iRobot 2011 Annual Report Download - page 54

Form 10-K
allowed to recover our actual costs plus a fixed fee. The total price of a cost-plus contract is based primarily on
allowable costs incurred, but generally is subject to a maximum contract funding limit. Under a firm fixed price
contract, we receive a fixed amount upon satisfying contractually defined deliverables. On our time and materials
contracts, we recover a specific amount per hour worked based on a bill rate schedule, plus the cost of direct
materials, subcontracts, and other non-labor costs, including an agreed-upon mark-up. A time and materials
contract may provide for a not-to-exceed price ceiling, as well as the potential that we will absorb any cost
overrun.
Strategic Alliances
Strategic alliances are an important part of our product development and distribution strategies. We rely on
strategic alliances to provide technology, complementary product offerings and increased and quicker access to
markets. We seek to form relationships with organizations that can provide best-in-class technology or market
advantages for establishing iRobot technology in new market segments. For example, in 2011 we signed a joint
development and licensing agreement with InTouch Health, a leading remote presence telemedicine solution
provider, to explore potential opportunities for healthcare applications on iRobot platforms such as the iRobot
Ava mobile robotics platform.
Our strategy of working closely with third parties extends to the design of our products. By offering
extensible platforms designed to carry payloads, we have designed and manufactured our products to leverage
the work of those individuals and organizations that offer specialized technological expertise. The PackBot,
Warrior, FirstLook, Roomba and Scooba robots are designed with open interfaces that allow third-party
developers to add payloads to our robots, improving their functionality.
Sales and Distribution Channels
We sell our products through distinct sales channels to the consumer and government and industrial
markets. For the fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010, sales to
non-U.S. customers accounted for 45.5%, 42.1% and 33.3% of total revenue, respectively. For the fiscal year
ended December 31, 2011, we generated 10.5% of total revenue from our Japanese distributor of our consumer
products, Sales on Demand Corporation. For the fiscal years ended December 31, 2011, January 1, 2011 and
January 2, 2010, U.S. federal government orders, contracts and subcontracts accounted for 36.1%, 38.4% and
36.9% of total revenue, respectively. For the fiscal years ended December 31, 2011 and January 1, 2011, we
generated 9.4% and 17.4% of total revenue from The Boeing Company as a subcontractor under U.S. federal
government contracts. For the year ended December 31, 2011 we generated 23.6% of our revenue from two of
our international distributors of consumer products: Sales on Demand Corporation (representing our Japanese
market) and Robopolis (one of our European distributors of consumer products).
Home Robots
In the United States and Canada, we sell our consumer products through a network of national retailers. In
2011, this network consisted of more than 30 retailers which often sell either one or some combination of our
products. Certain smaller domestic retail operations are supported by distributors to whom we sell product
directly. In support of these sales activities, we maintain an in-house sales and product management team.
Outside of the United States and Canada, our products have been sold in more than 40 countries, primarily
through a network of in-country distributors who resell to retail stores in their respective countries. These
distributors are supported by our international sales and product marketing team.
Our retail and distributor networks are our primary distribution channels for our consumer products. We
also offer products direct-to-consumer through our domestic and international on-line stores, representing 9.6%
and 11.5% of total home robots division revenue for fiscal 2011 and 2010, respectively. We have established
valuable databases and customer lists that allow us to target directly those consumers most likely to purchase a
new robot or upgrade. We believe we maintain a close connection with our customers in each of our markets,
which provides an enhanced position from which to improve our distribution and product offerings.
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