Company Quick10K Filing
Quick10K
Fossil Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.51 50 $722
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-10-04 Quarter: 2014-10-04
10-Q 2014-07-05 Quarter: 2014-07-05
10-Q 2014-04-05 Quarter: 2014-04-05
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-05-22 Shareholder Vote, Other Events
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-09-27 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-05-23 Shareholder Vote, Other Events
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-02-13 Earnings, Exhibits
8-K 2018-01-29 Enter Agreement, Off-BS Arrangement, Exhibits
TALO Talos Energy 1,540
MTP Midatech Pharma 393
RUBI Rubicon Project 352
INMB INmune Bio 112
TTPH Tetraphase Pharmaceuticals 54
RVP Retractable Technologies 24
RBCN Rubicon Technology 22
YOGA Yogaworks 15
BSRC Biosolar 0
FNHI Franchise Holdings International 0
FOSL 2019-03-30
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 fosl-q13302019xex311.htm
EX-31.2 fosl-q13302019xex312.htm
EX-32.1 fosl-q13302019xex321.htm
EX-32.2 fosl-q13302019xex322.htm

Fossil Group Earnings 2019-03-30

FOSL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fosl-q13302019.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________________________ 
FORM 10-Q 
__________________________________________________________________
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 30, 2019
 
OR
o     
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 
__________________________________________________________________ 
logo2a02.gif
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) 
__________________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one):




Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
 
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 o No x 
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

The number of shares of the registrant’s common stock outstanding as of May 2, 2019: 50,411,443




FOSSIL GROUP, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 30, 2019
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 





PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
IN THOUSANDS
 
March 30, 2019
 
December 29, 2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
271,442

 
$
403,373

Accounts receivable - net of allowances of $12,989 and $14,001, respectively
199,898

 
328,022

Inventories
384,069

 
377,622

Prepaid expenses and other current assets
133,106

 
149,552

Total current assets
988,515

 
1,258,569

Property, plant and equipment - net of accumulated depreciation of $455,357 and $453,319, respectively
172,707

 
183,203

Operating lease right-of-use assets
311,953

 

Intangible and other assets-net
116,716

 
133,426

Total long-term assets
601,376

 
316,629

Total assets
$
1,589,891

 
$
1,575,198

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
138,278

 
$
169,561

Short-term and current portion of long-term debt
65,891

 
126,427

Accrued expenses:
 

 
 

Current operating lease liabilities
69,172

 

Compensation
54,020

 
76,467

Royalties
12,029

 
30,582

Customer liabilities
56,573

 
71,252

Transaction taxes
13,333

 
32,438

Other
58,206

 
70,614

Income taxes payable
29,025

 
28,462

Total current liabilities
496,527

 
605,803

Long-term income taxes payable
28,465

 
28,110

Deferred income tax liabilities
2,563

 
2,439

Long-term debt
161,130

 
269,788

Long-term operating lease liabilities
311,618

 

Other long-term liabilities
40,362

 
80,427

Total long-term liabilities
544,138

 
380,764

Commitments and contingencies (Note 13)


 


Stockholders’ equity:
 

 
 

Common stock, 49,772 and 49,518 shares issued and outstanding at March 30, 2019 and December 28, 2018, respectively
498

 
495

Additional paid-in capital
273,434

 
268,113

Retained earnings
339,916

 
381,626

Accumulated other comprehensive income (loss)
(68,190
)
 
(64,691
)
Total Fossil Group, Inc. stockholders’ equity
545,658

 
585,543

Noncontrolling interests
3,568

 
3,088

Total stockholders’ equity
549,226

 
588,631

Total liabilities and stockholders’ equity
$
1,589,891

 
$
1,575,198

 
See notes to the unaudited condensed consolidated financial statements.

4



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 March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Net sales
$
465,268

 
$
569,156

Cost of sales
217,341

 
281,465

Gross profit
247,927

 
287,691

Operating expenses:
 

 
 

Selling, general and administrative expenses
257,684

 
294,654

Restructuring charges
10,187

 
21,318

Total operating expenses
267,871

 
315,972

Operating income (loss)
(19,944
)
 
(28,281
)
Interest expense
8,122

 
10,691

Other income (expense) - net
25,912

 
(1,888
)
Income (loss) before income taxes
(2,154
)
 
(40,860
)
Provision for income taxes
9,608

 
6,645

Net income (loss)
(11,762
)
 
(47,505
)
Less: Net income attributable to noncontrolling interests
480

 
768

Net income (loss) attributable to Fossil Group, Inc.
$
(12,242
)
 
$
(48,273
)
Other comprehensive income (loss), net of taxes:
 

 
 

Currency translation adjustment
$
(2,490
)
 
$
12,301

Cash flow hedges - net change
(1,009
)
 
(1,157
)
Total other comprehensive income (loss)
(3,499
)
 
11,144

Total comprehensive income (loss)
(15,261
)
 
(36,361
)
Less: Comprehensive income attributable to noncontrolling interests
480

 
768

Comprehensive income (loss) attributable to Fossil Group, Inc.
$
(15,741
)
 
$
(37,129
)
Earnings (loss) per share:
 

 
 

Basic
$
(0.25
)
 
$
(0.99
)
Diluted
$
(0.25
)
 
$
(0.99
)
Weighted average common shares outstanding:
 

 
 

Basic
49,618

 
48,712

Diluted
49,618

 
48,712

 
See notes to the unaudited condensed consolidated financial statements.

5



FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
IN THOUSANDS

For the 13 Weeks Ended March 30, 2019
 
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, December 29, 2018
49,518

 
$
495

 
$
268,113

 
$

 
$
381,626

 
$
(64,691
)
 
$
585,543

 
$
3,088

 
$
588,631

Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units
349

 
4

 
166

 

 

 

 
170

 

 
170

Acquisition of common stock for employee tax withholding

 

 

 
(1,515
)
 

 

 
(1,515
)
 

 
(1,515
)
Retirement of common stock
(95
)
 
(1
)
 
(1,514
)
 
1,515

 

 

 

 

 

Stock-based compensation

 

 
6,669

 

 

 

 
6,669

 

 
6,669

Net income (loss)

 

 

 

 
(12,242
)
 

 
(12,242
)
 
480

 
(11,762
)
Other comprehensive income (loss)

 

 

 

 

 
(3,499
)
 
(3,499
)
 

 
(3,499
)
Adoption of Accounting Standards Update ("ASU") 2016-02

 

 

 

 
(29,468
)
 

 
(29,468
)
 

 
(29,468
)
Balance, March 30, 2019
49,772

 
$
498

 
$
273,434

 
$

 
$
339,916

 
$
(68,190
)
 
$
545,658

 
$
3,568

 
$
549,226


For the 13 Weeks Ended March 31, 2018
 
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, December 30, 2017
48,643

 
$
486

 
$
242,263

 
$

 
$
409,653

 
$
(76,269
)
 
$
576,133

 
$
4,814

 
$
580,947

Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units
324

 
4

 
(4
)
 

 

 

 

 

 

Acquisition of common stock for employee tax withholding

 

 

 
(855
)
 

 

 
(855
)
 

 
(855
)
Retirement of common stock
(67
)
 
(1
)
 
(854
)
 
855

 

 

 

 

 

Stock-based compensation

 

 
9,799

 

 

 

 
9,799

 

 
9,799

Net income (loss)

 

 

 

 
(48,273
)
 

 
(48,273
)
 
768

 
(47,505
)
Other comprehensive income (loss)

 

 

 

 

 
11,144

 
11,144

 

 
11,144

Distribution of noncontrolling interest earnings and other

 

 
42

 

 

 

 
42

 
(475
)
 
(433
)
Adoption of ASU 2014-09

 

 

 

 
(26,542
)
 

 
(26,542
)
 

 
(26,542
)
Balance, March 31, 2018
48,900

 
$
489

 
$
251,246

 
$

 
$
334,838

 
$
(65,125
)
 
$
521,448

 
$
5,107

 
$
526,555


See notes to the unaudited condensed consolidated financial statements.


6



FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
IN THOUSANDS
 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Operating Activities:
 

 
 

Net Income (loss)
$
(11,762
)
 
$
(47,505
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation, amortization and accretion
14,439

 
16,019

Non-cash lease expense
31,136

 

Stock-based compensation
4,386

 
4,341

Decrease in allowance for returns and markdowns
(9,293
)
 
(7,959
)
Property, plant and equipment and other long-lived asset impairment losses
880

 
81

Non-cash restructuring charges
4,236

 
7,169

Bad debt expense
994

 
962

Loss on extinguishment of debt

 
718

Other non-cash items
1,801

 
4,412

Gain on asset divestitures
(23,134
)
 

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
128,819

 
175,060

Inventories
(7,238
)
 
18,100

Prepaid expenses and other current assets
(9,738
)
 
(14,461
)
Accounts payable
(49,651
)
 
(71,774
)
Accrued expenses
(69,239
)
 
(86,375
)
Income taxes payable
981

 
(3,095
)
Net cash provided by (used in) operating activities
7,617

 
(4,307
)
Investing Activities:
 

 
 

Additions to property, plant and equipment
(6,571
)
 
(3,832
)
Increase in intangible and other assets
(907
)
 
(180
)
Proceeds from the sale of property, plant and equipment
1,164

 
112

Asset divestitures
41,570

 

Net cash provided by (used in) investing activities
35,256

 
(3,900
)
Financing Activities:
 

 
 

Acquisition of common stock for employee tax withholding
(1,515
)
 
(855
)
Distribution of noncontrolling interest earnings

 
(433
)
Debt borrowings
1,825

 
764,125

Debt payments
(171,871
)
 
(742,497
)
Payment for shares of Fossil Accessories South Africa Pty. Ltd.
(947
)
 
(1,547
)
Debt issuance costs and other
124

 
(6,843
)
Net cash (used in) provided by financing activities
(172,384
)
 
11,950

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(2,276
)
 
(3,639
)
Net (decrease) increase in cash, cash equivalents, and restricted cash
(131,787
)
 
104

Cash, cash equivalents, and restricted cash:
 

 
 

Beginning of period
410,883

 
231,655

End of period
$
279,096

 
$
231,759


See notes to the unaudited condensed consolidated financial statements.

7



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 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 March 30, 2019, and the results of operations for the thirteen-week periods ended March 30, 2019 (“First Quarter”) and March 31, 2018 (“Prior Year Quarter”), respectively. All adjustments are of a normal, recurring nature.
Effective during fiscal year 2018, the Company made changes to the presentation of reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy, and allocates capital resources. The Company's historical segment 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 December 29, 2018 (the “2018 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. Actual results could differ from those estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 2018 Form 10-K, other than the adoption of ASU 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification® ("ASU 2016-02") and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12").
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 expenses (“SG&A”), trade name impairment 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, design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and “back office” or 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 as well as store closure expenses.
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.

8



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 March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Numerator:
 

 
 

Net income (loss) attributable to Fossil Group, Inc.
$
(12,242
)
 
$
(48,273
)
Denominator:
 
 
 

Basic EPS computation:
 
 
 

Basic weighted average common shares outstanding
49,618

 
48,712

Basic EPS
$
(0.25
)
 
$
(0.99
)
Diluted EPS computation:
 
 
 

Basic weighted average common shares outstanding
49,618

 
48,712

Diluted weighted average common shares outstanding
49,618

 
48,712

Diluted EPS
$
(0.25
)
 
$
(0.99
)
At the end of the First Quarter, approximately 4.4 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 1.1 million weighted average performance-based shares at the end of the First Quarter.
At the end of the Prior Year Quarter, 4.8 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 1.2 million weighted average performance-based shares at the end of the Prior Year Quarter.
Cash, Cash Equivalents and Restricted Cash. The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of March 30, 2019 and March 31, 2018 that are presented in the condensed consolidated statement of cash flows (in thousands):
 
March 30, 2019
 
March 31, 2018
Cash and cash equivalents
$
271,442

 
$
229,863

Restricted cash included in prepaid expenses and other current assets
31

 
33

Restricted cash included in intangible and other assets-net
7,623

 
1,863

Cash, cash equivalents and restricted cash
$
279,096

 
$
231,759

Leases. The Company evaluates contractual arrangements at inception to determine if individual agreements are a lease or contain an identifiable lease component as defined by Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"). When evaluating contracts to determine appropriate classification and recognition under ASC 842, significant judgment may be necessary to determine, among other criteria, if an embedded leasing arrangement exists, the length of the term, classification as either an operating or financing lease and whether renewal or termination options are reasonably certain to be exercised. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.  These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate, adjusted for the lease term and lease country, unless the implicit rate is readily determinable.  Lease assets also include any upfront lease payments made and are reduced by lease incentives. Some lease terms include options to extend or terminate the lease and they are included in the measurement of the lease assets and lease liabilities if the Company is reasonably certain that those options will be exercised.

Variable lease payments are generally expensed as incurred and include certain index-based changes in rent and certain non-lease components such as maintenance and other services provided by the lessor to the extent the charges are variable.  Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

9



Lease agreements with lease and non-lease components are combined as a single lease component for all classes of underlying assets.  The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Recently Issued Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) ("ASU 2018-15"). ASU 2018-15 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. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect this standard to have a material impact on the Company's consolidated results of operations or financial position.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"). ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The guidance is effective for fiscal years ending after December 15, 2020. The Company does not expect this standard to have a material impact on the Company's consolidated results of operations or financial position.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 eliminates certain disclosure requirements related to the fair value hierarchy, adds new disclosure requirements related to the changes in unrealized gains and losses for recurring Level 3 fair value measurements and disclosing the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements and modifies certain disclosure requirements related to measurement uncertainty for fair value measurements. The guidance is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company does not expect this standard to have a material impact on the Company's consolidated results of operations or financial position.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, including trade receivables. The estimate of expected credit losses will require the consideration of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is still evaluating the effect of adopting ASU 2016-13.
Recently Adopted Accounting Standards
The Company adopted ASU 2016-02 on December 30, 2018, the first day of fiscal 2019, using the modified retrospective approach and accordingly information for periods prior to December 30, 2018 are presented under Accounting Standards Codification ("ASC") 840, Leases ("ASC 840"), the predecessor to ASC 842. The Company has elected to use the transition practical expedient. The transition practical expedient allows Companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented.
The Company used the package of practical expedients that allows companies to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company did not elect to adopt the hindsight practical expedient and therefore maintained the lease terms previously determined under ASC 840.
Adoption of ASU 2016-02 resulted in recording right-of-use ("ROU") lease assets of $370.3 million which were written down to $327.3 million as a result of $43.0 million of previous store impairment, excluding taxes, and lease liabilities of $390.6 million as of December 30, 2018. The Company recognized a cumulative-effect adjustment to the opening balance of retained earnings of approximately $29.5 million as of December 30, 2018 as a result of previous store impairment and a previous sale leaseback transaction, net of tax effects. Under ASC 840, the gain on the sale leaseback transaction was deferred over the lease term, however under ASC 842 the gain is recognized at the time of sale. Accordingly, a retained earnings adjustment to recognize the remaining gain was recorded upon the adoption of ASC 842. The standard did not have a material impact on the Company's consolidated results of operations or cash flows. See "Note 14—Leases" for additional lease disclosures.
In August 2017, the FASB issued ASU 2017-12. ASU 2017-12 amends and simplifies hedge accounting guidance in order to enable entities to better portray the economics of their risk management activities. The Company adopted ASU 2017-12 on

10



the first day of fiscal year 2019. Adoption resulted in $2.5 million of hedge settlement gains being recorded in cost of sales for the First Quarter which would have been recognized in other income (expense) - net under previous accounting guidance.
2. REVENUE
Disaggregation of Revenue. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):
 
For the 13 Weeks Ended March 30, 2019
 
Americas
 
Europe
 
Asia
 
Corporate
 
Total
Product type
 
 
 
 
 
 
 
 
 
Watches
$
148,316

 
$
116,253

 
$
101,606

 
$
3

 
$
366,178

Leathers
30,752

 
11,358

 
11,795

 

 
53,905

Jewelry
9,176

 
20,750

 
1,234

 

 
31,160

Other
2,125

 
4,916

 
2,265

 
4,719

 
14,025

Consolidated
$
190,369

 
$
153,277

 
$
116,900

 
$
4,722

 
$
465,268

 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
Revenue recognized at a point in time
$
189,701

 
$
152,916

 
$
116,708

 
$
1,172

 
$
460,497

Revenue recognized over time
668

 
361

 
192

 
3,550

 
4,771

Consolidated
$
190,369

 
$
153,277

 
$
116,900

 
$
4,722

 
$
465,268

 
For the 13 Weeks Ended March 31, 2018
 
Americas
 
Europe
 
Asia
 
Corporate
 
Total
Product type
 
 
 
 
 
 
 
 
 
Watches
$
195,677

 
$
150,795

 
$
101,143

 
$

 
$
447,615

Leathers
38,330

 
18,038

 
12,891

 

 
69,259

Jewelry
12,024

 
28,508

 
1,274

 

 
41,806

Other
3,036

 
4,447

 
2,553

 
440

 
10,476

Consolidated
$
249,067

 
$
201,788

 
$
117,861

 
$
440

 
$
569,156

 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
Revenue recognized at a point in time
$
248,610

 
$
201,564

 
$
117,758

 
$
440

 
$
568,372

Revenue recognized over time
457

 
224

 
103

 

 
784

Consolidated
$
249,067

 
$
201,788

 
$
117,861

 
$
440

 
$
569,156

Contract Balances. As of March 30, 2019, 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) $20.7 million and $21.8 million as of March 30, 2019 and December 29, 2018, respectively, related to remaining performance obligations on licensing income, (ii) $5.8 million and $6.2 million as of March 30, 2019 and December 29, 2018, respectively, primarily related to remaining performance obligations on wearable technology products and (iii) $3.6 million and $3.8 million as of March 30, 2019 and December 29, 2018, respectively, related to gift cards issued.

11



3. INVENTORIES
Inventories consisted of the following (in thousands):
 
March 30, 2019
 
December 29, 2018
Components and parts
$
30,190

 
$
28,183

Work-in-process
6,100

 
9,458

Finished goods
347,779

 
339,981

Inventories
$
384,069

 
$
377,622


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 March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Beginning balance
$
22,807

 
$
19,405

Settlements in cash or kind
(4,125
)
 
(3,008
)
Warranties issued and adjustments to preexisting warranties (1)
3,384

 
3,777

Ending balance
$
22,066

 
$
20,174

_______________________________________________
(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 expense and related effective rates were as follows (in thousands, except percentage data):
 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Income tax (benefit) expense
$
9,608

 
$
6,645

Effective tax rate
(446.1
)%
 
(16.3
)%
The higher effective tax rate in the First Quarter as compared to the Prior Year Quarter was primarily due to a higher level of foreign income which increased the tax expense in the numerator and lowered the overall pre-tax loss in the denominator of the effective tax rate computation. Since 2018, no tax benefit has been accrued on the U.S. net operating losses (“NOLs”) due to the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act signed into law in 2017, whereby certain foreign income inclusions absorb the U.S. NOL, eliminating the availability of any future tax benefit.
As of March 30, 2019, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $39.7 million, which 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 2011-2018 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 March 30, 2019, the Company had recorded $17.8 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 March 30, 2019, the total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheets was $4.7 million and $1.0 million, respectively. For the First Quarter, the Company accrued income tax related interest expense of $1.0 million.

12




6. STOCKHOLDERS’ EQUITY
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 canceled, 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 Securities Exchange Act of 1934.
At March 30, 2019 and December 29, 2018, all treasury stock had been effectively retired. As of March 30, 2019, the Company had $30.0 million of repurchase authorizations remaining under its repurchase program. The Company is currently prohibited by the terms of its Credit Agreement (as defined in Note 15) from making open market repurchases of its common stock and did not repurchase any common stock under its authorized stock repurchase plans during the First Quarter or Prior Year Quarter.
Controlling and Noncontrolling Interests. The Company has entered into an agreement to purchase the outstanding minority interest shares in Fossil Accessories South Africa Pty. Ltd. (‘‘Fossil South Africa’’), representing the entire noncontrolling interest in the subsidiary. The purchase price is based on variable payments through fiscal year 2021, assuming the put option is exercised by the seller each year. During the First Quarter, the Company made payments of $0.9 million towards the purchase price. The present value of the remaining purchase price is $1.6 million as of March 30, 2019. The transaction was accounted for as an equity transaction. The Company recorded $0.7 million of the variable consideration in accrued expenses-other and $0.9 million in other long-term liabilities in the consolidated balance sheets at March 30, 2019.
 
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 December 29, 2018
 
1,930

 
$
49.25

 
1.3
 
$
37

Granted
 

 

 
 
 
 
Exercised
 
(12
)
 
13.65

 
 
 
18

Forfeited or expired
 
(883
)
 
37.21

 
 
 
 
Outstanding at March 30, 2019
 
1,035

 
59.95

 
2.0
 

Exercisable at March 30, 2019
 
1,019

 
$
60.43

 
1.9
 
$

 
The aggregate intrinsic value shown in the table above is before income taxes and is based on (i) the exercise price for outstanding and exercisable options/rights at March 30, 2019 and (ii) the fair market value of the Company’s common stock on the exercise date for options/rights that were exercised during the First Quarter.

13



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 March 30, 2019:

Cash Stock Appreciation Rights Outstanding
 
Cash Stock Appreciation Rights Exercisable
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)
 
 
20

 
$
36.73

 
0.2
 
20

 
$
36.73


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)
 
 
$29.49 - $47.99
 
40

 
$
38.40

 
0.8
 
40

 
$
38.40

$55.04 - $83.83
 
76

 
81.37

 
1.8
 
76

 
81.37

$95.91 - $131.46
 
107

 
128.00

 
2.7
 
107

 
128.00

Total
 
223

 
$
96.08

 
2.0
 
223

 
$
96.08


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
 
625

 
$
38.91

 
1.8
 
609

 
$
39.16

$55.04 - $83.83
 
96

 
78.68

 
3.5
 
96

 
78.68

$95.91 - $131.46
 
71

 
113.13

 
2.3
 
71

 
113.13

Total
 
792

 
$
50.39

 
2.0
 
776

 
$
50.82

 
Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock unit and performance restricted stock unit activity during the First Quarter:
Restricted Stock Units
and Performance Restricted Stock Units
 
Number of Shares
 
Weighted-Average
Grant Date Fair
Value Per Share
 
 
(in Thousands)
 
 
Nonvested at December 29, 2018
 
3,011

 
$
17.86

Granted
 
2

 
17.13

Vested
 
(343
)
 
21.56

Forfeited
 
(192
)
 
29.14

Nonvested at March 30, 2019
 
2,478

 
$
16.48

 
The total fair value of restricted stock units vested during the First Quarter was approximately $5.4 million. Vesting of performance restricted stock units is based on achievement of operating margin growth and achievement of sales growth and operating margin targets in relation to the performance of a certain identified peer group.
 

14



8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables illustrate changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):

 
For the 13 Weeks Ended March 30, 2019
 
Currency
Translation
Adjustments
 
Cash Flow Hedges
 
 
 
 
 
 
Forward
Contracts
 
Pension
Plan
 
Total
Beginning balance
$
(74,868
)
 
$
8,582

 
$
1,595

 
$
(64,691
)
Other comprehensive income (loss) before reclassifications
(2,490
)
 
1,709

 

 
(781
)
Tax (expense) benefit

 
(263
)
 

 
(263
)
Amounts reclassed from accumulated other comprehensive income (loss)

 
2,655

 

 
2,655

Tax (expense) benefit

 
(200
)
 

 
(200
)
Total other comprehensive income (loss)
(2,490
)
 
(1,009
)
 

 
(3,499
)
Ending balance
$
(77,358
)
 
$
7,573

 
$
1,595

 
$
(68,190
)


 
For the 13 Weeks Ended March 31, 2018
 
Currency
Translation
Adjustments
 
Cash Flow Hedges
 
 
 
 
 
 
Forward
Contracts
 
Pension
Plan
 
Total
Beginning balance
$
(64,499
)
 
$
(10,098
)
 
$
(1,672
)
 
$
(76,269
)
Other comprehensive income (loss) before reclassifications
12,301

 
(8,312
)
 

 
3,989

Tax (expense) benefit

 
2,137

 

 
2,137

Amounts reclassed from accumulated other comprehensive income (loss)

 
(5,956
)
 

 
(5,956
)
Tax (expense) benefit

 
938

 

 
938

Total other comprehensive income (loss)
12,301

 
(1,157
)
 

 
11,144

Ending balance
$
(52,198
)
 
$
(11,255
)
 
$
(1,672
)
 
$
(65,125
)

See “Note 10—Derivatives and Risk Management” for additional disclosures about the Company’s use of derivatives.

9. SEGMENT INFORMATION
The Company reports segment information based on the “management approach”. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments are comprised of (i) Americas, (ii) Europe and (iii) Asia. Each reportable operating segment includes sales to wholesale and distributor customers, and sales through Company-owned retail stores and e-commerce activities based on the location of the selling entity. The Americas segment primarily includes sales to customers based in Canada, Latin America and the United States. The Europe segment primarily includes sales to customers based in European countries, the Middle East and Africa. The Asia segment primarily includes sales to customers based in Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand. Each reportable operating segment provides similar products and services.
The Company evaluates the performance of its reportable segments based on net sales and operating income (loss). Net sales for geographic segments are based on the location of the selling entity. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Corporate includes peripheral revenue generating activities from factories and intellectual property and general corporate expenses, including certain administrative, legal, accounting, technology support costs, equity compensation costs, payroll costs attributable to

15



executive management, brand management, product development, art, creative/product design, marketing, strategy, compliance and back office supply chain expenses that are not allocated to the various segments because they are managed at the corporate level internally. The Company does not include intercompany transfers between segments for management reporting purposes.
Due to changes in the Company’s reportable segments as discussed in Note 1 to the Condensed Consolidated Financial Statements, segment results for the Prior Year Quarter have been recast to present results on a comparable basis. These changes had no impact on the consolidated net sales or operating income. Summary information by operating segment was as follows (in thousands):

 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
 
Net Sales
 
Operating Income (Loss)
 
Net Sales
 
Operating Income (Loss)
Americas
$
190,369

 
$
10,918

 
$
249,067

 
$
18,078

Europe
153,277

 
14,280

 
201,788

 
26,010

Asia
116,900

 
21,041

 
117,861

 
13,267

Corporate
4,722

 
(66,183
)
 
440

 
(85,636
)
Consolidated
$
465,268

 
$
(19,944
)
 
$
569,156

 
$
(28,281
)

 
March 30, 2019
 
December 29, 2018
 
Long-Term Assets
 
Total Assets
 
Long-Term Assets
 
Total Assets
Americas
$
195,421

 
$
479,486

 
$
61,914

 
$
393,273

Europe
180,295

 
371,852

 
99,253

 
353,797

Asia
75,914

 
213,414

 
29,990

 
173,666

Corporate
149,746

 
525,139

 
125,472

 
654,462

Total
$
601,376

 
$
1,589,891

 
$
316,629

 
$
1,575,198



The following tables reflect net sales for each class of similar products in the periods presented (in thousands, except percentage data):

 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
 
Net Sales
 
Percentage of Total
 
Net Sales
 
Percentage of Total
Watches
$
366,178

 
78.7
%
 
$
447,615

 
78.7
%
Leathers
53,905

 
11.6

 
69,259

 
12.2

Jewelry
31,160

 
6.7

 
41,806

 
7.3

Other
14,025

 
3.0

 
10,476

 
1.8

Total
$
465,268

 
100.0
%
 
$
569,156

 
100.0
%

 

16



10. DERIVATIVES AND RISK MANAGEMENT
Cash Flow Hedges. The primary risks managed by using derivative instruments are the fluctuations in global currencies that will ultimately be used by non-U.S. dollar functional currency subsidiaries to settle future payments of intercompany inventory transactions denominated in U.S. dollars. Specifically, the Company projects future intercompany purchases by its non-U.S. dollar functional currency subsidiaries generally over a period of up to 24 months. The Company enters into forward contracts, generally for up to 85% of the forecasted purchases, to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. Additionally, the Company enters into forward contracts to manage fluctuations in Japanese yen exchange rates that will be used to settle future third-party inventory component purchases by a U.S. dollar functional currency subsidiary. Forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date and exchange rate. These forward contracts are designated as single cash flow hedges. Fluctuations in exchange rates will either increase or decrease the Company’s U.S. dollar equivalent cash flows from these inventory transactions, which will affect the Company’s U.S. dollar earnings. Gains or losses on the forward contracts are expected to offset these fluctuations to the extent the cash flows are hedged by the forward contracts.
These forward contracts meet the criteria for hedge accounting, which requires that they represent foreign currency-denominated forecasted transactions in which (i) the operating unit that has the foreign currency exposure is a party to the hedging instrument and (ii) the hedged transaction is denominated in a currency other than the hedging unit’s functional currency.
At the inception of each forward contract designated as a cash flow hedge, the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk. The Company assesses hedge effectiveness under the critical terms matched method at inception and at least quarterly throughout the life of the hedging relationship. If the critical terms (i.e., amounts, currencies and settlement dates) of the forward contract match the terms of the forecasted transaction, the Company concludes that the hedge is effective. Hedge accounting is discontinued if it is determined that the derivative is not highly effective.
For a derivative instrument that is designated and qualifies as a cash flow hedge, the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss), net of taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets. The Company records all forward contract hedge assets and liabilities on a gross basis as they do not meet the balance sheet netting criteria because the Company does not have master netting agreements established with the derivative counterparties that would allow for net settlement. Derivatives designated as cash flow hedges are recorded at fair value at each balance sheet date and the change in fair value is recorded to accumulated other comprehensive income (loss) within the equity section of the Company’s condensed consolidated balance sheets until such derivative’s gains or losses become realized or the cash flow hedge relationship is terminated.
If the cash flow hedge relationship is terminated, the derivative’s gains or losses that are recorded in accumulated other comprehensive income (loss) are immediately recognized in earnings. There were no gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges in the First Quarter or Prior Year Quarter.
As of March 30, 2019, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge the future payments of inventory transactions (in millions):
Functional Currency
 
Contract Currency
Type
 
Amount
 
Type
 
Amount
Euro
 
146.0

 
U.S. dollar
 
173.9

Canadian dollar
 
58.3

 
U.S. dollar
 
44.6

British pound
 
22.9

 
U.S. dollar
 
30.4

Japanese yen
 
2,076.3

 
U.S. dollar
 
19.2

Mexican peso
 
391.9

 
U.S. dollar
 
19.6

Australian dollar
 
13.5

 
U.S. dollar
 
9.6

U.S. dollar
 
27.2

 
Japanese yen
 
2,950.0

Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain intercompany transactions and for which the Company does not elect hedge accounting treatment. As of

17



March 30, 2019, the Company had non-designated forward contracts of approximately $0.9 million on 13.3 million rand associated with a South African rand-denominated foreign subsidiary. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings when they occur.
The gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes during the First Quarter and Prior Year Quarter are set forth below (in thousands):
 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Cash flow hedges:
 

 
 

Forward contracts
$
1,446

 
$
(6,175
)
Total gain (loss) recognized in other comprehensive income (loss), net of taxes
$
1,446

 
$
(6,175
)
The following table illustrates the gains and losses on derivative instruments recorded in accumulated other comprehensive income (loss), net of taxes during the term of the hedging relationship and reclassified into earnings, and gains and losses on derivatives not designated as hedging instruments recorded directly to earnings during the First Quarter and Prior Year Quarter (in thousands):

Derivative Instruments
 
Condensed Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
 
Effect of Derivative
Instruments
 
For the 13 Weeks Ended March 30, 2019
 
For the 13 Weeks Ended March 31, 2018
Forward contracts designated as cash flow hedging instruments
 
Cost of sales
 
Total gain (loss) reclassified from accumulated other comprehensive income (loss)
 
$
2,473

 
$

Forward contracts designated as cash flow hedging instruments
 
Other income (expense)-net
 
Total gain (loss) reclassified from accumulated other comprehensive income (loss)
 
$
(18
)
 
$
(5,018
)
Forward contracts not designated as hedging instruments
 
Other income (expense)-net
 
Total gain (loss) recognized in income
 
$
(13
)
 
$
343

Interest rate swap not designated as a cash flow hedging instrument
 
Other income (expense)-net
 
Total gain (loss) recognized in income
 
$

 
$
68


The following table discloses the fair value amounts for the Company’s derivative instruments as separate asset and liability values, presents the fair value of derivative instruments on a gross basis, and identifies the line items in the condensed consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included (in thousands):
 
 
Asset Derivatives
 
Liability Derivatives
 
 
March 30, 2019
 
December 29, 2018
 
March 30, 2019
 
December 29, 2018
Derivative Instruments
 
Condensed
Consolidated
Balance Sheets
Location
 
Fair
Value
 
Condensed
Consolidated
Balance Sheets
Location
 
Fair
Value
 
Condensed
Consolidated
Balance Sheets
Location
 
Fair
Value
 
Condensed
Consolidated
Balance Sheets
Location
 
Fair
Value
Forward contracts designated as cash flow hedging instruments
 
Prepaid expenses and other current assets
 
$
9,013

 
Prepaid expenses and other current assets
 
$
9,217

 
Accrued expenses- other
 
$
796

 
Accrued expenses- other
 
$
660

Forward contracts not designated as cash flow hedging instruments
 
Prepaid expenses and other current assets
 
24

 
Prepaid expenses and other current assets
 
15

 
Accrued expenses- other
 

 
Accrued expenses- other
 

Forward contracts designated as cash flow hedging instruments
 
Intangible and other assets-net
 
350

 
Intangible and other assets-net
 
453

 
Other long-term liabilities
 
124

 
Other long-term liabilities
 
70

Total
 
 
 
$
9,387

 
 
 
$
9,685

 
 
 
$
920

 
 
 
$
730

 
The following table summarizes the effects of the Company's derivative instruments on earnings (in thousands):

18



 
 
Effect of Derivative Instruments
 
 
For the 13 Weeks Ended March 30, 2019
 
 
Cost of sales
 
Other income (expense)-net
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) in which the effects of cash flow hedges are recorded
 
$
217,341

 
$
25,912

Gain (loss) on cash flow hedging relationships:
 
 
 
 
Forward contracts designated as cash flow hedging instruments:
 
 
 
 
Total gain (loss) reclassified from other comprehensive income (loss)
 
2,473

 
(18
)
At the end of the First Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through September 2020. As of March 30, 2019, an estimated net gain of $7.4 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.
11. FAIR VALUE MEASUREMENTS
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 — Unobservable inputs based on the Company’s assumptions.
ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 30, 2019 (in thousands):
 
Fair Value at March 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Forward contracts
$

 
$
9,387

 
$

 
$
9,387

Deferred compensation plan assets:
 

 
 

 
 

 
 

Investment in publicly traded mutual funds
4,850

 

 

 
4,850

Total
$
4,850

 
$
9,387

 
$

 
$
14,237

Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$

 
$

 
$
1,600

 
$
1,600

Forward contracts

 
920

 

 
920

Total
$

 
$
920

 
$
1,600

 
$
2,520


19



The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 29, 2018 (in thousands):
 
Fair Value at December 29, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Forward contracts
$

 
$
9,685

 
$

 
$
9,685

Deferred compensation plan assets:
 

 
 

 
 

 
 

Investment in publicly traded mutual funds
4,442

 

 

 
4,442

Total
$
4,442

 
$
9,685

 
$

 
$
14,127

Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$

 
$

 
$
2,174

 
$
2,174

Forward contracts

 
730

 

 
730

Total
$

 
$
730

 
$
2,174

 
$
2,904

The fair values of the Company’s deferred compensation plan assets are based on quoted prices. The deferred compensation plan assets are recorded in intangible and other assets-net in the Company’s condensed consolidated balance sheets. The fair values of the Company’s forward contracts are based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. See “Note 10—Derivatives and Risk Management” for additional disclosures about the forward contracts.
As of March 30, 2019, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $230.6 million and a fair value of approximately $230.2 million. As of December 29, 2018, the fair value of the Company's debt approximated its carrying amount. The fair value of debt was based on observable market inputs.
In accordance with the provisions of ASC 360, Property, Plant and Equipment, operating lease assets with a carrying amount of $4.3 million and property, plant and equipment-net with a carrying amount of $0.5 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of $2.3 million and $0.3 million, respectively, resulting in impairment charges of $2.2 million during the First Quarter.
The fair values of fixed assets related to Company-owned retail stores and operating lease assets were determined using Level 3 inputs. Of the $2.2 million impairment expense, $1.3 million and $0.1 million was recorded in restructuring charges in the Americas and Europe segment, respectively, and $0.8 million was recorded in SG&A in the Europe segment.
The fair value of the contingent consideration liability related to Fossil South Africa was determined using Level 3 inputs. See "Note 6—Stockholders' Equity" for additional disclosures about the equity transaction. The contingent consideration is based on Fossil South Africa's projected earnings and dividends through fiscal year 2020 with the final payments expected the following year. A discount rate of 13% was used to calculate the present value of the contingent consideration. The present value of the contingent consideration liability was valued at $1.6 million as of March 30, 2019.


20



12. INTANGIBLE AND OTHER ASSETS
 
The following table summarizes intangible and other assets (in thousands):
 
 
 
 
March 30, 2019
 
December 29, 2018
 
 
Useful
 
Gross
 
Accumulated
 
Gross
 
Accumulated
 
 
Lives
 
Amount
 
Amortization
 
Amount
 
Amortization
Intangibles-subject to amortization:
 
 
 
 

 
 

 
 

 
 

Trademarks
 
10 yrs.
 
$
4,293

 
$
3,902

 
$
4,293

 
$
3,859

Customer lists
 
5-10 yrs.
 
52,471

 
39,431

 
52,635

 
38,028

Patents
 
3-20 yrs.
 
2,310

 
2,162

 
2,310

 
2,154

Developed technology
 
7 yrs.
 
2,193

 
137

 
36,100

 
15,471

Other
 
7-20 yrs.
 
259

 
248

 
261

 
247

Total intangibles-subject to amortization
 
 
 
61,526

 
45,880

 
95,599

 
59,759

Intangibles-not subject to amortization:
 
 
 
 

 
 

 
 

 
 

Trade names
 
 
 
32,422

 
 

 
32,427

 
 

Other assets:
 
 
 
 

 
 

 
 

 
 

Other deposits
 
 
 
17,769

 


 
19,641

 
 

Deferred compensation plan assets
 
 
 
4,850

 
 

 
4,442

 
 

Deferred tax asset-net
 
 
 
28,407

 
 

 
23,695

 
 

Restricted cash
 
 
 
7,623

 
 

 
7,479

 
 

Tax receivable
 
 
 
7,060

 
 
 
7,060

 
 
Forward contracts
 
 
 
350

 
 

 
453

 
 

Investments
 
 
 
500

 
 
 
500

 
 
Other
 
 
 
2,089

 
 

 
1,889

 
 

Total other assets
 
 
 
68,648

 
 
 
65,159

 


Total intangible and other assets
 
 
 
$
162,596

 
$
45,880

 
$
193,185

 
$
59,759

Total intangible and other assets-net
 
 
 
 

 
$
116,716

 
 

 
$
133,426

 
Amortization expense for intangible assets was approximately $1.7 million and $3.0 million for the First Quarter and Prior Year Quarter, respectively. Estimated aggregate future amortization expense by fiscal year for intangible assets is as follows (in thousands):
Fiscal Year
 
Amortization
Expense
2019 (remaining)
 
$
5,115

2020
 
$
6,309

2021
 
$
2,483

2022
 
$
1,629

2023
 
$
59

2024
 
$
51

 
On January 16, 2019, the Company sold intellectual property related to a smartwatch technology under development by the Company to Google, Inc. for a cash purchase price of $40.0 million. As a result of the sale, the Company reduced intangible assets by $18.4 million and recorded a gain of $21.6 million in other income (expense) - net in the Company's condensed consolidated statements of income (loss) and comprehensive income (loss).
13. COMMITMENTS AND CONTINGENCIES
Litigation. The Company is occasionally subject to litigation or other legal proceedings in the normal course of its business. The Company does not believe that the outcome of any currently pending legal matters, individually or collectively, will have a material effect on the business or financial condition of the Company. 

21



14. LEASES

The Company's leases consist primarily of retail space, offices, warehouses, distribution centers and vehicles. The Company determines if an agreement contains a lease at inception based on the Company's right to the economic benefits of the leased assets and its right to direct the use of the leased asset. ROU assets represent the Company's right to use an underlying asset, and ROU liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at the commencement date adjusted for the lease term and lease country to determine the present value of the lease payments.
Some leases include one or more options to renew at the Company's discretion, with renewal terms that can extend the lease from one to ten additional years. The renewal options are not included in the measurement of ROU assets and ROU liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases. The Company has certain leases containing lease and non-lease components which are accounted for as a single lease component. The Company has certain leases agreements where lease payments are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The variable portion of these lease payments is not included in the Company's lease liabilities. The Company's lease agreements do not contain any significant restrictions or covenants other than those that are customary in such arrangements.
The components of lease expense were as follows (in thousands):
Lease Cost
 
Condensed Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
 
For the 13 Weeks Ended March 30, 2019
Operating lease cost(1)
 
SG&A
 
$
30,858

Finance lease cost:
 
 
 
 
     Amortization of right-of-use assets
 
SG&A
 
$
448

     Interest on lease liabilities
 
Interest expense
 
$
9

Short-term lease cost
 
SG&A
 
$
1,700

Variable lease cost
 
SG&A
 
$
6,116

_______________________________________________

(1)Includes sublease income, which is immaterial.
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
Leases
 
Condensed
Consolidated
Balance Sheets
Location