SECURITIES AND EXCHANGE COMMISSION

______________________________________________

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 ýx 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 ýx 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.

The number of shares outstanding of the Registrant’s Common Stock as of ~~October 29, 2018~~July 27, 2019 was ~~27,686,749.~~28,123,937.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)



	Three Months Ended					Six Months Ended
	June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018
Revenue	$	260,172		$	226,317	$	497,833	$	443,385
Cost of revenue:
Cost of product revenue	138,891			103,712		253,929		200,213
Amortization of acquired intangible assets	3,111			4,679		6,188		9,461
Total cost of revenue	142,002			108,391		260,117		209,674
Gross profit	118,170			117,926		237,716		233,711
Operating expenses:
Research and development	35,650			34,924		70,919		67,869
Selling and marketing	56,409			45,910		95,245		77,239
General and administrative	20,592			23,468		43,499		49,301
Amortization of acquired intangible assets	269			269		540		542
Total operating expenses	112,920			104,571		210,203		194,951
Operating income	5,250			13,355		27,513		38,760
Other income, net	1,533			1,507		2,813		2,026
Income before income taxes	6,783			14,862		30,326		40,786
Income tax (benefit) expense	(424		)	4,391		599		9,914
Net income	$	7,207		$	10,471	$	29,727	$	30,872
Net income per share:
Basic	$	0.26		$	0.38	$	1.06	$	1.11
Diluted	$	0.25		$	0.37	$	1.03	$	1.08
Number of shares used in per share calculations:
Basic	28,079			27,615		27,970		27,802
Diluted	28,763			28,337		28,779		28,658

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Revenue $ 264,534
$ 205,399
$ 707,919
$ 557,014
Cost of revenue:
Cost of product revenue 124,754
100,800
324,967
272,068
Amortization of intangible assets 4,574
2,216
14,035
5,329
Total cost of revenue (1) 129,328
103,016
339,002
277,397
Gross margin 135,206
102,383
368,917
279,617
Operating expenses:
Research and development (1) 35,309
28,843
103,178
80,518
Selling and marketing (1) 39,030
28,473
116,269
91,171
General and administrative (1) 23,329
21,002
72,630
58,137
Amortization of intangible assets 263
173
805
173
Total operating expenses 97,931
78,491
292,882
229,999
Operating income 37,275
23,892
76,035
49,618
Other income, net 337
2,601
2,363
4,290
Income before income taxes 37,612
26,493
78,398
53,908
Income tax expense 5,683
4,411
15,597
7,565
Net income $ 31,929
$ 22,082
$ 62,801
$ 46,343
Net income per share:
Basic $ 1.16
$ 0.80
$ 2.27
$ 1.68
Diluted $ 1.12
$ 0.76
$ 2.19
$ 1.61
Number of weighted average common shares used in per share calculations
Basic 27,493
27,739
27,692
27,520
Diluted 28,506
28,916
28,629
28,719

~~__________________________~~


~~(1)~~	~~Stock-based compensation recorded in the three and nine months ended~~ ~~September 29, 2018~~ ~~and~~ ~~September 30, 2017~~ ~~breaks down by expense classification as follows:~~

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Cost of revenue $ 347
$ 274
$ 1,035
$ 751
Research and development 1,910
1,261
5,393
3,508
Selling and marketing 544
728
2,032
1,869
General and administrative 3,791
2,771
10,509
7,941
Total $ 6,592
$ 5,034
$ 18,969
$ 14,069

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

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017			June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net income	$	31,929		$	22,082		$	62,801		$	46,343		$	7,207		$	10,471		$	29,727		$	30,872
Other comprehensive income (loss):
Net foreign currency translation adjustments	1,826			3			(3,959		)	(3		)	1,794			(11,123		)	(676		)	(5,785		)
Net unrealized gains (losses) on cash flow hedges, net of tax	272			(95		)	40			126			(1,540		)	1,619			3,261			(232		)
Net (gains) losses on cash flow hedge reclassified into earnings, net of tax	(412		)	17			9			36			(267		)	(169		)	(161		)	421
Net unrealized gains (losses) on marketable securities, net of tax	(28		)	21			(113		)	51			95			87			208			(85		)
Total comprehensive income	$	33,587		$	22,028		$	58,778		$	46,553		$	7,289		$	885		$	32,359		$	25,191

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

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		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
Balance at March 30, 2019	28,038		$	280	$	175,000		$	389,541	$	(2,198	)	$	562,623
Issuance of common stock under employee stock plans	39		—		2,117								2,117
Vesting of restricted stock units	47		1		(1		)						—
Stock-based compensation					7,594								7,594
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(1	)	—		(65		)						(65		)
Other comprehensive income										82			82
Directors' deferred compensation					18								18
Net income								7,207					7,207
Balance at June 29, 2019	28,123		$	281	$	184,663		$	396,748	$	(2,116	)	$	579,576



	Six Months Ended
	Common Stock					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
	Shares		Value			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
Balance at December 29, 2018	27,788		$	278		$	172,771		$	367,021	$	(4,748	)	$	535,322
Issuance of common stock under employee stock plans	116		1			4,679								4,680
Vesting of restricted stock units	278		3			(3		)						—
Stock-based compensation						14,458								14,458
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(59	)	(1		)	(7,276		)						(7,277		)
Other comprehensive income											2,632			2,632
Directors' deferred compensation						34								34
Net income									29,727					29,727
Balance at June 29, 2019	28,123		$	281		$	184,663		$	396,748	$	(2,116	)	$	579,576

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

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			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
Balance at March 31, 2018	28,073		$	280		$	191,021		$	299,430	$	5,897		$	496,628
Issuance of common stock under employee stock plans	56		1			2,205								2,206
Vesting of restricted stock units	43		1			(1		)						—
Stock-based compensation						6,431								6,431
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(1	)	—			(54		)						(54		)
Other comprehensive income											(9,587		)	(9,587		)
Directors' deferred compensation						16								16
Share repurchases	(769	)	(8		)	(48,062		)						(48,070		)
Net income									10,471					10,471
Balance at June 30, 2018	27,402		$	274		$	151,556		$	309,901	$	(3,690	)	$	458,041



	Six Months Ended
	Common Stock					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
	Shares		Value			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")			Stockholders’ Equity
Balance at December 30, 2017	27,945		$	279		$	190,067		$	277,989	$	1,992		$	470,327
Issuance of common stock under employee stock plans	67		1			2,604								2,605
Vesting of restricted stock units	240		2			(2		)						—
Stock-based compensation						12,377								12,377
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(51	)	—			(3,532		)						(3,532		)
Other comprehensive income											(5,682		)	(5,682		)
Directors' deferred compensation						34								34
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									30,872					30,872
Balance at June 30, 2018	27,402		$	274		$	151,556		$	309,901	$	(3,690	)	$	458,041

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

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended						Six Months Ended
	September 29, 2018			September 30, 2017			June 29, 2019			June 30, 2018
Cash flows from operating activities:
Net income	$	62,801		$	46,343		$	29,727		$	30,872
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities, net of the effects of acquisition:
Depreciation and amortization	27,077			14,523			17,905			17,606
Gain on business acquisition	—			(2,243		)
Stock-based compensation	18,969			14,069			14,458			12,377
Deferred income taxes, net	(4,296		)	(3,226		)	535			(4,208		)
Deferred rent	1,171			—
Other	(216		)	(774		)	3,106			384
Changes in operating assets and liabilities — (use) source
Accounts receivable	31,930			(10,957		)	67,808			66,085
Inventory	(54,619		)	(23,944		)	(27,112		)	(10,303		)
Other assets	(18,418		)	(11,099		)
Other current assets							(14,246		)	(12,764		)
Accounts payable	(10,512		)	20,824			(52,835		)	(46,519		)
Accrued expenses	(12,086		)	7,034
Deferred revenue and customer advances	(1,436		)	(965		)
Long-term liabilities	(72		)	1,513
Accrued expenses and other liabilities							(18,043		)	(27,211		)
Net cash provided by operating activities	40,293			51,098			21,303			26,319
Cash flows from investing activities:
Additions of property and equipment	(25,284		)	(16,630		)	(14,705		)	(14,284		)
Change in other assets	(2,263		)	(1,374		)	(4,541		)	(1,837		)
Proceeds from sale of equity investment	856			1,056			—			629
Cash paid for business acquisition, net of cash acquired	—			(16,524		)	(2,817		)	—
Purchases of investments	(6,438		)	(7,034		)	—			(6,438		)
Sales and maturities of investments	10,500			10,500			5,880			7,000
Net cash used in investing activities	(22,629		)	(30,006		)	(16,183		)	(14,930		)
Cash flows from financing activities:
Proceeds from employee stock plans	7,948			8,990			4,680			2,605
Income tax withholding payment associated with restricted stock vesting	(3,532		)	(2,974		)	(7,277		)	(3,532		)
Stock repurchases	(50,000		)	—			—			(50,000		)
Net cash (used in) provided by financing activities	(45,584		)	6,016
Net cash used in financing activities							(2,597		)	(50,927		)
Effect of exchange rate changes on cash and cash equivalents	(593		)	155			(101		)	(314		)
Net (decrease) increase in cash and cash equivalents	(28,513		)	27,263
Net increase (decrease) in cash and cash equivalents							2,422			(39,852		)
Cash and cash equivalents, at beginning of period	128,635			214,523			130,373			128,635
Cash and cash equivalents, at end of period	$	100,122		$	241,786		$	132,795		$	88,783
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	35,097		$	18,338
Non-cash investing and financing activities:
Additions of property and equipment included in accounts payable	$	1,901		$	2,058		$	4,746		$	1,537

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

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)~~("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 ~~30, 2017,~~29, 2018, filed with the ~~SEC~~Securities and Exchange Commission on February ~~16, 2018.~~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 ~~revenue~~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; ~~accounting for business combinations;~~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.

~~Fiscal Year-End~~

~~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.~~

Other Assets

~~During the three months ended March 31, 2018, the~~The Company ~~adopted Accounting Standards Update No. 2016-01, "Recognition and Measurement~~holds non-marketable equity securities as part of ~~Financial Assets and Financial Liabilities," which revises the classification and measurement of financial instruments. Upon adoption of this standard, the~~its strategic investments portfolio. The Company ~~now~~ classifies its cost method investments as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes. At ~~September~~June 29, 2019 and December 29, 2018, other assets consisted primarily of equity securities without readily determinable fair values and an equity method investment totaling $15.6 million. There was no adjustment recorded to the carrying value of our equity securities without readily determinable fair values as a result of the adoption of ASU 2016-01. At December 30, 2017, other assets consisted primarily of cost method investments$21.6 million and ~~an equity method investment totaling $14.2 million.~~$15.1 million, respectively.

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.

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				Three Months Ended				Six Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Net income	$	31,929	$	22,082	$	62,801	$	46,343	$	7,207	$	10,471	$	29,727	$	30,872
Weighted-average common shares outstanding	27,493		27,739		27,692		27,520		28,079		27,615		27,970		27,802
Dilutive effect of employee stock awards	1,013		1,177		937		1,199		684		722		809		856
Diluted weighted-average common shares outstanding	28,506		28,916		28,629		28,719		28,763		28,337		28,779		28,658
Basic income per share	$	1.16	$	0.80	$	2.27	$	1.68	$	0.26	$	0.38	$	1.06	$	1.11
Diluted income per share	$	1.12	$	0.76	$	2.19	$	1.61	$	0.25	$	0.37	$	1.03	$	1.08

~~Restricted~~Employee stock ~~units and stock options~~awards representing approximately ~~0.0 million and 0.0~~0.2 million shares of common stock for the ~~three-month periods~~three months ended ~~September~~June 29, 2019 and June 30, 2018, and ~~September 30, 2017, respectively, and~~ approximately 0.1 ~~million and 0.0~~ million shares of common stock for the ~~nine-month periods~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017, respectively,~~2018, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.

Recently Adopted Accounting Standards

In ~~February~~June 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2018-02, "Reclassification~~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 ~~Certain Tax Effects from Accumulated Other Comprehensive Income," which provides an option~~Topic 718 to ~~reclassify stranded tax effects within accumulated other comprehensive income~~include share-based payments issued to ~~retained earnings~~nonemployees for goods or services. The amendments in ~~each period in which the effect of the change in the U.S. federal corporate income tax rate under the Tax Cuts and Jobs Act is recorded. This guidance is~~this ASU are effective for ~~fiscal years~~annual periods beginning after December 15, 2018 and interim periods within those ~~fiscal years,~~annual periods, with early adoption permitted. ~~During the first quarter of 2018, the~~The Company ~~early~~ 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 October 2016, FASB issued ASU No. 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017. During the first quarter of 2018, the Company adopted this standard, which did not have a material impact on the Company's consolidated financial statements and related disclosures.

~~In January~~February 2016, the FASB issued ASU No. ~~2016-01, "Recognition~~2016-02 "Leases." This ASU and ~~Measurement of Financial Assets~~subsequently issued amendments require lessees to recognize the assets and ~~Financial Liabilities," as amended~~liabilities on their balance sheet for the rights and obligations created by ~~ASU No. 2018-03 in February 2018, which revises various aspects of~~most leases and continue to recognize expenses on their income statements over the ~~recognition, measurement, presentation and disclosure of financial instruments.~~lease term. The standard also requires ~~that marketable equity investments be measured at fair value with changes~~disclosures designed to fair value recognized in net income. ASU 2016-01 also provides a new measurement alternative for non-marketable equity investments that do not have a readily determinable fair value. Under the measurement alternative, investments are measured at cost, less any impairment, adjusted for changes from observable transactions for identical or similar investments of the same issuer. The Company adopted this guidance on December 31, 2017 and elected to record its non-marketable equity investments using the alternative measurement method, which did not have a material impactgive financial statement users information on the ~~Company's consolidated financial statements~~amount, timing and ~~related disclosures.~~

uncertainty of cash flows arising from leases. In ~~May 2014,~~July 2018, the FASB issued ASU No. ~~2014-09, "Revenue from Contracts with Customers,~~2018-11, "Leases (Topic 842): Targeted Improvements," ~~("ASC 606")~~ which provides ~~guidance for revenue recognition. The standard’s core principle is~~an alternative transition method that entities can elect when adopting the new standard. Under this alternative transition method, a company ~~will recognize revenue when it transfers promised goods or services~~is permitted to ~~customers in an amount that reflects~~use its effective date as the ~~consideration to which the company expects to be entitled in exchange for those goods or services. On December 31, 2017, the~~date of initial application without restating comparative period financial statements. The Company adopted the ~~guidance~~standard effective December 30, 2018 using the ~~modified retrospective~~alternative transition method ~~applied to those contracts that were not completed~~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 ~~adoption date. Under~~three and six months ended June 29, 2019 are presented under the ~~modified retrospective method,~~new standard, while the ~~Company recognized~~comparative quarter presented is not adjusted and continues to be reported in accordance with the ~~cumulative effect of the adoption and recorded a net increase of $1.0 million to the beginning retained earnings as of December 31, 2017.~~historical accounting policy. See Note ~~3, "Revenue Recognition,~~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 ~~revenue recognition.~~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 ~~reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and~~ 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

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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 is currently evaluating the impact of the standard 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.

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging," that was created to better align accounting rules with a company’s risk management activities, better reflect the economic results of hedging in the financial statements, and simplify hedge accounting treatment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, "Receivables – Nonrefundable Fees and Other Costs," which shortens the amortization period of certain callable debt securities held at a premium. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company does not believe this amendment will have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments," ~~which~~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~~forward-

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 is currently evaluating the impact of the ~~standard~~standards on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases." ASU 2016-02 requires 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 guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, "Leases: Targeted Improvements", which provided either a modified retrospective transition approach with application in all comparative periods presented, or an alternative transition method, which permits a company to use its effective date as the date of initial application without restating comparative period financial statements. The Company expects to elect this alternative transition method and adopt the guidance prospectively. The Company also expects to elect the practical expedients allowed under the standard. The Company is in the process of aggregating and evaluating lease arrangements and implementing new processes and a lease accounting system. The Company expects the adoption will result in a material increase in the assets and liabilities upon adoption. The impact on our results of operations and cash flows is not expected to be material.

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 ~~online~~on-line stores. For

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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"). ~~Under~~For certain connected robots, the previous revenue accounting standard, revenue allocated to the app and future unspecified software upgrades was deferred and recognized on a straight-line basis over the expected life of the connected robot.

~~Upon the adoption of ASC 606 as of the beginning of fiscal year 2018, the~~ Company has concluded that, on a quantitative and qualitative basis, the Cloud Services ~~did~~do not constitute a material performance obligation ~~for the then existing products~~ and, as such, these services ~~were~~are not considered a separate performance obligation that ~~required~~requires allocation of transaction price.

During the third quarter of 2018, the Company launched Roomba i7 and i7+ which ~~have~~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 ~~elements~~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. ~~The~~For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of ~~September~~June 29, ~~2018~~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.~~"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~~June 29, ~~2018,~~2019, the Company has reserves for product returns of ~~$36.7~~$44.5 million and other credits and incentives of ~~$51.3~~$69.7 million. As of December ~~30, 2017,~~29, 2018, the Company had reserves for product returns of ~~$42.7~~$53.9 million and other credits and incentives of ~~$61.4~~$97.7 million. Revenue recognized during the three months ended June 29, 2019 and June 30, 2018 related to performance obligations satisfied in a prior period was not material.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Disaggregation of Revenue

The following table provides information about disaggregated revenue by geographical region ~~for the three and nine months ended September 29, 2018~~ (in thousands):



	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
United States	$	124,472	$	111,526	$	238,537	$	218,388
EMEA	82,893		70,123		157,462		139,710
Other	52,807		44,668		101,834		85,287
Total revenue	$	260,172	$	226,317	$	497,833	$	443,385

Three Months Ended Nine Months Ended
September 29, 2018 September 29, 2018
Americas $ 136,963
$ 374,503
EMEA 73,831
213,541
APAC 53,740
119,875
Total revenue $ 264,534
$ 707,919

Contract Balances

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):


	September 29, 2018 (closing balance)		December 31, 2017 (opening balance)		June 29, 2019		December 29, 2018
Accounts receivable, net	$	109,583	$	141,637	$	90,401	$	162,166
Contract liabilities	4,719		6,685		3,075		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

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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 June 29, 2019 and ~~nine-month periods ended September 29,~~June 30, 2018, the Company recognized ~~$2.2~~$5.3 million and ~~$6.7~~$6.3 million, respectively, of the ~~opening~~ contract liability balance as revenue upon transfer of the products to customers.

~~Practical Expedients~~ During the six months ended June 29, 2019 and ~~Exemptions~~

~~The~~June 30, 2018, the Company ~~generally expenses sales commissions when incurred because~~recognized $5.8 million and $6.7 million, respectively, of the ~~amortization period is generally one year or less. These costs are recorded within sales and marketing expenses.~~

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.

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 ~~disclose~~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 ~~of unsatisfied performance obligations for contracts~~guarantees or restrictive covenants. Leases with an ~~original expected duration~~initial term of ~~one year~~12 months or ~~less.~~

~~Financial Statement Impact of Adopting ASC 606~~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 ~~adopted ASC 606 using~~estimates its incremental borrowing rate to discount the ~~modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of~~lease payments based on information available at December 30, ~~2017 was recorded as an increase~~2018 (date of ~~$1.0 million to retained earnings as of~~initial application) or the lease commencement date for existing leases upon adoption ~~date. The~~or new leases post adoption, ~~of the new guidance had an immaterial impact to~~respectively. At June 29, 2019, the Company's ~~consolidated balance sheet and statement of income as of and for~~weighted average discount rate was 3.61%, while the ~~three and nine months ended September 29, 2018.~~

~~4. Business Combination~~

~~Acquisition of Robopolis~~

On October 2, 2017, the Company closed the acquisition of its largest European distributor, Robopolis SAS, a French company ("Robopolis"), subsequently renamed iRobot France SAS. The acquisition will better enable the Company to maintain its leadership position and grow its business in several Western European countries through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships and customer service. The initial purchase priceweighted average remaining lease term was approximately $170.1 million in cash, net of acquired cash of $38.0 million, subject to the finalization of the working capital adjustment in accordance with the stock purchase agreement. During the first quarter of 2018, the working capital adjustment was finalized and resulted in a reduction in the purchase price of $0.7 million. The results of operations for this acquisition have been included in the Company’s operating results since the acquisition date.9.58 years.

The ~~estimated fair values~~components of ~~assets acquired and liabilities assumed are provisional and are based on the information that was available~~lease expense were as of the acquisition date to estimate the fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company is continuing to analyze certain pre-acquisition income tax filing positions of Robopolis in various taxing jurisdictions that will assist the Company in finalizing the amounts to record for any assumed uncertain income tax positions. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

~~The following table summarizes the preliminary allocation of the purchase price~~follows (in thousands):



	Three Months Ended		Six Months Ended
	June 29, 2019
Operating lease cost	$	1,969	$	3,939
Variable lease cost	1,316		2,136
Total lease cost	$	3,285	$	6,075

Cash $ 37,981
Accounts receivable 21,426
Inventory 36,304
Goodwill 78,926
Intangible assets 36,597
Other assets 2,456
Total assets acquired 213,690

Accounts payable (29,391 )
Accrued expenses (3,376 )
Deferred tax liabilities (10,864 )
Other liabilities (645 )
Total liabilities assumed (44,276 )
Net assets acquired $ 169,414

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended		Six Months Ended
	June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,865	$	4,881
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	52,767

Maturities of operating lease liabilities were as follows as of June 29, 2019 (in thousands):



	Operating leases
Remainder of 2019	$	3,435
2020	8,543
2021	8,255
2022	7,580
2023	7,127
Thereafter	41,198
Total minimum lease payments	$	76,138
Less: imputed interest	12,548
Present value of future minimum lease payments	$	63,590
Less: current portion of operating lease liabilities (Note 7)	5,522
Long-term lease liabilities	$	58,068

Financial Statement Impact of Adopting ASC 842

The ~~following table reflects~~Company adopted ASC 842 effective December 30, 2018 using the ~~fair value~~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 ~~acquired identifiable intangible~~new standard resulted in the recognition of right-of-use assets and ~~related estimates~~lease liabilities of ~~useful lives:~~approximately $52.8 million and $67.3 million, respectively. The standard did not materially impact the Company's consolidated income or cash flows.



	~~Useful Life~~	~~Fair Value~~
		~~(in thousands)~~
~~Reacquired distribution rights~~	~~2.25 years~~	$	~~29,296~~
~~Customer relationships~~	~~14 years~~	~~7,029~~
~~Non-competition agreements~~	~~3 years~~	~~272~~
~~Total~~		$	~~36,597~~

~~Pro Forma Results (Unaudited)~~

~~The following table shows unaudited pro forma results of operations as if the Company had acquired Robopolis on January 1, 2017 (in thousands, except per share amounts):~~

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Revenue $ 264,534
$ 206,503
$ 707,919
$ 574,715
Net income 31,929
26,180
62,801
47,267
Net income per share:
Basic income per share $ 1.16
$ 0.94
$ 2.27
$ 1.72
Diluted income per share $ 1.12
$ 0.91
$ 2.19
$ 1.65

~~The unaudited pro forma results of operations are not necessarily indicative of the actual results that would have occurred had the transactions taken place at the beginning of the periods indicated.~~

On April 3, 2017, the Company closed its acquisition of the iRobot-related distribution business of Sales on Demand Corporation ("SODC"). The Company has not furnished pro forma financial information relating to its acquisition of SODC, because such information is not material, individually or in the aggregate, to its financial results.

Inventory consists of the following (in thousands):



	June 29, 2019		December 29, 2018
Raw materials	$	2,922	$	2,992
Finished goods	189,088		161,641
	$	192,010	$	164,633

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

6. Goodwill and Other Intangible Assets

The following table summarizes the activity in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 (in thousands):



Balance as of December 29, 2018	$	118,896
Acquisition	2,050
Effect of foreign currency translation	(408		)
Balance as of June 29, 2019	$	120,538

September 29, 2018
Balance as of December 30, 2017 $ 121,440
Purchase accounting adjustments (663 )
Effect of foreign currency translation (1,972 )
Balance as of September 29, 2018 $ 118,805

Intangible assets at June 29, 2019 and December 29, 2018 consisted of the following (in thousands):



	June 29, 2019						December 29, 2018
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Completed technology	$	28,100	$	23,396	$	4,704	$	26,900	$	21,607	$	5,293
Tradename	100		100		—		100		100		—
Customer relationships	11,255		1,859		9,396		11,291		1,365		9,926
Reacquired distribution rights	32,347		27,921		4,426		32,499		23,598		8,901
Non-competition agreements	262		152		110		263		110		153
Total	$	72,064	$	53,428	$	18,636	$	71,053	$	46,780	$	24,273

Amortization expense related to acquired intangible assets was $3.4 million and $4.9 million for the three months ended June 29, 2019 and June 30, 2018, respectively. Amortization expense related to acquired intangible assets was $6.7 million and $10.0 million for the six months ended June 29, 2019 and June 30, 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	$	5,635	$	497	$	6,132
2020	1,140		1,016		2,156
2021	1,140		792		1,932
2022	915		792		1,707
2023	240		792		1,032
Thereafter	60		5,617		5,677
Total	$	9,130	$	9,506	$	18,636

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

~~Intangible assets at September 29, 2018 and December 30, 2017 consisted of the following (in thousands):~~

September 29, 2018 December 30, 2017
Cost
Accumulated
Amortization
Net Cost
Accumulated
Amortization
Net
Completed technology $ 26,900
$ 20,743
$ 6,157
$ 26,900
$ 18,150
$ 8,750
Tradename 100
100
—
100
100
—
Customer relationships 11,414
1,138
10,276
11,594
418
11,176
Reacquired distribution rights 33,008
20,236
12,772
33,760
9,226
24,534
Non-competition agreements 268
88

180
275
23
252
Total $ 71,690
$ 42,305
$ 29,385
$ 72,629
$ 27,917
$ 44,712

Amortization expense related to acquired intangible assets was $4.8 million and $2.4 million for the three months ended September 29, 2018 and September 30, 2017, respectively. Amortization expense related to acquired intangible assets was $14.8 million and $5.5 million for the nine months ended September 29, 2018 and September 30, 2017, respectively.

~~The estimated future amortization expense related to current intangible assets is expected to be as follows (in thousands):~~

Cost of Revenue Operating Expenses Total
Remainder of 2018 $ 4,577
$ 264
$ 4,841
2019 11,877
1,057
12,934
2020 900
1,035
1,935
2021 900
801
1,701
2022 675
801
1,476
Thereafter —
6,498
6,498
Total $ 18,929
$ 10,456
$ 29,385

Accrued expenses ~~at September 29, 2018 and December 30, 2017~~ consisted of the following at (in thousands):



	June 29, 2019		December 29, 2018
Accrued other compensation	$	12,241	$	10,518
Accrued warranty	11,970		11,964
Accrued direct fulfillment costs	9,543		5,372
Accrued bonus	6,914		21,226
Current portion of operating lease liabilities	5,522		—
Accrued sales and other indirect taxes payable	4,931		11,397
Accrued income taxes	2,547		1,936
Accrued accounting fees	2,020		2,052
Accrued other	7,941		6,794
	$	63,629	$	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 Japanese Yen, Canadian ~~dollar~~Dollar, British Pound and the Euro. 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 ~~purchases~~sales and ~~sales.~~purchases. These contracts typically have maturities of ~~thirteen~~thirty-seven months or less. At ~~September~~June 29, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, the Company had outstanding cash flow hedges with a total notional value of ~~$43.5~~$389.9 million and ~~$73.7~~$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

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

contracts typically have maturities of ~~two~~ten months or less. At ~~September~~June 29, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, the Company had outstanding economic hedges with a total notional value of ~~$29.3~~$48.0 million and ~~$36.6~~$56.0 million, respectively.

The fair values of derivative instruments are as follows (in thousands):



		Fair Value
	Classification	June 29, 2019		December 29, 2018
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets	$	480	$	551
Foreign currency forward contracts	Accrued expenses	598		—
Derivatives designated as cash flow hedges:
Foreign currency forward contracts	Other current assets	$	1,201	$	53
Foreign currency forward contracts	Other assets	3,454		172
Foreign currency forward contracts	Accrued expenses	1,102		335
Foreign currency forward contracts	Long-term liabilities	833		795

Fair Value
Classification September 29, 2018 December 30, 2017
Derivatives not designated as hedging instruments:
Foreign currency forward contracts Other current assets $ 1,049
$ 413
Foreign currency forward contracts Accrued expenses —
221
Derivatives designated as cash flow hedges:
Foreign currency forward contracts Other current assets $ 670
$ 488
Foreign currency forward contracts Other assets —
116
Foreign currency forward contracts Accrued expenses 455
279

~~Gain (loss)~~Gains (losses) associated with derivative instruments not designated as hedging instruments are as follows (in thousands):

Three Months Ended Nine Months Ended
Classification September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Gain (loss) recognized in income Other income, net $ 435
$ 9
$ 973
$ (495 )



		Three Months Ended					Six Months Ended
	Classification	June 29, 2019			June 30, 2018		June 29, 2019			June 30, 2018
Gain (loss) recognized in income	Other income, net	$	(1,085	)	$	1,707	$	(652	)	$	538

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following tables reflect the effect of ~~foreign exchange forward contracts that are~~derivatives designated as cash flow hedging ~~instruments~~ for the three and ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018 (in thousands):



	Gain (loss) recognized in OCI on Derivative (1)
	Three Months Ended					Six Months Ended
	June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018
Foreign currency forward contracts	$	(2,054	)	$	2,154	$	4,350	$	(560	)



	Gain (loss) recognized in earnings on cash flow hedging instruments
	Three Months Ended
	June 29, 2019				June 30, 2018
	Revenue		Cost of revenue		Revenue			Cost of revenue
Consolidated statements of income in which the effects of cash flow hedging instruments are recorded	$	260,172	$	142,002	$	226,317		$	108,391

Gain (loss) on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain (loss) reclassified from AOCI into earnings	$	359	$	—	$	(113	)	$	370



	Gain (loss) recognized in earnings on cash flow hedging instruments
	Six Months Ended
	June 29, 2019				June 30, 2018
	Revenue		Cost of revenue		Revenue			Cost of revenue
Consolidated statements of income in which the effects of cash flow hedging instruments are recorded	$	497,833	$	260,117	$	443,385		$	209,674

Gain (loss) on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain (loss) reclassified from AOCI into earnings	$	214	$	—	$	(279	)	$	(386	)

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

9. ~~Working Capital Facilities~~

In June 2018, the Company entered into a new agreement with Bank of America, N.A., increasing the amount of its unsecured revolving line of credit from $75.0 million to $150.0 million. As of September 29, 2018, the full amount was available for borrowing. The new revolving line of credit is available to fund working capital and other corporate purposes. The new agreement extends the term of the credit facilities to June 2023. The interest on loans under the credit facility accrues, at the Company's election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on the Company's ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender’s base rate. The lender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender’s prime rate and (3) the Eurodollar Rate plus 1.0%.

As of September 29, 2018, the Company had no outstanding borrowings under its revolving credit facility. This credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on the Company's ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, the Company's stock, and consolidate or merge with other entities.

In addition, the Company is required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.

This credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, the Company's obligations under the credit facility may be accelerated.

~~As of September 29, 2018, the Company was in compliance with all covenants under the revolving credit facility.~~

~~10.~~ Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis at ~~September~~June 29, ~~2018,~~2019, were as follows (in thousands):

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

The Company’s financial assets and liabilities measured at fair value on a recurring basis at December ~~30, 2017,~~29, 2018, were as follows (in thousands):

~~There were no~~The following table provides a summary of changes in fair value of our Level 3 ~~financial instruments that are measured at fair value on a recurring basis during~~investment for the ~~periods presented.~~six months ended June 29, 2019 (in thousands):



Balance as of December 29, 2018	$	2,000
Conversion of convertible note	(2,000		)
Balance as of June 29, 2019	$	—

~~11.~~

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

10. Stockholders' Equity

Share Repurchase Activity

On February 27, 2018, the Company's board of directors approved a stock repurchase program authorizing up to $50.0 million in share repurchases. This share repurchase program commenced on March 28, 2018 with an expiration date of December 28, 2018. As of June 30, 2018, the Company completed the repurchase program and repurchased ~~a total of~~ 798,794 shares of common ~~stock.~~stock totaling $50.0 million.

~~12.~~11. Commitments and Contingencies

From time to time and in the ordinary course of business, the Company is subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

~~Lease Obligations~~

The Company leases its facilities. Rental expense under operating leases for the three months ended September 29, 2018 and September 30, 2017 amounts to $3.2 million and $2.2 million, respectively and for the nine months ended September 29, 2018 and September 30, 2017 amounts to $9.8 million and $6.1 million, respectively. Future minimum rental payments under operating leases were as follows as of September 29, 2018 (in thousands):

Outstanding Purchase Orders

At ~~September~~June 29, ~~2018,~~2019, the Company had outstanding purchase orders aggregating approximately ~~$209.3~~$213.0 million. These purchase orders, the majority of which are with contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are generally cancelable without penalty. In circumstances where the Company determines that it has financial exposure associated with any of these commitments, the Company records a liability in the period in which that exposure is identified.

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party, generally the Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of ~~September~~June 29, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, respectively.

The Company provides warranties on most products and has established a reserve for warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 7) in the accompanying consolidated balance sheets.

Activity related to the warranty accrual was as follows (in thousands):



	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Balance at beginning of period	$	11,628		$	11,833		$	11,964		$	11,264
Provision	2,682			2,193			5,333			4,628
Warranty usage	(2,340		)	(2,793		)	(5,327		)	(4,659		)
Balance at end of period	$	11,970		$	11,233		$	11,970		$	11,233

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 September 29, 2018 September 30, 2017
Balance at beginning of period $ 11,233
$ 10,505
$ 11,264
$ 8,464
Liability assumed (1) —
—
—
2,186
Provision 2,682
2,433
7,310
6,051
Warranty usage (2) (2,485 ) (2,659 ) (7,144 ) (6,422 )
Balance at end of period $ 11,430
$ 10,279
$ 11,430
$ 10,279

~~iROBOT CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

~~13.~~12. Income Taxes

The Company’s effective income tax rate for the three months ended ~~September~~June 29, 2019 and June 30, 2018, was (6.3)% and ~~September 30, 2017, was 15.1% and 16.6%~~29.6%, respectively. The ~~Company’s~~decrease in the effective income tax rate ~~for~~was primarily due to increased tax benefits related to excess stock-based compensation and the ~~nine~~recognition of a discrete tax benefit upon the effective settlement of a foreign tax audit in the three months ended ~~September~~June 29, ~~2018 and September 30, 2017, was 19.9% and 14.0%, respectively.~~

~~On December 22, 2017,~~2019. In addition, the ~~Tax Cuts and Jobs Act of 2017, or the "Act", was signed into law making significant changes to the Internal Revenue Code. Effective~~Company recorded a discrete charge for the Company's 2018 tax year, the Act reduces the federal statutory tax rate from 35% to 21% and implements certain additional provisions for the 2018 tax year, including the Global Intangible Low-Taxed Income ("GILTI") inclusion and the Foreign Derived Intangible Income ("FDII") deduction.

~~Due to the timing~~estimated taxes associated with a restructuring of the ~~enactment and~~EMEA business in the complexity involved in applying the provisions of the Act, the Company made reasonable estimates of the effects and recorded a provisional amount relating to the transition tax on the mandatory deemed repatriation of foreign earnings in its financial statements as of Decemberthree months ended June 30, 2017. The Company has performed an additional analysis and does not expect a material adjustment, and any adjustment to the provisional amount will be recorded to the current income tax provision during the measurement period which is not expected to be beyond one year from the enactment date.2018.

The Company's effective income tax rate of ~~15.1% and 19.9%~~(6.3)% for the three ~~and nine~~ months ended ~~September~~June 29, ~~2018, respectively~~2019 differed from the federal statutory tax rate of 21% primarily due to the recognition of tax benefits related to excess stock-based ~~compensation.~~compensation and the recognition of a discrete tax benefit upon the effective settlement of a foreign tax audit.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company’s effective income tax rate for the six months ended June 29, 2019 and June 30, 2018, was 2.0% and 24.3%, respectively. The decrease in the effective income tax rate ~~of 15.1% for the three months ended September 29, 2018 as compared to 16.6% for the three months ended September 30, 2017~~ was primarily due to the lower federal statutory tax rate partially offset by decreased tax benefits related to excess stock-based compensation in the three months ended September 29, 2018. The increase in the effective income tax rate of 19.9% for the nine months ended September 29, 2018 as compared to 14.0% for the nine months ended September 30, 2017 was primarily due to decreasedincreased tax benefits related to excess stock-based compensation and a decrease in foreign taxes related to a discrete charge for estimated taxes associated with a restructuring of the EMEA business ~~during~~in the ~~nine~~three months ended ~~September~~June 30, 2018.

The Company's effective income tax rate of 2.0% for the six months ended June 29, ~~2018.~~2019 differed from the federal statutory tax rate of 21% primarily due to the recognition of tax benefits related to excess stock-based compensation.

~~14.~~13. Industry Segment, Geographic Information and Significant Customers

The Company operates as one operating ~~segment, consumer robots, the results of which are included in the Company's consolidated statements of income and comprehensive income.~~segment. The Company's consumer robots products are offered to consumers through ~~a network of~~distributor and retail ~~businesses and one distributor throughout the United States, to various countries through international distributors and retailers, and through the Company's~~sales channels, as well as its on-line ~~store.~~stores.

Significant Customers

For the three months ended ~~September~~June 29, 2019 and June 30, 2018, the Company generated ~~24.8%~~28.0% and 23.8% of total revenue, from one of its retailers (Amazon). For the three months ended September 30, 2017, the Company generated 14.3% of total revenue from a network of affiliated European distributors (Robopolis SAS) and 11.0% of total revenuerespectively, from one of its retailers (Amazon).

For the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, 2018, the Company generated ~~20.4%~~22.3% and 17.7% of total revenue, respectively, from one of its retailers (Amazon). For the nine months ended September 30, 2017, the Company generated 13.2% of total revenue from a network of affiliated European distributors (Robopolis SAS) and 11.9% of total revenue from one of its retailers (Amazon). On October 2, 2017, the Company acquired Robopolis SAS (Note 4).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The ~~following discussion of the financial condition and results of operations of iRobot Corporation should be read~~information contained in ~~conjunction with the~~this section has been derived from our consolidated financial statements and ~~the~~should be read together with our consolidated financial statements and related notes ~~thereto~~ included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 30, 2017, which has been filed with the SEC.10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the ~~“safe harbor”~~"safe harbor" created by those sections. In particular, statements contained in ~~this Quarterly Report on Form 10-Q, and in the documents incorporated by reference into~~ this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to statements concerning new product sales, the timing of product launches, product development and offerings, ~~including~~ our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue recognition, ~~(including our expectations related to the impact of adoption of new revenue recognition standards),~~ our profits, growth of our revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, operating expenses, selling and marketing expenses, general and administrative expenses, research and development expenses, compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, ~~the impact of our acquisitions of Robopolis and SODC,~~ valuation and composition of our stock-based awards, and liquidity, constitute forward-looking statements and are made under these safe harbor provisions. Some of the forward-looking statements can be identified by the use of forward-looking terms such as ~~“believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,”~~"believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates," or other comparable terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements, including those risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 30, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as well as elsewhere in this Quarterly Report on Form 10-Q.statements. We urge you to consider the risks and uncertainties discussed in ~~our Annual Report on Form 10-K and in Item 1A contained herein~~greater detail under the heading "Risk Factors" in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this ~~Quarterly Report on Form 10-Q.~~report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Overview

iRobot is a leading consumer robot company that designs and builds robots that empower people to do more both inside and outside of the home. Our consumer robots help people find smarter ways to clean and accomplish more in their daily lives. ~~iRobot's~~Our portfolio of solutions features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, our engineers are building an ecosystem of robots to empower the smart home. For more than 25 years, we have been a pioneer in the robotics and consumer products industries. We sell our robots through a variety of distribution channels, including chain stores and other national retailers, through our on-line store, and through value-added distributors and resellers worldwide.

During 2017, we continued to expand our global operations with the acquisition of two of our major distributors in Japan and Europe. On April 3, 2017, we closed the acquisition of the iRobot-related distribution business of Sales On Demand Corporation ("SODC") based in Tokyo. Additionally, on October 2, 2017, we acquired our largest European distributor, Robopolis SAS, a French company ("Robopolis"). We expect to drive continued growth in global markets through a consistent approach to all market activities including sales, marketing, branding, channel relationships and customer service. Both acquisitions provide us with more direct control over the go-to-market execution in these key regions.

As of ~~September~~June 29, ~~2018,~~2019, we had ~~1,003~~1,120 full-time employees. We have developed expertise in the disciplines necessary to build durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to enhance existing products, develop ~~next generation~~next-generation versions of our products and design and launch new products, reducing the time, cost and risk ofassociated with product development. Our significant expertise in consumer needs, robot design, engineering and ~~engineering~~smart home technologies and trends positions us to capitalize on the growth we expect in the market for robot-based consumer products.

Our continued success depends upon our ability to respond to a number of challenges in the consumer robots market. We believe the most significant of these include increasing competition and our ability to successfully develop and introduce products and product enhancements into both new and existing markets.

~~During~~In the third quarter of 2018, we ~~launched our newest premium robots,~~introduced the Roomba i7 and i7+ in the U.S., which ~~have the ability to learn, map and adapt to~~are robot vacuums that remember a home's floor ~~plan. Introducing Imprint™ Smart Mapping, Roomba i7+ remembers multiple floor plans~~plan and ~~room names so users can customize cleaning jobs and direct the robot to~~ clean specific rooms by ~~voice when~~name. Using Imprint™ Smart Mapping, the Roomba i7+ ~~is paired with Alexa enabled devices,~~learns the ~~Google Assistant or via~~home's floor plan, giving customers total control over which rooms to clean and when. When the ~~iRobot HOME App. When~~ Roomba i7+ robot vacuum is finished cleaning, it empties its own dust bin into the Clean Base™, which holds 30 bins of ~~dirt, allowing customers to forget about~~

~~vacuuming for weeks at a time.~~dirt. In ~~addition, we also launched Roomba e5, our latest robot, which offers premium features at a lower price point. These robots were available on our website during~~ the third quarter of 2018, the Company also introduced the Roomba e5, a highly-featured product at a more accessible price, to our lineup in the U.S. In the fourth quarter of 2018, we introduced the Roomba e5 in markets outside of the U.S. in advance of the holiday season.

During the first quarter of 2019, we launched Roomba i7 and i7+ in EMEA, Japan and China. During the second quarter of 2019, we successfully launched two new cleaning robots in the U.S., the Roomba s9 and s9+, which, along with the features of the Roomba i7 and i7+, are robot vacuums that can clean deep into corners and along edges, and the Braava jet m6 robot mop, which can tackle multiple rooms and large spaces with advanced navigation and mapping capabilities. Together, these two robots can use Imprint Link Technology to talk to each other, automatically vacuuming and then mopping without additional action by the user. We anticipate that the s9 and s9+ will be ~~rolled out to~~launched in EMEA in the third quarter of 2019 and in all ~~of our~~other target markets ~~over~~in early 2020. We anticipate that the ~~next 12 months.~~m6 will be launched in all target markets during the second half of 2019.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~revenue~~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; ~~accounting for business combinations;~~ evaluating loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. We base these estimates and judgments on historical experience, market participant fair value considerations, projected future cash flows and various other factors that we believe are reasonable under the circumstances. Actual results may differ from our estimates. Additional information about these critical accounting policies may be found in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.

Effective December 30, ~~2017.~~

~~On December 31, 2017,~~2018, we adopted the new ~~revenue~~leasing standard under ASC ~~606~~842 using the ~~modified retrospective~~alternative transition method. The adoption of the new ~~guidance had an immaterial~~standard resulted in a material increase in the assets and liabilities, while the impact ~~to our consolidated financial~~on the Company's results as of operations and cash flows was not material for the three and ~~nine~~six months ended ~~September~~June 29, ~~2018.~~2019. We have updated our accounting policy as it relates to ~~revenue recognition.~~lease accounting. Refer to Note 34 of the consolidated financial statements.

Overview of Results of Operations

The following table sets forth our results of operations as a percentage of ~~revenue for the three and nine-month periods ended~~ ~~September 29, 2018~~ ~~and~~ ~~September 30, 2017~~:revenue:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue:
Cost of product revenue	47.2		49.1		45.9		48.8		53.4		45.8		51.0		45.2
Amortization of intangible assets	1.7		1.1		2.0		1.0
Amortization of acquired intangible assets									1.2		2.1		1.2		2.1
Total cost of revenue	48.9		50.2		47.9		49.8		54.6		47.9		52.2		47.3
Gross margin	51.1		49.8		52.1		50.2
Gross profit									45.4		52.1		47.8		52.7
Operating expenses:
Research and development	13.3		14.0		14.6		14.5		13.7		15.4		14.2		15.3
Selling and marketing	14.8		13.9		16.4		16.4		21.7		20.3		19.2		17.5
General and administrative	8.8		10.2		10.3		10.4		7.9		10.4		8.8		11.1
Amortization of intangible assets	0.1		0.1		0.1		—
Amortization of acquired intangible assets									0.1		0.1		0.1		0.1
Total operating expenses	37.0		38.2		41.4		41.3		43.4		46.2		42.3		44.0
Operating income	14.1		11.6		10.7		8.9		2.0		5.9		5.5		8.7
Other income, net	0.1		1.3		0.4		0.8		0.6		0.7		0.6		0.5
Income before income taxes	14.2		12.9		11.1		9.7		2.6		6.6		6.1		9.2
Income tax expense	2.1		2.1		2.2		1.4
Income tax (benefit) expense									(0.2	)	2.0		0.1		2.2
Net income	12.1	%	10.8	%	8.9	%	8.3	%	2.8	%	4.6	%	6.0	%	7.0	%

Comparison of Three and ~~Nine~~Six Months Ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018

Revenue

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total revenue $264,534 $205,399 $59,135 28.8% $707,919 $557,014 $150,905 27.1%



	Three Months Ended								Six Months Ended
	June 29, 2019		June 30, 2018		Dollar Change		Percent Change		June 29, 2019		June 30, 2018		Dollar Change		Percent Change
			(In thousands)								(In thousands)
Revenue	$	260,172	$	226,317	$	33,855	15.0	%	$	497,833	$	443,385	$	54,448	12.3	%

~~Total revenue~~Revenue for the three months ended ~~September~~June 29, ~~2018~~2019 increased to ~~$264.5~~$260.2 million, or ~~28.8%~~15.0%, compared to ~~$205.4~~$226.3 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~$59.1~~$33.9 million increase in revenue for the three months ended ~~September~~June 29, ~~2018~~2019 was primarily driven by ~~growth of our Roomba 900 and 600 series robots and a 10.8%~~an increase in the average gross selling price of 3.9% for the three months ended June 29, 2019 as compared to the three months ended ~~September~~June 30, ~~2017, partially due to~~2018. The increase in average gross selling price was primarily driven by the ~~acquisition of Robopolis. Total revenue for the three months ended September 29, 2018 also includes our successful~~ launch of ~~Roomba i7~~our new products during the second half of fiscal 2018 and ~~i7+ and Roomba e5 in the U.S.~~current period. Total ~~consumer~~ robots shipped in the three months ended ~~September~~June 29, ~~2018~~2019 were approximately 1.1 million units, compared to approximately ~~0.9~~1.0 million units in the three months ended ~~September~~June 30, ~~2017.~~2018. In the three months ended ~~September~~June 29, ~~2018,~~2019, domestic ~~consumer~~ revenue increased ~~$39.6~~$12.9 million, or ~~45.2%~~11.6%, and international ~~consumer~~ revenue increased ~~$19.6~~$20.9 million, or ~~16.6%~~18.2%, as compared to the three months ended ~~September~~June 30, ~~2017.~~2018.

~~Total revenue in~~Revenue for the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 increased to ~~$707.9~~$497.8 million, or ~~27.1%~~12.3%, compared to ~~$557.0~~$443.4 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~$150.9~~$54.4 million increase in revenue for the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 was primarily driven by ~~growth of our Roomba 900 and 600 series robots and a 11.2%~~an increase in the average gross selling price of 3.7% for the six months ended June 29, 2019 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017, partially due to~~2018. The increase in average gross selling price was primarily driven by the ~~acquisitions~~launch of ~~SODC~~our new products during the second half of fiscal 2018 and ~~Robopolis.~~current period. Total ~~consumer~~ robots shipped in the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 were approximately ~~2.9~~2.0 million units, compared to approximately ~~2.4~~1.8 million units in the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. In the ~~nine~~six months ended ~~September~~June 29, ~~2018,~~2019, domestic ~~consumer~~ revenue increased ~~$75.6~~$20.1 million, or ~~28.0%~~9.2%, and international ~~consumer~~ revenue increased ~~$75.5~~$34.3 million, or ~~26.3%~~15.2%, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Cost of Product Revenue


	Three Months Ended				Nine Months Ended				Three Months Ended										Six Months Ended
	September 29, 2018	September 30, 2017	Dollar Change	Percent Change	September 29, 2018	September 30, 2017	Dollar Change	Percent Change	June 29, 2019			June 30, 2018			Dollar Change		Percent Change		June 29, 2019			June 30, 2018			Dollar Change		Percent Change
	(In thousands)				(In thousands)				(In thousands)										(In thousands)
Cost of product revenue	$124,754	$100,800	$23,954	23.8%	$324,967	$272,068	$52,899	19.4%	$	138,891		$	103,712		$	35,179	33.9	%	$	253,929		$	200,213		$	53,716	26.8	%
As a percentage of total revenue	47.2%	49.1%			45.9%	48.8%
As a percentage of revenue									53.4		%	45.8		%					51.0		%	45.2		%

~~Total cost~~Cost of product revenue increased to ~~$124.8~~$138.9 million in the three months ended ~~September~~June 29, ~~2018,~~2019, compared to ~~$100.8~~$103.7 million in the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~$24.0~~$35.2 million increase in cost of product revenue is primarily due to the increase in revenue ~~partially offset by improvements in product cost.~~and higher tariffs on our Roomba products imported into the United States from China. Effective September 24, 2018, tariffs were set at 10%, and effective May 10, 2019, tariffs further increased to 25%.

~~Total cost~~Cost of product revenue increased to ~~$325.0~~$253.9 million in the ~~nine~~six months ended ~~September~~June 29, ~~2018,~~2019, compared to ~~$272.1~~$200.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~$52.9~~$53.7 million increase in cost of product revenue is primarily due to the increase in revenue ~~partially offset by improvements in product cost.~~and higher tariffs on our Roomba products imported into the United States from China. Effective September 24, 2018, tariffs were set at 10%, and effective May 10, 2019, tariffs further increased to 25%.

Gross ~~Margin~~Profit

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total gross margin $135,206 $102,383 $32,823 32.1% $368,917 $279,617 $89,300 31.9%
As a percentage of total revenue 51.1% 49.8% 52.1% 50.2%



	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change		Percent Change		June 29, 2019			June 30, 2018			Dollar Change		Percent Change
	(In thousands)										(In thousands)
Gross profit	$	118,170		$	117,926		$	244	0.2	%	$	237,716		$	233,711		$	4,005	1.7	%
Gross margin	45.4		%	52.1		%					47.8		%	52.7		%

Gross margin decreased to 45.4% in the three months ended June 29, 2019 compared to 52.1% in the three months ended June 30, 2018. The decrease in gross margin is primarily related to increased ~~$32.8~~pricing and promotional activity in our international markets, most notably EMEA, as well as the increased tariffs on our Roomba products imported to the United States from China.

Gross margin decreased to 47.8% in the six months ended June 29, 2019 compared to 52.7% in the six months ended June 30, 2018. The decrease in gross margin is primarily related to pricing and promotional activity in our international markets as well as the increased tariffs on our Roomba products imported to the United States from China.

Research and Development



	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change		Percent Change		June 29, 2019			June 30, 2018			Dollar Change		Percent Change
	(In thousands)										(In thousands)
Research and development	$	35,650		$	34,924		$	726	2.1	%	$	70,919		$	67,869		$	3,050	4.5	%
As a percentage of revenue	13.7		%	15.4		%					14.2		%	15.3		%

Research and development expenses increased $0.7 million, or ~~32.1%~~2.1%, to ~~$135.2~~$35.7 million ~~(51.1%~~(13.7% of revenue) in the three months ended ~~September~~June 29, ~~2018~~2019 from ~~$102.4~~$34.9 million ~~(49.8%~~(15.4% of revenue) in the three months ended ~~September~~June 30, ~~2017. The~~2018. This increase is primarily due to an increase in ~~gross margin is primarily related to favorable product and region mix as well as the increase in average selling price~~people-related costs of $2.5 million resulting from ~~our acquisition~~increased headcount, offset by lower program-related cost of ~~Robopolis.~~

~~Gross margin increased $89.3~~$1.8 million ~~or 31.9%, to $368.9 million (52.1% of revenue) in~~during the ~~nine~~three months ended ~~September~~June 29, 2018 from $279.6 million (50.2% of revenue) in the nine months ended September 30, 2017. The increase in gross margin is primarily related to favorable product and region mix as well as the increase in average selling price resulting from our acquisition of Robopolis.

~~Research and Development~~

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total research and development $35,309 $28,843 $6,466 22.4% $103,178 $80,518 $22,660 28.1%
As a percentage of total revenue 13.3% 14.0% 14.6% 14.5%
2019.

Research and development expenses increased ~~$6.5~~$3.1 million, or ~~22.4%~~4.5%, to ~~$35.3~~$70.9 million ~~(13.3%~~(14.2% of revenue) in the six months ended June 29, 2019 from $67.9 million (15.3% of revenue) in the six months ended June 30, 2018. This increase is primarily due to an increase in people-related costs of $5.9 million resulting from increased headcount, offset by lower program-related costs of $3.1 million during the six months ended June 29, 2019.

Selling and Marketing



	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change		Percent Change		June 29, 2019			June 30, 2018			Dollar Change		Percent Change
	(In thousands)										(In thousands)
Selling and marketing	$	56,409		$	45,910		$	10,499	22.9	%	$	95,245		$	77,239		$	18,006	23.3	%
As a percentage of revenue	21.7		%	20.3		%					19.2		%	17.5		%

Selling and marketing expenses increased by $10.5 million, or 22.9%, to $56.4 million (21.7% of revenue) in the three months ended ~~September~~June 29, ~~2018~~2019 from ~~$28.8~~$45.9 million ~~(14.0%~~(20.3% of revenue) in the three months ended ~~September~~June 30, 2017, partially due to an increase in program and people related costs of $3.8 million and $2.5 million, respectively, during the three months ended September 29, 2018 compared to the three months ended September 30, 2017 as we continued to enhance our products and invest in product development and digital features to support our long-term growth.

Research and development expenses increased $22.7 million, or 28.1%, to $103.2 million (14.6% of revenue) in the nine months ended September 29, 2018 from $80.5 million (14.5% of revenue) in the nine months ended September 30, 2017, partially due to an increase in people and program related costs of $11.6 million and $9.9 million, respectively, during the nine months ended September 29, 2018 compared to the nine months ended September 30, 2017 as we continued to enhance our products and invest in product development and digital features to support our long-term growth.

~~Selling and Marketing~~

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
September 29, 2018 September 30, 2017
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total selling and marketing $39,030 $28,473 $10,557 37.1% $116,269 $91,171 $25,098 27.5%
As a percentage of total revenue 14.8% 13.9% 16.4% 16.4%

Selling and marketing expenses increased by $10.6 million, or 37.1%, to $39.0 million (14.8% of revenue) in the three months ended September 29, 2018 from $28.5 million (13.9% of revenue) in the three months ended September 30, 2017.2018. This increase was primarily attributable to an increase in marketing investments ~~of $7.3~~totaling $8.7 million ~~related~~ to support our new product launches in the U.S. and ~~to support our continued global marketing~~certain promotional and ~~branding efforts~~advertising campaigns in the US. and abroad as well as higher people-related costs of ~~$2.9 million including additional headcount related to our acquisition of Robopolis in 2017.~~$1.3 million.

Selling and marketing expenses increased ~~$25.1~~by $18.0 million, or ~~27.5%~~23.3%, to ~~$116.3~~$95.2 million ~~(16.4%~~(19.2% of revenue) in the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 from ~~$91.2~~$77.2 million ~~(16.4%~~(17.5% of revenue) in the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This increase was primarily attributable to an increase in marketing investments ~~of $13.2~~totaling $13.8 million to support our ~~continued global marketing~~new product launches and ~~branding efforts~~certain promotional and advertising campaigns in all regions as well as higher people-related costs of ~~$11.3 million including additional headcount related to our acquisitions of SODC and Robopolis in 2017.~~$3.1 million.

General and Administrative

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 Dollar
Change Percent
Change September 29, 2018 September 30, 2017 Dollar
Change Percent
Change
(In thousands) (In thousands)
Total general and administrative $23,329 $21,002 $2,327 11.1% $72,630 $58,137 $14,493 24.9%
As a percentage of total revenue 8.8% 10.2% 10.3% 10.4%



	Three Months Ended											Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change			Percent Change		June 29, 2019			June 30, 2018			Dollar Change			Percent Change
	(In thousands)											(In thousands)
General and administrative	$	20,592		$	23,468		$	(2,876	)	(12.3	)%	$	43,499		$	49,301		$	(5,802	)	(11.8	)%
As a percentage of revenue	7.9		%	10.4		%						8.8		%	11.1		%

General and administrative expenses ~~increased~~decreased by ~~$2.3~~$2.9 million, or ~~11.1%~~12.3%, to ~~$23.3~~$20.6 million ~~(8.8%~~(7.9% of revenue) in the three months ended ~~September~~June 29, ~~2018~~2019 from ~~$21.0~~$23.5 million ~~(10.2%~~(10.4% of revenue) in the three months ended ~~September~~June 30, ~~2017. This increase was~~2018 primarily attributable to ~~higher people-related~~lower legal costs of ~~$2.3~~$1.6 million ~~including additional headcount related to~~after favorable determination of a previously-disclosed intellectual property litigation suit in the ~~acquisition~~fourth quarter of ~~Robopolis in 2017.~~2018, as well as lower consulting costs of $0.6 million.

General and administrative expenses ~~increased~~decreased by ~~$14.5~~$5.8 million, or ~~24.9%~~11.8%, to ~~$72.6~~$43.5 million ~~(10.3%~~(8.8% of revenue) in the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 from ~~$58.1~~$49.3 million ~~(10.4%~~(11.1% of revenue) in the ~~nine~~six months ended ~~September~~June 30, ~~2017. This increase was~~2018 primarily attributable to ~~higher people-related~~lower legal costs of ~~$7.2~~$4.6 million ~~including additional headcount related to~~after favorable determination of a previously-disclosed intellectual property litigation suit in the ~~acquisitions~~fourth quarter of ~~SODC and Robopolis in 2017~~2018, as well as ~~increases in software maintenance, support and services~~lower consulting costs of ~~$2.1 million and legal costs of $1.2 million mainly driven by litigation expense as we continued to defend and protect our intellectual property.~~$1.4 million.

Amortization of Acquired Intangible Assets

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 Dollar
Change Percent
Change September 29, 2018 September 30, 2017 Dollar
Change Percent
Change
(In thousands) (In thousands)
Total amortization of intangible assets $4,837 $2,389 $2,448 102.5% $14,840 $5,502 $9,338 169.7%
As a percentage of total revenue 1.8% 1.2% 2.1% 1.0%



	Three Months Ended											Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change			Percent Change		June 29, 2019			June 30, 2018			Dollar Change			Percent Change
	(In thousands)											(In thousands)
Cost of revenue	$	3,111		$	4,679		$	(1,568	)	(33.5	)%	$	6,188		$	9,461		$	(3,273	)	(34.6	)%
Operating expense	269			269			—			—	%	540			542			(2		)	(0.4	)%
Total amortization expense	$	3,380		$	4,948		$	(1,568	)	(31.7	)%	$	6,728		$	10,003		$	(3,275	)	(32.7	)%
As a percentage of revenue	1.3		%	2.2		%						1.4		%	2.3		%

The ~~increase~~decrease in amortization of acquired intangible assets in the three and ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, was primarily related to ~~acquired~~the reacquired distribution rights intangible ~~assets from our acquisitions of SODC and Robopolis in 2017.~~asset, which is being amortized on an accelerated basis.

Three Months Ended Nine Months Ended
September 29, 2018 September 30, 2017 Dollar
Change Percent
Change September 29, 2018 September 30, 2017 Dollar
Change Percent
Change
(In thousands) (In thousands)
Total other income, net $337 $2,601 $(2,264) (87.0)% $2,363 $4,290 $(1,927) (44.9)%
As a percentage of total revenue 0.1% 1.3% 0.4% 0.8%



	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Dollar Change		Percent Change		June 29, 2019			June 30, 2018			Dollar Change		Percent Change
	(In thousands)										(In thousands)
Other income, net	$	1,533		$	1,507		$	26	1.7	%	$	2,813		$	2,026		$	787	38.8	%
As a percentage of revenue	0.6		%	0.7		%					0.6		%	0.5		%

Other income, net, amounted to ~~$0.3~~$1.5 million and ~~$2.6~~$1.5 million for the three months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. Other income, net, amounted to ~~$2.4~~$2.8 million and ~~$4.3~~$2.0 million for the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. Other income, net ~~primarily~~ includes ~~earn-out payments received from one of our equity investments~~interest income, interest expense, foreign currency gains (losses) as well as ~~foreign currency~~ gains and losses. During the three and nine months ended September 30, 2017, other income, net, also included a $2.2 million gain on business acquisition related to our acquisition of SODC, which represents the excess of the fair value of the net assets acquired over the purchase price.(losses) from strategic investments.

Income Tax ~~Provision~~(Benefit) Expense

We recorded an income tax ~~provision~~benefit of ~~$5.7~~$(0.4) million and income tax expense of $4.4 million for the three months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. The ~~$5.7~~$(0.4) million ~~provision~~income tax benefit for the three months ended ~~September~~June 29, 2019 resulted in an effective income tax rate of (6.3)%. The $4.4 million income tax expense for the three months ended June 30, 2018 resulted in an effective income tax rate of ~~15.1%~~29.6%. The ~~$4.4 million provision for~~decrease in the effective income tax rate was primarily due to increased tax benefits related to excess stock-based compensation and the recognition of a discrete tax benefit upon the effective settlement of a foreign tax audit in the three months ended ~~September 30, 2017 resulted~~June 29, 2019. In addition, we recorded a discrete charge for estimated taxes associated with a restructuring of the EMEA business in ~~an effective income tax rate of 16.6%.~~

~~We recorded an income tax provision of $15.6 million and $7.6 million for~~ the ~~nine~~three months ended ~~September 29, 2018 and September~~June 30, ~~2017, respectively. The $15.6 million provision for the nine months ended September 29, 2018 resulted in~~

~~an effective income tax rate of 19.9%. The $7.6 million provision for the nine months ended September 30, 2017 resulted in an effective income tax rate of 14.0%.~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the "Act", was signed into law making significant changes to the Internal Revenue Code. Effective for our 2018 tax year, the Act reduces the federal statutory tax rate from 35% to 21% and implements certain additional provisions for the 2018 tax year, including the Global Intangible Low-Taxed Income ("GILTI") inclusion and the Foreign Derived Intangible Income ("FDII") deduction.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Act, we made reasonable estimates of the effects and recorded a provisional amount relating to the transition tax on the mandatory deemed repatriation of foreign earnings in its financial statements as of December 30, 2017. We have performed an additional analysis and do not expect a material adjustment, and any adjustment to the provisional amount will be recorded to the current income tax provision during the measurement period which is not expected to be beyond one year from the enactment date.2018.

Our effective income tax rate of ~~15.1% and 19.9%~~(6.3)% for the three ~~and nine~~ months ended ~~September~~June 29, ~~2018, respectively~~2019 differed from the federal statutory tax rate of 21% primarily due to the recognition of tax benefits related to excess stock-based ~~compensation.~~compensation and the recognition of a discrete tax benefit upon the effective settlement of a foreign tax audit.

We recorded an income tax expense of $0.6 million and $9.9 million for the six months ended June 29, 2019 and June 30, 2018, respectively. The $0.6 million income tax expense for the six months ended June 29, 2019 resulted in an effective income tax rate of 2.0%. The $9.9 million income tax expense for the six months ended June 30, 2018 resulted in an effective income tax rate of 24.3%. The decrease in the effective income tax rate ~~of 15.1% for the three months ended September 29, 2018 as compared to 16.6% for the three months ended September 30, 2017~~ was primarily due to the lower federal statutory tax rate partially offset by decreased tax benefits related to excess stock-based compensation in the three months ended September 29, 2018. The increase in the effective income tax rate of 19.9% for the nine months ended September 29, 2018 as compared to 14.0% for the nine months ended September 30, 2017 was primarily due to decreasedincreased tax benefits related to excess stock-based compensation and a decrease in foreign taxes related to a discrete charge for estimated taxes associated with a restructuring of the EMEA business ~~during~~recorded in the ~~nine~~six months ended ~~September~~June 30, 2018.

Our effective income tax rate of 2.0% for the six months ended June 29, ~~2018.~~2019 differed from the federal statutory tax rate of 21% primarily due to the recognition of tax benefits related to excess stock-based compensation.

Liquidity and Capital Resources

At ~~September~~June 29, ~~2018,~~2019, our principal sources of liquidity were cash and cash equivalents totaling ~~$100.1~~$132.8 million and short-term investments of ~~$35.0 million and accounts receivable of $109.6~~$24.0 million. Our working capital, which represents our total current assets less total current liabilities, was ~~$271.1~~$328.6 million as of ~~September~~June 29, ~~2018,~~2019, compared to ~~$322.0~~$227.7 million as of ~~September~~June 30, ~~2017.~~2018.

We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe ~~that~~ this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also minimize the cash needed for expansion. Accordingly, our capital spending is generally limited to leasehold improvements, computers, office furniture, product-specific production tooling, internal use software and test equipment. In the ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, we spent ~~$25.3~~$14.7 million and ~~$16.6~~$14.3 million, respectively, on capital expenditures.

Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern China to our customers and, alternatively, allows our distributors and certain retail customers to take possession of product on a domestic basis. Accordingly, our consumer product

inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products, and they typically invoice us when the finished goods are shipped.

~~As of September 29, 2018, we held cash, cash equivalents and short-term investments of $135.1 million.~~ Cash provided by operating activities

Net cash provided by ~~our operations~~operating activities for the ~~nine-month period~~six months ended ~~September~~June 29, ~~2018~~2019 was ~~$40.3~~$21.3 million, of which the principal components were our net income of ~~$62.8~~$29.7 million, ~~and~~ non-cash charges of ~~$42.7~~$36.0 million ~~partially offset by~~and changes in working capital. The ~~changes~~change in working capital ~~include an increase~~mainly includes a decrease in ~~inventory~~accounts receivable of ~~$54.6~~$67.8 million, partially offset by a decrease in accounts payable and accrued expenses of ~~$22.6~~$70.9 million and ~~an increase~~increases in inventory and other current assets of ~~$18.4~~$27.1 million ~~partially offset by a decrease~~and $14.2 million, respectively.

Cash used in ~~accounts receivable of $31.9 million, primarily related to timing. As of September~~investing activities

Net cash used in investing activities for the six months ended June 29, ~~2018, we did not have any borrowings outstanding under our revolving line of credit and had $0.6 million in letters of credit outstanding under our revolving letter of credit facility.~~

2019 was $16.2 million. During the ~~nine~~six months ended ~~September~~June 29, ~~2018,~~2019, we invested ~~$25.3~~$14.7 million in the purchase of property and equipment, including machinery and tooling for new products. ~~We purchased $6.4~~In addition, we made strategic investments of $4.5 million ~~of marketable securities,~~and paid $2.8 million for a business acquisition, while sales and maturities of marketable securities amounted to ~~$10.5 million. In addition, we made strategic investments of $4.1 million and received proceeds from equity investments of $0.9~~$5.9 million.

Cash used in financing activities

Net cash used in financing activities for the six months ended June 29, 2019 was $2.6 million. During the ~~nine~~six months ended ~~September~~June 29, ~~2018,~~2019, we ~~completed our previously announced stock repurchase program and repurchased 798,794 shares of common stock for an aggregate purchase price of $50.0 million and~~ received ~~$7.9~~$4.7 million from employee stock ~~plans. Shares issued~~plans and paid $7.3 million upon vesting of restricted stock where 59,260 shares were ~~net of 50,884 shares~~ retained by us to cover employee tax ~~withholdings of $3.5 million.~~

Working Capital Facilities

In June 2018, we entered into a new agreement with Bank of America, N.A., increasing the amount of our unsecured revolving line of credit from $75.0 million to $150.0 ~~million.~~million extending the term of the credit facilities to June 2023. As of ~~September~~June 29, ~~2018, the full amount was available for borrowing.~~2019, we had no outstanding borrowings under our revolving credit facility. The ~~new~~ revolving line of credit is available to fund working capital and other corporate purposes. ~~The new agreement extends the term of the credit facilities to June 2023.~~ The interest on loans under our credit facility accrues, at our election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on our ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender’s base rate. The lender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender’s prime rate and (3) the Eurodollar Rate plus 1.0%.

~~As of September 29, 2018,~~ In the event that LIBOR is discontinued as expected in 2021, we ~~had no~~expect the interest rates for our debt following such event will be based on either alternate base rates or agreed upon replacement rates. While we do not expect a LIBOR discontinuation would affect our ability to borrow or maintain already outstanding borrowings, ~~under our revolving credit facility.~~ it could result in higher interest rates.

This credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities.

In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.

This credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, our obligations under the credit facility may be accelerated.

As of ~~September~~June 29, ~~2018,~~2019, we were in compliance with all covenants under the revolving credit facility.

~~Letter of Credit Facility~~

We have an unsecured revolving letter of credit facility with Bank of America, N.A. The credit facility is available to fund letters of credit on our behalf up to an aggregate outstanding amount of $5.0 million. We may terminate at any time, subject to proper notice, or from time to time permanently reduce the amount of the credit facility.

We pay a fee on outstanding letters of credit issued under the credit facility of up to 1.5% per annum of the outstanding letters of credit. The maturity date for letters of credit issued under the credit facility must be no later than 365 days following the maturity date of the credit facility.

As of September 29, 2018, we had letters of credit outstanding of $0.6 million under our revolving letter of credit facility. The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or guaranty additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities. In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.

The credit facility also contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy, and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, the lender may accelerate the obligations under the credit facility.

~~As of September 29, 2018, we were in compliance with all covenants under the revolving letter of credit facility.~~

Working Capital and Capital Expenditure Needs



Delaware	~~77-0259 335~~77-0259335
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



Large accelerated filer	ý☒	Accelerated filer	¨☐

Non-accelerated filer	¨☐	Smaller reporting company	¨☐

		Emerging growth company	¨☐



	Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of ~~September~~June 29, ~~2018~~2019 and December ~~30, 2017~~29, 2018	3
Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	4
Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	5
Consolidated Statements of ~~Cash Flows~~Stockholders' Equity for the ~~nine~~three and six months ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	6
Consolidated Statements of Cash Flows for the six months ended June 29, 2019 and June 30, 2018	8
Notes to Consolidated Financial Statements	79
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2726
Item 4. Controls and Procedures	2826

PART II: OTHER INFORMATION

Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 5. Other Information	28
Item ~~1A. Risk Factors~~	28
~~Item 5. Other Information~~6. Exhibits	29
~~Item 6. Exhibits~~Signatures	30
~~Signatures~~	31


	September 29, 2018			December 30, 2017		June 29, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	100,122		$	128,635	$	132,795		$	130,373
Short term investments	34,994			37,225		23,984			31,605
Accounts receivable, net	109,583			142,829		90,401			162,166
Inventory	160,752			106,932		192,010			164,633
Other current assets	36,332			19,105		41,960			25,660
Total current assets	441,783			434,726		481,150			514,437
Property and equipment, net	54,198			44,579		71,728			57,026
Operating lease right-of-use assets						50,002			—
Deferred tax assets	31,785			31,531		33,862			36,979
Goodwill	118,805			121,440		120,538			118,896
Intangible assets, net	29,385			44,712		18,636			24,273
Other assets	15,647			14,534		25,099			15,350
Total assets	$	691,603		$	691,522	$	801,015		$	766,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	103,143		$	116,316	$	86,848		$	136,742
Accrued expenses	62,851			73,647		63,629			71,259
Deferred revenue and customer advances	4,719			7,761		2,101			5,756
Total current liabilities	170,713			197,724		152,578			213,757
Operating lease liabilities						58,068			—
Deferred tax liabilities	5,720			9,539		2,110			4,005
Other long-term liabilities	11,592			13,932		8,683			13,877
Total long-term liabilities	17,312			23,471		68,861			17,882
Total liabilities	188,025			221,195		221,439			231,639
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 11)
Preferred stock, 5,000 shares authorized and none outstanding	—			—		—			—
Common stock, $0.01 par value, 100,000 shares authorized; 27,671 and 27,945 shares issued and outstanding at September 29, 2018 and December 30, 2017, respectively	277			279
Common stock, $0.01 par value, 100,000 shares authorized; 28,123 and 27,788 shares issued and outstanding, respectively						281			278
Additional paid-in capital	163,503			190,067		184,663			172,771
Retained earnings	341,829			277,989		396,748			367,021
Accumulated other comprehensive (loss) income	(2,031		)	1,992
Accumulated other comprehensive loss						(2,116		)	(4,748		)
Total stockholders’ equity	503,578			470,327		579,576			535,322
Total liabilities and stockholders’ equity	$	691,603		$	691,522	$	801,015		$	766,961



	September 29, 2018		December 30, 2017
Raw materials	$	3,998	$	4,036
Finished goods	156,754		102,896
	$	160,752	$	106,932



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Cash	$	37,981
Accounts receivable	21,426
Inventory	36,304
Goodwill	78,926
Intangible assets	36,597
Other assets	2,456
Total assets acquired	213,690

Accounts payable	(29,391		)
Accrued expenses	(3,376		)
Deferred tax liabilities	(10,864		)
Other liabilities	(645		)
Total liabilities assumed	(44,276		)
Net assets acquired	$	169,414



	September 29, 2018
Balance as of December 30, 2017	$	121,440
Purchase accounting adjustments	(663		)
Effect of foreign currency translation	(1,972		)
Balance as of September 29, 2018	$	118,805



						Effective Portion						Ineffective Portion
	Gain (loss) recognized in OCI on Derivative (1)					Gain (loss) reclassified from accumulated OCI into income (2)						Gain (loss) recognized in income (3)
	Three months ended						Three months ended						Three months ended
	September 29, 2018		September 30, 2017			Classification	September 29, 2018		September 30, 2017			Classification	September 29, 2018			September 30, 2017

Foreign currency forward contracts	$	362	$	(21	)	Revenue	$	549	$	(39	)	Other income, net	$	(21	)	$	—
						Cost of revenue	$	—	$	—


(1)	The amount represents the change in fair value of derivative contracts due to changes in spot rates.


~~(2)~~	~~The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.~~


~~(3)~~	~~The amount represents the change in fair value of derivative contracts due to changes in the forward rates. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.~~


	Fair Value Measurements as of September 29, 2018						Fair Value Measurements as of June 29, 2019
	Level 1		Level 2 (1)		Level 3 (2)		Level 1		Level 2 (1)		Level 3 (2)
Assets:
Money market funds	$	5,261	$	—	$	—
Corporate and government bonds, $33,571 at cost (3)	—		32,994		—
Convertible note	—		—		2,000
Corporate and government bonds, $24,018 at cost (3)							$	—	$	23,984	$	—
Derivative instruments (Note 8)	—		1,719		—		—		5,135		—
Total assets measured at fair value	$	5,261	$	34,713	$	2,000	$	—	$	29,119	$	—

Liabilities:
Derivative instruments (Note 8)	$	—	$	455	$	—	$	—	$	2,533	$	—
Total liabilities measured at fair value	$	—	$	455	$	—	$	—	$	2,533	$	—


	Fair Value Measurements as of December 30, 2017						Fair Value Measurements as of December 29, 2018
	Level 1		Level 2 (1)		Level 3 (2)		Level 1		Level 2 (1)		Level 3 (2)
Assets:
Money market funds	$	3,165	$	—	$	—	$	3,730	$	—	$	—
Corporate and government bonds, $37,767 at cost	—		37,225		—
Corporate and government bonds, $30,035 at cost							—		29,605		—
Convertible note							—		—		2,000
Derivative instruments (Note 8)	—		1,017		—		—		776		—
Total assets measured at fair value	$	3,165	$	38,242	$	—	$	3,730	$	30,381	$	2,000

Liabilities:
Derivative instruments (Note 8)	$	—	$	500	$	—	$	—	$	1,130	$	—
Total liabilities measured at fair value	$	—	$	500	$	—	$	—	$	1,130	$	—


(1)	Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



	Operating Leases
Remainder of 2018	$	1,654
2019	7,601
2020	7,293
2021	7,287
2022	7,235
Thereafter	41,796
Total minimum lease payments	$	72,866


~~(1)~~	~~Warranty assumed as part of the acquisition of the iRobot-related distribution business of Sale On Demand Corporation.~~


~~(2)~~	~~Warranty usage includes costs incurred for warranty obligations.~~



Exhibit Number		Description

31.1*		Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

31.2*		Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101101.SCH		~~The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2018 formatted~~Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

104*		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statementsExhibits 101.*)



	iROBOT CORPORATION

Date: ~~November 2, 2018~~August 1, 2019	By:	/s/ Alison Dean
		Alison Dean
		Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)