Company Quick10K Filing
Quick10K
Irobot
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$62.11 28 $1,742
10-Q 2019-09-28 Quarter: 2019-09-28
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-09-26 Quarter: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-K 2014-12-27 Annual: 2014-12-27
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-09-10 Officers
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-07-08 Officers, Regulation FD, Exhibits
8-K 2019-05-22 Shareholder Vote
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-26 Officers, Regulation FD, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-03-29 Officers
8-K 2018-02-27 Other Events, Exhibits
8-K 2018-02-07 Earnings, Exhibits
GE General Electric 70,203
SNE Sony 69,429
EMR Emerson Electric 35,567
AOS AO Smith 7,800
SONO Sonos 1,406
UEIC Universal Electronics 625
NC Nacco Industries 349
MSN Emerson Radio 22
KOSS Koss 14
IMTE Integrated Media Technology 0
IRBT 2019-09-28
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 irbtexhibit31192819.htm
EX-31.2 irbtexhibit31292819.htm
EX-32.1 irbtexhibit32192819.htm

Irobot Earnings 2019-09-28

IRBT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 28, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
COMMISSION FILE NUMBER 001-36414
______________________________________________ 
iROBOT CORPORATION
(Exact name of registrant as specified in its charter)
 ______________________________________________
Delaware
77-0259335
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices, including zip code)

(781) 430-3000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
IRBT
The Nasdaq Stock Market LLC
______________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
 
 
 
 
        

 
 
 

Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x 
The number of shares outstanding of the Registrant’s Common Stock as of October 26, 2019 was 28,270,544.

 
 
 
 
 
        




iROBOT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 2019
INDEX
 
Page
PART I: FINANCIAL INFORMATION
 
 
Item 1. Financial Statements (unaudited)
 
 
 
 
 

2






iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
 
September 28, 2019
 
December 29, 2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
70,542

 
$
130,373

Short term investments
20,530

 
31,605

Accounts receivable, net
169,562

 
162,166

Inventory
248,303

 
164,633

Other current assets
39,112

 
25,660

   Total current assets
548,049

 
514,437

Property and equipment, net
75,019

 
57,026

Operating lease right-of-use assets
48,948

 

Deferred tax assets
37,177

 
36,979

Goodwill
117,537

 
118,896

Intangible assets, net
14,931

 
24,273

Other assets
32,003

 
15,350

   Total assets
$
873,664

 
$
766,961

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
108,331

 
$
136,742

Accrued expenses
70,586

 
71,259

Deferred revenue and customer advances
4,902

 
5,756

   Total current liabilities
183,819

 
213,757

Operating lease liabilities
56,341

 

Deferred tax liabilities
1,560

 
4,005

Other long-term liabilities
9,059

 
13,877

   Total long-term liabilities
66,960

 
17,882

   Total liabilities
250,779

 
231,639

Commitments and contingencies (Note 11)


 


Preferred stock, 5,000 shares authorized and none outstanding

 

Common stock, $0.01 par value, 100,000 shares authorized; 28,245 and 27,788 shares issued and outstanding, respectively
282

 
278

Additional paid-in capital
189,268

 
172,771

Retained earnings
432,280

 
367,021

Accumulated other comprehensive income (loss)
1,055

 
(4,748
)
   Total stockholders’ equity
622,885

 
535,322

   Total liabilities and stockholders’ equity
$
873,664

 
$
766,961

The accompanying notes are an integral part of the consolidated financial statements.

3




iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Revenue
$
289,399

 
$
264,534

 
$
787,232

 
$
707,919

Cost of revenue:
 
 
 
 
 
 
 
Cost of product revenue
149,463

 
124,754

 
403,392

 
324,967

Amortization of acquired intangible assets
3,095

 
4,574

 
9,283

 
14,035

Total cost of revenue
152,558

 
129,328

 
412,675

 
339,002

Gross profit
136,841

 
135,206

 
374,557

 
368,917

Operating expenses:
 
 
 
 
 
 
 
Research and development
33,401

 
35,309

 
104,320

 
103,178

Selling and marketing
42,257

 
39,030

 
137,502

 
116,269

General and administrative
18,372

 
23,329

 
61,871

 
72,630

Amortization of acquired intangible assets
256

 
263

 
796

 
805

Total operating expenses
94,286

 
97,931

 
304,489

 
292,882

Operating income
42,555

 
37,275

 
70,068

 
76,035

Other income, net
900

 
337

 
3,713

 
2,363

Income before income taxes
43,455

 
37,612

 
73,781

 
78,398

Income tax expense
7,923

 
5,683

 
8,522

 
15,597

Net income
$
35,532

 
$
31,929

 
$
65,259

 
$
62,801

Net income per share:
 
 
 
 
 
 
 
Basic
$
1.26

 
$
1.16

 
$
2.33

 
$
2.27

Diluted
$
1.24

 
$
1.12

 
$
2.27

 
$
2.19

Number of shares used in per share calculations:
 
 
 
 
 
 
 
Basic
28,154

 
27,493

 
28,029

 
27,692

Diluted
28,650

 
28,506

 
28,759

 
28,629


The accompanying notes are an integral part of the consolidated financial statements.

4




iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net income
$
35,532

 
$
31,929

 
$
65,259

 
$
62,801

Other comprehensive income (loss):
 
 
 
 
 
 
 
Net foreign currency translation adjustments
(4,902
)
 
1,826

 
(5,578
)
 
(3,960
)
Net unrealized gains (losses) on cash flow hedges, net of tax
8,175

 
272

 
11,437

 
40

Net (gains) losses on cash flow hedge reclassified into earnings, net of tax
(138
)
 
(412
)
 
(300
)
 
9

Net unrealized gains (losses) on marketable securities, net of tax
36

 
(28
)
 
244

 
(113
)
Total comprehensive income
$
38,703

 
$
33,587

 
$
71,062

 
$
58,777

The accompanying notes are an integral part of the consolidated financial statements.

5




iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

 
Three Months Ended
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
 
Stockholders’
Equity
 
Shares
 
Value
 
Balance at June 29, 2019
28,123

 
$
281

 
$
184,663

 
$
396,748

 
$
(2,116
)
 
$
579,576

Issuance of common stock under employee stock plans
9

 

 
301

 
 
 
 
 
301

Vesting of restricted stock units
113

 
1

 
(1
)
 
 
 
 
 

Stock-based compensation
 
 
 
 
4,284

 
 
 
 
 
4,284

Other comprehensive income
 
 
 
 
 
 
 
 
3,171

 
3,171

Directors' deferred compensation
 
 
 
 
21

 
 
 
 
 
21

Net income
 
 
 
 
 
 
35,532

 
 
 
35,532

Balance at September 28, 2019
28,245

 
$
282

 
$
189,268

 
$
432,280

 
$
1,055

 
$
622,885


 
Nine Months Ended
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
 
Stockholders’
Equity
 
Shares
 
Value
 
Balance at December 29, 2018
27,788

 
$
278

 
$
172,771

 
$
367,021

 
$
(4,748
)
 
$
535,322

Issuance of common stock under employee stock plans
125

 
1

 
4,980

 

 

 
4,981

Vesting of restricted stock units
391

 
4

 
(4
)
 

 

 

Stock-based compensation


 


 
18,742

 

 

 
18,742

Stock withheld to cover tax withholdings requirements upon restricted stock vesting
(59
)
 
(1
)
 
(7,276
)
 

 

 
(7,277
)
Other comprehensive income


 


 


 

 
5,803

 
5,803

Directors' deferred compensation


 


 
55

 

 


 
55

Net income


 


 


 
65,259

 

 
65,259

Balance at September 28, 2019
28,245

 
$
282

 
$
189,268

 
$
432,280

 
$
1,055

 
$
622,885

The accompanying notes are an integral part of the consolidated financial statements.










6




iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
 
Three Months Ended
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
 
Stockholders’
Equity
 
Shares
 
Value
 
Balance at June 30, 2018
27,402

 
$
274

 
$
151,556

 
$
309,901

 
$
(3,690
)
 
$
458,041

Issuance of common stock under employee stock plans
149

 
2

 
5,340

 
 
 
 
 
5,342

Vesting of restricted stock units
120

 
1

 
(1
)
 
 
 
 
 

Stock-based compensation
 
 
 
 
6,592

 
 
 
 
 
6,592

Other comprehensive income
 
 
 
 
 
 
 
 
1,658

 
1,658

Directors' deferred compensation
 
 
 
 
16

 
 
 
 
 
16

Net income
 
 
 
 
 
 
31,929

 
 
 
31,929

Balance at September 29, 2018
27,671

 
$
277

 
$
163,503

 
$
341,830

 
$
(2,032
)
 
$
503,578


 
Nine Months Ended
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
 
Stockholders’
Equity
 
Shares
 
Value
 
Balance at December 30, 2017
27,945

 
$
279

 
$
190,067

 
$
277,989

 
$
1,992

 
$
470,327

Issuance of common stock under employee stock plans
216

 
3

 
7,945

 
 
 
 
 
7,948

Vesting of restricted stock units
360

 
4

 
(4
)
 
 
 
 
 

Stock-based compensation
 
 
 
 
18,969

 
 
 
 
 
18,969

Stock withheld to cover tax withholdings requirements upon restricted stock vesting
(51
)
 
(1
)
 
(3,531
)
 
 
 
 
 
(3,532
)
Other comprehensive income
 
 
 
 
 
 
 
 
(4,024
)
 
(4,024
)
Directors' deferred compensation
 
 
 
 
49

 
 
 
 
 
49

Share repurchases
(799
)
 
(8
)
 
(49,992
)
 
 
 
 
 
(50,000
)
Cumulative effect of a change in accounting principle related to adoption of ASC 606
 
 
 
 
 
 
1,040

 
 
 
1,040

Net income
 
 
 
 
 
 
62,801

 
 
 
62,801

Balance at September 29, 2018
27,671

 
$
277

 
$
163,503

 
$
341,830

 
$
(2,032
)
 
$
503,578

The accompanying notes are an integral part of the consolidated financial statements.


7




iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
Cash flows from operating activities:
 
 
 
Net income
$
65,259

 
$
62,801

Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of the effects of acquisition:
 
 
 
Depreciation and amortization
27,744

 
27,000

Stock-based compensation
18,742

 
18,969

Deferred income taxes, net
(5,873
)
 
(4,296
)
Other
4,687

 
1,032

Changes in operating assets and liabilities — (use) source
 
 
 
Accounts receivable
(10,948
)
 
31,930

Inventory
(83,863
)
 
(54,619
)
Other current assets
(8,155
)
 
(18,418
)
Accounts payable
(27,256
)
 
(10,512
)
Accrued expenses and other liabilities
(11,916
)
 
(13,594
)
Net cash (used in) provided by operating activities
(31,579
)
 
40,293

Cash flows from investing activities:
 
 
 
Additions of property and equipment
(27,080
)
 
(25,284
)
Change in other assets
(5,336
)
 
(2,263
)
Proceeds from sale of equity investment

 
856

Cash paid for business acquisition, net of cash acquired
(2,817
)
 

Purchases of investments

 
(6,438
)
Sales and maturities of investments
9,380

 
10,500

Net cash used in investing activities
(25,853
)
 
(22,629
)
Cash flows from financing activities:
 
 
 
Proceeds from employee stock plans
4,981

 
7,948

Income tax withholding payment associated with restricted stock vesting
(7,277
)
 
(3,532
)
Stock repurchases

 
(50,000
)
Net cash used in financing activities
(2,296
)
 
(45,584
)
Effect of exchange rate changes on cash and cash equivalents
(103
)
 
(593
)
Net decrease in cash and cash equivalents
(59,831
)
 
(28,513
)
Cash and cash equivalents, at beginning of period
130,373

 
128,635

Cash and cash equivalents, at end of period
$
70,542

 
$
100,122

The accompanying notes are an integral part of the consolidated financial statements.

8




iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
iRobot Corporation ("iRobot" or the "Company") designs and builds robots that empower people to do more. The Company develops robotic technology and applies it to produce and market consumer robots. The Company’s revenue is primarily generated from product sales through distributor and retail sales channels, as well as its on-line stores.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In addition, certain prior year amounts have been reclassified to conform to the current year presentation.
In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of results for the full fiscal year or any future periods. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the Securities and Exchange Commission on February 14, 2019.
The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, the Company’s fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter.
Use of Estimates
The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses. These estimates and judgments include, but are not limited to, revenue recognition, including performance obligations, variable consideration and other obligations such as product returns and incentives; warranty costs; valuation of goodwill and acquired intangible assets; valuation of financial instruments; evaluating loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. The Company bases these estimates and judgments on historical experience, market participant fair value considerations, projected future cash flows and various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Other Assets
The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes. At September 28, 2019 and December 29, 2018, other assets consisted primarily of equity securities without readily determinable fair values and an equity method investment totaling $22.4 million and $15.1 million, respectively. On October 17, 2019, the Company disposed of one of these non-marketable equity securities, resulting in a gain of approximately $8.0 million which will be recorded as other income during the fourth quarter of fiscal 2019.
Net Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding common shares. Diluted income
per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock
awards as determined under the treasury stock method.


9

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents the calculation of both basic and diluted net income per share (in thousands, except per share amounts): 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net income
$
35,532

 
$
31,929

 
$
65,259

 
$
62,801

Basic weighted-average common shares outstanding
28,154

 
27,493

 
28,029

 
27,692

Dilutive effect of employee stock awards
496

 
1,013

 
730

 
937

Diluted weighted-average common shares outstanding
28,650

 
28,506

 
28,759

 
28,629

Basic income per share
$
1.26

 
$
1.16

 
$
2.33

 
$
2.27

Diluted income per share
$
1.24

 
$
1.12

 
$
2.27

 
$
2.19

Employee stock awards representing approximately 0.4 million and 0.0 million shares of common stock for the three months ended September 28, 2019 and September 29, 2018, respectively, and approximately 0.1 million shares of common stock for the nine months ended September 28, 2019 and September 29, 2018, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.
Recently Adopted Accounting Standards
In June 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-07, "Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (Topic 718)." The amendments in ASU No. 2018-07 expand the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services. The amendments in this ASU are effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. The Company adopted this standard effective December 30, 2018 which did not have a material impact on the Company's consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02 "Leases." This ASU and subsequently issued amendments require lessees to recognize the assets and liabilities on their balance sheet for the rights and obligations created by most leases and continue to recognize expenses on their income statements over the lease term. The standard also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements," which provides an alternative transition method that entities can elect when adopting the new standard. Under this alternative transition method, a company is permitted to use its effective date as the date of initial application without restating comparative period financial statements. The Company adopted the standard effective December 30, 2018 using the alternative transition method which resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $52.8 million and $67.3 million, respectively. The Company's consolidated financial statements as of and for the three and nine months ended September 28, 2019 are presented under the new standard, while the comparative quarter presented is not adjusted and continues to be reported in accordance with the historical accounting policy. See Note 4, "Leases," for the required disclosures related to the impact of adopting this standard and a discussion of the Company's updated policies related to lease accounting.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company intends to adopt the ASU using the prospective method effective December 29, 2019, and does not expect the new standard will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The amendment modifies disclosure requirements related to fair value measurement. The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date. The Company does not believe this amendment will have a material impact on its consolidated financial statements.

10

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments," as clarified in ASU No. 2019-04 and ASU No. 2019-05. The guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments. This may result in the earlier recognition of allowances for losses. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company intends to adopt the ASU effective December 29, 2019. The Company does not believe the new standard will have a material impact on its consolidated financial statements.
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

3. Revenue Recognition
The Company primarily derives its revenue from product sales. The Company sells products directly to consumers through on-line stores and indirectly through resellers and distributors. Revenue is recognized upon transfer of control of promised products or services to customers, generally as title and risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.
The Company’s product portfolio includes various consumer robots, many of which are Wi-Fi connected. The consumer robots are generally highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation, and the revenue is recognized at a point in time when the control is transferred to distributors, resellers or directly to end customers through on-line stores. For consumer robots with Wi-Fi capability ("connected robots"), each sale represents an arrangement with multiple promises consisting of the robot, an app, cloud services and potential future unspecified software upgrades. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). For certain connected robots, the Company has concluded that, on a quantitative and qualitative basis, the Cloud Services do not constitute a material performance obligation and, as such, these services are not considered a separate performance obligation that requires allocation of transaction price.
During the third quarter of 2018, the Company launched Roomba i7 and i7+ which brought a new level of intelligence and automation to robotic vacuum cleaners with the ability to learn, map and adapt to a home's floor plan. The Company has concluded that beginning with this launch, the Cloud Services related to these new products are a material performance obligation. For contracts that contain multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative standalone selling price ("SSP"). The SSP reflects the Company's best estimate of what the selling prices of performance obligations would be if they were sold regularly on a standalone basis. Revenue allocated to the robots is recognized at a point in time when control is transferred. Revenue allocated to the Cloud Services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and services are expected to be provided. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of September 28, 2019 is not material. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
The Company’s products generally carry a one-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees."
Significant Judgments
The Company provides limited rights of returns for direct-to-consumer sales generated through its on-line stores and certain resellers and distributors. In addition, the Company may provide other credits or incentives, including price protection, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and trends and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. As of September 28, 2019, the Company has reserves for product returns of $41.7 million and other credits and incentives of $78.6 million. As of December 29, 2018, the Company had reserves for product returns of $53.9 million and other credits and incentives of $97.7 million. Revenue recognized during the three and nine months

11

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ended September 28, 2019 and September 29, 2018 related to performance obligations satisfied in a prior period was not material.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographical region (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
United States
$
117,929

 
$
127,240

 
$
356,466

 
$
345,628

EMEA
93,688

 
73,831

 
251,150

 
213,541

Other
77,782

 
63,463

 
179,616

 
148,750

Total revenue
$
289,399

 
$
264,534

 
$
787,232

 
$
707,919


Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
 
September 28, 2019
 
December 29, 2018
Accounts receivable, net
$
169,562

 
$
162,166

Contract liabilities
6,412

 
5,756

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities primarily relate to prepayments received from customers in advance of product shipments. The change in the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended September 28, 2019 and September 29, 2018, the Company recognized $1.7 million and $2.2 million, respectively, of the contract liability balance as revenue upon transfer of the products to customers. During the nine months ended September 28, 2019 and September 29, 2018, the Company recognized $5.8 million and $6.7 million, respectively, of the contract liability balance as revenue upon transfer of the products to customers. The Company does not assess whether a prepayment received represents a significant financing component as the period between when the payment is received and the transfer of the products to the customer is generally one year or less.

4. Leases
The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and research and development offices. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease obligation at the present value of lease payments over the term. The Company's leases typically include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts and excludes all variable lease payments from the measurement of right-of-use assets and lease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements do not contain any residual value guarantees or restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense is recognized on a straight-line basis over the lease term.
The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at December 30, 2018 (date of initial application) or the lease commencement date for existing leases upon adoption or new leases post adoption, respectively. At September 28, 2019, the Company's weighted average discount rate was 3.61%, while the weighted average remaining lease term was 9.40 years.

12

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The components of lease expense were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
Operating lease cost
$
2,250

 
$
6,539

Variable lease cost
828

 
2,965

Total lease cost
$
3,078

 
$
9,504


Supplemental cash flow information related to leases was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
2,566

 
$
7,447

Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
460

 
$
53,227


Maturities of operating lease liabilities were as follows as of September 28, 2019 (in thousands):
 
Operating leases
Remainder of 2019
$
1,774

2020
8,798

2021
8,232

2022
7,560

2023
7,109

Thereafter
41,128

Total minimum lease payments
$
74,601

Less: imputed interest
11,953

Present value of future minimum lease payments
$
62,648

Less: current portion of operating lease liabilities (Note 7)
6,307

Long-term lease liabilities
$
56,341



Financial Statement Impact of Adopting ASC 842
The Company adopted ASC 842 effective December 30, 2018 using the alternative transition method. Under this alternative transition method, a company is permitted to use its effective date as the date of initial application without restating comparative period financial statements. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company elected the practical expedient to use hindsight in determining lease term. The adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $52.8 million and $67.3 million, respectively. The standard did not materially impact the Company's consolidated income or cash flows.


13

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

5. Inventory
Inventory consists of the following (in thousands):
 
September 28, 2019
 
December 29, 2018
Raw materials
$
2,801

 
$
2,992

Finished goods
245,502

 
161,641

 
$
248,303

 
$
164,633



6. Goodwill and Other Intangible Assets
The following table summarizes the activity in the carrying amount of goodwill for the nine months ended September 28, 2019 (in thousands):
Balance as of December 29, 2018
$
118,896

Acquisition
2,050

Effect of foreign currency translation
(3,409
)
Balance as of September 28, 2019
$
117,537



Intangible assets consisted of the following (in thousands):
 
September 28, 2019
 
December 29, 2018
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Completed technology
$
28,100

 
$
24,320

 
$
3,780

 
$
26,900

 
$
21,607

 
$
5,293

Tradename
100

 
100

 

 
100

 
100

 

Customer relationships
10,989

 
2,049

 
8,940

 
11,291

 
1,365

 
9,926

Reacquired distribution rights
31,239

 
29,112

 
2,127

 
32,499

 
23,598

 
8,901

Non-competition agreements
251

 
167


84

 
263

 
110

 
153

Total
$
70,679

 
$
55,748

 
$
14,931

 
$
71,053

 
$
46,780

 
$
24,273


Amortization expense related to acquired intangible assets was $3.4 million and $4.8 million for the three months ended September 28, 2019 and September 29, 2018, respectively. Amortization expense related to acquired intangible assets was $10.1 million and $14.8 million for the nine months ended September 28, 2019 and September 29, 2018, respectively.
The estimated future amortization expense related to current intangible assets in each of the five succeeding fiscal years is expected to be as follows (in thousands):
 
Cost of Revenue
 
Operating Expenses
 
Total
Remainder of 2019
$
2,411

 
$
231

 
$
2,642

2020
1,140

 
990

 
2,130

2021
1,140

 
774

 
1,914

2022
915

 
774

 
1,689

2023
240

 
774

 
1,014

Thereafter
61

 
5,481

 
5,542

Total
$
5,907

 
$
9,024

 
$
14,931




14

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

7. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
 
September 28, 2019
 
December 29, 2018
Accrued other compensation
$
14,625

 
$
10,518

Accrued warranty
12,372

 
11,964

Accrued direct fulfillment costs
13,000

 
5,372

Accrued bonus
9,050

 
21,226

Current portion of operating lease liabilities
6,307

 

Accrued sales and other indirect taxes payable
3,073

 
11,397

Accrued federal and state income taxes
3,146

 
1,936

Accrued accounting fees
1,985

 
2,052

Accrued other
7,028

 
6,794

 
$
70,586

 
$
71,259



8. Derivative Instruments
The Company operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of the Company's operations, primarily the British Pound, Canadian Dollar, Euro and Japanese Yen. The Company uses derivative instruments that are designated in cash flow hedge relationships to reduce or eliminate the effects of foreign exchange rate changes on sales. These contracts typically have maturities of thirty-seven months or less. At September 28, 2019 and December 29, 2018, the Company had outstanding cash flow hedges with a total notional value of $387.8 million and $366.7 million, respectively.
The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts typically have maturities of ten months or less. At September 28, 2019 and December 29, 2018, the Company had outstanding economic hedges with a total notional value of $75.9 million and $56.0 million, respectively.
The fair values of derivative instruments are as follows (in thousands):
 
 
 
Fair Value
 
Classification
 
September 28, 2019
 
December 29, 2018
Derivatives not designated as hedging instruments:
 
 
 
Foreign currency forward contracts
Other current assets
 
$
1,342

 
$
551

Foreign currency forward contracts
Accrued expenses
 
727

 

Derivatives designated as cash flow hedges:
 
 
 
Foreign currency forward contracts
Other current assets
 
$
4,580

 
$
53

Foreign currency forward contracts
Other assets
 
9,574

 
172

Foreign currency forward contracts
Accrued expenses
 
355

 
335

Foreign currency forward contracts
Long-term liabilities
 
363

 
795


Gains (losses) associated with derivative instruments not designated as hedging instruments are as follows (in thousands):
 
 
 
Three Months Ended
 
Nine Months Ended
 
Classification
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Gain (loss) recognized in income
Other income, net
 
$
852

 
$
435

 
$
200

 
$
973



15

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands): 
 
 
Gain (loss) recognized in OCI on Derivative (1)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Foreign currency forward contracts
 
$
10,905

 
$
362

 
$
15,254

 
$
(198
)

(1)
The amount represents the change in fair value of derivative contracts due to changes in spot rates.
 
 
Gain (loss) recognized in earnings on cash flow hedging instruments
 
 
Three Months Ended
 
 
September 28, 2019
 
September 29, 2018
 
 
Revenue
 
Cost of revenue
 
Revenue
 
Cost of revenue
Consolidated statements of income in which the effects of cash flow hedging instruments are recorded
 
$
289,399

 
$
152,558

 
$
264,534

 
$
129,328

 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedging relationships:
 
 
 
 
 
 
 
 
Foreign currency forward contracts:
 
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from AOCI into earnings
 
$
185

 
$

 
$
549

 
$


 
 
Gain (loss) recognized in earnings on cash flow hedging instruments
 
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
 
 
Revenue
 
Cost of revenue
 
Revenue
 
Cost of revenue
Consolidated statements of income in which the effects of cash flow hedging instruments are recorded
 
$
787,232

 
$
412,675

 
$
707,919

 
$
339,002

 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedging relationships:
 
 
 
 
 
 
 
 
Foreign currency forward contracts:
 
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from AOCI into earnings
 
$
400

 
$

 
$
270

 
$
(386
)



9. Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 
Fair Value Measurements as of
September 28, 2019

Level 1
 
Level 2 (1)
 
Level 3 (2)
Assets:
 
 
 
 
 
Corporate and government bonds, $20,516 at cost (3)
$

 
$
20,530

 
$

Derivative instruments (Note 8)

 
15,496

 

Total assets measured at fair value
$

 
$
36,026

 
$

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Derivative instruments (Note 8)
$

 
$
1,445

 
$

Total liabilities measured at fair value
$

 
$
1,445

 
$


16

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


 
Fair Value Measurements as of
December 29, 2018
 
Level 1
 
Level 2 (1)
 
Level 3 (2)
Assets:
 
 
 
 
 
Money market funds
$
3,730

 
$

 
$

Corporate and government bonds, $30,035 at cost

 
29,605

 

Convertible note

 

 
2,000

Derivative instruments (Note 8)

 
776

 

Total assets measured at fair value
$
3,730

 
$
30,381

 
$
2,000

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Derivative instruments (Note 8)
$

 
$
1,130

 
$

Total liabilities measured at fair value
$

 
$
1,130