iRobot 2008 Annual Report Download - page 97

Gross margin increased 18.4% to $82.6 million in fiscal 2007, from $69.7 million in fiscal 2006. Gross margin
as a percentage of revenue decreased to 33.2% in fiscal 2007 from 36.9% of revenue in fiscal 2006. This
3.7 percentage decrease in gross margin was the result of the home robots division gross margin decreasing
7.2 percentage points partially offset by the government and industrial gross margin increasing 1.3 percentage
points, and the higher mix of government and industrial revenue in fiscal 2007 as compared to fiscal 2006. The
home robots division decrease was driven primarily by higher average unit costs due to the mix of higher cost
products and increased battery costs, while the government and industrial increase was driven by the mix of higher
margin products and a higher percentage of product revenue as compared to contract revenue in fiscal 2007 as
compared to fiscal 2006.
Research and Development
December 29,
2007 December 30, 2006 Dollar Change Percent Change
Fiscal Year Ended
(In thousands)
Total research and development...... $17,082 $17,025 $57 0.3%
As a percentage of total revenue ..... 6.9% 9.0%
Research and development expenses increased by $0.1 million or 0.3% to $17.1 million (6.9% of revenue) in
fiscal 2007, from $17.0 million (9.0% of revenue) for fiscal 2006. The home robots division research and
development expenses increased in fiscal 2007 as compared to fiscal 2006 due to hiring, depreciation and costs
associated with the India design center, offset by reductions in the government and industrial division. This
reduction in government and industrial expenses was largely attributable to the fact that 2006 expenses included
accelerated spending as a result of our decision to invest higher than planned earnings in research and development
activities, a strategy that was not repeated in 2007.
Overall internal research and development headcount increased to 105 at December 29, 2007 compared to 104
as of December 30, 2006, an increase of one employee.
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 industrial third parties.
For fiscal 2007 these expenses amounted to $18.8 million compared to $15.6 million for the comparable period in
2006. The increase in these expenses was primarily due to increased headcount in our contract research and
development function to 64 employees at December 29, 2007 from 58 employees at December 30, 2006. In
accordance with generally accepted accounting principles, these expenses have been classified as cost of revenue
rather than research and development expense as they are executed under funded research contracts.
Selling and Marketing
December 29,
2007 December 30, 2006 Dollar Change Percent Change
Fiscal Year Ended
(In thousands)
Total selling and marketing ......... $44,894 $33,969 $10,925 32.2%
As a percentage of total revenue ..... 18.0% 18.0%
Selling and marketing expenses increased by $10.9 million or 32.2% to $44.9 million (18.0% of revenue) in
fiscal 2007 from $34.0 million (18.0% of revenue) in fiscal 2006.
The $8.7 million increase in the home robot division selling and marketing expense was primarily driven by a
$12 million increase in costs associated with our increased direct business, including both website sales and
infomercial programs which were run earlier in the year, offset by lower television media expenses. Additionally,
trade shows and other marketing related activities increased by $1.3 million, people related costs increased by
$0.7 million and sales commissions increased by $0.6 million.
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Form 10-K