iRobot 2012 Annual Report Download - page 62

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expenses for the fiscal year. Accordingly, a sales shortfall during a fiscal quarter, and in particular the fourth quarter of a fiscal
year, could have a disproportionate effect on our operating results for that quarter or that year. Because of quarterly
fluctuations, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Moreover,
our operating results may not meet expectations of equity research analysts or investors. If this occurs, the trading price of our
common stock could fall substantially either suddenly or over time.
Global economic conditions and any associated impact on consumer spending could have a material adverse effect on
our business, results of operations and financial condition.
Continued economic uncertainty and reductions in consumer spending, particularly in certain international markets such
as the European Union, may result in reductions in sales of our consumer robots. Additionally, disruptions in credit markets
may materially limit consumer credit availability and restrict credit availability of our retail customers, which would also
impact purchases of our consumer robots. Any reduction in sales of our consumer robots, resulting from reductions in
consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely
affect our business, results of operations and financial condition.
A significant portion of our business currently depends on our consumer robots, and our sales growth and operating
results would be negatively impacted if we are unable to enhance our current consumer robots or develop new consumer
robots at competitive prices or in a timely manner, or if the consumer robot market does not achieve broad market
acceptance.
For the years ended December 29, 2012 and December 31, 2011, we derived 81.8% and 59.8% of our total revenue from
our consumer robots, respectively. For the foreseeable future, we expect that a significant portion of our revenue will be
derived from sales of consumer robots in general and home floor care products in particular. Accordingly, our future success
depends upon our ability to further penetrate the consumer home care market, to enhance our current consumer products and
develop and introduce new consumer products offering enhanced performance and functionality at competitive prices. The
development and application of new technologies involve time, substantial costs and risks. Our inability to achieve significant
sales of our newly introduced robots, or to enhance, develop and introduce other products in a timely manner, or at all, would
materially harm our sales growth and operating results.
Even if consumer robots gain wide market acceptance, our robots may not adequately address market requirements and
may not continue to gain market acceptance. If robots generally, or our robots specifically, do not gain wide market acceptance,
we may not be able to achieve our anticipated level of growth, and our revenue and results of operations would suffer.
We depend on the U.S. federal government for a significant portion of our revenue, and any unexpected reduction in the
amount of business that we do with the U.S. federal government would negatively impact our operating results and financial
condition.
For the years ended December 29, 2012 and December 31, 2011, we derived 15.1% and 36.1% of our total revenue,
respectively, directly or indirectly, from the U.S. federal government and its agencies. Reduction in the amount 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 are and will continue to be affected by changes in general economic
conditions or the status of international conflicts. 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.
Specifically, the defense industry in which we operate is dependent upon the level of equipment expenditures by the
armed forces of countries throughout the world, and especially those of the United States, which represents a significant portion
of world-wide defense expenditures. In prior years, the war on terror increased the level of equipment expenditures by the U.S.
armed forces; however, this level of spending does not appear to be sustainable in light of government spending priorities by
the U.S. and the continued winding down of U.S. armed forces operations in Iraq and Afghanistan. In addition, as a result of
the failure of the Joint Select Committee on Deficit Reduction (Super Committee) to agree on a deficit reduction plan,
mandatory reductions in defense may be required under the Budget Control Act of 2011. The extent and scope of these cuts is
difficult to assess at this time. Any decrease in demand for new equipment or use of existing equipment will likely result in a
decrease in demand of our products and services, and correspondingly, our revenues, thereby adversely affecting our business,
financial condition and results of operations.
Our participation in specific major U.S. federal government programs is critical to both the development and sale of our
defense robots. For example, in the years ended December 29, 2012 and December 31, 2011, 71.0% and 63.2% of our total
contract revenue was derived from our participation in the U.S. Army’s BCTM program, respectively. The BCTM program
was terminated in 2011 and additional work related to this program is currently funded through April 2013. 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