iRobot 2010 Annual Report Download - page 61

of revenue that we derive from a limited number of U.S. federal government agencies without an offsetting increase
in new sales to other customers would have a material adverse effect on our operating results. U.S. Government
programs in which we participate, or in which we may seek to participate in the future, must compete with other
programs for consideration during our nation’s budget formulation and appropriation processes, and may be
affected by changes in general economic conditions. Budget decisions made in this environment may have long-
term consequences for our size and structure and that of the defense industry. It is possible that one or more of our
programs will be reduced, extended, or terminated. Reductions in our existing programs, unless offset by other
programs and opportunities, could adversely affect our ability to grow our sales and profitability.
Our participation in specific major U.S. federal government programs is critical to both the development and
sale of our military robots. For example, in the years ended January 1, 2011 and January 2, 2010, 62.7% and 40.3%
of our total contract revenue was derived from our participation in the U.S. Army’s BCTM program, respectively.
Future sales of our military robots will depend largely on our ability to secure contracts with the U.S. military under
its robot programs. We expect that there will continue to be only a limited number of major programs under which
U.S. federal government agencies will seek to fund the development of, or purchase, robots. Our business will,
therefore, suffer if we are not awarded, either directly or indirectly through third-party contractors, government
contracts for robots that we are qualified to develop or build. In addition, if the U.S. federal government or
government agencies terminate or reduce the related prime contract under which we serve as a subcontractor,
revenues that we derive under that contract could be lost, which would negatively impact our business and financial
results. Moreover, it is difficult to predict the timing of the award of government contracts and our revenue could
fluctuate significantly based on the timing of any such awards.
Even if we continue to receive funding for research and development under these contracts, there can be no
assurance that we will successfully complete the development of robots pursuant to these contracts or that, if
successfully developed, the U.S. federal government or any other customer will purchase these robots from us. The
U.S. federal government has the right when it contracts to use the technology developed by us to have robots
supplied by third parties. Any failure by us to complete the development of these robots, or to achieve successful
sales of these robots, would harm our business and results of operations. Our business and results of operations
could be negatively affected by significant changes in the policies and spending priorities of governments and
government agencies. Many of our government customers are subject to stringent budgetary constraints and our
continued performance under these contracts, or award of additional contracts from these agencies, could be
jeopardized by spending reductions or budget cutbacks at these agencies.
Our contracts with the U.S. federal government contain certain provisions that may be unfavorable to us
and subject us to government audits, which could materially harm our business and results of operations.
Our contracts and subcontracts with the U.S. federal government subject us to certain risks and give the
U.S. federal government rights and remedies not typically found in commercial contracts, including rights that
allow the U.S. federal government to:
• terminate contracts for convenience, in whole or in part, at any time and for any reason;
• reduce or modify contracts or subcontracts if its requirements or budgetary constraints change;
• cancel multi-year contracts and related orders if funds for contract performance for any subsequent year
become unavailable;
• exercise production priorities, which allow it to require that we accept government purchase orders or
produce products under its contracts before we produce products under other contracts, which may displace
or delay production of more profitable orders;
• claim certain rights in products provided by us; and
• control or prohibit the export of certain of our products.
Several of our prime contracts with the U.S. federal government do not contain a limitation of liability
provision, creating a risk of responsibility for direct and consequential damages. Several subcontracts with prime
contractors hold the prime contractor harmless against liability that stems from our work and do not contain a
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Form 10-K