Balance Sheet Components

Revenue Returns Reserve

Revenue returns reserve activities were as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016

Beginning balances	$	51,520		$	80,277		$	98,851		$	74,045
Increases	146,356			46,654			236,267			166,205
Returns taken	(135,978		)	(59,763		)	(273,220		)	(173,082		)
Ending balances	$	61,898		$	67,168		$	61,898		$	67,168

Increases in the revenue returns reserve include provisions for open box returns and stock rotations.

Inventories

Inventories consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
	September 30, 2017		December 31, 2016

Components	$	9,072	$	1,035
Finished goods	129,709		229,352
Total inventories	$	138,781	$	230,387

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):



	September 30, 2017			December 31, 2016


Income tax receivable	$	96,467		$	481
POP displays, net	16,189			22,804
Prepaid marketing	3,865			5,764
Derivative assets	1,307			10,625
Prepaid expenses	16,508			17,161
Insurance receivable	26,795		—	—
Other	12,523			9,511
Total prepaid expenses and other current assets	$	173,654		$	66,346

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):



	September 30, 2017			December 31, 2016
	September 30, 2017			December 31, 2016

Tooling and manufacturing equipment	$	55,713		$	60,944
Furniture and office equipment	18,463			14,424
Purchased and internally-developed software	18,524			12,032
Leasehold improvements	45,867			28,489
Total property and equipment	138,567			115,889
Less: Accumulated depreciation and amortization	(47,744		)	(39,336		)
Property and equipment, net	$	90,823		$	76,553

Goodwill and Intangible Assets

The carrying amount of goodwill was $51.0 million as of September 30, 2017 and December 31, 2016. See Note 11 for additional information.

The carrying amounts of the intangible assets as of September 30, 2017 and December 31, 2016 were as follows (in thousands, except useful life). In-process research and development is not amortized until the completion or abandonment of the related development.



	September 30, 2017							December 31, 2016							Weighted Average Remaining Useful Life (years)
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Weighted Average Remaining Useful Life (years)

Developed technology	$	26,648	$	(7,209	)	$	19,439	$	26,092	$	(3,247	)	$	22,845	4.7
Trademarks and other	1,278		(714		)	564		1,278		(542		)	736		1.2
Total finite-lived intangible assets subject to amortization, net	27,926		(7,923		)	20,003		27,370		(3,789		)	23,581
In-process research and development	3,940		—			3,940		3,940		—			3,940
Total intangible assets, net	$	31,866	$	(7,923	)	$	23,943	$	31,310	$	(3,789	)	$	27,521

Total amortization expense related to intangible assets was $1.4 million and $0.5 million for the three months ended September 30, 2017 and October 1, 2016, respectively, and $4.1 million and $1.6 million for the nine months ended September 30, 2017 and October 1, 2016, respectively.

The estimated future amortization expense of acquired finite-lived intangible assets to be charged to cost of revenue and operating expenses after September 30, 2017 is as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total

Remaining 2017	$	1,333	$	58	$	1,391
2018	5,332		230		5,562
2019	4,552		230		4,782
2020	3,772		46		3,818
2021	3,772		—		3,772
Thereafter	678		—		678
Total finite-lived intangible assets, net	$	19,439	$	564	$	20,003

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
	September 30, 2017		December 31, 2016
Product warranty	$	86,679	$	99,923
Accrued manufacturing expense and freight	43,045		75,579
Accrued sales incentives	66,237		74,181
Accrued sales and marketing	28,711		41,948
Accrued co-op advertising and marketing development funds	18,273		40,002
Sales taxes and VAT payable	17,098		8,891
Employee-related liabilities	28,484		13,934
Inventory received but not billed	5,663		7,363
Accrued legal fees	7,319		3,963
Derivative liabilities	11,826		3,780
Other	32,822		20,997
Accrued liabilities	$	346,157	$	390,561

Product warranty reserve activities were as follows (in thousands)⁽¹⁾:



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016

Beginning balances	$	72,761		$	76,841		$	99,923		$	40,212
Charged to cost of revenue	26,825			47,042			44,167			148,494
Changes related to pre-existing warranties	5,669			(18,727		)	8,142			(19,214		)
Settlement of claims	(18,576		)	(42,215		)	(65,553		)	(106,551		)
Ending balances	$	86,679		$	62,941		$	86,679		$	62,941


⁽¹⁾	Does not include reserves established as a result of the recall of the Fitbit Force. See the section titled “—Fitbit Force Recall Reserve” in the Company’s Annual Report on Form 10-K for additional information regarding such reserves.

In the first quarter of 2017, the Company corrected the allocation of customer support costs and freight and fulfillment to the amounts reported in “Charged to cost of revenue” and “Settlement of claims.” Those costs are included in the beginning and ending balances. Further, the Company does not consider this adjustment to be material and there was no impact to its condensed consolidated balance sheets and statements of operations.

Restructuring

In January 2017, the Company announced cost-efficiency measures to be implemented in 2017 that include realigning sales and marketing spend and improved optimization of research and development investments. In addition, the Company announced a reorganization, including a reduction in workforce. This reorganization impacted approximately 110 employees, or approximately 6% of the Company’s global workforce. The Company recorded $6.4 million in total restructuring expenses, substantially all of which were severance and related costs, in the first quarter of 2017. The Company anticipates that it will substantially complete the reorganization by the end of the fourth quarter of 2017.

The restructuring reserve activities were as follows (in thousands):



	Three Months Ended					Nine Months Ended
	September 30, 2017			October 1, 2016		September 30, 2017			October 1, 2016

Beginning balance	$	1,022		$	—	$	—		$	—
Restructuring charges	—			—		6,375			—
Cash paid	(359		)	—		(4,984		)	—
Other - noncash	—			—		(728		)	—
Ending balance	$	663		$	—	$	663		$	—

Accumulated Other Comprehensive Income (Loss)

The components and activity of accumulated other comprehensive income (“AOCI”), net of tax, were as follows (in thousands):



	Unrealized Gains (Losses) on Cash Flow Hedges			Currency Translation Adjustments			Unrealized Gains (Losses) on Available-for-Sale Investments			Total

Balance at December 31, 2016	$	(477	)	$	(314	)	$	(187	)	$	(978	)
Other comprehensive income (loss) before reclassifications	(20,582		)	314			133			(20,135		)
Amounts reclassified from AOCI	8,264			—			(12		)	8,252
Other comprehensive income (loss)	(12,318		)	314			121			(11,883		)
Balance at September 30, 2017	$	(12,795	)	$	—		$	(66	)	$	(12,861	)