iRobot 2005 Annual Report Download - page 16

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Since 2002, we have outsourced the manufacturing of our consumer products to one contract manufac-
turer, Jetta Company Limited at a single plant in China. Jetta Company Limited has been manufacturing
products since 1977 and brings substantial experience to our production requirements. Jetta Company Limited
has several manufacturing locations and last year expanded one of its facilities to increase capacity for the
production of our Roomba and Scooba robots. Combined with our own engineering operations in India and
Hong Kong, this allows us to design our products in the United States, use our own engineers in India and
Hong Kong as the technical interface with the facilities in China, and benefit from the experience of Jetta
Company Limited and its engineers.
Our government and industrial products are manufactured by Gem City Engineering Corporation at one
plant in Dayton, Ohio. Gem City Engineering Corporation's location is particularly important as military
products supplied to the U.S. government must have the majority of their content manufactured in the United
States. Gem City Engineering Corporation has multiple facilities and relies on other subcontractors for certain
component manufacturing capabilities. Gem City Engineering Corporation has been in the business of
manufacturing primarily metal-tooled products since 1936, and has produced numerous products for military
contractors. We believe that their engineers are skilled in the production of products meeting military
specifications, preparing final products for military inspection and conducting quality reviews.
Research and Development
We believe that our future success depends upon our ability to continue to develop new products and
product accessories, and enhancements to and applications for our existing products. For the years ended
December 31, 2005, 2004 and 2003, our research and development expenses were $11.5 million, $5.5 million
and $3.8 million, respectively. In addition to our internal research and development activities, for the years
ended December 31, 2005, 2004 and 2003, we have incurred research and development expenses under funded
development arrangements with governments and industrial third parties of $12.5 million, $8.4 million and
$6.1 million, respectively. Of our total research and development spending in 2005 and 2004, approximately
37.2% and 41.7%, respectively was funded by government-sponsored research and development contracts. We
intend to accelerate our investment in research and development to respond to and anticipate customer needs,
and to enable us to introduce new products over the next few years that will continue to address our existing
market sectors.
Team Organization
Our research and development is conducted by small teams of individuals dedicated to particular
projects. Current research and development teams include the Roomba team, Scooba team, NEOMover team
and PackBot team. Teams are typically comprised of less than ten employees including one team leader and
electrical, software and mechanical engineers. In connection with our FCS SUGV program involving more
than 50 employees, we have instituted a formal integrated product team structure consisting of integrated
System of Systems, Integrated Logistical Support, Program Operations and Business Operations teams to
work together to deliver a platform that integrates with the FCS system of systems.
Global Engineering
Our research and development efforts are primarily located at our headquarters in Burlington, Massachu-
setts, and our special projects' engineering office in San Luis Obispo, California. In addition, we have an
engineering design center in India and a product development team working out of Hong Kong. Our global
engineering development process for consumer products allows us to leverage the time differences between our
United States operations and our teams in Asia resulting in a fast, low cost global design and manufacturing
cycle. The first stage of the cycle takes place in our Burlington, Massachusetts office where we focus on
product definition, prototyping, market research and financial analysis. We then create a design that is
manufacturable, complete modeling and simulation and initial validation of the product/market concept.
After the initial development of the prototypes, we leverage the teams in India and Hong Kong for the
production stage of the cycle. During this stage, engineers on two continents work around the clock on refining
the designs, preparing the product for manufacturing and working through the issues for pilot production,
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