iRobot 2015 Annual Report Download - page 99

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We have recently begun to spend significant amounts on advertising and other marketing campaigns, which may not be
successful or cost effective.
We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as television,
print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect our
marketing expenses to increase in the future as we continue to spend significant amounts to increase awareness of our home
robot products. For the years ended January 2, 2016, December 27, 2014 and December 28, 2013, sales and marketing
expenses were $97.8 million, $86.1 million and $71.5 million, respectively, representing approximately 15.9%, 15.5% and
14.7% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most
likely to encourage people to purchase our products, we may fail to identify advertising opportunities that satisfy our
anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the
conditions and behaviors that drive customer behavior. If any of our advertising campaigns prove less successful than
anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet
market expectations, either of which could have an adverse effect on our business. There can be no assurance that our
advertising and other marketing efforts will result in increased sales of our products.
Our contracts with the U.S. federal government contain certain provisions that may be unfavorable to us and subject us
to government audits, which could materially harm our business and results of operations.
Our contracts and subcontracts with the U.S. federal government subject us to certain risks and give the U.S. federal
government rights and remedies not typically found in commercial contracts, including rights that allow the U.S. federal
government to:
• 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
Form 10-K