SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Commission file number: 000-19848

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(Registrant’s telephone number, including area code)

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

Title of each class

Ticker Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

FOSL

The Nasdaq Stock Market LLC

7.00% Senior notes due 2026

FOSLL

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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):

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: 48,527,898~~

August 3, 2022: 51,827,267

Trademarks, service marks, trade names and copyrights

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

Item 1. Financial Statements

See notes to the unaudited condensed consolidated financial statements.

Goodwill and trade name impairments

See notes to the unaudited condensed consolidated financial statements.


For the 13 Weeks Ended July 2, 2022
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, April 2, 2022	51,157	$	511	$	302,583	$	—	$	198,134	$	(74,062)	$	427,166	$	2,298	$	429,464
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	873	9		(9)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding						(2,430)		—		—		(2,430)		—		(2,430)
Retirement of common stock	(223)	(2)		(2,428)		2,430		—		—		—		—		—


Stock-based compensation	—	—		4,629		—		—		—		4,629		—		4,629
Net income (loss)	—	—		—		—		(19,074)		—		(19,074)		139		(18,935)
Other comprehensive income (loss)	—	—		—		—		—		(13,017)		(13,017)		—		(13,017)

Distribution of noncontrolling interest earnings	—	—		—		—		—		—		—		(5,686)		(5,686)


Balance, July 2, 2022	51,807	$	518	$	304,775	$	—	$	179,060	$	(87,079)	$	397,274	$	(3,249)	$	394,025


For the 13 Weeks Ended July 3, 2021
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, April 3, 2021	51,526	$	515	$	295,287	$	—	$	179,258	$	(67,279)	$	407,781	$	1,043	$	408,824
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	759	7		(7)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(2,094)		—		—		(2,094)		—		(2,094)
Retirement of common stock	(158)	(1)		(2,093)		2,094		—		—		—		—		—


Stock-based compensation	—	—		2,517		—		—		—		2,517		—		2,517
Net income (loss)	—	—		—		—		(1,192)		—		(1,192)		427		(765)
Other comprehensive income (loss)	—	—		—		—		—		845		845		—		845





Balance, July 3, 2021	52,127	$	521	$	295,704	$	—	$	178,066	$	(66,434)	$	407,857	$	1,470	$	409,327



For the 26 Weeks Ended July 2, 2022
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, January 1, 2022	52,146	$	521	$	300,848	$	—	$	229,132	$	(67,275)	$	463,226	$	2,132	$	465,358
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	874	9		(9)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(12,430)		—		—		(12,430)		—		(12,430)
Retirement of common stock	(1,213)	(12)		(2,934)		12,430		(9,484)		—		—		—		—


Stock-based compensation	—	—		6,870		—		—		—		6,870		—		6,870
Net income (loss)	—	—		—		—		(40,588)		—		(40,588)		305		(40,283)
Other comprehensive income (loss)	—	—		—		—		—		(19,804)		(19,804)				(19,804)

Distribution of noncontrolling interest earnings	—	—		—		—		—		—		—		(5,686)		(5,686)


Balance, July 2, 2022	51,807	$	518	$	304,775	$	—	$	179,060	$	(87,079)	$	397,274	$	(3,249)	$	394,025



For the 26 Weeks Ended July 3, 2021
	Common stock			Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Stockholders' equity attributable to Fossil Group, Inc.		Noncontrolling interest		Total stockholders' equity
	Shares	Par value
Balance, January 2, 2021	51,474	$	515	$	293,777	$	—	$	203,698	$	(58,900)	$	439,090	$	942	$	440,032
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	836	8		(8)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(2,349)		—		—		(2,349)		—		(2,349)
Retirement of common stock	(183)	(2)		(2,347)		2,349		—		—		—		—		—

Stock-based compensation	—	—		4,282		—		—		—		4,282		—		4,282
Net income (loss)	—	—		—		—		(25,632)		—		(25,632)		528		(25,104)
Other comprehensive income (loss)	—	—		—		—		—		(7,534)		(7,534)		—		(7,534)





Balance, July 3, 2021	52,127	$	521	$	295,704	$	—	$	178,066	$	(66,434)	$	407,857	$	1,470	$	409,327

See notes to the unaudited condensed consolidated financial statements.

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

See notes to the unaudited condensed consolidated financial statements.

1. FINANCIAL STATEMENT POLICIES

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

The information presented herein includes the thirteen-week period ended July 2, 2022 (“Second Quarter”) as compared to the thirteen-week period ended July 3, 2021 (“Prior Year Quarter”), and the twenty-six week period ended July 2, 2022 ("Year To Date Period") as compared to the twenty-six week period ended July 3, 2021 ("Prior Year YTD Period"). 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,~~July 2, 2022, and the results of operations for the ~~thirteen-week periods ended September 30, 2017 (“Third Quarter”) and October 1, 2016 (“~~Second Quarter, Prior Year ~~Quarter”), respectively, and the thirty-nine week periods ended September 30, 2017 (“~~Quarter, Year To Date ~~Period”)~~Period and ~~October 1, 2016 (“~~Prior Year YTD ~~Period”).~~Period. All adjustments are of a normal, recurring nature.

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

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the fiscal year ended ~~December 31, 2016~~January 1, 2022 (the ~~“2016~~“2021 Form 10-K”). Operating results for the ~~Third~~Second Quarter are not necessarily indicative of the results to be achieved for the full fiscal year.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. We base our estimates on the information available at the time and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of the coronavirus (“COVID-19”) pandemic. Actual results could differ from those ~~estimates.~~estimates, including the impact of the COVID-19 pandemic. The Company has not made any changes in its significant accounting policies from those disclosed in the ~~2016~~2021 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.

~~Hedging Instruments.~~ The Company is exposed to certain market risks relating to foreign exchange rates and interest rates. The Company actively monitors and attempts to mitigate but does not eliminate these exposures using derivative instruments including foreign exchange forward contracts ("forward contracts") and interest rate swaps. The Company’s foreign subsidiaries periodically enter into forward contracts to hedge the future payment of intercompany inventory transactions denominated in U.S. dollars. 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. If the Company was to settle its euro, Canadian dollar, British pound, Japanese yen, Mexican peso, Australian dollar and U.S dollar forward contracts as of September 30, 2017, the result would have been a net loss of approximately $12.1 million, net of taxes. This unrealized loss is recognized in other comprehensive income (loss), net of taxes on the Company's consolidated statements of income (loss) and comprehensive income (loss). Additionally, to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the cash flows being hedged, any changes 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) and comprehensive income (loss). Also, the Company has entered into an interest rate swap agreement to effectively convert portions of its variable rate debt obligations to a fixed rate. Changes in the fair value 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 investments

are liquidated or disposed. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. See “Note 10—Derivatives and Risk Management” for additional disclosures about the Company’s use of derivatives.

Operating Expenses. Operating expenses include selling, general and administrative ~~expenses (“~~("SG~~&A”~~&A"), ~~goodwill and trade name impairment~~other long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of the ~~Company’s~~Company's retail stores, point-of-sale expenses, advertising expenses and art, and design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and ~~“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~~and store ~~closure expenses.~~closures. See Note 16—Restructuring for additional information on the Company’s restructuring plan.

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

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


	For the 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021		For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Numerator:
Net income (loss) attributable to Fossil Group, Inc.	$	(19,074)	$	(1,192)	$	(40,588)	$	(25,632)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	51,707		52,040		51,853		51,779
Basic EPS	$	(0.37)	$	(0.02)	$	(0.78)	$	(0.50)
Diluted EPS computation:

Diluted weighted average common shares outstanding	51,707		52,040		51,853		51,779
Diluted EPS	$	(0.37)	$	(0.02)	$	(0.78)	$	(0.50)

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 ~~Third~~Second Quarter and Year To Date Period, approximately ~~5.1~~2.3 million and ~~4.4~~2.2 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 1.2~~0.3 million weighted average performance-based shares at the end of ~~both~~ the ~~Third~~Second Quarter and Year To Date Period.

At the end of the Prior Year Quarter and Prior Year YTD Period, ~~approximately 1.6~~2.1 million and ~~1.5~~2.0 million weighted average shares issuable under stock-based awards, respectively, were not included in the diluted EPS calculation because they were antidilutive. ~~Approximately 1.1~~The total antidilutive weighted average shares included 0.3 million weighted average performance-based shares ~~were not included in the diluted EPS calculation~~ at the end of ~~both~~ the Prior Year Quarter and Prior Year YTD ~~Period~~Period.

Cash, Cash Equivalents and Restricted Cash. Restricted cash included in intangible and other-assets net was comprised primarily of restricted cash balances for appealed tax assessments held in escrow and for pledged collateral to secure bank guarantees for the purpose of obtaining retail space. The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of July 2, 2022 and July 3, 2021 that are presented in the ~~performance targets were not met.~~condensed consolidated statement of cash flows (in thousands):


	July 2, 2022		July 3, 2021
Cash and cash equivalents	$	167,067	$	252,251
Restricted cash included in prepaid expenses and other current assets	110		118
Restricted cash included in intangible and other assets-net	12,178		14,680
Cash, cash equivalents and restricted cash	$	179,355	$	267,049

Recently Issued Accounting Standards

In ~~August 2017,~~November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2017-12,~~ ~~Derivatives~~2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance ("ASU 2021-10"). The new standard increases transparency of government assistance by focusing on the types of assistance given, an entity's accounting for the assistance, and ~~Hedging (Topic 815): Targeted Improvements~~the effect of the assistance on the entity's financial statements to ~~Accounting~~allow for ~~Hedging Activities~~ ~~("ASU 2017-12"). ASU 2017-12 amends~~more comparable information for investors and ~~simplifies hedge accounting guidance in order to enable entities to better portray the economics of their risk management activities. The guidance~~other financial statement users. This standard is effective for ~~fiscal years beginning after December 15, 2018, including~~

~~interim periods within those periods. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated~~ financial statements ~~and related disclosures.~~

~~In May 2017, the FASB~~ issued ~~ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~ ("ASU 2017-09"). ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the modification. The guidance is effective for annual periods beginning after December 15, ~~2017, including interim periods within those periods. Early adoption is permitted. The Company is still evaluating the effect of adopting ASU 2017-09.~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ("ASU 2016-18"). ASU 2016-18 requires that a statement of cash flows explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods, and interim periods within those years, beginning after December 15, 2017. Early2021, but early adoption is permitted. This standard will not have a material impact on the ~~Company’s~~Company's consolidated ~~results of operations~~financial statements or ~~financial position.~~related disclosures.

In October ~~2016, the~~2021, FASB issued ASU ~~2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of~~2021-08, Business Combinations – Accounting for Contract Assets ~~Other Than Inventory~~ (“and Contract Liabilities from Contracts with Customers ("ASU ~~2016-16”~~2021-08"). ~~ASU 2016-16~~The guidance is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. The guidance requires an ~~entity~~acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 as if they had originated the ~~income tax consequences of an intra-entity transfer of an asset other than inventory when~~contracts, as opposed to at fair value on the ~~transfer occurs. ASU 2016-16 is~~acquisition date. The standard will be effective for ~~fiscal years, and interim periods within those fiscal years, beginning~~business combinations that occur after ~~December 15, 2017.~~January 1, 2023. Early adoption is permitted. ~~This standard~~The guidance will ~~not have a material impact~~be applied prospectively to acquisitions occurring on ~~the Company’s consolidated results of operations~~ or ~~financial position.~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows(Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments should be presented and classified in the statement of cash flows with the objective of reducing existing diversity in practice with respect to these items. ASU 2016-15 is effective for annual periods, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

~~In March 2016, the FASB issued ASU 2016-04,~~ ~~Liabilities—Extinguishments of Liabilities (Subtopic 405-20)- Recognition of Breakage for Certain Prepaid Stored-Value Products~~ (“ASU 2016-04”). ASU 2016-04 entitles a company to derecognize amounts related to expected breakage to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. ASU 2016-04 is effective for annual periods, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842): Amendments to the FASB Accounting Standards Codification®~~ ~~(“ASU 2016-02”), which supersedes the existing guidance for lease accounting,~~ ~~Leases (Topic 840)~~. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and modifies accounting, presentation and disclosure for both lessors and lessees. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the ~~date of initial application, with an option to elect to use certain transition relief. ASU 2016-02 is~~ effective for annual periods, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Many of the Company’s leases are considered operating leases and are not capitalized under ASC 840. Under ASC 842 the majority of these leases will qualify for capitalization and will result in the recognition of lease assets and lease liabilities once the new standard is adopted. The Company is in the process of reviewing lease contracts to determinedate. While the impact of ~~adopting ASU 2016-02, but expects~~this amendment is dependent on the nature of any future transactions, the Company currently does not expect this standard to have a material impact on the Company's consolidated financial ~~position.~~statements or related disclosures.

In ~~May 2014, the~~March 2020, FASB issued ASU ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2020-04, Reference Rate Reform (Topic ~~606)~~ (“848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU ~~2014-09”~~2020-04")~~. ASU 2014-09 affects any entity~~ and subsequent guidance that ~~either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within~~clarified the scope and application of its original guidance. ASU 2020-04 provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other ~~standards (for example, insurance~~transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsanother reference rate expected to be ~~entitled in exchange for those goods or services.~~discontinued due to reference rate reform. The ~~FASB later amended ASU-2014-09 with the following:~~

•~~ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~

~~ASU 2016-08~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~

~~ASU 2016-10~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations~~guidance was effective upon issuance and ~~Licensing~~

~~ASU 2016-12~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~

•~~ASU 2016-20~~ ~~Technical Corrections and Improvements~~generally can be applied to ~~Topic 606, Revenue from Contracts with Customers~~

~~ASU 2017-13~~ ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)~~

applicable contract modifications through December 31, 2022. The Company ~~has performed a review of our revenue streams including reviewing key contracts~~will adopt these standards when LIBOR is discontinued and comparing current accounting policies and practices to the new standard to identify potential differences that could arise from the application of ASU 2014-09. The Company currently anticipates that the performance obligations underlying its core revenue streams (i.e., its retail and standard wholesale businesses) will remain substantially unchanged. Revenues for these businesses are generated through the sale of finished products, and will continue to be generally recognized at the point in time when merchandise is transferred to the customer and in an amount that considers the impacts of estimated allowances. The Company does anticipate some timing changes, including accelerated recognition of markdowns given to customers and a change in classification of certain customer considerations between gross profit and SG&A expenses. The Company does not ~~believe these changes will~~expect it to have a material impact on ~~the Company's~~its consolidated financial ~~position~~statements or results of operations. The Company is currently finalizing its review of customer contracts. The standard will require additional disclosures about the nature of revenue as well as the judgment involved in the timing of revenue recognition. The Company will adopt ASU 2014-09 in the first quarter of fiscal 2018 and will use the modified retrospective approach.related disclosures.

Recently Adopted Accounting Standards

In ~~January 2017,~~December 2019, the FASB issued ASU ~~2017-04. Under~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU ~~2017-04, goodwill impairment testing is done~~2019-12"). ASU 2019-12 simplifies the accounting for income taxes by ~~comparing the fair value of the reporting unit~~removing certain exceptions to ~~its carrying value. If the carrying amount exceeds the fair value, the Company would recognize an impairment charge for the amount that the reporting unit's carrying value exceeds the fair value, not~~general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to ~~exceed the total amount of goodwill allocated to that reporting unit.~~improve consistent application. The Company concluded that ASU 2017-04 is preferable to the current guidance due to efficiency, since ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. The Company early adopted ASU ~~2017-04 effective June 15, 2017 in conjunction with~~2019-12 at the interim impairment test of goodwill for all reporting units and goodwill impairment was recorded according to the new standard. The Company believes the adoption of ASU 2017-04 did not change the amount of impairment charges recorded in the second quarterbeginning of fiscal ~~2017. See “Note 2—Goodwill~~year 2022, and ~~Intangibles Impairment Charges” for additional information on our interim goodwill impairment test performed.~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ (“ASU 2016-09”). ASU 2016-09 simplified several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 was effective for the Company beginning fiscal year 2017 andit did not have a material ~~impact~~effect on the ~~Company’s~~Company's condensed consolidated ~~results of operations or~~ financial position. As a result of adoption, the Company now recognizes excess tax benefits or deficiencies associated with share-based compensation activity as an income tax expense or benefit in the period the shares vest or are settled. 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.statements.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~ (“ASU 2015-11”). ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. The standard was effective for the Company beginning fiscal year 2017 and did not have a material impact on the Company’s consolidated results of operations or financial position.

2. ~~GOODWILL AND INTANGIBLES IMPAIRMENT CHARGES~~REVENUE

~~The Company evaluates its goodwill and intangible assets for impairment on an annual basis, or as facts and circumstances warrant. At the end~~Disaggregation 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

capitalization and, as a result of the decline, the Company's market capitalization was 14% below the carrying amount of its net assets as of April 1, 2017. During the second quarter of fiscal 2017, the Company's market capitalization continued to decline, at which point the Company determined the decrease in stock price to be sustained and thus a strong indicator of impairment. Revenue. Due to a change in key assumptions used in interim testing, including the decline in market capitalization and decline in sales projections, the Company believed that impairment of goodwill and trade names was probable as of June 15, 2017, and therefore performed interim tests for each reporting unit and trade name. Using a combination of discounted cash flow and guideline public company methodologies, the Company compared the fair value of each of its three reporting units with their carrying value and concluded that goodwill was fully impaired. Accordingly, in the second quarter of fiscal 2017, the Company recognized a pre-tax impairment charge in operations of $202.3 million, $114.3 million and $42.9 million in the Americas, Europe and Asia segments, respectively.

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


	For the 13 Weeks Ended July 2, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	118,736	$	70,436	$	69,524	$	—	$	258,696
Smartwatches	15,377		10,261		7,783		—		33,421
Total watches	$	134,113	$	80,697	$	77,307	$	—	$	292,117
Leathers	22,593		5,320		8,034		—		35,947
Jewelry	9,260		18,639		6,031		—		33,930
Other	2,306		3,235		1,210		2,423		9,174
Consolidated	$	168,272	$	107,891	$	92,582	$	2,423	$	371,168

Timing of revenue recognition
Revenue recognized at a point in time	$	167,899	$	107,690	$	92,441	$	1,058	$	369,088
Revenue recognized over time	373		201		141		1,365		2,080
Consolidated	$	168,272	$	107,891	$	92,582	$	2,423	$	371,168

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 13 Weeks Ended July 3, 2021
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	122,701	$	81,809	$	85,053	$	1,053	$	290,616
Smartwatches	23,878		13,259		5,932		13		43,082
Total watches	$	146,579	$	95,068	$	90,985	$	1,066	$	333,698
Leathers	20,833		6,396		6,118		—		33,347
Jewelry	7,258		20,154		5,165		—		32,577
Other	2,045		2,779		1,224		5,269		11,317
Consolidated	$	176,715	$	124,397	$	103,492	$	6,335	$	410,939

Timing of revenue recognition
Revenue recognized at a point in time	$	176,289	$	124,046	$	103,328	$	4,580	$	408,243
Revenue recognized over time	426		351		164		1,755		2,696
Consolidated	$	176,715	$	124,397	$	103,492	$	6,335	$	410,939


	For the 26 Weeks Ended July 2, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	234,638	$	151,584	$	133,887	$	13	$	520,122
Smartwatches	32,649		22,947		15,808		2		71,406
Total watches	$	267,287	$	174,531	$	149,695	$	15	$	591,528
Leathers	41,829		12,689		15,614		—		70,132
Jewelry	17,195		39,775		11,656		—		68,626
Other	3,888		5,447		2,385		5,015		16,735
Consolidated	$	330,199	$	232,442	$	179,350	$	5,030	$	747,021

Timing of revenue recognition
Revenue recognized at a point in time	$	329,493	$	231,991	$	179,049	$	2,222	$	742,755
Revenue recognized over time	706		451		301		2,808		4,266
Consolidated	$	330,199	$	232,442	$	179,350	$	5,030	$	747,021


	For the 26 Weeks Ended July 3, 2021
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	218,037	$	152,815	$	161,142	$	1,053	$	533,047
Smartwatches	53,102		26,933		15,949		16		96,000
Total watches	$	271,139	$	179,748	$	177,091	$	1,069	$	629,047
Leathers	40,462		12,702		14,287		—		67,451
Jewelry	14,221		36,420		8,073		—		58,714
Other	3,398		4,762		2,681		7,928		18,769
Consolidated	$	329,220	$	233,632	$	202,132	$	8,997	$	773,981

Timing of revenue recognition
Revenue recognized at a point in time	$	328,334	$	232,935	$	201,868	$	5,486	$	768,623
Revenue recognized over time	886		697		264		3,511		5,358
Consolidated	$	329,220	$	233,632	$	202,132	$	8,997	$	773,981

Contract Balances. As of July 2, 2022, the ~~second quarter~~Company had no material contract assets on the Company's condensed consolidated balance sheets and no deferred contract costs. The Company had contract liabilities of 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) $6.0 million and ~~the MICHELE trade name with a carrying amount~~$4.9 million as of ~~$18.5~~July 2, 2022 and January 1, 2022, respectively, related to remaining performance obligations on licensing income, (ii) $3.3 million ~~was written down~~and $3.0 million as of July 2, 2022 and January 1, 2022, respectively, primarily related to ~~its implied fair value~~remaining performance obligations on wearable technology products and (iii) $2.9 million and $3.6 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 SKAGEN~~July 2, 2022 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 comparedJanuary 1, 2022, respectively, related to ~~previous valuation assumptions.~~gift cards issued.

Inventories consisted of the following (in thousands):


	July 2, 2022		January 1, 2022
Components and parts	$	27,454	$	23,668
Work-in-process	207		2
Finished goods	410,248		323,180
Inventories	$	437,909	$	346,850

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):

Warranties issued and adjustments to preexisting warranties ⁽¹⁾

Warranties issued and adjustments to preexisting warranties (1)

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

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

The ~~higher~~ effective tax rate in the ~~Third~~Second Quarter was favorable as compared to the Prior Year Quarter ~~is attributable~~due to a ~~higher~~lower structural rate ~~resulting from an increased forecasted loss from the Company's U.S. operations which is tax-benefited at a higher~~on foreign income. The Second Quarter tax rate ~~than~~is negative because no tax benefit is accrued on the U.S. net operating loss ("NOL") and foreign income tax expense is accrued on foreign entities with positive taxable income while the overall consolidated results are a loss. The overall tax rate is impacted by the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act which requires the inclusion of certain foreign income in the tax rates used to calculate the tax expense on the profits from the Company's foreign operations. There were also favorable discrete items occurring in the quarter. These positive impacts were partially offset by the increased tax expense resulting fromreturn which absorbs all of the U.S. NOL. Foreign income taxes are also paid on this same foreign ~~and some of the U.S. goodwill impairment charge being permanently nondeductible for tax purposes.~~ income, resulting in double taxation.

The ~~lower~~Year To Date Period effective tax rate ~~for the Year to Date Period as compared~~was favorable to the Prior Year YTD Period ~~is primarily attributable~~due to ~~the increased tax expense resulting from all of the~~a lower structural rate on foreign ~~and some of the U.S. goodwill impairment charge being permanently nondeductible for tax purposes and unfavorable discrete items that occurred in the~~income. The Year to Date Period ~~mostly~~and the Prior Year YTD Period effective tax rates were negative because income tax expense was accrued on foreign entities with positive taxable income when the consolidated results are a loss.

The effective tax rate can vary from quarter-to-quarter due to changes in the ~~additional~~Company's global mix of earnings, the resolution of income tax ~~expense resulting from the adoption of ASU 2016-09. See "Note 1-Financial Statement Policies" for additional disclosures about ASU 2016-09.~~audits and changes in tax law.

As of ~~September 30, 2017,~~July 2, 2022, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was ~~$21.7~~$28.8 million, of which ~~$19.0~~$23.8 million would favorably impact the effective tax rate in future periods, if recognized. In the Second Quarter, the U.S. Internal Revenue Service opened an examination of the Company's 2019 federal income tax return to review the refund claim filed under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which allowed carrybacks of NOLs for that year. The Company is subject to examinations in various state and foreign jurisdictions for its ~~2011-2016~~2012-2021 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 ~~paid~~settled within twelve months of the condensed consolidated balance sheet date. As of ~~September 30, 2017,~~July 2, 2022, the Company had recorded ~~$2.3~~$11.7 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,~~July 2, 2022, the total amount of accrued income tax-related interest ~~and penalties~~ included in the condensed consolidated balance ~~sheet~~sheets was ~~$2.8 million and $1.3 million, respectively. The~~$8.9 million. There was no accrued tax-related penalties. For the Second 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.

An increase in long-term deferred tax assets is mostly attributable to the future tax amortization of the tax basis in goodwill and trade names which were impaired for GAAP purposes, as well as an increased amount of foreign tax credit carry forwards.

As of September 30, 2017, as a result of proposed U.S. Tax Reform and the planned refinancing of existing debt obligations, the Company is continuing to evaluate its current assertions with respect to certain undistributed earnings in various foreign jurisdictions. At present, the Company believes it can meet its future U.S. obligations through a combination of earnings not considered indefinitely reinvested, future current earnings of foreign subsidiaries, and distributions of earnings in jurisdictions within which no additional U.S. tax would be incurred as a result of excess foreign tax credits associated with such earnings. The Company will continue to monitor its indefinite reinvestment assertions with respect to all foreign jurisdictions as developments occur within proposed U.S. Tax Reform proposals and the planned refinancing of its existing debt obligations.

6. STOCKHOLDERS’ EQUITY

Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 51,806,845 and 52,145,738 shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding at July 2, 2022 or January 1, 2022. Rights, preferences and other terms of preferred stock will be determined by the Board of Directors at the time of issuance.

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

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

During the first quarter of fiscal year 2022, the Company effectively retired 1.0 million shares of common stock repurchased under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by $10,000,

additional paid-in capital by $0.5 million, retained earnings by $9.5 million and treasury stock by $10.0 million.At ~~December 31, 2016~~July 2, 2022 and ~~September 30, 2017,~~January 1, 2022, all treasury stock had been effectively retired. As of ~~September 30, 2017,~~July 2, 2022, the Company had ~~$824.2~~$20.0 million of repurchase authorizations remaining under its ~~combined~~ repurchase ~~programs. However, under~~program.

The following table reflects the Company's ~~credit agreement, the Company is restricted from making open market repurchases of its common stock.~~

~~The following tables reflect the Company’s~~ common stock repurchase activity for the periods indicated (in millions):

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 —
$ —
—
$ —


				For the 26 Weeks Ended July 2, 2022			For the 26 Weeks Ended July 3, 2021
Fiscal Year Authorized	Dollar Value Authorized		Termination Date	Number of Shares Repurchased	Dollar Value Repurchased		Number of Shares Repurchased	Dollar Value Repurchased

2010	$	30.0	None	1.0	$	10.0	—	$	—

~~Controlling and Noncontrolling Interest.~~ ~~The following tables summarize the changes in equity attributable to controlling and noncontrolling interest (in thousands):~~

7. EMPLOYEE BENEFIT PLANS

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

~~Aggregate~~The aggregate intrinsic value ~~is before income taxes and~~shown in the table above is based on ~~(i)~~ the exercise price for outstanding and exercisable options/rights at ~~September 30, 2017 and (ii) the fair market value of the Company’s common stock on the exercise date for options/rights that were exercised during the Third Quarter.~~July 2, 2022.

~~Stock Options and~~ Stock Appreciation Rights Outstanding and Exercisable. The following tables summarize information with respect to stock options and stock appreciation rights outstanding and exercisable at ~~September 30, 2017:~~July 2, 2022:

Cash Stock Appreciation Rights Outstanding Cash 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)
$29.78 - $47.99 61
$ 36.73
6.2 11
$ 36.73
Total 61
$ 36.73
6.2 11
$ 36.73

~~Restricted Stock,~~

Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock ~~restricted stock units~~unit and performance restricted stock ~~units~~unit activity during the ~~Third~~Second Quarter:

Restricted Stock, Restricted Stock Units

and Performance Restricted Stock Units

The total fair value of restricted stock ~~and restricted stock~~ units vested was $9.2 million during the ~~Third Quarter was approximately $0.2 million.~~Second Quarter. 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~~group.

Long-Term Incentive Plans. On the date of the Company’s annual stockholders meeting, each non-employee director automatically receives a grant of restricted stock units with a fair market value of approximately $130,000, which vest 100% on the earlier of one year from the date of grant or the date of the Company's next annual stockholders meeting, provided such director is providing services to the Company or a subsidiary of the Company on that date. Beginning with the grant in ~~relation~~fiscal year 2021, non-employee directors could elect to defer receipt of all or a ~~defined sales plan and achievement~~portion of ~~succession plans~~the restricted stock units. As of July 2, 2022, the Company had 30 thousand shares of restricted stock units that had vested but were deferred in connection with non-employee director compensation. In addition, beginning in fiscal year 2021, non-employee directors may defer the cash portion of their annual fees. Each participant may also elect to have the cash portion of his or her annual fees for ~~key talent.~~each calendar year treated as if invested in units of common stock of the Company.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables ~~illustrate~~disclose changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):


	For the 13 Weeks Ended July 2, 2022
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(83,486)	$	5,442	$	3,982	$	(74,062)
Other comprehensive income (loss) before reclassifications	(16,087)		5,843		—		(10,244)
Tax (expense) benefit	—		257		—		257
Amounts reclassed from accumulated other comprehensive income (loss)	—		2,750		—		2,750
Tax (expense) benefit	—		280		—		280
Total other comprehensive income (loss)	(16,087)		3,070		—		(13,017)
Ending balance	$	(99,573)	$	8,512	$	3,982	$	(87,079)



	For the 26 Weeks Ended July 2, 2022
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(75,601)	$	4,344	$	3,982	$	(67,275)
Other comprehensive income (loss) before reclassifications	(23,972)		8,201		—		(15,771)
Tax (expense) benefit	—		530		—		530
Amounts reclassed from accumulated other comprehensive income	—		4,203		—		4,203
Tax (expense) benefit	—		360		—		360
Total other comprehensive income (loss)	(23,972)		4,168		—		(19,804)
Ending balance	$	(99,573)	$	8,512	$	3,982	$	(87,079)



	For the 26 Weeks Ended July 3, 2021
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(61,178)	$	850	$	1,428	$	(58,900)
Other comprehensive income (loss) before reclassifications	(9,056)		613		—		(8,443)
Tax (expense) benefit	—		(219)		—		(219)
Amounts reclassed from accumulated other comprehensive income (loss)	—		(1,055)		—		(1,055)
Tax (expense) benefit	—		(73)		—		(73)
Total other comprehensive income (loss)	(9,056)		1,522		—		(7,534)
Ending balance	$	(70,234)	$	2,372	$	1,428	$	(66,434)

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”.~~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 building~~Corporate includes peripheral revenue generating activities from factories and ~~omni-channel activities~~intellectual property and general corporate expenses, including certain administrative, legal, accounting, technology support costs, equity compensation costs, payroll costs attributable to executive management, brand management, product development, art, creative/product design, marketing, strategy, compliance and back office supply chain expenses that are not allocated to the various segments because they are managed at the corporate ~~level.~~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):


	For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021
	Net Sales		Operating Income (Loss)		Net Sales		Operating Income (Loss)
Americas	$	168,272	$	30,653	$	176,715	$	36,553
Europe	107,891		14,846		124,397		22,040
Asia	92,582		12,351		103,492		14,834
Corporate	2,423		(68,786)		6,335		(59,080)
Consolidated	$	371,168	$	(10,936)	$	410,939	$	14,347


	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021
	Net Sales		Operating Income (Loss)		Net Sales		Operating Income (Loss)
Americas	$	330,199	$	54,563	$	329,220	$	62,582
Europe	232,442		34,414		233,632		27,067
Asia	179,350		21,291		202,132		26,557
Corporate	5,030		(135,487)		8,997		(118,614)
Consolidated	$	747,021	$	(25,219)	$	773,981	$	(2,408)

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

Due to changes in the Company’s product types as discussed in Note 1 to the Condensed Consolidated Financial Statements, product results for the Prior Year Quarter and Prior Year YTD Period have been recast to present results on a comparable basis. The following ~~tables reflect~~table reflects net sales for each class of similar products in the periods presented (in thousands, except percentage data):


										For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021
	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
	Net Sales		Percentage of Total		Net Sales		Percentage of Total
Watches	$	551,913	80.1	%	$	567,148	76.9	%
Watches:									Watches:
Traditional watches									Traditional watches	$	258,696	69.7	%	$	290,616	70.8	%
Smartwatches									Smartwatches	33,421		9.0		43,082		10.5
Total watches									Total watches	$	292,117	78.7	%	$	333,698	81.3	%
Leathers	75,660		11.0		93,338		12.6		Leathers	35,947		9.7		33,347		8.1
Jewelry	47,729		6.9		60,237		8.2		Jewelry	33,930		9.1		32,577		7.9
Other	13,420		2.0		17,267		2.3		Other	9,174		2.5		11,317		2.7
Total	$	688,722	100.0	%	$	737,990	100.0	%	Total	$	371,168	100.0	%	$	410,939	100.0	%


	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021
	Net Sales		Percentage of Total		Net Sales		Percentage of Total
Watches:
Traditional watches	$	520,122	69.6	%	$	533,047	68.9	%
Smartwatches	71,406		9.6		96,000		12.4
Total watches	$	591,528	79.2	%	$	629,047	81.3	%
Leathers	70,132		9.4		67,451		8.7
Jewelry	68,626		9.2		58,714		7.6
Other	16,735		2.2		18,769		2.4
Total	$	747,021	100.0	%	$	773,981	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.

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.

As of ~~September 30, 2017,~~July 2, 2022, 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	56.8	U.S. dollar	66.3
Canadian dollar	18.5	U.S. dollar	14.7
Japanese yen	823.7	U.S. dollar	7.3
British pound	4.3	U.S. dollar	5.9
Mexican peso	77.7	U.S. dollar	3.7
Australian dollar	3.7	U.S. dollar	2.7
U.S. dollar	6.4	Japanese yen	740.0

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

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.

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,~~July 2, 2022, the Company had non-designated forward contracts of ~~approximately $2.2~~$1.0 million on ~~28.3~~15.3 million rand associated with a South African rand-denominated foreign subsidiary. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings when they occur.

The ~~effective portion of~~ gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes ~~during the Third Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period~~ are set forth below (in thousands):


	For the 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021
Cash flow hedges:
Forward contracts	$	6,100	$	(661)

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	6,100	$	(661)


	For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Cash flow hedges:
Forward contracts	$	8,730	$	394

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	8,730	$	394

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~~tables disclose 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 Third Quarter, 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 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	2,038	$	(432)
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	992	$	(9)
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	61	$	(14)

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 )


Derivative Instruments	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	Effect of Derivative Instruments	For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	3,040	$	249
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	1,523	$	(1,376)
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	7	$	(73)

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
	July 2, 2022			January 1, 2022			July 2, 2022			January 1, 2022
Derivative Instruments	Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value
Forward contracts designated as cash flow hedging instruments	Prepaid expenses and other current assets	$	8,775	Prepaid expenses and other current assets	$	3,452	Accrued expenses-other	$	1,052	Accrued expenses-other	$	177
Forward contracts not designated as cash flow hedging instruments	Prepaid expenses and other current assets	76		Prepaid expenses and other current assets	—		Accrued expenses-other	—		Accrued expenses-other	—





Total		$	8,851		$	3,452		$	1,052		$	177

Asset Derivatives Liability Derivatives
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Derivative Instruments
Condensed
Consolidated
Balance Sheets
Location

Fair
Value

Condensed
Consolidated
Balance Sheets
Location

Fair
Value

Condensed
Consolidated
Balance Sheets
Location

Fair
Value

Condensed
Consolidated
Balance Sheets
Location

Fair
Value
Forward contracts designated as cash flow hedging instruments Prepaid expenses and other current assets $ 2,710
Prepaid expenses and other current assets $ 23,288
Accrued expenses- other $ 15,215
Accrued expenses- other $ 4,696
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
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
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

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


	Effect of Derivative Instruments
	For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021
	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	$	179,819	$	(1,674)	$	189,100	$	(500)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	2,038	$	992	$	(432)	$	(9)
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	61	$	—	$	(14)


	Effect of Derivative Instruments
	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021
	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	$	371,359	$	(56)	$	369,553	$	1,365
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	3,040	$	1,523	$	249	$	(1,376)
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	7	$	—	$	(73)

At the end of the ~~Third~~Second Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through June ~~2019.~~2023. As of ~~September 30, 2017,~~July 2, 2022, an estimated net ~~loss~~gain of ~~$9.2~~$7.9 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.

~~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:

•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, 2017~~July 2, 2022 (in thousands):


	Fair Value at September 30, 2017									Fair Value at July 2, 2022
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:									Assets:
Forward contracts	$	—	$	3,230	$	—	$	3,230	Forward contracts	$	—	$	8,851	$	—	$	8,851
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	Total	$	—	$	8,851	$	—	$	8,851
Liabilities:									Liabilities:
Contingent consideration									Contingent consideration	$	—	$	—	$	2,221	$	2,221
Forward contracts	$	—	$	19,773	—		$	19,773	Forward contracts	—		1,052		—		1,052
Interest rate swap	—		15		—		15

Total	$	—	$	19,788	$	—	$	19,788	Total	$	—	$	1,052	$	2,221	$	3,273

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, 2016~~January 1, 2022 (in thousands):


	Fair Value at January 1, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	3,452	$	—	$	3,452



Total	$	—	$	3,452	$	—	$	3,452
Liabilities:
Contingent consideration	$	—	$	—	$	1,840	$	1,840
Forward contracts	—		177		—		177

Total	$	—	$	177	$	1,840	$	2,017

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~~Note 10—Derivatives and Risk ~~Management”~~Management, for additional disclosures about the ~~interest rate swaps and~~ forward contracts.

AsDuring the Year to Date Period, operating lease right-of-use ("ROU") assets with a carrying amount of ~~September 30, 2017, debt, excluding unamortized debt issuance costs~~$1.0 million and ~~capital leases, was recorded at cost~~property, plant and ~~had~~equipment-net with a carrying value of ~~$486.1~~$0.2 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of ~~approximately $480.6~~$0.6 million and $0.1 million, respectively, resulting in impairment charges of $0.5 million. ~~The~~During the Prior Year YTD Period, ROU assets with carrying amount of $13.2 million and property, plant and equipment-net with a carrying value of $2.4 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of ~~debt was obtained from a third-party based on observable market inputs.~~$7.2 million and $0.9 million, respectively, resulting in impairment charges of $7.5 million.

The fair ~~value~~values of ~~goodwill~~operating lease ROU assets and ~~trade names are measured on a non-recurring basis~~fixed assets related to retail stores were determined using Level 3 inputs, including forecasted cash flows ~~discounts rates~~ and ~~implied royalty~~discount rates.

~~During~~ Of the ~~second quarter of fiscal 2017,~~$0.5 million impairment expense in the ~~Company fully impaired its goodwill balance and recorded pre-tax impairment charges of $202.3 million, $114.3~~Year to Date Period, $0.3 million and ~~$42.9~~$0.2 million was recorded in other long-lived asset impairments in the ~~Americas,~~ Europe and Asia segments, respectively.

During the second quarter 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 million and the MICHELE trade name with a carrying amount of $18.5 million was written down to its implied fair value of

$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 million related to retail store leasehold improvements and fixturing and related key money in the amount of $0.6 million were deemed not recoverable, resulting in an impairment charge of $6.6 million during the Year To Date Period.

~~The fair values of assets related to Company-owned retail stores were determined using Level 3 inputs.~~ Of the ~~$6.6~~$7.5 million impairment expense ~~$3.6~~in the Prior Year Quarter, $2.9 million, ~~$1.4~~$2.3 million and ~~$0.5~~$0.6 million ~~were~~was recorded in ~~restructuring charges~~other long-lived asset impairments in the Americas, Europe and Asia segments, respectively, and ~~$0.8~~$1.7 million ~~and $0.3 million were~~was recorded in ~~SG&A~~restructuring charges in the Europe ~~and Asia segments, respectively.~~ segment.

~~During the second quarter of fiscal 2017, the Company recorded a pre-tax impairment charge of $1.6 million related to the write off of a cost method investment.~~

12. INTANGIBLE AND OTHER ASSETS

The following table summarizes intangible and other assets (in thousands):


		July 2, 2022				January 1, 2022
	Useful	Gross		Accumulated		Gross		Accumulated
	Lives	Amount		Amortization		Amount		Amortization
Intangibles-subject to amortization:
Trademarks	10 yrs.	$	3,775	$	3,347	$	3,775	$	3,310
Customer lists	5 - 10 yrs.	38,287		37,776		41,403		40,353
Patents	3 - 20 yrs.	2,371		2,031		2,371		2,013

Developed technology	7 yrs.	2,193		1,919		2,193		1,645
Trade name	6 yrs.	4,502		2,063		4,502		1,688
Other	7 - 20 yrs.	529		365		537		352
Total intangibles-subject to amortization		51,657		47,501		54,781		49,361
Intangibles-not subject to amortization:
Trade names		8,859				8,881
Other assets:

Deposits		17,765				19,418

Deferred tax asset-net		21,069				24,552
Restricted cash		12,178				13,611





Investments		327				327
Debt issuance costs		3,746				4,578
Other		1,362				1,813
Total other assets		56,447				64,299
Total intangible and other assets		$	116,963	$	47,501	$	127,961	$	49,361
Total intangible and other assets-net				$	69,462			$	78,600

September 30, 2017 December 31, 2016
Useful Gross Accumulated Gross Accumulated
Lives Amount Amortization Amount Amortization
Intangibles-subject to amortization:

Trademarks 10 yrs. $ 4,310
$ 3,621
$ 4,310
$ 3,443
Customer lists 5-10 yrs. 54,875
32,417
53,625
26,986
Patents 3-20 yrs. 2,325
2,124
2,325
2,099
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
Trade name 6 yrs. —
—
15,700
2,617
Other 7-20 yrs. 265
236
253
215
Total intangibles-subject to amortization 100,423
49,525
114,818
42,179
Intangibles-not subject to amortization:

Trade names 38,645

74,485

Other assets:

Key money deposits 27,841
24,195
26,948
22,038
Other deposits 19,579

19,344

Deferred compensation plan assets 2,605

2,385

Deferred tax asset-net 98,374

23,061

Restricted cash 373

500

Shop-in-shop 10,161
9,816
8,807
8,019
Tax receivable 404
—

Forward contracts 448

5,648

Investments 500
2,078

Other 4,771

4,655

Total other assets 165,056
34,011
93,426
30,057
Total intangible and other assets $ 304,124
$ 83,536
$ 282,729
$ 72,236
Total intangible and other assets-net
$ 220,588

$ 210,493

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.

Amortization expense for intangible assets was approximately ~~$3.0~~$0.7 million and ~~$3.7~~$0.8 million for the ~~Third~~Second Quarter and the Prior Year Quarter, respectively, and ~~$10.4~~$1.3 million and ~~$11.2~~$2.0 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
2022 (remaining)	$	1,218
2023	$	901
2024	$	884
2025	$	693
2026	$	102
Thereafter	$	358

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. 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 1 or more options to renew at the Company's discretion, with renewal terms that can extend the lease from approximately 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 lease agreements where lease payments are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The variable portion of these lease payments is not included in the Company's lease liabilities. The Company's lease agreements do not contain any significant restrictions or covenants other than those that are customary in such arrangements.

The components of lease expense were as follows (in thousands):


Lease Cost	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	For the 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021		For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Operating lease cost(1	SG&A	$	19,465	$	21,727	$	39,556	$	45,094



Short-term lease cost	SG&A	$	216	$	152	$	400	$	320
Variable lease cost	SG&A	$	7,703	$	5,373	$	14,651	$	10,780

(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	July 2, 2022		January 1, 2022
Assets
Operating	Operating lease ROU assets	$	168,615	$	177,597


Liabilities
Current:
Operating	Current operating lease liabilities	$	51,518	$	58,721

Noncurrent:
Operating	Long-term operating lease liabilities	$	163,908	$	174,520

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

July 2, 2022

January 1, 2022

Weighted-average remaining lease term:

Operating leases

5.7 years

Weighted-average discount rate:

Operating leases

14.1

Future minimum lease payments by year as of July 2, 2022 were as follows (in thousands):


Fiscal Year	Operating Leases
2022 (remaining)	$	44,213
2023	74,225
2024	50,252
2025	35,277
2026	28,622
Thereafter	95,797

Total lease payments	$	328,386
Less: Interest	112,960
Total lease obligations	$	215,426

Supplemental cash flow information related to leases was as follows (in thousands):


	For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	47,191	$	55,643



Leased assets obtained in exchange for new operating lease liabilities	20,506		8,474

As of July 2, 2022, 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,~~September 26, 2019, 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, and certain subsidiaries of the Company from time to time party thereto as guarantors, entered into ~~the Second Amendment to the Amended and Restated Credit Agreement (the “Second Amendment”). The Second Amendment reduced the Company's~~a $275.0 million secured asset-based revolving credit ~~facility~~agreement (the ~~"Revolving~~“Revolving Facility”) with JPMorgan Chase Bank, N.A. as administrative agent (the "ABL Agent"), J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells Fargo Bank, National Association as joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and each of the lenders from time to time party thereto (the "ABL Lenders"). In addition, on September 26, 2019, the Company, as borrower, entered into a term credit agreement (the "Term Credit ~~Facility"~~Agreement") ~~available under~~.

In November 2021, the Company sold $150.0 million aggregate principal amount of 7.00% senior notes due 2026 (the “Notes”), generating net proceeds of approximately $141.7 million. The Notes were issued pursuant to an indenture (the Base Indenture) and a first supplemental indenture (the First Supplemental Indenture and, together with the Base Indenture, the Indenture) with The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee).

The Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing ~~credit amendment from $1.05 billion~~and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to ~~$850.0 million.~~the Company’s future subordinated indebtedness, if any. The ~~Second Amendment also removed~~Notes are effectively subordinated to all of the ~~incremental term loan that was available under~~Company’s existing and future secured indebtedness, to the ~~credit agreement, extended~~extent of the ~~maturity~~value of the assets securing such indebtedness, and the Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). The Notes bear interest at the rate of 7.00% per annum. Interest on the Notes is payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year, commencing on February 28, 2022. The Notes mature on November 30, 2026.

The Company may redeem the Notes for cash in whole or in part at any time at its option. Prior to November 30, 2023, the redemption price will be $25.00 per $25.00 principal amount of Notes, plus a "make-whole” premium consisting of the greater of (1) 1.0% of the principal amount of the Note and (2) the excess of (a) the present value at such redemption date of (i) the ~~credit agreement to May 17, 2019 and removed~~redemption price of the ~~Company’s ability to make offers~~Note at November 30, 2023 plus (ii) all required interest payments due on the Note through

November 30, 2023 (excluding accrued but unpaid interest to the ~~lenders~~redemption date), computed using a discount rate equal to ~~extend~~ the ~~maturity~~Treasury Rate as of such redemption date plus 50 basis points discounted to the redemption date on a semi-annual basis (assuming a 360- day year consisting of twelve 30-day months), over (b) the principal amount of the Note, plus accrued and unpaid interest, if any, to, but excluding, the date of the Term Loan or the Revolving Credit Facility. The Second Amendment also amended the repayment schedule for the Term Loan and requires the Company to make monthly payments on the last business day of each month beginning April 30, 2018.redemption. On and after ~~April 1, 2018,~~November 30, 2023, the Company may redeem the Notes (i) on or after November 30, 2023 and prior to November 30, 2024, at a price equal to $25.50 per $25.00 principal amount of Notes, (ii) on or after November 30, 2024 and prior to November 30, 2025, at a price equal to $25.25 per $25.00 principal amount of Notes and (iii) on or after November 30, 2025, at a price equal to $25.00 per $25.00 principal amount of Notes, plus (in each case noted above) accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Indenture contains customary events of default and cure provisions. If an event of default (other than an event of default of the type described in the following sentence) occurs and is continuing with respect to the Notes, the Trustee may, and at the direction of the registered holders of at least 25% in aggregate principal amount of the outstanding debt securities of the Notes shall, declare the principal amount plus accrued and unpaid interest, premium and additional amounts, if any, on the ~~Term Loan that is based upon the base rate will~~Notes to be due and payable ~~in arrears~~immediately. If an event of default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the principal amount plus accrued and unpaid interest, and premium, if any, on the ~~last business day of each calendar month,~~Notes will become immediately due and ~~interest~~payable without any action on the part of the Trustee or any holder of the Notes.

On November 8, 2021, the Company used the majority of the net proceeds from the Notes offering to repay the outstanding borrowings under the Term ~~Loan~~Credit Agreement. In connection with the repayment of the outstanding borrowings under the Term Credit Agreement, the Company incurred prepayment fees and accrued interest costs of $2.6 million and wrote off $7.1 million of debt issuance costs and $4.6 million of original issuance discount related to the Term Credit Agreement. The remaining net proceeds were used for general corporate purposes.

The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the “Revolving Credit Commitment”), of which up to $125.0 million is ~~based upon~~available under a U.S. facility, an aggregate of $70.0 million is available under a European facility, $20.0 million is available under a Hong Kong facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the ~~LIBOR rate will be~~borrowing base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the “Letters of Credit”). The Revolving Facility expires and is due and payable on September 26, 2024. The French facility includes a $1.0 million subfacility for swingline loans, and the ~~last day~~European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a line cap equal to the lesser of the ~~applicable interest period; provided, that if such interest period extends for over one month, then interest will be due~~total Revolving Credit Commitment and ~~payable at~~ the ~~end of each one month interval during such interest period. The Second Amendment also amended the mandatory prepayment provisions~~aggregate borrowing bases under the ~~credit agreement~~U.S. facility, the European facility, the Hong Kong facility, the French facility and ~~provides that to~~ the ~~extent there are excess proceeds remaining from the issuance of debt by the Company following the repayment in full of the Term Loan, the Company will be required to repay~~Canadian facility. Loans under the Revolving ~~Credit~~ Facility may be made in the amount of such excess proceeds, with a corresponding permanent reduction in the Revolving Credit Facility in the amount of up to $50.0 million. In accordance with the Second Amendment, dividends paid from foreign subsidiaries to U.S. ~~subsidiaries~~dollars, Canadian dollars, euros, Hong Kong dollars or ~~Fossil Group, Inc., must first be used to repay the Term Loan and then up to $50.0 million of the Revolving Credit Facility.~~pounds sterling.

The ~~Second Amendment amended the applicable margin used~~Revolving Facility is an asset-based facility, in which borrowing availability is subject to ~~calculate the interest rate that is applicable to~~a borrowing 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 Companyequal to:(a) with respect to the Company, the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible U.S. finished goods inventory and (y) 65% of the lower of cost or market value of eligible U.S. finished goods inventory, plus (ii) 85% of the eligible U.S. accounts receivable, plus (iii) 90% of eligible U.S. credit card accounts receivable, minus (iv) the aggregate amount of reserves, if any, established by the ABL Agent; (b) with respect to each non-U.S. borrower (except for the French Borrower), the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible foreign finished goods inventory of such non-U.S. borrower and (y) 65% of the lower of cost or market value of eligible foreign finished goods inventory of such non-U.S. borrower, plus (ii) 85% of the eligible foreign accounts receivable of such non-U.S. borrower, minus (iii) the aggregate amount of reserves, if any, established by the ABL Agent; and (c) with respect to the French Borrower, (i) 85% of eligible French accounts receivable minus (ii) the aggregate amount of reserves, if any, established by the ABL Agent. Not more than 60% of the aggregate borrowing base under the Revolving ~~Credit~~ Facility may consist of the non-U.S. borrowing bases.

The Revolving Facility also includes a commitment fee, payable quarterly in arrears, of 0.250% or 0.375% determined by reference to ~~0.50% per annum.~~the average daily unused portion of the overall commitment under the Revolving Facility. The ~~Company~~ABL Borrowers will ~~incur~~pay the ABL Agent, on the account of the issuing ABL Lenders, an ~~additional~~issuance fee of ~~0.25% times~~0.125% for any issued Letters of Credit.

The ABL Borrowers have the ~~outstanding~~right to request an increase to the commitments under the Revolving Facility or any subfacility in an aggregate principal amount not to exceed $75.0 million in increments no less than $10.0 million, subject to certain terms and conditions as defined in the Revolving Facility.

The Revolving Facility is secured by guarantees by the Company and certain of its domestic subsidiaries. Additionally, the ~~total credit exposure~~Company and such subsidiaries have granted liens on all or substantially all of their assets in order to secure the obligations under the ~~credit agreement if~~Revolving Facility. In addition, the ~~Term Loan has not been repaid~~Swiss Borrower, the Hong Kong Borrower, the German Borrower and the Canadian Borrower, and the other non-U.S. borrowers from time to time party to the Revolving Facility are required to enter into security instruments with respect to all or substantially all of their assets that can be pledged under applicable local law, and certain of their respective subsidiaries may guarantee the respective non-U.S. obligations under the Revolving Facility.

The Revolving Facility contains customary affirmative and negative covenants and events of default, such as compliance with annual audited and quarterly unaudited financial statements disclosures. Upon an event of default, the ABL Agent will have the right to declare the revolving loans and other obligations outstanding immediately due and payable and all commitments immediately terminated or reduced, subject to cure periods and grace periods set forth in ~~full on or prior to March 31, 2018. Furthermore,~~ the ~~Second Amendment changed the consolidated total leverage ratio that~~Revolving Facility.

As of July 2, 2022, the Company ~~must comply with from 3.25 to 1.00 to the ratios as set forth below:~~



~~Period~~		~~Maximum Ratio~~
~~July 2, 2017 through and including September 30, 2017~~		~~3.50 to 1.00~~
~~October 1, 2017 through and including March 31, 2018~~		~~3.25 to 1.00~~
~~April 1, 2018 through and including September 29, 2018~~		~~3.50 to 1.00~~
~~September 30, 2018 and thereafter~~		~~3.25 to 1.00~~

~~The Company made principal payments of $6.3~~had $150.0 million and ~~$18.8~~$106.7 million outstanding under the ~~Term Loan during the Third Quarter~~Notes and ~~Year To Date Period,~~Revolving Facility, respectively. The Company ~~also made~~had net ~~payments~~borrowings of ~~$158.0~~$64.6 million and ~~$131.3~~$106.7 million under the Revolving ~~Credit~~ Facility during the ~~Third~~Second Quarter and Year To Date Period, respectively. Amounts available under the Revolving ~~Credit~~ Facility ~~are~~were reduced by any amounts outstanding under standby ~~letters~~Letters of ~~credit.~~Credit. As of ~~September 30, 2017,~~July 2, 2022, the Company had available borrowing capacity of ~~$270.5~~$53.8 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~~$2.6 million and ~~$6.3~~$5.3 million of interest expense related to the ~~Term Loan~~Notes during the Third Quarter and Year To Date Period, respectively, including the impact of the related interest rate swap. The Company incurred approximately $8.1 million and $20.5 million of interest expense related to the Revolving Credit Facility during the ThirdSecond Quarter and Year To Date Period, respectively. The Company incurred approximately $0.3 million of interest expense related to the Revolving Facility during both the Second Quarter and Year To Date Period. The Company incurred approximately $0.9 million and ~~$2.7~~$1.7 million of interest expense related to the amortization of debt issuance costs during the ~~Third~~Second Quarter and Year To Date Period, respectively. At July 2, 2022, the Company was in compliance with all debt covenants related to its credit facilities.

~~15.~~16. RESTRUCTURING

~~The Company implemented a multi-year restructuring program that began in~~ In fiscal year ~~2016 called~~2019, the Company launched New World Fossil ~~("NWF"~~2.0 - Transform to Grow Program (“NWF 2.0”)~~. As part of NWF,~~, which was focused on optimizing the Company’s operating structure to be more efficient, with faster decision-making and a more customer-centric focus. In addition to optimizing the way the Company ~~targets~~goes to ~~improve operating profit and support sales growth through a leaner infrastructure and an enhanced business model.~~market, the Company pursued additional gross margin expansion opportunities. The Company ~~is working~~has taken a zero-based budgeting approach to ~~achieve greater efficiencies from production~~adjust its business model to ~~distribution through activities such as organizational changes, reducing its overall product assortment, optimizing its base cost structure~~enable 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 ~~intends~~changed its overall business processes and resources, creating a more centrally directed operating model, reducing complexity and redundancy, and operating at a lower cost base. The NWF 2.0 restructuring program was expanded to ~~build~~address additional challenges posed by COVID-19, including a ~~quicker and more responsive operating platform. The Company is reducing its retail footprint to reflect the evolving shopping habits~~number of ~~today's consumer, which includes restructuring costs,~~cost saving measures 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.closures. The Company estimates NWF 2.0 total charges of $7.0 million for fiscal year ~~2017 NWF restructuring charges of approximately $45 million.~~2022, which will conclude this program.

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 July 2, 2022
	Liabilities								Liabilities
	April 2, 2022		Charges		Cash Payments		Non-cash Items		July 2, 2022
Store closures	$	264	$	—	$	264	$	—	$	—
Professional services	357		—		227		—		130
Severance and employee-related benefits	4,528		2,887		3,014		785		3,616
Total	$	5,149	$	2,887	$	3,505	$	785	$	3,746


	For the 13 Weeks Ended July 3, 2021
	Liabilities								Liabilities
	April 3, 2021		Charges		Cash Payments		Non-cash Items		July 3, 2021
Store closures	$	51	$	1,447	$	—	$	1,479	$	19
Professional services	541		2,821		1,286		—		2,076
Severance and employee-related benefits	8,552		1,481		4,277		—		5,756
Total	$	9,144	$	5,749	$	5,563	$	1,479	$	7,851


	For the 13 Weeks Ended September 30, 2017											For the 26 Weeks Ended July 2, 2022
	Liabilities								Liabilities			Liabilities								Liabilities
	July 1, 2017		Charges		Cash Payments		Non-cash Items		September 30, 2017			January 1, 2022		Charges		Cash Payments		Non-cash Items		July 2, 2022
Store closures	$	4,893	$	2,482	$	4,237	$	2,320	$	818	Store closures	$	300	$	405	$	613	$	92	$	—
Professional services and other	116		765		48		291		542
Professional services											Professional services	643		135		648		—		130
Severance and employee-related benefits	1,535		2,522		2,467		—		1,590		Severance and employee-related benefits	4,388		4,898		4,885		785		3,616
Total	$	6,544	$	5,769	$	6,752	$	2,611	$	2,950	Total	$	5,331	$	5,438	$	6,146	$	877	$	3,746


	For the 26 Weeks Ended July 3, 2021
	Liabilities								Liabilities
	January 2, 2021		Charges		Cash Payments		Non-cash Items		July 3, 2021
Store closures	$	240	$	1,670	$	190	$	1,701	$	19
Professional services	$	2,280	$	3,407	$	3,611	—		$	2,076
Severance and employee-related benefits	7,741		8,193		10,178		—		5,756
Total	$	10,261	$	13,270	$	13,979	$	1,701	$	7,851

~~Restructuring~~ NWF 2.0 restructuring charges by operating segment were as follows (in thousands):


	For the 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021		For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Americas	$	36	$	707	$	83	$	1,379
Europe	282		1,781		1,531		7,044
Asia	40		895		1,204		1,806
Corporate	2,529		2,366		2,620		3,041
Consolidated	$	2,887	$	5,749	$	5,438	$	13,270

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-nine~~ week periods ended ~~September 30, 2017~~July 2, 2022 (the ~~“Third~~“Second Quarter”) and ~~“Year To Date Period,” respectively) as compared to the thirteen and thirty-nine week periods ended October 1, 2016~~July 3, 2021 (the “Prior Year Quarter”), and ~~“Prior~~the twenty-six week periods ended July 2, 2022 (the "Year To Date Period") and July 3, 2021 (the "Prior Year YTD ~~Period,” respectively)~~Period"). This discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto.

~~General~~Overview

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~~men's and ~~women’s~~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 party~~third-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~~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~~style-conscious consumers across a wide age spectrum on a global basis.

~~Domestically,~~

Known or Anticipated Trends

Based on our recent operating results and current perspectives on our operating environment, we ~~sell~~anticipate the following trends will continue to impact our ~~products through~~operating results:

COVID-19: Our business operations and financial performance continue to be materially impacted by COVID-19. The COVID-19 pandemic has negatively affected the global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including periodic mandatory closures of non-essential businesses and orders to shelter-in-place. The lockdowns and travel restrictions, particularly in China, have had a ~~diversified distribution network~~significant adverse impact on our sales throughout the Year To Date Period, and we expect that ~~includes department stores, specialty retail locations, specialty watch~~to continue. We remain focused on protecting the health and ~~jewelry stores, Company-owned retail and outlet stores, mass market stores and through our FOSSIL~~^® website. 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 84 retail stores located in premier retail sites and 122 outlet stores located in major outlet malls as of September 30, 2017. In addition, we offer an extensive collectionsafety of our ~~FOSSIL brand products on our website,~~ ~~www.fossil.com, as well as proprietary~~employees, customers and ~~licensed watch~~suppliers to minimize potential disruptions and ~~jewelry brands through other managed~~supporting the community to address challenges posed by the global COVID-19 pandemic.

Supply Chain 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 216 retail stores and 134 outlet stores as of September 30, 2017. 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.

Inflation: Our business is subject to economic cycles and retail industry conditions. 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. We rely on domestic and foreign suppliers to provide us with merchandise in a timely manner and at favorable prices. 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~~Among our foreign suppliers, China is the source of a ~~number of factors that are outside~~substantial majority of our imports. We have experienced, and expect to continue to experience, increased international transit times, particularly for our ~~contract manufacturers’ control.~~

~~Future sales~~leathers products and ~~earnings growth are also contingent upon~~packaging, as well as inflation on our ~~ability to anticipate and respond to changing fashion trends and consumer preferences in~~shipping costs for a ~~timely manner while continuing to develop innovative products~~majority of our products. A disruption in the ~~respective markets~~flow of our imported merchandise from China or a material increase in ~~which we compete. As is typical with new products, including~~the cost of those goods or transportation without any offsetting price increases may significantly decrease our ~~lines of connected accessories, market acceptance of new designs and products that we may introduce is subject to uncertainty.~~ profits.

In addition, ~~we generally make decisions regarding product designs several months~~recent historic high rates of inflation, including increased fuel and food prices, has led to a softening of consumer demand 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~~our categories and ~~new materials and introducing new technology and functionality into~~may lead to further challenges to grow our ~~accessories, while continuing to provide a solid value proposition to consumers across all of our brands.~~sales.

~~Our international operations are subject to many risks, including foreign currency fluctuations and risks related to the global economy. Generally, a~~

Foreign Currencies:The rapid strengthening of the U.S. dollar ~~against~~relative to major foreign currencies unfavorably impacted our net sales and profitability in the Year To Date Period, and we expect foreign currency translation will continue to negatively impact our financial results in fiscal year 2022 when compared with fiscal year 2021.

Inventory Levels: By the end of the Second Quarter of 2022, a slowing of consumer demand has resulted in excess inventory in the marketplace. With higher marketplace inventories and a rapidly changing economic environment, retailers are rationalizing their inventory needs. Because we expect marketplace inventories to remain elevated, we are adjusting future inventory purchases.

Russia-Ukraine Conflict: Our operations in Russia consist of sales through a third-party distributor. Sales to this distributor are currently on hold. Our sales in Russia are not material to our financial results. We have no other ~~countries~~operations, including supply chain, in Russia or Ukraine. However, the continuation of the Russia-Ukraine military conflict and/or an

escalation of the conflict beyond its current scope may weaken the global economy and could result in additional inflationary pressures and supply chain constraints.

Data Security: We depend on information technology systems, the Internet and computer networks for a substantial portion of our retail and e-commerce businesses, including credit card transaction authorization and processing. We also receive and store personal information about our customers and employees, the protection of which is critical to us. In the normal course of our business, we collect, retain, and transmit certain sensitive and confidential customer information, including credit card information, over public networks. Despite the security measures we currently have in place, our facilities and systems and those of our third party service providers have been, and will continue to be, vulnerable to theft of physical information, security breaches, hacking attempts, computer viruses and malware, ransomware, phishing, lost data and programming and/or human errors. To date, none of these risks, intrusions, attacks or human error have resulted in any material liability to us. While we carry insurance policies that would provide liability coverage for certain of these matters, if we experience a significant security incident, we could be subject to liability or other damages that exceed our insurance coverage, and we cannot be certain that such insurance policies will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Business Strategies and Outlook: Notwithstanding the COVID-19 pandemic, we plan to execute the following strategies to enhance our brands, grow our revenue and improve profitability. The first strategic initiative is to increase brand excitement by crafting compelling stories that build upon brand equities for both owned and licensed brands across our product categories. Key to this strategy is our ongoing effort in innovation in our product categories and marketing capabilities, where we aim to build larger communities of brand loyalists. Our second strategic initiative is to increase digital engagement and online sales over the long-term. While digital sales have trended down year on year, we continue to invest in our owned e-commerce sites around the world and in third party marketplaces to enhance our direct to consumer engagement, which we ~~operate will reduce~~believe can build long-term customer value. Our third strategic initiative is to optimize our operations. We initiated the ~~translated amounts of sales~~New World Fossil – Transform to Grow ("NWF 2.0") initiative in 2019 aimed to further simplify our operations and ~~operating expenses~~to reallocate resources toward growth, and we achieved our $250 million run-rate savings goal in 2021. Although we are nearing completion of our ~~subsidiaries, which results~~NWF 2.0 program, we will continue to optimize our operations with further reductions to our store footprint, expense reductions and increased focus on inventory management and supply chain efficiency. Our fourth strategic initiative is to expand our opportunity in mainland China and India. In these countries, we are continuing to execute against a ~~reduction~~strategy centered around localized marketing and segmented assortments. Although the impact of COVID-19 is likely to disrupt our growth trajectory in the short to intermediate term, we continue to view mainland China and India as compelling long-term opportunities. With the current headwinds, including inflation and recessionary pressures, we will focus on managing our working capital and inventory levels. This will include selling down our current inventory and possibly reducing our open to buy in early 2023.

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. We are also exposed to interest rate risk associated with our variable rate debt, which we manage with an interest rate swap.

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, 2016~~January 1, 2022.

Operating Segments

We operate our business in three segments which are divided into geographies. Net sales for each geographic segment are based on the location of the selling entity, and ~~"Part II, Item 1A. Risk Factors" of this Quarter Report on Form 10-Q.~~each reportable segment provides similar products and services.

~~Results of Operations~~

~~Executive Summary.~~ During the Third Quarter, net sales decreased 7% (8% in constant currency), as compared to the Prior Year Quarter, driven by declines in traditional watches, leathers and jewelry, and partially offset by continued growth in wearables.Americas: 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 accelerationAmericas segment is comprised of sales ~~favorably impacted the Third Quarter sales growth rate by roughly three percentage points, and we expect this favorable impact will largely reverse~~from our operations in the ~~fourth quarter~~United States, Canada and Latin America. Sales are generated through diversified distribution channels that include wholesalers, distributors, and direct to consumer. Within each channel, we sell our products through a variety of ~~fiscal year 2017. While the overall business remains challenging~~physical points of sale, distributors 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.

During the Third Quarter, sales of FOSSIL branded products decreased 5% (7% in constant currency), as compared to the Prior Year Quarter. Effectively all of the decline in the FOSSIL branded sales was driven by weakness in our leathers and jewelry categories, partially offset by modest growth in watches led by wearables. Wearables positively impacted the FOSSIL watch category growth rate by approximately 11 percentage points in the Third Quarter. Sales of our SKAGEN branded products decreased 10% (12% in constant currency) as compared to the Prior Year Quarter, with growth in Asia more than offset by declines in the Americas and Europe. Growth in SKAGEN connected watches partially offset the decline in SKAGEN traditional watches.

Our multi-brand global watch portfolio decreased 3% (4% in constant currency) during the Third Quarter, as compared to the Prior Year Quarter, representing decreases in the majority of the brands in our portfolio. Growth in wearable products partially offset the declines in traditional watches.e-commerce channels. In the ~~MICHAEL KORS brand,~~direct to consumer channel, we launched next generation connected product in August and expanded the distribution channels later during the Third Quarter with positive results. EMPORIO ARMANI hybrid watches launched during the Third Quarter, driving positive sales growth overall for the brand. We launched DIESEL hybrid and display watches and EMPORIO ARMANI display watches on our wearable platform towardshad 157 Company-owned stores as of the end of the ~~Third~~Second Quarter and ~~preliminary results have been favorable.~~an extensive collection of products available through our owned websites.

~~We plan~~Europe: The Europe segment is comprised of sales to ~~launch five more brands onto~~customers based in European countries, the ~~hybrid platform this year, including DKNY, MARC JACOBS, MICHELE, RELIC~~Middle East and ~~TORY BURCH. These new launches will bring us~~Africa. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a ~~total~~variety of ~~14 brands in wearables~~physical points of sale, distributors, and ~~support our goal to at least double the wearables business in fiscal year 2017 from fiscal year 2016.~~

~~The following table presents as reported and constant currency net sales percentage change information for FOSSIL for the Third Quarter as compared to the Prior Year Quarter:~~

Growth Percentage

Brand As Reported Constant Currency
FOSSIL 5.2 % 7.0 %
SKAGEN 10.0 % 11.6 %

Global comparable retail sales (including e-commerce) decreased 6% during the Third Quarter, compared to a decrease of 1% in the Prior Year Quarter, due to continued declines in retail store traffic trends partially offset by consistent growth 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 comparable e-commerce ~~sales increased 26% compared to the Prior Year Quarter, led by the Americas, but with increases in all regions.~~

We continue to make progress on our New World Fossil ("NWF") initiative. The goal of NWF continues to be to build a leaner, more nimble operating platform that can support improved profitability in the future while better serving our customers and competing in the new retail environment. When we launched NWF in fiscal year 2016, we set a target to drive $200 million of profit improvements in the near term, and we are well on our way to delivering that. During a challenging retail environment, we continue to make strong progress on transforming Fossil. This year we expect our NWF initiatives to drive underlying improvement in our product costs as well as significant reductions in our expense structure that we estimate will be over $100 million this year on a run rate basis. We recognize this transformation will take time, but we are making significant progress to evolve our key categories and streamline our business to position us for profitable growth over the long term.

channels. In the ~~Third Quarter,~~direct to consumer channel, we managed our resources and capital tightly. We are also working to ensure that we have the proper capital structure needed to support our long-term financial objectives. Our goal continues to be to diversify our capital structure beyond just our existing bank partners with longer tenors to support our long term strategic objectives. We are taking the necessary steps to strengthen our financial position to further enable us to execute our strategies well into the future and position our business model for continued strong cash flow generation. During the past year, we have reduced our net debt by $170 million, reduced our net working capital by $230 million and generated positive cash flow from operations.

~~During the Third Quarter~~had 113 Company-owned stores as compared to the Prior Year Quarter, gross profit decreased due to lower sales and a decreased margin rate. The decrease in gross margin rate was primarily driven by the impact of connected products due to both lower connected margins as well as additional valuation charges. Our strategy this year has been to invest in margin to drive significant volume in wearables and leverage that volume to drive future cost efficiencies. So far this year, we have tripled our connected sales volumes compared to the same periods as last year and are well ahead of the ~~initial cost goals~~end of the Second Quarter and an extensive collection of products available through our owned websites.

Asia: The Asia segment is comprised of sales to customers based in Australia, China (including Hong Kong, Macau and Taiwan), India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea and Thailand. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we ~~set for ourselves this year. However, we have not hit the aggressive sales goals that we set for ourselves this year in this new category~~sell our products through a variety of physical points of sale, distributors, and ~~are consequently carrying greater levels of connected products that we will need to clear and have deferred some receipts into the first quarter of fiscal year 2018.~~e-commerce channels. In the ~~Third~~direct to consumer channel, we had 79 Company-owned stores as of the end of the Second Quarter ~~we recorded a $23 million valuation charge to support~~and an extensive collection of products available through our efforts to clear this inventory, which negatively impacted our overall gross margins by 330 basis points. The gross margin rate was also negatively impacted by ongoing promotional activity in our outletsowned websites.

Key Measures of Financial Performance and the e-commerce channel and by an unfavorable currency impact of approximately 60 basis points. Higher sales volumes through off-price channels also modestly reduced gross margins in the Third Quarter. Product cost benefits generated from our NWF supply chain initiatives partially offset these headwinds. Total operating expenses for the Third Quarter decreased to $320 million including $6 million of restructuring costs associated with our NWF initiative. Other income increased as a result of increased net foreign currency gains during the Third Quarter as compared to the Prior Year Quarter. The tax benefit in the Third Quarter was favorably impacted by the increased effective tax rate in the Third Quarter as compared to the Prior Year Quarter. During the Third Quarter, our financial performance resulted in a loss of $0.11 per diluted share.Key Non-GAAP Financial Measures

Constant Currency Financial ~~Information~~

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”)~~(GAAP), our ~~discussions contain~~discussion contains 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 fiscal 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 between constant currency financial information and the most directly comparable GAAP measure are included where applicable.

Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings per Share: Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings per share are non-GAAP financial measures. We define Adjusted EBITDA as our income (loss) before income taxes, plus interest expense, amortization and depreciation, impairment expense, other non-cash charges, stock-based compensation expense, restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt minus interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense and restructuring expense. We define Adjusted net income (loss) and Adjusted earnings per share as net income attributable to Fossil Group, Inc. and diluted earnings per share, respectively, before impairment expense, restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings per share herein because they are widely used by investors for valuation and for comparing our financial performance with the performance of our competitors. We also use these non-GAAP financial measures to monitor and compare the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.

~~Quarterly Periods Ended September 30, 2017~~

Digital Sales: We continue to accelerate our investments and ~~October 1, 2016~~

~~Consolidated Net Sales.~~ Net sales decreased $49.3 million or 6.7% (8.0% in constant currency), for the Third 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. Global watch sales decreased $15.3 million or 2.7% (4.1% in constant currency) driven by declines in traditional watches partially offset by increases in connected watches. Our jewelry business decreased $12.5 million or 20.8% (22.8% in constant currency).

~~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
Growth (Decline)
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 )%
Leathers 75.7
11.0
93.3
12.6
(17.6 ) (18.9 ) (19.9 )
Jewelry 47.7
6.9
60.2
8.2
(12.5 ) (20.8 ) (22.8 )
Other 13.4
2.0
17.3
2.3
(3.9 ) (22.5 ) (23.6 )
Total $ 688.7
100.0 % $ 738.0
100.0 % $ (49.3 ) (6.7 )% (8.0 )%

In the Third Quarter, the translation of foreign-based net sales into U.S. dollars increased reported net sales by approximately $10.1 million, including favorable impacts of $9.2 million and $1.6 millioncapabilities in our ~~Europe~~global digital platform, and ~~Americas segments, respectively,~~digital sales provide an important metric for our company. The digital space provides unique ways of engaging our customers. Digital sales include sales on our own e-commerce sites, global third party platforms, and ~~an unfavorable impact of $0.7 million in our Asia segment when compared to the Prior Year Quarter.~~wholesale dot com sites.

~~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)
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 )%
Europe 247.2
35.9
243.2
33.0
4.0
1.6
(2.1 )
Asia 133.4
19.4
133.6
18.1
(0.2 ) (0.1 ) 0.4
Total $ 688.7
100.0 % $ 738.0
100.0 % $ (49.3 ) (6.7 )% (8.0 )%

~~Americas Net Sales.~~ Americas net sales decreased $53.1 million or 14.7% (15.1% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. During the Third Quarter, watches decreased $32.1 million or 11.7% (12.1% in constant currency), while our leathers business decreased $12.7 million or 21.6% (22.1% in constant currency) and our jewelry category decreased $6.6 million or 29.5% (29.9% in constant currency). Sales declines in the U.S. 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. Comparable ~~retail sales including e-commerce declined moderately in the region as negative comparable sales in our stores were partially offset by positive comparable sales in our e-commerce business.~~

~~The following table sets forth product net sales 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
Growth (Decline)
Net Sales Net Sales Dollars
Percentage
As Reported

Percentage
Constant Currency
Watches $ 242.2
$ 274.3
$ (32.1 ) (11.7 )% (12.1 )%
Leathers 46.2
58.9
(12.7 ) (21.6 ) (22.1 )
Jewelry 15.8
22.4
(6.6 ) (29.5 ) (29.9 )
Other 3.9
5.6
(1.7 ) (30.4 ) (28.6 )
Total $ 308.1
$ 361.2
$ (53.1 ) (14.7 )% (15.1 )%

~~Europe Net Sales~~. Europe net sales increased $4.0 million or 1.6% (decreased 2.1% in constant currency) during the Third Quarter in comparison to the Prior Year Quarter. Watches increased $11.6 million or 6.4% (2.5% in constant currency), jewelry declined $3.6 million or 10.6% (13.5% in constant currency) and our leathers business decreased $2.3 million or 11.4% (14.4% in constant currency) in the Third Quarter. Third Quarter sales in Europe benefited from early deliveries to certain wholesale customers who opted to take shipments planned for the fourth quarter of fiscal year 2017, given price adjustments, which were required to be announced to customers in advance. During the Third Quarter, sales growth was led by MICHAEL KORS watches, and we also experienced growth in EMPORIO ARMANI, ARMANI EXCHANGE, FOSSIL and DIESEL branded watches, as the watch category more than offset declines in leathers and jewelry. The sales increases in watches were primarily driven from wearables and benefited from our third generation product launching towards the end of the Third Quarter. Within the region, modest growth in the U.K. and Poland was more than offset by declines in the Middle East. Comparable retail sales were moderately negative during the Third Quarter, as positive comparable e-commerce sales were more than offset by negative comparative retail store sales amid declining traffic.

~~The following table sets forth product net sales for the Europe 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
Growth (Decline)
Net Sales Net Sales Dollars
Percentage
As Reported
Percentage Constant Currency
Watches $ 192.3
$ 180.7
$ 11.6
6.4 % 2.5 %
Leathers 17.9
20.2
(2.3 ) (11.4 ) (14.4 )
Jewelry 30.5
34.1
(3.6 ) (10.6 ) (13.5 )
Other 6.5
8.2
(1.7 ) (20.7 ) (25.3 )
Total $ 247.2
$ 243.2
$ 4.0
1.6 % (2.1 )%

~~Asia Net Sales.~~ Net sales in Asia decreased $0.2 million or 0.1% (increased 0.4% in constant currency), driven by declines in leathers and jewelry largely offset by growth in watches. Continued growth in India and China was offset by a decline in nearly all other countries. During the Third Quarter as compared to the Prior Year Quarter, our leathers category decreased $2.7 million or 19.0% (18.3% in constant currency), our jewelry category decreased $2.4 million or 63.2% (same in constant currency) while our watch category increased $5.2 million or 4.6% (5.2% in constant currency). The watch category was led by growth in wearables, FOSSIL and EMPORIO ARMANI brands in particular, while traditional watches continued to decline. Comparable retail sales in the region decreased moderately largely driven by traffic declines.

~~The following table sets forth product net sales for the Asia 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
Growth (Decline)
Net Sales Net Sales Dollars
Percentage
As Reported
Percentage Constant Currency
Watches $ 117.3
$ 112.1
$ 5.2
4.6 % 5.2 %
Leathers 11.5
14.2
(2.7 ) (19.0 ) (18.3 )
Jewelry 1.4
3.8
(2.4 ) (63.2 ) (63.2 )
Other 3.2
3.5
(0.3 ) (8.6 ) (8.6 )
Total $ 133.4
$ 133.6
$ (0.2 ) (0.1 )% 0.4 %

~~The following table sets forth the number of stores by concept on the dates indicated below:~~

September 30, 2017
October 1, 2016
Americas
Europe
Asia
Total
Americas
Europe
Asia
Total
Full price accessory 112

109

61

282

128

122

66

316
Outlets 136

74

46

256

156

73

46

275
Full priced multi-brand —

8

10

18

—

7

12

19
Total stores 248

191

117

556

284

202

124

610

~~During the Third Quarter, we closed 8 stores and did not open any new stores.~~

Retail Sales:Both stores and e-commerce sites are included in comparable retail sales in the thirteenth month of operation. Stores that experience a gross square footage ~~increase~~change of 10% or more due to an expansion and/or relocation are removed from the comparable ~~retail~~store sales base, but are included in total sales. These stores are returned to the comparable ~~retail~~store sales base in the thirteenth month following the expansion and/or relocation. Comparable retail sales also exclude the effects of foreign currency fluctuations.

Store Counts: Store counts continue to provide a key metric for management. Over time, we have made progress right-sizing our fleet of stores, focusing on closing our least profitable stores, and the size and quality of our store fleet have a direct impact on our sales and profitability.

Total Liquidity: We define total liquidity as cash and cash equivalents plus available borrowings on our revolving credit facility. We monitor and forecast total liquidity to ensure we can meet our financial obligations.

Components of Results of Operations

Revenues from sales of our products, including those that are subject to inventory consignment agreements, are recognized when control of the product is transferred to the customer and in an amount that reflects the consideration we expect to be entitled in exchange for the product. We accept limited returns from customers. We continually monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified. Product returns are accounted for as reductions to revenue and cost of sales and increases to customer liabilities and other current assets to the extent the returned product is resalable.

Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs and shipping and handling costs related to the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations. Additionally, cost of sales includes customs duties, product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling and inventory shrinkage and damages.

Gross ~~Profit.~~Profit and gross profit margin are influenced by our diversified business model that includes, but is not limited to: (i) product categories that we distribute; (ii) the multiple brands, including both owned and licensed, we offer within several product categories; (iii) the geographical presence of our businesses; and (iv) the different distribution channels we sell to or through.

The attributes of this diversified business model produce varying ranges of gross profit margin. Generally, on a historical basis, our fashion branded traditional watch and jewelry offerings produce higher gross profit margins than our smartwatches and leather goods offerings. In addition, in most product categories that we offer, brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands. However, smartwatches carry relatively lower margins than our other major product categories. Gross profit ~~of $319.9 million~~margins related to sales in our Europe and Asia businesses are historically higher than our Americas business, primarily due to the ~~Third Quarter decreased 16.9%~~following factors: (i) premiums charged in comparison to ~~$385.1 million~~retail prices on products sold in the ~~Prior Year Quarter driven by lower~~U.S.; (ii) the product sales mix in our international businesses, in comparison to our Americas business, is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods; and (iii) the watch sales mix in our Europe and Asia businesses, in comparison to our Americas business, are comprised more predominantly of higher priced licensed brands.

Operating Expenses include selling, general and administrative ("SG&A"), other long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of our 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 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 our Company’s infrastructure and store closures under our New World Fossil initiatives.

Results of Operations

Quarterly Periods Ended July 2, 2022 and July 3, 2021

Consolidated Net Sales. Net sales decreased margin rates. Gross profit margin rate decreased 580 basis points to 46.4% in the Third Quarter compared to 52.2% in the Prior Year Quarter. The decrease in gross margin rate was primarily driven by the impact of connected products due to both lower connected margins as well as additional valuation charges. Our strategy this year has been to invest in margin to drive significant volume in wearables and leverage that volume to drive future cost efficiencies. So far this year, we have tripled our connected sales volumes and are well ahead of the initial cost goals that we set for ourselves this year. However, we have not hit the aggressive sales goals that we set for ourselves this year in this new category and are consequently carrying greater levels of connected products that we will need to clear and have deferred some receipts into the first quarter of fiscal 2018. In the Third Quarter, we recorded a $23 million valuation charge to support our efforts to clear this inventory, which negatively impacted our overall gross margins by 330 basis points. The gross margin rate was also negatively impacted by ongoing promotional activity in our outlets and the e-commerce channel and by an unfavorable currency impact of approximately 60 basis points. Higher sales volumes through off-price channels also modestly reduced gross margins in the Third Quarter. Product cost benefits generated from our NWF supply chain initiatives partially offset these headwinds.

~~Operating Expenses.~~ ~~Total operating expenses in the Third Quarter decreased by $33.5~~$39.7 million, or ~~9.5% to $320.4 million compared to $353.9 million~~9.7% (5.4% in constant currency), for the Prior Year Quarter. Third Quarter operating expenses included restructuring costs of $5.8 million under our NWF initiative, while the Prior Year Quarter included $14.5 million in restructuring costs as well as a $10 million benefit resulting from real estate gains.

In the Third Quarter, SG&A expenses were $24.8 million lower compared to the Prior Year Quarter primarily as a result of corporate and regional overhead reductions and lower retail store expenses, given the significant number of stores we have closed since the Prior Year Quarter. Advertising royalties were also lower in the Third Quarter driven by the decline in sales of licensed products. The translation of foreign-denominated expenses during the Third Quarter increased operating expenses by

~~approximately $4.1 million as a result of the weaker U.S. dollar. As a percentage of net sales, SG&A expenses decreased to 45.7% in the Third Quarter as compared to 46.0% in the Prior Year Quarter.~~

~~Consolidated Operating Income (Loss).~~ Operating income (loss) decreased to a loss of $0.5 million in the Third Quarter as compared to income of $31.2 million in the Prior Year Quarter, primarily driven by both decreased sales and gross margin rate. As a percentage of net sales, operating margin (loss) was (0.1%) in the Third Quarter compared to 4.2% in the Prior Year Quarter. Operating margin rate in the Third Quarter included a negative impact of approximately 50 basis points due to changes in foreign currencies. During the ThirdSecond Quarter as compared to the Prior Year Quarter, ~~we faced continued retail pressure, most significantly in our traditional businesses~~with sales declines in all ~~segments. Additionally,~~three regions. In the ~~gross margin rate was negatively impacted by connected products, due to both lower connected margins as well as additional product valuation charges,~~Second Quarter, digital sales, which include sales from our owned e-commerce channels, third party e-commerce platforms and lower retail margins due to increased promotional activity in outlets and the e-commerce channel in all segments. Decreased restructuring costs incurred under our NWF plan, as well as corporate and regional overhead reductions and lower retail store expenses favorably impacted operating income (loss) during the Third Quarter as compared to the Prior Year Quarter.

~~Operating income (loss) by segment is summarized as follows (dollars in millions):~~

For the 13 Weeks Ended September 30, 2017 For the 13 Weeks Ended October 1, 2016 Growth (Decline) Operating Margin %
Dollars Percentage 2017 2016
Americas $ 18.9
$ 56.4
$ (37.5 ) (66.5 )% 6.1 % 15.6 %
Europe 39.3
49.0
(9.7 ) (19.8 ) 15.9
20.2
Asia 22.0
23.7
(1.7 ) (7.2 ) 16.5
17.7
Corporate (80.7 ) (97.9 ) 17.2
(17.6 )
Total operating income (loss) $ (0.5 ) $ 31.2
$ (31.7 ) (101.6 )% (0.1 )% 4.2 %

~~Interest Expense.~~ ~~Interest expense increased by $5.1 million during the Third Quarter as a result~~wholesale dot com, were 35% of ~~higher interest rate spreads due to our amended credit facility.~~

~~Other Income (Expense)-Net.~~ During the Third Quarter, other income (expense)-net increased by $2.3 million to $3.9 million in comparison to the Prior Year Quarter. This change was primarily driven by more favorable foreign currency activity compared to the Prior Year Quarter.

~~Provision for Income Taxes~~. The income tax benefit for the Third Quarter was $3.2 million, resulting in an effective income tax rate of 37.1%. For the Prior Year Quarter, income tax expense was $6.5 million, resulting in an effective income tax rate of 25.0%. The higher effective tax rate in the Third Quarter as compared to the Prior Year Quarter was attributable to a higher structural rate resulting from an increased forecasted loss from the Company's U.S. operations which was tax-benefited at a higher tax rate than the tax rates used to calculate the tax expense on the profits from the Company's 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 the foreign and some of the U.S. goodwill impairment charge being permanently nondeductible for tax purposes.

Additionally, income taxes are provided for under the asset and liability method for temporary differences in the recognition of assets and liabilities recognized for income tax and GAAP purposes. Deferred tax assets are periodically assessed for the likelihood of whether they are more likely than not to be realized. We have previously established a valuation allowance in those jurisdictions where we believe recovery is not more likely than not, which generally increases tax expense in the period such determination is made. For those jurisdictions with deferred tax assets not currently subject to a valuation allowance, including the U.S., we have determined that the realization of deferred tax assets continues to be more likely than not.

~~Net Income (Loss) Attributable to Fossil Group, Inc.~~ ~~Third Quarter~~worldwide net income (loss) attributable to Fossil Group, Inc. decreased to $(5.4) million, or $(0.11) per diluted share, in comparison to $17.4 million, or $0.36 per diluted share, in the Prior Year Quarter. Diluted earnings (loss) per share in the Third Quarter included a restructuring charge of $0.08 as compared to a restructuring charge of $0.22 in the Prior Year Quarter. Excluding restructuring, the decline in diluted earnings (loss) per share in the Third Quarter as compared to the Prior Year Quarter was driven by lower sales and ~~gross margins, mainly due to connected mix, and higher interest expenses, partially offset by lower operating expenses and taxes. The tax benefit~~decreased 25.5% (21.4% in ~~the Third Quarter was positively impacted by the increased effective tax rate in the Third Quarter as~~constant currency) compared to the Prior Year Quarter. The ~~translation impact of~~sales declines in digital were partially offset by retail store sales growth driven by increased foot traffic in our brick and mortar stores. Global comparable retail sales grew 16.3% primarily due to increased store sales partially offset by sales declines in our owned e-commerce websites. From a ~~stronger U.S. dollar decreased diluted earnings per share by approximately $0.02 year-over-year.~~

~~Fiscal Year To Date Periods Ended September 30, 2017 and October 1, 2016~~

~~Consolidated Net Sales.~~ ~~Net~~category perspective, traditional watch sales decreased ~~$215.8 million or 10.4% (10.0%~~11.0%, (7.0% in constant currency), ~~for the Year To Date Period as~~driven by traditional watch sales declines in EMPORIO ARMANI in mainland China due to COVID-19 related traffic disruptions and in MICHAEL KORS within our Americas wholesale channel. Declines were partially offset by FOSSIL traditional watch sales growth, particularly in India and Canada. Net sales of smartwatches decreased 22.5% (18.0% in constant currency) compared to the Prior Year ~~YTD Period. Global watch~~Quarter, as reduced consumer demand and less promotional activity led to lower sell-through and higher inventory levels in certain key wholesale customers, resulting in lower replenishment orders in the U.S.

The following table sets forth consolidated net sales ~~decreased $110.1 million or 7.0% (6.7%~~by segment (dollars in constant currency) driven by declines in traditional watches partially offset by increases in connected watches. Our leathers category decreased $61.0 million or 21.9% (21.6% in constant currency) primarily as a result of the current product assortment not resonating well with consumers, and our jewelry product category decreased $31.8 million or 18.5% (17.8% in constant currency) during the Year To Date Period as compared to the Prior Year YTD Period. Global comparable retail sales decreased 9% for the Year To Date Period representing declines in all product categories and all store concepts partially offset by strong e-commerce comparable sales growth.millions):


	For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Americas	$	168.3	45.3	%	$	176.7	43.0	%	$	(8.4)	(4.8)	%	(4.3)	%
Europe	107.9		29.1		124.4		30.3		(16.5)		(13.3)		(3.2)
Asia	92.6		24.9		103.5		25.2		(10.9)		(10.5)		(6.4)
Corporate	2.4		0.7		6.3		1.5		(3.9)		(61.9)		(60.3)
Total	$	371.2	100.0	%	$	410.9	100.0	%	$	(39.7)	(9.7)	%	(5.4)	%

Net sales information by product category is summarized as follows (dollars in millions):


	For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	258.7	69.7	%	$	290.6	70.8	%	$	(31.9)	(11.0)	%	(7.0)	%
Smartwatches	33.4		9.0		43.1		10.5		(9.7)		(22.5)		(18.0)
Total watches	$	292.1	78.7	%	$	333.7	81.3	%	$	(41.6)	(12.5)		(8.5)
Leathers	35.9		9.7		33.3		8.1		2.6		7.8		11.5
Jewelry	33.9		9.1		32.6		7.9		1.3		4.0		12.0
Other	9.3		2.5		11.3		2.7		(2.0)		(17.7)		(13.8)
Total	$	371.2	100.0	%	$	410.9	100.0	%	$	(39.7)	(9.7)	%	(5.4)	%

In the Second Quarter, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by $17.7 million, including unfavorable impacts of $12.5 million, $4.3 million and $0.8 million in our Europe, Asia and Americas segments, respectively, as compared to the Prior Year Quarter.

Stores. The following table sets forth the number of stores on the dates indicated below:


	July 3, 2021	Opened	Closed	July 2, 2022
Americas	166	0	9	157
Europe	133	1	21	113
Asia	87	4	12	79
Total stores	386	5	42	349

Americas Net Sales. Americas net sales decreased $8.4 million, or 4.8% (4.3% in constant currency), during the Second Quarter in comparison to the Prior Year Quarter. In the region, sales decreases in the U.S. and Mexico were partially offset by a sales increase in Canada. Sales decreased in our wholesale and owned e-commerce channels, while sales in our stores channel grew moderately, largely due to increased store traffic. Comparable retail sales were modestly positive during the Second Quarter, primarily due to increased store sales partially offset by sales declines in our owned e-commerce websites.

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 (dollars in millions):


																	For the 13 Weeks Ended July 2, 2022					For the 13 Weeks Ended July 3, 2021
	For the 39 Weeks Ended September 30, 2017				For the 39 Weeks Ended October 1, 2016				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	$	1,471.1	78.8	%	$	1,581.2	75.9	%	$	(110.1	)	(7.0	)%	(6.7	)%
Watches:																Watches:
Traditional watches																Traditional watches	$	118.7	70.5	%		$	122.7	69.4	%		$	(4.0)		(3.3)	%		(2.8)	%
Smartwatches																Smartwatches	15.4		9.2			23.9		13.5			(8.5)			(35.6)			(35.4)
Total watches																Total watches	$	134.1	79.7	%		$	146.6	82.9	%		$	(12.5)		(8.5)			(8.1)
Leathers	218.0		11.7		279.0		13.4		(61.0		)	(21.9	)	(21.6	)	Leathers	22.6		13.4			20.8		11.8			1.8			8.7			9.5
Jewelry	139.9		7.5		171.7		8.2		(31.8		)	(18.5	)	(17.8	)	Jewelry	9.3		5.5			7.3		4.1			2.0			27.4			28.0
Other	38.4		2.0		51.3		2.5		(12.9		)	(25.1	)	(24.8	)	Other	2.3		1.4			2.0		1.2	%		0.3			15.0			16.2
Total	$	1,867.4	100.0	%	$	2,083.2	100.0	%	$	(215.8	)	(10.4	)%	(10.0	)%	Total	$	168.3	100.0	%		$	176.7	100.0	%		$	(8.4)		(4.8)	%		(4.3)	%

Europe Net Sales. Europe net sales decreased $16.5 million, or 13.3% (3.2% in constant currency), during the Second Quarter in comparison to the Prior Year Quarter. Across the Eurozone, sales decreased in most markets, with the greatest decreases in Germany and France. Comparable retail sales increased moderately during the Second Quarter as growth in store sales, driven by increased traffic, was partially offset by decreased owned e-commerce sales.


	For the 13 Weeks Ended July 2, 2022				For the 13 Weeks Ended July 3, 2021
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	70.4	65.2	%	$	81.8	65.7	%	$	(11.4)	(13.9)	%	(4.2)	%
Smartwatches	10.3		9.5		13.3		10.7		(3.0)		(22.6)		(12.7)
Total watches	$	80.7	74.7	%	$	95.1	76.4	%	$	(14.4)	(15.1)		(5.4)
Leathers	5.3		4.9		6.4		5.1		(1.1)		(17.2)		(6.8)
Jewelry	18.6		17.2		20.2		16.2		(1.6)		(7.9)		3.2
Other	3.3		3.2		2.7		2.3		0.6		22.2		34.3
Total	$	107.9	100.0	%	$	124.4	100.0	%	$	(16.5)	(13.3)	%	(3.2)	%

Asia Net Sales. Net sales in Asia decreased $10.9 million, or 10.5% (6.4% in constant currency), during the Second Quarter in comparison to the Prior Year Quarter. The sales decrease was largely driven by mainland China and predominately in the EMPORIO ARMANI brand. COVID-19 policies in mainland China, which include restrictions on travel abroad, continued to negatively affect sales across all channels and also impacted other key markets that have historically benefited from China tourism. The sales decline was partially offset by sales growth in India, largely in FOSSIL watches. Comparable retail sales increased significantly during the Second Quarter, driven by increased store sales as a result of traffic growth, partially offset by decreased e-commerce sales.

Gross Profit. Gross profit of $191.3 million in the Second Quarter decreased 13.7% in comparison to $221.8 million in the Prior Year Quarter. Our gross profit margin rate decreased to 51.6% in the Second Quarter compared to 54.0% in the Prior Year Quarter. The year-over-year decrease primarily reflects a non-recurrence of the prior year's tariff reductions, increased freight costs and an unfavorable currency impact. These costs were partially offset by favorable product mix and pricing increases and net foreign currency hedging contract gains in the current year as compared to net foreign currency hedging contract losses last year.

Operating Expenses. Total operating expenses in the Second Quarter decreased by 2.5% to $202.3 million or 54.5% of net sales, in comparison to $207.5 million or 50.5% of net sales in the Prior Year Quarter. As a percentage of net sales, SG&A expenses increased to 53.7% in the Second Quarter as compared to 48.8% in the Prior Year Quarter, largely driven by increased compensation costs and investments in our digital initiatives, which were partially offset by a decline in marketing expenses and reduced store costs resulting from lower store count. Operating expenses in the Second Quarter included $2.9 million of restructuring costs, primarily related to employee costs, while the Prior Year Quarter included $5.7 million in restructuring costs. The translation of foreign-denominated expenses during the Second Quarter decreased operating expenses by $8.5 million as a result of the stronger U.S. dollar.

Operating Income (Loss). Operating loss in the Second Quarter was $10.9 million as compared to operating income of $14.3 million in the Prior Year Quarter. As a percentage of net sales, operating margin was (2.9)% in the Second Quarter compared to 3.5% in the Prior Year Quarter. Operating margin rate in the Second Quarter included an unfavorable impact of 90 basis points due to changes in foreign currencies.

Operating income (loss) by segment is summarized as follows (dollars in millions):


	For the 13 Weeks Ended July 2, 2022		For the 13 Weeks Ended July 3, 2021		Change				Operating Margin %
					Dollars		Percentage		2022		2021
Americas	$	30.7	$	36.6	$	(5.9)	(16.1)	%	18.2	%	20.7	%
Europe	14.8		22.0		(7.2)		(32.7)		13.8		17.7
Asia	12.4		14.8		(2.4)		(16.2)		13.3		14.3
Corporate	(68.8)		(59.1)		(9.7)		(16.4)
Total operating income (loss)	$	(10.9)	$	14.3	$	(25.2)	(176.2)	%	(2.9)	%	3.5	%

Interest Expense. Interest expense decreased by $2.2 million during the Second Quarter compared to the Prior Year Quarter, primarily driven by reduced debt issuance costs amortization and a lower borrowing rate.

Other Income (Expense)-Net. During the Second Quarter, other income (expense)-net was expense of $1.7 million in comparison to expense of $0.5 million in the Prior Year Quarter.

Provision for Income Taxes. Income tax expense for the Second Quarter was $2.0 million, resulting in an effective income tax rate of (11.8)%. For the Prior Year Quarter, income tax expense was $8.1 million, resulting in an effective income tax rate of 110.5%. The effective tax rate in the Second Quarter was favorable as compared to the Prior Year Quarter due to a lower structural rate on foreign income. No tax benefit has been accrued on the Second Quarter U.S. tax losses and certain foreign tax losses due to the uncertainty of whether they can be used in the future. The Second Quarter tax rate was negative

because foreign income tax expense was accrued on certain foreign entities with positive taxable income while the consolidated results were a loss.

Net Income (Loss) Attributable to Fossil Group, Inc. Second Quarter net income (loss) attributable to Fossil Group, Inc. was a net loss of $19.1 million, or $0.37 per diluted share, in comparison to a net loss of $1.2 million, or $0.02 per diluted share, in the Prior Year Quarter. During the Second Quarter, currencies unfavorably affected loss per diluted share by approximately $0.04.

Adjusted Net Income (Loss).Adjusted net loss for the Second Quarter was $16.6 million with adjusted loss per diluted share of $0.33 compared to adjusted net income of $4.3 million with adjusted income per diluted share of $0.08 in the Prior Year Quarter.

Adjusted EBITDA. The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial measure, which is income (loss) before income taxes. Certain line items presented in the table below, when aggregated, may not foot due to rounding (dollars in millions).


	For the 13 Weeks Ended
	July, 2 2022				July 3, 2021
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(16.9)	(4.6)%		$	7.3	1.8	%
Plus:
Interest expense	4.3				6.5
Amortization and depreciation	5.8				7.5
Impairment expense	0.2				1.3
Other non-cash charges	(0.2)				(0.4)
Stock-based compensation	3.8				2.5
Restructuring expense	2.9				5.7

Less:
Interest income	0.2				0.1
Adjusted EBITDA	$	(0.3)	(0.1)	%	$	30.3	7.4	%

Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share to the most directly comparable GAAP financial measures, which are operating income (loss), net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively. Certain line items presented in the table below, when aggregated, may not foot due to rounding.


	For the 13 Weeks Ended July 2, 2022
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(10.9)		$	0.2	$	2.9	$	(7.8)
Operating margin (% of net sales)	(2.9)		%					(2.1)		%
Interest expense	$	(4.3)		$	—	$	—	$	(4.3)
Other income (expense) - net	(1.7)			—		—		(1.7)
Income (loss) before income taxes	(16.9)			0.2		2.9		(13.8)
Provision for income taxes	2.0			—		0.6		2.6
Less: net income attributable to noncontrolling interest	(0.2)			—		—		(0.2)
Net income (loss) attributable to Fossil Group, Inc.	$	(19.1)		$	0.2	$	2.3	$	(16.6)
Diluted earnings (loss) per share	$	(0.37)		$	—	$	0.04	$	(0.33)


	For the 13 Weeks Ended July 3, 2021
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	14.3		$	1.3	$	5.7	$	21.3
Operating margin (% of net sales)	3.5		%					5.2		%
Interest expense	$	(6.5)		$	—	$	—	$	(6.5)
Other income (expense) - net	(0.5)			—		—		(0.5)
Income (loss) before income taxes	7.3			1.3		5.7		14.3
Provision for income taxes	8.1			0.3		1.2		9.6
Less: Net income attributable to noncontrolling interest	(0.4)			—		—		(0.4)
Net income (loss) attributable to Fossil Group, Inc.	$	(1.2)		$	1.0	$	4.5	$	4.3
Diluted earnings (loss) per share	$	(0.02)		$	0.02	$	0.09	$	0.08

Consolidated Net Sales. Net sales decreased $27.0 million or 3.5% (0.1% in constant currency) for the Year To Date Period as compared to the Prior Year YTD Period. Sales declines were primarily driven by Asia, where declines in China more than offset sales growth in India as compared to the Prior Year YTD Period. Our net sales in China have been negatively affected by COVID-19 restrictions during the Year To Date Period and our most significant sales declines were in EMPORIO ARMANI traditional watches, as compared to the Prior Year YTD Period. In the Year To Date Period, digital sales were 34% of worldwide net sales and decreased 22.0% (19.1% in constant currency) compared to the Prior Year YTD Period. Global comparable retail sales increased 14.0% primarily due to increased store traffic and was partially offset by sales declines in our owned e-commerce websites.

The following table sets forth consolidated net sales by segment (dollars in millions):


	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Americas	$	330.2	44.2	%	$	329.2	42.5	%	$	1.0	0.3	%	0.6	%
Europe	232.4		31.0		233.7		30.2		(1.3)		(0.6)		7.7
Asia	179.4		24.0		202.1		26.1		(22.7)		(11.2)		(8.3)
Corporate	5.0		0.8		9.0		1.2		(4.0)		(44.4)		(43.3)
Total	$	747.0	100.0	%	$	774.0	100.0	%	$	(27.0)	(3.5)	%	(0.1)	%

Net sales information by product category is summarized as follows (dollars in millions):


	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	520.1	69.6	%	$	533.0	68.9	%	$	(12.9)	(2.4)	%	0.7	%
Smartwatches	71.4		9.6		96.0		12.4		(24.6)		(25.6)		(22.4)
Total watches	$	591.5	79.2	%	$	629.0	81.3	%	$	(37.5)	(6.0)		(2.8)
Leathers	70.1		9.4		67.5		8.7		2.6		3.9		6.8
Jewelry	68.6		9.2		58.7		7.6		9.9		16.9		23.3
Other	16.8		2.2		18.8		2.4		(2.0)		(10.6)		(6.6)
Total	$	747.0	100.0	%	$	774.0	100.0	%	$	(27.0)	(3.5)	%	(0.1)	%

In the Year To Date Period, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by ~~approximately $6.6~~$26.2 million, including unfavorable impacts of ~~$5.5~~$19.2 million, ~~$0.6~~$5.9 million and ~~$0.5~~$1.0 million in in our Europe, ~~Americas~~Asia and ~~Asia~~Americas segments, respectively, compared to the Prior Year YTD Period.

~~The following table sets forth consolidated~~Americas Net Sales. Americas net sales ~~by segment (dollars~~increased $1.0 million, or 0.3% (0.6% in ~~millions):~~

~~Americas Net Sales.~~ ~~For~~constant currency), during the Year To Date Period ~~Americas net sales decreased $167.7 million or 16.1% (16.0%~~ in ~~constant currency), compared~~comparison to the Prior Year YTD Period. ~~During~~We saw growth in our retail store channel while our e-commerce and wholesale channels declined. Geographically, sales growth in Canada was partially offset by sales declines in the U.S. and Mexico. Comparable retail sales were moderately positive during the Year To Date Period, watches decreased $103.0 million or 13.1% (13.0% in constant currency). Our leathers and jewelry categories declined $41.5 million or 23.6% (23.6% in constant currency) and $16.8 million or 26.3% (26.6% in constant currency), respectively. Sales declined in the U.S. and Canadaprimarily due to increased store traffic and were partially offset by sales increases in Mexico. During the Year To Date Period, nearly all brands in the portfolio declined driven by decreases in traditional watches that were partially offset by increases in connected watches, with the strongest performance coming from MICHAEL KORS ACCESS and FOSSIL connected watches. Both wholesale and retail sales declined at similar rates. Comparable retail sales declined moderately in the region with negative comparable store sales partially offset by moderate increases in comparable salesdeclines in our owned e-commerce ~~business.~~

For the 39 Weeks Ended September 30, 2017 For the 39 Weeks Ended October 1, 2016
Growth (Decline)
Net Sales Net Sales Dollars Percentage As Reported Percentage Constant Currency
Watches $ 681.1
$ 784.1
$ (103.0 ) (13.1 )% (13.0 )%
Leathers 134.5
176.0
(41.5 ) (23.6 ) (23.6 )
Jewelry 47.2
64.0
(16.8 ) (26.3 ) (26.6 )
Other 11.7
18.1
(6.4 ) (35.4 ) (34.8 )
Total $ 874.5
$ 1,042.2
$ (167.7 ) (16.1 )% (16.0 )%

Europe Net Sales. ~~For~~ Europe net sales decreased $1.3 million, or 0.6% (increase of 7.7% in constant currency), during the Year To Date Period ~~Europe net sales decreased $31.5 million or 4.7% (3.9%~~ in ~~constant currency), compared~~comparison to the Prior Year YTD Period. ~~Watches declined $4.7 million or 1.0% (0.3%~~The decline was primarily in ~~constant currency)~~FOSSIL watch sales and our leathers and jewelry categories declined $9.9 million or 16.9% (15.7% in constant currency) and $10.9 million or 11.1% (9.8% in constant currency), respectively. During the Year To Date Period, most of the brands in the portfolio declined driven by decreases in traditional watches that werewas partially offset by ~~increases~~growth in ~~connected watches. Growth in Spain and Poland were~~MICHAEL KORS versus the Prior Year YTD Period. Strong retail stores growth partially offset by declines in ~~most other markets with the greatest decline in~~ our ~~Middle East business. Both~~ wholesale and ~~retail~~e-commerce channels ~~decreased at similar rates.~~as consumers returned to brick and mortar stores. Comparable retail sales ~~were moderately negative~~in the region also increased strongly during the Year To Date ~~Period with negative comparable sales in the leathers and jewelry categories while comparable sales in our watch category were flat.~~Period.

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 Europe segment ~~on a reported and constant currency basis~~ (dollars in millions):

Asia Net Sales. ~~For~~ Asia net sales decreased $22.7 million, or 11.2% (8.3% in constant currency), during the Year To Date Period ~~Asia net~~in comparison to the Prior Year YTD Period. Sales declines were primarily driven by mainland China as a result of COVID-19 policies. Strong growth in India partially offset sales ~~decreased $16.6 million or 4.5% (4.3% in constant currency),~~declines during the Year To Date Period as compared to the Prior Year YTD Period. ~~Leathers declined $9.7 million or 21.9% (21.7%~~Sales increases in ~~constant currency), jewelry declined $4.1 million or 44.6% (44.6% in constant currency) and watch sales decreased $2.2 million or 0.7% (0.6% in constant currency). Growth in India and China was~~the FOSSIL brand were more than offset by sales declines in ~~Japan, Australia and most other markets. Comparable retail sales in~~ the ~~region decreased moderately with negative comparable sales in the leathers and jewelry categories partially offset by positive comparable sales in our watch category for~~EMPORIO ARMANI brand. For the Year To Date ~~Period.~~

Period, comparable retail sales increased significantly.

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 Asia segment ~~on a reported and constant currency basis~~ (dollars in millions):


	For the 26 Weeks Ended July 2, 2022				For the 26 Weeks Ended July 3, 2021				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	133.9	74.6	%	$	161.1	79.7	%	$	(27.2)	(16.9)	%	(14.4)	%
Smartwatches	15.8		8.8		15.9		7.9		(0.1)		(0.6)		4.7
Total watches	$	149.7	83.4	%	$	177.0	87.6	%	$	(27.3)	(15.4)		(12.7)
Leathers	15.6		8.7		14.3		7.1		1.3		9.1		13.7
Jewelry	11.7		6.5		8.1		4.0		3.6		44.4		47.2
Other	2.4		1.4		2.7		1.3		(0.3)		(11.1)		(4.1)
Total	$	179.4	100.0	%	$	202.1	100.0	%	$	(22.7)	(11.2)	%	(8.3)	%

For the 39 Weeks Ended September 30, 2017 For the 39 Weeks Ended October 1, 2016
Growth (Decline)
Net Sales Net Sales Dollars Percentage As Reported Percentage Constant Currency
Watches $ 306.5
$ 308.7
$ (2.2 ) (0.7 )% (0.6 )%
Leathers 34.6
44.3
(9.7 ) (21.9 ) (21.7 )
Jewelry 5.1
9.2
(4.1 ) (44.6 ) (44.6 )
Other 9.1
9.7
(0.6 ) (6.2 ) (4.1 )
Total $ 355.3
$ 371.9
$ (16.6 ) (4.5 )% (4.3 )%

Gross Profit. ~~For~~ Gross profit of $375.7 million in the Year To Date Period ~~gross~~decreased $28.8 million, or 7.1%, in comparison to $404.4 million in the Prior Year YTD Period. Gross profit margin rate decreased ~~350 basis points~~ to ~~48.8%~~50.3% in the Year To Date Period compared to 52.3% in the Prior Year YTD Period. The ~~decreased~~ gross profit margin ~~was primarily driven~~rate declined largely due to increased freight costs, a non-recurrence of the prior year's tariff reductions and an unfavorable currency impact. These costs were partially offset by ~~the same factors impacting the Third Quarter. Changes in~~decreased promotional activity and increased net foreign currency ~~rates negatively impacted gross profit margin by approximately 60 basis points.~~hedging contract gains in the Year To Date Period as compared to the Prior Year YTD Period.

Operating Expenses. For the Year To Date Period, total operating expenses decreased to $400.9 million compared to $406.8 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses increased to ~~$1.4 billion~~52.9% in the Year To Date Period as compared to ~~$1.0 billion~~50.1% in the Prior Year YTD Period ~~primarily due to intangible impairment charges recorded in the second quarter of fiscal 2017. During the second quarter of fiscal year 2017, interim impairment tests were performed on goodwill~~mainly driven by increased compensation costs and ~~trade names due to the sustained declines~~

investments in our ~~market capitalization~~digital initiatives, which were partially offset by a decline in marketing expenses and ~~sales trends,~~reduced store costs resulting in impairment expenses of $359.5 million for goodwill and $47.6 million for trade names. For additional information, please refer to "Note 2 - Goodwill and Intangibles Impairment Charges" to the condensed consolidated financial statements.from lower store count. During the Year To Date Period, we incurred restructuring costs of ~~$41.8~~$5.4 million ~~under our NWF initiative compared with~~in comparison to restructuring costs of ~~$14.5~~$13.3 million in the Prior Year YTD Period. ~~SG&A expenses were lower~~We incurred other long-lived asset impairment charges of $0.5 million in the Year To Date Period compared to charges of $5.8 million in the Prior Year YTD ~~Period due to lower infrastructure and store costs driven by NWF and reduced marketing expenses.~~Period. The translation of foreign-denominated expenses during the Year To Date Period decreased operating expenses by ~~approximately $3.4~~$12.8 million as a result of the stronger U.S. dollar. ~~As a percentage of net sales, SG&A expenses increased to 50.2% in the Year To Date Period as compared to 48.7% in the Prior Year YTD Period.~~

~~Consolidated~~ Operating Income (Loss). Operating income (loss) ~~decreased to~~was a loss of ~~$475.5~~$25.2 million in the Year To Date Period as compared to ~~income~~a loss of ~~$61.0~~$2.4 million in the Prior Year YTD ~~Period,~~Period. The increase in operating loss was primarily ~~driven by non-cash intangible impairment charges of $407.1 million and also by decreased~~due to the decline in net sales and ~~gross~~ margin ~~rate.~~rate in the Year To Date Period. As a percentage of net sales, operating margin was ~~(25.5)~~(3.4)% in the Year To Date Period as compared to ~~2.9%~~(0.3)% in the Prior Year YTD Period and was negatively impacted by approximately 7060 basis points due to changes in foreign currencies. During the Year To Date Period as compared to the Prior Year YTD Period, we faced continued retail pressure, most significantly in our traditional businesses in all segments. Additionally, the gross margin rate was negatively impacted by connected products, due to both lower connected margins as well as additional product valuation charges, and lower retail margins due to increased promotional activity in outlets and the e-commerce channel in all segments. Operating expenses increased significantly, primarily due to non-cash impairment charges recorded on our goodwill in the Americas, Europe and Asia segments and trade names in corporate. Increased restructuring charges were more than offset by savings in our infrastructure, store costs and marketing expenses.

Operating income (loss) by segment is summarized as follows (dollars in millions):


	For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021		Change				Operating Margin %
					Dollars		Percentage		2022		2021
Americas	$	54.6	$	62.6	$	(8.0)	(12.8)	%	16.5	%	19.0	%
Europe	34.4		27.1		7.3		26.9		14.8		11.6
Asia	21.3		26.6		(5.3)		(19.9)		11.9		13.1
Corporate	(135.5)		(118.7)		(16.8)		(14.2)
Total operating income (loss)	$	(25.2)	$	(2.4)	$	(22.8)	(950.0)	%	(3.4)	%	(0.3)	%

For the 39 Weeks Ended September 30, 2017 For the 39 Weeks Ended October 1, 2016 Growth (Decline) Operating Margin %
Dollars Percentage 2017 2016
Americas $ (122.0 ) $ 168.3
$ (290.3 ) (172.5 )% (13.9 )% 16.2 %
Europe (33.8 ) 109.2
(143.0 ) (131.0 ) (5.3 ) 16.3
Asia (2.7 ) 60.5
(63.2 ) (104.5 ) (0.8 ) 16.3
Corporate (317.0 ) (277.0 ) (40.0 ) 14.4

Total operating income (loss) $ (475.5 ) $ 61.0
$ (536.5 ) (879.5 )% (25.5 )% 2.9 %

Interest Expense. Interest expense ~~increased~~decreased by ~~$12.7~~$5.5 million during the Year To Date Period, asprimarily driven by reduced debt issuance costs amortization and a ~~result of higher interest rate spreads due to our amended credit facility.~~lower borrowing rate.

Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net ~~increased by $5.1 million to $11.5~~was a net expense of $0.1 million in ~~comparison~~the Year to Date Period compared to net income of $1.4 million in the Prior Year YTD Period. This change was largely driven by ~~favorable~~increased net foreign currency ~~activity compared to the Prior Year YTD Period.~~

~~Provision for Income Taxes~~. Income tax benefit for the Year To Date Period was $100.7 million, resulting in an effective income tax rate of 20.3%. For the Prior Year YTD Period, income tax expense was $13.2 million, resulting in an effective income tax rate of 27.5%. The tax benefit in the Year To Date Period was negatively impacted by the increased tax expense resulting from all of the foreign and some of the U.S. goodwill impairment charge being permanently nondeductible for tax purposes as compared to the Prior Year YTD Period combined with the impact of unfavorable discrete items, mostly due to the additional tax expense resulting from the adoption of ASU 2016-09, ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~.

~~Net Income (Loss) Attributable to Fossil Group, Inc.~~ Year To Date Period net income (loss) attributable to Fossil Group, Inc. decreased to $(398.3) million, or $(8.22) per diluted share, in comparison to $29.2 million, or $0.60 per diluted share, in the Prior Year YTD Period, primarily due to a $(6.51) per diluted share impact of intangible impairment charges recordedlosses during the Year To Date Period. Diluted earnings (loss) per share was negatively impacted by restructuring charges of $0.56 in the Year To Date Period and $0.22 in the Prior Year YTD Period. The tax benefit in the Year To Date Period was negatively impacted by the decreased effective tax rate in the Year To Date Period as compared to the Prior Year YTD Period.

Provision for Income Taxes. Income tax expense for the Year To Date Period was $6.7 million, resulting in an effective income tax rate of (19.9)%. The Prior Year YTD Period income tax expense was $10.2 million resulting in an effective tax rate of (68.4)%. The Year to Date Period effective tax rate was favorable to the Prior Year YTD Period due to a lower structural rate on foreign income.No tax benefit has been accrued on the Year to Date Period U.S. tax losses and certain foreign tax losses due to the uncertainty of whether they can be used in the future.The Year to Date Period and the Prior Year YTD Period effective tax rates were negative because income tax expense was accrued on foreign entities with positive taxable income while the consolidated results were a loss.

Net Income (Loss) Attributable to Fossil Group, Inc. For the Year To Date Period, we had a net loss of $40.6 million, or $0.78 per diluted share, in comparison to a loss of $25.6 million, or $0.50 per diluted share, in the Prior Year YTD Period. Diluted ~~earnings~~loss per share in the Year To Date Period, as compared to the Prior Year YTD Period, ~~decreased $0.11~~was negatively impacted $0.06 per diluted share due to the currency impact of a stronger U.S. dollar.

Adjusted Net Income (Loss).Adjusted net loss for the Year To Date Period was $35.9 million with adjusted loss per diluted share of $0.69 compared to adjusted net loss of $10.6 million with adjusted loss per diluted share of $0.21 in the Prior Year YTD Period.


	For the 26 Weeks Ended
	July, 2 2022				July 3, 2021
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(33.6)	(4.5)%		$	(14.9)	(1.9)	%
Plus:
Interest expense	8.3				13.9
Amortization and depreciation	11.9				16.4
Impairment expense	0.5				5.8
Other non-cash charges	(0.3)				(0.8)
Stock-based compensation	6.1				4.3
Restructuring expense	5.4				13.3

Less:
Interest income	0.3				0.2
Adjusted EBITDA	$	(2.0)	(0.3)	%	$	37.8	4.9	%


	For the 26 Weeks Ended July 2, 2022
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(25.2)		$	0.5	$	5.4	$	(19.3)
Operating margin (% of net sales)	(3.4)		%					(2.6)		%
Interest expense	$	(8.3)		$	—	$	—	$	(8.3)
Other income (expense) - net	(0.1)			—		—		(0.1)
Income (loss) before income taxes	(33.6)			0.5		5.4		(27.7)
Provision for income taxes	6.7			0.1		1.1		7.9
Less: net income attributable to noncontrolling interest	(0.3)			—		—		(0.3)
Net income (loss) attributable to Fossil Group, Inc.	$	(40.6)		$	0.4	$	4.3	$	(35.9)
Diluted earnings (loss) per share	$	(0.78)		$	0.01	$	0.08	$	(0.69)



		Page
PART I
Item 1.	Financial Statements	45
	Condensed Consolidated Balance Sheets	45
	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)	56
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash ~~Flow~~Flows	69
	Notes to Condensed Consolidated Financial Statements	710
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2831
	Results of Operations	2933
	Liquidity and Capital Resources	3844
	Forward-Looking Statements	4046
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4047
Item 4.	Controls and Procedures	4147
PART II
Item 1.	Legal Proceedings	4249
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4249
Item 5.	Other Information	49
Item 6.	Exhibits	4350
	SIGNATURES	4451


	September 30, 2017			December 31, 2016				July 2, 2022		January 1, 2022
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	166,922		$	297,330		Cash and cash equivalents	$	167,067	$	250,844
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 $16,477 and $16,388, respectively							Accounts receivable - net of allowances for doubtful accounts of $16,477 and $16,388, respectively	176,517		255,131
Inventories	682,986			542,487			Inventories	437,909		346,850
Prepaid expenses and other current assets	125,533			131,953			Prepaid expenses and other current assets	183,295		169,930
Total current assets	1,286,336			1,347,290			Total current assets	964,788		1,022,755
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 $427,065 and $436,663, respectively							Property, plant and equipment - net of accumulated depreciation of $427,065 and $436,663, respectively	80,559		89,767
Operating lease right-of-use assets							Operating lease right-of-use assets	168,615		177,597

Intangible and other assets-net	220,588			210,493			Intangible and other assets-net	69,462		78,600
Total long-term assets	464,036			839,607			Total long-term assets	318,636		345,964
Total assets	$	1,750,372		$	2,186,897		Total assets	$	1,283,424	$	1,368,719
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	248,824		$	163,644		Accounts payable	$	208,732	$	229,877
Short-term and current portion of long-term debt	40,209			26,368			Short-term and current portion of long-term debt	570		554
Accrued expenses:							Accrued expenses:
Current operating lease liabilities							Current operating lease liabilities	51,518		58,721
Compensation	64,862			52,993			Compensation	42,453		73,595
Royalties	26,897			30,062			Royalties	14,875		38,714
Co-op advertising	17,772			29,111
Customer liabilities							Customer liabilities	32,594		40,886
Transaction taxes	40,482			26,743			Transaction taxes	2,810		17,147
Other	101,390			69,565			Other	44,935		46,675
Income taxes payable	13,077			16,099			Income taxes payable	22,797		29,478
Total current liabilities	553,513			414,585			Total current liabilities	421,284		535,647
Long-term income taxes payable	22,951			18,584			Long-term income taxes payable	23,059		20,452
Deferred income tax liabilities	500			55,877			Deferred income tax liabilities	479		504
Long-term debt	444,303			609,961			Long-term debt	248,905		141,354
Long-term operating lease liabilities							Long-term operating lease liabilities	163,908		174,520
Other long-term liabilities	76,107			72,452			Other long-term liabilities	31,764		30,884
Total long-term liabilities	543,861			756,874			Total long-term liabilities	468,115		367,714
Commitments and contingencies (Note 13)							Commitments and contingencies (Note 13)	0		0
Stockholders’ equity:							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, 51,807 and 52,146 shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively							Common stock, 51,807 and 52,146 shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively	518		521
Additional paid-in capital	235,990			213,352			Additional paid-in capital	304,775		300,848
Retained earnings	489,528			887,825			Retained earnings	179,060		229,132
Accumulated other comprehensive income (loss)	(84,710		)	(95,424		)	Accumulated other comprehensive income (loss)	(87,079)		(67,275)
Total Fossil Group, Inc. stockholders’ equity	641,293			1,006,236			Total Fossil Group, Inc. stockholders’ equity	397,274		463,226
Noncontrolling interest	11,705			9,202
Noncontrolling interests							Noncontrolling interests	(3,249)		2,132
Total stockholders’ equity	652,998			1,015,438			Total stockholders’ equity	394,025		465,358
Total liabilities and stockholders’ equity	$	1,750,372		$	2,186,897		Total liabilities and stockholders’ equity	$	1,283,424	$	1,368,719


	For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Operating Activities:
Net income (loss)	$	(40,283)	$	(25,104)
Adjustments to reconcile net loss to net cash provided used in operating activities:
Depreciation, amortization and accretion	11,947		16,432
Non-cash lease expense	40,976		46,708
Stock-based compensation	6,085		4,282
Decrease in allowance for returns and markdowns	(12,181)		(11,656)

Property, plant and equipment and other long-lived asset impairment losses	452		5,771

Non-cash restructuring charges	876		1,701
Bad debt expense	3,917		380

Other non-cash items	7,250		2,705


Changes in operating assets and liabilities:
Accounts receivable	70,745		41,802
Inventories	(107,449)		(61,572)
Prepaid expenses and other current assets	(16,277)		32,681
Accounts payable	(17,339)		35,726
Accrued expenses	(62,676)		(44,660)
Income taxes	(3,979)		676
Operating lease liabilities	(47,843)		(55,643)
Net cash used in operating activities	(165,779)		(9,771)
Investing Activities:
Additions to property, plant and equipment	(4,466)		(3,381)
Decrease in intangible and other assets	637		6,733
Proceeds from the sale of property, plant and equipment and other	4		11,058

Net cash (used in) provided by investing activities	(3,825)		14,410
Financing Activities:

Acquisition of common stock	(12,431)		(2,349)
Distribution of noncontrolling interest earnings and other	(6,069)		(209)
Debt borrowings	177,906		85,180
Debt payments	(71,221)		(138,889)


Net cash provided by (used in) financing activities	88,185		(56,267)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,798)		(5,569)
Net decrease in cash, cash equivalents, and restricted cash	(85,217)		(57,197)
Cash, cash equivalents, and restricted cash:
Beginning of period	264,572		324,246
End of period	$	179,355	$	267,049


	For the 39 Weeks Ended September 30, 2017			For the 39 Weeks Ended October 1, 2016				For the 26 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 3, 2021
Beginning balance	$	15,421		$	13,669		Beginning balance	$	19,159	$	21,916
Settlements in cash or kind	(11,608		)	(7,338		)	Settlements in cash or kind	(4,613)		(4,828)
Warranties issued and adjustments to preexisting warranties ⁽¹⁾	14,984			8,604			Warranties issued and adjustments to preexisting warranties (1)	916		4,311
Ending balance	$	18,797		$	14,935		Ending balance	$	15,462	$	21,399



	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



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



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



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 Appreciation Rights	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in Thousands)			(in Years)	(in Thousands)
Outstanding at April 2, 2022	206	$	53.67	1.7	$	—
Granted	—	—
Exercised	—	—			—
Forfeited or expired	(7)	123.51
Outstanding at July 2, 2022	199	51.21		0.8	—
Exercisable at July 2, 2022	199	$	51.21	0.8	$	—



Cash Stock Appreciation Rights Outstanding					Cash 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)
$29.78 - $47.99	61	$	36.73	6.2	11	$	36.73
Total	61	$	36.73	6.2	11	$	36.73



Stock Options Outstanding					Stock Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Number of Shares	Weighted- Average Exercise Price
	(in Thousands)			(in Years)	(in Thousands)
$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)
$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					Restricted Stock Units and Performance Restricted Stock Units	Number of Shares	Weighted-Average Grant Date Fair Value Per Share
						(in Thousands)
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
Nonvested at April 2, 2022					Nonvested at April 2, 2022	1,802	$	9.91
Granted	254		9.98		Granted	1,244	10.69
Vested	(17	)	37.81		Vested	(904)	10.20
Forfeited	(57	)	23.86		Forfeited	(126)	10.98
Nonvested at September 30, 2017	2,965		$	22.92
Nonvested at July 2, 2022					Nonvested at July 2, 2022	2,016	$	10.16



	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



Fiscal Year	Amortization Expense
2017 (remaining)	$	3,028
2018	$	11,848
2019	$	11,518
2020	$	10,979
2021	$	7,143
2022	$	6,263



	Growth Percentage
	Growth Percentage
Brand	As Reported		Constant Currency
FOSSIL	5.2	%	7.0	%
SKAGEN	10.0	%	11.6	%



	September 30, 2017				October 1, 2016
	Americas	Europe	Asia	Total	Americas	Europe	Asia	Total
Full price accessory	112	109	61	282	128	122	66	316
Outlets	136	74	46	256	156	73	46	275
Full priced multi-brand	—	8	10	18	—	7	12	19
Total stores	248	191	117	556	284	202	124	610



Exhibit Number		Document Description

3.1		Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 25, 2010).

3.2		Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 28, 2013).

3.3		Fifth Amended and Restated Bylaws of Fossil Group, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on April 3, 2017).

~~10.1(1)(2)~~31.1(1)		~~Restricted Stock Unit Award under the Fossil Group, Inc. 2016 Long-Term Incentive Plan~~

~~10.2(2)~~	Addendum to Executive Severance Agreement, by and between Fossil Group, Inc. and Dennis R. Secor, dated as of August 31, 2017 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 5, 2017).

~~31.1(1)~~	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2(1)		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

~~32.1(3)~~32.1(2)		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2(3)~~32.2(2)		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.INS(1)~~101.INS		XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

~~101.SCH(1)~~101.SCH		Inline XBRL Taxonomy Extension Schema Document.

~~101.DEF(1)~~101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

~~101.CAL(1)~~101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

~~101.LAB(1)~~101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

~~101.PRE(1)~~101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).



			FOSSIL GROUP, INC.

~~November 9, 2017~~August 11, 2022			/S/ ~~JEFFREY N. BOYER~~SUNIL M. DOSHI
			~~Jeffrey N. Boyer~~Sunil M. Doshi
			Executive Vice President, Chief Financial Officer and Treasurer (Principal financial and accounting officer duly authorized to sign on behalf of the Registrant)