iRobot 2015 Annual Report Download - page 97

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The majority 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 January 2, 2016, December 27, 2014 and December 28, 2013, we derived 90.7%, 91.1% and 87.8%
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 have signed a definitive agreement to divest our defense and security business unit. If we are unable to consummate
this transaction, we may be subject to significant reputational, financial, and operational consequences.
On February 2, 2016, we entered into an Asset Purchase Agreement with iRobot Defense Holdings, Inc., a recently-
formed portfolio company of Arlington Capital Partners, which provides for the sale of our defense and security business unit.
Consummation of this transaction is subject to the satisfaction of customary closing conditions for transactions of this type. If
these closing conditions are not satisfied, Buyer may not be obligated to consummate the purchase of our defense and security
business unit. We believe that, if this transaction is not completed, our continued operation of our defense and security business
unit may be adversely affected as a result of the public disclosure of our intention to divest this business unit, including
harming relationships with key customers and suppliers and our ability to retain key employees within the defense and security
business unit. In addition, if the transaction is not consummated, we may be unable to enter into a similar transaction with
another party or may be unable to enter into a transaction with financial or other terms as favorable as those provided in the
asset purchase agreement with the buyer.
Although we have signed a definitive agreement to divest our defense and security business unit, we currently depend on
the U.S. federal government for a 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 January 2, 2016, December 27, 2014 and December 28, 2013, we derived 5.1%, 4.3% and 6.2% of
our total revenue, respectively, directly or indirectly, from the U.S. federal government and its agencies. If we are unable to
complete the divestiture of our defense and security business unit, further 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.
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 current government spending
priorities.
If we are unable to complete the divestiture of our defense and security business unit, 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 programs under which U.S. federal government agencies will seek to fund the
development of, or purchase, robots. 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.
Form 10-K