Fair Value Measurements

12 Months Ended

Jan. 02, 2016

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 January 2, 2016 (in thousands):



	Fair Value at January 2, 2016
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	16,136	$	—	$	16,136
Deferred compensation plan assets:
Investment in publicly traded mutual funds	2,406		—		—		2,406
Interest rate swaps	—		311		—		311
Total	$	2,406	$	16,447	$	—	$	18,853
Liabilities:
Contingent consideration	$	—	$	—	$	3,643	$	3,643
Forward contracts	—		798		—		798
Interest rate swaps	—		1,401		—		1,401
Total	$	—	$	2,199	$	3,643	$	5,842

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	$	—	$	27,669	$	—	$	27,669
Deferred compensation plan assets:
Investment in publicly traded mutual funds	2,477		—		—		2,477
Interest rate swap	—		1,724		—		1,724
Total	$	2,477	$	29,393	$	—	$	31,870
Liabilities:
Contingent consideration	$	—	$	—	$	7,114	$	7,114
Interest rate swap	—		2,514		—		2,514
Total	$	—	$	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 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 estimates the fair value of its debt using Level 2 inputs, such as interest rates, related terms and maturities. The fair value of the Company's debt approximated its carrying amount as of January 2, 2016 and January 3, 2015. As of January 2, 2016 and January 3, 2015, the carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated their fair 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 and Goodwill for additional disclosures about the acquisition. The contingent consideration recorded as of January 2, 2016 is based on Fossil Spain's earnings for fiscal year 2015. During fiscal year 2015, the Company paid the 2014 contingent consideration amount of 3.4 million euros (approximately $3.7 million). 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 Fossil Spain's actual earnings 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 2015 is valued at the maximum annual variable price of 3.5 million euros (approximately $3.8 million).

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 8—Derivatives and Risk Management for additional disclosures about the interest rate swap.

Property, plant and equipment—net with a carrying amount of $11.6 million related to retail store leasehold improvements and fixturing was written down to a fair value of $0.6 million, and related key money in the amount of $0.1 million was deemed not recoverable, resulting in total impairment charges of $11.1 million for fiscal year 2015.

The fair values of assets related to the Company-owned retail stores were determined using Level 3 inputs. Of the $11.1 million impairment expense, $5.1 million, $1.9 million and $0.7 million were recorded in SG&A in the Europe, Americas and Asia segments, respectively, and $3.4 million was recorded in restructuring charges in the Americas segment.

In fiscal year 2014, property, plant and equipment—net with a carrying amount of $9.1 million related to retail store leasehold improvements and fixturing was written down to a fair value of $0.3 million, and related key money in the amount of $0.5 million was deemed not recoverable, resulting in total impairment charges of $9.3 million for fiscal year 2014.

In fiscal year 2015, the SKAGEN trade name with a carrying amount of $64.7 million was written down to its implied fair value of $55.6 million, resulting in an impairment charge of $9.1 million. The fair value of the asset was estimated using discounted cash flow methodologies. Changes in foreign currency exchange rates and fewer planned store openings negatively impacted future expected cash flows compared to original valuation assumptions. The impairment charge was recorded in SG&A in the Corporate cost area.

- 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.

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