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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 29, 2019

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 June 29, 2019 (in thousands):



	Fair Value at June 29, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	5,860	$	—	$	5,860
Deferred compensation plan assets:
Investment in publicly traded mutual funds	4,788		—		—		4,788
Total	$	4,788	$	5,860	$	—	$	10,648
Liabilities:
Contingent consideration	$	—	$	—	$	1,813	$	1,813
Forward contracts	—		1,652		—		1,652
Total	$	—	$	1,652	$	1,813	$	3,465

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 29, 2018 (in thousands):



	Fair Value at December 29, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	9,685	$	—	$	9,685
Deferred compensation plan assets:
Investment in publicly traded mutual funds	4,442		—		—		4,442
Total	$	4,442	$	9,685	$	—	$	14,127
Liabilities:
Contingent consideration	$	—	$	—	$	2,174	$	2,174
Forward contracts	—		730		—		730
Total	$	—	$	730	$	2,174	$	2,904

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. See “Note 10—Derivatives and Risk Management” for additional disclosures about the forward contracts.

As of June 29, 2019, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $231.1 million and a fair value of approximately $230.6 million. As of December 29, 2018, the fair value of the Company's debt approximated its carrying amount. The fair value of debt was based on observable market inputs.

During the Year to Date Period, operating lease assets with a carrying amount of $6.9 million and property, plant and equipment-net with a carrying amount of $1.1 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of $3.4 million and $0.4 million, respectively, resulting in impairment charges of $4.2 million.

The fair values of fixed assets related to Company-owned retail stores and operating lease assets were determined using Level 3 inputs. Of the $4.2 million impairment expense, $2.2 million and $0.3 million was recorded in SG&A in the Europe and Americas segment, respectively, and $1.3 million and $0.4 million was recorded in restructuring charges in the Americas and Europe segment, respectively.

The fair value of the contingent consideration liability related to Fossil South Africa was determined using Level 3 inputs. See "Note 6—Stockholders' Equity" for additional disclosures about the equity transaction. The contingent consideration is based on Fossil South Africa's projected earnings and dividends through fiscal year 2020 with the final payments expected the following year. A discount rate of 14% was used to calculate the present value of the contingent consideration. The present value of the contingent consideration liability was valued at $1.8 million as of June 29, 2019.

- 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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