Fossil Group, Inc. [FOSL] Filings

10-Q 1 fosl-20220402.htm 10-Q fosl-20220402

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________________

FORM 10-Q

__________________________________________________________________

(Mark One)


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

For the quarterly period ended: April 2, 2022


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

For the transition period from to

Commission file number: 000-19848

__________________________________________________________________

FOSSIL GROUP, INC.

(Exact name of registrant as specified in its charter)

__________________________________________________________________

Delaware

75-2018505

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

901 S. Central Expressway,

Richardson,

Texas

75080

(Address of principal executive offices)

(Zip Code)

(972) 234-2525

(Registrant’s telephone number, including area code)

__________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Ticker Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

FOSL

The Nasdaq Stock Market LLC

7.00% Senior notes due 2026

FOSLL

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 ☒ No ☐

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 ☒ No ☐

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 (check one):

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of May 4, 2022: 51,766,969

FOSSIL GROUP, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED APRIL 2, 2022

INDEX


		Page
PART I
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
	Results of Operations	29
	Liquidity and Capital Resources	36
	Forward-Looking Statements	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40
PART II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	SIGNATURES	43

Trademarks, service marks, trade names and copyrights

We use our FOSSIL, MICHELE, RELIC, SKAGEN and ZODIAC trademarks, as well as other trademarks, on certain watches and smartwatches, our FOSSIL and SKAGEN trademarks on jewelry, and our FOSSIL trademark on leather goods and other fashion accessories in the U.S. and in a significant number of foreign countries. We also use FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL and WSI as trademarks on retail stores and FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL, WSI, MISFIT, ZODIAC and MICHELE as trademarks on online e-commerce sites. This filing may also contain other trademarks, service marks, trade names and copyrights of ours or of other companies with whom we have, for example, licensing agreements to produce, market and distribute products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to or incorporated by reference into this prospectus supplement and the accompanying prospectus may be listed without the TM, SM, © and ® symbols, as applicable, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks, trade names and copyrights.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

IN THOUSANDS


	April 2, 2022		January 1, 2022
Assets
Current assets:
Cash and cash equivalents	$	162,619	$	250,844
Accounts receivable - net of allowances for doubtful accounts of $16,637 and $16,388, respectively	201,106		255,131
Inventories	385,831		346,850
Prepaid expenses and other current assets	187,663		169,930
Total current assets	937,219		1,022,755
Property, plant and equipment - net of accumulated depreciation of $434,682 and $436,663, respectively	85,558		89,767
Operating lease right-of-use assets	166,231		177,597

Intangible and other assets-net	76,314		78,600
Total long-term assets	328,103		345,964
Total assets	$	1,265,322	$	1,368,719
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	198,527	$	229,877
Short-term and current portion of long-term debt	619		554
Accrued expenses:
Current operating lease liabilities	52,739		58,721
Compensation	45,473		73,595
Royalties	16,863		38,714
Customer liabilities	39,227		40,886
Transaction taxes	7,162		17,147
Other	45,769		46,675
Income taxes payable	26,300		29,478
Total current liabilities	432,679		535,647
Long-term income taxes payable	22,603		20,452
Deferred income tax liabilities	502		504
Long-term debt	183,852		141,354
Long-term operating lease liabilities	164,588		174,520
Other long-term liabilities	31,634		30,884
Total long-term liabilities	403,179		367,714
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, 51,157 and 52,146 shares issued and outstanding at April 2, 2022 and January 1, 2022, respectively	511		521
Additional paid-in capital	302,583		300,848
Retained earnings	198,134		229,132
Accumulated other comprehensive income (loss)	(74,062)		(67,275)
Total Fossil Group, Inc. stockholders’ equity	427,166		463,226
Noncontrolling interests	2,298		2,132
Total stockholders’ equity	429,464		465,358
Total liabilities and stockholders’ equity	$	1,265,322	$	1,368,719

See notes to the unaudited condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

UNAUDITED

IN THOUSANDS, EXCEPT PER SHARE DATA


	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Net sales	$	375,853	$	363,042
Cost of sales	191,540		180,453
Gross profit	184,313		182,589
Operating expenses:
Selling, general and administrative expenses	195,758		187,324

Other long-lived asset impairments	286		4,500
Restructuring charges	2,551		7,520
Total operating expenses	198,595		199,344
Operating income (loss)	(14,282)		(16,755)
Interest expense	3,997		7,331
Other income (expense) - net	1,618		1,864
Income (loss) before income taxes	(16,661)		(22,222)
Provision for income taxes	4,687		2,117
Net income (loss)	(21,348)		(24,339)
Less: Net income (loss) attributable to noncontrolling interests	166		101
Net income (loss) attributable to Fossil Group, Inc.	$	(21,514)	$	(24,440)
Other comprehensive income (loss), net of taxes:
Currency translation adjustment	$	(7,885)	$	(10,121)
Cash flow hedges - net change	1,098		1,742

Total other comprehensive income (loss)	(6,787)		(8,379)
Total comprehensive income (loss)	(28,135)		(32,718)
Less: Comprehensive income (loss) attributable to noncontrolling interests	166		101
Comprehensive income (loss) attributable to Fossil Group, Inc.	$	(28,301)	$	(32,819)
Earnings (loss) per share:
Basic	$	(0.41)	$	(0.47)
Diluted	$	(0.41)	$	(0.47)
Weighted average common shares outstanding:
Basic	51,999		51,519
Diluted	51,999		51,519

See notes to the unaudited condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

UNAUDITED

IN THOUSANDS


For the 13 Weeks Ended April 2, 2022
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, January 1, 2022	52,146	$	521	$	300,848	$	—	$	229,132	$	(67,275)	$	463,226	$	2,132	$	465,358


Acquisition of common stock	—	—		—		(10,000)		—		—		(10,000)		—		(10,000)
Retirement of common stock	(989)	(10)		(506)		10,000		(9,484)		—		—		—		—


Stock-based compensation	—	—		2,241		—		—		—		2,241		—		2,241
Net income (loss)	—	—		—		—		(21,514)		—		(21,514)		166		(21,348)
Other comprehensive income (loss)	—	—		—		—		—		(6,787)		(6,787)		—		(6,787)




Balance, April 2, 2022	51,157	$	511	$	302,583	$	—	$	198,134	$	(74,062)	$	427,166	$	2,298	$	429,464


For the 13 Weeks Ended April 3, 2021
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, January 2, 2021	51,474	$	515	$	293,777	$	—	$	203,698	$	(58,900)	$	439,090	$	942	$	440,032
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	77	—		—		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(254)		—		—		(254)		—		(254)
Retirement of common stock	(25)	—		(254)		254		—		—		—		—		—


Stock-based compensation	—	—		1,764		—		—		—		1,764		—		1,764
Net income (loss)	—	—		—		—		(24,440)		—		(24,440)		101		(24,339)
Other comprehensive income (loss)	—	—		—		—		—		(8,379)		(8,379)		—		(8,379)





Balance, April 3, 2021	51,526	$	515	$	295,287	$	—	$	179,258	$	(67,279)	$	407,781	$	1,043	$	408,824

See notes to the unaudited condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

IN THOUSANDS


	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Operating Activities:
Net Income (loss)	$	(21,348)	$	(24,339)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	6,185		8,933
Non-cash lease expense	20,742		23,980
Stock-based compensation	2,241		1,764
Decrease in allowance for returns and markdowns	(3,975)		(5,933)

Property, plant and equipment and other long-lived asset impairment losses	286		4,500

Non-cash restructuring charges	92		221
Bad debt expense (recoveries)	2,094		(1,632)

Other non-cash items	2,111		247


Changes in operating assets and liabilities:
Accounts receivable	51,069		53,961
Inventories	(41,947)		(32,612)
Prepaid expenses and other current assets	(18,963)		(9,237)
Accounts payable	(30,097)		24,717
Accrued expenses	(57,853)		(48,465)
Income taxes	(927)		(5,214)
Operating lease liabilities	(24,755)		(28,740)
Net cash used in operating activities	(115,045)		(37,849)
Investing Activities:
Additions to property, plant and equipment	(2,530)		(2,136)
Decrease in intangible and other assets	251		6,267
Proceeds from the sale of property, plant and equipment and other	4		10,925

Net cash (used in) provided by investing activities	(2,275)		15,056
Financing Activities:
Acquisition of common stock	(10,000)		(254)

Debt borrowings	46,167		55,008
Debt payments	(4,100)		(88,932)


Net cash provided by (used in) financing activities	32,067		(34,178)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,502)		(6,550)
Net decrease in cash, cash equivalents, and restricted cash	(88,755)		(63,521)
Cash, cash equivalents, and restricted cash:
Beginning of period	264,572		324,246
End of period	$	175,817	$	260,725

See notes to the unaudited condensed consolidated financial statements.

FOSSIL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. FINANCIAL STATEMENT POLICIES

Basis of Presentation. The condensed consolidated financial statements include the accounts of Fossil Group, Inc., a Delaware corporation, and its wholly and majority-owned subsidiaries (the “Company”).

The information presented herein includes the thirteen-week period ended April 2, 2022 (“First Quarter”) as compared to the thirteen-week period ended April 3, 2021 (“Prior Year Quarter”). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of April 2, 2022, and the results of operations for the First Quarter and Prior Year Quarter. All adjustments are of a normal, recurring nature.

Effective during fiscal year 2021, the Company made a change to the presentation of product net sales to include third-party smartwatch bands within the smartwatch product type. Third-party smartwatch bands were previously reported within the jewelry product type. The Company's historical disclosures have been recast to be consistent with its current presentation.

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the fiscal year ended January 1, 2022 (the “2021 Form 10-K”). Operating results for the First Quarter are not necessarily indicative of the results to be achieved for the full fiscal year.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. We base our estimates on the information available at the time and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of the coronavirus (“COVID-19”) pandemic. Actual results could differ from those estimates, including the impact of the COVID-19 pandemic. The Company has not made any changes in its significant accounting policies from those disclosed in the 2021 Form 10-K.

Business. The Company is a global design, marketing and distribution company that specializes in consumer fashion accessories. Its principal offerings include an extensive line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts and sunglasses. In the watch and jewelry product categories, the Company has a diverse portfolio of globally recognized owned and licensed brand names under which its products are marketed. The Company's products are distributed globally through various distribution channels, including wholesale in countries where it has a physical presence, direct to the consumer through its retail stores and commercial websites and through third-party distributors in countries where the Company does not maintain a physical presence. The Company's products are offered at varying price points to meet the needs of its customers, whether they are value-conscious or luxury oriented. Based on its extensive range of accessory products, brands, distribution channels and price points, the Company is able to target style-conscious consumers across a wide age spectrum on a global basis.

Operating Expenses. Operating expenses include selling, general and administrative ("SG&A"), trade name impairments, other long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of the Company's retail stores, point-of-sale expenses, advertising expenses and art, and design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and support costs such as treasury, legal, information services, accounting, internal audit, human resources, executive management costs and costs associated with stock-based compensation. Restructuring charges include costs to reorganize, refine and optimize the Company’s infrastructure and store closures. See Note 16—Restructuring for additional information on the Company’s restructuring plan.

Earnings (Loss) Per Share (“EPS”). Basic EPS is based on the weighted average number of common shares outstanding during each period. Diluted EPS adjusts basic EPS for the effects of dilutive common stock equivalents outstanding during each period using the treasury stock method.

The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS (in thousands, except per share data):


	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Numerator:
Net income (loss) attributable to Fossil Group, Inc.	$	(21,514)	$	(24,440)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	51,999		51,519
Basic EPS	$	(0.41)	$	(0.47)
Diluted EPS computation:

Diluted weighted average common shares outstanding	51,999		51,519
Diluted EPS	$	(0.41)	$	(0.47)

At the end of the First Quarter, approximately 2.1 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 0.3 million weighted average performance-based shares at the end of the First Quarter.

At the end of the Prior Year Quarter, 2.0 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 0.3 million weighted average performance-based shares at the end of the Prior Year Quarter.

Cash, Cash Equivalents and Restricted Cash. Restricted cash included in intangible and other-assets net was comprised primarily of restricted cash balances for appealed tax assessments held in escrow and for pledged collateral to secure bank guarantees for the purpose of obtaining retail space. The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of April 2, 2022 and April 3, 2021 that are presented in the condensed consolidated statement of cash flows (in thousands):


	April 2, 2022		April 3, 2021
Cash and cash equivalents	$	162,619	$	246,694
Restricted cash included in prepaid expenses and other current assets	117		6,567
Restricted cash included in intangible and other assets-net	13,081		7,464
Cash, cash equivalents and restricted cash	$	175,817	$	260,725

Recently Issued Accounting Standards

In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance ("ASU 2021-10"). The new standard increases transparency of government assistance by focusing on the types of assistance given, an entity's accounting for the assistance, and the effect of the assistance on the entity's financial statements to allow for more comparable information for investors and other financial statement users. This standard is effective for financial statements issued for annual periods beginning after December 15, 2021, but early adoption is permitted. This standard will not have a material impact on the Company's consolidated financial statements or related disclosures.

In October 2021, FASB issued ASU 2021-08, Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). The guidance is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. The guidance requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 as if they had originated the contracts, as opposed to at fair value on the acquisition date. The standard will be effective for business combinations that occur after January 1, 2023. Early adoption is permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. While the impact of this amendment is dependent on the nature of any future transactions, the Company currently does not expect this standard to have a material impact on the Company's consolidated financial statements or related disclosures.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") and subsequent guidance that clarified the scope and application of its original guidance. ASU 2020-04 provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company will adopt these standards when LIBOR is discontinued and does not expect it to have a material impact on its consolidated financial statements or related disclosures.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 at the beginning of the First Quarter, and it did not have a material effect on the Company's condensed consolidated financial statements.

2. REVENUE

Disaggregation of Revenue. Due to changes in the Company’s product types as discussed in Note 1 to the Condensed Consolidated Financial Statements, product results for the Prior Year Quarter have been recast to present results on a comparable basis. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):


	For the 13 Weeks Ended April 2, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	115,902	$	81,149	$	64,363	$	13	261,427
Smartwatches	$	17,272	$	12,686	$	8,024	$	2	37,984
Total watches	$	133,174	$	93,835	$	72,387	$	15	$	299,411
Leathers	19,236		7,369		7,580		—		34,185
Jewelry	7,936		21,135		5,625		—		34,696
Other	1,581		2,212		1,176		2,592		7,561
Consolidated	$	161,927	$	124,551	$	86,768	$	2,607	$	375,853

Timing of revenue recognition
Revenue recognized at a point in time	$	161,594	$	124,300	$	86,608	$	1,164	$	373,666
Revenue recognized over time	333		251		160		1,443		2,187
Consolidated	$	161,927	$	124,551	$	86,768	$	2,607	$	375,853


	For the 13 Weeks Ended April 3, 2021
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	95,336	$	71,006	$	76,088	$	—	$	242,430
Smartwatches	$	29,224	$	13,674	$	10,017	$	3	$	52,918
Total watches	$	124,560	$	84,680	$	86,105	$	3	$	295,348
Leathers	19,629		6,305		8,170		—		34,104
Jewelry	6,962		16,266		2,909		—		26,137
Other	1,355		1,983		1,456		2,659		7,453
Consolidated	$	152,506	$	109,234	$	98,640	$	2,662	$	363,042

Timing of revenue recognition
Revenue recognized at a point in time	$	152,045	$	108,887	$	98,540	$	907	$	360,379
Revenue recognized over time	461		347		100		1,755		2,663
Consolidated	$	152,506	$	109,234	$	98,640	$	2,662	$	363,042

Contract Balances. As of April 2, 2022, the Company had no material contract assets on the Company's condensed consolidated balance sheets and no deferred contract costs. The Company had contract liabilities of (i) $5.8 million and $4.9 million as of April 2, 2022 and January 1, 2022, respectively, related to remaining performance obligations on licensing income, (ii) $3.0 million as of both April 2, 2022 and January 1, 2022, primarily related to remaining performance obligations on wearable technology products and (iii) $3.5 million and $3.6 million as of April 2, 2022 and January 1, 2022, respectively, related to gift cards issued.

3. INVENTORIES

Inventories consisted of the following (in thousands):


	April 2, 2022		January 1, 2022
Components and parts	$	27,761	$	23,668
Work-in-process	621		2
Finished goods	357,449		323,180
Inventories	$	385,831	$	346,850

4. WARRANTY LIABILITIES

The Company’s warranty liability is recorded in accrued expenses-other in the Company’s condensed consolidated balance sheets. Warranty liability activity consisted of the following (in thousands):


	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Beginning balance	$	19,159	$	21,916
Settlements in cash or kind	(2,905)		(2,725)
Warranties issued and adjustments to preexisting warranties (1)	1,652		1,589
Ending balance	$	17,906	$	20,780

_______________________________________________

(1) Changes in cost estimates related to preexisting warranties are aggregated with accruals for new standard warranties issued and foreign currency changes.

5. INCOME TAXES

The Company’s income tax (benefit) expense and related effective rates were as follows (in thousands, except percentage data):


	For the 13 Weeks Ended April 2, 2022			For the 13 Weeks Ended April 3, 2021
Income tax (benefit) expense	$	4,687		$	2,117
Effective tax rate	(28.1)		%	(9.5)		%

The effective tax rate in the First Quarter was unfavorable as compared to the Prior Year Quarter due to the accrual of foreign income tax on a higher level of foreign profits coupled with no U.S. benefit on a higher level of U.S. net operating loss (“NOL”). The First Quarter tax rate is negative because foreign income tax expense is accrued on certain foreign entities with positive taxable income when the consolidated results are a loss. The overall tax rate is impacted by the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act which requires the inclusion of certain foreign income in the tax return which absorbs all of the U.S. NOL. Foreign income taxes are also paid on this same foreign income, resulting in double taxation.

The effective tax rate can vary from quarter-to-quarter due to changes in the Company's global mix of earnings, the resolution of income tax audits and changes in tax law.

As of April 2, 2022, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $29.2 million, of which $24.2 million would favorably impact the effective tax rate in future periods, if recognized. The Company is subject to examinations in various state and foreign jurisdictions for its 2012-2020 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax audit settlements are subject to significant uncertainty.

The Company has classified uncertain tax positions as long-term income taxes payable, unless such amounts are expected to be settled within twelve months of the condensed consolidated balance sheet date. As of April 2, 2022, the Company had recorded $12.3 million of unrecognized tax benefits, excluding interest and penalties, for positions that are expected to be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable. At April 2, 2022, the total amount of accrued income tax-related interest included in the condensed consolidated balance sheets was $8.5 million. There was no accrued tax-related penalties. For the First Quarter, the Company accrued income tax related interest expense of $0.3 million.

6. STOCKHOLDERS’ EQUITY

Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 51,156,552 and 52,145,738 shares issued and outstanding at April 2, 2022 and January 1, 2022, respectively.

The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding at April 2, 2022 or January 1, 2022. Rights, preferences and other terms of preferred stock will be determined by the Board of Directors at the time of issuance.

Common Stock Repurchase Programs. Purchases of the Company’s common stock are made from time to time pursuant to its repurchase programs, subject to market conditions and at prevailing market prices, through the open market. Repurchased shares of common stock are recorded at cost and become authorized but unissued shares which may be issued in the future for general corporate or other purposes. The Company may terminate or limit its stock repurchase program at any time. In the event the repurchased shares are cancelled, the Company accounts for retirements by allocating the repurchase price to common stock, additional paid-in capital and retained earnings.

The repurchase price allocation is based upon the equity contribution associated with historical issuances. The repurchase programs are conducted pursuant to Rule 10b-18 of the Exchange Act.

During the First Quarter, the Company effectively retired 1.0 million shares of common stock repurchased under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by $10,000, additional paid-in capital by $0.5 million, retained earnings by $9.5 million and treasury stock by $10.0 million. At April 2, 2022 and January 1, 2022, all treasury stock had been effectively retired. As of April 2, 2022, the Company had $20.0 million of repurchase authorizations remaining under its repurchase program.

The following table reflects the Company's common stock repurchase activity for the periods indicated (in millions):


				For the 13 Weeks Ended April 2, 2022			For the 13 Weeks Ended April 3, 2021
Fiscal Year Authorized	Dollar Value Authorized		Termination Date	Number of Shares Repurchased	Dollar Value Repurchased		Number of Shares Repurchased	Dollar Value Repurchased

2010	$	30.0	None	1.0	$	10.0	—	$	—

7. EMPLOYEE BENEFIT PLANS

Stock-Based Compensation Plans. The following table summarizes stock options and stock appreciation rights activity during the First Quarter:


Stock Options and Stock Appreciation Rights	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in Thousands)			(in Years)	(in Thousands)
Outstanding at January 1, 2022	282	$	72.34	1.5	$	—
Granted	—	—
Exercised	—	—			—
Forfeited or expired	(76)	123.20
Outstanding at April 2, 2022	206	53.67		1.7	—
Exercisable at April 2, 2022	206	$	53.67	1.7	$	—

The aggregate intrinsic value shown in the table above is based on the exercise price for outstanding and exercisable options/rights at April 2, 2022.

Stock Options and Stock Appreciation Rights Outstanding and Exercisable. The following tables summarize information with respect to stock options and stock appreciation rights outstanding and exercisable at April 2, 2022:


Stock Options Outstanding					Stock Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Number of Shares	Weighted- Average Exercise Price
	(in Thousands)			(in Years)	(in Thousands)



$131.46 - $131.46	5	$	131.46	0.04	5	$	131.46
Total	5	$	131.46	0.04	5	$	131.46


Stock Appreciation Rights Outstanding					Stock Appreciation Rights Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Number of Shares	Weighted- Average Exercise Price
	(in Thousands)			(in Years)	(in Thousands)
$29.49 - $47.99	146	$	40.92	2.04	146	$	40.92
$55.04 - $82.55	48

Fossil Group, Inc. [FOSL] Filings

Fossil Group, Inc. [FOSLL] Filings