iRobot 2012 Annual Report Download - page 75

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Our total revenue for 2012 was $436.2 million, which represents a 6% decrease from 2011 revenue of $465.5 million.
Revenue for 2012 in our home robots business increased $78.2 million compared to 2011 and represented 82% of our total
2012 revenue compared to 60% in 2011. The increase in home robots revenue was the result of growth in both domestic and
international markets. Revenue for 2012 in our defense and security business decreased by $107.5 million compared to 2011 as
a direct result of troop withdrawals in Afghanistan, program cancellations and ongoing budget reductions within the U.S.
government. We anticipate that our business performance over the next few years will be primarily driven by our rapidly
growing home technology business and expect that our home robots revenue will comprise approximately 90% of our total
revenue in the near term.
During 2012, we recorded favorable adjustments to our home robots business revenue resulting from reductions to our
defective returns provision that were directly attributable to lower defective returns experience and contractual modifications
limiting our defective returns liability with certain customers. We also recorded favorable adjustments to our cost of product
revenue relating to reductions in our international warranty accrual for our home robots business that were directly attributable
to declining warranty cost experience. Both the lower defective returns and warranty cost experience are related to our
sustained improvements in product quality for which we expect to receive continuing benefits in the foreseeable future.
Offsetting these favorable adjustments were increases to our product cost of revenue resulting from reserves established for
excess inventory caused by the significant reduction in sales in our defense and security business during the year. Additionally,
we recorded restructuring charges during 2012 associated with the write-off of certain assets and the recording of severance
related costs, the majority of which related to a realignment of our cost structure due to the decline in our defense and security
business. Additionally, we closed our North Carolina office, where our Maritime business formerly operated, and moved the
research component of that business to our Bedford, Massachusetts location. The net impact of these adjustments was an
increase to our 2012 net income and earnings per share of approximately $6.6 million and $0.23, respectively.
On October 1, 2012, we acquired privately-held Evolution Robotics, Inc., the developer of Mint and Mint Plus automatic
floor cleaning robots based in Pasadena, California, for approximately $74.5 million, net of cash received. Our 2012 net
income and earnings per share were negatively impacted by $4.7 million and $0.17, respectively, as a result of the inclusion of
Evolution Robotics operations as of the October 1, 2012 acquisition date. We currently expect the Evolution Robotics
operations to have a dilutive effect on our earnings through the third quarter of 2013 and to become accretive beginning in the
fourth quarter of 2013.
Revenue
We currently derive revenue from product sales, government research and development contracts, and commercial
research and development contracts. Product revenue is derived from the sale of our various home cleaning robots and defense
and security robots and related accessories. Research and development revenue is derived from the execution of contracts
awarded by the U.S. federal government, other governments and a small number of other partners. In the future, we expect to
derive increasing revenue from product maintenance and support services due to a focused effort to market these services to the
expanding installed base of our robots.
We currently derive a majority of our product revenue from the sale of our home cleaning robots, and to a lesser extent,
our PackBot and SUGV tactical military robots. For the fiscal years ended December 29, 2012 and December 31, 2011, product
revenues accounted for 95.9% and 91.6% of total revenue, respectively. For the fiscal years ended December 29, 2012 and
December 31, 2011, our funded research and development contracts accounted for approximately 4.1% and 8.4% of our total
revenue, respectively. We expect to continue to perform funded research and development work with the intent of leveraging
the technology developed to advance our new product development efforts. In the future, based on changes in operational needs
from the U.S. armed forces, and significant pressures on U.S. spending levels, we anticipate that revenue from product sales to
the U.S. armed forces will decrease in the near term. In addition, we expect that revenue from funded research and
development contracts could decrease on an absolute dollar basis.
For the fiscal years ended December 29, 2012 and December 31, 2011, approximately 75.4% and 74.0%, respectively, of
our home robot product revenue resulted from sales to 15 customers. For fiscal 2012 and fiscal 2011, the customers were
comprised of both U.S. retailers and international distributors. Direct-to-consumer revenue generated through our domestic and
international on-line stores accounted for 6.3% of our home robot product revenue for the fiscal year ended December 29, 2012
compared to 9.6% in the fiscal year ended December 31, 2011. We typically sell our recently launched products direct on-line,
and then subsequently offer these products through other channels of distribution. In addition, 79.5% and 88.4% of defense
product revenue, and 95.2% and 95.7% of funded research and development contract revenue, resulted from orders and
contracts or subcontracts with the U.S. federal government in the fiscal years ended December 29, 2012 and December 31,
2011, respectively.
For the fiscal years ended December 29, 2012 and December 31, 2011, sales to non-U.S. customers accounted for 57.3%
and 45.5% of total revenue, respectively.
Our revenue from product sales is generated through sales to our retail distribution channels, our distributor network and
to certain U.S. and foreign governments. We recognize revenue from the sales of home robots under the terms of the customer
Form 10-K