iRobot 2007 Annual Report Download - page 75

manufacturing overhead. For the years ended December 29, 2007 and December 30, 2006, gross profit was 33.2%
and 36.9% of total revenue, respectively.
As a result of our change in accounting from a “sell-through” to “sell-in” basis in the first quarter of 2004, we
recognized $2.5 million of gross profit in the first quarter of 2004, which disproportionately increased our gross
profit as a percentage of revenues in that quarter and in 2004.
Research and Development Expenses
Research and development expenses consist primarily of:
• salaries and related costs for our engineers;
• costs for high technology components used in product and prototype development; and
• costs of test equipment used during product development.
We have significantly expanded our research and development capabilities and expect to continue to expand
these capabilities in the future. An example of this is the engineering design center we opened in India late in 2005.
A substantial portion of our research and development is performed in the United States, although we maintain an
increasing number of engineering personnel in India and Hong Kong to serve as a liaison between our U.S.-based
engineering staff and our outsourced manufacturer in China. We are committed to increasing the level of innovative
design and development of new products as we strive to enhance our ability to serve our existing consumer and
military markets as well as new markets for robots. Accordingly, we anticipate that research and development
expenses will continue to increase in absolute dollars for the foreseeable future.
For the fiscal years ended December 29, 2007 and December 30, 2006, research and development expense was
$17.1 million and $17.0 million, or 6.9% and 9.0% of total revenue, respectively.
In addition to our internal research and development activities discussed above, we incur research and
development expenses under funded development arrangements with both governments and other third parties. For
the fiscal years ended December 29, 2007 and December 30, 2006, these expenses amounted to $18.8 million and
$15.6 million, respectively. In accordance with generally accepted accounting principles, these expenses have been
classified as cost of revenue rather than research and development expense.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of:
• salaries and related costs for sales and marketing personnel;
• salaries and related costs for executives and administrative personnel;
• advertising, marketing and other brand-building costs;
• fulfillment costs associated with direct-to-consumer sales through the iRobot on-line store;
• customer service costs;
• professional services costs;
• information systems and infrastructure costs;
• travel and related costs; and
• occupancy and other overhead costs.
As we focus on increasing our market penetration and continuing to build brand awareness, we anticipate that
selling, general and administrative expenses will continue to increase in absolute dollars for the foreseeable future,
as we intend to continue aggressively building on the iRobot brand.
For the fiscal years ended December 29, 2007 and December 30, 2006, selling, general and administrative
expense was $65.8 million and $52.7 million, or 26.4% and 27.9% of total revenue, respectively.
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Form 10-K