COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Future commitments under non-cancelable agreements at December 30, 2023 were as follows (in thousands):


			Fiscal Year
	Total		2024		2025		2026		2027		2028		Thereafter
Non-cancelable agreements(1)	$	154,013	$	73,867	$	50,515	$	21,900	$	6,198	$	1,533	$	—

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(1)We have entered into commitments for service and maintenance agreements related to our management information systems, distribution contracts, advertising, sponsorships, and licensing agreements.

As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits and other noncurrent tax liabilities, the table above does not include $17.6 million, net, of such liabilities that are on our consolidated balance sheet as of December 30, 2023.

We are involved in various claims and legal proceedings, some of which are covered by insurance. We believe that the existing claims and proceedings, and potential losses relating to such contingencies, will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Product Recall Reserves

In January 2023, we notified the U.S. Consumer Product Safety Commission (“CPSC”) of a potential safety concern regarding the magnet-lined closures of our Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case (the “affected products”) and initiated a global stop sale of the affected products. In February 2023, we proposed a voluntary recall of the affected products to the CPSC, and other relevant global regulatory authorities, which we refer to as the “voluntary recalls” herein unless otherwise indicated. In conjunction with the stop sale, we determined that the affected products inventory held by us, our suppliers and our wholesale customers is unsalable, and notified our wholesale customers to return the affected products. In March 2023, we announced separate, voluntary recalls of the affected products in collaboration with the CPSC and subsequently began processing recall claims and returns.

We establish reserves for the estimated costs of a product recall when circumstances giving rise to the recall become known and when such costs are probable and estimable. As a result of the voluntary recalls, we established a reserve as of December 31, 2022, for expected future returns and the estimated cost of recall remedies for consumers with affected products. The reserve for the estimated product recall expenses is included within accrued expenses and other current liabilities on our consolidated balance sheets. Estimating the cost of recall remedies required significant judgment and is primarily based on i) expected consumer participation rates; and ii) the estimated costs of the consumer’s elected remedy in the recalls, including the estimated cost of either product replacements or gift card elections, logistics costs, and other recall-related costs. We reevaluate these assumptions each period, and the related reserves are adjusted when factors indicate that the reserve is either not sufficient to cover or exceeds the estimated product recall costs. The ultimate impact from the approved voluntary recalls could differ materially from these estimates.

The reserve for the estimated product recall expenses was $13.1 million and $94.8 million as of December 30, 2023 and December 31, 2022, respectively. As of December 31, 2022, we recorded a write-off of $34.1 million for our unsalable inventory on-hand. Due to the physical scrapping of inventory, the inventory reserve for our unsalable inventory on-hand, including affected products returned in connection with the recalls, was nominal as of December 30, 2023.

During the second quarter of 2023, we began processing recall-related claims and returns. Based on such experience and observed trends during 2023, we reevaluated our prior assumptions and adjusted our estimated product recall reserve. These trends included higher than anticipated elections by consumers to receive gift cards in lieu of product replacement remedies, lower than anticipated consumer recall participation rates, variations in individual product participation rates, and lower logistics costs than previously estimated. As a result, we updated our recall reserve assumptions throughout the remainder of 2023, which increased the estimated recall expense reserve by $3.6 million during the year ended December 30, 2023.

The following table summarizes the activity in the reserve for the estimated product recall expenses (in thousands):


	December 30, 2023
Balance, January 1, 2023	$	94,807
Actual product refunds, replacements and recall-related costs	(55,470)
Gift card issuances(1)	(29,802)
Reserve adjustment	3,555
Balance, December 30, 2023	$	13,090

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(1)For the year ended December 30, 2023, we recognized net sales of $25.3 million from redeemed recall-related gift cards. As of December 30, 2023, we had $4.5 million in unredeemed recall-related gift card liabilities, which are included in contract liabilities within accrued expenses and other current liabilities on our consolidated balance sheet.

The product recalls, which include recall reserve adjustments and other incurred costs, had the following effect on our income before income taxes (in thousands):


	Fiscal Year Ended
	December 30, 2023		December 31, 2022
Decrease to net sales(1)	$	(21,700)	$	(38,415)
Decrease (increase) to cost of goods sold(2)	8,423		(58,583)
Decrease to gross profit	(13,277)		(96,998)
Decrease (increase) to selling, general and administrative expenses(3)	11,382		(31,910)
Decrease to income before income taxes	$	(1,895)	$	(128,908)

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(1)For the year ended December 30, 2023, primarily reflects the unfavorable impact of the recall reserve adjustment mainly related to higher estimated future recall remedies (i.e., estimated gift card elections). For the year ended December 31, 2022, reflects a reduction for estimated future returns and recall remedies in connection with the initial recognition of the product recall reserves. Of the total net sales impact, $7.3 million and $14.4 million was allocated to our DTC and wholesale channels for the year ended December 30, 2023, and $6.2 million and $32.2 million was allocated to our DTC and wholesale channels for the year ended December 31, 2022. These amounts were allocated based on the historical channel sell-in basis of the affected products.

(2)For the year ended December 30, 2023, reflects the impact of favorable recall reserve adjustments primarily related to lower estimated costs of future product replacement remedy elections and logistics costs and lower recall-related costs. For the year ended December 31, 2022, reflects an increase to cost of goods sold primarily related to inventory write-offs for unsalable inventory on-hand, and estimated costs of future product replacement remedies, and logistics costs in connection with the initial recognition of the product recall reserves.

(3)For the year ended December 30, 2023, reflects the impact of favorable recall reserve adjustments primarily related to lower estimated other recall-related costs. For the year ended December 31, 2022, reflects an increase to SG&A expenses associated with estimated other recall-related costs in connection with the initial recognition of the product recall reserves.

The ultimate impact from the recalls may differ materially from our estimates, and may harm our business, financial condition, and results of operations. See Part I, Item 1A “Risk Factors - Risks Related to Our Business, Operations and Industry.”