Fossil Group Earnings 2019-03-30

FOSL 10Q Quarterly Report

Balance Sheet	Income Statement	Cash 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



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

__________________________________________________________________

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

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.

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.

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			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
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			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
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.

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.

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.

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.

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

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.

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.

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.

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.

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
	Currency Translation Adjustments			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
	Currency Translation Adjustments			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

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	%

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

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):



	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

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.

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.

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

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

EX-31.1	fosl-q13302019xex311.htm
EX-31.2	fosl-q13302019xex312.htm
EX-32.1	fosl-q13302019xex321.htm
EX-32.2	fosl-q13302019xex322.htm



		Page
PART I
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Results of Operations	28
	Liquidity and Capital Resources	33
	Forward-Looking Statements	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	SIGNATURES	40