iRobot 2014 Annual Report Download - page 87

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• 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 limitation of liability. These provisions
could cause substantial liability for us, especially given the use to which our products may be put.
In addition, we are subject to audits by the U.S. federal government as part of routine audits of government contracts. As
part of an audit, these agencies may review our performance on contracts, cost structures and compliance with applicable laws,
regulations and standards. If any of our costs are found to be allocated improperly to a specific contract, the costs may not be
reimbursed and any costs already reimbursed for such contract may have to be refunded. Accordingly, an audit could result in a
material adjustment to our revenue and results of operations. Moreover, if an audit uncovers improper or illegal activities, we
may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines and suspension or debarment from doing business with the government.
If any of the foregoing were to occur, or if the U.S. federal government otherwise ceased doing business with us or
decreased the amount of business with us, our business and operating results could be materially harmed and the value of your
investment in our common stock could be impaired.
Some of our contracts with the U.S. federal government allow it to use inventions developed under the contracts and to
disclose technical data to third parties, which could harm our ability to compete.
Some of our contracts allow the U.S. federal government rights to use, or have others use, patented inventions developed
under those contracts on behalf of the government. Some of the contracts allow the federal government to disclose technical
data without constraining the recipient in how that data is used. The ability of third parties to use patents and technical data for
government purposes creates the possibility that the government could attempt to establish additional sources for the products
we provide that stem from these contracts. It may also allow the government the ability to negotiate with us to reduce our prices
for products we provide to it. The potential that the government may release some of the technical data without constraint
creates the possibility that third parties may be able to use this data to compete with us in the commercial sector.
We face intense competition from other providers of robots, including diversified technology providers, as well as
competition from providers offering alternative products, which could negatively impact our results of operations and cause
our market share to decline.
We believe that a number of companies have developed or are developing robots that will compete directly with our
product offerings. Additionally, large and small companies, government-sponsored laboratories and universities are
aggressively pursuing contracts for robot-focused research and development. Many current and potential competitors have
substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance
that our current and future competitors will not be more successful than us. Moreover, while we believe many of our customers
purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners; we
also compete in some cases with providers of traditional vacuum cleaners. Our competitors include developers of robot floor
cleaning products, developers of small unmanned ground vehicles, and established government contractors working on
unmanned systems.
The market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting customer
needs and expectations and the likely increased introduction of new products. Our ability to remain competitive will depend to
a great extent upon our ongoing performance in the areas of product development and customer support.
In the event that the robot market expands further, we expect that competition will intensify as additional competitors
enter the market and current competitors expand their product lines. Companies competing with us may introduce products that
are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not
yet developed or implemented. Increased competitive pressure could result in a loss of sales or market share or cause us to
lower prices for our products, any of which would harm our business and operating results.
Form 10-K