FINANCIAL STATEMENT POLICIES

6 Months Ended

Jul. 01, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 1, 2023 (“Second Quarter”) as compared to the thirteen-week period ended July 2, 2022 (“Prior Year Quarter”), and the twenty-six week period ended July 1, 2023 ("Year To Date Period") as compared to the twenty-six week period ended July 2, 2022 ("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 July 1, 2023, and the results of operations for the Second Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period. All adjustments are of a normal, recurring nature.

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, 2022 (the “2022 Form 10-K”). Operating results for the 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. Actual results could differ from those estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 2022 Form 10-K.

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 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.

Operating Expenses. 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 the 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 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 reduce and optimize the Company’s infrastructure and store 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 1, 2023		For the 13 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Numerator:
Net income (loss) attributable to Fossil Group, Inc.	$	(26,529)	$	(19,074)	$	(67,791)	$	(40,588)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	52,349		51,707		52,095		51,853
Basic EPS	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)
Diluted EPS computation:

Diluted weighted average common shares outstanding	52,349		51,707		52,095		51,853
Diluted EPS	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)

At the end of the Second Quarter and Year To Date Period, approximately 2.2 million and 2.1 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 0.4 million and 0.3 million weighted average performance-based shares at the end of the Second Quarter and Year To Date Period, respectively.

At the end of each of the Prior Year Quarter and Prior Year YTD Period, approximately 2.3 million and 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 0.3 million weighted average performance-based shares at the end of each of the Prior Year Quarter and Prior Year YTD Period.

Cash, Cash Equivalents and Restricted Cash. Restricted cash included in intangible and other-assets net was comprised primarily of 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 1, 2023 and July 2, 2022 that are presented in the condensed consolidated statement of cash flows (in thousands):


	July 1, 2023		July 2, 2022
Cash and cash equivalents	$	132,107	$	167,067
Restricted cash included in prepaid expenses and other current assets	107		110
Restricted cash included in intangible and other assets-net	4,722		12,178
Cash, cash equivalents and restricted cash	$	136,936	$	179,355

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination as if they had originated the contracts, as opposed to at fair value on the acquisition date. The standard is effective for business combinations after January 1, 2023. The adoption of this standard did not have an impact on the Company's consolidated financial statements or related disclosures.