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FAIR VALUE MEASUREMENTS | 3 Months Ended
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Apr. 05, 2014
FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS | 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 5, 2014 (in thousands):
|  | Fair Value at April 5, 2014 |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets: |  |  |  |  |  |  |  |  |
Forward contracts |  | $ | 0 |  | $ | 2,752 |  | $ | 0 |  | $ | 2,752 |
Deferred compensation plan assets: |  |  |  |  |  |  |  |  |
Investment in publicly traded mutual funds |  | 2,424 |  | 0 |  | 0 |  | 2,424 |
Interest rate swap |  | 0 |  | 3,658 |  | 0 |  | 3,658 |
Total |  | $ | 2,424 |  | $ | 6,410 |  | $ | 0 |  | $ | 8,834 |
Liabilities: |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 0 |  | $ | 0 |  | $ | 8,053 |  | $ | 8,053 |
Forward contracts |  | 0 |  | 6,044 |  | 0 |  | 6,044 |
Interest rate swap |  | 0 |  | 3,939 |  | 0 |  | 3,939 |
Total |  | $ | 0 |  | $ | 9,983 |  | $ | 8,053 |  | $ | 18,036 |
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 28, 2013 (in thousands):
|  | Fair Value at December 28, 2013 |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets: |  |  |  |  |  |  |  |  |
Forward contracts |  | $ | 0 |  | $ | 3,508 |  | $ | 0 |  | $ | 3,508 |
Deferred compensation plan assets: |  |  |  |  |  |  |  |  |
Investment in publicly traded mutual funds |  | 2,360 |  | 0 |  | 0 |  | 2,360 |
Interest rate swap |  | 0 |  | 4,307 |  | 0 |  | 4,307 |
Total |  | $ | 2,360 |  | $ | 7,815 |  | $ | 0 |  | $ | 10,175 |
Liabilities: |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 0 |  | $ | 0 |  | $ | 8,084 |  | 8,084 |
Forward contracts |  | 0 |  | 8,214 |  | 0 |  | 8,214 |
Interest rate swap |  | 0 |  | 4,476 |  | 0 |  | 4,476 |
Total |  | $ | 0 |  | $ | 12,690 |  | $ | 8,084 |  | $ | 20,774 |
The fair values of the Company’s securities available for sale and 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 Company has evaluated its short-term and long-term debt as of April 5, 2014 and December 28, 2013 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 5, 2014 and December 28, 2013, 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 Fossil Spain was determined using Level 3 inputs. See “Note 2 — Acquisitions, Divestiture and Goodwill” for additional disclosure about the acquisition. The contingent consideration is based on Fossil Spain’s forecasted earnings during the three year period from January 1, 2013 to December 31, 2015. The contingent consideration for calendar years 2013 and 2014 will be paid each year, generally within thirty days of calculation of the amount. 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 calendar years 2014 and 2015 ranges from 3% to 10%. Operating expenses are projected to be approximately 28% of revenues for calendar years 2014 and 2015. A discount rate of 19% was used to calculate the present value of the contingent consideration. An increase in future cash flows may result in a higher estimated fair value of the contingent consideration liability. Alternatively, a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liability. Future changes in the estimated fair value of the contingent consideration liability, if any, will be reflected in earnings. The fair values of the interest rate swap asset and liability are determined using valuation models based on market observable inputs, including forward curves, mid-market price, foreign exchange spot or forward rates, and volatility levels. See “Note 10—Derivatives and Risk Management” for additional disclosures about the interest rate swap. The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a nonrecurring basis as of April 5, 2014 (in thousands):
|  | For the 14 Weeks Ended |  | Fair Value Measurements Using |  | Total Impairment |
|  | April 5, 2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Charge |
Assets: |  |  |  |  |  |  |  |  |  |  |
Specific Company-owned stores |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | (282 | )
In accordance with the provisions of ASC 360, Property, Plant and Equipment, property, plant and equipment—net with a carrying amount of $0.3 million related to Company-owned retail store leasehold improvements and fixturing was fully impaired, resulting in an impairment charge of $0.3 million for the First Quarter. The fair values of assets related to the Company-owned retail stores were determined using Level 3 inputs. If undiscounted cash flows estimated to be generated through the operation of Company-owned retail stores are less than the carrying value of the underlying assets, the assets are impaired. If it is determined that the assets are impaired, the fair value of the assets is calculated using future estimated discounted cash flows, and then an impairment loss is recorded for the amount by which the assets’ book value exceeds their fair value. Impairment expenses related to Company-owned retail stores are recorded in selling, general and administrative expense within the Direct to consumer segment.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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