---

---

---

---

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

---

---

---

---

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 Company’s fiscal year periodically results in a 53-week year instead of a normal 52-week year. The current fiscal year ending January 2, 2021 is a 53-week year, with the additional week being included in the first quarter. Accordingly, the information presented herein includes fourteen weeks of operations for the quarter ended April 4, 2020 (“First Quarter”) as compared to thirteen weeks included in the quarter ended March 30, 2019 (“Prior Year Quarter”). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of April 4, 2020, and the results of operations for the First Quarter and Prior Year Quarter. All adjustments are of a normal, recurring nature.

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 28, 2019 (the “2019 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 2019 Form 10-K.

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

Going Concern Assessment and Management's Plans. In March 2020, a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization. The Company's business operations and financial performance for the First Quarter were materially impacted by COVID-19. This pandemic has negatively affected the global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures of non-essential businesses and orders to “shelter-in-place.” During this period, the Company is focused on protecting the health and safety of its employees, customers and suppliers to minimize potential disruptions and supporting the community to address challenges posed by the global pandemic. By the end of the First Quarter, the majority of the Company's stores and many of its customers' stores were closed. As of the date of this filing, certain regional and local governments have lifted or modified restrictions and orders. 

The Company's Term Loan Facility (as defined in "Note 15–Debt Activity") contains certain affirmative and negative covenants.  The Company has entered into a new amendment to its Term Loan Facility to amend, among other things, certain of these financial covenants as a result of the impact of COVID-19. Refer to “Note 15–Debt Activity" for additional details on the Term Loan Facility. The Company is currently in compliance with its covenants. However, due to the uncertainty related to the duration of COVID-19, the Company could experience material further decreases to revenues and cash flows and may experience difficulty in remaining in compliance with financial covenants under the Term Loan Facility, as amended.

The Company has taken certain actions, and plans to take further actions, to address the decrease in revenues and cash flow as a result of COVID-19 in order to maintain liquidity and in order to remain in compliance with financial covenants. The Company has implemented a number of cost saving measures, including store closures and spending reductions. Specifically,

---

effective March 30, 2020, the Company implemented base salary reductions for a substantial number of the Company's global employees, including each of its executive officers. Further, the cash fees for all non-employee directors serving on the Company's Board of Directors were deferred for the First Quarter until the end of 2020 and the cash fees were reduced by twenty percent for the second quarter of fiscal year 2020. The Company has also implemented weekly work hour reductions (e.g., from 40 hours to 32 or 24 hours) and work-reduction furloughs for certain other employees. The Company has entered into agreements, or is in discussions with, most of its retail and corporate office landlords to modify rent payments, receive other concessions or otherwise reduce its operating costs for these locations.  The Company has also extended the payment terms with a number of its vendors and suppliers globally and has agreements, or is in discussions with, licensors of certain third party trademarks to reduce its royalty obligations in fiscal 2020.  In addition, the Company plans to reduce marketing and capital spending, eliminate all non-business critical spending and continue implementing additional restructuring activities under NWF 2.0 as discussed in "Note 16–Restructuring." 

The Company believes its cost reduction plans are probable of being successfully implemented, which will result in adequate cash flows to support its ongoing operations and to meet its covenant requirements for one year following the date these financial statements are issued. The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Operating Expenses. Operating expenses include selling, general and administrative expenses (“SG&A”), trade name impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of the Company’s retail stores, point-of-sale expenses, advertising expenses and art, 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):

Copy History

	For the 14 Weeks Ended April 4, 2020				For the 13 Weeks Ended March 30, 2019
Numerator:
Net income (loss) attributable to Fossil Group, Inc.	$	(85,581	)		$	(12,242	)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	50,566				49,618
Basic EPS	$	(1.69	)		$	(0.25	)
Diluted EPS computation:
Basic weighted average common shares outstanding	50,566				49,618
Diluted weighted average common shares outstanding	50,566				49,618
Diluted EPS	$	(1.69	)		$	(0.25	)

At the end of the First Quarter, approximately 2.6 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 approximately 0.3 million weighted average performance-based shares at the end of the First Quarter.

At the end of the Prior Year 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 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 April 4, 2020 and March 30, 2019 that are presented in the condensed consolidated statement of cash flows (in thousands):

Copy History

	April 4, 2020				March 30, 2019
Cash and cash equivalents	$	245,427			$	271,442
Restricted cash included in prepaid expenses and other current assets	26				31
Restricted cash included in intangible and other assets-net	6,804				7,623
Cash, cash equivalents and restricted cash	$	252,257			$	279,096

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020, 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.

Recently Adopted Accounting Standards

In August 2018, the 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 Company adopted ASU 2018-15 at the beginning of the First Quarter, and it did not have a material effect on the condensed consolidated financial statements.

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 Company adopted ASU 2018-14 at the beginning of the First Quarter, and it did not have a material effect on the condensed consolidated financial statements.

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 (i) eliminates certain disclosure requirements related to the fair value hierarchy, (ii) adds new disclosure requirements related to the changes in unrealized gains and losses for recurring Level 3 fair value measurements and the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements and (iii) modifies certain disclosure requirements related to measurement uncertainty for fair value measurements. The Company adopted ASU 2018-13 at the beginning of the First Quarter, and it did not have a material effect on the condensed consolidated financial statements.

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. The Company adopted ASU 2016-13 at the beginning of the First Quarter on a prospective basis, and it did not have a material effect on the condensed consolidated financial statements.

Disaggregation of Revenue. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):

---

Copy History

	For the 14 Weeks Ended April 4, 2020
	Americas				Europe				Asia				Corporate				Total
Product type
Watches	$	119,274			$	97,898			$	92,742			$	11			$	309,925
Leathers	27,989				9,431				9,887				—				47,307
Jewelry	4,024				17,507				1,686				—				23,217
Other	1,629				3,414				1,872				3,354				10,269
Consolidated	$	152,916			$	128,250			$	106,187			$	3,365			$	390,718
Timing of revenue recognition
Revenue recognized at a point in time	$	152,285			$	127,920			$	105,988			$	1,492			$	387,685
Revenue recognized over time	631				330				199				1,873				3,033
Consolidated	$	152,916			$	128,250			$	106,187			$	3,365			$	390,718

Copy History

	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

Contract Balances. As of April 4, 2020, 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) $13.3 million and $13.4 million as of April 4, 2020 and December 28, 2019, respectively, related to remaining performance obligations on licensing income, (ii) $4.7 million and $5.3 million as of April 4, 2020 and December 28, 2019, respectively, primarily related to remaining performance obligations on wearable technology products and (iii) $3.2 million and $3.3 million as of April 4, 2020 and December 28, 2019, respectively, related to gift cards issued.

Inventories consisted of the following (in thousands):

Copy History

	April 4, 2020				December 28, 2019
Components and parts	$	25,720			$	35,626
Work-in-process	13,198				11,034
Finished goods	400,789				405,618
Inventories	$	439,707			$	452,278

---

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):

Copy History

	For the 14 Weeks Ended April 4, 2020				For the 13 Weeks Ended March 30, 2019
Beginning balance	$	23,095			$	22,807
Settlements in cash or kind	(3,666		)		(4,125		)
Warranties issued and adjustments to preexisting warranties (1)	2,868				3,384
Ending balance	$	22,297			$	22,066

_______________________________________________

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

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

Copy History

	For the 14 Weeks Ended April 4, 2020				For the 13 Weeks Ended March 30, 2019
Income tax (benefit) expense	$	(63,651	)		$	9,608
Effective tax rate	42.7		%		(446.1		)%

For the First Quarter, the Company computed its effective tax rate using actual year-to-date information rather than a full year forecast to compute the annual effective tax rate. Estimating a reliable or meaningful annual effective tax rate for fiscal year 2020 was not possible due to the range of potential impacts and resulting uncertainties related to the global COVID-19 pandemic. Accordingly, the Company concluded that computing its effective tax rate using actual year-to-date results is the best estimate of tax expense (benefit) for the First Quarter.

The tax rate in the First Quarter was favorable as compared to the Prior Year Quarter primarily due to changes enacted in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. The CARES Act included many beneficial income tax provisions including utilization of net operating losses ("NOLs"), temporary changes to the limitation on interest deductions, and technical corrections to tax depreciation for qualified improvement property. The Tax Cuts and Jobs Act had eliminated the option for most taxpayers to carryback a NOL after 2017. A NOL could only be carried forward and was limited to 80% of taxable income. The CARES Act now allows U.S. taxpayers to carryback a NOL arising in tax years 2018, 2019 and 2020 to prior years when the statutory tax rate was 35%.

For the First Quarter, the Company recognized a $61 million U.S. tax benefit primarily due to the favorable five year NOL carryback provisions under the CARES Act that will allow the 2020 tax loss to be carried back to prior years. The remaining benefit was due to foreign return to provision adjustments and foreign NOL carryforwards. The effective tax rate can vary from quarter to quarter due to changes in the Company's global mix of earnings, impacts of COVID-19, the resolution of income tax audits and changes in tax law.

The Prior Year Quarter effective tax rate was negative since income tax expense was accrued on certain foreign entities with positive taxable income and because no benefit was recognized for losses in the U.S. and certain other foreign jurisdictions. Due to Global Intangible Low-Taxed Income ("GILTI") provision of the Tax Cuts and Jobs Act, certain foreign income is included in U.S. taxable income effectively absorbing the U.S. NOLs, eliminating the availability of any future tax benefit or loss carryback.

As of April 4, 2020, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $35.0 million, of which $29.3 million would favorably impact the effective tax rate in future periods, if recognized. The Company is subject to examinations in various state and foreign jurisdictions for its 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 April 4, 2020, the Company had recorded $11.0 million of unrecognized tax benefits, excluding interest and penalties, for positions that are expected to be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable. At April 4, 2020, the total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheets was $5.2 million and $1.0 million, respectively. For the First Quarter, the Company accrued income tax related interest expense of $0.4 million.

Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 50,583,045 and 50,516,477 shares issued and outstanding at April 4, 2020 and December 28, 2019, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding at April 4, 2020 or December 28, 2019. Rights, preferences and other terms of preferred stock will be determined by the Board of Directors at the time of issuance.

Common Stock Repurchase Programs. At April 4, 2020 and December 28, 2019, all treasury stock had been effectively retired. As of April 4, 2020, the Company had $30.0 million of repurchase authorizations remaining under its repurchase program. The Company did not repurchase any common stock under its authorized stock repurchase plans during the First Quarter or Prior Year Quarter.

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

Copy History

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 28, 2019		509			$	76.13			2.5		$	—
Granted		—			—
Exercised