Edgar Filing: Fossil Group, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: April 4, 2015

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

For the transition period from to

Commission file number: 000-19848

FOSSIL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		75-2018505
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

901 S. Central Expressway, Richardson, Texas		75080
(Address of principal executive offices)		(Zip Code)

(972) 234-2525

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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 April 30, 2015: 48,810,385

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

IN THOUSANDS

	April 4,			January 3,
	2015			2015
Assets
Current assets:
Cash and cash equivalents	$	236,843		$	276,261
Accounts receivable - net of allowances of $74,845 and $80,047, respectively	266,139			430,498
Inventories	630,590			597,281
Deferred income tax assets-net	33,460			34,084
Prepaid expenses and other current assets	178,292			151,730
Total current assets	1,345,324			1,489,854

Property, plant and equipment - net of accumulated depreciation of $363,260 and $360,191, respectively	331,665			345,606
Goodwill	196,040			197,728
Intangible and other assets-net	170,436			174,364
Total long-term assets	698,141			717,698
Total assets	$	2,043,465		$	2,207,552

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	154,806		$	159,267
Short-term and current portion of long-term debt	18,471			16,646
Accrued expenses:
Compensation	58,242			50,776
Royalties	20,094			54,013
Co-op advertising	18,630			28,591
Transaction taxes	15,127			35,301
Other	77,325			75,609
Income taxes payable	20,844			26,626
Total current liabilities	383,539			446,829

Long-term income taxes payable	16,683			16,610
Deferred income tax liabilities	79,081			87,860
Long-term debt	626,373			613,659
Other long-term liabilities	57,528			58,793
Total long-term liabilities	779,665			776,922

Commitments and contingencies (Note 13)

Stockholders’ equity:
Common stock, 49,527 and 50,771 shares issued and outstanding at April 4, 2015 and January 3, 2015, respectively	495			508
Additional paid-in capital	174,201			171,669
Retained earnings	746,081			822,093
Accumulated other comprehensive income (loss)	(49,855		)	(16,410		)
Total Fossil Group, Inc. stockholders’ equity	870,922			977,860
Noncontrolling interest	9,339			5,941
Total stockholders’ equity	880,261			983,801
Total liabilities and stockholders’ equity	$	2,043,465		$	2,207,552

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

UNAUDITED

IN THOUSANDS, EXCEPT PER SHARE DATA

	For the 13			For the 14
	Weeks Ended			Weeks Ended
	April 4,			April 5,
	2015			2014
Net sales	$	725,085		$	776,544
Cost of sales	324,361			333,324
Gross profit	400,724			443,220

Operating expenses:
Selling, general and administrative expenses	332,482			338,522
Restructuring charges	12,088			0
Total operating expenses	344,570			338,522

Operating income	56,154			104,698
Interest expense	4,178			3,706
Other income (expense) - net	7,186			(351		)

Income before income taxes	59,162			100,641
Provision for income taxes	18,524			31,480

Net income	40,638			69,161
Less: Net income attributable to noncontrolling interest	2,568			2,818
Net income attributable to Fossil Group, Inc.	$	38,070		$	66,343

Other comprehensive income (loss), net of taxes:
Currency translation adjustment	$	(33,506	)	$	(1,125	)
Derivative instruments-net change	61			239
Total other comprehensive income (loss)	(33,445		)	(886		)

Total comprehensive income	7,193			68,275
Less: Comprehensive income attributable to noncontrolling interest	2,568			2,818
Comprehensive income attributable to Fossil Group, Inc.	$	4,625		$	65,457

Earnings per share:
Basic	$	0.76		$	1.23
Diluted	$	0.75		$	1.22
Weighted average common shares outstanding:
Basic	50,294			54,125
Diluted	50,467			54,351

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

IN THOUSANDS

	For the 13			For the 14
	Weeks Ended			Weeks Ended
	April 4,			April 5,
	2015			2014
Operating Activities:
Net income	$	40,638		$	69,161
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	22,113			23,377
Stock-based compensation	4,346			4,978
Decrease in allowance for returns-net of inventory in transit	(869		)	(1,525		)
Loss (gain) on disposal of assets	2,202			(31		)
Impairment losses	1,270			282
Decrease in allowance for doubtful accounts	(1,320		)	(1,063		)
Excess tax benefits from stock-based compensation	(354		)	(938		)
Deferred income taxes and other	247			(440		)

Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	158,594			167,760
Inventories	(49,087		)	(32,002		)
Prepaid expenses and other current assets	(30,391		)	(38,439		)
Accounts payable	(5,718		)	(17,879		)
Accrued expenses	(50,900		)	(80,095		)
Income taxes payable	(5,801		)	3,829
Net cash provided by operating activities	84,970			96,975

Investing Activities:
Additions to property, plant and equipment	(16,860		)	(21,505		)
Increase in intangible and other assets	(1,402		)	(2,165		)
Skagen Designs arbitration settlement	5,968			0
Business acquisitions-net of cash acquired	(4,970		)	0
Net cash used in investing activities	(17,264		)	(23,670		)

Financing Activities:
Acquisition of common stock	(116,047		)	(119,715		)
Distribution of noncontrolling interest earnings and other	(5,056		)	(5,391		)
Excess tax benefits from stock-based compensation	354			938
Debt borrowings	1,070,363			196,200
Debt payments	(1,055,584		)	(162,456		)
Proceeds from exercise of stock options	444			759
Net cash used in financing activities	(105,526		)	(89,665		)

Effect of exchange rate changes on cash and cash equivalents	(1,598		)	(701		)

Net decrease in cash and cash equivalents	(39,418		)	(17,061		)
Cash and cash equivalents:
Beginning of period	276,261			320,479
End of period	$	236,843		$	303,418

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. FINANCIAL STATEMENT POLICIES

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

The Company’s fiscal year periodically results in a 53-week year instead of a normal 52-week year. The prior fiscal year ending January 3, 2015 was a 53-week year, with the additional week included in the first quarter. Accordingly, the information presented herein includes thirteen weeks of operations for the quarter ended April 4, 2015 (“First Quarter”) as compared to fourteen weeks included in the quarter ended April 5, 2014 (“Prior Year Quarter”). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of April 4, 2015, and the results of operations for the First Quarter and Prior Year Quarter. All adjustments are of a normal, recurring nature.

Effective during the First Quarter, the Company made changes to the presentation of its reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. The Company has realigned its operating structure. Strategic and brand directions are set centrally and regional management is now fully empowered and responsible to drive those strategies and brand directions across all brands and channels within their regions. As part of the new operating structure the regional teams manage both the wholesale and retail businesses within their regions whereas previously the retail business was managed globally. Additionally, with the implementation of new reporting systems, the Company has the ability to extract discrete financial information that aligns with its operating structure and is consistent with how management now evaluates the business performance. The Company’s reportable segments now consist of the following: (i) Americas, (ii) Europe and (iii) Asia. Prior to the First Quarter 2015 Form 10-Q, as reported in the 2014 Form 10-K, the Company’s reportable segments consisted of the following: (i) North America wholesale, (ii) Europe wholesale, (iii) Asia Pacific wholesale and (iv) Direct to consumer.

These changes to the Company’s reportable segments include the following:

(1) Reclassification of the Company’s retail, e-commerce and catalog activities, all of which were previously recorded within the Company’s Direct to consumer segment, to the Americas, Europe and Asia segments based on the geographic location of the activities.

(2) The Company’s wholesale operations in North America, Europe and Asia Pacific previously recorded within the North America wholesale, Europe wholesale and Asia Pacific wholesale segments, respectively, have been reclassified to the Americas, Europe and Asia segments, respectively.

(3) Intercompany profit attributable to the Company’s factory operations was previously included in the Asia Pacific wholesale and Europe wholesale segments in accordance with the geographic location of the factories, and is now eliminated from all reporting segments.

(4) Certain corporate costs are not allocated to the various segments because they are managed at the corporate level for internal purposes. Prior to the change in reporting segments, these expenses included, and after the change in reporting segments, continue to include, general corporate expenses, including certain administrative, legal, accounting, technology support costs, equity compensation costs, and payroll costs attributable to executive management. Additionally, certain brand management, product development, art, creative/product design, marketing and back office supply chain expenses which were previously included in North America wholesale, Europe wholesale, Asia Pacific wholesale and Direct to consumer segments prior to the change in reporting segments are now reported in corporate. Conversely, certain back office costs reported in corporate prior to the change in reporting segments are now included in the various reporting segments in which they are now managed.

The Company’s historical segment disclosures have been recast to be consistent with the 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 January 3, 2015 (the “2014 Form 10-K”). Operating results for the First Quarter are not necessarily indicative of the results to be achieved for the full fiscal year.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 2014 Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

Business. The Company is a global design, marketing and distribution company that specializes in consumer fashion accessories. Its principal offerings include an extensive line of men’s and women’s fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, soft accessories and select apparel. 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 manage these exposures using derivative instruments including foreign currency forward contracts and interest rate swaps. The Company’s foreign subsidiaries periodically enter into foreign exchange forward contracts to hedge the future payment of intercompany inventory transactions denominated in U.S. dollars. If the Company was to settle its euro, British pound, Canadian dollar, Japanese yen, Australian dollar, and Mexican peso forward contracts as of April 4, 2015, the net result would have been a net gain of approximately $21.9 million, net of taxes. To help protect against adverse existing and forecasted fluctuations in interest rates, the Company has entered into interest rate swap agreements to effectively convert portions of its existing and forecasted variable rate debt obligations to fixed rates. To reduce exposure to changes in currency exchange rates adversely affecting the Company’s investment in a euro-denominated subsidiary, the Company entered into a forward contract designated as a net investment hedge that was settled during the second quarter of fiscal year 2014. 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”), selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of the Company’s retail stores, point-of-sale expenses, advertising expenses and art, design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and “back office” or support costs such as treasury, legal, information services, accounting, internal audit, human resources, executive management costs and costs associated with stock-based compensation. Restructuring charges include costs to reorganize, refine and optimize the Company’s infrastructure and store closures.

Earnings 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		For the 14
	Weeks Ended		Weeks Ended
	April 4,		April 5,
	2015		2014

Numerator:
Net income attributable to Fossil Group, Inc.	$	38,070	$	66,343

Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	50,294		54,125
Basic EPS	$	0.76	$	1.23

Diluted EPS computation:
Basic weighted average common shares outstanding	50,294		54,125
Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units	173		226
Diluted weighted average common shares outstanding	50,467		54,351
Diluted EPS	$	0.75	$	1.22

Approximately 352,400 and 273,400 weighted average common shares issuable under stock-based awards were not included in the diluted EPS calculation at the end of the First Quarter and Prior Year Quarter, respectively, because they were antidilutive.

Recently Issued Accounting Standards. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-04, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets (“ASU 2015-04”). ASU 2015-04 provides an entity with a fiscal year-end that does not coincide with a month-end a practical expedient that allows the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. If an entity has a significant event in an interim period that requires the remeasurement of defined benefit plan assets and obligations such as a partial settlement, ASU 2015-04 also provides a practical expedient that permits the entity to remeasure defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event and adjust for any effects of the significant event not captured in the month-end measurement. If an entity applies the practical expedient and a contribution is made between the month-end date used for measurement and the entity’s fiscal year-end, the entity should disclose the amount of the contribution to allow reconciliation of the fair value of plan assets in the fair value hierarchy to the ending balance of the fair value of plan assets. ASU 2015-04 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In April 2015, FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In January 2015, FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), to provide guidance on management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In June 2014, FASB issued ASU 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires that a performance target, that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the effect of adopting ASU 2014-12, but does not expect that adoption will have a material impact on the Company’s consolidated results of operations or financial position.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 affects any entity 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 the scope of other standards (for example, insurance contracts 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 expects to be entitled in exchange for those goods or services. ASU 2014-09 provides alternative methods of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is evaluating the effect of adopting ASU 2014-09, but does not expect that adoption will have a material impact on the Company’s consolidated results of operations or financial position.

Recently Adopted Accounting Standards. In accordance with U.S. GAAP, the following provision, which had no material impact on the Company’s financial position, results of operations or cash flows, was adopted effective for the First Quarter: ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

2. ACQUISITION AND GOODWILL

Fossil Accessories South Africa Acquisition. On February 1, 2015, the Company closed on a share purchase agreement with S. Keren Watch Group (“SKWG”), by which the Company acquired majority ownership in the Cape Town, South Africa-based distributor for approximately $5.0 million in cash-net of cash acquired, subject to working capital adjustments. SKWG has been a distribution partner for the Company for over 23 years, representing all Fossil brands and most of the Company’s licensed brands in South Africa. Upon execution of the joint venture agreement, SKWG was renamed Fossil Accessories South Africa Pty, Ltd. The Company recorded $3.7 million of goodwill related to the acquisition.

Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The changes in the carrying amount of goodwill, which is not subject to amortization, were as follows (in thousands):

	Americas			Europe			Asia		Total
Balance at January 3, 2015	$	119,438		$	66,433		$	11,857	$	197,728
Acquisitions	0			3,711			0		3,711
Foreign currency changes	(59		)	(5,378		)	38		(5,399		)
Balance at April 4, 2015	$	119,379		$	64,766		$	11,895	$	196,040

3. INVENTORIES

Inventories consisted of the following (in thousands):

	April 4,		January 3,
	2015		2015
Components and parts	$	42,270	$	48,797
Work-in-process	10,805		13,719
Finished goods	577,515		534,765
Inventories	$	630,590	$	597,281

4. WARRANTY LIABILITIES

Warranty liability activity consisted of the following (in thousands):

	For the 13			For the 14
	Weeks Ended			Weeks Ended
	April 4,			April 5,
	2015			2014
Beginning balance	$	13,500		$	15,658
Settlements in cash or kind	(2,102		)	(3,163		)
Warranties issued and adjustments to preexisting warranties (1)	2,016			3,364
Liabilities assumed in acquisition	44			0
Ending balance	$	13,458		$	15,859

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

5. INCOME TAXES

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

	For the 13			For the 14
	Weeks Ended			Weeks Ended
	April 4,			April 5,
	2015			2014
Income tax expense	$	18,524		$	31,480
Income tax rate	31.3		%	31.3		%

The lower structural rate in the First Quarter was offset by unfavorable discrete items applied to a lower income base, resulting in the effective tax rate being the same as the effective tax rate in the Prior Year Quarter.

As of April 4, 2015, the total amount of unrecognized tax benefits, excluding interest and penalties, was $20.9 million, of which $13.2 million would favorably impact the effective tax rate in future periods, if recognized. During the Prior Year Quarter, the U.S. Internal Revenue Service began its examination of the Company’s 2010-2012 federal income tax returns. The Company is subject to examinations in various state and foreign jurisdictions for its 2007-2013 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 within twelve months of the condensed consolidated balance sheet date. As of April 4, 2015, the Company had recorded $5.9 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, respectively. The total amount of accrued income tax-related interest and penalties included in the condensed consolidated balance sheets at April 4, 2015 was $2.0 million and $0.4 million, respectively. For the First Quarter, the Company accrued income tax-related interest expense of $0.2 million.

6. STOCKHOLDERS’ EQUITY

Common Stock Repurchase Programs. Purchases of the Company’s common stock are made from time to time pursuant to its repurchase programs, subject to market conditions and at prevailing market prices, through the open market. Repurchased shares of common stock are recorded at cost and become authorized but unissued shares which may be issued in the future for general corporate or other purposes. The Company may terminate or limit its stock repurchase program at any time. In the event the repurchased shares are 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 are conducted pursuant to Rule 10b-18 of the Securities Exchange Act of 1934.

During the First Quarter, the Company effectively retired 1.3 million shares of common stock repurchased under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by approximately $13,000, additional paid-in capital by $0.4 million, retained earnings by $114.1 million and treasury stock by $114.5 million. At January 3, 2105 and April 4, 2015, all treasury stock had been effectively retired. As of April 4, 2015, the Company had $944.2 million of repurchase authorizations remaining under its combined repurchase programs.

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

					For the 13 Weeks Ended			For the 14 Weeks Ended
					April 4, 2015			April 5, 2014
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		1.0	$	85.7	0.0	$	0.0
2012	$	1,000.0	December 2016	(1)	0.3	$	28.8	1.0	$	117.3
2010	$	30.0	None		0.0	$	0.0	0.0	$	0.0

(1) In the First Quarter, we completed this repurchase plan.

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

	Fossil Group, Inc.						Total
	Stockholders’			Noncontrolling			Stockholders’
	Equity			Interest			Equity
Balance at January 3, 2015	$	977,860		$	5,941		$	983,801
Net income	38,070			2,568			40,638
Currency translation adjustment	(33,506		)	0			(33,506		)
Derivative instruments-net change	61			0			61
Common stock issued upon exercise of stock options	444			0			444
Tax expense derived from stock-based compensation	(306		)	0			(306		)
Distribution of noncontrolling interest earnings	0			(5,056		)	(5,056		)
Business acquisition	0			5,886			5,886
Acquisition of common stock	(116,047		)	0			(116,047		)
Stock-based compensation expense	4,346			0			4,346
Balance at April 4, 2015	$	870,922		$	9,339		$	880,261

	Fossil Group, Inc.						Total
	Stockholders’			Noncontrolling			Stockholders’
	Equity			Interest			Equity
Balance at December 28, 2013	$	1,068,677		$	6,690		$	1,075,367
Net income	66,343			2,818			69,161
Currency translation adjustment	(1,125		)	0			(1,125		)
Derivative instruments - net change	239			0			239
Common stock issued upon exercise of stock options	759			0			759
Tax benefit derived from stock-based compensation	938			0			938
Distribution of noncontrolling interest earnings and other.	0			(5,391		)	(5,391		)
Acquisition of common stock	(119,715		)	0			(119,715		)
Stock-based compensation expense	4,978			0			4,978
Balance at April 5, 2014	$	1,021,094		$	4,117		$	1,025,211

7. EMPLOYEE BENEFIT PLANS

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

					Weighted-
					Average
			Weighted-		Remaining	Aggregate
			Average		Contractual	Intrinsic
Stock Options and Stock Appreciation Rights	Shares		Exercise Price		Term	Value
	(in Thousands)				(in Years)	(in Thousands)

Outstanding at January 3, 2015	663		$	85.08	5.6	$	20,751
Granted	147		80.22
Exercised	(19	)	32.11			1,052
Forfeited or expired	(16	)	111.84
Outstanding at April 4, 2015	775		84.93		5.8	10,714
Exercisable at April 4, 2015	551		$	82.90	5.1	$	10,297

The aggregate intrinsic value shown in the table above is before income taxes and is based on (i) the exercise price for outstanding and exercisable options/rights at April 4, 2015 and (ii) the fair market value of the Company’s common stock on the exercise date for options/rights that were exercised during the First Quarter.

Stock Options and Stock Appreciation Rights Outstanding and Exercisable. The following table summarizes information with respect to stock options and stock appreciation rights outstanding and exercisable at April 4, 2015:

Stock Options Outstanding					Stock Options Exercisable
				Weighted-
		Weighted-		Average		Weighted-
		Average		Remaining		Average
Range of	Number of	Exercise		Contractual	Number of	Exercise
Exercise Prices	Shares	Price		Term	Shares	Price
	(in Thousands)			(in Years)	(in Thousands)

$13.65 - $21.51	54	$	15.12	3.3	54	$	15.12
$30.71 - $67.10	96	36.26		3.7	96	36.26
$69.53 - $106.40	96	80.86		5.9	94	80.79
$106.89 - $131.46	166	128.10		6.5	163	128.06
Total	412	$	80.99	5.3	407	$	80.71

Stock Appreciation Rights Outstanding					Stock Appreciation Rights Exercisable
				Weighted-
		Weighted-		Average		Weighted-
		Average		Remaining		Average
Range of	Number of	Exercise		Contractual	Number of	Exercise
Exercise Prices	Shares	Price		Term	Shares	Price
	(in Thousands)			(in Years)	(in Thousands)

$13.65 - $21.51	18	$	13.65	2.0	18	$	13.65
$30.71 - $67.10	17	40.16		2.6	17	38.71
$69.53 - $106.40	213	84.29		7.1	45	90.52
$106.89 - $131.46	115	117.80		6.2	64	121.94
Total	363	$	89.40	6.3	144	$	89.15

Restricted Stock, Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock, restricted stock unit and performance restricted stock unit activity during the First Quarter:

			Weighted-Average
Restricted Stock, Restricted Stock Units			Grant Date Fair
and Performance Restricted Stock Units	Number of Shares		Value
	(in Thousands)

Nonvested at January 3, 2015	255		$	110.17
Granted	288		80.38
Vested	(85	)	113.06
Forfeited	(12	)	110.75
Nonvested at April 4, 2015	446		$	90.39

The total fair value of restricted stock and restricted stock units vested during the First Quarter was approximately $6.9 million. Vesting of performance restricted stock units is based on achievement of sales growth and operating margin targets.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table illustrates changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):

	For the 13 Weeks Ended April 4, 2015
	Currency			Cash Flow Hedges
	Translation Adjustments			Forward Contracts			Interest Rate Swaps			Pension Plan			Total
Beginning balance	$	(27,241	)	$	14,980		$	(502	)	$	(3,647	)	$	(16,410	)
Other comprehensive income (loss) before reclassifications	(33,506		)	18,760			(7,406		)	0			(22,152		)
Tax (expense) benefit	0			(6,217		)	2,699			0			(3,518		)
Amounts reclassed from accumulated other comprehensive income	0			12,439			(681		)	0			11,758
Tax (expense) benefit	0			(4,231		)	248			0			(3,983		)
Total other comprehensive income (loss)	(33,506		)	4,335			(4,274		)	0			(33,445		)
Ending balance	$	(60,747	)	$	19,315		$	(4,776	)	$	(3,647	)	$	(49,855	)

	For the 14 Weeks Ended April 4, 2014
	Currency			Cash Flow Hedges								Net
	Translation Adjustments			Forward Contracts			Interest Rate Swap			Pension Plan		Investment Hedges		Total
Beginning balance	$	38,152		$	(2,091	)	$	(106	)	$	736	$	0	$	36,691
Other comprehensive income (loss) before reclassifications	(1,125		)	(266		)	(908		)	0		162		(2,137		)
Tax (expense) benefit	0			(82		)	370			0		0		288
Amounts reclassed from accumulated other comprehensive income	0			(828		)	(732		)	0		0		(1,560		)
Tax (expense) benefit	0			330			267			0		0		597
Total other comprehensive income (loss)	(1,125		)	150			(73		)	0		162		(886		)
Ending balance	$	37,027		$	(1,941	)	$	(179	)	$	736	$	162	$	35,805

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

9. SEGMENT INFORMATION

The Company reports segment information based on the “management approach”. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments are comprised of (i) Americas, (ii) Europe and (iii) Asia. Each reportable operating segment includes sales to wholesale and distributor customers, and sales through Company-owned retail stores and e-commerce activities based on the location of the selling entity. The Americas segment primarily includes sales to customers based in Canada, Latin America and the United States. The Europe segment primarily includes sales to customers based in European countries, the Middle East and Africa. The Asia segment primarily includes sales to customers based in Australia, China, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand. Each reportable operating segment provides similar products and services.

The Company evaluates the performance of its reportable segments based on net sales and operating income. Net sales for geographic segments are based on the location of the selling entity. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. 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 are not allocated to the various segments because they are managed at the corporate level internally. The Company does not include intercompany transfers between segments for management reporting purposes.

Certain reclassifications have been made to prior year amounts to conform with current year presentation. Due to changes in the Company’s reportable segments as discussed in Note 1 to the condensed consolidated financial statements, segment results for fiscal year 2014 have been recast to present results on a comparable basis.

Summary information by operating segment was as follows (in thousands):

	For the 13 Weeks Ended					For the 14 Weeks Ended
	April 4, 2015					April 5, 2014
	Net Sales		Operating Income			Net Sales		Operating Income

Americas	$	366,596	$	76,722		$	382,660	$	99,069
Europe	234,256		33,302			260,353		52,508
Asia	124,233		24,308			133,531		30,898
Corporate			(78,178		)			(77,777		)
Consolidated	$	725,085	$	56,154		$	776,544	$	104,698

	April 4, 2015					January 3, 2015
	Long-Term Assets		Total Assets			Long-Term Assets		Total Assets

Americas	$	263,887	$	765,691		$	263,324	$	809,548
Europe	202,704		470,671			220,742		561,486
Asia	56,670		222,387			57,508		233,881
Corporate	174,880		584,716			176,124		602,637
Total	$	698,141	$	2,043,465		$	717,698	$	2,207,552

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

	For the 13 Weeks Ended				For the 14 Weeks Ended
	April 4, 2015				April 5, 2014
	Net Sales		Percentage of Total		Net Sales		Percentage of Total

Watches	$	551,857	76.1	%	$	601,388	77.5	%
Leathers	92,926		12.8		99,722		12.8
Jewelry	62,987		8.7		56,518		7.3
Other	17,315		2.4		18,916		2.4
Total	$	725,085	100.0	%	$	776,544	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 18 months. The Company enters into foreign currency forward contracts (“forward contracts”) generally for up to 65% of the forecasted purchases to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. 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 intercompany 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 inter-entity 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 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 and comprehensive income, and there were no components excluded from the assessment of hedge effectiveness for the First Quarter or Prior Year Quarter.

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 First Quarter or Prior Year Quarter. 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 April 4, 2015, the Company had the following outstanding forward contracts that were entered into to hedge the future payments of intercompany inventory transactions (in millions):

Functional Currency		Contract Currency
Type	Amount	Type	Amount
Euro	174.1	U.S. dollar	217.6
British pound	27.5	U.S. dollar	43.5
Canadian dollar	40.1	U.S. dollar	34.3
Japanese yen	2,935.0	U.S. dollar	26.4
Mexican peso	173.3	U.S. dollar	12.0
Australian dollar	14.2	U.S. dollar	11.5

The Company is also exposed to interest rate risk related to both its outstanding debt and forecasted debt issuances. To manage the interest rate risk related to its $231.3 million U.S.-based term loan, as amended on March 9, 2015 (“Term Loan”), 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 (which varies based upon the Ratio from 1.25% if the Ratio is less than 1.00 to 1.00, to 2.00% if the Ratio is greater than or equal to 2.00 to 1.00). The notional amount will amortize over the remaining life of the Term Loan to coincide with the amortization of the underlying loan. The Company will receive interest from the swap counterparty at a variable rate based on 1-month LIBOR. This hedge is designated as a cash flow hedge. Additionally, to manage interest rate risk related to forecasted debt issuances, the Company entered into a forward starting interest rate swap agreement on March 20, 2015 with a term of approximately 10 years. The objective of this hedge is to offset the variability of future interest payments associated with forecasted debt issuances. Under the terms of the swap, the Company pays a fixed interest rate of 2.14% per annum to the swap counterparty. This hedge is designated as a cash flow hedge.

Net Investment Hedge. The Company is also exposed to risk that adverse changes in foreign currency exchange rates could impact its net investment in foreign operations. To manage this risk, during the first quarter of fiscal year 2014, the Company entered into a forward contract designated as a net investment hedge to reduce exposure to changes in currency exchange rates on €25.0 million of its total investment in a wholly-owned euro-denominated foreign subsidiary. The hedge was settled in the second quarter of fiscal year 2014. The effective portion of derivatives designated as net investment hedges are recorded at fair value at each balance sheet date and the change in fair value is recorded as a component of other comprehensive income (loss) in the Company’s condensed consolidated statements of income and comprehensive income. The Company uses the hypothetical derivative method to assess the ineffectiveness of net investment hedges. Should any portion of a net investment hedge become ineffective, the ineffective portion will be reclassified to other income-net on the Company’s condensed consolidated statements of income and comprehensive income. Gains and losses reported in accumulated other comprehensive income (loss) will not be reclassified into earnings until the Company’s underlying investment is liquidated or dissolved.

Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain non-inventory intercompany transactions and to which the Company does not elect hedge treatment. All of the Company’s outstanding forward contracts were designated as hedging instruments as of April 4, 2015 and January 3, 2015. 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 derivative instruments that were recognized in other comprehensive income (loss), net of taxes during the First Quarter and Prior Year Quarter are set forth below (in thousands):

	For the 13			For the 14
	Weeks Ended			Weeks Ended
	April 4, 2015			April 5, 2014
Cash flow hedges:
Forward contracts	$	12,543		$	(348	)
Interest rate swaps	(4,707		)	(538		)
Net investment hedge:
Forward contract	0			162
Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	7,836		$	(724	)

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

	Condensed Consolidated
	Statements of Income		For the 13			For the 14
	and Comprehensive	Effect of Derivative	Weeks Ended			Weeks Ended
Derivatives Instruments	Income Location	Instruments	April 4, 2015			April 5, 2014

Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from other comprehensive income (loss)	$	8,208		$	(498	)

Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	89		$	(148	)

Interest rate swap designated as a cash flow hedging instrument	Interest expense	Total gain (loss) reclassified from other comprehensive income (loss)	$	(433	)	$	(465	)

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

April 4, 2015

January 3, 2015

April 4, 2015

January 3, 2015

Condensed

Consolidated

Balance Sheets

Fair

Balance Sheets

Fair

Balance Sheets

Fair

Balance Sheets

Fair

Derivatives Instruments

Location

Value

Location

Value

Location

Value

Location

Value

Forward contracts designated as cash flow hedging instruments

Prepaid expenses and other current assets

32,927

Prepaid expenses and other current assets

25,867

Accrued expenses- other

373

Accrued expenses- other

Interest rate swap designated as a cash flow hedging instrument

Prepaid expenses and other current assets

Accrued expenses- other

7,059

Accrued expenses- other

2,157

Forward contracts designated as cash flow hedging instruments

Intangible and other assets-net

1,155

Intangible and other assets-net

1,802

Other long-term liabilities

133

Other long-term liabilities

Interest rate swap designated as a cash flow hedging instrument

Intangible and other assets-net

343

Intangible and other assets-net

1,724

Other long-term liabilities

799

Other long-term liabilities

357

Total

34,425

29,393

8,364

2,514

At the end of the First Quarter, the Company had forward contracts with maturities extending through September 2016. As of April 4, 2015, an estimated net gain of $21.3 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.

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 April 4, 2015 (in thousands):

	Fair Value at April 4, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	0	$	34,082	$	0	$	34,082
Deferred compensation plan assets:
Investment in publicly traded mutual funds	2,510		0		0		2,510
Interest rate swaps	0		343		0		343
Total	$	2,510	$	34,425	$	0	$	36,935

Liabilities:
Contingent consideration	$	0	$	0	$	6,878	$	6,878
Forward contracts	0		506		0		506
Interest rate swaps	0		7,858		0		7,858
Total	$	0	$	8,364	$	6,878	$	15,242

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of January 3, 2015 (in thousands):

	Fair Value at January 3, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	0	$	27,669	$	0	$	27,669
Deferred compensation plan assets:
Investment in publicly traded mutual funds	2,477		0		0		2,477
Interest rate swap	0		1,724		0		1,724
Total	$	2,477	$	29,393	$	0	$	31,870

Liabilities:
Contingent consideration	$	0	$	0	$	7,114	$	7,114
Interest rate swap	0		2,514		0		2,514
Total	$	0	$	2,514	$	7,114	$	9,628

The fair values of the Company’s deferred compensation plan assets are based on quoted prices. The deferred compensation plan assets are recorded in intangible and other assets-net in the Company’s condensed consolidated balance sheets. The fair values of the Company’s forward contracts are based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. The fair values of the interest rate swap assets and liabilities are determined using valuation models based on market observable inputs, including forward curves, mid market price and volatility levels. See “Note 10—Derivatives and Risk Management” for additional disclosures about the interest rate swaps and forward contracts.

The Company has evaluated its short-term and long-term debt as of April 4, 2015 and January 3, 2015 and believes, based on the interest rates, related terms and maturities, that the fair values of such instruments approximated their carrying amounts. As of April 4, 2015 and January 3, 2015, the carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated their values due to the short-term maturities of these accounts.

The fair value of the contingent consideration liability related to the acquisition of the Company’s joint venture company, Fossil, S.L. (“Fossil Spain”), was determined using Level 3 inputs. The contingent consideration recorded as of April 4, 2015 is based on Fossil Spain’s earnings for fiscal year 2014 and forecasted earnings for fiscal year 2015. The contingent consideration for calendar year 2014 will be paid during the remaining part of fiscal year 2015. The contingent consideration for calendar year 2015 will be paid upon the execution of the purchase agreement in 2016. The fair value of the contingent consideration was determined using present value techniques with forecasted future cash flows for Fossil Spain as the significant unobservable input. Future revenue growth based on management’s projections for the 2015 calendar year is approximately 17%. Operating expenses are projected to be approximately 25% of revenues for calendar year 2015. A discount rate of 19% was used to calculate the present value of the contingent consideration. The contingent consideration liability for calendar year 2014 is valued at 3.4 million euros (approximately $3.7 million) and the contingent consideration liability for calendar year 2015 is valued at the maximum annual variable price of 3.5 million euros (approximately $3.8 million). A decrease in future cash flows may result in a lower estimated fair value of the calendar year 2015 contingent consideration liability. Future changes in the estimated fair value of the contingent consideration liability, if any, will be reflected in earnings.

In accordance with the provisions of ASC 360, Property, Plant and Equipment, property, plant and equipment—net with a carrying amount of $1.2 million, as of April 4, 2015, related to retail store leasehold improvements and fixturing was fully impaired, and related key money in the amount of $0.1 million was deemed not recoverable, resulting in an impairment charge of $1.3 million for the First Quarter.

The fair values of assets related to the Company-owned retail stores were determined using Level 3 inputs. $1.0 million of the impairment expense was recorded in the Europe segment and $0.3 million was recorded in the Americas segment in SG&A.

12. INTANGIBLE AND OTHER ASSETS

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

		April 4, 2015				January 3, 2015
	Useful	Gross		Accumulated		Gross		Accumulated
At Fiscal Year End	Lives	Amount		Amortization		Amount		Amortization
Intangibles-subject to amortization:
Trademarks	10 yrs.	$	4,175	$	3,013	$	4,174	$	2,950
Customer lists	5-10 yrs.	43,461		17,987		41,703		17,457
Patents	3-20 yrs.	2,273		2,037		2,273		1,902
Noncompete agreement	6 yrs.	1,816		908		1,855		851
Other	7-20 yrs.	501		394		353		341
Total intangibles-subject to amortization		52,226		24,339		50,358		23,501
Intangibles-not subject to amortization:
Trade names		83,627				83,610
Other assets:
Key money deposits		29,438		18,107		31,892		18,661
Other deposits		22,182				21,854
Deferred compensation plan assets		2,510				2,477
Deferred tax asset-net		7,581				8,583
Restricted cash		522				575
Shop-in-shop		14,807		10,267		16,333		9,660
Interest rate swap		343				1,724
Forward contracts		1,155				1,802
Other		8,758				6,978
Total other assets		87,296		28,374		92,218		28,321
Total intangible and other assets		$	223,149	$	52,713	$	226,186	$	51,822
Total intangible and other assets-net				$	170,436			$	174,364

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 $1.2 million and $1.3 million for the First Quarter and Prior Year Quarter. Estimated aggregate future amortization expense by fiscal year for intangible assets is as follows (in thousands):

Fiscal Year	Amortization Expense
2015 (remaining)	$	3,751
2016	$	4,880
2017	$	4,621
2018	$	4,267
2019	$	4,172
2020	$	3,674

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.

Operating lease obligations. As of April 4, 2015, the Company had operating lease obligations of approximately $886.7 million. The Company recognized rent expense of $49.0 million and $44.4 million during the First Quarter and Prior Year Quarter, respectively.

14. DEBT ACTIVITY

On March 9, 2015, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for (i) revolving credit loans in the amount of $1.05 billion (the “Revolving Credit Facility”), with an up to $20.0 million subfacility for swingline loans (the “Swingline Loan”), and an up to $10.0 million subfacility for letters of credit, and (ii) a term loan in the amount of $231.3 million (the “Term Loan”). The Credit Agreement expires and is due and payable on May 17, 2018.

The Company’s obligations under the Credit Agreement are unsecured, and none of the Company’s subsidiaries are guarantors of the Company’s obligations under the Credit Agreement. Upon the occurrence of both (a) the Moody’s Investor Service, Inc. rating of the Company falling below Ba1 and (b) the Standard & Poor’s Financial Services LLC rating of the Company falling below BB+, the Company’s obligations under the Credit Agreement will be required to be guaranteed by all direct and indirect material domestic subsidiaries of the Company, as provided in a subsidiary guaranty agreement, and secured by 65% of the total outstanding voting capital stock and 100% of the non-voting capital stock of the Company’s material first-tier foreign subsidiaries, pursuant to a pledge agreement. The Credit Agreement may be used (a) to refinance the indebtedness under the Prior Agreement (as defined below), (b) to finance the acquisition of capital assets, (c) for ongoing working capital and other general corporate purposes, and (d) to repurchase the Company’s capital stock to the extent permitted under the Credit Agreement.

The Credit Agreement amends and restates that certain credit agreement, dated as of May 17, 2013, as amended, which was scheduled to mature on May 17, 2018 (the “Prior Agreement”). Under the Prior Agreement, the Company incurred approximately $1.6 million and $1.0 million of interest expense during the First Quarter related to outstanding revolving credit loans and term loans, respectively, including the impact of the related interest rate swap, respectively. As of March 9, 2015, the Company had $555.0 million in aggregate principal amount of revolving credit loans outstanding and $231.3 million in aggregate principal amount of term loans outstanding under the Prior Agreement, all of which was refinanced on March 9, 2015 with borrowings under the Credit Agreement. No penalties or other early termination fees were incurred in connection with the amendment and restatement of the Prior Agreement.

Amounts outstanding under the Revolving Credit Facility and the Term Loan under the Credit Agreement bear interest, at the Company’s option, at (i) the base rate (defined as the highest of (a) the prime rate publicly announced by Wells Fargo, (b) the federal funds rate plus 0.5%, and (c) LIBOR for an interest period of one month plus 1.0%) plus the base rate applicable margin (which varies, based upon the Company’s consolidated total leverage ratio, from 0.25%, if the consolidated total leverage ratio is less than 1.00 to 1.00, to 1.00%, if the consolidated total leverage ratio is greater than or equal to 2.00 to 1.00) or (ii) the LIBOR rate (defined as the quotient obtained by dividing (a) LIBOR by (b) 1.00 minus the Eurodollar reserve percentage) plus the LIBOR rate applicable margin (which varies, based upon the consolidated total leverage ratio, from 1.25%, if the consolidated total leverage ratio is less than 1.00 to 1.00, to 2.00%, if the consolidated total leverage ratio is greater than or equal to 2.00 to 1.00). Amounts outstanding under the Swingline Loan under the Credit Agreement or upon any drawing under a letter of credit bear interest at the base rate plus the applicable margin. Interest based upon the base rate is payable quarterly in arrears. Interest based upon the LIBOR rate is payable on the last day of the applicable interest period.

Financial covenants governing the Credit Agreement require the Company to maintain (i) a consolidated total leverage ratio no greater than 2.50 to 1.00 and (ii) a consolidated interest coverage ratio no less than 3.50 to 1.00. The Credit Agreement contains representations, warranties, covenants, events of default and indemnities that are customary for agreements of this type.