecline.Webelievethatanumberofcompanieshavedevelopedoraredevelopingrobotsthatwillcompetedirectlywithourproductofferings.Additionally,largeandsmallcompanies,government-sponsoredlaboratoriesanduniversitiesareaggressivelypursuingcontractsforrobot-focusedresearchanddevelopment.Manycurrentandpotentialcompetitorshavesubstantiallygreaterfinancial,marketing,researchandmanufacturingresourcesthanwepossess,andtherecanbenoassurancethatourcurrentandfuturecompetitorswillnotbemoresuccessfulthanus.Moreover,whilewebelievemanyofourcustomerspurchaseourfloorvacuumingrobotsasasupplementto,ratherthanareplacementfor,theirtraditionalvacuumcleaners;wealsocompeteinsomecaseswithprovidersoftraditionalvacuumcleaners.Ourcompetitorsincludedevelopersofrobotfloorcleaningproducts,developersofsmallunmannedgroundvehicles,establishedgovernmentcontractorsworkingonunmannedsystems,anddevelopersofsmallunmannedunderwatervehicles.Themarketforrobotsishighlycompetitive,rapidlyevolvingandsubjecttochangingtechnologies,shiftingcustomerneedsandexpectationsandthelikelyincreasedintroductionofnewproducts.Ourabilitytoremaincompetitivewilldependtoagreatextentuponourongoingperformanceintheareasofproductdevelopmentandcustomersupport.Intheeventthattherobotmarketexpands,weexpectthatcompetitionwillintensifyasadditionalcompetitorsenterthemarketandcurrentcompetitorsexpandtheirproductlines.Companiescompetingwithusmayintroduceproductsthatarecompetitivelypriced,haveincreasedperformanceorfunctionality,orincorporatetechnologicaladvancesthatwehavenotyetdevelopedorimplemented.Increasedcompetitivepressurecouldresultinalossofsalesormarketshareorcauseustolowerpricesforourproducts,anyofwhichwouldharmourbusinessandoperatingresults.Wecannotassureyouthatourproductswillcontinuetocompetefavorablyorthatwewillbesuccessfulinthefaceofincreasingcompetitionfromnewproductsandenhancementsintroducedbyexistingcompetitorsornewcompaniesenteringthemarketsinwhichweprovideproducts.Ourfailuretocompetesuccessfullycouldcauseourrevenueandmarketsharetodecline,whichwouldnegativelyimpactourresultsofoperationsandfinancialcondition.Ifcriticalcomponentsofourproductsthatwecurrentlypurchasefromasmallnumberofsuppliersbecomeunavailable,wemayincurdelaysinshipment,whichcoulddamageourbusiness.Weandouroutsourcedmanufacturersobtainhardwarecomponents,varioussubsystems,rawmaterialsandbatteriesfromalimitedgroupofsuppliers,someofwhicharesolesuppliers.Wedonothaveanylong-termagreementswiththesesuppliersobligatingthemtocontinuetosellcomponentsorproductstous.Ifweorouroutsourcedmanufacturersareunabletoobtaincomponentsfromthird-partysuppliersinthequantitiesandofthequalitythatwerequire,onatimelybasisandatacceptableprices,wemaynotbeabletodeliverourproductsonatimelyorcost-effectivebasistoourcustomers,whichcouldcausecustomerstoterminatetheircontractswithus,reduceourgrossmarginandseriouslyharmourbusiness,resultsofoperationsandfinancialcondition.Moreover,ifanyofoursuppliersbecomefinanciallyunstable,wemayhavetofindnewsuppliers.Itmaytakeseveralmonthstolocatealternativesuppliers,ifrequired,ortore-toolourproductstoaccommodatecomponentsfromdifferentsuppliers.Wemayexperiencesignificantdelaysinmanufacturingandshippingourproductstocustomersandincuradditionaldevelopment,manufacturingandothercoststoestablishalternativesourcesofsupplyifweloseanyof18thesesources.Wecannotpredictifwewillbeabletoobtainreplacementcomponentswithinthetimeframesthatwerequireatanaffordablecost,oratall.Ourproductsarecomplexandcouldhaveunknowndefectsorerrors,whichmaygiverisetoclaimsagainstus,diminishourbrandordivertourresourcesfromotherpurposes.Ourrobotsrelyontheinterplayamongbehavior-basedartificiallyintelligentsystems,real-worlddynamicsensors,user-friendlyinterfacesandtightly-integrated,electromechanicaldesignstoaccomplishtheirmissions.Despitetesting,ourneworexistingproductshavecontaineddefectsanderrorsandmayinthefuturecontaindefects,errorsorperformanceproblemswhenfirstintroduced,whennewversionsorenhancementsarereleased,orevenaftertheseproductshavebeenusedbyourcustomersforaperiodoftime.Theseproblemscouldresultinexpensiveandtime-consumingdesignmodificationsorwarrantycharges,delaysintheintroductionofnewproductsorenhancements,significantincreasesinourserviceandmaintenancecosts,exposuretoliabilityfordamages,mandatoryorvoluntaryrecallorproductupgrades,damagedcustomerrelationshipsandharmtoourreputation,anyofwhichcouldmateriallyharmourresultsofoperationsandabilitytoachievemarketacceptance.Ourqualitycontrolproceduresrelatingtotherawmaterialsandcomponentsthatitreceivesfromthird-partysuppliersaswellasourqualitycontrolproceduresrelatingtoitsproductsafterthoseproductsaredesigned,manufacturedandpackagedmaynotbesufficient.Inaddition,increaseddevelopmentandwarrantycosts,includingthecostsofanymandatoryorvoluntaryrecall,couldbesubstantialandcouldreduceouroperatingmargins.Moreover,becausemilitaryrobotsareusedindangeroussituations,thefailureormalfunctionofanyoftheserobots,includingourown,couldsignificantlydamageourreputationandsupportforrobotsolutionsingeneral.Theexistenceofanydefects,errors,orfailuresinourproductscouldalsoleadtoproductliabilityclaimsorlawsuitsagainstus.Asuccessfulproductliabilityclaimcouldresultinsubstantialcost,diminishourbrandanddivertmanagement’sattentionandresources,whichcouldhaveanegativeimpactonourbusiness,financialconditionandresultsofoperations.Ifweareunabletoattractandretainadditionalskilledpersonnel,wemaybeunabletogrowourbusiness.Toexecuteourgrowthplan,wemustattractandretainadditional,highly-qualifiedpersonnel.Competitionforhiringtheseemployeesisintense,especiallywithregardtoengineerswithhighlevelsofexperienceindesigning,developingandintegratingrobots.Manyofthecompanieswithwhichwecompeteforhiringexperiencedemployeeshavegreaterresourcesthanwehave.Ifwefailtoattractnewtechnicalpersonnelorfailtoretainandmotivateourcurrentemployees,ourbusinessandfuturegrowthprospectscouldbeseverelyharmed.Wemaybesuedbythirdpartiesforallegedinfringementoftheirproprietaryrights,whichcouldbecostly,time-consumingandlimitourabilitytousecertaintechnologiesinthefuture.Ifthesizeofourmarketsincreases,wewouldbemorelikelytobesubjecttoclaimsthatourtechnologiesinfringeupontheintellectualpropertyorotherproprietaryrightsofthirdparties.Inaddition,thevendorsfromwhichwelicensetechnologyusedinourproductscouldbecomesubjecttosimilarinfringementclaims.Ourvendors,orwe,maynotbeabletowithstandthird-partyinfringementclaims.Anyclaims,withorwithoutmerit,couldbetime-consumingandexpensive,andcoulddivertourmanagement’sattentionawayfromtheexecutionofourbusinessplan.Moreover,anysettlementoradversejudgmentresultingfromtheclaimcouldrequireustopaysubstantialamountsorobtainalicensetocontinuetousethetechnologythatisthesubjectoftheclaim,orotherwiserestrictorprohibitouruseofthetechnology.Therecanbenoassurancethatwewouldbeabletoobtainalicensefromthethirdpartyassertingtheclaimoncommerciallyreasonableterms,ifatall,thatwewouldbeabletodevelopalternativetechnologyonatimelybasis,ifatall,orthatwewouldbeabletoobtainalicensetouseasuitablealternativetechnologytopermitustocontinueoffering,andourcustomerstocontinueusing,ouraffectedproduct.Inaddition,wemayberequiredtoindemnifyourretailanddistributionpartnersforthird-partyintellectualpropertyinfringementclaims,whichwouldincreasethecosttousofanadverserulinginsuchaclaim.Anadversedeterminationcouldalsopreventusfromofferingourproductstoothers.Infringementclaimsassertedagainstusorourvendorsmayhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.19Form10-KIfwefailtoenhanceourbrand,ourabilitytoexpandourcustomerbasewillbeimpairedandouroperatingresultsmaysuffer.WebelievethatdevelopingandmaintainingawarenessoftheiRobotbrandiscriticaltoachievingwidespreadacceptanceofourexistingandfutureproductsandisanimportantelementinattractingnewcustomers.Further-more,weexpecttheimportanceofglobalbrandrecognitiontoincreaseascompetitiondevelops.Ifcustomersdonotperceiveourproductstobeofhighquality,ourbrandandreputationcouldbeharmed,whichcouldadverselyimpactourfinancialresults.Inaddition,brandpromotioneffortsmaynotyieldsignificantrevenueorincreasedrevenuesufficienttooffsettheadditionalexpensesincurredinbuildingourbrand.Wedependontheexperienceandexpertiseofourseniormanagementteamandkeytechnicalemployees,andthelossofanykeyemployeemayimpairourabilitytooperateeffectively.Oursuccessdependsuponthecontinuedservicesofourseniormanagementteamandkeytechnicalemployees,suchasourprojectmanagementpersonnelandseniorengineers.Moreover,weoftenmustcomplywithprovisionsingovernmentcontractsthatrequireemploymentofpersonswithspecifiedlevelsofeducationandworkexperience.Eachofourexecutiveofficers,keytechnicalpersonnelandotheremployeescouldterminatehisorherrelationshipwithusatanytime.Thelossofanymemberofourseniormanagementteammightsignificantlydelayorpreventtheachievementofourbusinessobjectivesandcouldmateriallyharmourbusinessandcustomerrelationships.Inaddition,becauseofthehighlytechnicalnatureofourrobots,thelossofanysignificantnumberofourexistingengineeringandprojectmanagementpersonnelcouldhaveamaterialadverseeffectonourbusinessandoperatingresults.WearesubjecttoextensiveU.S.federalgovernmentregulation,andourfailuretocomplywithapplicableregulationscouldsubjectustopenaltiesthatmayrestrictourabilitytoconductourbusiness.AsacontractorandsubcontractortotheU.S.federalgovernment,wearesubjecttoandmustcomplywithvariousgovernmentregulationsthatimpactouroperatingcosts,profitmarginsandtheinternalorganizationandoperationofourbusiness.Amongthemostsignificantregulationsaffectingourbusinessare:(cid:129)theFederalAcquisitionRegulationsandsupplementalagencyregulations,whichcomprehensivelyregulatetheformationandadministrationof,andperformanceundergovernmentcontracts;(cid:129)theTruthinNegotiationsAct,whichrequirescertificationanddisclosureofallcostandpricingdatainconnectionwithcontractnegotiations;(cid:129)theCostAccountingStandards,whichimposeaccountingrequirementsthatgovernourrighttoreimburse-mentundercost-basedgovernmentcontracts;(cid:129)theForeignCorruptPracticesAct,whichprohibitsU.S.companiesfromprovidinganythingofvaluetoaforeignofficialtohelpobtain,retainordirectbusiness,orobtainanyunfairadvantage;(cid:129)theFalseClaimsActandtheFalseStatementsAct,which,respectively,imposepenaltiesforpaymentsmadeonthebasisoffalsefactsprovidedtothegovernment,andimposepenaltiesonthebasisoffalsestatements,eveniftheydonotresultinapayment;(cid:129)laws,regulationsandexecutiveordersrestrictingtheuseanddisseminationofinformationclassifiedfornationalsecuritypurposesandtheexportationofcertainproductsandtechnicaldata;(cid:129)CertaincontractsfromtheU.S.federalgovernmentmayrequireustomaintaincertaincertificationsincludingbutnotlimitedtoAS9100andCMMI;(cid:129)ContractorPurchasingSystemsreview(CPSR)requirements,whichevaluatetheefficiencyandeffective-nesswithwhichwespendU.S.Governmentfunds;and(cid:129)ThesaleofourproductsincountriesoutsidetheUnitedStatesisregulatedbythegovernmentsofthosecountries.Whilecompliancewithsuchregulationwillgenerallybeundertakenbyinternationaldistributors,wemayassistwithsuchcomplianceandincertaincasesmaybeliableifadistributorfailstocomply.20WemustcomplywithU.S.lawsregulatingtheexportofourproducts.Inaddition,wearerequiredtoobtainalicensefromtheU.S.federalgovernmenttoexportourPackBot,WarriorandSUGVlinesoftacticalmilitaryrobots.WecannotbesureofourabilitytoobtainanylicensesrequiredtoexportourproductsortoreceiveauthorizationfromtheU.S.federalgovernmentforinternationalsalesordomesticsalestoforeignpersons.Moreover,theexportregimesandthegoverningpoliciesapplicabletoourbusinessaresubjecttochange.Wecannotassureyouoftheextentthatsuchexportauthorizationswillbeavailabletous,ifatall,inthefuture.Insomecaseswhereweactasasubcontractor,werelyuponthecomplianceactivitiesofourprimecontractors,andwecannotassureyouthattheyhavetakenorwilltakeallmeasuresnecessarytocomplywithapplicableexportlaws.Ifweorourprimecontractorpartnerscannotobtainrequiredgovernmentapprovalsunderapplicableregulationsinatimelymanneroratall,wewouldbedelayedorpreventedfromsellingourproductsininternationaljurisdictions,whichcouldmateriallyharmourbusiness,operatingresultsandabilitytogeneraterevenue.Also,weneedspecialclearancestocontinueworkingonandadvancingcertainofourprojectswiththeU.S.federalgovernment.Obtainingandmaintainingsecurityclearancesforemployeesinvolvesalengthyprocess,anditisdifficulttoidentify,recruitandretainemployeeswhoalreadyholdsecurityclearances.Ifouremployeesareunabletoobtainsecurityclearancesinatimelymanner,oratall,orifouremployeeswhoholdsecurityclearancesareunabletomaintaintheclearancesorterminateemploymentwithus,thenacustomerrequiringclassifiedworkcouldterminatethecontractordecidenottorenewituponitsexpiration.Inaddition,weexpectthatmanyofthecontractsonwhichwewillbidwillrequireustodemonstrateourabilitytoobtainfacilitysecurityclearancesandemploypersonnelwithspecifiedtypesofsecurityclearances.Totheextentwearenotabletoobtainfacilitysecurityclearancesorengageemployeeswiththerequiredsecurityclearancesforaparticularcontract,wemaynotbeabletobidonorwinnewcontracts,oreffectivelyrebidonexpiringcontracts.ClassifiedprogramsgenerallywillrequirethatwecomplywithvariousExecutiveOrders,federallawsandregulationsandcustomersecurityrequirementsthatmayincluderestrictionsonhowwedevelop,store,protectandshareinformation,andmayrequireouremployeestoobtaingovernmentclearances.Ourfailuretocomplywithapplicableregulations,rulesandapprovalscouldresultintheimpositionofpenalties,thelossofourgovernmentcontractsoroursuspensionordebarmentfromcontractingwiththefederalgovernmentgenerally,anyofwhichwouldharmourbusiness,financialconditionandresultsofoperations.Ifwefailtoprotect,orincursignificantcostsindefending,ourintellectualpropertyandotherproprietaryrights,ourbusinessandresultsofoperationscouldbemateriallyharmed.Oursuccessdependsonourabilitytoprotectourintellectualpropertyandotherproprietaryrights.Werelyprimarilyonpatents,trademarks,copyrights,tradesecretsandunfaircompetitionlaws,aswellaslicenseagreementsandothercontractualprovisions,toprotectourintellectualpropertyandotherproprietaryrights.Significanttechnologyusedinourproducts,however,isnotthesubjectofanypatentprotection,andwemaybeunabletoobtainpatentprotectiononsuchtechnologyinthefuture.Moreover,existingU.S.legalstandardsrelatingtothevalidity,enforceabilityandscopeofprotectionofintellectualpropertyrightsofferonlylimitedprotection,maynotprovideuswithanycompetitiveadvantages,andmaybechallengedbythirdparties.Inaddition,thelawsofcountriesotherthantheUnitedStatesinwhichwemarketourproductsmayaffordlittleornoeffectiveprotectionofourintellectualproperty.Accordingly,despiteourefforts,wemaybeunabletopreventthirdpartiesfrominfringinguponormisappropriatingourintellectualpropertyorotherwisegainingaccesstoourtechnology.Unauthorizedthirdpartiesmaytrytocopyorreverseengineerourproductsorportionsofourproductsorotherwiseobtainanduseourintellectualproperty.SomeofourcontractswiththeU.S.federalgovernmentallowthefederalgovernmenttodisclosetechnicaldataregardingtheproductsdevelopedonbehalfofthegovernmentunderthecontractwithoutconstrainingtherecipientonhowitisused.Thisabilityofthegovernmentcreatesthepotentialthatthirdpartiesmaybeabletousethisdatatocompetewithusinthecommercialsector.Ifwefailtoprotectourintellectualpropertyandotherproprietaryrights,ourbusiness,resultsofoperationsorfinancialconditioncouldbemateriallyharmed.Inaddition,defendingourintellectualpropertyrightsmayentailsignificantexpense.Webelievethatcertainproductsinthemarketplacemayinfringeourexistingintellectualpropertyrights.Wehave,fromtimetotime,resortedtolegalproceedingstoprotectourintellectualpropertyandmaycontinuetodosointhefuture.Wemayberequiredtoexpendsignificantresourcestomonitorandprotectourintellectualpropertyrights.Anyofour21Form10-Kintellectualpropertyrightsmaybechallengedbyothersorinvalidatedthroughadministrativeprocessesorlitigation.Ifweresorttolegalproceedingstoenforceourintellectualpropertyrightsortodeterminethevalidityandscopeoftheintellectualpropertyorotherproprietaryrightsofothers,theproceedingscouldresultinsignificantexpensetousanddiverttheattentionandeffortsofourmanagementandtechnicalemployees,evenifweweretoprevail.Acquisitionsandpotentialfutureacquisitionscouldbedifficulttointegrate,diverttheattentionofkeypersonnel,disruptourbusiness,dilutestockholdervalueandimpairourfinancialresults.Aspartofourbusinessstrategy,weintendtoconsideradditionalacquisitionsofcompanies,technologiesandproductsthatwebelievecouldaccelerateourabilitytocompeteinourcoremarketsorallowustoenternewmarkets.Acquisitionsandcombinationsareaccompaniedbyanumberofrisks,includingthedifficultyofintegratingtheoperationsandpersonneloftheacquiredcompanies,thepotentialdisruptionofourongoingbusiness,thepotentialdistractionofmanagement,expensesrelatedtotheacquisitionandpotentialunknownliabilitiesassociatedwithacquiredbusinesses.Anyinabilitytointegratecompletedacquisitionsorcombinationsinanefficientandtimelymannercouldhaveanadverseimpactonourresultsofoperations.Inaddition,wemaynotbeabletorecognizeanyexpectedsynergiesorbenefitsinconnectionwithafutureacquisitionorcombination.Ifwearenotsuccessfulincompletingacquisitionsorcombinationsthatwemaypursueinthefuture,wemayincursubstantialexpensesanddevotesignificantmanagementtimeandresourceswithoutasuccessfulresult.Inaddition,futureacquisitionscouldrequireuseofsubstantialportionsofouravailablecashorresultindilutiveissuancesofsecurities.Wemaynotbeabletoobtaincapitalwhendesiredonfavorableterms,ifatall,orwithoutdilutiontoourstockholders.Weanticipatethatourcurrentcash,cashequivalents,cashprovidedbyoperatingactivitiesandfundsavailablethroughourworkingcapitallineofcredit,willbesufficienttomeetourcurrentandanticipatedneedsforgeneralcorporatepurposes.Weoperateinanemergingmarket,however,whichmakesourprospectsdifficulttoevaluate.Itispossiblethatwemaynotgeneratesufficientcashflowfromoperationsorotherwisehavethecapitalresourcestomeetourfuturecapitalneeds.Insuchcaseswemayneedadditionalfinancingtoexecuteonourcurrentorfuturebusinessstrategies.Ifweraiseadditionalfundsthroughtheissuanceofequityorconvertibledebtsecurities,thepercentageownershipofourstockholderscouldbesignificantlydiluted,andthesenewly-issuedsecuritiesmayhaverights,preferencesorprivilegesseniortothoseofexistingstockholders.Wecannotassureyouthatadditionalfinancingwillbeavailableontermsfavorabletous,oratall.Ifadequatefundsarenotavailableorarenotavailableonacceptableterms,ifandwhenneeded,ourabilitytofundouroperations,takeadvantageofunanticipatedopportunities,developorenhanceourproducts,orotherwiserespondtocompetitivepressureswouldbesignif-icantlylimited.Inaddition,ouraccesstocreditthroughourworkingcapitallineofcreditmaybelimitedbytherestrictivefinancialcovenantscontainedinthatagreement,whichrequireustomaintainprofitability.Environmentallawsandregulationsandunforeseencostscouldnegativelyimpactourfutureearnings.Themanufactureandsaleofourproductsincertainstatesandcountriesmaysubjectustoenvironmentalandotherregulations.Wealsofaceincreasingcomplexityinourproductdesignasweadjusttolegalandregulatoryrequirementsrelatingtoourproducts.Thereisnoassurancethatsuchexistinglawsorfuturelawswillnotimpairfutureearningsorresultsofoperations.Businessdisruptionsresultingfrominternationaluncertaintiescouldnegativelyimpactourprofitability.Wederive,andexpecttocontinuetoderive,asignificantportionofourrevenuefrominternationalsalesinvariousEuropeanandFarEastmarkets,andCanada.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,salestonon-U.S.customersaccountedfor41.1%and33.3%oftotalrevenue,respectively.Ourinternationalrevenueandoperationsaresubjecttoanumberofmaterialrisks,including,butnotlimitedto:(cid:129)difficultiesinstaffing,managingandsupportingoperationsinmultiplecountries;22(cid:129)difficultiesinenforcingagreementsandcollectingreceivablesthroughforeignlegalsystemsandotherrelevantlegalissues;(cid:129)fewerlegalprotectionsforintellectualproperty;(cid:129)foreignandU.S.taxationissues,tariffs,andinternationaltradebarriers;(cid:129)difficultiesinobtaininganynecessarygovernmentalauthorizationsfortheexportofourproductstocertainforeignjurisdictions;(cid:129)potentialfluctuationsinforeigneconomies;(cid:129)governmentcurrencycontrolandrestrictionsonrepatriationofearnings;(cid:129)fluctuationsinthevalueofforeigncurrenciesandinterestrates;(cid:129)generaleconomicandpoliticalconditionsinthemarketsinwhichweoperate;(cid:129)domesticandinternationaleconomicorpoliticalchanges,hostilitiesandotherdisruptionsinregionswherewecurrentlyoperateormayoperateinthefuture;(cid:129)changesinforeigncurrencyexchangerates;(cid:129)differentandchanginglegalandregulatoryrequirementsinthejurisdictionsinwhichwecurrentlyoperateormayoperateinthefuture;and(cid:129)outsideoftheUnitedStates,weprimarilyrelyonanetworkofexclusivedistributors,someofwhommaybeoperatingwithoutwrittencontracts.Negativedevelopmentsinanyoftheseareasinoneormorecountriescouldresultinareductionindemandforourproducts,thecancellationordelayofordersalreadyplaced,threatstoourintellectualproperty,difficultyincollectingreceivables,andahighercostofdoingbusiness,anyofwhichcouldnegativelyimpactourbusiness,financialconditionorresultsofoperations.Moreover,oursales,includingsalestocustomersoutsidetheUnitedStates,areprimarilydenominatedinU.S.dollars,anddownwardfluctuationsinthevalueofforeigncurrenciesrelativetotheU.S.dollarmaymakeourproductsmoreexpensivethanotherproducts,whichcouldharmourbusiness.Ifweexperienceadisasterorotherbusinesscontinuityproblem,wemaynotbeabletorecoversuccessfully,whichcouldcausematerialfinancialloss,lossofhumancapital,regulatoryactions,reputationalharm,orlegalliability.Ifweexperiencealocalorregionaldisasterorotherbusinesscontinuityproblem,suchasanearthquake,terroristattack,pandemicorothernaturalorman-madedisaster,ourcontinuedsuccesswilldepend,inpart,ontheavailabilityofourpersonnel,ourofficefacilities,andtheproperfunctioningofourcomputer,telecommunicationandotherrelatedsystemsandoperations.Aswegrowouroperationsinnewgeographicregions,thepotentialforparticulartypesofnaturalorman-madedisasters,political,economicorinfrastructureinstabilities,orothercountry-orregion-specificbusinesscontinuityrisksincreases.Ifwesufferanydatabreachesinvolvingthedesigns,schematicsorsourcecodeforourproducts,ourbusinessandfinancialresultscouldbeadverselyaffected.Weattempttosecurelystoreourdesigns,schematicsandsourcecodeforourproductsastheyarecreated.Abreach,whetherphysical,electronicorotherwise,ofthesystemsonwhichthissensitivedataisstoredcouldleadtodamageorpiracyofourproducts.Ifwearesubjecttodatasecuritybreaches,wemayhavealossinsalesorincreasedcostsarisingfromtherestorationorimplementationofadditionalsecuritymeasures,eitherofwhichcouldmateriallyandadverselyaffectourbusinessandfinancialresults.23Form10-KOurincometaxprovisionandothertaxliabilitiesmaybeinsufficientiftaxingauthoritiesaresuccessfulinassertingtaxpositionsthatarecontrarytoourposition.Additionally,thereisnoguaranteethatwewillrealizeourdeferredtaxassets.Fromtimetotime,weareauditedbyvariousfederal,stateandlocalauthoritiesregardingincometaxmatters.Significantjudgmentisrequiredtodetermineourprovisionforincometaxesandourliabilitiesforfederal,state,localandothertaxes.Althoughwebelieveourapproachtodeterminingtheappropriatetaxtreatmentissupportableandinaccordancewithrelevantauthoritativeguidanceitispossiblethatthefinaltaxauthoritywilltakeataxpositionthatismateriallydifferentthanthatwhichisreflectedinourincometaxprovision.Suchdifferencescouldhaveamaterialadverseeffectonourincometaxprovisionorbenefit,inthereportingperiodinwhichsuchdeterminationismadeand,consequently,onourresultsofoperations,financialpositionand/orcashflowsforsuchperiod.Therealizationofourdeferredtaxassetsultimatelydependsontheexistenceofsufficienttaxableincomeineitherthecarrybackorcarryforwardperiodsunderthetaxlaw.Duetosignificantestimatesutilizedinestablishingthevaluationallowanceandthepotentialforchangesinfactsandcircumstances,itispossiblethatwewillberequiredtorecordadjustmentstoourvaluationallowanceinfuturereportingperiods.Ourresultsofoperationswouldbeimpactednegativelyifwedeterminethatincreasestoourdeferredtaxassetvaluationallowancearerequiredinafuturereportingperiod.Ourdirectorsandmanagementwillexercisesignificantcontroloverourcompany,whichwilllimityourabilitytoinfluencecorporatematters.AsofJanuary1,2011,ourdirectorsandexecutiveofficersandtheiraffiliatescollectivelybeneficiallyownedapproximately16.0%ofouroutstandingcommonstock.Asaresult,thesestockholders,iftheyacttogether,willbeabletoinfluenceourmanagementandaffairsandallmattersrequiringstockholderapproval,includingtheelectionofdirectorsandapprovalofsignificantcorporatetransactions.Thisconcentrationofownershipmayhavetheeffectofdelayingorpreventingachangeincontrolofourcompanyandmightnegativelyaffectthemarketpriceofourcommonstock.Provisionsinourcertificateofincorporationandby-laws,ourshareholderrightsagreementorDelawarelawmightdiscourage,delayorpreventachangeofcontrolofourcompanyorchangesinourmanagementand,therefore,depressthetradingpriceofourcommonstock.Provisionsofourcertificateofincorporationandby-lawsandDelawarelawmaydiscourage,delayorpreventamerger,acquisitionorotherchangeincontrolthatstockholdersmayconsiderfavorable,includingtransactionsinwhichyoumightotherwisereceiveapremiumforyoursharesofourcommonstock.Theseprovisionsmayalsopreventorfrustrateattemptsbyourstockholderstoreplaceorremoveourmanagement.Theseprovisionsinclude:(cid:129)limitationsontheremovalofdirectors;(cid:129)aclassifiedboardofdirectorssothatnotallmembersofourboardareelectedatonetime;(cid:129)advancenoticerequirementsforstockholderproposalsandnominations;(cid:129)theinabilityofstockholderstoactbywrittenconsentortocallspecialmeetings;(cid:129)theabilityofourboardofdirectorstomake,alterorrepealourby-laws;and(cid:129)theabilityofourboardofdirectorstodesignatethetermsofandissuenewseriesofpreferredstockwithoutstockholderapproval.Theaffirmativevoteoftheholdersofatleast75%ofoursharesofcapitalstockentitledtovoteisnecessarytoamendorrepealtheaboveprovisionsofourcertificateofincorporation.Inaddition,absentapprovalofourboardofdirectors,ourby-lawsmayonlybeamendedorrepealedbytheaffirmativevoteoftheholdersofatleast75%ofoursharesofcapitalstockentitledtovote.24Wehavealsoadoptedashareholderrightsagreementthatentitlesourstockholderstoacquiresharesofourcommonstockatapriceequalto50%ofthethen-currentmarketvalueinlimitedcircumstanceswhenathirdpartyacquiresorannouncesitsintentiontoacquire15%ormoreofouroutstandingcommonstock.Inaddition,Section203oftheDelawareGeneralCorporationLawprohibitsapublicly-heldDelawarecorporationfromengaginginabusinesscombinationwithaninterestedstockholder,generallyapersonwhichtogetherwithitsaffiliatesowns,orwithinthelastthreeyearshasowned,15%ofourvotingstock,foraperiodofthreeyearsafterthedateofthetransactioninwhichthepersonbecameaninterestedstockholder,unlessthebusinesscombinationisapprovedinaprescribedmanner.Theexistenceoftheforegoingprovisionsandanti-takeovermeasurescouldlimitthepricethatinvestorsmightbewillingtopayinthefutureforsharesofourcommonstock.Theycouldalsodeterpotentialacquirersofourcompany,therebyreducingthelikelihoodthatyoucouldreceiveapremiumforyourcommonstockinanacquisition.ITEM1B.UNRESOLVEDSTAFFCOMMENTSNone.ITEM2.PROPERTIESOurcorporateheadquartersarelocatedinBedford,Massachusetts,whereweleaseapproximately183,000squarefeet.ThisleaseexpiresonMay1,2020.Welease15,700squarefeetinDurham,NorthCarolinasupportingourgovernmentandindustrialdivision’sunmannedunderwatervehicles.WeleasesmallerfacilitiesinBurlington,Massachusetts;Mysore,India;HongKong;Shenzhen,China;London,England;SanLuisObispo,California;andCrystalCity,Virginia.Wedonotownanyrealproperty.Webelievethatourleasedfacilitiesandadditionaloralternativespaceavailabletouswillbeadequatetomeetourneedsfortheforeseeablefuture.ITEM3.LEGALPROCEEDINGSFromtimetotimeandintheordinarycourseofbusiness,wearesubjecttovariousclaims,chargesandlitigation.Theoutcomeoflitigationcannotbepredictedwithcertaintyandsomelawsuits,claimsorproceedingsmaybedisposedofunfavorablytous,whichcouldmateriallyaffectourfinancialconditionorresultsofoperations.ITEM4.(REMOVEDANDRESERVED)25Form10-KPARTIIITEM5.MARKETFORREGISTRANT’SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIESOurcommonstockislistedontheNASDAQGlobalMarketunderthesymbol“IRBT”.Thefollowingtablesetsforth,fortheperiodsindicated,thehighandlowsalespricespershareforourcommonstockasreportedontheNASDAQGlobalMarket.HighLowFiscal2009:Firstquarter..................................................$10.20$7.00Secondquarter................................................$13.50$7.40Thirdquarter.................................................$13.59$10.21Fourthquarter.................................................$17.85$11.23Fiscal2010:Firstquarter..................................................$18.74$14.45Secondquarter................................................$22.05$14.52Thirdquarter.................................................$21.36$16.34Fourthquarter.................................................$25.27$17.86AsofFebruary14,2011,therewereapproximately26,034,629sharesofourcommonstockoutstandingheldbyapproximately125stockholdersofrecordandthelastreportedsalepriceofourcommonstockontheNASDAQGlobalMarketonFebruary14,2011was$28.86pershare.DividendPolicyWehaveneverdeclaredorpaidanycashdividendsonourcapitalstock.Wecurrentlyexpecttoretainfutureearnings,ifany,tofinancethegrowthanddevelopmentofourbusinessandwedonotanticipatepayinganycashdividendsintheforeseeablefuture.IssuerPurchasesofEquitySecuritiesDuringthefiscalquarterendedJanuary1,2011,therewerenorepurchasesmadebyusoronourbehalf,orbyany“affiliatedpurchasers,”ofsharesofourcommonstock.ITEM6.SELECTEDFINANCIALDATATheselectedhistoricalfinancialdatasetforthbelowasofJanuary1,2011andJanuary2,2010andfortheyearsendedJanuary1,2011,January2,2010andDecember27,2008arederivedfromfinancialstatements,whichhavebeenauditedbyPricewaterhouseCoopersLLP,anindependentregisteredpublicaccountingfirm.Consol-idatedbalancesheetsasofJanuary1,2011andJanuary2,2010andtherelatedconsolidatedstatementsofoperationsandofcashflowsforeachofthethreeyearsintheperiodendedJanuary1,2011andnotestheretoappearelsewhereinthisAnnualReportonForm10-K.TheselectedhistoricalfinancialdataasofDecember27,2008,December29,2007andDecember30,2006andfortheyearsendedDecember29,2007andDecember30,2006arederivedfromourfinancialstatements,whichhavebeenauditedbyPricewaterhouseCoopersLLPandwhicharenotincludedelsewhereinthisAnnualReport.26Thefollowingselectedconsolidatedfinancialdatashouldbereadinconjunctionwithourconsolidatedfinancialstatements,therelatednotesand“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”includedelsewhereinthisAnnualReportonForm10-K.Thehistoricalresultsarenotnecessarilyindicativeoftheresultstobeexpectedforanyfutureperiod.January1,2011January2,2010December27,2008December29,2007December30,2006YearEnded(Inthousands,exceptearningspershareamounts)ConsolidatedStatementsofOperations:RevenueProductrevenue...................$360,394$262,199$281,187$227,457$167,687Contractrevenue..................40,55836,41826,43421,62421,268Totalrevenue...................400,952298,617307,621249,081188,955CostofrevenueCostofproductrevenue.............228,403176,631190,250147,689103,651Costofcontractrevenue............27,11730,79023,90018,80515,569Totalcostofrevenue.............255,520207,421214,150166,494119,220GrossMargin......................145,43291,19693,47182,58769,735OperatingExpensesResearchanddevelopment...........24,80914,74717,56617,08217,025Sellingandmarketing..............50,53540,90246,86644,89433,969Generalandadministrative...........36,61830,11028,84020,91918,703Litigationandrelatedexpenses.......———2,341—Totaloperatingexpenses..........111,96285,75993,27285,23669,697Operating(Loss)Income..............33,4705,437199(2,649)38NetIncome........................$25,514$3,330$756$9,060$3,565NetIncomePerCommonShareBasic....$1.00$0.13$0.03$0.37$0.15Diluted.........................$0.96$0.13$0.03$0.36$0.14SharesUsedinPerCommonShareCalculationsBasic..........................25,39424,99824,65424,22923,516Diluted.........................26,46825,64025,53325,50125,601January1,2011January2,2010December27,2008December29,2007December30,2006(Inthousands)ConsolidatedBalanceSheetData:Cashandcashequivalents...........$108,383$71,856$40,852$26,735$5,583Shortterminvestments..............13,9284,959—16,55064,800Totalassets......................254,331199,584163,678169,092135,308Totalliabilities....................79,42466,39044,00258,86540,389Totalstockholders’equity...........174,907133,194119,676110,22794,91927Form10-KITEM7.MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONSTheinformationcontainedinthissectionhasbeenderivedfromourconsolidatedfinancialstatementsandshouldbereadtogetherwithourconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisAnnualReportonForm10-K.ThisAnnualReportonForm10-Kcontainsforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933,asamended,andSection21EoftheSecuritiesandExchangeActof1934,asamended,ortheExchangeAct,andaresubjecttothe“safeharbor”createdbythosesections.Inparticular,statementscontainedinthisAnnualReportonForm10-Kthatarenothistoricalfacts,including,butnotlimitedtostatementsconcerningnewproductsales,productdevelopmentandofferings,Roomba,Scooba,LoojandVerroproducts,PackBottacticalmilitaryrobots,theSmallUnmannedGroundVehicle,Seaglider,Negotiator,ourhomerobotandgovernmentandindustrialrobotsdivisions,ourcompetition,ourstrategy,ourmarketposition,marketacceptanceofourproducts,seasonalfactors,revenuerecognition,ourprofits,growthofourrevenues,compositionofourrevenues,ourcostofrevenues,operatingexpenses,sellingandmarketingexpenses,generalandadministrativeexpenses,researchanddevelopmentexpenses,andcompensationcosts,ourprojectedincometaxrate,ourcreditfacilityandequipmentfacility,ourvaluationsofinvestments,valuationandcompositionofourstock-basedawards,andliquidity,constituteforward-lookingstatementsandaremadeunderthesesafeharborprovisions.Someoftheforward-lookingstatementscanbeidentifiedbytheuseofforward-lookingtermssuchas“believes,”“expects,”“may,”“will,”“should,”“could,”“seek,”“intends,”“plans,”“estimates,”“anticipates,”orothercomparableterms.Forward-lookingstatementsinvolveinherentrisksanduncertaintiesthatcouldcauseactualresultstodiffermateriallyfromthoseintheforward-lookingstatements.Weurgeyoutoconsidertherisksanduncertaintiesdiscussedingreaterdetailundertheheading“RiskFactors”inevaluatingourforward-lookingstatements.Wehavenoplanstoupdateourforward-lookingstatementstoreflecteventsorcircumstancesafterthedateofthisreport.Wecautionreadersnottoplaceunduerelianceuponanysuchforward-lookingstatements,whichspeakonlyasofthedatemade.OverviewiRobotdesignsandbuildsrobotsthatmakeadifference.Forover20years,wehavedevelopedproprietarytechnologyincorporatingadvancedconceptsinnavigation,mobility,manipulationandartificialintelligencetobuildindustry-leadingrobots.OurRoombafloorvacuumingrobotandScoobafloorwashingrobotperformtime-consumingdomesticchoresinthehome,whileourLoojguttercleaningrobotandVerropoolcleaningrobotperformtasksoutsidethehome.OurPackBotandSmallUnmannedGroundVehicle(SUGV)tacticalgroundmilitaryrobotsperformbattlefieldreconnaissanceandbombdisposal.OurNegotiatorgroundrobotperformsmulti-purposetasksforlocalpoliceandfirstresponders.Our1KASeagliderunmannedunderwaterrobotperformslongenduranceoceanicmissions.Wesellourrobotstoconsumersthroughavarietyofdistributionchannels,includingchainstoresandothernationalretailers,andthroughouron-linestore,andtotheU.S.militaryandothergovernmentagenciesworldwide.WemaintaincertificationsforAS9100andCapabilityMaturityModelIntegra-tion.Thesecertificationsenableustoserviceourmilitaryproductsandservices.AsofJanuary1,2011,wehad657full-timeemployees.Wehavedevelopedexpertiseinthedisciplinesnecessarytobuilddurable,high-performanceandcost-effectiverobotsthroughthecloseintegrationofsoftware,electronicsandhardware.Ourcoretechnologiesserveasreusablebuildingblocksthatweadaptandexpandtodevelopnextgenerationandnewproducts,reducingthetime,costandriskofproductdevelopment.Oursignificantexpertiseinrobotdesignandengineering,combinedwithourmanagementteam’sexperienceinmilitaryandconsumermarkets,positionsustocapitalizeontheexpectedgrowthinthemarketforrobots.Althoughwehavesuccessfullylaunchedconsumerandgovernmentandindustrialproducts,ourcontinuedsuccessdependsuponourabilitytorespondtoanumberoffuturechallenges.Webelievethemostsignificantofthesechallengesincludeincreasingcompetitioninthemarketsforbothourconsumerandgovernmentandindustrialproducts,ourabilitytoobtainU.S.federalgovernmentfundingforresearchanddevelopmentprograms,andourabilitytosuccessfullydevelopandintroduceproductsandproductenhancements.28RevenueWecurrentlyderiverevenuefromproductsales,governmentresearchanddevelopmentcontracts,andcommercialresearchanddevelopmentcontracts.Productrevenueisderivedfromthesaleofourvarioushomecleaningrobotsandgovernmentandindustrialrobotsandrelatedaccessories.ResearchanddevelopmentrevenueisderivedfromtheexecutionofcontractsawardedbytheU.S.federalgovernment,othergovernmentsandasmallnumberofotherpartners.Inthefuture,weexpecttoderiveincreasingrevenuefromproductmaintenanceandsupportservicesduetoafocusedefforttomarkettheseservicestotheexpandinginstalledbaseofourrobots.Wecurrentlyderiveamajorityofourproductrevenuefromthesaleofourhomecleaningrobots,andourPackBotandSUGVtacticalmilitaryrobots.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,productrevenuesaccountedfor89.9%and87.8%oftotalrevenue,respectively.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,ourfundedresearchanddevelopmentcontractsaccountedforapproximately10.1%and12.2%ofourtotalrevenue,respectively.Weexpecttocontinuetoperformfundedresearchanddevelopmentworkwiththeintentofleveragingthetechnologydevelopedtoadvanceournewproductdevelopmentefforts.Inthefuture,however,weexpectthatrevenuefromfundedresearchanddevelopmentcontractscouldgrowmodestlyonanabsolutedollarbasisandrepresentadecreasingpercentageofourtotalrevenueduetotheanticipatedgrowthinconsumerandmilitaryproductrevenue.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,approximately65.7%and56.0%,respectively,ofourhomerobotproductrevenueresultedfromsalesto15customers.Forfiscal2010andfiscal2009,thecustomerswerecomprisedofbothU.S.retailersandinternationaldistributors.Direct-to-consumerrevenuegeneratedthroughourdomesticandinternationalon-linestoresaccountedfor11.5%ofourhomerobotproductrevenueforthefiscalyearendedJanuary1,2011comparedto17.1%inthefiscalyearendedJanuary2,2010.Inaddition,87.6%and78.6%ofmilitaryproductrevenue,and96.5%and94.5%offundedresearchanddevelopmentcontractrevenue,resultedfromordersandcontractsorsubcontractswiththeU.S.federalgovernmentinthefiscalyearsendedJanuary1,2011andJanuary2,2010,respectively.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,salestonon-U.S.customersaccountedfor41.1%and33.3%oftotalrevenue,respectively.Ourrevenuefromproductsalesisgeneratedthroughsalestoourretaildistributionchannels,ourdistributornetworkandtocertainU.S.andforeigngovernments.Werecognizerevenuefromthesalesofhomerobotsunderthetermsofthecustomeragreementupontransferoftitleandriskoflosstothecustomer,netofestimatedreturns,providedthatcollectionisdeterminedtobereasonablyassuredandnosignificantobligationsremain.RevenuefromourmilitaryrobotsalesandrevenuefromfundedresearchanddevelopmentcontractsareoccasionallyinfluencedbytheSeptember30fiscalyear-endoftheU.S.federalgovernment.Inaddition,ourrevenuecanbeaffectedbythetimingofthereleaseofnewproductsandthesizeandtimingofcontractawardsfrommilitaryandothergovernmentagencies.Historically,revenuefromconsumerproductsaleshasbeensignificantlyseasonal,withamajorityofourconsumerproductrevenuegeneratedinthesecondhalfoftheyear(inadvanceoftheholidayseason).Asaresultofthegrowthofourinternationalconsumerbusiness,whichislessseasonalthanourdomesticconsumerbusiness,ourconsumerproductrevenueisspreadmoreevenlythroughouttheyear.CostofRevenueCostofproductrevenueincludesthecostofrawmaterialsandlaborthatgointothedevelopmentandmanufactureofourproductsaswellasmanufacturingoverheadcostssuchasmanufacturingengineering,qualityassurance,logisticsandwarrantycosts.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,costofproductrevenuewas63.4%and67.4%oftotalproductrevenue,respectively.Rawmaterialcosts,whichareourmostsignificantcostitems,canfluctuatemateriallyonaperiodicbasis,althoughmanycomponentshavebeenhistoricallystable.Additionally,unitcostscanvarysignificantlydependingonthemixofproductssold.Therecanbenoassurancethatourcostsofrawmaterialswillnotincrease.Laborcostsalsocompriseasignificantportionofourcostofrevenue.WeoutsourcethemanufactureofourhomerobotstocontractmanufacturersinChina.WhilelaborcostsinChinatraditionallyhavebeenfavorablecomparedtolaborcostselsewhereintheworld,includingthe29Form10-KUnitedStates,webelievethatlaborinChinaisbecomingmorescarce.Consequently,thelaborcostsforourhomerobotscouldincreaseinthefuture.Costofcontractrevenueincludesthedirectlaborcostsofengineeringresourcescommittedtofundedresearchanddevelopmentcontracts,aswellasthird-partyconsulting,travelandassociateddirectmaterialcosts.Addi-tionally,weincludeoverheadexpensessuchasindirectengineeringlabor,occupancycostsassociatedwiththeprojectresources,engineeringtoolsandsuppliesandprogrammanagementexpenses.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,costofcontractrevenuewas66.9%and84.5%oftotalcontractrevenue,respectively.GrossMarginOurgrossmarginasapercentageofrevenuevariesaccordingtothemixofproductandcontractrevenue,themixofproductssold,totalsalesvolume,thelevelofdefectiveproductreturns,andlevelsofotherproductcostssuchaswarranty,scrap,re-workandmanufacturingoverhead.FortheyearsendedJanuary1,2011andJanuary2,2010,grossmarginwas36.3%and30.5%oftotalrevenue,respectively.ResearchandDevelopmentExpensesResearchanddevelopmentexpensesconsistprimarilyof:(cid:129)salariesandrelatedcostsforourengineers;(cid:129)costsforhightechnologycomponentsusedinproductandprototypedevelopment;and(cid:129)costsoftestequipmentusedduringproductdevelopment.Wehavesignificantlyexpandedourresearchanddevelopmentcapabilitiesandexpecttocontinuetoexpandthesecapabilitiesinthefuture.Wearecommittedtoconsistentlymaintainingthelevelofinnovativedesignanddevelopmentofnewproductsaswestrivetoenhanceourabilitytoserveourexistingconsumerandmilitarymarketsaswellasnewmarketsforrobots.Weanticipatethatresearchanddevelopmentexpenseswillincreaseinabsolutedollarsfortheforeseeablefuture.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,researchanddevelopmentexpensewas$24.8millionand$14.7million,or6.2%and4.9%oftotalrevenue,respectively.Inadditiontoourinternalresearchanddevelopmentactivitiesdiscussedabove,weincurresearchanddevelopmentexpensesunderfundeddevelopmentarrangementswithbothgovernmentsandotherthirdparties.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,theseexpensesamountedto$27.1millionand$30.8million,respectively.Inaccordancewithgenerallyacceptedaccountingprinciples,theseexpenseshavebeenclassifiedascostofrevenueratherthanresearchanddevelopmentexpense.FortheyearsendedJanuary1,2011,January2,2010andDecember27,2008,thecombinedinvestmentinfuturetechnologies,classifiedascostofrevenueandresearchanddevelopmentexpense,was$51.9million,$45.5millionand$41.5million,respectively.Selling,GeneralandAdministrativeExpensesOurselling,generalandadministrativeexpensesconsistprimarilyof:(cid:129)salariesandrelatedcostsforsalesandmarketingpersonnel;(cid:129)salariesandrelatedcostsforexecutivesandadministrativepersonnel;(cid:129)advertising,marketingandotherbrand-buildingcosts;(cid:129)fulfillmentcostsassociatedwithdirect-to-consumersalesthroughouron-linestore;(cid:129)customerservicecosts;(cid:129)professionalservicescosts;(cid:129)informationsystemsandinfrastructurecosts;30(cid:129)travelandrelatedcosts;and(cid:129)occupancyandotheroverheadcosts.Weanticipatethatselling,generalandadministrativeexpenseswillincreaseinabsolutedollarsbutremainrelativelyflatasapercentageofrevenueintheforeseeablefutureaswecontinuetobuildtheiRobotbrandandalsomaintaincompanyprofitability.ForthefiscalyearsendedJanuary1,2011andJanuary2,2010,selling,generalandadministrativeexpensewas$87.2millionand$71.0million,or21.7%and23.8%oftotalrevenue,respectively.FiscalPeriodsWeoperateandreportusinga52-53weekfiscalyearendingontheSaturdayclosesttoDecember31.Accordingly,ourfiscalquarterswillendontheSaturdaythatfallsclosesttothelastdayofthethirdmonthofeachquarter.CriticalAccountingPoliciesandEstimatesOurconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Thepreparationoftheseconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenue,costsandexpenses,andrelateddisclosures.Weevaluateourestimatesandassumptionsonanongoingbasis.Ouractualresultsmaydifferfromtheseestimates.Webelievethatofoursignificantaccountingpolicies,whicharedescribedinthenotestoourconsolidatedfinancialstatements,thefollowingaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexity.Accordingly,webelievethatthefollowingaccountingpoliciesarethemostcriticaltoaidinfullyunderstandingandevaluatingourconsolidatedfinancialconditionandresultsofoperations.RevenueRecognitionWerecognizerevenuefromsalesofconsumerproductsunderthetermsofthecustomeragreementupontransferoftitleandriskoflosstothecustomer,providedthepriceisfixedordeterminable,collectionisdeterminedtobereasonablyassuredandnosignificantobligationsremain.Salestoresellersaretypicallysubjecttoagreementsallowingforlimitedrightsofreturnfordefectiveproductsonly,rebatesandpriceprotection.Wehavetypicallynottakenproductreturnsexceptfordefectiveproducts.Accordingly,wereducerevenueforourestimatesofliabilitiesfortheserightsatthetimetherelatedsaleisrecorded.Weestablishaprovisionforsalesreturnsforproductssoldbyresellersdirectlybasedonhistoricalreturnexperienceandotherrelevantdata.Ourinternationaldistributoragreementsdonotcurrentlyallowforproductreturnsand,asaresult,noreserveforreturnsisestablishedforthisgroupofcustomers.Wehaveaggregatedandanalyzedhistoricalreturnsfromresellersandenduserswhichformthebasisofourestimateoffuturesalesreturnsbyresellersorendusers.Whenarightofreturnexists,theprovisionfortheseestimatedreturnsisrecordedasareductionofrevenueatthetimethattherelatedrevenueisrecorded.Ifactualreturnsfromretailersdiffersignificantlyfromourestimates,suchdifferencescouldhaveamaterialimpactonourresultsofoperationsfortheperiodinwhichtheactualreturnsbecomeknown.Ourreturnsreserveiscalculatedasapercentageofgrossconsumerproductrevenue.Aonepercentagepointincreaseordecreaseinouractualexperienceofreturnswouldhaveamaterialimpactonourquarterlyandannualresultsofoperations.Theestimatesforreturnsareadjustedperiodicallybaseduponhistoricalratesofreturns.Theestimatesandreserveforrebatesandpriceprotectionarebasedonspecificprograms,expectedusageandhistoricalexperience.Actualresultscoulddifferfromtheseestimates.Iffuturetrendsorourabilitytoestimateweretochangesignificantlyfromthoseexperiencedinthepast,incrementalreductionsorincreasestorevenuemayresultbasedonthisnewexperience.Undercost-plusresearchanddevelopmentcontracts,werecognizerevenuebasedoncostsincurredplusapro-rataportionofthetotalfixedfee.Costsandestimatedgrossmarginsoncontractsarerecordedasworkisperformedbasedonthepercentagethatincurredcostsbeartoestimatedtotalcostsutilizingthemostrecentestimatesofcostsandfunding.Werecognizerevenueonfirmfixedprice(FFP)contractsusingthepercentage-of-completionmethod.ForgovernmentproductFFPcontractsrevenueisrecognizedastheproductisshippedorinaccordancewiththe31Form10-Kcontractterms.Changesinjobperformance,jobconditionsandestimatedprofitability,includingthosearisingfromfinalcontractsettlementsandgovernmentaudit,mayresultinrevisionstocostsandincome,andarerecordedorrecognized,asthecasemaybe,intheperiodinwhichtherevisionsaredetermined.Sincemanycontractsextendoveralongperiodoftime,revisionsincostandfundingestimatesduringtheprogressofworkhavetheeffectofadjustingearningsapplicabletopastperformanceinthecurrentperiod.Whenthecurrentcontractestimateindicatesaloss,provisionismadeforthetotalanticipatedlossinthecurrentperiod.Revenueearnedinexcessofbillings,ifany,isrecordedasunbilledrevenue.Billingsinexcessofrevenueearned,ifany,arerecordedasdeferredrevenue.AccountingforStock-BasedAwardsUndertheprovisionsoftherelevantauthoritativeguidance,werecognized$6.4millionofstock-basedcompensationexpenseduringthefiscalyearendedJanuary1,2011forstockoptionsgrantedsubsequenttoourinitialfilingofourFormS-1withtheSEC.TheunamortizedfairvalueasofJanuary1,2011associatedwiththesegrantswas$12.0millionwithaweightedaverageremainingrecognitionperiodof2.65years.Therisk-freeinterestrateisderivedfromtheaverageU.S.Treasuryconstantmaturityrate,whichapprox-imatestherateineffectatthetimeofgrant,commensuratewiththeexpectedlifeoftheinstrument.Thedividendyieldiszerobaseduponthefactthatwehaveneverpaidandhavenopresentintentiontopaycashdividends.Priorto2010,theexpectedtermcalculationwasbaseduponthesimplifiedmethodprovidedundertherelevantauthoritativeguidance.During2010,webegantorelysolelyoncompanyspecifichistoricaldatatocalculatetheexpectedterm.GivenourinitialpublicofferinginNovember2005andtheresultingshorthistoryasapubliccompany,wecouldnotrelysolelyoncompanyspecifichistoricaldataforpurposesofestablishingexpectedvolatility.Consequently,priorto2010,weperformedananalysisthatincludedcompanyspecifichistoricaldatacombinedwithdataofseveralpeercompanieswithsimilarexpectedoptionlivestodevelopexpectedvolatilityassumptions.During2010,webegantorelysolelyoncompanyspecifichistoricaldataforpurposesofestablishingexpectedvolatility.Basedupontheaboveassumptions,theweightedaveragefairvalueofeachstockoptiongrantedforthefiscalyearendedJanuary1,2011was$8.24.DuringthefiscalyearendedJanuary1,2011,theCompanyrecognized$0.1millionand$1.7millionofstockbasedcompensationassociatedwithrestrictedstockawardsandrestrictedstockunits,respectively.UnamortizedexpenseassociatedwithrestrictedstockawardsandrestrictedstockunitsatJanuary1,2011,was$0.1millionand$7.6million,respectively.Wehaveassumedaforfeiturerateforallstockoptions,restrictedstockawardsandrestrictedstock-basedunitsgrantedsubsequenttotheCompany’sinitialfilingofitsFormS-1withtheSEC.Inthefuture,wewillrecordincrementalstock-basedcompensationexpenseiftheactualforfeitureratesarelowerthanestimatedandwillrecordarecoveryofpriorstock-basedcompensationexpenseiftheactualforfeituresarehigherthanestimated.Accountingforstock-basedawardsrequiressignificantjudgmentandtheuseofestimates,particularlysurroundingassumptionssuchasstockpricevolatilityandexpectedoptionlives,aswellasexpectedoptionforfeitureratestovalueequity-basedcompensation.AccountingforIncomeTaxesDeferredtaxesaredeterminedbasedonthedifferencebetweenthefinancialstatementandtaxbasisofassetsandliabilitiesusingenactedtaxratesineffectintheyearsinwhichthedifferencesareexpectedtoreverse.Valuationallowancesareprovidedifbasedupontheweightofavailableevidence,itismorelikelythannotthatsomeorallofthedeferredtaxassetswillnotberealized.Wemonitortherealizationofourdeferredtaxassetsbasedonchangesincircumstances,forexample,recurringperiodsofincomefortaxpurposesfollowinghistoricalperiodsofcumulativelossesorchangesintaxlawsorregulations.Ourincometaxprovisionandourassessmentoftheabilitytorealizeourdeferredtaxassetsinvolvesignificantjudgmentsandestimates.Infiscal2007,wecompletedananalysisofhistoricalandprojectedfutureprofitabilitywhichresultedinthefullreleaseofthevaluationallowancerelatingtofederaldeferredtaxassets.Infiscal2010,basedonrecentandexpectedincreasedfutureprofitabilitythevaluationallowancerelatingtostate32deferredtaxassetswasreleased.AtJanuary1,2011,wehavetotaldeferredtaxassetsof$21.2millionwithnovaluationallowance.DuringthequarterendingJanuary2,2010,werecordedanout-of-periodadjustmentintheincometaxprovisionof$0.2milliontocorrectanerrorwithrespecttotheearningsofourIndiasubsidiary.Webelievethatthisadjustmentdidnothaveamaterialimpacttoourfullyear2009results.Inaddition,wedonotbelievetheadjustmentismaterialtotheamountsreportedinpreviousperiods.WarrantyWetypicallyprovideaone-yearwarranty(withtheexceptionofEuropeanconsumerproductswhichtypicallyhaveatwo-yearwarrantyperiodandourgovernmentandindustrialsparesandNegotiatorproductswhichtypicallyhaveawarrantyperiodoflessthanoneyear)againstdefectsinmaterialsandworkmanshipandwilleitherrepairthegoods,providereplacementproductsatnochargetothecustomerorrefundamountstothecustomerfordefectiveproducts.Werecordestimatedwarrantycosts,basedonhistoricalexperiencebyproduct,atthetimewerecognizeproductrevenue.Asthecomplexityofourproductsincreases,wecouldexperiencehigherwarrantyclaimsrelativetosalesthanwehavepreviouslyexperienced,andwemayneedtoincreasetheseestimatedwarrantyreserves.InventoryValuationWevalueourinventoryattheloweroftheactualcostofourinventoryoritscurrentestimatedmarketvalue.Wewritedowninventoryforobsolescenceorunmarketableinventoriesbaseduponassumptionsaboutfuturedemandandmarketconditions.Actualdemandandmarketconditionsmaybelowerthanthosethatweprojectandthisdifferencecouldhaveamaterialadverseeffectonourgrossmarginifinventorywrite-downsbeyondthoseinitiallyrecordedbecomenecessary.Alternatively,ifactualdemandandmarketconditionsaremorefavorablethanthoseweestimatedatthetimeofsuchawrite-down,ourgrossmargincouldbefavorablyimpactedinfutureperiods.33Form10-KOverviewofResultsofOperationsThefollowingtablesetsforthourresultsofoperationsfortheperiodsshown:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)RevenueProductrevenue................................$360,394$262,199$281,187Contractrevenue................................40,55836,41826,434Totalrevenue...............................400,952298,617307,621CostofRevenueCostofproductrevenue(1)........................228,403176,631190,250Costofcontractrevenue(1)........................27,11730,79023,900Totalcostofrevenue.........................255,520207,421214,150Grossmargin................................145,43291,19693,471OperatingExpensesResearchanddevelopment(1)......................24,80914,74717,566Sellingandmarketing(1)..........................50,53540,90246,866Generalandadministrative(1)......................36,61830,11028,840Totaloperatingexpenses......................111,96285,75993,272OperatingIncome.................................33,4705,437199OtherIncome(Expense),Net........................504(81)926IncomeBeforeIncomeTaxes........................33,9745,3561,125IncomeTaxExpense...............................8,4602,026369NetIncome.....................................$25,514$3,330$756(1)Stock-basedcompensationrecordedin2010,2009and2008breaksdownbyexpenseclassificationasfollows.January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Costofproductrevenue............................$1,311$1,127$753Costofcontractrevenue............................446575462Researchanddevelopment..........................725351359Sellingandmarketing..............................1,1611,4101,055Generalandadministrative..........................4,5224,0993,31034Thefollowingtablesetsforthourresultsofoperationsasapercentageofrevenuefortheperiodsshown:January1,2011January2,2010December27,2008FiscalYearEndedRevenueProductrevenue.................................89.9%87.8%91.4%Contractrevenue................................10.112.28.6Totalrevenue...............................100.0100.0100.0CostofRevenueCostofproductrevenue...........................57.059.261.8Costofcontractrevenue..........................6.710.37.8Totalcostofrevenue.........................63.769.569.6Grossmargin.................................36.330.530.4OperatingExpensesResearchanddevelopment.........................6.24.95.7Sellingandmarketing............................12.613.715.2Generalandadministrative.........................9.110.19.4Totaloperatingexpenses......................27.928.730.3OperatingIncome.................................8.41.80.1OtherIncome(Expense),Net........................0.10.00.3IncomeBeforeIncomeTaxes........................8.51.80.4IncomeTaxExpense...............................2.10.70.1NetIncome......................................6.4%1.1%0.3%ComparisonofYearsEndedJanuary1,2011andJanuary2,2010RevenueJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)TotalRevenue......................$400,952$298,617$102,33534.3%Ourrevenueincreased34.3%to$401.0millioninfiscal2010from$298.6millioninfiscal2009.Revenueincreasedapproximately$63.5million,or38.3%,inourhomerobotsdivisionand$38.8million,or29.3%,inourgovernmentandindustrialdivision.The$63.5millionincreaseinrevenuefromourhomerobotsdivisionwasdrivenbya28.4%increaseinunitsshippedanda9.7%increaseinnetaveragesellingprice.Totalhomerobotsshippedinfiscal2010were1,269,000unitscomparedto988,000unitsinfiscal2009.Theincreaseinhomerobotdivisionrevenueandunitsshippedwasprimarilyattributabletoincreasedinternationalsalesofourhomerobotproductsresultingfromoureffortstoincreaseourglobalpresence.Infiscal2010,internationalhomerobotrevenueincreased$62.3million,domestichomerobotrevenuefromourretailchannelincreased$3.4million,anddomestichomerobotrevenuefromourdirectchanneldecreased$2.2millionascomparedtofiscal2009.Homerobotdivisionrevenuefrominternationalsales,whichconsistofproductshavingahigheraveragesellingpricethanproductssoldtodomesticcustomers,was66.0%oftotalhomerobotdivisionrevenueinfiscal2010ascomparedto53.8%infiscal2009.The$38.8millionincreaseinrevenuefromourgovernmentandindustrialdivisionwasdrivenbya$20.2millionincreaseingovernmentandindustrialrobotrevenue,a$14.5millionincreaseinproductlifecyclerevenue(sparepartsandaccessories),anda$4.1millionincreaseinrecurringcontractdevelopmentrevenue35Form10-Kgeneratedunderresearchanddevelopmentcontracts.The$20.2millionincreaseingovernmentandindustrialrobotsrevenuewasduetoa10.3%increaseinunitsshippedinfiscal2010ascomparedtofiscal2009.The$14.5millionincreaseinproductlifecyclerevenuewastheresultofahigherinstalledbaseofourgovernmentandindustrialrobots,whichduringfiscal2010includedproductlifecyclerevenuerelatedtoourSUGV310product.The$4.1millionincreaseinrecurringcontractdevelopmentrevenuegeneratedunderresearchanddevelopmentcontractswasprimarilyattributabletoanincreaseinfundingofourSUGVprogramoffsetbydecreasesinfundingofourPackBotandWarriorprograms.Totalgovernmentandindustrialrobotsshippedinfiscal2010were871unitscomparedto789unitsinfiscal2009.CostofRevenueJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalcostofrevenue.................$255,520$207,421$48,09923.2%Asapercentageoftotalrevenue.........63.7%69.5%Totalcostofrevenueincreasedto$255.5millioninfiscal2010,comparedto$207.4millioninfiscal2009.Theincreaseisprimarilyduetothe28.4%increaseinhomerobotunitsshippedandthe10.3%increaseingovernmentandindustrialunitsshipped.GrossMarginJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalgrossmargin...................$145,432$91,196$54,23659.5%Asapercentageoftotalrevenue.........36.3%30.5%Grossmarginincreased$54.2million,or59.5%,to$145.4million(36.3%ofrevenue)infiscal2010from$91.2million(30.5%ofrevenue)infiscal2009.Theincreaseingrossmarginasapercentageofrevenuewastheresultofthehomerobotsdivisiongrossmarginincreasing7.8percentagepointsandthegovernmentandindustrialdivisiongrossmarginincreasing2.9percentagepoints.The7.8percentagepointincreaseinthehomerobotsdivisionisattributabletolowerreturnprovisions,theincreaseinunitsshippedthroughourhigher-margininternationalchannel,priceincreasesoncertaininternationalproducts,continuedproductcostreductionefforts,lowerexcessandobsoleteinventoryprovisionsandimprovedleverageofouroverheadexpenseagainsthigherrevenueinfiscal2010ascomparedtofiscal2009.The2.9percentagepointincreaseinthegovernmentandindustrialdivisionisprimarilyattributabletoleveragingouroverheadexpenseagainsthigherrevenue,andanincreaseinhigher-marginproductlifecyclerevenue,partiallyoffsetbyadecreaseduetoproductmixprimarilyattributabletoasignificantnumberofSUGV310unitsshippedinfiscal2010ascomparedtofiscal2009.Ourmarginsrelatingtocontractrevenueincreasedinfiscal2010ascomparedtofiscal2009duetohigher-marginfirm-fixed-pricedcontractsawardedin2010.ResearchandDevelopmentJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalresearchanddevelopment.........$24,809$14,747$10,06268.2%Asapercentageoftotalrevenue.........6.2%4.9%Researchanddevelopmentexpensesincreasedby$10.1million,or68.2%,to$24.8million(6.2%ofrevenue)infiscal2010,from$14.7million(4.9%ofrevenue)forfiscal2009.Theincreaseinresearchanddevelopmentexpensesisprimarilyduetoincreasesincompensation,recruiting,employeebenefits,materialsandconsulting36costsassociatedwithinternalresearchanddevelopmentprojectsinourhomerobotsdivisionandexpensesrelatedtoourhealthcareresearch.Theincreaseinourhomerobotsdivisionisprimarilytheresultofourincreasedeffortsintheareasofproductdevelopmentandadvanceddevelopmentrelatingtoourconsumerproducts.Inadditiontoourresearchanddevelopmentactivitiesclassifiedasresearchanddevelopmentexpense,weincurresearchanddevelopmentexpensesunderfundeddevelopmentarrangementswithgovernmentsandindustrialthirdparties.Forfiscal2010,theseexpensesamountedto$27.1millioncomparedto$30.8millionforfiscal2009.Inaccordancewithgenerallyacceptedaccountingprinciples,theseexpenseshavebeenclassifiedascostofcontractrevenueratherthanresearchanddevelopmentexpense.Thecombinedinvestmentinfuturetechnologies,classifiedascostofrevenueandresearchanddevelopmentexpense,was$51.9millionforfiscal2010,comparedto$45.5millionforfiscal2009.SellingandMarketingJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalsellingandmarketing.............$50,535$40,902$9,63323.6%Asapercentageoftotalrevenue.........12.6%13.7%Sellingandmarketingexpensesincreasedby$9.6million,or23.6%,to$50.5million(12.6%ofrevenue)infiscal2010from$40.9million(13.7%ofrevenue)infiscal2009.Thiswasdrivenbyanincreaseinourhomerobotsdivisionof$7.9millionattributabletoincreasesinadvertising,promotions,on-linemedia,salescommissionexpensesasaresultofhighersales,andanincreaseincompensationandemployee-relatedexpensesupportingourinternationalhomerobotsalesforfiscal2010ascomparedtofiscal2009.Sellingandmarketingexpensesinourgovernmentandindustrialdivisionincreasedby$1.7millionattributabletoanincreaseincompensationexpensesandotherexpensesrelatingtobidandproposalactivities,andsalescommissionsasaresultofhighersalesinfiscal2010ascomparedtofiscal2009.Infiscal2011,weexpecttocontinuetoinvestinsalesandmarketingtoincreasebrandawareness.Accordingly,weanticipatesellingandmarketingexpenseswillincreaseinabsolutedollarsbutremainatthesamelevelorslightlyabovefiscal2010asapercentageofrevenue.GeneralandAdministrativeJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Generalandadministrative.............$36,618$30,110$6,50821.6%Asapercentageoftotalrevenue.........9.1%10.1%Generalandadministrativeexpensesincreasedby$6.5million,or21.6%,to$36.6million(9.1%ofrevenue)infiscal2010from$30.1million(10.1%ofrevenue)infiscal2009.Thisincreaseisattributabletoincreasedcompensation,benefitandrecruitingexpensesrelatedtoincreasedheadcountandanincreaseinincentivecompensationexpense,stockbasedcompensation,andanincreaseinlegalexpense,primarilyattributabletoourinternationalexpansionandintellectualpropertyprosecutionandenforcement,forfiscal2010ascomparedtofiscal2009.OtherIncome(Expense),NetJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)OtherIncome(expense),net..........$504$(81)$585NotMeaningfulAsapercentageoftotalrevenue.......0.1%0.0%37Form10-KOtherincome(expense),netamountedto$0.5millioninfiscal2010comparedto$(0.1)millioninfiscal2009.Otherincome(expense),net,forfiscal2010wasrelatedtointerestincomeof$0.8millionoffsetbyforeigncurrencyexchangelossesof$0.3millionresultingfromforeigncurrencyexchangeratefluctuations.Otherincome(expense),net,forfiscal2009wasdirectlyrelatedtoforeigncurrencyexchangelossesresultingfromforeigncurrencyexchangeratefluctuations.IncomeTaxProvisionJanuary1,2011January2,2010DollarChangePercentChangeFiscalYearEnded(Inthousands)Incometaxprovision...............$8,460$2,026$6,434NotMeaningfulAsapercentageoftotalrevenue.......2.1%0.7%Infiscal2010,werecordeda$8.5milliontaxprovisionbasedonaneffectiveincometaxrateof24.9%.Theprovisionforincometaxesforfiscal2010consistsof$10.2millionoffederaltaxes,$0.1millionofforeigntaxesand$(1.8)millionofstatetaxes,whichincludesthe$2.3millionassociatedwiththefullreleaseofourvaluationallowancerelatingtostatedeferredtaxassets.Infiscal2009,werecordeda$2.0milliontaxprovisionbasedonaneffectiveincometaxrateof38%.Theprovisionforincometaxesforfiscal2009consistsof$1.6millionoffederaltaxesand$0.4millionofstatetaxes.Includedinthe2009provisionisa$0.2millionprovisionassociatedwithanout-of-perioderrorcorrectionwithrespecttotheearningsofourIndiasubsidiaryanda$0.3millionone-timebenefitfromtheconversionofincentivestockoptionstonon-qualifiedstockoptionsasaresultofourstockoptionexchangeprogramwhichconcludedinoursecondfiscalquarterof2009.ComparisonofYearsEndedJanuary2,2010andDecember27,2008RevenueJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)TotalRevenue....................$298,617$307,621$(9,004)(2.9)%Ourrevenuedecreased2.9%to$298.6millioninfiscal2009from$307.6millioninfiscal2008.Revenuedecreasedapproximately$7.7million,or4.5%,inourhomerobotsdivisionand$1.3million,or0.9%,inourgovernmentandindustrialdivision.The$7.7milliondecreaseinrevenuefromourhomerobotsdivisionwasdrivenbya6.3%decreaseinunitsshipped.Totalhomerobotsshippedinfiscal2009wereapproximately988,000unitscomparedtoapproximately1,054,000unitsinfiscal2008.Thedecreaseinhomerobotdivisionrevenueandunitsshippedwasattributabletodecreaseddomesticdemandofourhomerobotproductsinbothretailanddirectchannels.Thedecreaseindomesticanddirectrevenuewaspartiallyoffsetbyincreasedinternationalsalesofourhomerobotproductsresultingfromourincreasedeffortstoexpandourglobalpresence.Infiscal2009,homerobotrevenuefromdomesticretailersdecreased$25.8millionanddirecttoconsumerssalesthroughouron-linestoredecreased$5.1million,ascomparedtofiscal2008.Thiswaspartiallyoffsetbyanincreaseof34.2%ofhomerobotsunitsshippedinternationallyinfiscal2009ascomparedtofiscal2008.Internationalhomerobotsrevenueincreased$23.2millioninfiscal2009ascomparedtofiscal2008.The$1.3milliondecreaseinrevenuefromourgovernmentandindustrialdivisionwasdrivenbya$15.0milliondecreaseingovernmentandindustrialrobotsrevenuepartiallyoffsetbya$3.7millionincreaseinproductlifecyclerevenue(sparepartsandaccessories)anda$10.0millionincreaseinrecurringcontractdevelopmentrevenuegeneratedunderresearchanddevelopmentcontracts.The$15.0milliondecreaseingov-ernmentandindustrialrobotsrevenuewasduetoa17.0%decreaseinunitsinfiscal2009ascomparedtofiscal2008.Totalgovernmentandindustrialrobotsshippedinfiscal2009were789unitscomparedto951unitsinfiscal382008.The$10.0millionincreaseinrecurringcontractdevelopmentrevenuegeneratedunderresearchanddevelopmentcontractswastheresultofrevenuefromnewcontractawardsandincreasedfundingonexistingcontractsforourPackBot,SUGVandresearchprogramsandcontractsacquiredthroughourSeptember2008acquisitionofNektonResearch,LLC.CostofRevenueJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalcostofrevenue...............$207,421$214,150$(6,729)(3.1)%Asapercentageoftotalrevenue.......69.5%69.6%Totalcostofrevenuedecreasedto$207.4millioninfiscal2009,comparedto$214.2millioninfiscal2008.Thisdecreasewasduetothedecreaseinhomerobotandgovernmentandindustrialproductunitsshippedandlowercostsassociatedwithproductmixinourgovernmentandindustrialdivision,partiallyoffsetbyanincreaseincostofcontractsresultingfromnewcontractawardsandincreasedfundingonexistingcontractsforourPackBot,SUGVandresearchprogramsandcontractsacquiredthroughourSeptember2008acquisitionofNektonResearch,LLC.GrossMarginJanuary2,2010December272008DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalgrossmargin..................$91,196$93,471$(2,275)(2.4)%Asapercentageoftotalrevenue.......30.5%30.4%Grossmargindecreased$2.3million,or2.4%,to$91.2million(30.5%ofrevenue)infiscal2009,from$93.5million(30.4%ofrevenue)infiscal2008.Theincreaseingrossmarginasapercentageofrevenuewastheresultofthehomerobotsdivisiongrossmarginincreasing3.5percentagepointsoffsetbyadecreaseinthegovernmentandindustrialdivisiongrossmarginof4.2percentagepoints.The3.5percentagepointincreaseinthehomerobotsdivisionisattributabletopriceincreasesandtheintroductionofhigher-pricedproductsintotheinternationalmarket.Inaddition,domesticmarginsincreasedduetoanincreaseinvolumeandmarginsonrefurbishedproductsinfiscal2009ascomparedtofiscal2008.Also,duringfiscal2008,werecordedcostsbutdidnotrecordrevenueforshipmentstoLinens“N’Thingsasaresultofitsbankruptcyfiling.The4.2percentagepointdecreaseinthegovernmentandindustrialdivisionisattributabletohigheroverheadexpenseonlowerrevenue,partiallyoffsetbyhighermarginsduetoproductmixinfiscal2009ascomparedtofiscal2008.ResearchandDevelopmentJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalresearchanddevelopment........$14,747$17,566$(2,819)(16.0)%Asapercentageoftotalrevenue.......4.9%5.7%Researchanddevelopmentexpensesdecreasedby$2.8million,or16.0%,to$14.7million(4.9%ofrevenue)infiscal2009,from$17.6million(5.7%ofrevenue)forfiscal2008.Thedecreaseinresearchanddevelopmentexpensesisduetoadecreaseincompensationandemployee-relatedcosts,contractorcosts,occupancyexpensesandmaterialassociatedwithinternalresearchanddevelopmentprojects.Inadditiontoourresearchanddevelopmentactivitiesclassifiedasresearchanddevelopmentexpense,weincurresearchanddevelopmentexpensesunderfundeddevelopmentarrangementswithgovernmentsandindustrialthirdparties.Forfiscal2009,theseexpensesamountedto$30.8millioncomparedto$23.9millionforfiscal2008.Inaccordancewithgenerallyacceptedaccountingprinciples,theseexpenseshavebeenclassifiedascostofcontract39Form10-Krevenueratherthanresearchanddevelopmentexpense.Thecombinedinvestmentinfuturetechnologies,classifiedascostofrevenueandresearchanddevelopmentexpense,was$45.5millionforfiscal2009,comparedto$41.5millionforfiscal2008.SellingandMarketingJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)Totalsellingandmarketing...........$40,902$46,866$(5,964)(12.7)%Asapercentageoftotalrevenue.......13.7%15.2%Sellingandmarketingexpensesdecreasedby$6.0million,or12.7%,to$40.9million(13.7%ofrevenue)infiscal2009from$46.9million(15.2%ofrevenue)infiscal2008.Thiswasdrivenbyadecreaseinourhomerobotsdivisionof$6.3millionprimarilyattributabletoareductionof$4.5millionintelevisionandothermarketingexpensesforfiscal2009ascomparedtofiscal2008asaresultofourstrategytoaggressivelymanageourexpenses.Thedecreaseofsellingandmarketingexpensesinourhomerobotsdivisionwasalsoattributabletodecreasesof$1.2millioninsalescommissionexpensesasaresultoflowersalestodomesticretailersand$0.6millionindirectfulfillmentexpensesrelatedtolowerdirectsalesinfiscal2009ascomparedtofiscal2008.GeneralandAdministrativeJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)Generalandadministrative...........$30,110$28,840$1,2704.4%Asapercentageoftotalrevenue.......10.1%9.4%Generalandadministrativeexpensesincreasedby$1.3million,or4.4%,to$30.1million(10.1%ofrevenue)infiscal2009from$28.8million(9.4%ofrevenue)infiscal2008.Theincreaseingeneralandadministrativeexpenseswasprimarilydrivenbyincreasesof$2.7millioninincentivecompensationandstock-basedcompen-sationpartiallyoffsetbyadecreasesof$1.0millioninbaddebtexpenseand$0.4millionincompensationandothergeneralandadministrativeexpensesinfiscal2009ascomparedtofiscal2008.OtherIncome(Expense),NetJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)OtherIncome(expense),net........$(81)$926$(1,007)NotMeaningfulAsapercentageoftotalrevenue.....0.0%0.3%Otherincome(expense),netamountedto$(0.1)millioninfiscal2009comparedto$0.9millioninfiscal2008.Otherincome(expense),netforfiscal2009wasdirectlyrelatedtoforeigncurrencyexchangelossesresultingfromforeigncurrencyexchangeratefluctuations.Otherincome(expense),netforfiscal2008wasdirectlyrelatedtointerestincomeresultingfrominvestmentsinauctionratesecuritiesandmoneymarketaccounts.Allofourauctionratesecuritiesinvestmentshavebeensettledandourcurrentmoneymarketinvestmentsearnsignificantlyreducedinterestratesascomparedtofiscal2008.40IncomeTaxProvisionJanuary2,2010December27,2008DollarChangePercentChangeFiscalYearEnded(Inthousands)Incometaxprovision(benefit).......$2,026$369$1,657NotMeaningfulAsapercentageoftotalrevenue.....0.7%0.1%Infiscal2009,werecordeda$2.0milliontaxprovisionbasedonaneffectiveincometaxrateof37.8%.Theprovisionforincometaxesforfiscal2009consistsof$1.6millionoffederaltaxesand$0.4millionofstatetaxes.Includedinthe2009provisionisa$0.2millionprovisionassociatedwithanout-of-perioderrorcorrectionwithrespecttotheearningsofourIndiasubsidiaryanda$0.3millionone-timebenefitfromtheconversionofincentivestockoptionstonon-qualifiedstockoptionsasaresultofourstockoptionexchangeprogramwhichconcludedinoursecondfiscalquarterof2009.Infiscal2008,werecordeda$0.4milliontaxprovisionbasedonaneffectiveincometaxrateof32.8%.Theprovisionforincometaxesforfiscal2008consistedof$0.1millionoffederalalternativeminimumtaxesand$0.3millionofstatetaxes.LiquidityandCapitalResourcesAtJanuary1,2011,ourprincipalsourcesofliquiditywerecashandcashequivalentstotaling$108.4million,short-terminvestmentsof$13.9millionandaccountsreceivableof$34.1million.Wemanufactureanddistributeourproductsthroughcontractmanufacturersandthird-partylogisticspro-viders.Webelievethatthisapproachgivesustheadvantagesofrelativelylowcapitalinvestmentandsignificantflexibilityinschedulingproductionandmanaginginventorylevels.Byleasingourofficefacilities,wealsominimizethecashneededforexpansion.Accordingly,ourcapitalspendingisgenerallylimitedtoleaseholdimprovements,computers,officefurniture,product-specificproductiontooling,internalusesoftwareandtestequipment.InthefiscalyearsendedJanuary1,2011andJanuary2,2010,wespent$12.6millionand$5.0million,respectively,oncapitalequipment.OurstrategyfordeliveringproductstoourretailcustomersgivesustheflexibilitytoprovidecontainershipmentsdirectlytotheretailerfromChinaand,alternatively,allowsourretailpartnerstotakepossessionofproductonadomesticbasis.Accordingly,ourhomerobotsproductinventoryconsistsofgoodsshippedtoourthird-partylogisticsprovidersforthefulfillmentofretailordersanddirect-to-consumersales.Ourinventoryofgovernmentandindustrialproductsisrelativelylowastheyaregenerallybuilttoorder.Ourcontractmanufacturersareresponsibleforpurchasingandstockingthemajorityofcomponentsrequiredfortheproductionofourproducts,andtheyinvoiceuswhenthefinishedgoodsareshipped.Thebalanceofcashandshort-terminvestmentsof$122.3millionatJanuary1,2011isprimarilytheresultofimprovingprofitabilityandoursignificantfocusoverthepasttwoyearsonmanagingworkingcapital.AsofJanuary1,2011,wedidnothaveanyborrowingsoutstandingunderourworkingcapitallineofcreditandhad$1.9millionlettersofcreditoutstandingunderourworkingcapitallineofcredit.DiscussionofCashFlowsNetcashprovidedbyoperatingactivitiesforthefiscalyearendedJanuary1,2011was$49.2million,anincreaseof$8.6millioncomparedtothe$40.6millionofnetcashprovidedbyoperatingactivitiesforthefiscalyearendedJanuary2,2010.Theincreaseinnetcashprovidedbyoperatingactivitieswasprimarilydrivenbythefollowingfactors:(cid:129)Anincreaseincashof$22.2millionresultingfromnetincomeof$25.5millionin2010versusanetincomeof$3.3millionin2009;(cid:129)Adecreaseincashof$4.3millionresultingfromanincreaseindeferredtaxassetsof$7.6millionin2010versusanincreaseof$3.3millionin2009;41Form10-K(cid:129)Adecreaseincashof$2.0millionresultingfromanincreaseinaccountsreceivable(includingunbilledrevenue)of$1.1millionin2010versusandecreaseof$0.9millionin2009,primarilyduetogrowthinrevenuepartiallyoffsetbytheimpactofaggressivecollectionsandareductionindayssalesoutstanding;(cid:129)Anincreaseincashof$3.1millionresultingfromadecreaseininventoryof$5.2millionin2010versusadecreaseof$2.1millionin2009,primarilyduetoincreaseddemandforourhomerobotproducts;(cid:129)Adecreaseincashof$1.3millionresultingfromanincreasecurrentassetsprimarilyduetoanincreaseinprepaidincometaxes;(cid:129)Adecreaseincashof$4.8millionresultingfromanincreaseinaccountspayableandaccruedexpensesof$9.6millionin2010versusanincreaseof$14.4millionin2009,primarilyduetoageneralincreaseinbusinessactivityandtimingofpaymentstosuppliers.Infiscal2010accountspayablewasasourceofcash,butcashprovidedwas$4.8millionlessthaninfiscal2009;(cid:129)Adecreaseincashof$2.8millionresultingfromanincreaseinaccruedcompensationof$4.3millionin2010versusanincreaseof$7.1millionin2009,primarilyduetotheimpactofimprovingprofitabilityontheincentivecompensationexpensein2009;and(cid:129)Adecreaseincashof$1.7millionresultingfromadecreaseindeferredrevenueandcustomersadvancesof$0.4millionin2010comparedtoanincreaseof$1.3millionin2009,primarilyduetoacontractmodificationin2010.NetcashusedininvestingactivitiesforthefiscalyearendedJanuary1,2011was$21.6million,representinganincreaseof$9.1millioncomparedtothe$12.5millionofnetcashusedininvestingactivitiesforthefiscalyearendedJanuary2,2010.Thisincreaseinnetcashusedininvestingactivitieswasprimarilydrivenbythefollowing:(cid:129)Purchaseofinvestments,netoftheproceedsfromthesaleofinvestments,of$9.0millionin2010comparedtothepurchaseofinvestmentsof$5.0millionin2009;(cid:129)Thepurchaseofpropertyandequipmentof$12.6millionin2010,comparedto$5.0millionin2009,primarilyduetoanincreaseinself-constructedanddemonstrationassets,andtoolingrelatedtonewproductsinourgovernmentandindustrialdivisionandanewcontractmanufacturerinourhomerobotsdivision;and(cid:129)Areductioninnetcashusedininvestingactivitiesin2010associatedwithcashdisbursedin2009tocompletethepurchaseofNektonResearchLLCof$2.5million.NetcashprovidedfromfinancingactivitiesforthefiscalyearendedJanuary1,2011was$8.9million,anincreaseof$6.0millioncomparedtothe$2.9millionofnetcashprovidedbyfinancingactivitiesforthefiscalyearendedJanuary2,2010.Theincreaseisdueprimarilytoanincreaseinproceedsfromstockoptionexercises.WorkingCapitalFacilityWehaveanunsecuredrevolvingcreditfacilitywithBankofAmerica,N.A.,whichisavailabletofundworkingcapitalandothercorporatepurposes.Thetotalamountavailableforborrowingunderourcreditfacilityis$40.0million.AsofJanuary1,2011,$38.1millionwasavailableforborrowing.Theinterestonloansunderourcreditfacilitywillaccrue,atourelection,ateither(i)thegreateroftheBBALIBORDailyFloatingRateorthePrimeRateofLenderplusfifty(50)basispoints,or(ii)theLIBORrateplus2.00%.ThecreditfacilitywillterminateandallamountsoutstandingthereunderwillbedueandpayableinfullonJune5,2012.AsofJanuary1,2011,wehadlettersofcreditoutstandingof$1.9millionunderourworkingcapitallineofcredit.Thiscreditfacilitycontainscustomarytermsandconditionsforcreditfacilitiesofthistype,includingrestrictionsonourabilitytoincurorguarantyadditionalindebtedness,createliens,enterintotransactionswithaffiliates,makeloansorinvestments,sellassets,paydividendsormakedistributionson,orrepurchase,ourstock,andconsolidateormergewithotherentities.42Inaddition,wearerequiredtomeetcertainfinancialcovenantscustomarywiththistypeofagreement,includingmaintainingaminimumspecifiedtangiblenetworth,aminimumspecifiedadjustedEBITDA,andminimumspecifiedinterestcoverageratio.Thiscreditfacilitycontainscustomaryeventsofdefault,includingforpaymentdefaults,breachesofrepresentations,breachesofaffirmativeornegativecovenants,crossdefaultstoothermaterialindebtedness,bankruptcyandfailuretodischargecertainjudgments.Ifadefaultoccursandisnotcuredwithinanyapplicablecureperiodorisnotwaived,ourobligationsunderthecreditfacilitymaybeaccelerated.AsofJanuary1,2011,wewereincompliancewithallcovenantsunderthecreditfacility.OnJanuary4,2011,weenteredintoarevolvingletterofcreditfacilitywithBankofAmerica,N.A.Thecreditfacilitywillbeavailabletofundlettersofcreditonourbehalfuptoanaggregateoutstandingamountof$5million.Wemayterminateorfromtimetotimepermanentlyreducetheamountofthecreditfacility.Wepayafeeonoutstandinglettersofcreditissuedunderthecreditfacilityequalto2%perannumofthedailymaximumamountavailabletobedrawnundertheoutstandinglettersofcredit.Inaddition,wepayafeeequalto0.25%perannumoftheactualdailyamountbywhichthecreditfacilityexceedstheaggregateundrawnamountofalloutstandinglettersofcreditunderthecreditfacilityplustheaggregateofallunreimburseddrawingsunderalllettersofcreditunderthecreditfacility.ThematuritydateforlettersofcreditissuedunderthecreditfacilityshallbenolaterthansevendayspriortoJune5,2012.Thecreditfacilitycontainscustomarytermsandconditionsforcreditfacilitiesofthistype,includingrestrictionsonourabilitytoincurorguarantyadditionalindebtedness,createliens,enterintotransactionswithaffiliates,makeloansorinvestments,sellassets,paydividendsormakedistributionson,orrepurchase,itsstock,andconsolidateormergewithotherentities.Inaddition,wearerequiredtomeetcertainfinancialcovenantscustomarywiththistypeofagreement,includingmaintainingaminimumspecifiedtangiblenetworth,aminimumspecifiedadjustedEBITDAandaminimumspecifiedratioofEBITtointerestexpense.Thecreditfacilityalsocontainscustomaryeventsofdefault,includingforpaymentdefaults,breachesofrepresentations,breachesofaffirmativeornegativecovenants,crossdefaultstoothermaterialindebtedness,bankruptcy,andfailuretodischargecertainjudgments.Ifadefaultoccursandisnotcuredwithinanyapplicablecureperiodorisnotwaived,thelendermayacceleratetheobligationsunderthecreditfacility.WorkingCapitalandCapitalExpenditureNeedsWecurrentlyhavenomaterialcashcommitments,exceptfornormalrecurringtradepayables,expenseaccrualsandoperatingleases,allofwhichweanticipatefundingthroughworkingcapital,fundsprovidedbyoperatingactivitiesandourexistingworkingcapitallineofcredit.Wedonotcurrentlyanticipatesignificantinvestmentinproperty,plantandequipment,andwebelievethatouroutsourcedapproachtomanufacturingprovidesuswithflexibilityinbothmanaginginventorylevelsandfinancingourinventory.Webelieveourexistingcashandcashequivalents,short-terminvestments,cashprovidedbyoperatingactivities,andfundsavailablethroughourworkingcapitallineofcreditwillbesufficienttomeetourworkingcapitalandcapitalexpenditureneedsoveratleastthenexttwelvemonths.Intheeventthatourrevenueplandoesnotmeetourexpectations,wemayeliminateorcurtailexpenditurestomitigatetheimpactonourworkingcapital.Ourfuturecapitalrequirementswilldependonmanyfactors,includingourrateofrevenuegrowth,theexpansionofourmarketingandsalesactivities,thetimingandextentofspendingtosupportproductdevelopmentefforts,thetimingofintroductionsofnewproductsandenhancementstoexistingproducts,theacquisitionofnewcapabilitiesortechnologies,andthecontinuingmarketacceptanceofourproductsandservices.Moreover,totheextentthatexistingcashandcashequivalents,short-terminvestments,cashfromoperations,andcashfromshort-termborrowingareinsufficienttofundourfutureactivities,wemayneedtoraiseadditionalfundsthroughpublicorprivateequityordebtfinancing.Aspartofourbusinessstrategy,wemayconsideradditionalacquisitionsofcompanies,technologiesandproducts,whichcouldalsorequireustoseekadditionalequityordebtfinancing.Additionalfundsmaynotbeavailableontermsfavorabletousoratall.43Form10-KContractualObligationsWegenerallydonotenterintobindingpurchasecommitments.Ourprincipalcommitmentsconsistofobligationsunderourworkingcapitallineofcredit,leasesforofficespaceandminimumcontractualobligationsforservices.ThefollowingtabledescribesourcommitmentstosettlecontractualobligationsincashasofJanuary1,2011:LessThan1Year1to3Years3to5YearsMoreThan5YearsTotalPaymentsDuebyPeriod(Inthousands)Operatingleases................$2,904$5,112$4,889$10,327$23,232Minimumcontractualpayments.....5779,850——10,427Otherobligations...............379314——693Total.........................$3,860$15,276$4,889$10,327$34,352Ourminimumcontractualpaymentsconsistofpaymentstoourproviderofdirectfulfillmentservicesfordirecttoconsumersalesofourhomerobotsandpaymentstoakeycomponentsupplierforourhomerobots,whichpaymentsareincurredintheordinarycourseofbusiness.Basedonhistoricalandcurrentoperations,webelievethatwewillexceedtheseminimumcontractualobligationsinourordinarycourseofbusiness.Otherobligationsconsistofsoftwarelicenseandservicesagreementforourhomerobotsdivisionwebsupport.Off-BalanceSheetArrangementsAsofJanuary1,2011,wehadnooff-balancesheetarrangementsasdefinedinItem303(a)(4)ofRegulationS-K.RecentlyIssuedAccountingPronouncementsInJune2009,theFinancialAccountingStandardsBoard,orFASB,issuedanamendmenttotheaccountinganddisclosurerequirementsfortheconsolidationofvariableinterestentities,orVIEs.TheeliminationoftheconceptofaQualifyingSpecialPurposeEntity,removestheexceptionfromapplyingtheconsolidationguidancewithinthisamendment.ThisamendmentrequiresanenterprisetoperformaqualitativeanalysiswhendeterminingwhetherornotitmustconsolidateaVIEandrequiresanenterprisetocontinuouslyreassesswhetheritmustconsolidateaVIE.Additionally,thisamendmentrequiresenhanceddisclosuresaboutanenterprise’sinvolvementwithVIEsandanysignificantchangeinriskexposureduetothatinvolvement,aswellashowitsinvolvementwithVIEsimpactstheenterprise’sfinancialstatements.Finally,anenterprisewillberequiredtodisclosesignificantjudgmentsandassumptionsusedtodeterminewhetherornottoconsolidateaVIE.ThisamendmentiseffectiveforfinancialstatementsissuedforfiscalyearsbeginningafterNovember15,2009.Theimplementationofthisamendmentdidnotimpactourconsolidatedfinancialstatements.InJanuary2010,FASBupdatedthedisclosurerequirementsforfairvaluemeasurements.TheupdatedguidancerequirescompaniestodiscloseseparatelytheinvestmentsthattransferinandoutofLevels1and2andthereasonsforthosetransfers.Additionally,inthereconciliationforfairvaluemeasurementsusingsignificantunobservableinputs(Level3),companiesshouldpresentseparatelyinformationaboutpurchases,sales,issuancesandsettlements.Weadoptedtheupdatedguidanceatthebeginningoffiscal2010,exceptforthedisclosuresaboutpurchases,sales,issuancesandsettlementsintheLevel3reconciliation,whichareeffectiveforfiscalyearsbeginningafterDecember15,2010.Wewilladopttheremainingguidanceatthebeginningoffiscal2011.Theadoptionoftherequiredguidancedidnothaveanimpactonourfinancialposition,resultsofoperations,ordisclosures.Wedonotexpectthattheadoptionoftheremainingguidancewillhaveanimpactonourfinancialposition,resultsofoperations,ordisclosures.Fromtimetotime,newaccountingpronouncementsareissuedbyFASBthatareadoptedbyusasofthespecifiedeffectivedate.Unlessotherwisediscussed,webelievethattheimpactofrecentlyissuedstandards,whicharenotyeteffective,willnothaveamaterialimpactonourconsolidatedfinancialstatementsuponadoption.44ITEM7A.QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISKForeignCurrencyExchangeRiskWemaintainsalesandbusinessoperationsinforeigncountries.Assuch,wehaveexposuretoadversechangesinexchangeratesassociatedwithoperatingexpensesofourforeignoperations,butwebelievethisexposuretobeimmaterial.Additionally,weacceptordersforhomerobotproductsincurrenciesotherthantheU.S.dollar.Weregularlymonitorthelevelofnon-U.S.dollaraccountsreceivablebalancestodetermineifanyactions,includingpossiblyenteringintoforeigncurrencyforwardcontracts,shouldbetakentominimizetheimpactoffluctuatingexchangeratesonourresultsofoperations.OurinternationalrevenueisprimarilydenominatedinU.S.dollarsandthereforeanyfluctuationsintheEurooranyothernon-U.S.dollarcurrencieswillhaveminimaldirectimpactonourinternationalrevenue.However,astheU.S.dollarstrengthensorweakensagainstothercurrencies,ourinternationaldistributorsmaybeimpacted,whichcouldaffecttheirprofitabilityandourabilitytomaintaincurrentpricinglevelsonourinternationalconsumerproducts.InterestRateSensitivityAtJanuary1,2011,wehadunrestrictedcashandcashequivalentsof$108.4millionandshortterminvestmentsof$13.9million.Theunrestrictedcashandcashequivalentsareheldforworkingcapitalpurposes.Wedonotenterintoinvestmentsfortradingorspeculativepurposes.Someofthesecuritiesinwhichweinvest,however,maybesubjecttomarketrisk.Thismeansthatachangeinprevailinginterestratesmaycausethefairmarketvalueoftheinvestmenttofluctuate.Tominimizethisriskinthefuture,weintendtomaintainourportfolioofcashequivalentsinavarietyofsecurities,commercialpaper,moneymarketfunds,debtsecuritiesandcertificatesofdeposit.Duetotheshort-termnatureoftheseinvestments,webelievethatwedonothaveanymaterialexposuretochangesinthefairvalueofourinvestmentportfolioasaresultofchangesininterestrates.AsofJanuary1,2011,allofourcashandcashequivalentswereheldininterest-bearingdemanddepositsandmoneymarketaccounts.Ourexposuretomarketriskalsorelatestotheincreaseordecreaseintheamountofinterestexpensewemustpayonanyoutstandingdebtinstruments,primarilycertainborrowingsunderourworkingcapitallineofcredit.TheadvancesundertheworkingcapitallineofcreditbearavariablerateofinterestdeterminedasafunctionoftheprimerateortheLIBORrateatthetimeoftheborrowing.AtJanuary1,2011,wehadlettersofcreditoutstandingof$1.9millionunderourworkingcapitallineofcredit.45Form10-KITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATAiROBOTCORPORATIONINDEXTOCONSOLIDATEDFINANCIALSTATEMENTSPageReportofIndependentRegisteredPublicAccountingFirm...................................47ConsolidatedBalanceSheetsatJanuary1,2011andJanuary2,2010...........................48ConsolidatedStatementsofOperationsfortheYearsendedJanuary1,2011,January2,2010andDecember27,2008..............................................................49ConsolidatedStatementsofStockholders’EquityfortheYearsendedJanuary1,2011,January2,2010andDecember27,2008......................................................50ConsolidatedStatementsofCashFlowsfortheYearsendedJanuary1,2011,January2,2010andDecember27,2008..............................................................51NotestoConsolidatedFinancialStatements..............................................5246ReportofIndependentRegisteredPublicAccountingFirmToBoardofDirectorsandStockholdersofiRobotCorporation:Inouropinion,theaccompanyingconsolidatedbalancesheetsandtherelatedconsolidatedstatementsofoperations,ofshareholders’equityandofcashflowspresentfairly,inallmaterialrespects,thefinancialpositionofiRobotCorporationanditssubsidiariesatJanuary1,2011andJanuary2,2010,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedJanuary1,2011inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofJanuary1,2011,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).TheCompany’smanagementisresponsibleforthesefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’sReportonInternalControloverFinancialReporting.Ourresponsibilityistoexpressopinionsonthesefinancialstatements,andontheCompany’sinternalcontroloverfinancialreportingbasedonourintegratedaudits.WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditsofthefinancialstatementsincludedexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate./s/PricewaterhouseCoopersLLPBoston,MassachusettsFebruary18,201147Form10-KiROBOTCORPORATIONCONSOLIDATEDBALANCESHEETSJanuary1,2011January2,2010(Inthousands)ASSETSCurrentassets:Cashandcashequivalents...........................................$108,383$71,856Shortterminvestments..............................................13,9284,959Accountsreceivable,netofallowanceof$88and$90atJanuary1,2011andJanuary2,2010,respectively.......................................34,05635,171Unbilledrevenue..................................................4,0121,831Inventory........................................................27,16032,406Deferredtaxassets.................................................12,9178,669Othercurrentassets................................................6,1374,119Totalcurrentassets...............................................206,593159,011Propertyandequipment,net............................................25,62020,230Deferredtaxassets...................................................8,3386,089Otherassets........................................................13,78014,254Totalassets....................................................$254,331$199,584LIABILITIES,REDEEMABLECONVERTIBLEPREFERREDANDSTOCKHOLDERS’EQUITYCurrentliabilities:Accountspayable..................................................$38,689$30,559Accruedexpenses..................................................15,79014,384Accruedcompensation..............................................17,82713,525Deferredrevenueandcustomeradvances................................3,5343,908Totalcurrentliabilities............................................75,84062,376Longtermliabilities.................................................3,5844,014Commitmentsandcontingencies(Note11):Redeemableconvertiblepreferredstock,5,000,000sharesauthorizedandnosharesissuedoroutstanding...............................................——Commonstock,$0.01parvalue,100,000,000and100,000,000sharesauthorizedand25,844,840and25,091,619sharesissuedandoutstandingatJanuary1,2011andJanuary2,2010,respectively.........................................258251Additionalpaid-incapital..............................................156,620140,613Deferredcompensation...............................................—(64)Retainedearnings(accumulateddeficit)...................................17,949(7,565)Accumulatedothercomprehensiveincome(loss)............................80(41)Totalstockholders’equity..........................................174,907133,194Totalliabilities,redeemableconvertiblepreferredstockandstockholders’equity.......................................................$254,331$199,584SeeaccompanyingNotestoConsolidatedFinancialStatements48iROBOTCORPORATIONCONSOLIDATEDSTATEMENTSOFOPERATIONSJanuary1,2011January2,2010December27,2008FiscalYearEnded(Inthousands,exceptpershareamounts)Revenue:Productrevenue.........................................$360,394$262,199$281,187Contractrevenue.........................................40,55836,41826,434Totalrevenue.........................................400,952298,617307,621Costofrevenue:Costofproductrevenue(1).................................228,403176,631190,250Costofcontractrevenue(1).................................27,11730,79023,900Totalcostofrevenue....................................255,520207,421214,150Grossmargin...........................................145,43291,19693,471Operatingexpenses:Researchanddevelopment(1)...............................24,80914,74717,566Sellingandmarketing(1)...................................50,53540,90246,866Generalandadministrative(1)...............................36,61830,11028,840Totaloperatingexpenses.................................111,96285,75993,272Operatingincome........................................33,4705,437199Otherincome(expense),net................................504(81)926Incomebeforeincometaxes................................33,9745,3561,125Incometaxexpense.......................................8,4602,026369Netincome.............................................$25,514$3,330$756NetincomepershareBasic..............................................$1.00$0.13$0.03Diluted............................................$0.96$0.13$0.03NumberofsharesusedinpersharecalculationsBasic..............................................25,39424,99824,654Diluted............................................26,46825,64025,533(1)Stock-basedcompensationrecordedinfiscal2010,2009and2008breaksdownbyexpenseclassificationasfollows:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Costofproductrevenue....................................$1,311$1,127$753Costofcontractrevenue...................................446575462Researchanddevelopment..................................725351359Sellingandmarketing.....................................1,1611,4101,055Generalandadministrative..................................4,5224,0993,310SeeaccompanyingNotestoConsolidatedFinancialStatements49Form10-KiROBOTCORPORATIONCONSOLIDATEDSTATEMENTSOFSTOCKHOLDERS’EQUITYSharesValueAdditionalPaid-InCapitalDeferredCompensationRetainedEarnings(AccumulatedDeficit)AccumulatedOtherComprehensiveIncome(Loss)Stockholder’sEquityComprehensiveIncomeCommonStockBalanceatDecember29,2007.........24,494,931$245$122,318$(685)$(11,651)$—$110,227Amortizationofdeferredcompensationrelatingtorestrictedstock...........1414Issuanceofcommonstockforexerciseofstockoptions...................289,97031,0081,011Conversionofdeferredcompensation......2,906—Vestingofrestrictedstockunits.........22,929—Taxbenefitofexcessstockbasedcompensationdeduction............1,6481,648Amortizationofdeferredcompensationrelatingtostockoptions............5,6023235,925Reversalofdeferredcompensationrelatedtocancelledstockoptions.............(34)34—Director’sdeferredcompensation........9595Netincome.....................756756756ComprehensiveIncome..............$756BalanceatDecember27,2008.........24,810,736$248$130,637$(314)$(10,895)$—$119,676Issuanceofcommonstockforexerciseofstockoptions...................243,7913735738Vestingofrestrictedstockunits.........42,829—Taxbenefitofexcessstockbasedcompensationdeduction............1,8731,873Amortizationofdeferredcompensationrelatingtostockoptions............7,3182447,562Stockwithheldtocovertaxwithholdingsrequirementsuponvestingofrestrictedstockunits....................(5,737)(76)(76)Reversalofdeferredcompensationrelatedtocancelledstockoptions..........(6)6—Unrealizedlossonshortterminvestment...(41)(41)(41)Director’sdeferredcompensation........132132Netincome.....................3,3303,3303,330ComprehensiveIncome..............$3,289BalanceatJanuary2,2010...........25,091,619$251$140,613$(64)$(7,565)$(41)$133,194Issuanceofcommonstockforexerciseofstockoptions...................667,46266,5846,590Vestingofrestrictedstockunits.........101,3481(1)—Taxbenefitofexcessstockbasedcompensationdeduction............1,4751,475Amortizationofdeferredcompensationrelatingtostockoptions............8,102638,165Stockwithheldtocovertaxwithholdingsrequirementsuponvestingofrestrictedstockunits....................(15,589)(284)(284)Reversalofdeferredcompensationrelatedtocancelledstockoptions..........(1)1—Unrealizedgainonshortterminvestment...121121121Director’sdeferredcompensation........132132Netincome.....................25,51425,51425,514ComprehensiveIncome..............$25,635BalanceatJanuary1,2011...........25,844,840$258$156,620$—$17,949$80$174,907SeeaccompanyingNotestoConsolidatedFinancialStatements50iROBOTCORPORATIONCONSOLIDATEDSTATEMENTSOFCASHFLOWSJanuary1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Cashflowsfromoperatingactivities:Netincome.................................................$25,514$3,330$756Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities:Depreciationandamortization....................................7,5418,0747,029Lossondisposalofpropertyandequipment..........................204202231Stockbasedcompensation......................................8,1657,5625,939In-processresearchanddevelopmentrelatingtoacquisitionofNektonResearchLLC.............................................——200Benefitfromdeferredtaxassets..................................(7,620)(3,317)(1,967)Non-cashdirectordeferredcompensation............................13213295Changesinoperatingassetsandliabilities—(use)sourceAccountsreceivable.........................................1,11575912,221Unbilledrevenue...........................................(2,181)183230Inventory.................................................5,2462,15410,662Othercurrentassets.........................................(2,082)(816)(1,042)Accountspayable...........................................8,13011,015(25,350)Accruedexpenses...........................................1,4953,3853,002Accruedcompensation.......................................4,3027,1321,634Deferredrevenueandcustomeradvances..........................(374)1,2761,026Other...................................................(430)(430)4,444Netcashprovidedbyoperatingactivities............................49,15740,64119,110Cashflowsfrominvestingactivities:Additionsofpropertyandequipment...............................(12,597)(5,038)(14,817)PurchaseofNektonResearch,LLC,netofcashreceived.................—(2,500)(9,743)Purchaseofinvestments........................................(30,461)(5,000)(29,997)Salesofinvestments...........................................21,500—46,547Netcashusedininvestingactivities................................(21,558)(12,538)(8,010)Cashflowsfromfinancingactivities:Borrowingsunderrevolvinglineofcredit............................——5,500Repaymentofborrowingsunderrevolvingcreditline....................——(5,500)Incometaxwithholdingpaymentassociatedwithrestrictedstockvesting......(284)(76)—Proceedsfromstockoptionexercises...............................6,5907381,011Taxbenefitofexcessstockbasedcompensationdeductions...............2,6222,2392,006Netcashprovidedbyfinancingactivities............................8,9282,9013,017Netincreaseincashandcashequivalents............................36,52731,00414,117Cashandcashequivalents,atbeginningofperiod......................71,85640,85226,735Cashandcashequivalents,atendofperiod..........................$108,383$71,856$40,852SupplementaldisclosureofcashflowinformationCashpaidforinterest..........................................$—$—$60Cashpaidforincometaxes......................................$17,807$1,127$89Supplementaldisclosureofnoncashinvestingandfinancingactivities(inthousands)During2010,2009and2008,theCompanytransferred$3,637,$2,318and$893respectively,ofinventorytopropertyandequipment.SeeaccompanyingNotestoConsolidatedFinancialStatements51Form10-KiROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS1.NatureoftheBusinessiRobotCorporation(“iRobot”orthe“Company”)developsroboticsandartificialintelligencetechnologiesandappliesthesetechnologiesinproducingandmarketingrobots.ThemajorityoftheCompany’srevenueisgeneratedfromproductsalesandgovernmentandindustrialresearchanddevelopmentcontracts.TheCompanyissubjecttoriskscommontocompaniesinhigh-techindustriesincluding,butnotlimitedto,uncertaintyofprogressindevelopingtechnologies,newtechnologicalinnovations,dependenceonkeypersonnel,protectionofproprietarytechnology,compliancewithgovernmentregulations,uncertaintyofmarketacceptanceofproducts,theneedtoobtainfinancing,ifnecessary,globaleconomicconditionsandassociatedimpactonconsumerspending,andchangesinpoliciesandspendingprioritiesoftheU.S.federalgovernmentandothergovernmentagencies.2.SummaryofSignificantAccountingPoliciesBasisofPresentationTheaccompanyingconsolidatedfinancialstatementsincludethoseofiRobotanditssubsidiaries,aftereliminationofallintercompanyaccountsandtransactions.iRobothaspreparedtheaccompanyingconsolidatedfinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.UseofEstimatesThepreparationofthesefinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequirestheCompanytomakeestimatesandjudgmentsthataffectthereportedamountsofassets,liabilities,revenuesandexpenses,anddisclosureofcontingentassetsandliabilities.Onanongoingbasis,managementevaluatestheseestimatesandjudgments,includingthoserelatedtorevenuerecognition,salesreturns,baddebts,warrantyclaims,inventoryreserves,valuationofinvestments,assumptionsusedinvaluingstock-basedcompensationinstrumentsandincometaxes.TheCompanybasestheseestimatesonhistoricalandanticipatedresults,andtrendsandonvariousotherassumptionsthattheCompanybelievesarereasonableunderthecircumstances,includingassumptionsastofutureevents.Theseestimatesformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Bytheirnature,estimatesaresubjecttoaninherentdegreeofuncertainty.ActualresultsmaydifferfromtheCompany’sestimates.FiscalYear-EndTheCompanyoperatesandreportsusinga52-53weekfiscalyearendingontheSaturdayclosesttoDecember31.Accordingly,theCompany’sfiscalquarterswillendontheSaturdaythatfallsclosesttothelastdayofthethirdmonthofeachquarter.CashandCashEquivalentsTheCompanyconsidersallhighlyliquidinvestmentswithanoriginalorremainingmaturityofthreemonthsorlessatthetimeofpurchasetobecashequivalents.TheCompanyinvestsitsexcesscashprimarilyinmoneymarketfundsorsavingsaccountsofmajorfinancialinstitutions.Accordingly,itscashequivalentsaresubjecttominimalcreditandmarketrisk.AtJanuary1,2011andJanuary2,2010,cashequivalentswerecomprisedofmoneymarketandsavingsaccountfundstotaling$93.4millionand$63.1million,respectively.Thesecashequivalentsarecarriedatcost,whichapproximatesfairvalue.52ShortTermInvestmentsTheCompany’sinvestmentsareclassifiedasavailable-for-saleandarerecordedatfairvaluewithanyunrealizedgainorlossrecordedasanelementofstockholders’equity.Thefairvalueofinvestmentsisdeterminedbasedonquotedmarketpricesatthereportingdateforthoseinstruments.AsofJanuary1,2011andJanuary2,2010,investmentsconsistedof:CostFairMarketValueCostFairMarketValueJanuary1,2011January2,2010(Inthousands)Corporatebond..........................$11,465$11,424$—$—U.S.Governmentbond....................2,4982,5045,0004,959Totalshortterminvestments................$13,963$13,928$5,000$4,959AsofJanuary1,2011,theCompany’sinvestmentshadmaturitydatesrangingfromJune2010toAugust2013.RevenueRecognitionTheCompanyderivesitsrevenuefromproductsales,governmentresearchanddevelopmentcontracts,andcommercialresearchanddevelopmentcontracts.TheCompanysellsproductsdirectlytocustomersandindirectlythroughresellersanddistributors.TheCompanyrecognizesrevenuefromsalesofhomerobotsunderthetermsofthecustomeragreementupontransferoftitleandriskoflosstothecustomer,netofestimatedreturns,providedthatcollectionisdeterminedtobereasonablyassuredandnosignificantobligationsremain.Salestoresellersaretypicallysubjecttoagreementsallowingforlimitedrightsofreturnfordefectiveproductsonly,rebatesandpriceprotection.TheCompanyhastypicallynottakenproductreturnsexceptfordefectiveproducts.Accordingly,theCompanyreducesrevenueforitsestimatesofliabilitiesfortheserightsatthetimetherelatedsaleisrecorded.TheCompanymakesanestimateofsalesreturnsforproductssoldbyresellersdirectlybasedonhistoricalreturnsexperienceandotherrelevantdata.TheCompany’sinternationaldistributoragreementsdonotcurrentlyallowforproductreturnsand,asaresult,noreserveforreturnsisestablishedforthisgroupofcustomers.TheCompanyhasaggregatedandanalyzedhistoricalreturnsfromresellersandenduserswhichformthebasisofitsestimateoffuturesalesreturnsbyresellersorendusers.Whenarightofreturnexists,theprovisionfortheseestimatedreturnsisrecordedasareductionofrevenueatthetimethattherelatedrevenueisrecorded.Ifactualreturnsdiffersignificantlyfromitsestimates,suchdifferencescouldhaveamaterialimpactontheCompany’sresultsofoperationsfortheperiodinwhichthereturnsbecomeknown.Theestimatesforreturnsareadjustedperiodicallybaseduponhistoricalratesofreturns.Theestimatesandreserveforrebatesandpriceprotectionarebasedonspecificprograms,expectedusageandhistoricalexperience.Actualresultscoulddifferfromtheseestimates.Undercost-plus-fixed-fee(“CPFF”)typecontracts,theCompanyrecognizesrevenuebasedoncostsincurredplusaprorataportionofthetotalfixedfee.CostsincurredincludelaborandmaterialthataredirectlyassociatedwithindividualCPFFcontractsplusindirectoverheadandgeneralandadministrativetypecostsbaseduponbillingratessubmittedbytheCompanytotheDefenseContractManagementAgency(“DCMA”).Annually,theCompanysubmitsfinalindirectbillingratestoDCMAbaseduponactualcostsincurredthroughouttheyear.ThesefinalbillingratesaresubjecttoauditbytheDefenseContractAuditAgency(“DCAA”),whichcanoccurseveralyearsafterthefinalbillingratesaresubmittedandmayresultinmaterialadjustmentstorevenuerecognizedbasedonestimatedfinalbillingrates.AsofJanuary1,2011,fiscalyears2007,2008,2009and2010areopenforauditbyDCAA.InthesituationwheretheCompany’santicipatedactualbillingrateswillbelowerthantheprovisionalratescurrentlyineffect,theCompanyrecordsacumulativerevenueadjustmentintheperiodinwhichtheratedifferentialisidentified.Revenueonfirmfixedprice(“FFP”)contractsisrecognizedusingthepercentage-of-completionmethod.ForgovernmentproductFFPcontractsrevenueisrecognizedastheproductisshippedorinaccordancewiththecontractterms.Costsandestimatedgrossmarginsoncontractsarerecordedasrevenueasworkis53iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-Kperformedbasedonthepercentagethatincurredcostscomparetoestimatedtotalcostsutilizingthemostrecentestimatesofcostsandfunding.Changesinjobperformance,jobconditions,andestimatedprofitability,includingthosearisingfromfinalcontractsettlementsandgovernmentaudit,mayresultinrevisionstocostsandincomeandarerecognizedintheperiodinwhichtherevisionsaredetermined.Sincemanycontractsextendoveralongperiodoftime,revisionsincostandfundingestimatesduringtheprogressofworkhavetheeffectofadjustingearningsapplicabletopastperformanceinthecurrentperiod.Whenthecurrentcontractestimateindicatesaloss,aprovisionismadeforthetotalanticipatedlossinthecurrentperiod.Revenueearnedinexcessofbillings,ifany,isrecordedasunbilledrevenue.Billingsinexcessofrevenueearned,ifany,arerecordedasdeferredrevenue.AllowanceforDoubtfulAccountsTheCompanymaintainsanallowancefordoubtfulaccountstoprovidefortheestimatedamountofaccountsreceivablethatmaynotbecollected.Theallowanceisbaseduponanassessmentofcustomercreditworthiness,historicalpaymentexperienceandtheageofoutstandingreceivables.Activityrelatedtotheallowancefordoubtfulaccountswasasfollows:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Balanceatbeginningofperiod.......................$90$65$65Provision.......................................—321,005Deduction(*).....................................(2)(7)(1,005)Balanceatendofperiod............................$88$90$65(*)Deductionsrelatedtoallowancefordoubtfulaccountsrepresentamountswrittenoffagainsttheallowance,lessrecoveries.InventoryInventoryisstatedatthelowerofcostornetrealizablevaluewithcostbeingdeterminedusingthefirst-in,first-out(FIFO)method.TheCompanymaintainsareserveforinventoryitemstoprovideforanestimatedamountofexcessorobsoleteinventory.Activityrelatedtotheinventoryreservewasasfollows:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Balanceatbeginningofperiod.......................$3,713$2,770$441Provision.......................................6772,1172,622Deduction(*).....................................(1,554)(1,174)(293)Balanceatendofperiod............................$2,836$3,713$2,770(*)Deductionsrelatedtoinventoryreserveaccountsrepresentamountswrittenoffagainstthereserve.54iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)PropertyandEquipmentPropertyandequipmentarerecordedatcostandconsistprimarilyofcomputerequipment,businessappli-cationssoftwareandmachinery.Depreciationiscomputedusingthestraight-linemethodovertheestimatedusefullivesasfollows:EstimatedUsefulLifeComputerandresearchequipment......................................3yearsFurniture.........................................................5Machinery........................................................2-5Tooling..........................................................2-5Businessapplicationssoftware.........................................5Capitalleasesandleaseholdimprovements................................TermofleaseExpendituresforadditions,renewalsandbettermentsofplantandequipmentarecapitalized.Expendituresforrepairsandmaintenancearechargedtoexpenseasincurred.Asassetsareretiredorsold,therelatedcostandaccumulateddepreciationareremovedfromtheaccountsandanyresultinggainorlossiscreditedorchargedtooperations.Long-LivedAssets,includingPurchasedIntangibleAssetsTheCompanyperiodicallyevaluatestherecoverabilityoflong-livedassets,includingotherpurchasedintangibleassetswhenevereventsandchangesincircumstances,suchasreductionsindemandorsignificanteconomicslowdownsintheindustry,indicatethatthecarryingamountofanassetmaynotbefullyrecoverable.Whenindicatorsofimpairmentarepresent,thecarryingvaluesoftheassetgroupareevaluatedinrelationtothefutureundiscountedcashflowsoftheunderlyingbusiness.Thenetbookvalueoftheunderlyingassetisadjustedtofairvalueifthesumoftheexpecteddiscountedcashflowsislessthanbookvalue.Fairvaluesarebasedonestimatesofmarketpricesandassumptionsconcerningtheamountandtimingofestimatedfuturecashflowsandassumeddiscountrates,reflectingvaryingdegreesofperceivedrisk.Therewerenoimpairmentchargesrecordedduringanyoftheperiodspresented.GoodwillGoodwillisrecordedasthedifference,ifany,betweentheaggregateconsiderationpaidforanacquisitionandthefairvalueofthenettangibleandintangibleassetsacquired.TheCompanytestsgoodwillforimpairmentatthereportingunitlevel(operatingsegmentoronelevelbelowanoperatingsegment)annuallyormorefrequentlyiftheCompanybelievesindicatorsofimpairmentexist.Theperformanceofthetestinvolvesatwo-stepprocess.Thefirststepoftheimpairmenttestinvolvescomparingthefairvaluesoftheapplicablereportingunitswiththeiraggregatecarryingvalues,includinggoodwill.Ifthecarryingamountofareportingunitexceedsthereportingunit’sfairvalue,theCompanyperformsthesecondstepofthegoodwillimpairmenttesttodeterminetheamountofimpairmentloss.Thesecondstepofthegoodwillimpairmenttestinvolvescomparingtheimpliedfairvalueoftheaffectedreportingunit’sgoodwillwiththecarryingvalueofthatgoodwill.ResearchandDevelopmentCostsincurredintheresearchanddevelopmentoftheCompany’sproducts,classifiedascostofcontractandresearchanddevelopment,areexpensedasincurred.55iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KInternalUseSoftwareTheCompanycapitalizescostsassociatedwiththedevelopmentandimplementationofsoftwareobtainedforinternaluse.AtJanuary1,2011andJanuary2,2010,theCompanyhad$5.8millionand$4.9millionrespectively,ofcostsrelatedtoenterprise-widesoftwareincludedinfixedassets.Capitalizedcostsarebeingamortizedovertheassets’estimatedusefullives.TheCompanyhasrecorded$0.9million,$0.9millionand$0.8millionofamortizationexpensefortheyearsendedJanuary1,2011,January2,2010andDecember27,2008,respectively.ConcentrationofCreditRiskandSignificantCustomersTheCompanymaintainsitscashinbankdepositaccountsathighqualityfinancialinstitutions.Theindividualbalances,attimes,mayexceedfederallyinsuredlimits.AtJanuary1,2011andJanuary2,2010theCompanyexceededtheinsuredlimitby$125.4millionand$79.4million,respectively.FinancialinstrumentswhichpotentiallyexposetheCompanytoconcentrationsofcreditriskconsistofaccountsreceivable.Managementbelievesitscreditpoliciesareprudentandreflectnormalindustrytermsandbusinessrisk.AtJanuary1,2011andJanuary2,2010,6%and23%,respectively,oftheCompany’saccountsreceivablewereduefromthefederalgovernment.AtJanuary1,2011,twoadditionalcustomersaccountedfor22%and19%oftheCompany’saccountsreceivablebalance.Thecustomeraccountingfor22%oftheCompany’saccountsreceivablebalancesecuredtheirbalancewithguaranteedlettersofcredit.FortheyearsendedJanuary1,2011,January2,2010,andDecember27,2008,revenuefromU.S.federalgovernmentorders,contractsandsubcontracts,represented38.4%,36.9%and40.3%oftotalrevenue,respectively.ForthefiscalyearendedJanuary1,2011,wegenerated17.4%oftotalrevenuefromTheBoeingCompanyasasubcontractorunderU.S.federalgovernmentcontracts.ForeignCurrencyForwardContractsTheCompanyperiodicallyentersintoforeigncurrencyforwardcontractstosellforeigncurrenciesforUnitedStatesdollars.TheCompany’sobjectiveinenteringintothesecontractswastoreduceforeigncurrencyexposuretoappreciationordepreciationinthevalueofitsforeigncurrencybasedaccountsreceivablebalancesbypartiallyoffsettingaportionofsuchexposurewithgainsorlossesontheforwardcontracts.Theseforeigncurrencycontractsdidnotqualifyforhedgeaccounting.Accordingly,theforeigncurrencyforwardcontractsweremarked-to-marketandrecordedatfairvaluewithunrealizedgainsandlossesreportedalongwithforeigncurrencygainsorlossesinthecaption“otherincome(expense),net”ontheCompany’sconsolidatedstatementsofoperations.AsofJanuary1,2011,theCompanydidnothaveanyforeigncurrencyforwardcontracts.Stock-BasedCompensationTheCompanyaccountsforstock-basedcompensationthroughrecognitionofthefairvalueofthestock-basedcompensationasachargeagainstearnings.Stock-basedcompensationcostforstockoptionsisestimatedatthegrantdatebasedoneachoption’sfair-valueascalculatedbytheBlack-Scholesoption-pricingmodel.Stock-basedcompensationcostforrestrictedstockawardsandrestrictedstockunitsismeasuredbasedontheclosingfairmarketvalueoftheCompany’scommonstockonthedateofgrant.TheCompanyrecognizesstock-basedcompensationcostasexpenseratablyonastraight-linebasisovertherequisiteserviceperiod,netofestimatedforfeitures.AdvertisingExpenseTheCompanyexpensesadvertisingcostsastheyareincurred.DuringtheyearsendedJanuary1,2011,January2,2010andDecember27,2008advertisingexpensetotaled$13.8million,$7.0millionand$11.6million,respectively.56iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)NetIncomePerShareThefollowingtablepresentsthecalculationofbothbasicanddilutednetincomepershare:January1,2011January2,2010December27,2008FiscalYearEndedNetincome......................................$25,514$3,330$756Weightedaveragesharesoutstanding...................25,39424,99824,654Dilutiveeffectofemployeestockoptionsandrestrictedshares........................................1,074642879Dilutedweightedaveragesharesoutstanding.............26,46825,64025,533Basicincomepershare.............................$1.00$0.13$0.03Dilutedincomepershare............................$0.96$0.13$0.03Potentiallydilutedsecuritiesrepresentingapproximately1.0million,2.3millionand2.1millionsharesofcommonstockforthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,respectively,wereexcludedfromthecomputationofdilutedearningspersharefortheseperiodsbecausetheireffectwouldhavebeenantidilutive.IncomeTaxesEffectiveDecember31,2006,theCompanyadoptedtherelevantauthoritativeguidancewhichprescribesarecognitionthresholdandmeasurementattributeforthefinancialstatementrecognitionandmeasurementofataxpositiontakenorexpectedtobetakeninataxreturn.TheimpactofadoptionontheCompany’sopeningbalanceofretainedearningswaszero.Asofthebeginningoffiscalyear2010,theCompanyhadnomaterialunrecognizedtaxbenefitsandnomaterialunrecognizedtaxbenefitswererecordedinthefiscalyearendedJanuary1,2011.TheCompanyrecognizesinterestandpenaltiesrelatedtounrecognizedtaxbenefitsinitstaxprovisionandtherewerenoaccruedinterestorpenaltiesasofJanuary1,2011,January2,2010orDecember27,2008.TheCompanyissubjecttotaxationintheUnitedStatesandvariousstatesandforeignjurisdictions.ThestatuteoflimitationsforassessmentbytheIRSandstatetaxauthoritiesisclosedforfiscalyearspriortoDecember31,2007,althoughcarryforwardattributesthatweregeneratedpriortofiscalyear2007maystillbeadjusteduponexaminationbytheIRSorstatetaxauthoritiesiftheyeitherhavebeenorwillbeusedinafutureperiod.Therearecurrentlynofederalorstateauditsinprogress.Deferredtaxesaredeterminedbasedonthedifferencebetweenthefinancialstatementandtaxbasisofassetsandliabilitiesusingenactedtaxratesineffectintheyearsinwhichthedifferencesareexpectedtoreverse.Valuationallowancesareprovidedifbasedupontheweightofavailableevidence,itismorelikelythannotthatsomeorallofthedeferredtaxassetswillnotberealized.TheCompanymonitorstherealizationofitsdeferredtaxassetsbasedonchangesincircumstances,forexamplerecurringperiodsofincomefortaxpurposesfollowinghistoricalperiodsofcumulativelossesorchangesintaxlawsorregulations.TheCompany’sincometaxprovisionsanditsassessmentoftheabilitytorealizeitsdeferredtaxassetsinvolvesignificantjudgmentsandestimates.Infiscal2007,theCompanycompletedananalysisofhistoricalandprojectedfutureprofitabilitywhichresultedinthefullreleaseofthevaluationallowancerelatingtofederaldeferredtaxassets.Infiscal2010,basedonrecentandexpectedincreasedfutureprofitability,theCompanyreleaseditsvaluationallowancerelatingtostatedeferredtaxassets.AtJanuary1,2011,theCompanyhastotaldeferredtaxassetsof$21.2millionwithnovaluationallowance.57iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KComprehensiveIncomeAccumulatedothercomprehensiveincomeincludesunrealizedgainsandlossesoncertaininvestments.Thedifferencesbetweennetincomeandcomprehensiveincomewererelatedtounrealizedgains(losses)oninvest-ments,netoftax.FairValueMeasurementsTheCompanyhasadoptedtheauthoritativeguidanceforfairvaluemeasurementasofDecember30,2007,forfinancialinstruments.Althoughtheadoptionofthisguidancedidnotmateriallyimpactitsfinancialcondition,resultsofoperations,orcashflow,theCompanyisnowrequiredtoprovideadditionaldisclosuresaspartofitsfinancialstatements.TheCompanyhasadoptedtheauthoritativeguidanceforfairvaluemeasurementasofDecember28,2008fornonfinancialassetsandnonfinancialliabilities.ThisadoptiondidnotimpacttheCompany’sconsolidatedfinancialstatements.Theauthoritativeguidanceforfairvalueestablishesathree-tierfairvaluehierarchy,whichprioritizestheinputsusedinmeasuringfairvalue.Thesetiersinclude:Level1,definedasobservableinputssuchasquotedpricesinactivemarkets;Level2,definedasinputsotherthanquotedpricesinactivemarketsthatareeitherdirectlyorindirectlyobservable;andLevel3,definedasunobservableinputsinwhichlittleornomarketdataexists,thereforerequiringanentitytodevelopitsownassumptions.TheCompany’sassetsmeasuredatfairvalueonarecurringbasisatJanuary1,2011,wereasfollows:DescriptionLevel1Level2Level3FairValueMeasurementsasofJanuary1,2011(Inthousands)Assets:MoneyMarketFunds...................................$5,090$—$—U.S.Governmentbonds.................................2,504Corporatebonds.......................................—11,424—Totalassetsmeasuredatfairvalue.........................$5,090$13,928$—ThebondinvestmentsarevaluedbasedonobservablemarketvaluesasoftheCompany’sreportingdateandareincludedinLevel2.Thebondinvestmentsarerecordedatfairvalueandmarked-to-marketattheendofeachreportingperiodandrealizedandunrealizedgainsandlossesareincludedincomprehensiveincomeforthatperiod.ThefairvalueoftheCompany’sbondinvestmentsareincludedinshortterminvestmentsinitsconsolidatedbalancesheet.TheCompany’sassetsmeasuredatfairvalueonarecurringbasisatJanuary2,2010,wereasfollows:DescriptionLevel1Level2Level3FairValueMeasurementsasofJanuary2,2010(Inthousands)Assets:MoneyMarketFunds...................................$20,077$—$—InvestmentinU.S.Governmentbonds.......................—4,959—Totalassetsmeasuredatfairvalue.........................$20,0774,959$—58iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)ThebondinvestmentisvaluedbasedonobservablemarketvaluesasoftheCompany’sreportingdateandisincludedinLevel2.Thebondinvestmentisrecordedatfairvalueandmarked-to-marketattheendofeachreportingperiodandrealizedandunrealizedgainsandlossesareincludedincomprehensiveincomeforthatperiod.ThefairvalueoftheCompany’sbondinvestmentisincludedinshortterminvestmentsinitsconsolidatedbalancesheet.RecentAccountingPronouncementsInJune2009,theFinancialAccountingStandardsBoard(“FASB”)issuedanamendmenttotheaccountinganddisclosurerequirementsfortheconsolidationofvariableinterestentities(“VIEs”).TheeliminationoftheconceptofaQualifyingSpecialPurposeEntity,removestheexceptionfromapplyingtheconsolidationguidancewithinthisamendment.ThisamendmentrequiresanenterprisetoperformaqualitativeanalysiswhendeterminingwhetherornotitmustconsolidateaVIEandrequiresanenterprisetocontinuouslyreassesswhetheritmustconsolidateaVIE.Additionally,thisamendmentrequiresenhanceddisclosuresaboutanenterprise’sinvolvementwithVIEsandanysignificantchangeinriskexposureduetothatinvolvement,aswellashowitsinvolvementwithVIEsimpactstheenterprise’sfinancialstatements.Finally,anenterprisewillberequiredtodisclosesignificantjudgmentsandassumptionsusedtodeterminewhetherornottoconsolidateaVIE.ThisamendmentiseffectiveforfinancialstatementsissuedforfiscalyearsbeginningafterNovember15,2009.TheimplementationofthisamendmentdidnotimpacttheCompany’sconsolidatedfinancialstatements.InJanuary2010,FASBupdatedthedisclosurerequirementsforfairvaluemeasurements.TheupdatedguidancerequirescompaniestodiscloseseparatelytheinvestmentsthattransferinandoutofLevels1and2andthereasonsforthosetransfers.Additionally,inthereconciliationforfairvaluemeasurementsusingsignificantunobservableinputs(Level3),companiesshouldpresentseparatelyinformationaboutpurchases,sales,issuancesandsettlements.TheCompanyadoptedtheupdatedguidanceatthebeginningoffiscal2010,exceptforthedisclosuresaboutpurchases,sales,issuancesandsettlementsintheLevel3reconciliation,whichareeffectiveforfiscalyearsbeginningafterDecember15,2010.TheCompanywilladopttheremainingguidanceatthebeginningoffiscal2011.TheadoptionoftherequiredguidancedidnothaveanimpactontheCompany’sfinancialposition,resultsofoperations,ordisclosures.TheCompanydoesnotexpectthattheadoptionoftheremainingguidancewillhaveanimpactonitsfinancialposition,resultsofoperations,ordisclosures.Fromtimetotime,newaccountingpronouncementsareissuedbyFASBthatareadoptedbytheCompanyasofthespecifiedeffectivedate.Unlessotherwisediscussed,theCompanybelievesthattheimpactofrecentlyissuedstandards,whicharenotyeteffective,willnothaveamaterialimpactontheCompany’sconsolidatedfinancialstatementsuponadoption.3.InventoryInventoryconsistsofthefollowingat:January1,2011January2,2010(Inthousands)Rawmaterials...............................................$6,723$3,735Workinprocess..............................................27687Finishedgoods..............................................20,41027,984$27,160$32,40659iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-K4.PropertyandEquipmentPropertyandequipmentconsistsofthefollowingat:January1,2011January2,2010(Inthousands)Computerandequipment.......................................$16,852$12,789Furniture...................................................2,4841,656Machinery..................................................1,9811,517Tooling....................................................5,2133,723Leaseholdimprovements.......................................13,53212,579Softwarepurchasedforinternaluse...............................5,7714,85845,83337,122Less:accumulateddepreciation..................................20,21316,892$25,620$20,230DepreciationexpensefortheyearsendedJanuary1,2011,January2,2010andDecember27,2008was$7.0million,$7.5million,and$6.9million,respectively.5.OtherAssetsOtherassetsconsistsofthefollowingat:January1,2011January2,2010(Inthousands)Goodwillandintangibleassets,net................................$11,280$11,754InvestmentinAdvancedScientificConcepts,Inc.....................2,5002,500$13,780$14,254GoodwillandIntangibleassetsaretheresultoftheacquisitionofNektonResearch,LLC(“Nekton”),SeeNotes13and14totheConsolidatedFinancialStatementsforamoredetaileddiscussionoftheGoodwillandintangibleassets,net.InNovember2007,theCompanyrecordedaninvestmentof$2.5millioninaseriesofpreferredstockofAdvancedScientificConcepts,Inc.Thisinvestmentisaccountedforatcost.TheCompanyregularlymonitorsthisinvestmenttodetermineiffactsandcircumstanceshavechangedinamannerthatwouldrequireachangeinaccountingmethodology.Additionally,theCompanyregularlyevaluateswhetherornotthisinvestmenthasbeenimpairedbyconsideringsuchfactorsaseconomicenvironment,marketconditions,operationalperformanceandotherspecificfactorsrelatingtothebusinessunderlyingtheinvestment.Ifanysuchimpairmentisidentified,areductioninthecarryingvalueoftheinvestmentwouldberecordedatthattime.60iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)6.AccruedExpensesAccruedexpensesconsistofthefollowingat:January1,2011January2,2010(Inthousands)Accruedwarranty............................................$9,284$6,105Accrueddirectfulfillmentcosts..................................2,4051,836Accruedrent................................................592532Accruedsalescommissions.....................................432472Accruedaccountingfees.......................................439401Accruedincometaxes.........................................—2,177Accruedother...............................................2,6382,861$15,790$14,3847.RevolvingLineofCreditTheCompanyhasanunsecuredrevolvingcreditfacilitywithBankofAmerica,N.A.,whichisavailabletofundworkingcapitalandothercorporatepurposes.Theamountavailableforborrowingunderitscreditfacilityis$40.0million.AsofJanuary1,2011,$38.1millionwasavailableforborrowing.Theinterestonloansunderthecreditfacilitywillaccrue,attheCompany’selection,ateither(i)thegreateroftheBBALIBORDailyFloatingRateorthePrimeRateofLenderplusfifty(50)basispoints,or(ii)theLIBORrateplus2.00%.ThecreditfacilitywillterminateandallamountsoutstandingthereunderwillbedueandpayableinfullonJune5,2012.AsofJanuary1,2011,theCompanyhadlettersofcreditoutstandingof$1.9millionunderitsworkingcapitallineofcredit.Thiscreditfacilitycontainscustomarytermsandconditionsforcreditfacilitiesofthistype,includingrestrictionsontheCompany’sabilitytoincurorguarantyadditionalindebtedness,createliens,enterintotransactionswithaffiliates,makeloansorinvestments,sellassets,paydividendsormakedistributionson,orrepurchase,theCompany’sstock,andconsolidateormergewithotherentities.Inaddition,theCompanyisrequiredtomeetcertainfinancialcovenantscustomarywiththistypeofagreement,includingmaintainingaminimumspecifiedtangiblenetworth,aminimumspecifiedadjustedEBITDA,andminimumspecifiedinterestcoverageratio.Thiscreditfacilitycontainscustomaryeventsofdefault,includingforpaymentdefaults,breachesofrepresentations,breachesofaffirmativeornegativecovenants,crossdefaultstoothermaterialindebtedness,bankruptcyandfailuretodischargecertainjudgments.Ifadefaultoccursandisnotcuredwithinanyapplicablecureperiodorisnotwaived,theCompany’sobligationsunderthecreditfacilitymaybeaccelerated.AsofJanuary1,2011,theCompanywasincompliancewithallcovenantsunderitscreditfacility.8.CommonStockCommonstockholdersareentitledtoonevoteforeachshareheldandtoreceivedividendsifandwhendeclaredbytheBoardofDirectorsandsubjecttoandqualifiedbytherightsofholdersofthepreferredstock.UpondissolutionorliquidationoftheCompany,holdersofcommonstockwillbeentitledtoreceiveallavailableassetssubjecttoanypreferentialrightsofanythenoutstandingpreferredstock.9.StockOptionPlansandStock-BasedCompensationTheCompanyhasoptionsoutstandingunderthreestockincentiveplans:the1994StockOptionPlan(the“1994Plan”),the2004StockOptionandIncentivePlan(the“2004Plan”)andthe2005StockOptionandIncentive61iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KPlan(the“2005Plan”andtogetherwiththe1994Planandthe2004Plan,the“Plans”).The2005Planistheonlyoneofthethreeplansunderwhichnewawardsmaycurrentlybegranted.Underthe2005Plan,whichbecameeffectiveOctober10,2005,1,583,682shareswereinitiallyreservedforissuanceintheformofincentivestockoptions,non-qualifiedstockoptions,stockappreciationrights,deferredstockawardsandrestrictedstockawards.Additionally,the2005PlanprovidesthatthenumberofsharesreservedandavailableforissuanceundertheplanwillautomaticallyincreaseeachJanuary1,beginningin2007,by4.5%oftheoutstandingnumberofsharesofcommonstockontheimmediatelyprecedingDecember31.StockoptionsreturnedtothePlansasaresultoftheirexpiration,cancellationorterminationareautomaticallymadeavailableforissuanceunderthe2005Plan.EligibilityforincentivestockoptionsislimitedtothoseindividualswhoseemploymentstatuswouldqualifythemforthetaxtreatmentassociatedwithincentivestockoptionsinaccordancewiththeInternalRevenueCodeof1986,asamended.AsofJanuary1,2011,therewere3,008,963sharesavailableforfuturegrantunderthe2005Plan.OptionsgrantedunderthePlansaresubjecttotermsandconditionsasdeterminedbythecompensationcommitteeoftheboardofdirectors,includingvestingperiods.OptionsgrantedunderthePlansareexercisableinfullatanytimesubsequenttovesting,generallyvestoverperiodsfromzerotofiveyears,andexpiresevenortenyearsfromthedateofgrantor,ifearlier,60or90daysfromemployeetermination.TheexercisepriceofincentivestockoptionsisequaltotheclosingpriceontheNASDAQGlobalMarketonthedateofgrant.Theexercisepriceofnonstatutoryoptionsmaybesetatapriceotherthanthefairmarketvalueofthecommonstock.Inconnectionwiththeinitialpublicoffering,theCompanyretrospectivelyreassessedthefairvalueofitscommonstockforoptionsgrantedduringtheperiodfromJuly1,2004toNovember8,2005.Asaresultofthisreassessment,theCompanydeterminedthattheestimatedfairmarketvalueusedingrantingoptionsfortheperiodfromJuly1,2004toDecember31,2004wasreasonableandappropriate.Accordingly,nodeferredcompensationwasrecordedforthesegrants.FortheperiodfromJanuary1,2005throughNovember8,2005,theCompanydeterminedthattheestimatedfairvalueofitscommonstockincreasedfrom$4.60to$21.60duetoanumberoffactorssuchas,amongotherthings,thelikelihoodofaninitialpublicoffering,itsimprovingoperatingresultsandtheachievementofothercorporatemilestonesin2005.Baseduponthisdetermination,theCompanyrecordeddeferredcompensationofapproximately$3.4millioninthetwelvemonthsendedDecember31,2005relatingtostockoptionswithexercisepricesbelowtheretrospectivelyreassessedfairmarketvalueonthedateofgrant.TheCompanyrecognizedassociatedstock-basedcompensationexpenseof$0.1million,$0.2millionand$0.3millionforthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,respectively.TheCompanyrecognized$6.4millionofstock-basedcompensationexpenseduringthefiscalyearendedJanuary1,2011forstockoptionsgrantedsubsequenttotheCompany’sinitialfilingofitsFormS-1withtheSEC.TheunamortizedfairvalueasofJanuary1,2011associatedwiththesegrantswas$12.0millionwithaweightedaverageremainingrecognitionperiodof2.65years.OnMay29,2009,theCompanycompletedaone-timestockoptionexchangeprogramasapprovedbyitsstockholdersonMay28,2009.Inaccordancewiththetermsandconditionsofthestockoptionexchangeprogram,theCompanyissuednewoptionstopurchaseanaggregateof310,607sharesoftheCompany’scommonstockinexchangeforthecancellationofoptionstopurchaseanaggregateof678,850oftheCompany’scommonstock.Theexchangeratiosweredesignedtoresultinthefairvalue,foraccountingpurposes,ofthenewoptionsbeingapproximatelyequaltothefairvalueoftheexchangedeligibleoptionstoensuretheCompanyminimizedanyadditionalcompensationexpenseinconnectionwiththestockoptionexchangeprogram.TheCompanyincurrednoadditionalcompensationexpenseinconnectionwiththeprogram.ThefairvalueofeachoptiongrantforthefiscalyearsendedJanuary1,2011,January2,2010(excludingthenewoptionsissuedinconjunctionwiththestockoptionexchangeprogramdescribedintheprecedingparagraphfor62iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)whichnoincrementalcompensationexpensewasrealized)andDecember27,2008wascomputedonthegrantdateusingtheBlack-Scholesoption-pricingmodelwiththefollowingassumptions:FiscalYearEndedJanuary1,2011FiscalYearEndedJanuary2,2010FiscalYearEndedDecember27,2008Risk-freeinterestrate...........1.27%—2.28%1.45%—2.50%2.24%—3.45%Expecteddividendyield.........———Expectedlife.................4.00—4.75years3.50—4.75years3.50—4.75yearsExpectedvolatility.............57.0%—62.0%55.0%—56.5%55.0%Therisk-freeinterestrateisderivedfromtheaverageU.S.Treasuryconstantmaturityrate,whichapprox-imatestherateineffectatthetimeofgrant,commensuratewiththeexpectedlifeoftheinstrument.ThedividendyieldiszerobaseduponthefacttheCompanyhasneverpaidandhasnopresentintentiontopaycashdividends.Theexpectedtermcalculationisbaseduponthesimplifiedmethodprovidedundertherelevantauthoritativeguidance,theexpectedtermisdevelopedbyaveragingthecontractualtermofthestockoptiongrants(7or10years)withtheassociatedvestingterm(typically4to5years).GiventheCompany’sinitialpublicofferinginNovember2005andtheresultingshorthistoryasapubliccompany,theCompanycouldnotrelysolelyoncompanyspecifichistoricaldataforpurposesofestablishingexpectedvolatility.Consequently,priorto2010,theCompanyperformedananalysisthatincludedcompanyspecifichistoricaldatacombinedwithdataofseveralpeercompanieswithsimilarexpectedoptionlivestodevelopexpectedvolatilityassumptions.During2010,theCompanybegantorelysolelyoncompanyspecifichistoricaldataforpurposesofestablishingexpectedvolatility.Basedupontheaboveassumptions,theweightedaveragefairvalueofeachstockoptiongrantedforthefiscalyearsendedJanuary1,2011,January2,2010(excludingthenewoptionsissuedinconjunctionwiththestockoptionexchangeprogramforwhichnoincrementalcompensationexpensewasrealized)andDecember27,2008was$8.24,$4.91and$7.12,respectively.63iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KThetablebelowsummarizesstockoptionplanactivity:NumberofSharesWeightedAverageExercisePriceWeightedAverageRemainingContractualTermAggregateIntrinsicValue(1)OutstandingatDecember29,2007....................3,246,088$12.29Granted....................1,007,66014.58Exercised..................(289,970)3.49Canceled...................(439,847)15.71OutstandingatDecember27,2008....................3,523,931$13.24Granted....................941,40611.09Exercised..................(243,791)3.02Canceled...................(824,918)19.89OutstandingatJanuary2,2010..3,396,628$11.77Granted....................1,058,32316.65Exercised..................(667,348)9.87Canceled...................(130,568)15.21OutstandingatJanuary1,2011..3,657,035$13.404.86years$42.0millionVestedandexpectedtovestatJanuary1,2011............3,476,378$13.304.80years$40.3millionExercisableasofJanuary1,2011....................1,897,121$12.044.0years$24.4millionWeightedaveragefairvalueofoptionsgrantedduringthefiscalyearendedJanuary1,2011....................$8.24OptionsavailableforfuturegrantatJanuary1,2011..........3,008,963(1)TheaggregateintrinsicvalueonthetablewascalculatedbaseduponthepositivedifferencebetweentheclosingmarketvalueoftheCompany’sstockonJanuary1,2011of$24.88andtheexercisepriceoftheunderlyingoption.Duringfiscalyears2010,2009,and2008,thetotalintrinsicvalueofstockoptionsexercisedwas$7.5million,$2.0millionand$3.2million,respectively.Noamountsrelatingtostock-basedcompensationhavebeencapitalized.64iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)ThefollowingtablesummarizesinformationaboutstockoptionsoutstandingatJanuary1,2011:RangeofExercisePricesNumberOutstandingOptionsOutstandingWeightedAverageRemainingContractualLifeWeightedAverageExercisePriceNumberExercisableWeightedAverageExercisePriceOptionsExercisable$0.55-$4.60......365,9143.30years$2.64365,914$2.644.96-7.76......431,7024.576.10332,1845.618.10-12.50......392,6754.3811.06132,38111.9212.82-14.05......507,7154.8813.62320,51613.7414.09-14.13......145,7604.5414.1069,56914.1014.52-14.52......637,6006.2514.52—0.0014.54-17.13......371,1993.5516.14315,74716.1017.40-18.74......382,3745.9218.2172,07518.3919.85-24.53......401,3815.2523.22268,02022.7124.88-27.80......20,7152.0526.9620,71526.96$0.55-$27.80......3,657,0354.86years$13.401,897,121$12.04Thetablebelowsummarizesactivityrelatingtorestrictedstockawards:NumberofSharesUnderlyingRestrictedStockWeightedAverageGrantDateFairValueOutstandingatDecember29,2007......................45,784$10.11Granted..........................................——Vested...........................................(29,038)6.69Forfeited.........................................——OutstandingatDecember27,2008......................16,746$16.03Granted..........................................——Vested...........................................(5,582)16.03Forfeited.........................................——OutstandingatJanuary2,2010.........................11,164$16.03Granted..........................................——Vested...........................................(5,582)16.03Forfeited.........................................——OutstandingatJanuary1,2011.........................5,582$16.03DuringthefiscalyearendedJanuary1,2011,theCompanyrecognized$0.1millionofstockbasedcompensationexpenseassociatedwithrestrictedstockawards.AsofJanuary1,2011,theunamortizedfairvalueofallrestrictedstockawardswas$0.1millionwhichtheCompanyexpectstorecognizeasstock-basedcompen-sationexpensein2011.65iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KThetablebelowsummarizesactivityrelatingtorestrictedstockunits:NumberofSharesUnderlyingRestrictedStockWeightedAverageGrantDateFairValueOutstandingatDecember29,2007......................24,447$19.05Granted..........................................168,54715.40Vested...........................................(22,929)17.64Forfeited.........................................(1,349)18.02OutstandingatDecember27,2008......................168,716$15.60Granted..........................................183,1399.94Vested...........................................(46,162)15.09Forfeited.........................................(4,469)16.23OutstandingatJanuary2,2010.........................301,224$12.23Granted..........................................382,56416.84Vested...........................................(98,015)13.18Forfeited.........................................(15,696)13.17OutstandingatJanuary1,2011.........................570,077$15.14DuringthefiscalyearendedJanuary1,2011,theCompanyrecognized$1.7millionofstockbasedcompensationexpenseassociatedwithrestrictedstockunits.AsofJanuary1,2011,theunamortizedfairvalueofallrestrictedstockunitswas$7.6million.TheCompanyexpectstorecognizeassociatedstock-basedcom-pensationexpenseof$2.3million,$2.2million,$1.9millionand$1.2millionin2011,2012,2013and2014,respectively.Thefollowingincludessignificantactivitythatisincludedinthestockoptionactivityandrestrictedstockactivitytablesabove:OnDecember30,2010,inconnectionwithhisemployment,theCompanygrantedaseniorvicepresidentofhumanresourcesastockoptionexercisablefor100,000sharesoftheCompany’scommonstockand35,000restrictedstockunits.OnDecember30,2010,inconnectionwiththecommencementoftheiremployment,theCompanygrantedthreeemployeesstockoptionsexercisableforanaggregateof21,000sharesoftheCompany’scommonstockand10,500restrictedstockunits.Eachoftheabovestockoptionshaveapershareexercisepriceof$24.53,theclosingpriceoftheCompany’scommonstockonNASDAQonDecember30,2010.Thestockoptionswillvest25%onthefirstanniversaryofthegrantdateandquarterlythereafteroverthefollowingthreeyears.Therestrictedstockunitswillvest25%oneachanniversaryofthegrantdate.OnOctober1,2010,inconnectionwiththecommencementoftheiremployment,theCompanygrantedthreeemployeesstockoptionsexercisableforanaggregateof100,000sharesoftheCompany’scommonstockand28,000restrictedstockunits.Additionally,onOctober1,2010,theCompanygrantedtocertainemployeesanannualmeritgranttotaling40,420restrictedstockunits.Also,onOctober1,2010inconnectionwiththeirpromotions,theCompanygrantedthreeemployees,includingexecutiveofficers,stockoptionsexercisableforanaggregateof38,073sharesoftheCompany’scommonstockand10,344restrictedstockunits.Eachoftheabovestockoptionshaveapershareexercisepriceof$18.61,theclosingpriceoftheCompany’scommonstockonNASDAQonOctober1,2010.Thestockoptionswillvest25%onthefirstanniversaryofthegrantdateandquarterlythereafteroverthefollowingthreeyears.Therestrictedstockunitswillvest25%oneachanniversaryofthegrantdate.OnJuly2,2010,theCompanygrantedeachofitsninenon-employeeboardmembersastockoptionexercisablefor10,000sharesoftheCompany’scommonstockwithanexercisepricepershareof$17.70,theper66iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)shareclosingpriceoftheCompany’scommonstockonNASDAQonJuly2,2010.Thesestockoptionswillvest100%onthefirstanniversaryofthegrantdate.OnApril2,2010,inconnectionwiththeappointmentofanewmembertoitsboardofdirectors,theCompanygrantedastockoptionexercisablefor40,000sharesoftheCompany’scommonstock.OnApril2,2010,inconnectionwithhisemployment,theCompanygrantedaseniorvicepresidentofproductdevelopmentastockoptionexercisablefor80,000sharesoftheCompany’scommonstockand20,000restrictedstockunits.Addi-tionally,onApril2,2010,theCompanygrantedtocertainemployees,includingexecutiveofficers,anannualmeritgrantofstockoptionstotaling520,750sharesoftheCompany’scommonstockand185,650restrictedstockunits.Eachoftheabovestockoptionshaveapershareexercisepriceof$14.52,theclosingpriceoftheCompany’scommonstockonNASDAQonApril2,2010.Thestockoptionswillvest25%onthefirstanniversaryofthegrantdateandquarterlyoverthefollowingthreeyears,andtherestrictedstockunitswillvest25%oneachanniversaryofthegrantdate.10.IncomeTaxesThecomponentsofincometaxexpensewereasfollows:201020092008(Inthousands)CurrentFederal..........................................$14,353$5,019$2,137State............................................1,685369231Foreign..........................................1124210Totalcurrenttaxprovision..........................16,1505,4302,378DeferredFederal............................................(4,196)(3,404)(2,009)State..............................................(3,494)——Totaldeferredtaxprovision.........................(7,690)(3,404)(2,009)Totalincometaxprovision..........................$8,460$2,026$369Noprovisionhasbeenmadefordeferredtaxesonundistributedearningsofnon-U.S.subsidiariesastheseearningshavebeenindefinitelyreinvested.Determinationoftheamountofunrecognizeddeferredtaxliabilityontheseundistributedearningsisnotpracticable.AsofJanuary1,2011,adeferredtaxliabilityhasnotbeenestablishedforapproximately$1.0millionofcumulativeundistributedearningsofnon-U.S.subsidiaries,astheCompanyplanstokeeptheseamountpermanentlyreinvestedoverseas.DuringthequarterendingJanuary2,2010,theCompanyrecordedanout-of-periodadjustmentintheincometaxprovisionof$0.2milliontocorrectanerrorwithrespecttotheearningsoftheCompany’sIndiasubsidiary.TheCompanybelievesthatthisadjustmentdidnothaveamaterialimpacttoitsfullyear2009results.Inaddition,managementdoesnotbelievetheadjustmentismaterialtotheamountsreportedbytheCompanyinpreviousperiods.67iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-KThecomponentsofnetdeferredtaxassetsareasfollowsatJanuary1,2011andJanuary2,2010:20102009(Inthousands)NetdeferredtaxassetsCurrentnetdeferredtaxassetsReservesandaccruals.........................................$12,917$9,922Valuationallowance..........................................—(1,253)Totalcurrentnetdeferredtaxassets.............................12,9178,669Non-currentnetdeferredtaxassetsCapitallosscarryforwards......................................—99Taxcredits.................................................1,6981,450Fixedassets................................................7251,398Stockbasedcompensation......................................5,9155,757Valuationallowance..........................................—(2,615)Totalnon-currentnetdeferredtaxassets..........................8,3386,089Totalnetdeferredtaxassets...................................$21,255$14,758Infiscal2010,basedonrecentandexpectedincreasedfutureprofitability,theCompanyreleaseditsvaluationallowancerelatingtostatedeferredtaxassets.Thetablebelowsummarizesactivityrelatingtothevaluationallowance:FiscalYearEndedBalanceatbeginningofperiodAdditionsChargedtoCostsandExpensesDeductionsBalanceatEndofPeriod(Inthousands)December27,2008.....................$2,680$772$3,452January2,2010........................3,4524163,868January1,2011........................$3,868—$3,868—ThenetdeferredtaxassetsasofJanuary1,2011andJanuary2,2010were$21.3millionand$14.8million,respectively.AsofJanuary1,2011,theCompanyhasresearchanddevelopmentcreditscarryforwardsavailabletooffsetfuturestatetaxesof$2.7millionandinvestmenttaxcreditcarryforwardstooffsetfuturestatetaxesof$0.4million,whichexpireatvariousdatesfrom2016to2025.AsofJanuary2,2010,theCompanyhadresearchanddevelopmentcreditscarryforwardstooffsetfuturefederalandstatetaxesof$0.7millionand$2.2millionrespectively,andinvestmenttaxcreditcarryforwardstooffsetfuturestatetaxesof$0.6million,whichexpireatvariousdatesfrom2012to2024.UndertheInternalRevenueCode,certainsubstantialchangesintheCompany’sownershipcouldresultinanannuallimitationontheamountofthesetaxcarryforwardswhichcanbeutilizedinfutureyears.68iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Thereconciliationoftheexpectedtax(benefit)expense(computedbyapplyingthefederalstatutoryratetoincomebeforeincometaxes)toactualtaxexpensewasasfollows:201020092008(Inthousands)Expectedfederalincometax..............................................$11,891$1,991$382Miscellaneouspermanentitems.............................................164125127Statetaxes..........................................................1,54594(690)Credits............................................................(997)(367)(494)Nondeductiblestockcompensation..........................................—259189Conversionofincentivestockoptions(1).......................................—(346)—Other.............................................................(275)11116Increase(decrease)invaluationallowance.....................................(3,868)159839$8,460$2,026$369(1)TheCompanyrecordedadiscretebenefitfromtheconversionofincentivestockoptionstonon-qualifiedstockoptionsasaresultofitsstockoptionexchangeprogramwhichconcludedinthesecondfiscalquarterof2009.AtJanuary1,2011,theCompanyhadnomaterialunrecognizedtaxbenefits.Additionally,therewerenoaccruedinterestorpenaltiesasofJanuary1,2011,January2,2010orDecember27,2008.Wefollowthewithandwithoutapproachfordirectandindirecteffectsofthewindfalltaxdeductions.11.CommitmentsandContingenciesLegalOnAugust17,2007,theCompanyfiledalawsuitinMassachusettsSuperiorCourtagainstRoboticFX,Inc.andJameelAhedalleging,amongotherthings,misappropriationoftradesecretsandbreachofcontract,andseekingbothinjunctiveandmonetaryrelief.ThecasewassubsequentlyremovedtotheUnitedStatesDistrictCourtfortheDistrictofMassachusetts.OnNovember2,2007,thecourtissuedapreliminaryinjunction,andonDecember21,2007issuedapermanentinjunction,againstRoboticFX,Inc.andMr.AhedpreventingthesaleofproductsusingcertainoftheCompany’stradesecrets,includingtheRoboticFXNegotiatorproduct.Inaddition,onAugust17,2007,theCompanyfiledalawsuitintheUnitedStatesDistrictCourtfortheNorthernDistrictofAlabamaagainstRoboticFX,Inc.allegingwillfulinfringementoftwopatentsownedbytheCompany,andseekingbothinjunctiveandmonetaryrelief.OnDecember21,2007,thecourtenteredajudgmentthatRoboticFX,Inc.knowinglyinfringedonbothassertedpatents.Inarelatedsettlement,RoboticFX,Inc.wasdissolvedandcertainresidualassetswereretainedbytheCompanyatitselection.Mr.Ahedisprohibitedfromparticipatingincompetitiveactivitiesintheroboticsindustryforfiveyears.Thecumulativelitigationandsettlement-relatedexpendituresassociatedwiththisdisputeareexpectedtototalapproximately$3.0million,includinganobligationtomakecashpaymentsupto$0.4millionthrough2012,contingentuponMr.AhedandRoboticFX,Inc.continuingtomeetobligationspursuanttovariousagreements,includingbutnotlimitedtocertainnon-competitionprovisions.TheCompanypaid$0.1milliontoMr.AhedduringthefiscalyearendedJanuary1,2011.Thesecontingentpaymentswillcontinuetobeexpensed,whenandifearned.LeaseObligationsTheCompanyleasesitsfacilities.Rentalexpenseunderoperatingleasesforfiscal2010,2009and2008amountedto$3.7million,$3.9million,and$3.8million,respectively.TheCompanyrecorded$0.7millionofexpenseinthefiscalyearendedDecember27,2008forremainingleasecommitments,netofestimatedsublease69iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-Kincome,atitsformercorporateheadquartersinBurlington,MA.FutureminimumrentalpaymentsunderoperatingleaseswereasfollowsasofJanuary1,2011:OperatingLeases2011................................................................$2,9042012................................................................2,6462013................................................................2,4662014................................................................2,4472015................................................................2,442Thereafter............................................................10,327Totalminimumleasepayments..........................................$23,232GuaranteesandIndemnificationObligationsTheCompanyentersintostandardindemnificationagreementsintheordinarycourseofbusiness.Pursuanttotheseagreements,theCompanyindemnifiesandagreestoreimbursetheindemnifiedpartyforlossesincurredbytheindemnifiedparty,generallytheCompany’scustomers,inconnectionwithanypatent,copyright,tradesecretorotherproprietaryrightinfringementclaimbyanythirdpartywithrespecttotheCompany’ssoftware.Thetermoftheseindemnificationagreementsisgenerallyperpetualanytimeafterexecutionoftheagreement.ThemaximumpotentialamountoffuturepaymentstheCompanycouldberequiredtomakeundertheseindemnificationagreementsisunlimited.TheCompanyhasneverincurredcoststodefendlawsuitsorsettleclaimsrelatedtotheseindemnificationagreements.Asaresult,theCompanybelievestheestimatedfairvalueoftheseagreementsisminimal.Accordingly,theCompanyhasnoliabilitiesrecordedfortheseagreementsasofJanuary1,2011andJanuary2,2010,respectively.GovernmentContractContingenciesSeveraloftheCompany’sprimecontractswiththeU.S.federalgovernmentdonotcontainalimitationofliabilityprovision,creatingariskofresponsibilityfordirectandconsequentialdamages.Severalsubcontractswithprimecontractorsholdtheprimecontractorharmlessagainstliabilitythatstemsfromourworkanddonotcontainalimitationofliability.TheseprovisionscouldcausesubstantialliabilityfortheCompany.Inaddition,theCompanyissubjecttoauditsbytheU.S.federalgovernmentaspartofroutineauditsofgovernmentcontracts.Aspartofanaudit,theseagenciesmayreviewtheCompany’sperformanceoncontracts,coststructuresandcompliancewithapplicablelaws,regulationsandstandards.Ifanyofitscostsarefoundtobeallocatedimproperlytoaspecificcontract,thecostsmaynotbereimbursedandanycostsalreadyreimbursedforsuchcontractmayhavetoberefunded.Accordingly,anauditcouldresultinamaterialadjustmenttoourrevenueandresultsofoperations.Annually,theCompanysubmitsfinalindirectbillingratestoDCMAbaseduponactualcostsincurredthroughouttheyear.ThesefinalbillingratesaresubjecttoauditbyDCAA.AsofJanuary1,2011,fiscalyears2007,2008,2009and2010areopenforauditbyDCAA.WarrantyTheCompanyprovideswarrantiesonmostproductsandhasestablishedareserveforwarrantybasedonidentifiedwarrantycosts.Thereserveisincludedaspartofaccruedexpenses(Note6)intheaccompanyingbalancesheets.70iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Activityrelatedtothewarrantyaccrualwasasfollows:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Balanceatbeginningofperiod.......................$6,105$5,380$2,491Provision.......................................6,4024,8707,728Warrantyusage(*).................................(3,223)(4,145)(4,839)Balanceatendofperiod............................$9,284$6,105$5,380(*)Warrantyusageincludestheprorataexpirationofproductwarrantiesnotutilized.SalesTaxesTheCompanycollectsandremitssalestaxinjurisdictionsinwhichithasaphysicalpresenceoritbelievesnexusexists,whichthereforeobligatestheCompanytocollectandremitsalestax.TheCompanycontinuallyevaluateswhetherithasestablishedanexusinnewjurisdictionswithrespecttosalestax.TheCompanyhasrecordedaliabilityforpotentialexposureinseveralstateswherethereisuncertaintyaboutthepointintimeatwhichtheCompanyestablishedasufficientbusinessconnectiontocreatenexus.TheCompanycontinuestoanalyzepossiblesalestaxexposure,butdoesnotcurrentlybelievethatanyindividualclaimoraggregateclaimsthatmightarisewillultimatelyhaveamaterialeffectonitsconsolidatedresultsofoperations,financialpositionorcashflows.12.EmployeeBenefitsTheCompanysponsorsaretirementplanunderSection401(k)oftheInternalRevenueCode(the“RetirementPlan”).AllCompanyemployees,withtheexceptionoftemporary,contractandinternationalemployeesareeligibletoparticipateintheRetirementPlanaftersatisfyingageandlengthofservicerequirementsprescribedbytheplan.UndertheRetirementPlan,employeesmaymaketax-deferredcontributions,andtheCompany,atitssolediscretion,andsubjecttothelimitsprescribedbytheIRS,maymakeeitheranonelectivecontributiononbehalfofalleligibleemployeesoramatchingcontributiononbehalfofallplanparticipants.TheCompanyelectedtomakeamatchingcontributionofapproximately$1.5million,$1.2millionand$0.9millionfortheplanyearsendedJanuary1,2011,January2,2010andDecember27,2008(“Plan-Year2010,”“Plan-Year2009”and“Plan-Year2008”),respectively.Theemployercontributionrepresentsamatchingcontri-butionatarateof50%ofeachemployee’sfirstsixpercentcontribution.Accordingly,eachemployeeparticipatingduringPlan-Year2010,Plan-Year2009andPlan-Year2008isentitleduptoamaximumofthreepercentofhisorhereligibleannualpayroll.TheemployermatchingcontributionforPlan-Year2010isincludedinaccruedcompensation.13.AcquisitionofNektonResearch,LLCInSeptember2008theCompanyacquiredNekton,anunmannedunderwaterrobottechnologycompanybasedinRaleigh,NorthCarolina.TheCompanyacquiredNektonforapurchasepriceof$10million,consistingprimarilyofcashanddirectacquisitioncosts,withthepotentialforadditionalconsiderationupto$5millionbasedontheachievementofcertainbusinessandfinancialmilestones.Inconnectionwiththeacquisition,theCompanyassumed$0.1millioninnetliabilities,andinitiallyrecorded$4.5millionofintangibleassetsand$5.4millionofgoodwill.Approximately$0.2millionofthepurchasepricewasallocatedtoin-processresearchanddevelopmentandwasexpenseduponcompletionoftheacquisition.InDecember2009,$2.5millionofadditionalconsiderationwaspaidandrecordedasgoodwill,undertheearn-outprovisionsoftheoriginalagreement,bringingthetotalgoodwill71iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-Krecordedforthisacquisitionto$7.9million.Therewillbenoadditionalconsiderationpaidinconnectionwiththisacquisition.TheconsolidatedfinancialstatementsfortheyearendedDecember27,2008includetheresultsofoperationsofNektoncommencingasofSeptember8,2008,theacquisitiondate.NosupplementalproformainformationispresentedfortheacquisitionduetotheimmaterialeffectoftheacquisitionontheCompany’sresultsofoperations.14.GoodwillandotherintangibleassetsThecarryingamountofthegoodwillatJanuary1,2011of$7.9millionisfromtheacquisitionofNektoncompletedinSeptember2008.InOctober2010,theCompanycompleteditsannualgoodwillimpairmenttestanddidnotidentifyanygoodwillimpairment.Otherintangibleassetsincludethevalueassignedtocompletedtechnology,researchcontracts,andatradename.Theestimatedusefullivesforalloftheseintangibleassetsaretwototenyears.Theintangibleassetsarebeingamortizedonastraight-linebasis,whichisconsistentwiththepatternthattheeconomicbenefitsoftheintangibleassetsareexpectedtobeutilized.IntangibleassetsatJanuary1,2011andJanuary2,2010consistedofthefollowing:CostAccumulatedAmortizationNetCostAccumulatedAmortizationNetJanuary1,2011January2,2010(Inthousands)(Inthousands)Completedtechnology.......$3,700$865$2,835$3,700$496$3,204Researchcontracts..........100100—1006436Tradename...............70016553570096604Total..................$4,500$1,130$3,370$4,500$656$3,844Amortizationexpenserelatedtoacquiredintangibleassetswas$475,000and$492,000forthefiscalyearsendedJanuary1,2011andJanuary2,2010.Theestimatedfutureamortizationexpenserelatedtocurrentintangibleassetsineachofthefivesucceedingfiscalyearsisexpectedtobeasfollows:(Inthousands)2011.............................................................4442012.............................................................4442013.............................................................4442014.............................................................4442015.............................................................444Total.............................................................$2,22015.IndustrySegment,GeographicInformationandSignificantCustomersTheCompanyoperatesintworeportablesegments,thehomerobotsdivisionandthegovernmentandindustrialdivision.Thenatureofproductsandtypesofcustomersforthetwosegmentsvarysignificantly.Assuch,thesegmentsaremanagedseparately.HomeRobotsTheCompany’shomerobotsdivisionoffersproductstoconsumersthroughanetworkofretailbusinessesthroughouttheUnitedStates,tovariouscountriesthroughinternationaldistributorsandretailers,andthroughthe72iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Company’son-linestore.TheCompany’shomerobotsdivisionincludesmobilerobotsusedinthemaintenanceofdomestichouseholds.GovernmentandIndustrialTheCompany’sgovernmentandindustrialdivisionoffersproductsthroughasmallU.S.government-focusedsalesforce,whileproductsaresoldtoalimitednumberofcountries,otherthantheUnitedStates,throughinternationaldistribution.TheCompany’sgovernmentandindustrialrobotsareusedbyvariousU.S.andforeigngovernments,primarilyforreconnaissanceandbombdisposalmissions.Thetablebelowpresentssegmentinformationaboutrevenue,costofrevenue,grossmarginandincomebeforeincometaxes:January1,2011January2,2010December27,2008FiscalYearEnded(Inthousands)Revenue:HomeRobots..................................$229,348$165,860$173,602Government&Industrial..........................171,604132,757134,019Totalrevenue................................400,952298,617307,621Costofrevenue:HomeRobots..................................137,568112,429123,833Government&Industrial..........................117,95294,99290,317Totalcostofrevenue...........................255,520207,421214,150Grossmargin:HomeRobots..................................91,78053,43149,769Government&Industrial..........................53,65237,76543,702Totalgrossmargin.............................145,43291,19693,471Researchanddevelopment.........................24,80914,74717,566Sellingandmarketing.............................50,53540,90246,866Generalandadministrative........................36,61830,11028,840Litigationandrelatedexpenses......................———Otherincome(expense),net........................504(81)926Incomebeforeincometaxes........................$33,974$5,356$1,125AsofJanuary1,2011,goodwillof$7.9millionandpurchasedintangibleassets,netof$3.4millionrecordedinconjunctionwiththeacquisitionofNektoninSeptember2008,aswellasthe$2.5millioninvestmentinAdvancedScientificConcepts,Inc.,aredirectlyassociatedwiththegovernmentandindustrialdivision.Otherlonglivedassetsarenotdirectlyattributabletoindividualbusinesssegments.GeographicInformationForthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,salestonon-U.S.cus-tomersaccountedfor41.1%,33.3%and23.4%oftotalrevenue,respectively.SignificantCustomersForthefiscalyearsendedJanuary1,2011,January2,2010andDecember27,2008,U.S.federalgovernmentorders,contractsandsubcontractsaccountedfor38.4%,36.9%and40.3%oftotalrevenue,respectively.ForthefiscalyearendedJanuary1,2011,wegenerated17.4%oftotalrevenuefromTheBoeingCompanyasasubcontractorunderU.S.federalgovernmentcontracts.ForthefiscalyearsendedJanuary1,2011,January2,73iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)Form10-K2010andDecember27,2008approximately65.7%56.0%and56.3%,respectively,ofourhomerobotproductrevenueresultedfromsalesto15customers.16.QuarterlyInformation(Unaudited)March28,2009June27,2009September26,2009January2,2010April3,2010July3,2010October2,2010January1,2011FiscalQuarterEnded(Inthousands,exceptpershareamounts)Revenue............$56,936$61,340$78,619$101,722$94,930$97,804$94,223$113,995Grossmargin........16,20616,40924,19534,38632,71733,97033,25745,488Netincome(loss).....(1,787)(2,609)2,5945,1326,1685,3147,0327,000Dilutedearnings(loss)pershare.....$(0.07)$(0.10)$0.10$0.20$0.24$0.20$0.27$0.2617.SubsequentEventsOnJanuary4,2011,theCompanyenteredintoarevolvingletterofcreditfacilitywithBankofAmerica,N.A.ThecreditfacilitywillbeavailabletofundlettersofcreditonbehalfoftheCompanyuptoanaggregateoutstandingamountof$5million.TheCompanymayterminateorfromtimetotimepermanentlyreducetheamountofthecreditfacility.TheCompanyshallpaythelenderafeeonoutstandinglettersofcreditissuedunderthecreditfacilityequalto2%perannumofthedailymaximumamountavailabletobedrawnundertheoutstandinglettersofcredit.Inaddition,theCompanyshallpaythelenderafeeequalto0.25%perannumoftheactualdailyamountbywhichthecreditfacilityexceedstheaggregateundrawnamountofalloutstandinglettersofcreditunderthecreditfacilityplustheaggregateofallunreimburseddrawingsunderalllettersofcreditunderthecreditfacility.ThematuritydateforlettersofcreditissuedunderthecreditfacilityshallbenolaterthansevendayspriortoJune5,2012.Thecreditfacilitycontainscustomarytermsandconditionsforcreditfacilitiesofthistype,includingrestrictionsontheCompany’sabilitytoincurorguarantyadditionalindebtedness,createliens,enterintotransactionswithaffiliates,makeloansorinvestments,sellassets,paydividendsormakedistributionson,orrepurchase,itsstock,andconsolidateormergewithotherentities.Inaddition,theCompanyisrequiredtomeetcertainfinancialcovenantscustomarywiththistypeofagreement,includingmaintainingaminimumspecifiedtangiblenetworth,aminimumspecifiedadjustedEBITDAandaminimumspecifiedratioofEBITtointerestexpense.Thecreditfacilityalsocontainscustomaryeventsofdefault,includingforpaymentdefaults,breachesofrepresentations,breachesofaffirmativeornegativecovenants,crossdefaultstoothermaterialindebtedness,bankruptcy,andfailuretodischargecertainjudgments.Ifadefaultoccursandisnotcuredwithinanyapplicablecureperiodorisnotwaived,thelendermayacceleratetheobligationsoftheCompanyunderthecreditfacility.74iROBOTCORPORATIONNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued)ITEM9.CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURENotApplicable.ITEM9A.CONTROLSANDPROCEDURESEvaluationofdisclosurecontrolsandprocedures.AsrequiredbyRule13a-15(b)undertheExchangeAct,wehavecarriedoutanevaluation,underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficer(“CEO”)andourChiefFinancialOfficer(“CFO”),oftheeffectiveness,asoftheendoftheperiodcoveredbythisreport,ofthedesignandoperationofour“disclosurecontrolsandprocedures”asdefinedinRule13a-15(e)promulgatedbytheSECundertheExchangeAct.Baseduponthatevaluation,ourCEOandourCFOconcludedthatourdisclosurecontrolsandprocedures,asoftheendofsuchperiod,wereadequateandeffectivetoensurethatinformationrequiredtobedisclosedbyusinthereportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSEC’srulesandforms,andthatsuchinformationwasaccumulatedandcommunicatedtomanagement,asappropriate,toallowtimelydecisionsregardingrequireddisclosure.Management’sReportonInternalControlOverFinancialReportingThemanagementoftheCompanyisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.InternalcontroloverfinancialreportingisdefinedinRules13a-15(f)and15d-15(f)promulgatedundertheExchangeActasaprocessdesignedby,orunderthesupervisionof,theCompany’sprincipalexecutiveandprincipalfinancialofficersandeffectedbytheCompany’sboardofdirectors,managementandotherpersonnel,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciplesandincludesthosepoliciesandproceduresthat:(cid:129)PertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsoftheCompany;(cid:129)Providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresoftheCompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsoftheCompany;and(cid:129)Providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionoftheCompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.Underthesupervisionandwiththeparticipationofmanagement,includingourprincipalexecutiveandfinancialofficers,weassessedtheCompany’sinternalcontroloverfinancialreportingasofJanuary1,2011,basedoncriteriaforeffectiveinternalcontroloverfinancialreportingestablishedinInternalControl—IntegratedFramework,issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).Basedonthisassessment,managementconcludedthattheCompanymaintainedeffectiveinternalcontroloverfinancialreportingasofJanuary1,2011basedonthespecifiedcriteria.TheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofJanuary1,2011hasbeenauditedbyPricewaterhouseCoopersLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreportwhichisincludedherein.ChangesinInternalControlOverFinancialReportingDuringthequarterendedJanuary1,2011,therewerenochangesinourinternalcontroloverfinancialreportingthathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.75Form10-KITEM9B.OTHERINFORMATIONOurpolicygoverningtransactionsinoursecuritiesbyourdirectors,officers,andemployeespermitsourofficers,directors,fundsaffiliatedwithourdirectors,andcertainotherpersonstoenterintotradingplanscomplyingwithRule10b5-lundertheSecuritiesExchangeActof1934,asamended.Wehavebeenadvisedthatcertainofourofficersanddirectors(includingColinAngle,ChiefExecutiveOfficer,JosephDyer,ChiefOperatingOfficer,GlenWeinstein,SeniorVicePresident,GeneralCounselandSecretary,JohnLeahy,ExecutiveVicePresident,ChiefFinancialOfficerandTreasurer,AlisonDean,SeniorVicePresidentofCorporateFinanceandPrincipalAccountingOfficer,RobertMoses,PresidentGovernmentandIndustrialDivision,RodneyBrooks,Director,andHelenGreiner,Director)oftheCompanyhaveenteredintotradingplans(eacha“Plan”andcollectively,the“Plans”)coveringperiodsafterthedateofthisAnnualReportonForm10-KinaccordancewithRule10b5-landourpolicygoverningtransactionsinoursecurities.Generally,underthesetradingplans,theindividualrelinquishescontroloverthetransactionsoncethetradingplanisputintoplace.Accordingly,salesundertheseplansmayoccuratanytime,includingpossiblybefore,simultaneouslywith,orimmediatelyaftersignificanteventsinvolvingourcompany.Weanticipatethat,aspermittedbyRule10b5-landourpolicygoverningtransactionsinoursecurities,someorallofourofficers,directorsandemployeesmayestablishtradingplansinthefuture.WeintendtodisclosethenamesofourexecutiveofficersanddirectorswhoestablishatradingplanincompliancewithRule10b5-landtherequirementsofourpolicygoverningtransactionsinoursecuritiesinourfuturequarterlyandannualreportsonForm10-Qand10-KfiledwiththeSecuritiesandExchangeCommission.We,however,undertakenoobligationtoupdateorrevisetheinformationprovidedherein,includingforrevisionorterminationofanestablishedtradingplan,otherthaninsuchquarterlyandannualreports.PARTIIIITEM10.DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCETheinformationrequiredunderthisitemisincorporatedhereinbyreferencetotheCompany’sdefinitiveproxystatementpursuanttoRegulation14A,whichproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120daysafterthecloseoftheCompany’sfiscalyearendedJanuary1,2011.ITEM11.EXECUTIVECOMPENSATIONTheinformationrequiredunderthisitemisincorporatedhereinbyreferencetotheCompany’sdefinitiveproxystatementpursuanttoRegulation14A,whichproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120daysafterthecloseoftheCompany’sfiscalyearendedJanuary1,2011.ITEM12.SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERSTheinformationrequiredunderthisitemisincorporatedhereinbyreferencetotheCompany’sdefinitiveproxystatementpursuanttoRegulation14A,whichproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120daysafterthecloseoftheCompany’sfiscalyearendedJanuary1,2011.ITEM13.CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCETheinformationrequiredunderthisitemisincorporatedhereinbyreferencetotheCompany’sdefinitiveproxystatementpursuanttoRegulation14A,whichproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120daysafterthecloseoftheCompany’sfiscalyearendedJanuary1,2011.76ITEM14.PRINCIPALACCOUNTINGFEESANDSERVICESTheinformationrequiredunderthisitemisincorporatedhereinbyreferencetotheCompany’sdefinitiveproxystatementpursuanttoRegulation14A,whichproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120daysafterthecloseoftheCompany’sfiscalyearendedJanuary1,2011.PARTIVITEM15.EXHIBITS,FINANCIALSTATEMENTSCHEDULES(a)ThefollowingarefiledaspartofthisAnnualReportonForm10-K:1.FinancialStatementsThefollowingconsolidatedfinancialstatementsareincludedinItem8:ReportofIndependentRegisteredPublicAccountingFirmConsolidatedBalanceSheetsatJanuary1,2011andJanuary2,2010ConsolidatedStatementsofOperationsfortheYearsendedJanuary1,2011,January2,2010,andDecember27,2008ConsolidatedStatementsofStockholders’Equity(Deficit)fortheYearsendedJanuary1,2011,January2,2010,andDecember27,2008ConsolidatedStatementsofCashFlowsfortheYearsendedJanuary1,2011,January2,2010,andDecember27,2008NotestoConsolidatedFinancialStatements2.FinancialStatementSchedulesAllotherscheduleshavebeenomittedsincetherequiredinformationisnotpresent,ornotpresentinamountssufficienttorequiresubmissionoftheschedule,orbecausetheinformationrequiredisincludedintheconsolidatedfinancialstatementsortheNotesthereto.3.Exhibits—Seeitem15(b)ofthisreportbelow(b)ExhibitsThefollowingexhibitsarefiledaspartofandincorporatedbyreferenceintothisAnnualReport:ExhibitNumberDescription2.1AgreementandPlanofMergerbyandamongtheRegistrant,FarragutAcquisition,LLC,NektonResearch,LLCandtheMembersRepresentativenamedtherein,datedSeptember5,2008(filedasExhibit2.1totheRegistrant’sCurrentReportonForm8-KfiledonSeptember8,2008andincorporatedbyreferenceherein)3.1(1)FormofSecondAmendedandRestatedCertificateofIncorporationoftheRegistrantdatedNovember15,20053.2(1)AmendedandRestatedBy-lawsoftheRegistrant4.1(1)SpecimenStockCertificateforsharesoftheRegistrant’sCommonStock4.2(1)ShareholderRightsAgreementbetweentheRegistrantandComputershareTrustCompany,Inc.,astheRightsAgentdatedNovember15,200510.1(1)FifthAmendedandRestatedRegistrationRightsAgreementbyandamongtheRegistrant,theInvestorsandtheStockholdersnamedtherein,datedasofNovember10,200410.2†(1)FormofIndemnificationAgreementbetweentheRegistrantanditsDirectorsandExecutiveOfficers77Form10-KExhibitNumberDescription10.3†Registrant’sSeniorExecutiveIncentiveCompensationPlan(filedasExhibit10.4totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember30,2006andincorporatedbyreferenceherein)10.4†(1)AmendedandRestated1994StockPlanandformsofagreementsthereunder10.5†AmendedandRestated2001SpecialStockOptionPlanandformsofagreementsthereunder(filedasExhibit10.6totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember31,2005andincorporatedbyreferenceherein)10.6†AmendedandRestated2004StockOptionandIncentivePlanandformsofagreementsthereunder(filedasExhibit10.4totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.7LeaseAgreementbetweentheRegistrantandBurlingtonCrossingOfficeLLCforpremiseslocatedat63SouthAvenue,Burlington,Massachusetts,datedasofOctober29,2002,asamended(filedasExhibit10.7totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.8†FormofExecutiveAgreementbetweentheRegistrantandcertainexecutiveofficersoftheRegistrant,asamended(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedOctober2,2010andincorporatedbyreferenceherein)10.9†(1)EmploymentAgreementbetweentheRegistrantandColinAngle,datedasofJanuary1,199710.10†(1)EmploymentAgreementbetweentheRegistrantandJosephW.Dyer,datedasofFebruary18,200410.11(1)GovernmentContractDAAE07-03-9-F001(SmallUnmannedGroundVehicle)10.12(1)GovernmentContractN00174-03-D-0003(ManTransportableRoboticSystem)10.13†2005StockOptionandIncentivePlan,asamended,andformsofagreementsthereunder(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonJune2,2009andincorporatedbyreferenceherein)10.14#(1)ManufacturingandServicesAgreementbetweentheRegistrantandGemCityEngineeringCorporation,datedasofJuly27,200410.15†Non-EmployeeDirectors’DeferredCompensationProgram,asamended(filedasExhibit10.19totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember29,2007andincorporatedbyreferenceherein)10.16LeaseAgreementbetweentheRegistrantandBostonPropertiesLimitedPartnershipforpremiseslocatedat4-18CrosbyDrive,Bedford,Massachusetts,datedasofFebruary22,2007(filedasExhibit10.22totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember30,2006andincorporatedbyreferenceherein)10.17CreditAgreementbetweentheRegistrantandBankofAmerica,N.A.,datedasofJune5,2007(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.18#ManufacturingAgreementbetweentheRegistrantandKinYatIndustrialCo.Ltd.,datedasofMarch23,2007(filedasExhibit10.3totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.19†SeniorExecutiveIncentiveCompensationPlan(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedMarch29,2008andincorporatedbyreferenceherein)10.20FirstAmendmentandWaivertoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedApril30,2008(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonMay29,2008andincorporatedbyreferenceherein)10.21SecondAmendmentandWaivertoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedSeptember5,2008(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonSeptember10,2008andincorporatedbyreferenceherein)10.22FirstAmendmenttoNotebyandbetweentheRegistrantandBankofAmerica,N.A.,datedApril30,2008(filedasExhibit10.2totheRegistrant’sCurrentReportonForm8-KfiledonMay29,2008andincorporatedbyreferenceherein)78ExhibitNumberDescription10.23†FormofDeferredStockAwardAgreementunderthe2005StockOptionandIncentivePlan(filedasExhibit10.3totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune28,2008andincorporatedbyreferenceherein)10.24†FormofRestrictedStockAwardAgreementunderthe2005StockOptionandIncentivePlan(filedasExhibit10.4totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune28,2008andincorporatedbyreferenceherein)10.25†AmendedandRestatedIndependentContractorAgreementbyandbetweentheRegistrantandRodneyA.Brooks,datedAugust8,2008(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedSeptember27,2008andincorporatedbyreferenceherein)10.26†EmploymentSeparationAgreementbyandbetweentheRegistrantandHelenGreiner,datedOctober22,2008(filedasExhibit10.32totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember27,2008andincorporatedbyreferenceherein)10.27ThirdAmendmenttoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedFebruary12,2010(filedasExhibit10.30totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.28SecondAmendmenttoNotebyandbetweentheRegistrantandBankofAmerica,N.A.,datedFebruary12,2010(filedasExhibit10.31totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.29#ManufacturingServicesAgreementbetweentheRegistrantandJabilCircuit,Inc.,datedasofMarch18,2010(filedasExhibit10.1toAmendmentNo.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedApril3,2010andincorporatedbyreferenceherein)10.30#FirstAmendmenttoManufacturingAgreementbetweentheRegistrantandKinYatIndustrialCo.Ltd.,datedasofMarch22,2010(filedasExhibit10.2toAmendmentNo.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedApril3,2010andincorporatedbyreferenceherein)10.31ReimbursementAgreementbetweentheRegistrantandBankofAmerica,N.A.datedJanuary4,2011(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonJanuary6,2011andincorporatedbyreferenceherein)21.1SubsidiariesoftheRegistrant(filedasExhibit21.1totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember31,2005andincorporatedbyreferenceherein)23.1*ConsentofPricewaterhouseCoopersLLP24.1PowerofAttorney(incorporatedbyreferencetothesignaturepageofthisreportonForm10-K)31.1*CertificationPursuanttoRule13a-14(a)orRule15d-14(a)oftheSecuritiesExchangeActof193431.2*CertificationPursuanttoRule13a-14(a)orRule15d-14(a)oftheSecuritiesExchangeActof193432.1*CertificationPursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002†Indicatesamanagementcontractoranycompensatoryplan,contractorarrangement.#Confidentialtreatmentrequestedforportionsofthisdocument.(1)IncorporatedbyreferencehereintotheexhibitstotheCompany’sRegistrationStatementonFormS-1(FileNo.333-126907)*Filedherewith79Form10-KSIGNATURESPursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,asamended,theRegistranthasdulycausedthisAnnualReportonForm10-Ktobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.iROBOTCORPORATIONBy:/s/ColinM.AngleColinM.AngleChairmanoftheBoard,ChiefExecutiveOfficerandDirectorDate:February18,2011POWEROFATTORNEYKNOWALLMENBYTHESEPRESENTS,thateachpersonwhosesignatureappearsbelowconstitutesandappointsColinM.AngleandJohnLeahy,jointlyandseverally,hisorherattorney-in-fact,withthepowerofsubstitution,forhimorherinanyandallcapacities,tosignanyamendmentstothisAnnualReportonForm10-Kandtofilethesame,withexhibitstheretoandotherdocumentsinconnectiontherewith,withtheSecuritiesandExchangeCommission,herebyratifyingandconfirmingallthateachofsaidattorneys-in-fact,orhisorhersubstituteorsubstitutes,maydoorcausetobedonebyvirtuehereof.PursuanttotherequirementsoftheSecuritiesExchangeActof1934,asamended,thisAnnualReportonForm10-KhasbeensignedbythefollowingpersonsinthecapacitiesindicatedonFebruary18,2011.SignatureTitle(s)/s/COLINM.ANGLEColinM.AngleChairmanoftheBoard,ChiefExecutiveOfficerandDirector(PrincipalExecutiveOfficer)/s/JOHNLEAHYJohnLeahyExecutiveVicePresident,ChiefFinancialOfficerandTreasurer(PrincipalFinancialOfficer)/s/ALISONDEANAlisonDeanSeniorVicePresident,CorporateFinance(PrincipalAccountingOfficer)/s/RONALDCHWANGRonaldChwangDirector/s/JACQUESS.GANSLERJacquesS.GanslerDirector/s/RODNEYA.BROOKSRodneyA.BrooksDirector/s/ANDREAGEISSERAndreaGeisserDirector80SignatureTitle(s)/s/GEORGEC.MCNAMEEGeorgeC.McNameeDirector/s/HELENGREINERHelenGreinerDirector/s/PETERMEEKINPeterMeekinDirector/s/PAULJ.KERNPaulJ.KernDirector/s/PAULSAGANPaulSaganDirector81Form10-KEXHIBITINDEXExhibitNumberDescription2.1AgreementandPlanofMergerbyandamongtheRegistrant,FarragutAcquisition,LLC,NektonResearch,LLCandtheMembersRepresentativenamedtherein,datedSeptember5,2008(filedasExhibit2.1totheRegistrant’sCurrentReportonForm8-KfiledonSeptember8,2008andincorporatedbyreferenceherein)3.1(1)FormofSecondAmendedandRestatedCertificateofIncorporationoftheRegistrantdatedNovember15,20053.2(1)AmendedandRestatedBy-lawsoftheRegistrant4.1(1)SpecimenStockCertificateforsharesoftheRegistrant’sCommonStock4.2(1)ShareholderRightsAgreementbetweentheRegistrantandComputershareTrustCompany,Inc.,astheRightsAgentdatedNovember15,200510.1(1)FifthAmendedandRestatedRegistrationRightsAgreementbyandamongtheRegistrant,theInvestorsandtheStockholdersnamedtherein,datedasofNovember10,200410.2†(1)FormofIndemnificationAgreementbetweentheRegistrantanditsDirectorsandExecutiveOfficers10.3†Registrant’sSeniorExecutiveIncentiveCompensationPlan(filedasExhibit10.4totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember30,2006andincorporatedbyreferenceherein)10.4†(1)AmendedandRestated1994StockPlanandformsofagreementsthereunder10.5†AmendedandRestated2001SpecialStockOptionPlanandformsofagreementsthereunder(filedasExhibit10.6totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember31,2005andincorporatedbyreferenceherein)10.6†AmendedandRestated2004StockOptionandIncentivePlanandformsofagreementsthereunder(filedasExhibit10.4totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.7LeaseAgreementbetweentheRegistrantandBurlingtonCrossingOfficeLLCforpremiseslocatedat63SouthAvenue,Burlington,Massachusetts,datedasofOctober29,2002,asamended(filedasExhibit10.7totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.8†FormofExecutiveAgreementbetweentheRegistrantandcertainexecutiveofficersoftheRegistrant,asamended(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedOctober2,2010andincorporatedbyreferenceherein)10.9†(1)EmploymentAgreementbetweentheRegistrantandColinAngle,datedasofJanuary1,199710.10†(1)EmploymentAgreementbetweentheRegistrantandJosephW.Dyer,datedasofFebruary18,200410.11(1)GovernmentContractDAAE07-03-9-F001(SmallUnmannedGroundVehicle)10.12(1)GovernmentContractN00174-03-D-0003(ManTransportableRoboticSystem)10.13†2005StockOptionandIncentivePlan,asamended,andformsofagreementsthereunder(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonJune2,2009andincorporatedbyreferenceherein)10.14#(1)ManufacturingandServicesAgreementbetweentheRegistrantandGemCityEngineeringCorporation,datedasofJuly27,200410.15†Non-EmployeeDirectors’DeferredCompensationProgram,asamended(filedasExhibit10.19totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember29,2007andincorporatedbyreferenceherein)10.16LeaseAgreementbetweentheRegistrantandBostonPropertiesLimitedPartnershipforpremiseslocatedat4-18CrosbyDrive,Bedford,Massachusetts,datedasofFebruary22,2007(filedasExhibit10.22totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember30,2006andincorporatedbyreferenceherein)10.17CreditAgreementbetweentheRegistrantandBankofAmerica,N.A.,datedasofJune5,2007(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.18#ManufacturingAgreementbetweentheRegistrantandKinYatIndustrialCo.Ltd.,datedasofMarch23,2007(filedasExhibit10.3totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune30,2007andincorporatedbyreferenceherein)10.19†SeniorExecutiveIncentiveCompensationPlan(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedMarch29,2008andincorporatedbyreferenceherein)ExhibitNumberDescription10.20FirstAmendmentandWaivertoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedApril30,2008(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonMay29,2008andincorporatedbyreferenceherein)10.21SecondAmendmentandWaivertoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedSeptember5,2008(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonSeptember10,2008andincorporatedbyreferenceherein)10.22FirstAmendmenttoNotebyandbetweentheRegistrantandBankofAmerica,N.A.,datedApril30,2008(filedasExhibit10.2totheRegistrant’sCurrentReportonForm8-KfiledonMay29,2008andincorporatedbyreferenceherein)10.23†FormofDeferredStockAwardAgreementunderthe2005StockOptionandIncentivePlan(filedasExhibit10.3totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune28,2008andincorporatedbyreferenceherein)10.24†FormofRestrictedStockAwardAgreementunderthe2005StockOptionandIncentivePlan(filedasExhibit10.4totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedJune28,2008andincorporatedbyreferenceherein)10.25†AmendedandRestatedIndependentContractorAgreementbyandbetweentheRegistrantandRodneyA.Brooks,datedAugust8,2008(filedasExhibit10.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedSeptember27,2008andincorporatedbyreferenceherein)10.26†EmploymentSeparationAgreementbyandbetweentheRegistrantandHelenGreiner,datedOctober22,2008(filedasExhibit10.32totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember27,2008andincorporatedbyreferenceherein)10.27ThirdAmendmenttoCreditAgreementbyandbetweentheRegistrantandBankofAmerica,N.A.,datedFebruary12,2010(filedasExhibit10.30totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.28SecondAmendmenttoNotebyandbetweentheRegistrantandBankofAmerica,N.A.,datedFebruary12,2010(filedasExhibit10.31totheRegistrant’sAnnualReportonForm10-KfortheyearendedJanuary2,2010andincorporatedbyreferenceherein)10.29#ManufacturingServicesAgreementbetweentheRegistrantandJabilCircuit,Inc.,datedasofMarch18,2010(filedasExhibit10.1toAmendmentNo.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedApril3,2010andincorporatedbyreferenceherein)10.30#FirstAmendmenttoManufacturingAgreementbetweentheRegistrantandKinYatIndustrialCo.Ltd.,datedasofMarch22,2010(filedasExhibit10.2toAmendmentNo.1totheRegistrant’sQuarterlyReportonForm10-QforthequarterendedApril3,2010andincorporatedbyreferenceherein)10.31ReimbursementAgreementbetweentheRegistrantandBankofAmerica,N.A.datedJanuary4,2011(filedasExhibit10.1totheRegistrant’sCurrentReportonForm8-KfiledonJanuary6,2011andincorporatedbyreferenceherein)21.1SubsidiariesoftheRegistrant(filedasExhibit21.1totheRegistrant’sAnnualReportonForm10-KfortheyearendedDecember31,2005andincorporatedbyreferenceherein)23.1*ConsentofPricewaterhouseCoopersLLP24.1PowerofAttorney(incorporatedbyreferencetothesignaturepageofthisreportonForm10-K)31.1*CertificationPursuanttoRule13a-14(a)orRule15d-14(a)oftheSecuritiesExchangeActof193431.2*CertificationPursuanttoRule13a-14(a)orRule15d-14(a)oftheSecuritiesExchangeActof193432.1*CertificationPursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002†Indicatesamanagementcontractoranycompensatoryplan,contractorarrangement.#Confidentialtreatmentrequestedforportionsofthisdocument.(1)IncorporatedbyreferencehereintotheexhibitstotheCompany’sRegistrationStatementonFormS-1(FileNo.333-126907)*FiledherewithForm10-KThe following graph compares the cumulative 5-year total return provided shareholders on iRobot Corporation's common stock relative to the cumulative total returns of the NASDAQ Composite index, the S&P Technology Hardware & Equipment In-dustry Group index, and the NASDAQ Computer & Data Processing index. An investment of $100 (with reinvestment of all divi-dends) is assumed to have been made in our common stock and in each index on 12/31/2005 and its relative performance is tracked through 12/31/2010. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among iRobot Corporation, the NASDAQ Composite Index,the NASDAQ Computer & Data Processing Index and S&P Technology Hardware & Equipment Industry Group$0$20$40$60$80$100$120$140$16012/053/066/069/0612/063/076/079/0712/073/086/089/0812/083/096/099/0912/093/106/109/1012/10iRobot CorporationNASDAQ CompositeNASDAQ Computer & Data ProcessingS&P Technology Hardware & Equipment Industry Group*$100 invested on 12/31/05 in stock or index, including reinvestment of dividends.Fiscal year ending December 31.Copyright© 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. 12/05 1/06 2/06 3/06 4/06 5/06 6/06 7/06 8/06 iRobot Corporation 100.00 106.66 82.51 83.41 65.41 66.58 74.65 52.54 53.11 NASDAQ Composite 100.00 104.30 102.92 106.07 105.55 99.28 99.15 95.88 100.11 NASDAQ Computer & Data Processing 100.00 103.94 99.47 102.48 99.96 92.68 95.77 94.09 99.24 S&P Technology Hardware & Equipment Industry Group 100.00 105.60 105.95 110.32 109.27 109.43 111.18 113.46 114.61 9/06 10/06 11/06 12/06 1/07 2/07 3/07 4/07 5/07 6/07 7/07 8/07 9/07 10/07 11/07 60.19 61.54 55.84 54.19 54.82 41.73 39.21 47.55 49.38 59.56 53.65 66.19 59.65 54.28 48.06 103.62 108.88 112.06 111.74 114.22 112.14 112.33 117.10 120.66 121.24 118.51 120.91 126.88 134.50 124.82 105.04 111.07 114.40 112.40 116.07 111.02 112.30 116.45 120.82 119.12 115.35 116.50 123.33 141.69 130.59 116.95 115.86 117.07 119.75 115.47 112.37 111.36 108.58 109.42 106.40 96.15 101.73 101.36 98.32 95.23 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08 1/09 2/09 54.25 60.52 54.97 51.34 48.12 42.06 41.22 41.55 41.97 44.46 30.96 31.32 27.09 22.80 23.64 124.67 112.13 106.61 106.70 113.29 118.46 107.89 107.94 109.43 96.13 79.57 71.42 73.77 69.28 64.98 134.94 118.87 107.78 109.00 116.92 121.83 112.29 108.65 111.95 102.54 84.97 76.78 77.33 73.49 71.04 90.78 91.93 86.33 90.08 90.91 89.70 72.95 80.66 83.01 93.84 82.65 76.88 78.47 61.01 54.42 3/09 4/09 5/09 6/09 7/09 8/09 9/09 10/09 11/09 12/09 1/10 2/10 3/10 4/10 5/10 22.80 34.41 37.50 38.94 33.63 34.41 36.93 40.11 42.30 52.81 47.40 48.57 45.48 60.49 64.39 71.64 80.03 83.15 86.12 92.96 94.71 99.74 96.66 101.50 107.12 101.37 105.77 113.19 115.75 106.12 78.68 87.15 91.13 96.86 99.83 102.24 107.45 110.35 116.05 122.47 112.69 116.67 122.47 123.57 111.41 59.06 61.58 59.76 56.33 59.05 57.62 56.64 53.24 51.76 55.61 59.64 60.98 65.97 70.63 64.34 6/10 7/10 8/10 9/10 10/10 11/10 12/10 56.38 61.09 49.71 55.72 62.65 60.91 74.65 99.74 106.62 100.43 112.49 119.00 118.51 125.93 103.05 113.24 106.68 119.60 130.91 125.44 135.78 59.47 58.76 54.39 57.46 57.82 58.94 67.88 The stock price performance included in this graph is not necessarily indicative of future stock price performance. Corporate Office 8 Crosby Drive Bedford, Massachusetts 01730 Phone: 781-430-3000 Fax: 781-430-3001 Transfer Agent Computershare Trust Company, Inc. 350 Indiana Street Suite 750 Golden, Colorado 80401 Phone: 303.262.0600 Legal Counsel Goodwin Procter LLP Exchange Place 53 State Street Boston, Massachusetts 02109 Phone: 617.570.1000 Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP 125 High Street Boston, Massachusetts 02110 Phone: 617.530.5000 Common Stock Information Our common stock is traded on the Nasdaq National Market under the symbol IRBT. Investor Information Elise P. Caffrey Vice President, Investor Relations A copy of our financial reports, stock quotes, news releases, SEC filings, as well as information on our products is available in the Investor Relations section of www.irobot.com Board Members Colin M. Angle Co-founder, Chairman of the Board and Chief Executive Officer Dr. Rodney A. Brooks Co-founder Dr. Ronald Chwang Director Dr. Jacques S. Gansler Director, Nominating & Corporate Governance Committee Chair Andrea Geisser Director, Audit Committee Chair Helen Greiner Co-founder General Paul J. Kern (U.S. Army, Ret.) Director George C. McNamee Lead Independent Director, Compensation Committee Chair Peter T. Meekin Director Paul L. Sagan Director Executive Team Colin M. Angle Chief Executive Officer John J. Leahy Executive Vice President, Chief Financial Officer and Treasurer Vice Admiral Joseph W. Dyer (U.S. Navy, Ret.) Chief Operating Officer Jeffrey A. Beck President and General Manager, Home Robots Captain Robert L. Moses (U.S. Navy, Ret.) President and General Manager, Government & Industrial Robots Russell J. Campanello Senior Vice President, Human Resources Alison Dean Senior Vice President, Corporate Finance Glen D. Weinstein Senior Vice President and General Counsel Corporate Headquarters8 Crosby DriveBedford, MA 01730USAPhone: 781.430.3000Fax: 781.430.3001www.irobot.cominfo@irobot.comiRobot Mission Build cool stuff (cid:129) Deliver great product (cid:129) Make money (cid:129) Have fun (cid:129) Change the world

Continue reading text version or see original annual report in PDF format above