Balance Sheet Components

Deferred Revenue

Deferred revenue consists of deferred shipments in transit for which control has not yet transferred, deferred software, or amounts allocated to mobile dashboard and on-line apps and unspecified upgrade rights, and deferred subscription-based services for which payments have been received by the customer prior to revenue recognition of these performance obligations. The deferred shipments performance obligation is anticipated to be recognized within the next quarter. The deferred software and deferred subscription-based services performance obligations are anticipated to be recognized over the useful life or service periods of twelve to seventeen months.

Changes in the total short-term and long-term deferred revenue balance were as follows (in thousands):



	Three Months Ended			Six Months Ended
	June 30, 2018			June 30, 2018

Beginning balances	$	36,448		$	42,432
Deferral of revenue	8,328			15,708
Recognition of deferred revenue	(11,941		)	(25,305		)
Ending balances	$	32,835		$	32,835

Revenue Returns Reserve

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



	Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017

Beginning balances	$	82,612		$	68,317		$	109,872		$	98,851
Increases	36,929			48,285			63,001			89,911
Write-offs/Returns taken	(44,545		)	(65,082		)	(97,877		)	(137,242		)
Ending balances	$	74,996		$	51,520		$	74,996		$	51,520

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

Inventories

Inventories consisted of the following (in thousands):



	June 30, 2018		December 31, 2017
	June 30, 2018		December 31, 2017

Components	11,687		3,825
Finished goods	128,743		120,070
Total inventories	$	140,430	$	123,895

Prepaid Expenses and Other Current Assets

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



	June 30, 2018		December 31, 2017
	June 30, 2018		December 31, 2017

POP displays, net	$	10,345	$	14,750
Prepaid marketing	2,768		6,074
Derivative assets	5,464		—
Prepaid expenses	14,482		24,204
Insurance receivable	—		37,300
Other	30,168		14,941
Total prepaid expenses and other current assets	$	63,227	$	97,269

Property and Equipment, Net

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



	June 30, 2018			December 31, 2017
	June 30, 2018			December 31, 2017

Tooling and manufacturing equipment	$	76,119		$	66,854
Furniture and office equipment	22,509			20,942
Purchased and internally-developed software	20,346			18,112
Leasehold improvements	63,787			58,431
Total property and equipment	182,761			164,339
Less: Accumulated depreciation and amortization	(72,576		)	(59,431		)
Property and equipment, net	$	110,185		$	104,908

Total depreciation and amortization expense related to property and equipment, net was $13.1 million and $10.1 million for the three months ended June 30, 2018 and July 1, 2017, respectively, and $23.6 million and $19.2 million for the six months ended June 30, 2018 and July 1, 2017, respectively.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill were as follows (in thousands):



	Goodwill
	Goodwill

Balance at December 31, 2017	$	51,036
Goodwill acquired	10,022
Balance at June 30, 2018	$	61,058

The increase in the carrying amount of goodwill during the six months ended June 30, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information.

The carrying amounts of the intangible assets as of June 30, 2018 and December 31, 2017 were as follows (in thousands, except useful life):



	June 30, 2018							December 31, 2017							Weighted Average Remaining Useful Life (years)
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Weighted Average Remaining Useful Life (years)

Developed technology	$	35,988	$	(12,249	)	$	23,739	$	30,588	$	(8,738	)	$	21,850	3.4
Customer relationships	3,918		(308		)	3,610		—		—			—		6.4
Trademarks and other	1,150		(759		)	391		1,278		(772		)	506		0.6
Total intangible assets, net	$	41,056	$	(13,316	)	$	27,740	$	31,866	$	(9,510	)	$	22,356

The increase in the carrying amount of goodwill during the six months ended June 30, 2018 was attributable to an acquisition in February 2018. See Note 11 for additional information. Total amortization expense related to intangible assets was $2.1 million and $1.4 million for the three months ended June 30, 2018 and July 1, 2017, respectively, and $3.8 million and 2.8 million for the six months ended June 30, 2018 and July 1, 2017, respectively.

The estimated future amortization expense of acquired finite-lived intangible assets to be charged to cost of revenue and operating expenses after June 30, 2018 was as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total

Remaining 2018	$	3,735	$	386	$	4,121
2019	6,690		771		7,461
2020	5,910		588		6,498
2021	5,910		541		6,451
2022	1,236		541		1,777
Thereafter	258		1,174		1,432
Total finite-lived intangible assets, net	$	23,739	$	4,001	$	27,740

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	June 30, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Product warranty	$	50,468	$	87,882
Accrued revenue reserve from returns	74,996		—
Accrued manufacturing expense and freight	34,493		41,901
Accrued sales incentives	87,756		111,592
Accrued sales and marketing	24,693		44,401
Accrued research and development	4,819		8,983
Accrued co-op advertising and marketing development funds	19,521		30,408
Employee-related liabilities	23,054		33,266
Sales taxes and VAT payable	26,127		21,340
Inventory received but not billed	4,615		10,526
Accrued legal settlements and fees	4,819		36,693
Derivative liabilities	736		2,138
Other	20,961		23,007
Accrued liabilities	$	377,058	$	452,137

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



	Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017

Beginning balances	$	71,975		$	90,459		$	87,882		$	99,923
Charged to cost of revenue	(8,486		)	(1,595		)	(10,967		)	17,342
Changes related to pre-existing warranties	(4,469		)	4,913			(7,872		)	2,473
Settlement of claims	(8,552		)	(21,016		)	(18,575		)	(46,977		)
Ending balances	$	50,468		$	72,761		$	50,468		$	72,761


⁽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.

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 completed the reorganization in the fourth quarter of 2017.

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, 2017	$	66		$	—	$	(75	)	$	(9	)
Other comprehensive income (loss) before reclassifications	5,912			—		(208		)	5,704
Amounts reclassified from AOCI	(1,028		)	—		12			(1,016		)
Other comprehensive income (loss)	4,884			—		(196		)	4,688
Balance at June 30, 2018	$	4,950		$	—	$	(271	)	$	4,679