UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended: September 30, 2017April 4, 2020
OR
| 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) | |||
(Registrant’s telephone number, including area code)
__________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker Symbol | Name of each exchange on which registered | ||
| Common Stock, par value $0.01 per share | FOSL | The Nasdaq Stock Market LLC | ||
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
| Emerging growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
The number of shares of the registrant’s common stock outstanding as of November 2, 2017: 48,527,898June 1, 2020: 51,286,802
FOSSIL GROUP, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2017APRIL 4, 2020
INDEX
| Page | ||||
EXPLANATORY NOTE
As previously disclosed in the Current Report on Form 8-K filed by Fossil Group, Inc. (the “Company”) on May 12, 2020, the Company delayed the filing of this Quarterly Report on Form 10-Q (the "Quarterly Report") due to circumstances related to the COVID-19 pandemic and in reliance on the U.S. Securities and Exchange Commission’s order under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and certain rules thereunder (Release No. 34-88465). The Order allows a registrant up to an additional 45 days after the original due date of certain reports required to be filed with the SEC if a registrant’s ability to file such report timely is affected due to COVID-19.
The Company’s operations and business have experienced significant disruptions due to the rapidly evolving and unprecedented conditions surrounding the COVID-19 pandemic. These disruptions include, but are not limited to, the temporary closure of our headquarters in Richardson, Texas and certain regional offices globally and the limited availability of key Company personnel who are needed to prepare the Quarterly Report due in part to suggested and mandated “stay-at-home” orders. Additionally, the Company’s management team has had to spend significant time addressing the pressing business and operational issues resulting from the COVID-19 pandemic. These restrictions impacted the Company’s ability to complete its internal quarterly review, including an evaluation of the various impacts of COVID-19 on the Company’s financial statements, and to prepare and complete the Quarterly Report in a timely manner.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
IN THOUSANDS
| September 30, 2017 | December 31, 2016 | April 4, 2020 | December 28, 2019 | |||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 166,922 | $ | 297,330 | $ | 245,427 | $ | 200,218 | ||||||
| Accounts receivable - net of allowances of $70,081 and $79,707, respectively | 310,895 | 375,520 | ||||||||||||
| Accounts receivable - net of allowances for doubtful accounts of $15,283 and $13,234, respectively | 153,397 | 289,744 | ||||||||||||
| Inventories | 682,986 | 542,487 | 439,707 | 452,278 | ||||||||||
| Prepaid expenses and other current assets | 125,533 | 131,953 | 128,607 | 117,218 | ||||||||||
| Total current assets | 1,286,336 | 1,347,290 | 967,138 | 1,059,458 | ||||||||||
| Property, plant and equipment - net of accumulated depreciation of $453,894 and $414,761, respectively | 243,448 | 273,851 | ||||||||||||
| Goodwill | — | 355,263 | ||||||||||||
| Property, plant and equipment - net of accumulated depreciation of $456,174 and $464,913, respectively | 138,689 | 151,500 | ||||||||||||
| Operating lease right-of-use assets | 269,090 | 288,166 | ||||||||||||
| Intangible and other assets-net | 220,588 | 210,493 | 157,669 | 105,608 | ||||||||||
| Total long-term assets | 464,036 | 839,607 | 565,448 | 545,274 | ||||||||||
| Total assets | $ | 1,750,372 | $ | 2,186,897 | $ | 1,532,586 | $ | 1,604,732 | ||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 248,824 | $ | 163,644 | $ | 132,730 | $ | 172,191 | ||||||
| Short-term and current portion of long-term debt | 40,209 | 26,368 | 21,077 | 26,228 | ||||||||||
| Accrued expenses: | ||||||||||||||
| Current operating lease liabilities | 70,839 | 68,838 | ||||||||||||
| Compensation | 64,862 | 52,993 | 40,391 | 51,573 | ||||||||||
| Royalties | 26,897 | 30,062 | 37,578 | 28,427 | ||||||||||
| Co-op advertising | 17,772 | 29,111 | ||||||||||||
| Customer liabilities | 65,310 | 80,803 | ||||||||||||
| Transaction taxes | 40,482 | 26,743 | 9,276 | 25,683 | ||||||||||
| Other | 101,390 | 69,565 | 67,673 | 76,209 | ||||||||||
| Income taxes payable | 13,077 | 16,099 | 18,355 | 29,228 | ||||||||||
| Total current liabilities | 553,513 | 414,585 | 463,229 | 559,180 | ||||||||||
| Long-term income taxes payable | 22,951 | 18,584 | 31,756 | 31,284 | ||||||||||
| Deferred income tax liabilities | 500 | 55,877 | 2,057 | 2,097 | ||||||||||
| Long-term debt | 444,303 | 609,961 | 298,481 | 178,796 | ||||||||||
| Long-term operating lease liabilities | 281,097 | 288,689 | ||||||||||||
| Other long-term liabilities | 76,107 | 72,452 | 39,593 | 40,845 | ||||||||||
| Total long-term liabilities | 543,861 | 756,874 | 652,984 | 541,711 | ||||||||||
| Commitments and contingencies (Note 13) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Common stock, 48,524 and 48,269 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 485 | 483 | ||||||||||||
| Common stock, 50,583 and 50,516 shares issued and outstanding at April 4, 2020 and December 28, 2019, respectively | 506 | 505 | ||||||||||||
| Additional paid-in capital | 235,990 | 213,352 | 286,297 | 283,371 | ||||||||||
| Retained earnings | 489,528 | 887,825 | 214,212 | 299,793 | ||||||||||
| Accumulated other comprehensive income (loss) | (84,710 | ) | (95,424 | ) | (85,566 | ) | (80,615 | ) | ||||||
| Total Fossil Group, Inc. stockholders’ equity | 641,293 | 1,006,236 | 415,449 | 503,054 | ||||||||||
| Noncontrolling interest | 11,705 | 9,202 | ||||||||||||
| Noncontrolling interests | 924 | 787 | ||||||||||||
| Total stockholders’ equity | 652,998 | 1,015,438 | 416,373 | 503,841 | ||||||||||
| Total liabilities and stockholders’ equity | $ | 1,750,372 | $ | 2,186,897 | $ | 1,532,586 | $ | 1,604,732 | ||||||
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 September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | |||||||||||||||||
| Net sales | $ | 688,722 | $ | 737,990 | $ | 1,867,358 | $ | 2,083,206 | $ | 390,718 | $ | 465,268 | ||||||||||
| Cost of sales | 368,829 | 352,910 | 956,600 | 994,039 | 250,358 | 217,341 | ||||||||||||||||
| Gross profit | 319,893 | 385,080 | 910,758 | 1,089,167 | 140,360 | 247,927 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Selling, general and administrative expenses | 314,623 | 339,432 | 937,330 | 1,013,664 | 262,862 | 257,684 | ||||||||||||||||
Goodwill and trade name impairments | — | — | 407,128 | — | ||||||||||||||||||
| Trade name impairments | 2,464 | — | ||||||||||||||||||||
| Restructuring charges | 5,769 | 14,473 | 41,818 | 14,473 | 9,375 | 10,187 | ||||||||||||||||
| Total operating expenses | 320,392 | 353,905 | 1,386,276 | 1,028,137 | 274,701 | 267,871 | ||||||||||||||||
| Operating income (loss) | (499 | ) | 31,175 | (475,518 | ) | 61,030 | (134,341 | ) | (19,944 | ) | ||||||||||||
| Interest expense | 12,070 | 6,967 | 32,096 | 19,386 | 7,464 | 8,122 | ||||||||||||||||
| Other income (expense) - net | 3,860 | 1,591 | 11,501 | 6,402 | (7,290 | ) | 25,912 | |||||||||||||||
| Income (loss) before income taxes | (8,709 | ) | 25,799 | (496,113 | ) | 48,046 | (149,095 | ) | (2,154 | ) | ||||||||||||
| Provision for income taxes | (3,230 | ) | 6,451 | (100,746 | ) | 13,230 | (63,651 | ) | 9,608 | |||||||||||||
| Net income (loss) | (5,479 | ) | 19,348 | (395,367 | ) | 34,816 | (85,444 | ) | (11,762 | ) | ||||||||||||
| Less: Net income attributable to noncontrolling interest | (80 | ) | 1,992 | 2,931 | 5,646 | |||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 137 | 480 | ||||||||||||||||||||
| Net income (loss) attributable to Fossil Group, Inc. | $ | (5,399 | ) | $ | 17,356 | $ | (398,298 | ) | $ | 29,170 | $ | (85,581 | ) | $ | (12,242 | ) | ||||||
| Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||
| Currency translation adjustment | $ | 5,222 | $ | 1,662 | $ | 32,078 | $ | 9,383 | $ | (11,193 | ) | $ | (2,490 | ) | ||||||||
| Cash flow hedges - net change | (9,771 | ) | 1,360 | (21,364 | ) | (4,741 | ) | 6,242 | (1,009 | ) | ||||||||||||
| Pension plan activity | — | — | — | 1,714 | ||||||||||||||||||
| Total other comprehensive income (loss) | (4,549 | ) | 3,022 | 10,714 | 6,356 | (4,951 | ) | (3,499 | ) | |||||||||||||
| Total comprehensive income (loss) | (10,028 | ) | 22,370 | (384,653 | ) | 41,172 | (90,395 | ) | (15,261 | ) | ||||||||||||
| Less: Comprehensive income attributable to noncontrolling interest | (80 | ) | 1,992 | 2,931 | 5,646 | |||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 137 | 480 | ||||||||||||||||||||
| Comprehensive income (loss) attributable to Fossil Group, Inc. | $ | (9,948 | ) | $ | 20,378 | $ | (387,584 | ) | $ | 35,526 | $ | (90,532 | ) | $ | (15,741 | ) | ||||||
| Earnings (loss) per share: | ||||||||||||||||||||||
| Basic | $ | (0.11 | ) | $ | 0.36 | $ | (8.22 | ) | $ | 0.61 | $ | (1.69 | ) | $ | (0.25 | ) | ||||||
| Diluted | $ | (0.11 | ) | $ | 0.36 | $ | (8.22 | ) | $ | 0.60 | $ | (1.69 | ) | $ | (0.25 | ) | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||
| Basic | 48,521 | 48,130 | 48,439 | 48,127 | 50,566 | 49,618 | ||||||||||||||||
| Diluted | 48,521 | 48,291 | 48,439 | 48,286 | 50,566 | 49,618 | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
IN THOUSANDS
| For the 14 Weeks Ended April 4, 2020 | ||||||||||||||||||||||||||||||||||
| 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 28, 2019 | 50,516 | $ | 505 | $ | 283,371 | $ | — | $ | 299,793 | $ | (80,615 | ) | $ | 503,054 | $ | 787 | $ | 503,841 | ||||||||||||||||
| Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 91 | 1 | (1 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Acquisition of common stock for employee tax withholding | — | — | — | (176 | ) | — | — | (176 | ) | — | (176 | ) | ||||||||||||||||||||||
| Retirement of common stock | (24 | ) | — | (176 | ) | 176 | — | — | — | — | — | |||||||||||||||||||||||
| Stock-based compensation | — | — | 3,103 | — | — | — | 3,103 | — | 3,103 | |||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | (85,581 | ) | — | (85,581 | ) | 137 | (85,444 | ) | ||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (4,951 | ) | (4,951 | ) | — | (4,951 | ) | ||||||||||||||||||||||
| Balance, April 4, 2020 | 50,583 | 506 | 286,297 | — | 214,212 | (85,566 | ) | 415,449 | 924 | 416,373 | ||||||||||||||||||||||||
| 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 | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
IN THOUSANDS
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||
| Operating Activities: | |||||||
| Net income (loss) | $ | (395,367 | ) | $ | 34,816 | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
| Depreciation, amortization and accretion | 61,526 | 73,198 | |||||
| Stock-based compensation | 22,384 | 23,894 | |||||
| Decrease in allowance for returns-net of inventory in transit | (6,129 | ) | (14,955 | ) | |||
| Loss (gain) on disposal of assets | 1,686 | (9,866 | ) | ||||
| Fixed asset and other long-lived asset impairment losses | 2,726 | 2,213 | |||||
| Goodwill and trade name impairment losses | 407,128 | — | |||||
| Non-cash restructuring charges | 7,031 | 12,523 | |||||
| Increase (decrease) in allowance for doubtful accounts | 4,161 | (3,915 | ) | ||||
| Deferred income taxes and other | (111,177 | ) | (9,309 | ) | |||
| Changes in operating assets and liabilities, net of effect of acquisitions: | |||||||
| Accounts receivable | 85,078 | 74,706 | |||||
| Inventories | (116,002 | ) | (76,869 | ) | |||
| Prepaid expenses and other current assets | (5,620 | ) | 17,640 | ||||
| Accounts payable | 80,146 | (16,887 | ) | ||||
| Accrued expenses | 20,863 | (38,572 | ) | ||||
| Income taxes payable | 1,734 | (9,257 | ) | ||||
| Net cash provided by operating activities | 60,168 | 59,360 | |||||
| Investing Activities: | |||||||
| Additions to property, plant and equipment | (17,239 | ) | (53,524 | ) | |||
| Decrease in intangible and other assets | 478 | 2,509 | |||||
| Misfit working capital settlement | — | 788 | |||||
| Proceeds from the sale of property, plant and equipment | 533 | 44,584 | |||||
| Net investment hedge settlement | — | 752 | |||||
| Net cash used in investing activities | (16,228 | ) | (4,891 | ) | |||
| Financing Activities: | |||||||
| Acquisition of common stock | (947 | ) | (6,448 | ) | |||
| Distribution of noncontrolling interest earnings | (428 | ) | (4,543 | ) | |||
| Debt borrowings | 1,162,074 | 756,000 | |||||
| Debt payments | (1,311,597 | ) | (839,629 | ) | |||
| Payment for shares of Fossil, S.L. | — | (8,657 | ) | ||||
| Debt issuance costs and other | (5,579 | ) | (2,585 | ) | |||
| Net cash used in financing activities | (156,477 | ) | (105,862 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | (17,871 | ) | (1,930 | ) | |||
| Net decrease in cash and cash equivalents | (130,408 | ) | (53,323 | ) | |||
| Cash and cash equivalents: | |||||||
| Beginning of period | 297,330 | 289,275 | |||||
| End of period | $ | 166,922 | $ | 235,952 | |||
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||
| Operating Activities: | |||||||
| Net Income (loss) | $ | (85,444 | ) | $ | (11,762 | ) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||
| Depreciation, amortization and accretion | 12,187 | 14,439 | |||||
| Non-cash lease expense | 29,061 | 31,136 | |||||
| Stock-based compensation | 3,103 | 4,386 | |||||
| Decrease in allowance for returns and markdowns | (4,092 | ) | (9,293 | ) | |||
| Property, plant and equipment and other long-lived asset impairment losses | 16,970 | 880 | |||||
| Trade name impairment losses | 2,464 | — | |||||
| Non-cash restructuring charges | 684 | 4,236 | |||||
| Bad debt expense | 4,442 | 994 | |||||
| Other non-cash items | (532 | ) | 1,801 | ||||
| Gain on asset divestitures | — | (23,134 | ) | ||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 117,967 | 128,819 | |||||
| Inventories | (3,701 | ) | (7,238 | ) | |||
| Prepaid expenses and other current assets | (10,443 | ) | (9,738 | ) | |||
| Accounts payable | (37,393 | ) | (49,651 | ) | |||
| Accrued expenses | (50,888 | ) | (69,239 | ) | |||
| Income taxes | (71,524 | ) | 981 | ||||
| Net cash (used in) provided by operating activities | (77,139 | ) | 7,617 | ||||
| Investing Activities: | |||||||
| Additions to property, plant and equipment | (2,852 | ) | (6,571 | ) | |||
| Increase in intangible and other assets | (387 | ) | (907 | ) | |||
| Proceeds from the sale of property, plant and equipment | 76 | 1,164 | |||||
| Proceeds from asset divestitures | — | 41,570 | |||||
| Net cash (used in) provided by investing activities | (3,163 | ) | 35,256 | ||||
| Financing Activities: | |||||||
| Acquisition of common stock for employee tax withholdings | (176 | ) | (1,515 | ) | |||
| Debt borrowings | 291,179 | 1,825 | |||||
| Debt payments | (170,570 | ) | (171,871 | ) | |||
| Payment for shares of Fossil Accessories South Africa Pty. Ltd. | — | (947 | ) | ||||
| Debt issuance costs and other | (8,100 | ) | 124 | ||||
| Net cash provided by (used in) financing activities | 112,333 | (172,384 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 12,477 | (2,276 | ) | ||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 44,508 | (131,787 | ) | ||||
| Cash, cash equivalents, and restricted cash: | |||||||
| Beginning of period | 207,749 | 410,883 | |||||
| End of period | $ | 252,257 | $ | 279,096 | |||
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 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 September 30, 2017,April 4, 2020, and the results of operations for the thirteen-week periods ended September 30, 2017 (“Third Quarter”)First Quarter and October 1, 2016 (“Prior Year Quarter”), respectively, and the thirty-nine week periods ended September 30, 2017 (“Year To Date Period”) and October 1, 2016 (“Prior Year YTD Period”).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 31, 201628, 2019 (the “2016“2019 Form 10-K”). Operating results for the ThirdFirst 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 20162019 Form 10-K other than the adoption of ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04").10-K.
Business. The Company isa 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.
The Company's Term Loan Facility (as defined in fair value relating to the ineffective portion of these contracts would be recognized in other income (expense)-net on the Company's consolidated statements of income (loss)"Note 15–Debt Activity") contains certain affirmative and comprehensive income (loss). Also, thenegative covenants. The Company has entered into an interest rate swap agreementa new amendment to effectively convert portionsits 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 variable rate debtexecutive 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 20 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 fixed rate. Changesgoing concern, which contemplates the realization of assets and the satisfaction of liabilities in the fair valuenormal course of the interest rate swap is recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity, and is recognized in interest expense in the period in which the payment is settled. To reduce exposure to changes in currency exchange rates adversely affecting the Company’s investment in foreign currency-denominated subsidiaries, the Company periodically enters into forward contracts designated as net investment hedges. Both realized and unrealized gains and losses from net investment hedges are recognized in the cumulative translation adjustment component of other comprehensive income (loss), and will be reclassified into earnings in the event the Company's underlying investmentsbusiness.
Operating Expenses. Operating expenses include selling, general and administrative expenses (“SG&A”), goodwill and trade name impairmentimpairments 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 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 | ) | |
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||||||
| Numerator: | |||||||||||||||
| Net income (loss) attributable to Fossil Group, Inc. | $ | (5,399 | ) | $ | 17,356 | $ | (398,298 | ) | $ | 29,170 | |||||
| Denominator: | |||||||||||||||
| Basic EPS computation: | |||||||||||||||
| Basic weighted average common shares outstanding | 48,521 | 48,130 | 48,439 | 48,127 | |||||||||||
| Basic EPS | $ | (0.11 | ) | $ | 0.36 | $ | (8.22 | ) | $ | 0.61 | |||||
| Diluted EPS computation: | |||||||||||||||
| Basic weighted average common shares outstanding | 48,521 | 48,130 | 48,439 | 48,127 | |||||||||||
| Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units | — | 161 | — | 159 | |||||||||||
| Diluted weighted average common shares outstanding | 48,521 | 48,291 | 48,439 | 48,286 | |||||||||||
| Diluted EPS | $ | (0.11 | ) | $ | 0.36 | $ | (8.22 | ) | $ | 0.60 | |||||
At the end of the ThirdFirst Quarter, and Year To Date Period, approximately 5.1 million and 4.42.6 million weighted average shares issuable under stock-based awards respectively, were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included approximately 1.20.3 million weighted average performance-based shares at the end of both the Third Quarter and Year To Date Period.First Quarter.
At the end of the Prior Year Quarter, and Prior Year YTD Period, approximately 1.6 million and 1.54.4 million weighted average shares issuable under stock-based awards respectively, were not included in the diluted EPS calculation because they were antidilutive. ApproximatelyThe total antidilutive weighted average shares included 1.1 million weighted average performance-based shares were not included in the diluted EPS calculation at the end of both the Prior Year QuarterQuarter.
Cash, Cash Equivalents and Prior Year YTD PeriodRestricted 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 performance targets were not met.condensed consolidated statement of cash flows (in thousands):
| 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 August 2017,December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, Derivatives and HedgingASU 2019-12, Income Taxes (Topic 815)740): Targeted Improvements toSimplifying the Accounting for Hedging ActivitiesIncome Taxes ("ASU 2017-12"2019-12"). ASU 2017-122019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends and simplifies hedge accountingexisting guidance in order to enable entities to better portray the economics of their risk management activities.improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2018, including
Recently Adopted Accounting Standards
In addition, the Company now presents excess tax benefits from share-based compensation activity with other income tax cash flows as an operating activity on the statement of cash flows, which differs from the Company’s historical classification of excess tax benefits as a financing activity. The Company has elected to apply this change in cash flow presentation on a prospective basis. The standard also permits the Company to make a policy election for how it accounts for forfeitures, and the Company has elected to continue estimating forfeitures.
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 operations orthe First Quarter, and it did not have a material effect on the condensed consolidated financial position.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.
2. GOODWILL AND INTANGIBLES IMPAIRMENT CHARGESREVENUE
Disaggregation of Revenue. The Company evaluates its goodwillCompany's revenue disaggregated by major product category and intangible assets for impairment on an annual basis, or as facts and circumstances warrant. At the endtiming of the fiscal year 2016, the Company's market capitalization exceeded the carrying amount of its net assets by 23%. At the end of the first quarter of fiscal 2017, the Company experienced a decline in market
| Americas | Europe | Asia | Total | ||||||||||||
| Balance at December 31, 2016 | $ | 202,187 | $ | 110,291 | $ | 42,785 | $ | 355,263 | |||||||
| Foreign currency changes | 162 | 3,983 | 85 | 4,230 | |||||||||||
| Impairment charges | (202,349 | ) | (114,274 | ) | (42,870 | ) | $ | (359,493 | ) | ||||||
| Balance at September 30, 2017 | $ | — | $ | — | $ | — | $ | — | |||||||
| 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 | |||||||||
| 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 second quarterCompany had 0 material contract assets on the Company's condensed consolidated balance sheets and 0 deferred contract costs. The Company had contract liabilities of fiscal 2017, the SKAGEN trade name with a carrying amount of $55.6 million was written down to its implied fair value of $27.3 million, resulting in a pre-tax impairment charge of $28.3 million; the MISFIT trade name with a carrying amount of $11.8 million was deemed not recoverable, resulting in a pre-tax impairment charge of $11.8(i) $13.3 million and the MICHELE trade name with a carrying amount$13.4 million as of $18.5April 4, 2020 and December 28, 2019, respectively, related to remaining performance obligations on licensing income, (ii) $4.7 million was written downand $5.3 million as of April 4, 2020 and December 28, 2019, respectively, primarily related to its implied fair valueremaining performance obligations on wearable technology products and (iii) $3.2 million and $3.3 million as of $10.9 million, resulting in a pre-tax impairment charge of $7.6 million. The fair values of the Company's indefinite-lived SKAGENApril 4, 2020 and MICHELE trade names were estimated using the relief from royalty method. The fair value of the Company's definite-lived MISFIT trade name was estimated using a discounted cash flow methodology. A reduction in expected future cash flows negatively affected the valuation comparedDecember 28, 2019, respectively, related to previous valuation assumptions.gift cards issued.
3. INVENTORIES
Inventories consisted of the following (in thousands):
| 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 | |||
| September 30, 2017 | December 31, 2016 | ||||||
| Components and parts | $ | 60,258 | $ | 49,438 | |||
| Work-in-process | 9,471 | 12,345 | |||||
| Finished goods | 613,257 | 480,704 | |||||
| Inventories | $ | 682,986 | $ | 542,487 | |||
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 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | |||||||||||
| Beginning balance | $ | 15,421 | $ | 13,669 | $ | 23,095 | $ | 22,807 | ||||||
| Settlements in cash or kind | (11,608 | ) | (7,338 | ) | (3,666 | ) | (4,125 | ) | ||||||
Warranties issued and adjustments to preexisting warranties (1) | 14,984 | 8,604 | 2,868 | 3,384 | ||||||||||
| Ending balance | $ | 18,797 | $ | 14,935 | $ | 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.
5. INCOME TAXES
The Company’s income tax (benefit) expense and related effective rates were as follows (in thousands, except percentage data):
| 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 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||||||
| Income tax (benefit) expense | $ | (3,230 | ) | $ | 6,451 | $ | (100,746 | ) | $ | 13,230 | |||||
| Effective tax rate | 37.1 | % | 25.0 | % | 20.3 | % | 27.5 | % | |||||||
The higher effective tax rate in the ThirdFirst Quarter was favorable as compared to the Prior Year Quarter is attributableprimarily 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 higher structural rate resulting from an increased forecasted loss fromNOL 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 Company's U.S. operations which is tax-benefited at a higherstatutory tax rate thanwas 35%.
For the First Quarter, the Company recognized a $61 million U.S. tax rates usedbenefit primarily due to calculate the favorable five year NOL carryback provisions under the CARES Act that will allow the 2020 tax expense on the profits from the Company'sloss to be carried back to prior years. The remaining benefit was due to foreign operations. There were also favorable discrete items occurring in the quarter. These positive impacts were partially offset by the increased tax expense resulting from all of thereturn to provision adjustments and foreign and some of the U.S. goodwill impairment charge being permanently nondeductible for tax purposes.NOL carryforwards. The lower effective tax rate forcan vary from quarter to quarter due to changes in the Year to Date Period as compared toCompany's global mix of earnings, impacts of COVID-19, the resolution of income tax audits and changes in tax law.
The Prior Year YTD Period is primarily attributable to the increasedQuarter effective tax rate was negative since income tax expense resulting from allwas 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 and some ofincome is included in U.S. taxable income effectively absorbing the U.S. goodwill impairment charge being permanently nondeductible forNOLs, eliminating the availability of any future tax purposes and unfavorable discrete items that occurred in the Year to Date Period, mostly due to the additional tax expense resulting from the adoption of ASU 2016-09. See "Note 1-Financial Statement Policies" for additional disclosures about ASU 2016-09.benefit or loss carryback.
As of September 30, 2017,April 4, 2020, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $21.7$35.0 million, of which $19.0$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 2011-20162011-2018 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 paidsettled within twelve months of the condensed consolidated balance sheet date. As of September 30, 2017,April 4, 2020, the Company had recorded $2.3$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 September 30, 2017,April 4, 2020, the total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheetsheets was $2.8$5.2 million and $1.3$1.0 million, respectively. TheFor the First Quarter, the Company accrued income tax related interest expense accrued in the Third Quarter was offset by reductions of interest expense associated with the derecognition of uncertain tax benefits. For the Year To Date Period, the Company accrued income tax-related interest expense $0.5$0.4 million.
6. STOCKHOLDERS’ EQUITY
Common Stock Repurchase Programs. Purchases of the Company’s common stock have been made from time to time pursuant to its repurchase programs, subject to market conditions and at prevailing market prices, through the open market. RepurchasedPreferred Stock. The Company has 100,000,000 shares of common stock, are recordedpar value $0.01 per share, authorized, with 50,583,045 and 50,516,477 shares issued and outstanding at costApril 4, 2020 and becomeDecember 28, 2019, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, but unissued shares which maywith NaN issued or outstanding at April 4, 2020 or December 28, 2019. Rights, preferences and other terms of preferred stock will be issued indetermined by the future for general corporate or other purposes. InBoard of Directors at the event the repurchased shares are canceled, the Company accounts for retirements by allocating the repurchase price to common stock, additional paid-in capitaltime of issuance.
Common Stock Repurchase Programs. At April 4, 2020 and retained earnings. The repurchase price allocation is based upon the equity contribution associated with historical issuances. The repurchase programs have been conducted pursuant to Rule 10b-18 of the Exchange Act.
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||||||||||||||
Fiscal Year Authorized | Dollar Value Authorized | Termination Date | Number of Shares Repurchased | Dollar Value Repurchased | Number of Shares Repurchased | Dollar Value Repurchased | |||||||||||||
| 2014 | $ | 1,000.0 | December 2018 | — | $ | — | — | $ | — | ||||||||||
| 2010 | $ | 30.0 | None | — | $ | — | — | $ | — | ||||||||||
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||||||||||||
Fiscal Year Authorized | Dollar Value Authorized | Termination Date | Number of Shares Repurchased | Dollar Value Repurchased | Number of Shares Repurchased | Dollar Value Repurchased | |||||||||||||
| 2014 | $ | 1,000.0 | December 2018 | — | $ | — | 0.1 | $ | 5.2 | ||||||||||
| 2010 | $ | 30.0 | None | — | $ | — | — | $ | — | ||||||||||
Fossil Group, Inc. Stockholders’ Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||
| Balance at December 31, 2016 | $ | 1,006,236 | $ | 9,202 | $ | 1,015,438 | |||||
| Net income (loss) | (398,298 | ) | 2,931 | (395,367 | ) | ||||||
| Currency translation adjustment | 32,078 | — | 32,078 | ||||||||
| Cash flow hedges - net change | (21,364 | ) | — | (21,364 | ) | ||||||
| Distribution of noncontrolling interest earnings | — | (428 | ) | (428 | ) | ||||||
| Acquisition of common stock | (947 | ) | — | (947 | ) | ||||||
| Stock-based compensation expense | 23,588 | — | 23,588 | ||||||||
| Balance at September 30, 2017 | $ | 641,293 | $ | 11,705 | $ | 652,998 | |||||
Fossil Group, Inc. Stockholders’ Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||
| Balance at January 2, 2016 | $ | 921,388 | $ | 11,155 | $ | 932,543 | |||||
| Net income | 29,170 | 5,646 | 34,816 | ||||||||
| Currency translation adjustment | 9,383 | — | 9,383 | ||||||||
| Cash flow hedges - net change | (4,741 | ) | — | (4,741 | ) | ||||||
| Pension plan activity | 1,714 | — | 1,714 | ||||||||
| Common stock issued upon exercise of stock options | 57 | — | 57 | ||||||||
| Tax expense derived from stock-based compensation | (1,756 | ) | — | (1,756 | ) | ||||||
| Distribution of noncontrolling interest earnings | — | (4,543 | ) | (4,543 | ) | ||||||
| Acquisition of common stock | (6,448 | ) | — | (6,448 | ) | ||||||
| Stock-based compensation expense | 23,894 | — | 23,894 | ||||||||
| Balance at October 1, 2016 | $ | 972,661 | $ | 12,258 | $ | 984,919 | |||||
7. EMPLOYEE BENEFIT PLANS
Stock-Based Compensation Plans. The following table summarizes stock options and stock appreciation rights activity during the ThirdFirst 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 28, 2019 | 509 | $ | 76.13 | 2.5 | $ | — | |||||||
| Granted | — | — | |||||||||||
| Exercised | — | — | — | ||||||||||
| Forfeited or expired | (65 | ) | 64.90 | ||||||||||
| Outstanding at April 4, 2020 | 444 | 77.78 | 2.4 | — | |||||||||
| Exercisable at April 4, 2020 | 444 | $ | 77.78 | 2.4 | $ | — | |||||||
| 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 July 1, 2017 | 2,236 | $ | 50.29 | 5.8 | $ | — | |||||||
| Granted | — | — | |||||||||||
| Exercised | — | — | — | ||||||||||
| Forfeited or expired | (27 | ) | 63.35 | ||||||||||
| Outstanding at September 30, 2017 | 2,209 | 50.14 | 5.6 | — | |||||||||
| Exercisable at September 30, 2017 | 882 | $ | 67.67 | 4.5 | $ | — | |||||||
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 September 30, 2017:
April 4, 2020:
| Cash Stock Appreciation Rights Outstanding | Cash Stock Appreciation Rights Exercisable | |||||||||||||||||||||||||||||||
| Stock Options Outstanding | 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 | 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) | (in Thousands) | (in Years) | (in Thousands) | |||||||||||||||||||||||||||
| $29.78 - $47.99 | 61 | $ | 36.73 | 6.2 | 11 | $ | 36.73 | |||||||||||||||||||||||||
| $55.04 - $83.83 | 59 | 81.41 | 1.1 | 59 | 81.41 | |||||||||||||||||||||||||||
| $95.91 - $131.46 | 83 | 128.05 | 1.9 | 83 | 128.05 | |||||||||||||||||||||||||||
| Total | 61 | $ | 36.73 | 6.2 | 11 | $ | 36.73 | 142 | $ | 108.53 | 1.6 | 142 | $ | 108.53 | ||||||||||||||||||
| 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) | ||||||||||||||
| $13.65 - $29.49 | 35 | $ | 14.12 | 1.4 | 35 | $ | 14.12 | |||||||||
| $29.78 - $47.99 | 79 | 37.00 | 1.5 | 79 | 37.00 | |||||||||||
| $55.04 - $83.83 | 91 | 80.80 | 3.2 | 91 | 80.80 | |||||||||||
| $95.91 - $131.46 | 129 | 127.97 | 4.1 | 129 | 127.97 | |||||||||||
| Total | 334 | $ | 81.69 | 3.0 | 334 | $ | 81.69 | |||||||||
| 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 | 174 | $ | 42.03 | 3.5 | 174 | $ | 42.03 | |||||||||
| $55.04 - $83.83 | 73 | 78.84 | 2.2 | 73 | 78.84 | |||||||||||
| $95.91 - $131.46 | 55 | 109.76 | 1.5 | 55 | 109.76 | |||||||||||
| Total | 302 | $ | 63.27 | 2.8 | 302 | $ | 63.27 | |||||||||
| 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) | ||||||||||||||
| $13.65 - $29.49 | 101 | $ | 29.49 | 6.8 | 34 | $ | 29.49 | |||||||||
| $29.78 - $47.99 | 1,485 | 38.07 | 6.2 | 310 | 38.91 | |||||||||||
| $55.04 - $83.83 | 125 | 79.16 | 4.8 | 90 | 79.91 | |||||||||||
| $95.91 - $131.46 | 103 | 114.46 | 3.7 | 103 | 114.46 | |||||||||||
| Total | 1,814 | $ | 44.78 | 6.0 | 537 | $ | 59.74 | |||||||||
Restricted Stock Units and Performance Restricted Stock Units | Number of Shares | Weighted-Average Grant Date Fair Value Per Share | |||||
| (in Thousands) | |||||||
| Nonvested at December 28, 2019 | 2,329 | $ | 15.16 | ||||
| Granted | — | — | |||||
| Vested | (91 | ) | 10.44 | ||||
| Forfeited | (166 | ) | 15.56 | ||||
| Nonvested at April 4, 2020 | 2,072 | $ | 15.34 | ||||
Restricted Stock, Restricted Stock Units and Performance Restricted Stock Units | Number of Shares | Weighted-Average Grant Date Fair Value Per Share | |||||
| (in Thousands) | |||||||
| Nonvested at July 1, 2017 | 2,785 | $ | 24.21 | ||||
| Granted | 254 | 9.98 | |||||
| Vested | (17 | ) | 37.81 | ||||
| Forfeited | (57 | ) | 23.86 | ||||
| Nonvested at September 30, 2017 | 2,965 | $ | 22.92 | ||||
The total fair value of restricted stock and restricted stock units vested during the ThirdFirst Quarter was approximately $0.2$0.7 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, particular sales growth in relation to a defined sales plan and achievement of succession plans for key talent.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 September 30, 2017 | For the 14 Weeks Ended April 4, 2020 | |||||||||||||||||||||||||||||||||
Currency Translation Adjustments | Cash Flow Hedges | Currency Translation Adjustments | Cash Flow Hedges | |||||||||||||||||||||||||||||||
Forward Contracts | Interest Rate Swaps | Pension Plan | Total | Forward Contracts | Pension Plan | Total | ||||||||||||||||||||||||||||
| Beginning balance | $ | (75,011 | ) | $ | (1,284 | ) | $ | 41 | $ | (3,907 | ) | $ | (80,161 | ) | $ | (80,474 | ) | $ | 2,983 | $ | (3,124 | ) | $ | (80,615 | ) | |||||||||
| Other comprehensive income (loss) before reclassifications | 5,222 | (16,776 | ) | 5 | — | (11,549 | ) | (11,193 | ) | 8,025 | — | (3,168 | ) | |||||||||||||||||||||
| Tax (expense) benefit | — | 2,853 | (2 | ) | — | 2,851 | — | (1,452 | ) | — | (1,452 | ) | ||||||||||||||||||||||
| Amounts reclassed from accumulated other comprehensive income (loss) | — | (4,940 | ) | (25 | ) | — | (4,965 | ) | — | 360 | — | 360 | ||||||||||||||||||||||
| Tax (expense) benefit | — | 807 | 9 | — | 816 | — | (29 | ) | — | (29 | ) | |||||||||||||||||||||||
| Total other comprehensive income (loss) | 5,222 | (9,790 | ) | 19 | — | (4,549 | ) | (11,193 | ) | 6,242 | — | (4,951 | ) | |||||||||||||||||||||
| Ending balance | $ | (69,789 | ) | $ | (11,074 | ) | $ | 60 | $ | (3,907 | ) | $ | (84,710 | ) | $ | (91,667 | ) | $ | 9,225 | $ | (3,124 | ) | $ | (85,566 | ) | |||||||||
| 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 October 1, 2016 | |||||||||||||||||||
Currency Translation Adjustments | Cash Flow Hedges | ||||||||||||||||||
Forward Contracts | Interest Rate Swaps | Pension Plan | Total | ||||||||||||||||
| Beginning balance | $ | (73,986 | ) | $ | 2,943 | $ | (1,623 | ) | $ | (4,506 | ) | $ | (77,172 | ) | |||||
| Other comprehensive income (loss) before reclassifications | 1,942 | 3,313 | 466 | — | 5,721 | ||||||||||||||
| Tax (expense) benefit | (280 | ) | (605 | ) | (170 | ) | — | (1,055 | ) | ||||||||||
| Amounts reclassed from accumulated other comprehensive income (loss) | — | 2,621 | (413 | ) | — | 2,208 | |||||||||||||
| Tax (expense) benefit | — | (714 | ) | 150 | — | (564 | ) | ||||||||||||
| Total other comprehensive income (loss) | 1,662 | 801 | 559 | — | 3,022 | ||||||||||||||
| Ending balance | $ | (72,324 | ) | $ | 3,744 | $ | (1,064 | ) | $ | (4,506 | ) | $ | (74,150 | ) | |||||
| For the 39 Weeks Ended September 30, 2017 | ||||||||||||||||||||
Currency Translation Adjustments | Cash Flow Hedges | |||||||||||||||||||
Forward Contracts | Interest Rate Swaps | Pension Plan | Total | |||||||||||||||||
| Beginning balance | $ | (101,867 | ) | $ | 10,693 | $ | (343 | ) | $ | (3,907 | ) | $ | (95,424 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | 32,078 | (33,243 | ) | 230 | — | (935 | ) | |||||||||||||
| Tax (expense) benefit | — | 11,512 | (84 | ) | — | 11,428 | ||||||||||||||
| Amounts reclassed from accumulated other comprehensive income (loss) | — | 1,981 | (404 | ) | — | 1,577 | ||||||||||||||
| Tax (expense) benefit | — | (1,945 | ) | 147 | — | (1,798 | ) | |||||||||||||
| Total other comprehensive income (loss) | 32,078 | (21,767 | ) | 403 | — | — | 10,714 | |||||||||||||
| Ending balance | $ | (69,789 | ) | $ | (11,074 | ) | $ | 60 | $ | (3,907 | ) | $ | (84,710 | ) | ||||||
| For the 39 Weeks Ended October 1, 2016 | |||||||||||||||||||
Currency Translation Adjustments | Cash Flow Hedges | ||||||||||||||||||
Forward Contracts | Interest Rate Swaps | Pension Plan | Total | ||||||||||||||||
| Beginning balance | $ | (81,707 | ) | $ | 8,114 | $ | (693 | ) | $ | (6,220 | ) | $ | (80,506 | ) | |||||
| Other comprehensive income (loss) before reclassifications | 9,767 | 2,055 | (1,915 | ) | 2,010 | 11,917 | |||||||||||||
| Tax (expense) benefit | (280 | ) | 433 | 698 | (296 | ) | 555 | ||||||||||||
| Amounts reclassed from accumulated other comprehensive income (loss) | 104 | 9,888 | (1,331 | ) | — | 8,661 | |||||||||||||
| Tax (expense) benefit | — | (3,030 | ) | 485 | — | (2,545 | ) | ||||||||||||
| Total other comprehensive income (loss) | 9,383 | (4,370 | ) | (371 | ) | 1,714 | 6,356 | ||||||||||||
| Ending balance | $ | (72,324 | ) | $ | 3,744 | $ | (1,064 | ) | $ | (4,506 | ) | $ | (74,150 | ) | |||||
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 (including Hong Kong, Macau and Taiwan), 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. Global strategic initiatives such as brand buildingCorporate includes
peripheral revenue generating activities from factories and omni-channel activitiesintellectual 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.level internally. The Company does not include intercompany transfers between segments for management reporting purposes.
Summary information by operating segment was as follows (in thousands):
Hedge accounting must be discontinued for a cash flow hedge of a forecasted transaction upon determining that it is no longer probable that the forecasted transaction will occur within the period originally specified at hedge inception. The cumulative hedge accounting gain or loss associated with the discontinued hedge would remain in accumulated other comprehensive income (loss), and would be reclassified into earnings when the forecasted transaction affects earnings, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. In that case, the entire amount recorded in accumulated other comprehensive income (loss) would immediately be reclassified into earnings. However, in rare cases, the existence of extenuating circumstances that are related to the nature of the forecasted transaction and are outside the control or influence of the Company may cause the forecasted transaction to be probable of occurring on a date that is beyond the additional two-month period of time, in which case the net derivative instrument gain or loss related to the discontinued cash flow hedge will continue to be reported in accumulated other comprehensive income (loss) until it is reclassified into earnings. The Company has identified some delays in the timing of forecasted inventory transactions and has applied the extenuating case exception since the delays are attributable to the COVID-19 pandemic. The Company determined that the delayed forecasted transactions are still probable of occurring after the additional two-month period, and therefore will retain the amounts associated with the discontinued cash flow hedge in accumulated other comprehensive income (loss) until the forecasted transaction affects earnings.
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.
The Company is also exposed to interest rate risk related to its outstanding debt. To manage the interest rate risk related to its U.S.-based term loan (as amended and restated, the "Term Loan") which had an outstanding balance of $168.3 million net of debt issuance costs as of September 30, 2017, the Company entered into an interest rate swap agreement on July 26, 2013 with a term of approximately five years. The objective of this hedge is to offset the variability of future payments associated with interest rates on the Term Loan. The interest rate swap agreement hedges the 1-month London Interbank Offer Rate ("LIBOR") based variable rate debt obligations under the Term Loan. Under the terms of the swap, the Company pays a fixed interest rate of 1.288% per annum to the swap counterparty plus the LIBOR rate applicable margin of 3.50%. See “Note 14—Debt Activity” for additional disclosures about the Company’s Term Loan. The notional amount amortizes through May 17, 2018 and coincides with repayments on the underlying loan. The Company receives interest from the swap counterparty at a variable rate based on 1-month LIBOR. This hedge is designated as a cash flow hedge.
Accounting Standards Codification ("ASC")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:
During the second quarter of fiscal 2017, the SKAGENMICHELE trade name with a carrying amount of $55.6$10.9 million was written down to its implied fair value of $27.3$8.4 million, resulting in a pre-tax impairment charge of $28.3 million;$2.5 million. The trade name impairment charge was recorded in the MISFIT trade nameCorporate cost area.
$10.9 million, resulting in a pre-tax impairment charge of $7.6 million. Trade name impairment charges were recorded in the Corporate cost area. See “Note 2—Goodwill and Intangibles Impairment Charges” for additional disclosures about goodwill and trade name impairment.In accordance with the provisions of ASC 360, Property, Plant and Equipment, property, plant and equipment-net with a carrying amount of $6.0$3.1 million related to retail store leasehold improvements, and fixturing and related key money in the amountshop-in-shops were written down to a fair value of $0.6$8.0 million were deemed not recoverable,and $0.9 million, respectively, resulting in an impairment chargecharges of $6.6 million during the Year To Date Period.$17.6 million.DuringThe fair value of the second quartercontingent consideration liability related to Fossil South Africa was determined using Level 3 inputs. The contingent consideration is based on Fossil South Africa's projected earnings and dividends. The present value of fiscal 2017, the contingent consideration liability was valued at $1.5 million as of April 4, 2020. The Company recorded a pre-tax impairment charge$0.1 million of $1.6the variable consideration in accrued expenses-other and $1.4 million related toin other long-term liabilities in the write off of a cost method investment.condensed consolidated balance sheets at April 4, 2020.
Key money is the amount of funds paid to a landlord or tenant to acquire the rights of tenancy under a commercial property lease for a certain property. Key money represents the “right to lease” with an automatic right of renewal. This right
can be subsequently sold by the Company or can be recovered should the landlord refuse to allow the automatic right of renewal to be exercised. Key money is amortized over the initial lease term, which ranges from approximately four to 18 years.
The Second Amendment amended the applicable margin used to calculate the interest rate that is applicable to base rate loans and LIBOR rate loans under the Company’s credit agreement. As of September 30, 2017, the interest rate margin for base rate loans was 2.50% per annum and the interest rate margin for LIBOR rate loans was 3.50% per annum. On October 1, 2017, the applicable margin on the Term Loan automatically increased to 2.75% per annum for base rate loans and 3.75% per annum for LIBOR rate loans. If the Term Loan has not been repaid in full on or prior to March 31, 2018, then on such date, the applicable margin will automatically increase to 3.25% per annum for base rate loans and 4.25% per annum for LIBOR rate loans. The Second Amendment also changed the commitment fee payable by the Company with respect to the Revolving Credit Facility, to 0.50% per annum.respectively. The Company will incur an additional fee of 0.25% times the outstanding principal amount of the total credit exposure under the credit agreement if the Term Loan has not been repaid in full on or prior to March 31, 2018. Furthermore, the Second Amendment changed the consolidated total leverage ratio that the Company must comply with from 3.25 to 1.00 to the ratios as set forth below:
The Company made principalhad net payments of $6.3 million and $18.8$10.0 million under the Term LoanCredit Agreement during the Third Quarter and Year To Date Period, respectively.First Quarter. The Company also madehad net paymentsborrowings of $158.0 million and $131.3$130.9 million under the Revolving Credit Facility during the Third Quarter and Year To Date Period, respectively.First Quarter. Amounts available under the Revolving Credit Facility arewere reduced by any amounts outstanding under standby letters of credit. As of September 30, 2017,April 4, 2020, the Company had available borrowing capacity of $270.5$33.0 million under the Revolving Credit Facility. The Company's domestic subsidiary receives short-term loans from certain of its foreign subsidiaries at the end of each fiscal quarter which are used to reduce its external borrowings. These intercompany loans are repaid at the beginning of the following fiscal quarter. At the end of the Third Quarter, these intercompany loans totaled $411.8 million. The Company incurred approximately $2.2 million and $6.3$4.7 million of interest expense related to the Term LoanCredit Agreement during the Third Quarter and Year To Date Period, respectively, including the impact of the related interest rate swap.First Quarter. The Company incurred approximately $8.1 million and $20.5$0.4 million of interest expense related to the Revolving Credit Facility during the Third Quarter and Year To Date Period, respectively.First Quarter. The Company incurred approximately $0.9 million and $2.7$2.1 million of interest expense related to the amortization of debt issuance costs and the original issue discount during the Third Quarter and Year To Date Period, respectively.
First Quarter.15.16. RESTRUCTURING
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||||||||||
| Net Sales | Operating Income (Loss) | Net Sales | Operating Income (Loss) | ||||||||||||
| Americas | $ | 152,916 | $ | (61,644 | ) | $ | 190,369 | $ | 10,918 | ||||||
| Europe | 128,250 | (2,655 | ) | 153,277 | 14,280 | ||||||||||
| Asia | 106,187 | 11,239 | 116,900 | 21,041 | |||||||||||
| Corporate | 3,365 | (81,281 | ) | 4,722 | (66,183 | ) | |||||||||
| Consolidated | $ | 390,718 | $ | (134,341 | ) | $ | 465,268 | $ | (19,944 | ) | |||||
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||||||||||
| Net Sales | Operating Income (Loss) | Net Sales | Operating Income (Loss) | ||||||||||||
| Americas | $ | 308,102 | $ | 18,843 | $ | 361,226 | $ | 56,455 | |||||||
| Europe | 247,184 | 39,332 | 243,139 | 49,013 | |||||||||||
| Asia | 133,436 | 21,999 | 133,625 | 23,654 | |||||||||||
| Corporate | — | (80,673 | ) | — | (97,947 | ) | |||||||||
| Consolidated | $ | 688,722 | $ | (499 | ) | $ | 737,990 | $ | 31,175 | ||||||
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||||||||
| Net Sales | Operating Income (Loss) | Net Sales | Operating Income (Loss) | ||||||||||||
| Americas | $ | 874,449 | $ | (121,976 | ) | $ | 1,042,223 | $ | 168,352 | ||||||
| Europe | 637,566 | (33,859 | ) | 669,076 | 109,193 | ||||||||||
| Asia | 355,343 | (2,702 | ) | 371,907 | 60,519 | ||||||||||
| Corporate | — | (316,981 | ) | — | (277,034 | ) | |||||||||
| Consolidated | $ | 1,867,358 | $ | (475,518 | ) | $ | 2,083,206 | $ | 61,030 | ||||||
The following tables reflect net sales for each class of similar products in the periods presented (in thousands, except percentage data):
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||||||||
| Net Sales | Percentage of Total | Net Sales | Percentage of Total | ||||||||||
| Watches | $ | 309,925 | 79.3 | % | $ | 366,178 | 78.7 | % | |||||
| Leathers | 47,307 | 12.1 | 53,905 | 11.6 | |||||||||
| Jewelry | 23,217 | 6.0 | 31,160 | 6.7 | |||||||||
| Other | 10,269 | 2.6 | 14,025 | 3.0 | |||||||||
| Total | $ | 390,718 | 100.0 | % | $ | 465,268 | 100.0 | % | |||||
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||||||||
| Net Sales | Percentage of Total | Net Sales | Percentage of Total | ||||||||||
| Watches | $ | 551,913 | 80.1 | % | $ | 567,148 | 76.9 | % | |||||
| Leathers | 75,660 | 11.0 | 93,338 | 12.6 | |||||||||
| Jewelry | 47,729 | 6.9 | 60,237 | 8.2 | |||||||||
| Other | 13,420 | 2.0 | 17,267 | 2.3 | |||||||||
| Total | $ | 688,722 | 100.0 | % | $ | 737,990 | 100.0 | % | |||||
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||||||
| Net Sales | Percentage of Total | Net Sales | Percentage of Total | ||||||||||
| Watches | $ | 1,471,144 | 78.8 | % | $ | 1,581,233 | 75.9 | % | |||||
| Leathers | 217,946 | 11.7 | 278,995 | 13.4 | |||||||||
| Jewelry | 139,900 | 7.5 | 171,709 | 8.2 | |||||||||
| Other | 38,368 | 2.0 | 51,269 | 2.5 | |||||||||
| Total | $ | 1,867,358 | 100.0 | % | $ | 2,083,206 | 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 effective portion of 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. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, the Company’s hedges resulted in no ineffectiveness in the condensed consolidated statements of income (loss) and comprehensive income (loss), and there were no components excluded from the assessment of hedge effectiveness for the Third Quarter, Prior Year Quarter, Year To Date Period or Prior Year YTD Period.
All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets. 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 sheet 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) will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, the derivative’s gains or losses 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 Third Quarter, Prior Year Quarter, Year To Date Period or Prior Year YTD Period. Hedge accounting is discontinued if it is determined that the derivative is not highly effective. 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.
Hedge accounting must be discontinued for a cash flow hedge of a forecasted transaction upon determining that it is no longer probable that the forecasted transaction will occur within the period originally specified at hedge inception. The cumulative hedge accounting gain or loss associated with the discontinued hedge would remain in accumulated other comprehensive income (loss), and would be reclassified into earnings when the forecasted transaction affects earnings, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. In that case, the entire amount recorded in accumulated other comprehensive income (loss) would immediately be reclassified into earnings. However, in rare cases, the existence of extenuating circumstances that are related to the nature of the forecasted transaction and are outside the control or influence of the Company may cause the forecasted transaction to be probable of occurring on a date that is beyond the additional two-month period of time, in which case the net derivative instrument gain or loss related to the discontinued cash flow hedge will continue to be reported in accumulated other comprehensive income (loss) until it is reclassified into earnings. The Company has identified some delays in the timing of forecasted inventory transactions and has applied the extenuating case exception since the delays are attributable to the COVID-19 pandemic. The Company determined that the delayed forecasted transactions are still probable of occurring after the additional two-month period, and therefore will retain the amounts associated with the discontinued cash flow hedge in accumulated other comprehensive income (loss) until the forecasted transaction affects earnings.
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 September 30, 2017,April 4, 2020, 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 | 108.2 | U.S. dollar | 124.0 | |||||
| Canadian dollar | 38.3 | U.S. dollar | 29.1 | |||||
| British pound | 13.2 | U.S. dollar | 17.3 | |||||
| Japanese yen | 1,234.5 | U.S. dollar | 11.6 | |||||
| Mexican peso | 160.9 | U.S. dollar | 8.2 | |||||
| Australian dollar | 6.4 | U.S. dollar | 4.4 | |||||
| U.S. dollar | 19.2 | Japanese yen | 2,045.0 | |||||
| Functional Currency | Contract Currency | |||||||
| Type | Amount | Type | Amount | |||||
| Euro | 253.4 | U.S. dollar | 291.0 | |||||
| Canadian dollar | 95.0 | U.S. dollar | 73.2 | |||||
| British pound | 43.5 | U.S. dollar | 58.1 | |||||
| Japanese yen | 4,636.4 | U.S. dollar | 42.8 | |||||
| Mexican peso | 378.6 | U.S. dollar | 20.3 | |||||
| Australian dollar | 21.2 | U.S. dollar | 16.5 | |||||
| U.S. dollar | 41.1 | Japanese yen | 4,470.0 | |||||
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 September 30, 2017,April 4, 2020, the Company had non-designated forward contracts of approximately $2.2$0.5 million on 28.36.6 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 effective portion of gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes during the ThirdFirst Quarter and Prior Year Quarter Year To Date Period and Prior Year YTD Period are set forth below (in thousands):
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||
| Cash flow hedges: | |||||||
| Forward contracts | $ | 6,573 | $ | 1,446 | |||
| Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | 6,573 | $ | 1,446 | |||
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||
| Cash flow hedges: | |||||||
| Forward contracts | $ | (13,923 | ) | $ | 2,708 | ||
| Interest rate swaps | 3 | 296 | |||||
| Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | (13,920 | ) | $ | 3,004 | ||
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||
| Cash flow hedges: | |||||||
| Forward contracts | $ | (21,731 | ) | $ | 2,488 | ||
| Interest rate swaps | 146 | (1,217 | ) | ||||
| Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | (21,585 | ) | $ | 1,271 | ||
The following table illustrates the effective portion of 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 ThirdFirst Quarter and Prior Year Quarter Year To Date Period and Prior Year YTD Period (in thousands):
| Derivative Instruments | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | Effect of Derivative Instruments | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||||
| Forward contracts designated as cash flow hedging instruments | Cost of sales | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | 2,647 | $ | 2,473 | ||||||
| Forward contracts designated as cash flow hedging instruments | Other income (expense)-net | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | (2,316 | ) | $ | (18 | ) | ||||
| Forward contracts not designated as hedging instruments | Other income (expense)-net | Total gain (loss) recognized in income | $ | 205 | $ | (13 | ) | |||||
| Derivative Instruments | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | Effect of Derivative Instruments | For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||||
| Forward contracts designated as cash flow hedging instruments | Other income (expense)-net | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | (4,133 | ) | $ | 1,907 | |||||
| Forward contracts not designated as hedging instruments | Other income (expense)-net | Total gain (loss) recognized in income | $ | (12 | ) | $ | 75 | |||||
| Interest rate swap designated as a cash flow hedging instrument | Interest expense | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | (16 | ) | $ | (263 | ) | ||||
| Derivative Instruments | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | Effect of Derivative Instruments | For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||||
| Forward contracts designated as cash flow hedging instruments | Other income (expense)-net | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | 36 | $ | 6,858 | ||||||
| Forward contracts not designated as hedging instruments | Other income (expense)-net | Total gain (loss) recognized in income | $ | 170 | $ | (222 | ) | |||||
| Interest rate swap designated as a cash flow hedging instrument | Interest expense | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | $ | (257 | ) | $ | (846 | ) | ||||
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 | Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | April 4, 2020 | December 28, 2019 | April 4, 2020 | December 28, 2019 | |||||||||||||||||||||||||||||||||||||||||
| 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 | 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 | $ | 2,710 | Prepaid expenses and other current assets | $ | 23,288 | Accrued expenses- other | $ | 15,215 | Accrued expenses- other | $ | 4,696 | Prepaid expenses and other current assets | $ | 11,641 | Prepaid expenses and other current assets | $ | 3,327 | Accrued expenses-other | $ | 243 | Accrued expenses-other | $ | 1,657 | ||||||||||||||||||||||||
| Forward contracts not designated as cash flow hedging instruments | Prepaid expenses and other current assets | 72 | Prepaid expenses and other current assets | — | Accrued expenses- other | 1 | Accrued expenses- other | 2 | Prepaid expenses and other current assets | 113 | Prepaid expenses and other current assets | — | Accrued expenses-other | — | Accrued expenses-other | 63 | ||||||||||||||||||||||||||||||||
| Interest rate swap designated as a cash flow hedging instrument | Prepaid expenses and other current assets | 109 | Prepaid expenses and other current assets | — | Accrued expenses- other | 15 | Accrued expenses- other | 613 | ||||||||||||||||||||||||||||||||||||||||
| Forward contracts designated as cash flow hedging instruments | Intangible and other assets-net | 448 | Intangible and other assets-net | 5,648 | Other long-term liabilities | 4,557 | Other long-term liabilities | 268 | Intangible and other assets-net | 531 | Intangible and other assets-net | 21 | Other long-term liabilities | 30 | Other long-term liabilities | 104 | ||||||||||||||||||||||||||||||||
| Interest rate swap designated as a cash flow hedging instrument | Intangible and other assets-net | — | Intangible and other assets-net | 73 | Other long-term liabilities | — | Other long-term liabilities | — | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,339 | $ | 29,009 | $ | 19,788 | $ | 5,579 | $ | 12,285 | $ | 3,348 | $ | 273 | $ | 1,824 | ||||||||||||||||||||||||||||||||
The following table summarizes the effects of the Company's derivative instruments on earnings (in thousands):
| Effect of Derivative Instruments | ||||||||||||||||
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | |||||||||||||||
| Cost of Sales | Other Income (Expense)-net | 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 | $ | 250,358 | $ | (7,290 | ) | $ | 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) | 2,647 | (2,316 | ) | 2,473 | (18 | ) | ||||||||||
At the end of the ThirdFirst Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through June 2019.2021. As of September 30, 2017,April 4, 2020, an estimated net lossgain of $9.2$10.0 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates. See “Note 1—Financial Statement Policies” for additional disclosures on foreign currency hedging instruments.
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.
•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 September 30, 2017April 4, 2020 (in thousands):
| Fair Value at April 4, 2020 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Forward contracts | $ | — | $ | 12,285 | $ | — | $ | 12,285 | |||||||
| Deferred compensation plan assets: | |||||||||||||||
| Investment in publicly traded mutual funds | 4,460 | — | — | 4,460 | |||||||||||
| Total | $ | 4,460 | $ | 12,285 | $ | — | $ | 16,745 | |||||||
| Liabilities: | |||||||||||||||
| Contingent consideration | $ | — | $ | — | $ | 1,464 | $ | 1,464 | |||||||
| Forward contracts | — | 273 | — | 273 | |||||||||||
| Total | $ | — | $ | 273 | $ | 1,464 | $ | 1,737 | |||||||
| Fair Value at September 30, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Forward contracts | $ | — | $ | 3,230 | $ | — | $ | 3,230 | |||||||
| Deferred compensation plan assets: | |||||||||||||||
| Investment in publicly traded mutual funds | 2,605 | — | — | 2,605 | |||||||||||
| Interest rate swap | — | 109 | — | 109 | |||||||||||
| Total | $ | 2,605 | $ | 3,339 | $ | — | $ | 5,944 | |||||||
| Liabilities: | |||||||||||||||
| Forward contracts | $ | — | $ | 19,773 | — | $ | 19,773 | ||||||||
| Interest rate swap | — | 15 | — | 15 | |||||||||||
| Total | $ | — | $ | 19,788 | $ | — | $ | 19,788 | |||||||
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 201628, 2019 (in thousands):
| Fair Value at December 28, 2019 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Forward contracts | $ | — | $ | 3,348 | $ | — | $ | 3,348 | |||||||
| Deferred compensation plan assets: | |||||||||||||||
| Investment in publicly traded mutual funds | 5,243 | — | — | 5,243 | |||||||||||
| Total | $ | 5,243 | $ | 3,348 | $ | — | $ | 8,591 | |||||||
| Liabilities: | |||||||||||||||
| Contingent consideration | $ | — | $ | — | $ | 1,141 | $ | 1,141 | |||||||
| Forward contracts | — | 1,824 | — | 1,824 | |||||||||||
| Total | $ | — | $ | 1,824 | $ | 1,141 | $ | 2,965 | |||||||
| Fair Value at December 31, 2016 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Forward contracts | $ | — | $ | 28,936 | $ | — | $ | 28,936 | |||||||
| Deferred compensation plan assets: | |||||||||||||||
| Investment in publicly traded mutual funds | 2,385 | — | — | 2,385 | |||||||||||
| Interest rate swap | — | 73 | — | 73 | |||||||||||
| Total | $ | 2,385 | $ | 29,009 | $ | — | $ | 31,394 | |||||||
| Liabilities: | |||||||||||||||
| Forward contracts | — | 4,966 | — | 4,966 | |||||||||||
| Interest rate swap | — | 613 | — | 613 | |||||||||||
| Total | $ | — | $ | 5,579 | $ | — | $ | 5,579 | |||||||
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. The fair values of the interest rate swap assets and liabilities are determined using valuation models based on market observable inputs, including forward curves, mid-market price and volatility levels. See “Note 10—Derivatives and Risk Management” for additional disclosures about the interest rate swaps and forward contracts.
As of September 30, 2017,April 4, 2020, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $486.1$338.7 million and had a fair value of approximately $480.6$282.9 million. The fair value of debt was obtained from a third-party based on observable market inputs.
The fair value of goodwill and trade names are measured on a non-recurring basis using Level 3 inputs, including forecasted cash flows, discountsdiscount rates and implied royalty rates.
During the second quarter of fiscal 2017,First Quarter, the Company fully impaired its goodwill balance and recorded pre-tax impairment charges of $202.3 million, $114.3 million and $42.9 million in the Americas, Europe and Asia segments, respectively.
During the First Quarter, operating lease right-of-use assets with a carrying amount of $11.8$23.4 million was deemed not recoverable, resulting in a pre-tax impairment charge of $11.8 million and the MICHELE trade name with a carrying amount of $18.5 million was written down to its implied fair value of
The fair values of operating lease right-of-use assets and fixed assets related to Company-owned retail stores were determined using Level 3 inputs.inputs, including forecasted cash flows and discount rates. Of the $6.6$17.6 million impairment expense, $3.6$14.2 million, $1.4$2.2 million, and $0.5$0.4 million werewas recorded in restructuring chargesSG&A in the Americas, Europe and Asia segments, respectively, and $0.8$0.7 million and $0.3$0.1 million werewas recorded in SG&Arestructuring charges in the EuropeAsia and AsiaEurope segments, respectively.
12. INTANGIBLE AND OTHER ASSETS
The following table summarizes intangible and other assets (in thousands):
| September 30, 2017 | December 31, 2016 | April 4, 2020 | December 28, 2019 | |||||||||||||||||||||||||||||||||
| Useful | Gross | Accumulated | Gross | Accumulated | Useful | Gross | Accumulated | Gross | Accumulated | |||||||||||||||||||||||||||
| Lives | Amount | Amortization | Amount | Amortization | Lives | Amount | Amortization | Amount | Amortization | |||||||||||||||||||||||||||
| Intangibles-subject to amortization: | ||||||||||||||||||||||||||||||||||||
| Trademarks | 10 yrs. | $ | 4,310 | $ | 3,621 | $ | 4,310 | $ | 3,443 | 10 yrs. | $ | 3,672 | $ | 3,044 | $ | 3,612 | $ | 2,993 | ||||||||||||||||||
| Customer lists | 5-10 yrs. | 54,875 | 32,417 | 53,625 | 26,986 | 5-10 yrs. | 51,137 | 44,376 | 52,517 | 44,013 | ||||||||||||||||||||||||||
| Patents | 3-20 yrs. | 2,325 | 2,124 | 2,325 | 2,099 | 3-20 yrs. | 2,347 | 1,946 | 2,308 | 1,937 | ||||||||||||||||||||||||||
| Noncompete agreement | 3-6 yrs. | 2,548 | 2,102 | 2,505 | 1,662 | |||||||||||||||||||||||||||||||
| Developed technology | 7 yrs. | 36,100 | 9,025 | 36,100 | 5,157 | 7 yrs. | 2,193 | 685 | 2,193 | 548 | ||||||||||||||||||||||||||
| Trade name | 6 yrs. | — | — | 15,700 | 2,617 | 6 yrs. | 4,502 | 375 | 4,502 | 188 | ||||||||||||||||||||||||||
| Other | 7-20 yrs. | 265 | 236 | 253 | 215 | 7-20 yrs. | 404 | 276 | 383 | 272 | ||||||||||||||||||||||||||
| Total intangibles-subject to amortization | 100,423 | 49,525 | 114,818 | 42,179 | 64,255 | 50,702 | 65,515 | 49,951 | ||||||||||||||||||||||||||||
| Intangibles-not subject to amortization: | ||||||||||||||||||||||||||||||||||||
| Trade names | 38,645 | 74,485 | 8,852 | 11,315 | ||||||||||||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||||||||||||
| Key money deposits | 27,841 | 24,195 | 26,948 | 22,038 | ||||||||||||||||||||||||||||||||
| Other deposits | 19,579 | 19,344 | ||||||||||||||||||||||||||||||||||
| Deposits | 18,842 | 18,558 | ||||||||||||||||||||||||||||||||||
| Deferred compensation plan assets | 2,605 | 2,385 | 4,460 | 5,243 | ||||||||||||||||||||||||||||||||
| Deferred tax asset-net | 98,374 | 23,061 | 35,271 | 38,275 | ||||||||||||||||||||||||||||||||
| Restricted cash | 373 | 500 | 6,804 | 7,501 | ||||||||||||||||||||||||||||||||
| Shop-in-shop | 10,161 | 9,816 | 8,807 | 8,019 | ||||||||||||||||||||||||||||||||
| Tax receivable | 404 | — | 66,717 | 6,507 | ||||||||||||||||||||||||||||||||
| Forward contracts | 448 | 5,648 | ||||||||||||||||||||||||||||||||||
| Investments | 500 | 2,078 | 327 | 500 | ||||||||||||||||||||||||||||||||
| Other | 4,771 | 4,655 | 2,843 | 2,145 | ||||||||||||||||||||||||||||||||
| Total other assets | 165,056 | 34,011 | 93,426 | 30,057 | 135,264 | 78,729 | ||||||||||||||||||||||||||||||
| Total intangible and other assets | $ | 304,124 | $ | 83,536 | $ | 282,729 | $ | 72,236 | $ | 208,371 | $ | 50,702 | $ | 155,559 | $ | 49,951 | ||||||||||||||||||||
| Total intangible and other assets-net | $ | 220,588 | $ | 210,493 | $ | 157,669 | $ | 105,608 | ||||||||||||||||||||||||||||
Amortization expense for intangible assets was approximately $3.0$1.9 million and $3.7$1.7 million for the ThirdFirst Quarter and Prior Year Quarter, respectively, and $10.4 million and $11.2 million for the Year To Date Period and Prior Year YTD Period, respectively. Estimated aggregate future amortization expense by fiscal year for intangible assets is as follows (in thousands):
| Fiscal Year | Amortization Expense | |||
| 2020 (remaining) | $ | 5,158 | ||
| 2021 | $ | 3,212 | ||
| 2022 | $ | 2,441 | ||
| 2023 | $ | 871 | ||
| 2024 | $ | 860 | ||
| Thereafter | $ | 1,011 | ||
| Fiscal Year | Amortization Expense | |||
| 2017 (remaining) | $ | 3,028 | ||
| 2018 | $ | 11,848 | ||
| 2019 | $ | 11,518 | ||
| 2020 | $ | 10,979 | ||
| 2021 | $ | 7,143 | ||
| 2022 | $ | 6,263 | ||
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, equipment 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. Right-of-use ("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 at inception. The Company does not record a related lease asset or liability for short-term 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 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | |||||||
Operating lease cost(1) | SG&A | $ | 28,206 | $ | 30,858 | |||||
| Finance lease cost: | ||||||||||
| Amortization of ROU assets | SG&A | $ | 101 | $ | 448 | |||||
| Interest on lease liabilities | Interest expense | $ | 11 | $ | 9 | |||||
| Short-term lease cost | SG&A | $ | 201 | $ | 1,700 | |||||
| Variable lease cost | SG&A | $ | 7,694 | $ | 6,116 | |||||
(1)Includes sublease income, which was immaterial.
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
| Leases | Condensed Consolidated Balance Sheets Location | April 4, 2020 | December 28, 2019 | |||||||
| Assets | ||||||||||
| Operating | Operating lease ROU assets | $ | 269,090 | $ | 288,166 | |||||
| Finance | Property, plant and equipment - net of accumulated depreciation of $4,010 and $4,015, respectively | $ | 5,665 | $ | 5,918 | |||||
| Liabilities | ||||||||||
| Current: | ||||||||||
| Operating | Current operating lease liabilities | $ | 70,839 | $ | 68,838 | |||||
| Finance | Short-term and current portion of long-term debt | $ | 910 | $ | 1,011 | |||||
| Noncurrent: | ||||||||||
| Operating | Long-term operating lease liabilities | $ | 281,097 | $ | 288,689 | |||||
| Finance | Long-term debt | $ | 1,214 | $ | 1,468 | |||||
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases:
| Lease Term and Discount Rate | April 4, 2020 | December 28, 2019 | ||||
| Weighted-average remaining lease term: | ||||||
| Operating leases | 6.1 years | 6.1 years | ||||
| Finance leases | 2.0 years | 2.3 years | ||||
| Weighted-average discount rate: | ||||||
| Operating leases | 14.0 | % | 13.9 | % | ||
| Finance leases | 1.2 | % | 1.2 | % | ||
Future minimum lease payments by year as of April 4, 2020 were as follows (in thousands):
| Fiscal Year | Operating Leases | Finance Leases | ||||||
| 2020 (remaining) | $ | 88,158 | $ | 721 | ||||
| 2021 | 97,604 | 949 | ||||||
| 2022 | 84,329 | 474 | ||||||
| 2023 | 67,061 | — | ||||||
| 2024 | 48,842 | — | ||||||
| 2025 | 35,351 | — | ||||||
| Thereafter | 127,316 | — | ||||||
| Total lease payments | $ | 548,661 | $ | 2,144 | ||||
| Less: Interest | 196,725 | 20 | ||||||
| Total lease obligations | $ | 351,936 | $ | 2,124 | ||||
Future minimum lease payments by year as of December 28, 2019 were as follows (in thousands):
| Fiscal Year | Operating Leases | Finance Leases | ||||||
| 2020 | $ | 116,778 | $ | 1,042 | ||||
| 2021 | 94,795 | 978 | ||||||
| 2022 | 81,536 | 488 | ||||||
| 2023 | 64,582 | — | ||||||
| 2024 | 45,846 | — | ||||||
| Thereafter | 153,255 | — | ||||||
| Total lease payments | $ | 556,792 | $ | 2,508 | ||||
| Less: Interest | 199,265 | 30 | ||||||
| Finance lease obligations | $ | 357,527 | $ | 2,478 | ||||
Supplemental cash flow information related to leases was as follows (in thousands):
| For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||
| Operating cash flows from operating leases | $ | 30,324 | $ | 20,092 | |||
| Operating cash flows from finance leases | 11 | 9 | |||||
| Financing cash flows from finance leases | 309 | 236 | |||||
| Leased assets obtained in exchange for new operating lease liabilities | 18,284 | 5,148 | |||||
As of April 4, 2020, the Company did not have any material operating or finance leases that have been signed but not commenced.
15. DEBT ACTIVITY
On March 10, 2017,February 20, 2020, the Company entered into an Amendment No. 1 (the “First Amendment”) to that certain Term Credit Agreement, dated as of September 26, 2019, by and among the Second AmendmentCompany, as borrower, JPMorgan Chase Bank, N.A. as administrative agent and the lenders (the “Term Credit Agreement Lenders”) party thereto (the “Term Credit Agreement”).
Pursuant to the Amended and Restated Credit Agreement (the “Second Amendment”). The Second Amendment reduced the Company's revolving credit facility (the "Revolving Credit Facility") available under the Company’s existing credit amendment from $1.05 billion to $850.0 million. The Second Amendment also removed the incremental term loan that was available under the credit agreement, extended the maturity dateterms of the credit agreement to May 17, 2019First Amendment, the Company, the administrative agent and removed the Company’s ability to make offers to the lenders party thereto agreed to extend the maturity datemodify certain terms of the Term Loan orCredit Agreement to, among other things, (i) increase the Revolving Credit Facility. The Second Amendment also amendedinterest rate applicable to the repayment schedule forterm loans under the Term LoanCredit Agreement (a) in the case of Eurodollar loans, from the adjusted LIBO rate plus 6.50% to the adjusted LIBO rate plus 8.00%, and requires(b) in the Company to make monthly payments on the last business daycase of each month beginning April 30, 2018. On and after April 1, 2018, interest on the Term Loan that is based upon thealternate base rate will be due and payable in arrears onloans, from the last business dayalternate base rate plus 5.50% to the alternate base rate plus 7.00%; (ii) increase the maximum total leverage ratio permitted from 1.50 to 1.00 as of each calendar month, and interest on the Term Loan that is based upon the LIBOR rate will be due and payable on the last day of each fiscal quarter to (a) 2.75 to 1.00 as of the last day of each fiscal quarter ending April 4, 2020, July 4, 2020, October 3, 2020 and January 2, 2021, (b) 2.25 to 1.00 as of the last day of each fiscal quarter ending April 3, 2021, July 3, 2021 and October 2, 2021, and (c) 1.50 to 1.00 as of the last day of each subsequent fiscal quarter; (iii) limit the amount of borrowings in aggregate principal amount at any time outstanding under that certain asset-based revolving credit agreement, dated as of September 26, 2019, by and among the Company and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other subsidiaries of the Company from time to time party thereto designated as borrowers, certain subsidiaries of the Company from time to time party thereto as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and J.P. Morgan AG, as French collateral agent (The "Revolving Facility"), to the lesser of the borrowing base thereunder and $200 million; (iv) extend the applicable interest period; provided,periods for certain prepayment fees, so that if the Company voluntarily prepays the term loans prior to February 20, 2022, or if the Company incurs certain indebtedness which results in a mandatory prepayment under the Term Credit Agreement prior to February 20, 2022, the Company is required to pay a prepayment fee of 2.00% with respect to the principal amount prepaid prior to February 20, 2021 and 1.00% with respect to the principal amount prepaid between February 21, 2021 and February 20, 2022; and (v) require the Company to pay the foregoing prepayment fee upon acceleration of the loans under the Term Credit Agreement. The First Amendment also modified the negative covenants and events of default in the Term Credit Agreement to reduce the Company’s flexibility with respect to certain matters. The Company incurred debt issue costs of $8.1 million in connection with the First amendment.
On May 12, 2020, the Company entered into Amendment No. 2 to the Term Credit Agreement to extend the deadline for delivery of the Company’s unaudited quarterly financial statements and related deliverables for the fiscal quarter ended April 4, 2020 to the earlier of (i) July 6, 2020 and (ii) the date on which the Company is required to file (or does file) with the SEC its quarterly report on Form 10-Q for the fiscal quarter ended April 4, 2020.
On June 5, 2020, the Company entered into Amendment No. 3 (the “Third Amendment”) to the Term Credit Agreement to modify certain terms of the Term Credit Agreement to, among other things, (i) increase the interest rate applicable to the term loans under the Term Credit Agreement (a) in the case of Eurodollar loans, from the adjusted LIBO rate plus 8.00% to the adjusted LIBO rate plus 8.50%, and (b) in the case of alternate base rate loans, from the alternate base rate plus 7.00% to the alternate base rate plus 7.50%; (ii) (a) require a $15.0 million principal prepayment at the time of the Third Amendment, (b) increase the quarterly amortization payment to be paid on September 30, 2020 to $8.0 million from $5.0 million, and (c) increase each quarterly amortization payment thereafter to $10.0 million; (iii) change provisions related to prepayment fees such interest period extends for over one month, then interestthat (a) prepayment fees will be duewaived for a period of 90 days following the date of the Third Amendment for
prepayments in connection with certain refinancings of the term loans and payable(b) prepayment fees will be 2% for a period of twelve months after such 90-day period, and 1% for next twelve-month period; (iv) reduce the minimum liquidity levels required to be maintained by the Company at the end of each onefiscal month, intervalthrough and including November 2020, from $150.0 million to $125.0 million; (v) waive the quarterly test for maximum total leverage ratio for fiscal year 2020 and the first three fiscal quarters of fiscal year 2021, and during such interest period. The Second Amendment also amended the mandatory prepayment provisions under the credit agreement and provides that to the extent there are excess proceeds remaining from the issuance of debt byperiod require the Company following the repayment in fullto maintain specified minimum levels of the Term Loan, the Company will be required to repay the Revolving Credit Facility inEBITDA; and (vi) increase the amount of equity interests in certain “first tier” foreign subsidiaries that must be pledged as collateral securing the obligations under the Term Credit Agreement from 65% to 100% of such excess proceeds, with a corresponding permanent reductionequity interests.
While the Third Amendment amends, among other things, certain of the financial covenants in the RevolvingTerm Credit FacilityAgreement to address the financial impact of COVID-19, any material further decreases to the Company’s revenues and cash flows, or the Company's inability to successfully achieve its cost reduction targets, could result in the amountCompany not meeting one or more of up to $50.0 million. In accordance with the Second Amendment, dividends paid from foreign subsidiaries to U.S. subsidiaries or Fossil Group, Inc., must first be used to repayamended financial covenants under its Term Credit Agreement within the next twelve months. See “Note 1-Significant Accounting Policies" for additional information.
As of April 4, 2020, the Company had $190.0 million and $158.9 million outstanding under the Term LoanCredit Agreement and then up to $50.0 million of the Revolving Credit Facility.
First Quarter.
The Company implemented a multi-year restructuring program that began in fiscal year 2016 called New World Fossil ("NWF"NWF 1.0"). As part of and concluded in fiscal year 2019. The remaining liability under NWF 1.0 is $3.7 million.
In fiscal 2019, the Company targetslaunched New World Fossil 2.0 - Transform to improveGrow Program (“NWF 2.0”), which is focused on optimizing the Company’s operating profitstructure to be more efficient, with faster decision-making and support sales growth through a leaner infrastructure and an enhanced business model.more customer-centric focus. In addition to optimizing the way the Company goes to market, the Company is also pursuing additional gross margin expansion opportunities. The Company is workingtaking a zero-based budgeting approach to achieve greater efficiencies from productionadjust its business model to distribution through activities such as organizational changes, reducing its overall product assortment, optimizing its base cost structureenable more investment in digital capabilities and consolidating facilities.marketing, move closer to the consumer and react more quickly to the ever-evolving consumer shopping patterns. The Company also intendsplans to buildchange to overall business processes and resources, creating a quickermore centrally directed operating model, reducing complexity and more responsiveredundancy, and operating platform. The Company is reducing its retail footprint to reflect the evolving shopping habits of today's consumer, which includes restructuring costs, such as store impairment, recorded lease obligations and termination fees and accelerated depreciation. Of the total estimated $150 million restructuring charges, approximately $27.8 million and $41.8 million were recorded during fiscal year 2016 and the Year To Date period, respectively. The Company estimates total fiscal year 2017 NWF restructuring charges of approximately $45 million.at a lower cost base.
The following table shows a rollforward of the accrued liability related to the Company’s NWF 2.0 restructuring plan (in thousands):
| For the 13 Weeks Ended September 30, 2017 | For the 14 Weeks Ended April 4, 2020 | |||||||||||||||||||||||||||||||||||||
| Liabilities | Liabilities | Liabilities | Liabilities | |||||||||||||||||||||||||||||||||||
| July 1, 2017 | Charges | Cash Payments | Non-cash Items | September 30, 2017 | December 28, 2019 | Charges | Cash Payments | Non-cash Items | April 4, 2020 | |||||||||||||||||||||||||||||
| Store closures | $ | 4,893 | $ | 2,482 | $ | 4,237 | $ | 2,320 | $ | 818 | $ | 22 | $ | 732 | $ | 42 | $ | 684 | $ | 28 | ||||||||||||||||||
| Professional services and other | 116 | 765 | 48 | 291 | 542 | |||||||||||||||||||||||||||||||||
| Professional services | 2,824 | 3,189 | 3,963 | — | 2,050 | |||||||||||||||||||||||||||||||||
| Severance and employee-related benefits | 1,535 | 2,522 | 2,467 | — | 1,590 | 4,238 | 5,454 | 5,782 | — | 3,910 | ||||||||||||||||||||||||||||
| Total | $ | 6,544 | $ | 5,769 | $ | 6,752 | $ | 2,611 | $ | 2,950 | $ | 7,084 | $ | 9,375 | $ | 9,787 | $ | 684 | $ | 5,988 | ||||||||||||||||||
| For the 13 Weeks Ended October 1, 2016 | |||||||||||||||||||
| Liabilities | Liabilities | ||||||||||||||||||
| July 2, 2016 | Charges | Cash Payments | Non-cash Items | October 1, 2016 | |||||||||||||||
| Store closures | $ | — | $ | 12,523 | $ | — | $ | 12,523 | $ | — | |||||||||
| Professional services and other | — | 1,950 | 1,300 | — | 650 | ||||||||||||||
| Severance and employee-related benefits | — | — | — | — | — | ||||||||||||||
| Total | $ | — | $ | 14,473 | $ | 1,300 | $ | 12,523 | $ | 650 | |||||||||
| For the 39 Weeks Ended September 30, 2017 | |||||||||||||||||||
| Liabilities | Liabilities | ||||||||||||||||||
| December 31, 2016 | Charges | Cash Payments | Non-cash Items | September 30, 2017 | |||||||||||||||
| Store closures | $ | 4,546 | $ | 8,223 | $ | 6,415 | $ | 5,536 | $ | 818 | |||||||||
| Professional services and other | 794 | 2,195 | 2,156 | 291 | 542 | ||||||||||||||
| Severance and employee-related benefits | — | 31,400 | 28,606 | 1,204 | 1,590 | ||||||||||||||
| Total | $ | 5,340 | $ | 41,818 | $ | 37,177 | $ | 7,031 | $ | 2,950 | |||||||||
| For the 39 Weeks Ended October 1, 2016 | |||||||||||||||||||
| Liabilities | Liabilities | ||||||||||||||||||
| January 2, 2016 | Charges | Cash Payments | Non-cash Items | October 1, 2016 | |||||||||||||||
| Store closures | $ | — | $ | 12,523 | $ | — | $ | 12,523 | $ | — | |||||||||
| Professional services and other | — | 1,950 | 1,300 | — | 650 | ||||||||||||||
| Severance and employee-related benefits | — | — | — | — | — | ||||||||||||||
| Total | $ | — | $ | 14,473 | $ | 1,300 | $ | 12,523 | $ | 650 | |||||||||
| For the 14 Weeks Ended April 4, 2020 | |||
| Americas | $ | 1,136 | |
| Europe | 766 | ||
| Asia | 1,623 | ||
| Corporate | 5,850 | ||
| Consolidated | $ | 9,375 | |
Additionally, the NWF 2.0 restructuring program will be expanded to address additional challenges posed by COVID-19. The program will include additional organizational efficiencies, cost savings measures, and accelerating digital initiatives. The Company estimates total NWF 2.0 charges of $50 million to $70 million, with approximately $25 million of those charges in fiscal year 2020.
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | ||||||
| Americas | $ | 2,771 | $ | 10,548 | |||
| Europe | 1,445 | 1,639 | |||||
| Asia | 1,144 | 336 | |||||
| Corporate | 409 | 1,950 | |||||
| Consolidated | $ | 5,769 | $ | 14,473 | |||
| For the 39 Weeks Ended September 30, 2017 | For the 39 Weeks Ended October 1, 2016 | ||||||
| Americas | $ | 10,567 | $ | 10,548 | |||
| Europe | 9,127 | 1,639 | |||||
| Asia | 9,283 | 336 | |||||
| Corporate | 12,841 | 1,950 | |||||
| Consolidated | $ | 41,818 | $ | 14,473 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the financial condition and results of operations of Fossil Group, Inc. and its subsidiaries for the thirteen and thirty-ninefourteen week periodsperiod ended September 30, 2017April 4, 2020 (the “Third“First Quarter” and “Year To Date Period,” respectively)) as compared to the thirteen and thirty-nine week periodsperiod ended October 1, 2016March 30, 2019 (the “Prior Year Quarter” and “Prior Year YTD Period,” respectively)). This discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto.
General
We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our 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, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed. Our products are distributed globally through various distribution channels, including wholesale in countries where we have a physical presence, direct to the consumer through our retail stores and commercial websites and through third partythird-party distributors in countries where we do not maintain a physical presence. Our products are offered at varying price points to meet the needs of our customers, whether they are value conscious or luxury oriented. Based on our extensive range of accessory products, brands, distribution channels and price points, we are able to target style conscious consumers across a wide age spectrum on a global basis.
Domestically, we sell our products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, Company-owned retail and outlet stores, mass market stores and through our FOSSIL® website. website and third-party websites. Our wholesale customer base includes, among others, Amazon, Best Buy, Dillard’s, JCPenney, Kohl’s, Macy’s, Neiman Marcus, Nordstrom, Saks Fifth Avenue, Target and Wal-Mart. In the United States, our network of Company-owned stores included 8456 retail stores located in premier retail sites and 122101 outlet stores located in major outlet malls as of September 30, 2017.April 4, 2020. In addition, we offer an extensive collection of our FOSSIL brand products on our website, www.fossil.com, as well as proprietary and licensed watch and jewelry brands through other managed and affiliated websites.
Internationally, our products are sold to department stores, specialty retail stores and specialty watch and jewelry stores in approximately 150 countries worldwide through 23 Company-owned foreign sales subsidiaries and through a network of approximately 80 independent distributors. Internationally, our network of Company-owned stores included 216168 retail stores and 134122 outlet stores as of September 30, 2017.April 4, 2020. Our products are also sold through licensed and franchised FOSSIL retail stores, retail concessions operated by us and kiosks in certain international markets. In addition, we offer an extensive collection of our FOSSIL brand products on our websites in certain countries.
Our business is subject to economic cycles, and retail industry conditions.conditions and the impact of tariffs on our products. Purchases of discretionary fashion accessories, such as our watches, handbags, sunglasses and other products, tend to decline during recessionary periods when disposable income is low and consumers are hesitant to use available credit. In addition, acts of terrorism, acts of war and military action both in the U.S. and abroad can have a significant effect on economic conditions and may negatively affect our ability to procure our products from manufacturers for sale to our customers. Any significant declines in general economic conditions, public safety concerns or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on consumer purchases of our products.
Our business is also subject to the risks inherent in global sourcing supply. Certain key components in our products come from limited sources of supply, which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products. Any interruption or delay in the supply of key components could significantly harm our ability to meet scheduled product deliveries to our customers and cause us to lose sales. Interruptions or delays in supply may be caused by a number of factors that are outside of our and our contract manufacturers’ control.
Future sales and earnings growth are also contingent upon our ability to anticipate and respond to changing fashion trends and consumer preferences in a timely manner while continuing to develop innovative products in the respective markets in which we compete. As is typical with new products, including our lines of connected accessories, market acceptance of new designs and products that we may introduce is subject to uncertainty. In addition, we generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured. We believe that we can drive long-term growth with brand building, innovation through design, fashion and new materials and introducing new technology and functionality into our accessories, while continuing to provide a solid value proposition to consumers across all of our brands.
Our international operations are subject to many risks, including foreign currency fluctuations and risks related to the global economy. Generally, a strengthening of the U.S. dollar against currencies of other countries in which we operate will reduce the translated amounts of sales and operating expenses of our subsidiaries, which results in a reduction of our
consolidated operating income. We manage these currency risks by using derivative instruments. The primary risks managed by using derivative instruments are the future payments by non-U.S. dollar functional currency subsidiaries of intercompany inventory transactions denominated in U.S. dollars. We enter into foreign exchange forward contracts ("forward contracts") to
manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases.
Known or Anticipated Trends: Based on our recent operating results and current perspectives on our operating environment, we anticipate certain trends will continue to impact our operating results:
In March 2020, a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization. Our 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, we are focused on protecting the health and safety of our 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 impact of COVID-19 resulted in the closure of the majority of our stores and many of our wholesale partners' stores. As of the date of this filing, certain regional and local governments have lifted or modified restrictions and orders. While we have reopened a limited number of stores, these stores have been impacted by a decrease in retail traffic and reduced hours at many locations. The reopening of our stores and our wholesale partners’ stores that remain closed is dependent on a number of factors, including, but not limited to, the lifting of any government restrictions and implementation of safety protocols. While we believe the closed stores will open over stages during the next several months, we cannot reasonably estimate the impact such closures will have on our retail and wholesale sales and overall results. We expect revenue declines to continue in our retail and wholesale channels as consumers react to, or otherwise practice, “social distancing” and other safety measures. Further, we expect a larger decline in revenues in the second quarter of 2020, as a significant number of our retail and wholesale partners’ stores may be closed for the whole period. For certain of our stores that have reopened in Asia, we are seeing trends in traffic down approximately fifty percent, but conversions up approximately 70% to 80%.
During the periods in which our stores and our wholesale partners’ stores have been closed, we have seen strong growth trends in our direct and wholesale e-commerce channels. We expect for these trends to continue, as consumers continue to focus on online shopping options.
We have taken certain cost saving and other actions, and plan to take further actions, to address the decrease in revenues and cash flow and other impacts on our business as a result of COVID-19 in order to maintain liquidity and in order to remain in compliance with financial covenants. Examples of some of these actions include the following:
Board of Director and Executive Compensation: We implemented base salary reductions for each of our executive officers for an indefinite time period. Further, the cash fees for all non-employee directors serving on our 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.
Other Employee Actions: We have implemented base salary reductions for a substantial number of our employees globally. We also implemented weekly work hour reductions (e.g., from 40 hours to 32 or 24 hours) and have implemented work-reduction furloughs for certain other employees. We closed all of our corporate offices at various times in 2020. Many of our offices in Asia and Europe have reopened in some capacity with health and safety guidelines in place. Our offices in the U.S. remain closed with plans to reopen in some capacity in July. We believe our employees have been successful in transitioning to a virtual working environment.
Office and Retail Location Expenses: We have entered into agreements, or are in discussions with, most of our retail and corporate office landlords to modify rent payments, receive other concessions or otherwise reduce our operating costs for these locations.
Other Expense Reductions: We have also extended the payment terms with a number of our vendors and suppliers globally and have agreements, or are in discussions with, licensors of certain third party trademarks to reduce our royalty obligations in fiscal 2020. In addition, we plan to reduce marketing and capital spending and eliminate all non-business critical spending for the balance of 2020.
2020 Operating Expenses: Selling, general and administrative expenses (“SG&A”) for 2020 is now expected to be several million dollars lower than 2019 and our original plan for 2020. Our NWF 2.0 initiative is being expanded to include additional expense reduction programs which are partly dependent on the length and depth of the COVID-19 pandemic impact. Expense reductions are expected to be primarily driven by additional store closings and rent concessions, reduced compensation levels, lower marketing investment, and fewer discretionary expenses.
Capital Expenditures: Capital expenditures for 2020 are expected to be approximately $5 million to $7 million, compared to prior guidance of approximately $25 million. This reduction reflects the deferral or cancellation of certain planned investments.
Management believes our cost reduction plans are probable of being successfully implemented, which will result in adequate cash flows to support our ongoing operations and to meet our covenant requirements for one year following the date these financial statements are issued.
Our Term Loan Facility (as defined in "Note 15-Debt Activity") contains certain affirmative and negative covenants. We have entered into a new amendment to our Term Loan Facility to amend, among other things, certain of these financial covenants as a result of the impact of COVID-19 on our business. Refer to “Note 15-Debt Activity" for additional details on the Term Loan Facility. We are also exposed to interest rate risk associatedcurrently in compliance with our variable rate debt, whichcovenants and are forecasting to remain in compliance for the year following the date that these financial statements are issued. Due to the uncertainty related to the duration of COVID-19, we managecould experience material further decreases to revenues and cash flows and may experience difficulty in remaining in compliance with an interest rate swap.financial covenants under the Term Loan Facility, as amended.
For a more complete discussion of the risks facing our business, see “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 201628, 2019 and "Part II, Item 1A. Risk Factors" of this Quarter Report on Form 10-Q.
Results of Operations
Executive Summary. Since the onset of the COVID-19 pandemic, we have acted to protect our employees, partners and communities worldwide, adapted to rapidly changing circumstances, mitigated business disruption and strengthened our financial position. In the preceding "General" section, we have described some of the cost reduction and cash management steps we have taken to date. During the ThirdFirst Quarter, net sales decreased 7% (8%16% (15% in constant currency), as compared to the Prior Year Quarter. We generated a net loss of $85.6 million in the First Quarter as compared to a net loss of $12.2 million in the Prior Year Quarter. In January and February, worldwide net sales were above our expectations, reflecting increased sales of our older generation connected product driven by liquidation activity in the Americas, as well as improved performance in our core business including traditional leathers and watches. As the majority of stay-at-home mandates took effect in March, the combination of retail store closures and reduced wholesale sales had a considerable impact on our First Quarter net sales and profitability.From a global business perspective, we experienced store closures at our wholesale partners and Fossil owned locations as early as February in the Asia Pacific region. This of course accelerated in March as the virus spread to Europe and the Americas.
The stay-at-home orders and restrictions on travel have driven a channel shift away from brick and mortar and towards e-commerce. The investments we have been making in our digital capabilities left us well prepared to service significantly higher demand levels. During the First Quarter, we completed the implementation of our new global e-commerce platform, which provides us with a flexible and responsive system that integrates with our marketing programs. We believe this has been a critical factor in our ability to drive traffic and conversion on Fossil.com.
In recent weeks, the re-opening of wholesale doors and FOSSIL retail stores have started to phase in across all geographies and channels. We have been proactively reducing incoming inventory and working closely with our wholesale partners to align on the best path forward. Due to the timing of the First Quarter closures, we expect the second quarter of fiscal year 2020 to be more challenging from a net sales perspective.
We have previously outlined our four strategic priorities for fiscal year 2020. Notwithstanding the COVID-19 pandemic, these strategies remain highly relevant and we believe they will be important to our long-term success. The first strategic initiative is delivering compelling storytelling and innovation. Our second strategic initiative is commercial transformation, which is one of two strategic initiatives we are accelerating due to the current operating environment created by the pandemic. We have deployed substantial resources toward increasing our digital capabilities in recent years and that is helping us serve our customers during this time of heightened e-commerce demand. We have invested in a robust set of tools that can support a larger direct to consumer business in the future. Our third strategic initiative is expanding our opportunity in China and India. In these countries we are continuing to execute against a strategy centered around localized marketing and segmented assortments. The impacts of COVID-19 may disrupt our growth trajectory in the short to intermediate term, but we continue to view China and India as compelling long-term opportunities. Under our NWF 2.0 program, our fourth strategic initiative, we have been driving greater efficiency in our processes and workstreams throughout the organization and right-sizing our cost structure. In 2019, operating expense was reduced by nearly $50 million. Given the current environment and our perspective on the future state of business, we have made the strategic decision to accelerate and expand our NWF 2.0 program. Specifically, we are shifting a portion of the temporary savings from our
COVID-19 specific actions into permanent reductions. This is expected to generate incremental benefits of approximately $50 million in years 2020 and 2021, which increases our total NWF 2.0 program from $200 million to $300 million.
During the First Quarter, sales of FOSSIL branded products decreased 15% (14% in constant currency), as compared to the Prior Year Quarter, driven bywith declines in traditional watches, leathers and jewelry, and partially offset by continued growth in wearables. The Third Quarter was favorably impacted by customers accelerating certain deliveries from the fourth quarter of fiscal year 2017 into the Third Quarter, primarily to take advantage of pending price increases. We estimate that this acceleration ofacross all major product categories. FOSSIL brand watch sales favorably impacted the Third Quarter sales growth rate by roughly three percentage points, and we expect this favorable impact will largely reverse in the fourth quarter of fiscal year 2017. While the overall business remains challenging and the retail environment remains in flux, we continue to bring innovative new products to the market and work towards operational efficiencies to ultimately enhance our profitability. We remain confident wearables can be one of the key catalysts that could eventually offset the sales declines we have seen in our traditional watch business for some time now. Wearables products accounted for approximately 10% of our net sales in the Third Quarter, compared to 7% and 9% in the first and second quarters of fiscal year 2017, respectively. Our third generation of connected devices, which are in the market now, add additional features through Android Wear 2.0, such as fitness and standalone applications. In addition, our latest generation wearables are thinner, and they have brighter screens and improved functionality. We are supporting these new products with our celebrity influencer campaigns to attract our wearable customers in the digital and social space.
| Growth Percentage | ||||||
| Brand | As Reported | Constant Currency | ||||
| FOSSIL | 5.2 | % | 7.0 | % | ||
| SKAGEN | 10.0 | % | 11.6 | % | ||
March.
Global comparable retail sales, (including e-commerce)which include our stores and our own e-commerce decreased 6% during the Third Quarter, compared14% on a 14-week calendar basis. Prior to a decrease ofCOVID-19 store closures, comparable retail sales were trending up 1% in the Prior YearFirst Quarter, due to continued declineswith positive comparable sales in retail store traffic trendsAmericas outlet stores and e-commerce in Asia and Europe and partially offset by consistent growthcomparable sales declines in e-commerce. During the Third Quarter, we continued to improve conversion through promotional activity, but we were not able overcome the negative traffic we experienced in all regions. During the Third Quarter, our comparableAmericas e-commerce sales increased 26% compared to the Prior Year Quarter, led by the Americas, but with increasesand full-price stores in all regions.
Total operating expenses, including $20 million of non-cash charges related to operating lease right-of-use and intangible asset impairment and $9 million of restructuring expenses, increased 2.5% in the ThirdFirst Quarter, was favorably impacted by the increased effective tax rate in the Third Quarter as compared to the Prior Year Quarter. During the ThirdFirst Quarter, our financial performance resulted in a net loss of $0.11$1.69 per diluted share and included NWF restructuring charges of $0.15 per diluted share. The Prior Year Quarter resulted in a net loss of $0.25 per diluted share and included a gain on sale of intellectual property of $0.33 per diluted share and restructuring charges of $0.16 per diluted share. Currencies, including both the translation impact on operating earnings and the impact of foreign currency hedging contracts, unfavorably impacted earnings in the First Quarter by $0.12 per diluted share.
Constant Currency Financial Information
As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. The translation of the operations of our foreign-based entities from their local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates and can have a significant impact on our reported financial results. In general, our overall financial results are affected positively by a weaker U.S. dollar and are affected negatively by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business.
As a result, in addition to presenting financial measures in accordance with accounting principles generally accepted in the United States of America (“GAAP”), our discussions contain references to constant currency financial information, which is a non-GAAP financial measure. To calculate net sales on a constant currency basis, net sales for the current year for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average rates during the comparable period of the prior fiscal year. We present constant currency information to provide investors with a basis to evaluate how our underlying business performed, excluding the effects of foreign currency exchange rate fluctuations. The constant currency financial information presented herein should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Reconciliations betweenWe provide constant currency financial information and the most directly comparable GAAP measure are included where applicable.
Quarterly Periods Ended SeptemberApril 4, 2020 and March 30, 2017 and October 1, 20162019
Consolidated Net Sales. Net sales decreased $49.3$74.6 million or 6.7% (8.0%16.0% (14.7% in constant currency), for the ThirdFirst Quarter as compared to the Prior Year Quarter. During the Third Quarter, our leathers products decreased $17.6 million or 18.9% (19.9% in constant currency) primarily as a result of the current product assortment not resonating well with consumers. Globalongoing COVID-19 pandemic. During the First Quarter, watch sales decreased $15.3$56.3 million or 2.7% (4.1%15.4% (14.0% in constant currency), our jewelry business decreased $8.0 million or 25.6% (24.4% in constant currency) driven by declines in traditional watches partially offset by increases in connected watches. Our jewelry businessand our leathers products decreased $12.5$6.6 million or 20.8% (22.8%12.2% (11.3% in constant currency). In the beginning of the First Quarter, sales results were positively impacted by increased off-price and liquidation sales of connected inventory. Due to the ongoing COVID-19 pandemic, sales began to slow in February in Asia and in March in the Americas and Europe, due to store closures in our direct to consumer and wholesale channels. Excluding store closures, business exits and the extra week in the First Quarter, as a percentage of net sales, our core sales declined in the mid-teens. Our direct business also decreased mid-teens during the First Quarter, largely driven by temporary store and concession closures due to COVID-19 and permanent store closures since the Prior Year Quarter, while we continued strong e-commerce growth in Asia. We have reduced our store footprint by 14 stores since the end of the Prior Year Quarter and expect to reduce it further during the remainder of fiscal year 2020.
Net sales information by product category is summarized as follows (dollars in millions):
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||
| Growth (Decline) | Growth (Decline) | |||||||||||||||||||||||||||||||||||||||||||||
| Net Sales | Percentage of Total | Net Sales | Percentage of Total | Dollars | Percentage As Reported | Percentage Constant Currency | Net Sales | Percentage of Total | Net Sales | Percentage of Total | Dollars | Percentage As Reported | Percentage Constant Currency | |||||||||||||||||||||||||||||||||
| Watches | $ | 551.9 | 80.1 | % | $ | 567.2 | 76.9 | % | $ | (15.3 | ) | (2.7 | )% | (4.1 | )% | $ | 309.9 | 79.3 | % | $ | 366.2 | 78.7 | % | $ | (56.3 | ) | (15.4 | )% | (14.0 | )% | ||||||||||||||||
| Leathers | 75.7 | 11.0 | 93.3 | 12.6 | (17.6 | ) | (18.9 | ) | (19.9 | ) | 47.3 | 12.1 | 53.9 | 11.6 | (6.6 | ) | (12.2 | ) | (11.3 | ) | ||||||||||||||||||||||||||
| Jewelry | 47.7 | 6.9 | 60.2 | 8.2 | (12.5 | ) | (20.8 | ) | (22.8 | ) | 23.2 | 6.0 | 31.2 | 6.7 | (8.0 | ) | (25.6 | ) | (24.4 | ) | ||||||||||||||||||||||||||
| Other | 13.4 | 2.0 | 17.3 | 2.3 | (3.9 | ) | (22.5 | ) | (23.6 | ) | 10.3 | 2.6 | 14.0 | 3.0 | (3.7 | ) | (26.4 | ) | (26.4 | ) | ||||||||||||||||||||||||||
| Total | $ | 688.7 | 100.0 | % | $ | 738.0 | 100.0 | % | $ | (49.3 | ) | (6.7 | )% | (8.0 | )% | $ | 390.7 | 100.0 | % | $ | 465.3 | 100.0 | % | $ | (74.6 | ) | (16.0 | )% | (14.7 | )% | ||||||||||||||||
In the ThirdFirst Quarter, the translation of foreign-based net sales into U.S. dollars increaseddecreased reported net sales by approximately $10.1$6.0 million, including favorableunfavorable impacts of $9.2$3.1 million, $2.8 million and $1.6$0.1 million in our Europe, Asia and Americas segments, respectively, and an unfavorable impact of $0.7 million in our Asia segment when compared to the Prior Year Quarter.
The following table sets forth consolidated net sales by segment (dollars in millions):
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | Growth (Decline) | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | Growth (Decline) | |||||||||||||||||||||||||||||||||||||||||
| Net Sales | Percentage of Total | Net Sales | Percentage of Total | Dollars | Percentage As Reported | Percentage Constant Currency | Net Sales | Percentage of Total | Net Sales | Percentage of Total | Dollars | Percentage As Reported | Percentage Constant Currency | |||||||||||||||||||||||||||||||||
| Americas | $ | 308.1 | 44.7 | % | $ | 361.2 | 48.9 | % | $ | (53.1 | ) | (14.7 | )% | (15.1 | )% | $ | 152.9 | 39.1 | % | $ | 190.4 | 40.9 | % | $ | (37.5 | ) | (19.7 | )% | (19.6 | )% | ||||||||||||||||
| Europe | 247.2 | 35.9 | 243.2 | 33.0 | 4.0 | 1.6 | (2.1 | ) | 128.2 | 32.8 | 153.3 | 33.0 | (25.1 | ) | (16.4 | ) | (14.3 | ) | ||||||||||||||||||||||||||||
| Asia | 133.4 | 19.4 | 133.6 | 18.1 | (0.2 | ) | (0.1 | ) | 0.4 | 106.2 | 27.2 | 116.9 | 25.1 | (10.7 | ) | (9.2 | ) | (6.8 | ) | |||||||||||||||||||||||||||
| Corporate | 3.4 | 0.9 | 4.7 | 1.0 | (1.3 | ) | (27.7 | ) | (29.8 | ) | ||||||||||||||||||||||||||||||||||||
| Total | $ | 688.7 | 100.0 | % | $ | 738.0 | 100.0 | % | $ | (49.3 | ) | (6.7 | )% | (8.0 | )% | $ | 390.7 | 100.0 | % | $ | 465.3 | 100.0 | % | $ | (74.6 | ) | (16.0 | )% | (14.7 | )% | ||||||||||||||||
Americas Net Sales. Americas net sales decreased $53.1$37.5 million or 14.7% (15.1%19.7% (19.6% in constant currency), during the ThirdFirst Quarter in comparison to the Prior Year Quarter. During the ThirdFirst Quarter, watches decreased $32.1$29.0 million or 11.7% (12.1%19.6% (19.5% in constant currency), while our leathers businessjewelry category decreased $12.7$5.2 million or 21.6% (22.1%56.5% (56.5% in constant currency) and our jewelry categoryleathers business decreased $6.6$2.8 million or 29.5% (29.9%9.1% (9.1% in constant currency). Sales declinesIn the region, sales declined in the U.S., Mexico and Canada were partially offset by growth in Mexico. During the Third Quarter, most brands in the portfolio declined while our EMPORIO ARMANI watch business increased with the introduction of EMPORIO ARMANI Connected. Decreases in traditional watches were partially offset by increases in connected watches, with the strongest performance coming from FOSSIL connected watches. While both our wholesale and retail businesses declined in the Third Quarter, our retail business was relatively stronger.Canada. Comparable retail sales including e-commerce declinedwere moderately innegative on a 14-week calendar basis (modestly positive prior to COVID-19 related closures) during the region as negative comparable sales inFirst Quarter, driven by our strong outlet stores were partially offset by positive comparable sales in our e-commerce business.performance, which benefited from increased connected product liquidations prior to COVID-19 closures.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant-currency basis from period to period for the Americas segment on a reported and constant currency basis (dollars in millions):
| For the 13 Weeks Ended September 30, 2017 | For the 13 Weeks Ended October 1, 2016 | For the 14 Weeks Ended April 4, 2020 | For the 13 Weeks Ended March 30, 2019 | Growth (Decline) | ||||||||||||||||||||||||||||||
| Net Sales | Net Sales | Dollars | Percentage As Reported | Percentage Constant Currency | Net Sales | Net Sales | Dollars | Percentage As Reported | Percentage Constant Currency | |||||||||||||||||||||||||
| Watches | $ | 242.2 | $ | 274.3 | $ | (32.1 | ) | (11.7 | )% | (12.1 | )% | $ | 119.3 | $ | 148.3 | $ | (29.0 | ) | (19.6 | )% | (19.5 | )% | ||||||||||||
| Leathers | 46.2 | 58.9 | (12.7 | ) | (21.6 | ) | (22.1 | ) | 28.0 | 30.8 | (2.8 | ) | (9.1 | ) | (9.1 | ) | ||||||||||||||||||
| Jewelry | 15.8 | 22.4 | (6.6 | ) | (29.5 | ) | (29.9 | ) | 4.0 | 9.2 | (5.2 | ) | (56.5 | ) | (56.5 | ) | ||||||||||||||||||
| Other | 3.9 | 5.6 | (1.7 | ) | (30.4 | ) | (28.6 | ) | 1.6 | 2.1 | (0.5 | ) | (23.8 | ) | (23.8 | ) | ||||||||||||||||||
| Total | $ | 308.1 | $ | 361.2 | $ | (53.1 | ) | (14.7 | )% | (15.1 | )% | $ | 152.9 | $ | 190.4 | $ | (37.5 | ) | (19.7 | )% | (19.6 | )% | ||||||||||||