REVENUE RECOGNITION

The Company’s revenues are earned from contracts or arrangements with retail and wholesale customers and licensees. Contracts include written agreements, as well as arrangements that are implied by customary practices or law.

At the beginning of fiscal 2018, the Company adopted the provisions of ASC 606 using the full retrospective adoption method. Under the full retrospective method, the Company adjusted all periods in fiscal 2017 and fiscal 2016 to reflect the provisions of ASC 606, and retained earnings at January 2, 2016 (beginning of fiscal 2016) were adjusted for the cumulative effect for prior periods. Refer to the section "Revenue from Contracts with Customers (ASC No. 606)" in Note 2, Significant Accounting Policies, for changes to the Company's accounting policies due to the adoption of ASC 606.

ASC 606 affected the Company's retail channels as follows:


•	Accelerated the recognition of breakage revenue from unredeemed gift cards, which affected net sales, gross profit, income before income taxes, and net income on the Company's statements of operations. Basic and diluted net income per share were affected by $0.01 or less for each reporting period. Related gift card liabilities and income tax liabilities were also affected.


•	A portion of the estimated value of goods expected to be returned by customers was reclassified between net sales and cost of goods sold, with no net effect on gross profit, income before income taxes, or net income on the Company's statement of operations. Related reclassifications were also made between other current assets and other current liabilities on the Company's balance sheets.

The effects of retrospective adoption on the Company's consolidated Statements of Operations were as follows:



	For the fiscal year ended
(dollars in thousands, except per share data)	2017		2016
Net sales	$	92	$	(637	)
Cost of goods sold	$	52	$	(7	)
Income before income taxes	$	40	$	(630	)
Net income	$	84	$	(397	)

Basic net income per common share	$	—	$	(0.01	)
Diluted net income per common share	$	—	$	—

The cumulative effect to the Company’s retained earnings at January 2, 2016 was an after-tax increase of approximately $0.6 million.

The effects of adoption of ASC 606 on the Company’s consolidated balance sheet at December 30, 2017 were as follows:



(dollars in thousands)	As Previously Reported		ASC 606 Adjustments			As Amended for ASC 606
ASSETS
Prepaid expenses and other current assets	$	49,892	$	3,043	⁽¹⁾	$	52,935
Total current assets	$	1,017,669	$	3,043		$	1,020,712
Total assets	$	2,067,999	$	3,043		$	2,071,042

LIABILITIES AND STOCKHOLDERS' EQUITY
Other current liabilities	$	146,510	$	2,624	⁽²⁾	$	149,134
Total current liabilities	$	328,624	$	2,624		$	331,248
Deferred income taxes	$	84,848	$	96		$	84,944
Total liabilities	$	1,210,906	$	2,720		$	1,213,626

Retained earnings	$	885,714	$	323	⁽³⁾	$	886,037
Total stockholder's equity	$	857,093	$	323		$	857,416

Total liabilities and stockholders' equity	$	2,067,999	$	3,043		$	2,071,042

(1)

Reclassification of estimated inventory expected to be returned by customers through future sales refund transactions. This amount was reclassified from the returns reserve (current liability) to a current asset. Prior to the Company's adoption of ASC 606, the Company's returns reserve (current liability) was reported net of the estimated inventory expected to be returned by customers through sales refund transactions.


(2)	Amount includes a reclassification of approximately $3.0 million for estimated inventory expected to be returned by customers, partially offset by a reclassification of approximately $0.4 million for gift card liabilities.


(3)	Cumulative impact of approximately $0.6 million for after-tax adjustments to retained earnings at the beginning of fiscal 2016, offset by ASC 606 effects on fiscal 2017 and fiscal 2016 results of operations.

Disaggregation of Revenue

The Company sells its products directly to consumers ("direct-to-consumer") and to other retail companies and partners that subsequently sell the products directly to their own retail customers. The Company also earns royalties from its licensees. Disaggregated revenues from these sources for fiscal years 2018, 2017, and 2016 were as follows:



	Fiscal year ended December 29, 2018
(dollars in thousands)	U.S. Retail		U.S. Wholesale		International		Total
Wholesale channel	$	—	$	1,180,687	$	163,637	$	1,344,324
Direct-to-consumer	1,851,193		—		266,752		$	2,117,945
	$	1,851,193	$	1,180,687	$	430,389	$	3,462,269

Royalty income	$	12,877	$	22,511	$	3,542	$	38,930



	Fiscal year ended December 30, 2017
(dollars in thousands)	U.S. Retail		U.S. Wholesale		International		Total
Wholesale channel	$	—	$	1,209,663	$	160,850	$	1,370,513
Direct-to-consumer	1,775,378		—		254,613		$	2,029,991
	$	1,775,378	$	1,209,663	$	415,463	$	3,400,504

Royalty income	$	15,541	$	23,767	$	3,873	$	43,181



	Fiscal year ended December 31, 2016
(dollars in thousands)	U.S. Retail		U.S. Wholesale		International		Total
Wholesale channel	$	—	$	1,178,034	$	133,681	$	1,311,715
Direct-to-consumer	1,655,784		—		231,044		$	1,886,828
	$	1,655,784	$	1,178,034	$	364,725	$	3,198,543

Royalty income	$	12,318	$	25,000	$	5,497	$	42,815

Accounts Receivable from Customers and Licensees

The components of Accounts receivable, net, were as follows:



(dollars in thousands)	December 29, 2018			December 30, 2017
Trade receivables from wholesale customers, net	$	244,258		$	229,968
Royalties receivable	9,279			9,818
Tenant allowances and other receivables	16,588			14,511
Total gross receivables	$	270,125		$	254,297
Less:
Wholesale accounts receivable reserves	(11,866		)	(13,736		)
Accounts receivable, net	$	258,259		$	240,561

Contract Assets and Liabilities

The Company's contract assets are not material.

Contract Liabilities

The Company recognizes a contract liability when it has received consideration from the customer and has a future obligation to transfer goods to the customer. Total contract liabilities consisted of the following amounts:



(dollars in thousands)	December 29, 2018		December 30, 2017
Contract liabilities-current:
Unredeemed gift cards	$	14,471	$	11,945
Unredeemed customer loyalty rewards	7,764		7,355
Total contract liabilities-current^(*)	$	22,235	$	19,300


*	Included with Other current liabilities on the Company's consolidated balance sheet.

Composition of Contract Liabilities

Unredeemed gift cards - the Company is obligated to transfer goods in the future to customers who have purchased gift cards. Periodic changes in the gift card contract liability result from the redemption of gift cards by customers and the recognition of estimated breakage revenue for those gift card balances that are not expected to be redeemed. The majority of our gift cards do not have an expiration date; however, all outstanding gift card balances are classified by the Company as current liabilities since gift cards are redeemable on demand by the valid holder. The majority of the Company's gift cards are redeemed within one year of issuance.

Unredeemed loyalty rewards - points and reward certificates earned by customers under the Company’s loyalty programs represent obligations of the Company to transfer goods to the customer upon redemption. Periodic changes in the loyalty program contract liability result from reward certificate redemptions and expirations. The earning and redemption cycles for our loyalty program are under one year in duration.