Use these links to rapidly review the document
TABLE OF CONTENTS
PART IV
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
FORM 10-K
(Mark One)
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year EndedDecember 28, 2024
OR
☐
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 001-41040
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)
Registrant's telephone number, including area code: (972) 234-2525
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ticker Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value
FOSL
The Nasdaq Stock Market LLC
7.00% Senior Notes due 2026
FOSLL
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
_________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No X
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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☐
Accelerated filer
X
Non-accelerated filer
☐
Smaller reporting company
X
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. X
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
The aggregate market value of common stock, $0.01 par value per share, held by non-affiliates of the registrant, based on the last sale price of the common stock as reported by
the NASDAQ Global Select Market on July 1, 2024 was $69.5 million. For purposes of this computation, all officers, directors and 10% non-passive beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors or 10% non-passive beneficial owners are, in fact, affiliates of the registrant.
As of March 3, 2025, 53,258,663 shares of common stock were outstanding.
_________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be furnished to shareholders in connection with its 2025 Annual Meeting of Stockholders are incorporated by reference in Part III,
Items 10-14 of this Annual Report on Form 10-K.
Table of Contents
FOSSIL GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2024
INDEX
Page
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
14
Item 1B.
Unresolved Staff Comments
32
Item 1C.
Cybersecurity
32
Item 2.
Properties
33
Item 3.
Legal Proceedings
33
Item 4.
Mine Safety Disclosures
33
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
34
Item 6.
[Reserved]
34
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
35
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
47
Item 8.
Consolidated Financial Statements and Supplementary Data
48
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
87
Item 9A.
Controls and Procedures
87
Item 9B.
Other Information
89
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
89
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
89
Item 11.
Executive Compensation
89
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
89
Item 13.
Certain Relationships and Related Transactions, and Director Independence
89
Item 14.
Principal Accountant Fees and Services
89
PART IV
Item 15.
Exhibits and Consolidated Financial Statement Schedules
90
Item 16.
Form 10-K Summary
90
Table of Contents
In this Annual Report, references to "we,” "our,” "us,” "Fossil" and the "Company” refer to Fossil Group, Inc., including its consolidated subsidiaries as of December 28, 2024
("fiscal 2024"), December 30, 2023 ("fiscal 2023") and December 31, 2022 ("fiscal 2022").
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K ("Annual Report"), including the sections entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
"Risk Factors” and "Business,” contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management.
Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as "believe,” "may,” "will,” "should,” "seek,” "forecast,”
"outlook,” "estimate,” "continue,” "anticipate,” "intend,” "could,” "would,” "project,” "predict,” "potential,” "plan,” "expect” or the negative or plural of these words or similar
expressions. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and these forward-looking statements are only predictions and are
subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking
statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report under the section entitled "Risk Factors” in
Item 1A of Part I and elsewhere, and in other reports we file with the U.S. Securities and Exchange Commission (the "SEC"). In addition, many of the foregoing risks and uncertainties are,
and could be, exacerbated by pandemics and any worsening of the global business and economic environment. While forward-looking statements are based on reasonable expectations
of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason,
except as required by applicable law.
Summary Risk Factors
Our business is subject to a number of risks and uncertainties that may affect our business, results of operations and financial condition, or the trading price of our common stock.
These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot
predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may
impact our business. These risks are more fully described in Part I, Item 1A. "Risk Factors". These risks include, among others, the following:
Strategic Risks
•
we may not fully realize the expected cost savings, operating efficiencies or balance sheet and liquidity improvements from our restructuring plans and strategic review;
•
our ability to anticipate and respond to changing fashion, functionality and product trends;
•
our ability to continue to develop innovative products;
•
our ability to execute our e-commerce business;
•
consumer acceptance of new products, features or technology;
•
our ability to grow our sales is dependent on our business strategy;
•
rapidly changing regulatory requirements and political scrutiny of ESG matters;
•
climate change and other environmental impacts.
Pandemic and Public Health Risks
•
any impacts from pandemics and actions taken by governments, businesses, and individuals in response to pandemics.
Operational Risks
•
supply chain disruptions resulting from changes in U.S. trade policy, particularly with China, or as a result of a pandemic;
•
loss of any of our license agreements for globally recognized fashion brand names;
•
effectively managing our retail store operations;
•
supply shortages for certain key components in our products;
•
seasonality of our business;
•
the success of the shopping malls and retail centers in which our stores are located;
1
Table of Contents
•
loss of key facilities;
•
fluctuations in the price, availability and quality of raw materials and any impact of inflation;
•
problems with, or loss of, our assembly factories or manufacturing sources;
•
we do not maintain long-term contracts with our customers;
•
we face intense competition in the specialty retail and e-commerce industries and some competitors are substantially larger than us;
•
we face competition from traditional competitors as well as technology companies;
•
any material disruption of our information systems;
•
factors affecting international commerce and our international operations;
•
changes in economic and social conditions in Asia, particularly China or India, and disruptions in international travel and shipping;
•
loss of key senior management or failure to attract and retain key employees.
Risks related to our Indebtedness
•
we are highly leveraged;
•
our failure to comply with the covenants contained in our debt agreements;
•
our borrowings may fluctuate significantly;
•
our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations;
•
our ability to generate sufficient cash flows to meet our debt service obligations;
•
our ability to enhance our liquidity and refinance our indebtedness prior to maturity;
•
we may incur significantly more debt, including secured debt;
•
impacts from a downgrade in our debt ratings;
•
our indebtedness exposes us to interest rate risk;
•
we have restrictive covenants in our secured asset-based revolving credit agreement.
Financial Risks
•
we may not achieve consistent profitability or positive cash flows;
•
a significant portion of our cash, cash equivalents and investments are held by our foreign subsidiaries;
•
changes in the mix of product sales demand;
•
impact of potential changes to international tax rules;
•
incurring impairment charges;
•
increased competition from online only retailers and a highly promotional retail environment;
•
our license agreements may require minimum royalty commitments, regardless of the level of product sales under these agreements;
•
foreign currency fluctuations;
Legal, Compliance and Reputational Risks
•
a data security or privacy breach;
•
violations of laws and regulations, or changes to existing laws or regulations in the U.S. or internationally;
•
tariffs or other restrictions placed on imports, particularly from China, and any retaliatory trade measures taken by China;
•
loss of our intellectual property rights;
•
infringing the intellectual property rights of others;
•
failure by an independent manufacturer or license partner to use acceptable labor practices, otherwise comply with laws or suffer reputation harm.
Risks Relating to our Common Stock
2
Table of Contents
•
failure to meet the continued listing requirements of Nasdaq could result in a delisting of our securities;
•
activist shareholders could negatively affect our business;
•
rapid and substantial increases or decreases in our stock price, regardless of developments in our business;
•
our organizational documents contain anti-takeover provisions;
•
failure to meet our financial guidance or achieve other forward-looking statements we have provided to the public.
General Risks
•
any deterioration in the global economic environment, and any resulting declines in consumer confidence and spending;
•
the effects of economic cycles, terrorism, acts of war and retail industry conditions;
•
foreign government regulations and U.S. trade policy;
•
inherent limitations in control systems could lead to error or fraud that is not detected.
Trademarks, service marks, trade names and copyrights
We use our FOSSIL, MICHELE, RELIC, SKAGEN and ZODIAC trademarks, as well as other trademarks, on watches, our FOSSIL and SKAGEN trademarks on jewelry, and our FOSSIL
trademark on leather goods and other fashion accessories in the U.S. and in a significant number of foreign countries. We also use FOSSIL, WATCH STATION INTERNATIONAL and
WSI as trademarks on retail stores and FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL, WSI, ZODIAC and MICHELE as trademarks on online e-commerce sites. This Annual
Report may also contain other trademarks, service marks, trade names and copyrights of ours or of other companies with whom we have, for example, licensing agreements to produce,
market and distribute products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Annual Report may be listed without the TM, SM,
© and ® symbols, as applicable, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks,
trade names and copyrights.
3
Table of Contents
PART I
Item 1. Business
Company
We are a design, innovation and distribution company specializing in consumer fashion accessories. Our products include watches, jewelry, handbags, small leather goods, belts
and sunglasses. We design, develop, market and distribute products under our owned brands FOSSIL, SKAGEN, MICHELE, RELIC and ZODIAC and licensed brands ARMANI
EXCHANGE, DIESEL, EMPORIO ARMANI, KATE SPADE NEW YORK, MICHAEL KORS, SKECHERS and TORY BURCH. Based on our range of accessory products, brands,
distribution channels and price points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.
Operating Strategy
Our goal is to drive shareholder value. We continue to operate in a very challenging business environment for our product offerings. In early 2023, we initiated our Transform and
Grow plan ("TAG”), which was initially designed to reduce operating expenses, improve operating margins and advance our path to profitable growth. In August 2023, as a result of a
more comprehensive business review, we expanded TAG to address a broader transformation and capture a greater level of benefits.
Under the expanded program, we focused on optimizing our core categories, brands, geographies and channels to restructure our operations to achieve improved gross margins,
lower operating expenses and to reduce our working capital requirements. This comprehensive program encompassed various workstreams such as:
•
organization and operating model optimization;
•
sourcing and cost of goods sold opportunities;
•
pricing, promotion, and markdown improvements;
•
end-to-end product planning and inventory management enhancements;
•
indirect procurement efficiencies, including marketing and information technology areas;
•
logistics and distribution center operations efficiencies; and
•
store rationalization and optimization programs.
To execute TAG, we established a Transformation Office in July 2023, composed of members of our senior management supported by a leading management consulting firm
specializing in assisting companies in complex reorganizations. Additionally, in August 2023, the Company’s Board of Directors (the "Board”) established a Special Board Committee
(the "Special Committee") to provide primary board oversight of the Transformation Office and drive accountability, timeliness and results of the program. We successfully concluded
TAG in 2024, achieving annualized operating income benefits of $280 million.
In September 2024, we appointed Franco Fogliato Chief Executive Officer and a member of the Board and moved quickly to implement change and create a plan to return the
Company to profitable growth (the "Turnaround Plan"). Our Turnaround Plan is centered on three key areas: (i) refocusing on our core, (ii) rightsizing our cost structure, and (iii)
strengthening our balance sheet. The first key area, focused on our core, includes workstreams such as:
•
building an operating model that is brand-led and consumer focused;
•
returning to our core businesses with a renewed focus on traditional watches;
•
our go-to market execution;
•
launching a new FOSSIL brand platform;
•
leveraging our major licensed brands;
•
optimizing our wholesale global footprint; and
•
driving channel profitability.
The second key area of our Turnaround Plan is focused on aligning the cost structure to our newly defined strategy. In 2025, we have initiatives including a corporate workforce
reduction which occurred in late February, reduced costs associated with the transition of smaller international markets to a distributor model, and the closing of approximately 50
underperforming retail stores. We also expect to divest certain non-core assets and will seek to identify additional cost reduction opportunities across the organization.
4
Table of Contents
Under our third key area, strengthening our balance sheet, we are pursuing initiatives to monetize non-core assets, improve working capital and strengthen liquidity. We are also
continuing to work with strategic advisors to address our upcoming debt maturities in the third and fourth quarters of 2026.
In March 2024, we announced that we would undertake a strategic review of our current business model and capital structure. This includes a broader set of efforts to optimize our
business model and further reduce structural costs, monetize various assets, and could include additional debt and equity financing options. In July 2024, the Company formed a special
Strategic Planning and Finance Committee of the Board to oversee this review. In January 2025, the Strategic Planning and Finance Committee further assumed the responsibilities of the
Special Committee and the Special Committee was dissolved.
Segments
We report 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.
We manage our 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, greater China, India, Indonesia, Japan, Malaysia,
New Zealand, Singapore, South Korea and Thailand. Each reportable operating segment provides similar products and services.
Brands
We are home to a collection of world-class owned and licensed brands that share our passion for design and innovation. We make distinctive watches and lifestyle accessories,
bringing each brand to life through an extensive global channel and distribution network. We believe that the way we use our time matters, and we’ve made it our goal to create lasting
change at the intersection of fashion and technology.
Our consumer-first mindset drives every decision we make. By capitalizing on fashion trends and leveraging proprietary data and insights, we are able to deliver relevant, high-
value products and experiences to consumers across a diverse range of price points, style preferences and geographies.
Brand Building
Our ambition is to capture a greater share of the growing global accessories market with a collection of the world's most distinctive brands. We are investing in and strengthening our
core brands within our diverse owned and licensed portfolio, connecting with customers across price point, channel, geography and styles.
The ability to manage strong lifestyle brands is key to our success. Our multi–channel model delivers engaging experiences directly to our consumers through our owned channels
of distribution, direct 1P marketplaces and via third party distributors.
Proprietary Brands
Our owned brands include FOSSIL, SKAGEN, MICHELE, RELIC and ZODIAC.
FOSSIL
FOSSIL is a leading global lifestyle accessories brand inspired by creativity and ingenuity, dedicated to connecting people to what matters most: time. FOSSIL takes pride in
creating timeless and exceptionally crafted watches, leather goods and jewelry designed to accompany you on every journey life presents. Today, we are on a mission, continuing our
decade-long commitment to "Make Time For Good," while building a dynamic, multi-channel organization connecting with customers all over the world.
SKAGEN
5
Table of Contents
Since 1989, SKAGEN has been inspired by the city of Skagen and the Danish coastline. SKAGEN embraced Danish minimalism, creating slim styles and color combinations that
reflect coastal living—an understated style that’s still authentic to the brand today. Denmark has much to celebrate. As SKAGEN honors its heritage, the brand is expanding its range of
influence to include areas of relevance that are of the moment.
MICHELE
MICHELE timepieces are an extension and reflection of the women who wear them. Every MICHELE watch is built to celebrate feminine ambition and boldness—a reminder of all a
woman has accomplished as she builds her legacy. MICHELE's beautifully-feminine timepieces use precise Swiss movements, genuine gemstones and diamonds, and premium finishes.
Each luxury timepiece is distinctly and recognizably MICHELE with signature elements and bold art deco-inspired details.
RELIC
RELIC by Fossil is an American watch and lifestyle brand creatively delivering accessible, updated casual designs. With each of our signature watches and accessories, we
create styles that fit your everyday lifestyle.
ZODIAC
With a rich legacy dating back to 1882, ZODIAC is dedicated to excellence in precision, bold design and craftsmanship with authentic Swiss horology. Today, ZODIAC
creates exclusive watches that maintain historical authenticity to vintage models while incorporating contemporary updates, specialized movements and always-improving functionality.
Licensed Brands
Our main licensed brands include ARMANI EXCHANGE, DIESEL, EMPORIO ARMANI, KATE SPADE NEW YORK, MICHAEL KORS, SKECHERS and TORY BURCH. As a
result of our vertical integration, we are uniquely positioned to launch an accessory category, such as watches, in partnership with a licensor in a timely and consistent manner. Many of
our major licensing relationships are exclusive for the brands we license and include traditional watches, and for certain other brands, jewelry.
Products
We design, develop, market and distribute accessories across a variety of product categories: watches, jewelry, handbags, small leather goods, belts and sunglasses. Additionally,
we manufacture and/or distribute products under private label brands. The following table sets forth certain information with respect to the breakdown of our net sales and percentage
change among proprietary, licensed and other brands for the fiscal years indicated (in millions, except for percentage data):
Fiscal Year
2024
2023
2022
Dollars
% Change
Dollars
% Change
Dollars
Net sales
Proprietary
$
588.1
(18.4)% $
720.4
(10.8)% $
807.7
Licensed
509.1
(19.3)
631.0
(19.3)
781.7
Other
47.8
(21.6)
61.0
(34.4)
93.0
Total
$
1,145.0
(18.9)% $
1,412.4
(16.0)% $
1,682.4
Traditional Watches
Watches are our core global business. Sales of watches for fiscal years 2024, 2023 and 2022 accounted for approximately 78.4%, 77.6% and 77.9%, respectively, of our consolidated
net sales.
Licensed Brands
We have entered into multi-year, worldwide exclusive license agreements for the manufacture, distribution and sale of watches bearing the brand names of certain globally
recognized fashion brands. The following table sets forth information with respect to our primary watch licenses:
6
Table of Contents
Brand
Expiration
Date
ARMANI EXCHANGE
12/31/2026
DIESEL
12/31/2027
EMPORIO ARMANI
12/31/2026
KATE SPADE NEW YORK
12/31/2025
MICHAEL KORS
12/31/2027
SKECHERS
12/31/2029
TORY BURCH
12/30/2028
___________________________________________________________________
(1) Subject to early termination in certain circumstances
Fashion Accessories
In addition to our core watch business, we also design and create handbags, small leather goods, and belts across certain of our owned brands and jewelry under our owned
brands and certain licensed brands. In the U.S. and certain international markets, we generally market our fashion accessory lines through the same distribution channels as our watches
using similar marketing approaches. Our fashion accessories are typically sold in locations adjacent to watch departments, in store or online, which may lead to purchases by persons
who are familiar with our watch brands. Sales of our accessory lines accounted for 19.7%, 20.5% and 19.8% of our consolidated net sales in fiscal years 2024, 2023 and 2022, respectively.
The following table sets forth information about our fashion accessories:
Brand
Accessory Category
DIESEL
Jewelry
EMPORIO ARMANI
Jewelry
FOSSIL
Handbags, small leather goods, belts,
eyewear, jewelry
MICHAEL KORS
Jewelry
SKAGEN
Jewelry
Licensed Eyewear
We have a license agreement with the Safilo Group for both FOSSIL branded sunglasses and optical frames worldwide, which expires on December 31, 2028.
Stores
Our products are sold across approximately 130 countries worldwide through 22 Company-owned sales subsidiaries and through a network of 72 independent distributors. Our
network of Company-owned stores included 110 retail stores and 138 outlet stores primarily operated under the FOSSIL brand as of December 28, 2024. In certain international markets,
our products are also sold online and through licensed and franchised FOSSIL retail stores, retail concessions operated by us and kiosks.
We also operate stores under the WATCH STATION and WSI brands, in which we offer certain of our owned and licensed brand products to curate a unique collection of
designer watches and jewelry for women and men. We offer a robust online and in-store experience in the United States, Europe and Asia that connects our customers to the stories,
trends and latest innovations in the world of watches.
Marketing
Our marketing approach meets the consumer wherever they are, both online and offline. We create the best possible brand experience through a blend of art and science, which
means that we prioritize both data-driven decision-making and
1
7
Table of Contents
creativity in our marketing approach. At our core, we are storytellers and demand generators and have the ability to craft beautiful products and deliver brand experiences worth talking
about.
We have an in-house global marketing team with representation across our regions serving both our owned and licensed brands, to better connect with consumers and drive
sustained engagement and awareness. This capability works across channels, including digital marketing, social media, social commerce, email marketing, Customer Relationship
Management, partner marketing and brand and performance media. We are also experienced brand builders, with in-house brand development, PR, content and integrated marketing
teams, in addition to a dynamic global creative studio.
We have built proprietary algorithms to support the profitable flow-through of marketing investment, optimized across channels, brands and countries. We deliver increasingly
better personalization through ongoing test-and-learn methods as well as through consumer insights and predictive analytics capabilities we have built over the past few years.
Distribution
We distribute our products globally through regional warehouses with our warehouse in Dallas, Texas serving the Americas, our warehouse in Eggstätt, Germany serving Europe
and our warehouse in Hong Kong SAR serving Asia. For those countries in which our products are distributed, but where we don’t have a physical presence, we use third-party
distributors. From our regional warehouses, our products are shipped to subsidiary warehouses, distributors, wholesale accounts or directly to customers in selected markets. Our
extensive distribution network allows us to reach a diverse global customer base. We sell our products through a range of channels including e-commerce, Company-owned retail stores,
department and specialty retail stores, airlines, mass markets and concessions.
Digital
Our holistic e-commerce efforts include three forms of digital channels. First, our owned global e-commerce websites for our brands deliver mobile-friendly experiences,
personalized content, and seamless omni-channel integration with retail stores, including buy online pick up in store, curbside pickup and ship from store. Second, we sell our products
to leading third-party online retailers and our wholesalers’ e-commerce websites. Third, we directly sell to consumers on major third-party platforms. We will continue to invest in
growing our e-commerce capabilities in fiscal year 2025, with a focus on improving the end-to-end consumer experience, creating stronger customer relationship management ("CRM")
journeys via first party data and bringing more engaging and accessible experiences across our channels.
Manufacturing and Sourcing
The vast majority of our products are sourced internationally. Most watch product sourcing is coordinated through our Hong Kong SAR subsidiary, Fossil (East) Limited ("Fossil
East”). We have some limited watch assembly operations through an owned facility in India. Although we do not have long-term contracts with our unrelated watch and accessory
manufacturers, we maintain long-term relationships with several manufacturers. These relationships developed due to the significant length of time we have conducted business with the
same manufacturers. We believe that we are able to exert some operational control with regard to our principal watch assemblers because of our long-standing relationships. In addition,
we believe that the relative size of our business with watch manufacturers gives us priority within their production schedules. Furthermore, the manufacturers understand our quality
standards, which allow us to produce quality products supporting overall operating margins.
Our quality control program attempts to ensure that our products meet the standards established by our product development and quality staff. Development samples of products
are inspected by us prior to placing orders with factories to ensure compliance with our designs. We also typically inspect or audit inspections of "top of production" samples of each
product for compliance before or at the start of commencing production. The operations of the Hong Kong SAR and mainland Chinese factories that produce our products are monitored
on a periodic basis by Fossil East.
Intellectual Property
We use our FOSSIL, MICHELE, RELIC, SKAGEN and ZODIAC trademarks, as well as other trademarks, on watches, our FOSSIL and SKAGEN trademarks on jewelry, and our
FOSSIL trademark on leather goods and other fashion accessories in the U.S. and in a significant number of foreign countries. We also use FOSSIL, WATCH STATION
INTERNATIONAL, and WSI as trademarks on retail stores and FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL, WSI, ZODIAC and MICHELE as trademarks on online e-
commerce sites. We have taken steps to establish or provide additional protection for our trademarks by registering or applying to register our trademarks for relevant classes of
products in each country where our products are sold in addition to certain foreign countries where it is our intent to market our products in the future. We also
8
Table of Contents
have rights in certain copyrights and designs both in the United States and in other countries where our products are principally sold.
We continue to explore innovations in the design and assembly of our products. As a result, we have been granted, and have pending, various U.S. and international design and
utility patents related to certain product designs, features, and technologies. As of December 28, 2024, none of our patents were material to our business.
We rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We strive to protect our trade secrets
and other proprietary information through agreements with current and prospective product development partners, confidentiality agreements with employees, consultants and others
that may have access to our proprietary information and through the use of other security measures.
We aggressively protect our trademarks and trade dress and pursue infringement claims both domestically and internationally. We also pursue counterfeiters both domestically
and internationally through third-party online monitoring tools and through leads generated internally, as well as through our business partners worldwide.
Seasonality
Our business has a seasonal pattern, with a significant portion of our sales occurring during the end-of-year holiday period.
Significant Customer
No customer accounted for 10% or more of our consolidated net sales in fiscal years 2024, 2023 or 2022.
Competition
The businesses in which we compete are highly competitive and fragmented. Our traditional watch business generally competes with a number of established manufacturers,
importers and distributors, including Armitron, Citizen, Gucci, Guess?, Kenneth Cole, LVMH Group, Movado, Raymond Weil, Seiko, Swatch, Swiss Army, TAG Heuer and Timex. In
addition, our leather goods, sunglasses, and jewelry businesses compete with a large number of established companies that have significant experience developing, marketing and
distributing such products. Our competitors include distributors that import watches and accessories from abroad, U.S. companies that have established foreign manufacturing
relationships and companies that produce accessories domestically.
In addition, we face intense competition in the watch market from smartwatches from technology brands such as Apple, Garmin and Samsung, and from fitness brands such as
Fitbit. Many of these brands have significantly more resources than we do in areas such as product development and marketing. While we did compete in the smartwatch category for a
number of years, we recently decided to exit this category to focus our resources on our traditional watch offerings. We believe our design and branding are strong competitive
advantages in the traditional watch market.
Although the level and nature of competition varies among our product categories and geographic regions, we compete on the basis of style and technical features, price, value,
quality, brand name, advertising, marketing, distribution and customer service. Our ability to identify and respond to changing fashion trends and consumer preferences, to maintain
existing relationships and develop new relationships with manufacturing sources, to deliver quality merchandise in a timely manner, to manage the retail sales process, and to continue
to integrate technology into our business model are important factors in our ability to compete. Our distinctive business model of owning the distribution in many key markets and
offering a globally recognized portfolio of proprietary and licensed products allows for many competitive advantages over smaller, regional or local competitors. This allows us to
bypass a local distributor's cost structure in certain countries, resulting in more competitively priced products, while also generating higher product and operating margins.
Governmental Regulation
Import Tariffs and Other Import Restrictions
Most of our products are assembled or manufactured overseas. As a result, the U.S. and countries in which our products are sourced or sold may from time to time modify existing
import restrictions or barriers to trade, including duties (e.g., anti-dumping or countervailing duties), tariffs or other restrictions in a manner that adversely affects us. For example, our
products imported for distribution in the U.S. are subject to normal U.S. customs duties and, sometimes, special tariff regimes. In the ordinary course of our business, we may also from
time to time be subject to claims by the U.S. Customs & Border Protection for duties and other charges. Factors that may influence the modification or imposition of these restrictions
include determinations imposing increased tariffs by, for example, the President or the U.S. Trade Representative that there is a national
9
Table of Contents
emergency or that a country has denied fair and equitable market access to U.S. firms that rely on intellectual property. The Trump Administration, during its first term from 2017 to 2021,
imposed certain tariffs and retaliatory tariffs, as well as other trade restrictions on products and materials. In the new Administration, beginning in 2025, President Trump has imposed
national emergency tariffs on trading partners and begun the process of reciprocal tariffs on trading partners, among other tariff and national security investigations. The national
emergency tariffs include an additional 20% ad valorem tariff on products of China, as well as 25% tariffs on Canada and Mexico, with some exceptions. The newly imposed tariffs have
resulted in retaliatory tariffs against U.S. goods by our country’s trading partners. We cannot adequately predict the effect these events have on our operations, even though many of
our assembly and manufacturing operations are in China.
General
We are subject to laws regarding customs, tax, employment, privacy, truth-in-advertising, consumer product safety, zoning and occupancy and other laws and regulations that
regulate and/or govern the importation, promotion and sale of consumer products and our corporate, retail and distribution operations.
Compliance and Trade
Code of Conduct for Manufacturers ("Manufacturer Code")
We are committed to ethical and responsible conduct in all of our operations and respect for the rights of all individuals. We strive to ensure that human rights are upheld for all
workers involved in our supply chain, and that individuals experience safe, fair and non-discriminatory working conditions. In 2021, we launched the Fossil Group Human Rights Policy.
This further supports our commitment to human rights within our entire supply chain.
In addition, we are committed to compliance with applicable environmental requirements and are committed to seeing that all of our products are manufactured and distributed in
compliance with applicable environmental laws and regulations. We expect that our business partners will share these commitments, which we enforce through our Manufacturer Code.
Our Manufacturer Code specifically requires our manufacturers to not use child, forced or involuntary labor and to comply with applicable environmental laws and regulations. We
provide training to our factories related to our Manufacturer Code and the applicable laws in the country in which the factory is located. The training provides the factories with a more
in-depth explanation of our Manufacturer Code.
In addition to the contractual obligation, we evaluate our suppliers' compliance with our Manufacturer Code through audits conducted both by our employees and third-party
compliance auditing firms. In most cases, the audits are announced. If we believe that a supplier is failing to live up to the standards of our Manufacturer Code, we may terminate the
supplier or provide the supplier with an opportunity to remedy the non-compliance through the implementation of a corrective action plan.
Trade
Our warehouse and distribution facility in Dallas, Texas operates in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board. This
sub-zone provides the following economic and operational advantages to us: (i) we do not have to pay duty on imported merchandise until it leaves the sub-zone and enters the U.S.
market; (ii) we do not have to pay any U.S. duty on merchandise if the imported merchandise is subsequently shipped to locations outside the U.S.; and (iii) we do not have to pay local
property tax on inventory located within the sub-zone.
Information Systems
Enterprise Resource Planning
We utilize SAP ERP in our U.S. operations and throughout most of our European operations to support our human resources, sales and distribution, inventory planning, retail
merchandising and operational and financial reporting systems of our business, and Navision in our Asian operations to support many of the same functions on a local country level.
We also use tools provided by salesforce.com, inc. to globally support our brand websites, marketing and customer initiatives.
Enterprise Performance Management Systems
We have implemented customized Hyperion financial reporting software from Oracle Corporation. The software increases the efficiency of our consolidation and reporting process
and provides a more dynamic way to view and analyze data. The Hyperion planning tool also provides more dynamic and robust budgeting and forecasting capabilities.
Point-of-Sale System
10
Table of Contents
We recently implemented a new point-of-sale system at our retail stores globally. This point-of-sale system significantly enhances our omni-channel capabilities, allowing us to
better serve our customers across channels with inventory and fulfillment.
Customer Data Platform
We utilize a next generation, cloud-based Customer Data Platform to better capture, identify, and manage our customer narrative and further enable our sales programs and
interactive marketing initiatives in a more personalized, secure and dynamic manner.
Customer Master Data
Our master customer data is stored in a cloud native, industry standard design based on the Google Cloud Platform architecture, in order to better secure and improve the long-term
performance and integration for future key marketing, analytics, artificial intelligence, and sales systems.
Human Capital Resources
As of December 28, 2024, our global workforce was approximately 5,200 employees, with 3,200 based in our international subsidiaries. None of our domestic or foreign-based
employees are represented by a trade union; however, certain European-based employees engage in works councils that negotiate with management on behalf of applicable employees.
Commitment to Our Employees
We are a purpose-driven, consumer-centric organization that fosters an environment where employees thrive. In 2024, we introduced our first human resources strategy to
strengthen a high-performance culture. We prioritize attracting, developing, and retaining top talent through compelling employment opportunities, competitive compensation, and a
workplace culture that supports personal and professional growth.
Workforce Composition
Our global workforce spans the Americas (38%), Europe (27%), and Asia-Pacific (35%), with women representing 61% and men 39% of our employees. In the U.S., our team
comprises 61% Black, Indigenous, and People of Color (BIPOC), 38% White, and 1% who prefer not to self-identify.
Over the past year, nearly 50% of external hires were BIPOC, reflecting a continued focus on embracing different backgrounds and perspectives. Additionally, our WINGEd!
program (Women Inspired to Network and Grow through Education) continues to empower female leaders, contributing to women holding 57% of our global leadership positions. We
have also been recognized for five consecutive years as a top employer for LGBTQ+ employees by the Human Rights Campaign.
Engaging the Fossil Group Workforce
We take pride in the strides we have made toward creating a work environment that is not only rewarding, but also deeply engaging and inspiring for our team members. In a world
that evolves rapidly, our commitment to cultivating our culture remains steadfast. To surpass our goals and realize our ambitions, we are dedicated to a cycle of listening, learning, and
collaboration. We aim to set impactful objectives, foster innovation, and maintain transparency about our journey, including our achievements and challenges.
By regularly surveying our employees, we gain valuable insights into their viewpoints, motivations, and the areas where we, as an organization, can enhance our operations. This
process is crucial for building and maintaining genuine engagement. Our findings consistently highlight the importance of:
•
Career growth and development;
•
Effective communication;
•
Recognition;
•
A clear understanding of the company's future;
•
Attractive compensation and benefits;
•
And the chance to contribute to something greater.
11
Table of Contents
To align our employees' aspirations with our business objectives, we have developed a workplace culture that includes:
•
Comprehensive health and wellness benefits;
•
Dynamic two-way communication strategies;
•
Employee development programs that foster value creation;
•
A performance management system that encourages growth opportunities through company support;
•
Meaningful recognition mechanisms;
•
A hybrid work model that balances flexibility with in-person collaboration; and
•
A values-driven culture and workplace environment.
We also employ a standardized compensation framework to maintain our status as a competitive and fair employer.
This system ensures equitable pay by defining, documenting, and benchmarking positions against local market standards, utilizing third-party, leading-edge salary data to establish
fair pay ranges for each role.
This overall engagement approach solidifies our position as a prime choice for talented individuals who are both high-performing and highly engaged.
Leadership Development & Succession Planning
We invest in cross-training and leadership readiness initiatives to ensure we have multiple strong candidates prepared for future transitions.
To support employee development, we launched four new global development programs under the Fossil Group Academy banner:
•
Empower U (Individual Contributors): Enhancing communication, self-management, resilience, and decision-making.
•
Evolve (Managers to Senior Directors): Strengthening leadership skills in coaching, execution, and team engagement.
•
Leadership Accelerator (Senior Managers to VPs): Developing strategic leadership and motivation techniques.
•
Leading with Impact (Directors to VPs): Focusing on talent development, emotional intelligence, and strategic influence.
Through these initiatives, 75% of our promotions have come from internal talent, with 58% of these promotions awarded to female employees.
Our Board and executive leadership oversee succession planning to ensure continuity in critical leadership roles. Our structured talent development process strengthens leadership
pipelines and mitigates transition risks including:
•
An increase in VP+ female representation by 6% from 2023 to 2024.
•
Recent leadership appointments include the positions of Chief Executive Officer, Chief Commercial Officer, and Chief Digital Information Officer/EMEA General Manager.
•
Employee retention improvement across distribution, retail, and corporate sectors, surpassing our five-year average.
Corporate Social Responsibility (CSR) & Sustainability
As part of our "Make Time for Good” CSR strategy, we focus on:
•
Good for the Planet: Reducing our environmental footprint through sustainable design and operations.
•
Good for Communities: Supporting empowerment initiatives and local community well-being.
•
Good for People: Advancing inclusion and equity within our workforce.
Our annual CSR report, available at https://www.fossilgroup.com/sustainability/, outlines achievements and future sustainability goals.
Governance & Oversight
Our Board and related committees actively oversee human capital management, including:
•
Nominating & Corporate Governance Committee: ESG matters oversight.
•
Audit Committee: Monitoring enterprise risks, compliance with the Code of Conduct, and ethics policies.
•
Compensation & Talent Management Committee: Reviewing compensation, benefits, and executive performance goals.
•
Special Board committees: Overseeing strategic transformation initiatives, including organizational structure changes and strategic alternatives for the company.
Summary
12
Table of Contents
Our commitment to human capital management is integral to our long-term success and business strategy. By fostering a high-performance culture, investing in leadership
development, and prioritizing employee engagement, we continue to strengthen our workforce and drive sustainable growth. Our focus on our current workforce along with structured
succession planning and competitive compensation practices, ensures that we attract and retain top talent while maintaining a dynamic and inclusive workplace.
Through robust governance and oversight, our leadership remains dedicated to transparency, accountability, and continuous improvement in our human capital initiatives. As we
move forward, we remain steadfast in our mission to cultivate an environment where employees thrive, contribute meaningfully to our business objectives, and feel empowered to shape
the future of Fossil Group.
Our people are our greatest asset, and we will continue to invest in their success, reinforcing our position as a top employer and industry leader in human capital excellence.
Available Information
Our website address is www.fossilgroup.com. The information on our website (including the CSR report) is not, and shall not be deemed to be, a part of this Annual Report on Form
10-K or incorporated into any other filings we make with the SEC. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act”), are available free of charge on our website
as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers, including Fossil Group, that are electronically filed with the SEC.
General
We are a Delaware corporation formed in 1991 and are the successor to a Texas corporation formed in 1984. Our principal executive offices are located at 901 S. Central
Expressway, Richardson, Texas 75080, and our telephone number at that address is (972) 234-2525. Our common stock is traded on the NASDAQ Global Select Market under the trading
symbol FOSL.
13
Table of Contents
Item 1A. Risk Factors
In addition to the risks described elsewhere in this report, set forth below is a summary of the material risks related to an investment in our securities. These risks, some of which
have occurred and/or are occurring and any of which could occur in the future, are not the only ones we face. Additional risks not presently known to us or that we currently deem
immaterial may also have an adverse effect on us. If any of these risks actually occur, our business, results of operations, cash flows and financial condition could be materially and
adversely impacted, which might cause the value of our securities to decline.
Strategic Risks
We may not fully realize the expected cost savings, operating efficiencies or balance sheet and liquidity improvements from our restructuring plans.
In March 2025, we announced that we had implemented our Turnaround Plan. Under the plan, we expect to achieve selling, general and administrative ("SG&A") cost savings of
approximately $100 million through a series of initiatives including a strategic reduction in force which occurred in late February 2025, reduced costs associated with the transition of
smaller international markets to a distributor model, and the closing of approximately 50 FOSSIL retail stores. We will seek to identify additional cost-reduction opportunities, which may
generate incremental savings in 2025. In addition, we are pursuing initiatives to monetize non-core assets, improve working capital and bolster liquidity, and we are working with our
strategic advisors to address our upcoming debt maturities under the Notes and Revolving Facility. Restructuring plans present significant potential risks that may impair our ability to
achieve anticipated operating enhancements, cost reductions, balance sheet or liquidity improvements or otherwise harm our business, including higher than anticipated costs in
implementing our Turnaround Plan, management distraction and employee attrition in excess of headcount reductions. If this program is not successful, then our results of operations
and financial condition could be materially adversely affected.
Our success depends upon our ability to anticipate and respond to changing fashion, functionality and product trends.
Our success depends upon our ability to anticipate and respond to changing fashion, functionality and product trends and consumer preferences in a timely manner. The
purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs, functionality, and product features and
design. Our success depends, in part, on our ability to anticipate, gauge and respond to these changing consumer preferences in a timely manner while preserving the authenticity and
the quality of our brands. Although we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories, any failure by us to identify and respond to such trends
could adversely affect consumer acceptance of our existing brand names and product lines, which in turn could result in inventory valuation reserves and adversely affect sales of our
products. If we misjudge the market for our products, we may be faced with a significant amount of unsold finished goods inventory, which could adversely affect our results of
operations. In recent years, we have experienced decreasing net sales across certain of our product categories; in particular, net sales of watches have declined, reflecting the decline in
the traditional watch market. If we are unable to adjust our product offerings and reverse the decrease in net sales, our results of operations and financial condition could be adversely
affected.
Our success depends upon our ability to continue to develop innovative products.
Our success depends upon our ability to continue to develop innovative products in the respective markets in which we compete. The process of developing new products is
complex and uncertain, and involves time, substantial costs and risks. Our inability or the inability of our partners, for technological or other reasons, some of which may be beyond our
or our partners' control, to enhance, develop, manufacture, distribute and monetize products in a timely manner, or at all, in response to changing consumer preferences could have a
material adverse effect on our business, results of operations and financial condition or could result in our products not achieving market acceptance or becoming obsolete. If we are
unable to successfully introduce new products, or if our competitors introduce new or superior products, customers may purchase increasing amounts of products from our competitors,
which could adversely affect our sales and results of operations.
If we are unable to effectively execute our e-commerce business strategy and provide a reliable digital experience for our customers, our reputation and operating results may be
harmed.
E-commerce is a significant portion of our net revenues and was particularly impacted by the COVID-19 pandemic, which drove an acceleration in the shift to online shopping.
The success of our e-commerce business depends, in part, on third parties and factors over which we have limited control, including changing consumer preferences, both domestically
and abroad, and promotional or other advertising initiatives employed by our wholesale customers or other third parties on their e-commerce sites. Any failure on our part, or on the part
of our third-party digital partners, to provide attractive, reliable, secure
14
Table of Contents
and user-friendly e-commerce platforms could negatively impact our consumers’ shopping experience, resulting in reduced website traffic, diminished loyalty to our brands and lost
sales.
The success of our business also depends on our ability to continue to develop and maintain a reliable digital experience for our customers. We strive to give our customers a
seamless omni-channel experience both in stores and online across devices. Potential friction points in the consumer experience could negatively impact our ability to compete with
other brands, which could adversely impact our business.
In addition, we must keep up to date with competitive technology trends, including the use of new applications, enhancements and releases, and digital marketing tools. Failure to
innovate and keep abreast of technology and improving the consumer experience could adversely affect digital sales and damage our brand and reputation.
Additionally, the success of our e-commerce business and the satisfaction of our consumers depend on their timely receipt of our products. The efficient flow of our products
requires that our distribution facilities have adequate capacity to support the current level of e-commerce operations and any anticipated increased levels that may follow from the
growth of our e-commerce business. If we encounter difficulties with our distribution facilities, or if any such facilities were to shut down or be limited in capacity for any reason,
including as a result of fire, other natural disaster, labor disruption, cyberattack or pandemic (including as a consequence of public health directives, quarantine policies or social
distancing measures resulting from a pandemic), we could face shortages of inventory, and we could experience disruption or delay, or incur significantly higher costs and longer lead
times for distributing our products to our consumers which could result in customer dissatisfaction. Any of these issues could have an adverse effect on our business and harm our
reputation.
We regularly develop new products and features, and new products introduced by us may not achieve consumer acceptance comparable to that of our existing product lines.
We regularly update our product offerings. As is typical with new products, market acceptance of new designs, features, and products is subject to uncertainty. In addition, we
generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured. If trends shift away from our products, if we are
not able to develop and introduce new compelling products or if we misjudge the market for our product lines, we may be faced with significant amounts of unsold inventory or other
conditions which could have a material adverse effect on our financial condition and results of operations.
The failure of new product designs or new product lines to gain market acceptance could also adversely affect our business and the image of our brands. Achieving market
acceptance for new products may also require substantial marketing efforts and expenditures to generate consumer demand. These requirements could strain our management, financial
and operational resources. If we do not continue to develop innovative products that provide better design and features than the products of our competitors and that are accepted by
consumers, or if our future product lines misjudge consumer demands, we may lose consumer loyalty, which could result in a decline in our sales and market share.
Our ability to grow our sales is dependent upon the implementation of our business strategy, which we may not be able to achieve.
Our ability to grow our sales is dependent on the successful implementation of our business strategy. This includes prioritizing our core brands, markets and channels, rightsizing
our organizational structure and improving our balance sheet. If we are not successful in the expansion or development of our product offerings, our new products are not profitable or
do not generate sales comparable to those of our existing businesses, we are unable to successfully execute our business strategy or our restructuring and savings program does not
achieve our desired results, our results of operations could be negatively impacted.
We also operate FOSSIL brand stores and other watch stores globally to further strengthen our brand image. As of December 28, 2024, we operated 248 stores worldwide. The
costs associated with leasehold improvements to current stores and the costs associated with opening new stores and closing low performing stores, particularly those stores that have
seen a significant reduction in traffic, could materially increase our costs of operation and result in impairment charges.
Rapidly changing regulatory requirements and political scrutiny of ESG matters could result in additional costs or risks and adversely impact our reputation.
Many jurisdictions in which we and our suppliers operate have begun enacting new environmental, social and governance ("ESG") or "sustainability” legislation and regulations.
Such proposed and/or enacted regulations include new or expanded disclosure requirements regarding sustainability, recycling, emissions and other climate-related information,
including disclosure of climate-related risks, and may also require independent auditors to provide some level of attestation to the accuracy of such disclosures. Our ability to comply
with any such new ESG, sustainability and/or climate laws and
15
Table of Contents
regulations may lead to increased costs and operational complexity and/or we may be required to divert costs and resources in order to comply with any such requirements. In addition,
it may become increasingly difficult to navigate differing political viewpoints around ESG and sustainability matters in the U.S. and many of the international locations in which we
operate. Our failure or inability to comply with ESG-related regulations, to navigate the ESG political landscape or to meet the standards included in any sustainability report we publish
or disclosures we make could negatively impact investor decisions, our reputation, employee retention and/or the willingness of our customers and suppliers to do business with us, as
well as expose us to government enforcement action and/or private litigation.
The risks associated with climate change and other environmental impacts could negatively affect our business and operations.
Our business is susceptible to risks associated with climate change, including through disruption to our supply chain, potentially impacting the production and distribution of our
products and availability and cost of raw materials. Increased frequency and intensity of weather events due to climate change could increase the risk of a significant disruption to our
operations, including at our global offices and warehouses and transportation and manufacturing partners. While we are addressing climate-related issues impacting our business, there
can be no assurance that we will be successful in achieving our goals. In addition, concern over climate change may result in new or additional legal, legislative and regulatory
requirements to reduce or mitigate the effects of climate change on the environment. Failure to implement our strategy or achieve our goals could damage our reputation, causing our
investors, consumers or employees to lose confidence in our Company and brands, and negatively impact our operations.
Pandemic and Public Health Risks
A pandemic has had in the past, and may have in the future, a material adverse impact on our business, operations, liquidity, financial condition and results of operations.
The COVID-19 pandemic caused global uncertainty and disruption in the geographic regions in which we run our business and where our suppliers, third-party manufacturers,
retail stores, wholesale customers and consumers are located, particularly in China.
Future public health epidemics or outbreaks could also adversely impact our business. The extent to which a new public health epidemic or outbreak impacts our operations will
depend on future developments, including the duration of the outbreak, the severity of the outbreak and the actions to contain the outbreak or treat its impact, among others. Depending
on the severity of a future outbreak, we may experience significant disruptions to our business operations. In addition, the spread and impact of an outbreak could adversely impact
demand for our products, our ability to operate our stores and warehouse facilities, or our supply chain, all of which could adversely affect our future sales, operating results and overall
financial performance. In addition, to the extent an outbreak adversely affects our business and financial results, it may also have the effect of heightening many of the other risks
described in the risk factors included herein, or may affect our operating and financial results in a manner that is not presently known to us.
Operational Risks
Our supply chain may be disrupted by changes in U.S. trade policy with China or as a result of a pandemic.
We rely on domestic and foreign suppliers to provide us with merchandise in a timely manner and at favorable prices. Among our foreign suppliers, China is the source of a
substantial majority of our imports.
We experienced increased international transit times and increased shipping costs for a majority of our products, in association with and primarily as a result of the COVID-19
pandemic. Any future disruption in the flow of our imported merchandise from China or a material increase in the cost of those goods or transportation without any offsetting price
increases may significantly decrease our profits.
New U.S. tariffs or other actions against China and any responses by China, could impair our ability to meet customer demand and could result in lost sales or an increase in our
cost of merchandise. This would have a material adverse impact on our business and results of operations.
The loss of any of our license agreements for globally recognized fashion brand names may result in the loss of significant revenues and may adversely affect our business.
We have entered into multi-year, worldwide exclusive license agreements for the manufacture, distribution and sale of products bearing the brand names of certain globally
recognized fashion brands. We sell products under certain licensed brands, including, but not limited to, ARMANI EXCHANGE, DIESEL, EMPORIO ARMANI, KATE SPADE NEW
YORK, MICHAEL KORS, SKECHERS and TORY BURCH. Sales of our licensed products accounted for 44.5% of our consolidated
16
Table of Contents
net sales for fiscal year 2024, including MICHAEL KORS product sales, which accounted for 17.4% of our consolidated net sales, and ARMANI product sales, which accounted for
11.5% of our consolidated net sales.
Our significant third-party fashion brand license agreements have various expiration dates between the years 2025 and 2029. In addition, many of these license agreements require
us to make minimum royalty payments, spend minimum amounts on marketing, subject us to restrictive covenants or require us to comply with certain other obligations and may be
terminated by the licensor if these or other conditions are not met or upon certain events. For example, our license agreement with MICHAEL KORS provides the licensor with a right to
terminate some or all of the licensing rights if we fail to meet certain net sales thresholds for two consecutive years. For fiscal year 2024, we met the net sales thresholds for MICHAEL
KORS. If we are unable to achieve the minimum net sales thresholds, minimum marketing spend, restrictive covenants and/or other obligations of a license, we would need to seek a
waiver of the non-compliance from the applicable licensor or amend the agreement to modify the thresholds, covenants or obligations or face the possibility that the licensor could
terminate the license agreement before its expiration date. Though waivers may be obtained for non-compliance, we, or the licensor, may instead elect to modify or terminate the license
agreement.
In addition, we may be unable to renew our existing license agreements beyond the current term or obtain new license agreements to replace any lost license agreements on similar
economic terms or at all. The failure by us to maintain or renew one or more of our existing license agreements could result in a significant decrease in our sales and have a material
adverse effect on our results of operations.
Our inability to effectively manage our retail store operations could adversely affect our results of operations.
During fiscal year 2024, our global comparable retail store sales decreased 14.5%. During fiscal year 2025, we anticipate closing a significant number of stores globally that have
expiring lease terms. The success of our retail business depends, in part, on our ability to close low performing stores and to renew existing leases for better performing stores on terms
that meet our financial targets. Our ability to close low performing stores and to renew leases for better performing stores on favorable terms and to operate them on a profitable basis
will depend on various factors, including our ability to:
•
negotiate acceptable lease renewal terms for existing locations, particularly for those existing locations that have experienced reductions in traffic, but that we would like to
continue to operate;
•
hire and train qualified sales associates;
•
develop new merchandise and manage inventory effectively to meet the needs of new and existing stores on a timely basis; and
•
maintain favorable relationships with major developers and other landlords.
Our plans to manage our store base may not be successful and the opening of new stores in the future may not result in an increase in our net sales even though they increase our
costs. Our inability to effectively manage our retail store base could have a material adverse effect on the amount of net sales we generate and on our financial condition and results of
operations.
Certain key components in our products come from limited sources of supply, which exposes us to potential supply shortages that could disrupt the manufacture and sale of our
products.
We and our contract manufacturers currently purchase a number of key components used to manufacture our products from limited sources of supply for which alternative
sources may not be readily available. Any interruption or delay in the supply of any of these components could significantly harm our ability to meet scheduled product deliveries to our
customers and cause us to lose sales. Interruptions or delays in supply may be caused by a number of factors that are outside of our and our contract manufacturers' control. In
addition, the purchase of these components on a limited source basis subjects us to risks of price increases and potential quality assurance problems. An increase in the cost of
components could make our products less competitive and result in lower gross margins. In the event that we can no longer obtain materials from these limited sources of supply, we
might not be able to qualify or identify alternative suppliers in a timely fashion. Any extended interruption in the supply of any of the key components currently obtained from a limited
source or delay in transitioning to a replacement supplier could disrupt our operations and significantly harm our business in any given period. If our supply of certain components is
disrupted, our lead times are extended or the cost of our components increases, our business, operating results and financial condition could be materially affected.
Seasonality of our business may adversely affect our net sales, operating income and liquidity.
Our quarterly results of operations have fluctuated in the past and will continue to fluctuate as a result of a number of factors, including seasonal cycles, timing of new product
introductions, timing of orders by our customers and mix of product sales demand. Our business is seasonal by nature. A significant portion of our net sales and operating income are
generated during the third and fourth quarters of our fiscal year, which includes the "back to school" and holiday seasons. The amount of net sales and operating income generated
during our fiscal fourth quarter depends upon the anticipated level of retail sales during the holiday season, as well as general economic conditions and other factors beyond our
control. In addition, the amount of net sales and operating income generated during our fiscal first quarter depends in part upon the actual level of retail sales
17
Table of Contents
during the previous holiday season. The seasonality of our business may adversely affect our net sales, operating income and liquidity during the first and fourth quarters of our fiscal
year.
The amount of traffic to our retail stores depends heavily on the success of the shopping malls and retail centers in which our stores are located.
There has been a decrease in traffic in many of the shopping malls and retail centers in which our stores are located, which was accelerated by the impact of the COVID-19
pandemic, and has resulted in a decrease in traffic to our stores. The resulting decrease in customers for our retail stores has had an adverse effect on our results of operations.
Additionally, several national department store anchors have closed or will be closing a number of their locations in shopping malls, which is likely to further decrease traffic and put
increasing financial strain on the operators of those shopping mall locations. The loss of an anchor or other significant tenant in a shopping mall in which we have a store, continued
declines in traffic to shopping malls or the closure of a significant number of shopping malls in which we have stores, may have a material adverse effect on our results of operations.
We have key facilities in the U.S. and overseas, the loss or shut down of any of which could harm our business.
Our administrative, information technology and distribution operations in the U.S. are conducted primarily from two separate facilities located in the Dallas, Texas area. Our
operations internationally are conducted from various administrative, distribution and assembly facilities outside of the U.S., particularly in mainland China, Germany, Hong Kong SAR
and India. The complete or temporary loss of use of all or part of these facilities could have a material adverse effect on our business.
Our warehouse and distribution facilities in the Dallas, Texas area are operated in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone
Board. Although the sub-zone allows us certain tax advantages, the sub-zone is highly regulated by the U.S. Customs Service. This level of regulation may cause disruptions or delays
in the distribution of our products out of these facilities. Under some circumstances, the U.S. Customs Service has the right to shut down the entire sub-zone and, therefore, our entire
warehouse and distribution facilities. During the time that the sub-zone is shut down, we may be unable to adequately meet the supply requests of our customers and our Company-
owned retail stores, which could have an adverse effect on our sales, relationships with our customers, and results of operations, especially if the shutdown were to occur during our
third or fourth quarter.
Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs.
Fluctuations in the price, availability and quality of the raw materials used in our products could have a material adverse effect on our cost of sales or ability to meet our customers'
demand. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including natural resources, increased freight costs, increased labor
costs, especially in China, increased component costs and weather conditions. Recently inflation rates in the U.S. and certain international markets reached levels not seen in decades.
While we have recently increased the prices of a number of our products as a result and may implement other price increases in the future, we may not be able to pass on all, or a
significant portion of, such higher raw materials prices to our customers or such price increases may not be accepted by our customers, which could impact our margins or result in lost
revenues.
We rely on third-party assembly factories and manufacturers; and problems with, or loss of, our assembly factories or manufacturing sources could harm our business and results
of operations.
The majority of our watch and jewelry products are currently assembled or manufactured to our specifications by independent entities in China. All of our handbags, small leather
goods, belts and soft accessories are produced by independent manufacturers. We have no long-term contracts with these independent assembly factories or manufacturers and
compete with other companies for production facilities. All transactions between us and our independent assembly factories or manufacturers are conducted on the basis of purchase
orders. We face the risk that these independent assembly factories or manufacturers may not produce and deliver our products on a timely basis, or at all. As a result, we cannot be
certain that these assembly factories or manufacturers will continue to assemble or manufacture products for us or that we will not experience operational difficulties with our
manufacturers, such as reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality control, shortages of raw materials,
failures to meet production deadlines, increases in manufacturing costs or pandemic-related delays. Our future success will depend upon our ability to maintain close relationships with
our current assembly factories and manufacturers and to develop long-term relationships with other manufacturers that satisfy our requirements for price, quality and production
flexibility. Our ability to establish new manufacturing relationships involves numerous uncertainties, including those relating to payment terms, costs of manufacturing, adequacy of
manufacturing capacity, quality control and timeliness of delivery. Any failure by us to maintain long-term relationships with our current assembly factories and manufacturers or to
develop relationships with other manufacturers could have a material adverse effect on our ability to manufacture and distribute our products.
We do not maintain long-term contracts with our customers and are unable to control their purchasing decisions.
18
Table of Contents
We do not maintain long-term purchasing contracts with our customers and therefore have no contractual leverage over their purchasing decisions. A decision by a major
department store or other significant customer to decrease the amount of merchandise purchased from us or to cease carrying our products could have a material adverse effect on our
net sales and operating strategy.
We face intense competition in the specialty retail and e-commerce industries and the size and resources of some of our competitors are substantially greater than ours, which may
allow them to compete more effectively.
We face intense competition in the specialty retail and e-commerce industry where we compete primarily with specialty retailers, department stores and e-commerce businesses
that engage in the retail sale of watches and accessories. We believe that the principal basis upon which we compete is the quality and design of merchandise and the quality of
customer service. We also believe that price is an important factor in our customers' decision-making processes. Many of our competitors are, and many of our potential competitors may
be, larger and have greater financial, marketing and other resources than we have and therefore may be able to adapt to changes in customer requirements more quickly, devote greater
resources to the marketing and sale of their products and generate greater national brand recognition than we can, especially in the developing area of omni-channel retailing. Omni-
channel retailing may include retail stores, e-commerce sites, mobile channels and other direct-to-consumer points of contact that enhance the consumer’s ability to interact with a
retailer in the research, purchase, returning and serving of products. The intense competition and greater size and resources of some of our competitors could have a material adverse
effect on the amount of net sales we generate and on our results of operations.
We face competition from traditional accessory competitors as well as technology companies in the watch category.
There is intense competition in each of the businesses in which we compete. In all of our businesses, we compete with numerous manufacturers, importers and distributors who
may have significantly greater financial, distribution, advertising and marketing resources than us. Our competitors include distributors that import watches and accessories from abroad,
U.S. companies that have established foreign manufacturing relationships and companies that produce accessories domestically. In addition, we face strong competition in the watch
category from technology companies that offer alternatives to our traditional watches, such as Apple, Garmin and Samsung. Many of these technology competitors have significantly
greater financial, distribution, advertising and marketing resources than us. Our results of operations and market position may be adversely affected by our competitors and their
competitive pressures in the watch and fashion accessory industries.
Any material disruption of our information systems could disrupt our business and reduce our sales.
We are increasingly dependent on information systems to operate our websites, process transactions, store customer information, manage inventory, monitor sales and purchase,
sell and ship goods on a timely basis. We utilize SAP ERP in our U.S. operations and throughout most of our European operations to support our human resources, sales and
distribution, inventory planning, retail merchandising and operational and financial reporting systems of our business, and Navision in our Asian operations to support many of the
same functions on a local country level. We also use tools provided by salesforce.com, inc. in our CRM initiatives. We have implemented a new global point of sale system for our retail
stores. We may experience operational problems with our information systems as a result of system failures, viruses, ransomware, computer "hackers" or other causes. These risks may
be heightened as a result of our workforce that works remotely. Any material disruption or slowdown of our systems could cause information, including data related to customer orders,
to be lost, unavailable or delayed, which could result in delays in the delivery of merchandise to our stores and customers or lost sales, which could reduce demand for our merchandise
and cause our sales to decline. Moreover, the failure to maintain, or a disruption in, financial and management control systems could have a material adverse effect on our ability to
respond to trends in our target markets, market our products and meet our customers' requirements.
In addition, we have e-commerce and other websites in the U.S. and internationally. In addition to changing consumer preferences and buying trends relating to Internet usage, we
are vulnerable to certain additional risks and uncertainties associated with the Internet, including changes in required technology interfaces, website downtime and other technical
failures, security breaches, and consumer privacy concerns. Our failure to successfully respond to these risks and uncertainties could reduce e-commerce sales, increase costs and
damage the reputation of our brands.
Factors affecting international commerce and our international operations may seriously harm our financial condition.
During fiscal year 2024, we generated 65.1% of our net sales from outside of the U.S. Our international operations are directly related to, and dependent on, the volume of
international trade and foreign market conditions. International commerce and our international operations are subject to many risks, some of which are discussed in more detail,
including:
•
recessions in foreign economies;
•
political instability or uncertainty, including as a result of elections, economic instability, geopolitical events and tensions, wars and military conflicts;
•
the adoption and expansion of trade restrictions or the occurrence of trade wars;
19
Table of Contents
•
limitations on repatriation of earnings;
•
difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of other countries;
•
longer receivables collection periods and greater difficulty in collecting accounts receivable;
•
difficulties in managing foreign operations;
•
social, political and economic instability;
•
restrictions on travel to and from international locations;
•
political tensions between the U.S. and foreign countries;
•
compliance with, changes in or adoption of current, new or expanded regulatory requirements;
•
our ability to finance foreign operations;
•
tariffs and other trade barriers;
•
U.S. government licensing requirements for exports; and
•
the impact of a pandemic.
The occurrence or consequences of any of these risks may restrict our ability to operate in the affected regions and decrease the profitability of our international operations,
which may seriously harm our financial condition.
Because we depend on foreign manufacturing, we are vulnerable to changes in economic and social conditions in Asia, particularly in China, and disruptions in international
travel and shipping.
Because a substantial portion of our watches and jewelry and certain of our handbags, sunglasses and other products are assembled or manufactured in China, our success will
depend to a significant extent upon future economic and social conditions existing in China. If these factories in China are disrupted for any reason, we would need to arrange for the
manufacture and shipment of products by alternative sources. While we have initiatives in place to diversify certain of our manufacturing outside of China, because the establishment of
new manufacturing relationships involves numerous uncertainties, including those relating to payment terms, costs of manufacturing, adequacy of manufacturing capacity, quality
control and timeliness of delivery, we are unable to predict whether such new relationships would be on terms that we regard as satisfactory. Any significant disruption in our
relationships with our manufacturing sources located in China would have a material adverse effect on our ability to manufacture and distribute our products. In addition, restrictions on
travel to and from this and other regions, such as the travel restrictions that occurred with COVID-19, and any delays or cancellations of customer orders or the manufacture or shipment
of our products, including on account of a pandemic or other health crises, could have a material adverse effect on our ability to meet customer deadlines and timely distribute our
products in order to match consumer expectations.
The loss of key senior management personnel or our failure to attract and retain qualified personnel could negatively affect our business.
We depend on our senior management and other key personnel. We do not have "key person" life insurance policies for any of our personnel. Competition for qualified
personnel in the fashion industry is intense. Our ability to attract and retain employees is influenced by our ability to offer competitive compensation and benefits, employee morale, our
reputation, our financial performance, recruitment by other employers, perceived internal opportunities and macro unemployment rates. We appointed a new Chief Executive Officer in
September 2024 and have experienced significant turnover of our executive team recently. The loss of any of our executive officers or other key employees could harm our business.
We must also attract, develop, motivate and retain a sufficient number of qualified retail and distribution center personnel. Historically, competition for talent has been intense and
the turnover rate in the retail industry is generally high. There can be no assurance that we will be able to attract or retain a sufficient number of qualified employees in future periods to
execute on our business objectives. Additionally, our ability to meet our labor needs while also controlling costs is subject to external factors such as unemployment levels, prevailing
wage rates, minimum wage legislation and overtime regulations. If we are unable to attract, develop, motivate and retain talented employees with the necessary skills and experience, or if
changes to our organizational structure, operating results, or business model adversely affect morale, hiring and/or retention, we may not achieve our objectives and our results of
operations could be adversely impacted.
Risks Related to our Indebtedness
We are highly leveraged. Our substantial indebtedness and the corresponding cash debt service obligations could adversely affect our competitiveness, our liquidity, our
operations, and our ability to obtain additional financing if necessary.
As of December 28, 2024, we had $168.1 million of outstanding indebtedness, not including $3.3 million of debt issuance costs, and we paid $23.8 million of interest during fiscal
year 2024.
20
Table of Contents
Our high level of indebtedness and corresponding high cash debt service obligations, could have important consequences, including the following:
•
they may limit our ability to obtain additional financing or sell stock to fund our working capital, capital expenditures, debt repayments and debt service requirements;
•
they may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
•
we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
•
they may make us more vulnerable to a downturn in our business or general adverse economic, regulatory and industry conditions, including rising tariffs;
•
they may increase our cost of borrowing;
•
they may limit our ability to reinvest in our business;
•
they may limit our ability to refinance our indebtedness;
•
they may require us to dedicate a substantial portion of our cash flow to service our debt; and
•
there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing as needed.
Our ability to meet our cash requirements, including our debt service obligations, is dependent upon our ability to maintain and improve our operating performance, which is
subject to general economic and competitive conditions and to financial, business and other factors, many of which are beyond our control. Although we believe we have sufficient
sources of liquidity to meet our anticipated requirements for working capital, debt service and capital expenditures through the next twelve months, if our operating results do not meet
our expectations or if we experience adverse financial, business and other factors that we do not currently anticipate, we could face liquidity constraints.
If we are unable to meet our liquidity requirements, we could be forced to sell assets, restructure or refinance our debt or raise additional capital through sales of equity or debt.
We may be unable to take any of these actions on satisfactory terms or in a timely manner or at all, due to many factors, including our high level of indebtedness. Any of these actions
may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our existing debt agreements limit our ability to take certain of these
actions. Our failure to generate sufficient operating cash flow to pay our debt obligations could have a material adverse effect on us.
Our debt agreements subject us to certain covenants, which may restrict our ability to operate our business and to pursue our business strategies. Our failure to comply with the
covenants contained in our debt agreements, including as a result of events beyond our control, could result in an event of default which could materially and adversely affect our
operating results and our financial condition.
On September 26, 2019, the Company and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil
(UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other subsidiaries of the Company from time to time party thereto designated as borrowers, and certain
subsidiaries of the Company from time to time party thereto as guarantors, entered into a secured asset-based revolving credit agreement (the "Revolving Facility”) with JPMorgan
Chase Bank, N.A. as administrative agent, J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells Fargo Bank, National Association as
joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and each of the lenders from time to time
party thereto.
The Revolving Facility imposes, and future financing agreements are likely to impose, affirmative and negative covenants that restrict our activities. These restrictions limit or
prohibit our ability to, among other things:
•
incur additional indebtedness or issue certain types of stock;
•
pay dividends or make other distributions, repurchase or redeem our stock;
•
make certain investments;
•
prepay, redeem, or repurchase certain debt;
•
sell assets and issue capital stock of our restricted subsidiaries;
•
incur liens;
•
enter into agreements restricting our restricted subsidiaries’ ability to pay dividends, make loans to other related entities or restrict the ability to incur liens;
•
enter into transactions with affiliates; and
•
consolidate or merge.
21
Table of Contents
These restrictions on our ability to operate our business, along with restrictions that may be contained in agreements evidencing or governing future indebtedness, could
seriously harm our business and our ability to grow in accordance with our growth strategy by, among other things, limiting our ability to take advantage of merger and acquisition and
other corporate opportunities. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and liens might significantly impair our ability to obtain
other financing.
As a result of these restrictions, we may be:
•
limited in how we conduct our business;
•
unable to raise additional debt or equity financing;
•
unable to refinance our debt;
•
unable to sell underperforming assets; or
•
unable to compete effectively or to take advantage of new business opportunities.
The Revolving Facility also requires us to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 if our Availability (as defined in the Revolving Facility) falls below a certain
threshold. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Sources of Liquidity” for an additional discussion of this financial
covenant.
The occurrence of certain specified change of control events would cause an event of default under the Revolving Facility. In such event, we may not be able to repay, refinance
or restructure the Revolving Facility, or obtain a waiver of such event of default, on commercially reasonable terms, or at all.
A material portion of our assets, including our accounts receivable, inventory and intellectual property, are pledged to secure our obligations under the Revolving Facility and
cannot be used as collateral for any other financings unless we refinance or terminate the Revolving Facility. As a result, it may be difficult for us to raise additional debt financing.
On November 8, 2021, we sold $150 million aggregate principal amount of our 7.00% Senior Notes due 2026 (the "Notes”). The Notes are general unsecured obligations of the
Company and rank equally in right of payment with all of our existing and future senior unsecured and unsubordinated indebtedness, and rank senior in right of payment to any future
subordinated indebtedness. The Notes are effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such
indebtedness, and the Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of our subsidiaries (excluding any
amounts owed by such subsidiaries to us).
The base indenture and first supplemental indenture that govern the Notes contain limited covenants and events of default. If an event of default (other than an event of default of
the type described in the following sentence) occurs and is continuing with respect to the Notes, the trustee may, and at the direction of the registered holders of at least 25% in
aggregate principal amount of the outstanding Notes shall, declare the principal of all Notes, together with all accrued and unpaid interest, to be due and payable immediately. If an event
of default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the principal of all Notes, together with all accrued and unpaid interest, will
become due and payable immediately without further action or notice by the trustee or any holder of the Notes. An event of default with respect to the Notes would also trigger an event
of default under the Revolving Facility.
Various risks, uncertainties and events beyond our control could affect our ability to comply with any of the covenants in our existing or future financing agreements, which could
result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under
these agreements. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. We cannot know for certain that we will be granted
waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at
all. In addition, an event of default under the Revolving Facility would permit the lenders to terminate all commitments to extend further credit under the Revolving Facility and to
accelerate the maturity of all outstanding loans under the Revolving Facility. Furthermore, the Revolving Facility is secured by liens on our assets. If we were unable to repay the
amounts due and payable under our Revolving Facility, the applicable lenders could proceed against the collateral granted to them to secure that indebtedness.
The maximum amount that we are permitted to borrow under the Revolving Facility is limited, is subject to seasonal fluctuations and is subject to the discretion of the lenders,
which may adversely affect our liquidity, results of operations and financial position.
22
Table of Contents
The Revolving Facility provides that the lenders thereunder may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding,
subject to the borrowing base availability limitations. As of December 28, 2024, we had $15.9 million outstanding under the Revolving Facility and available borrowing capacity of $53.4
million.
The maximum amount that we are permitted to borrow at any time under the Revolving Facility is limited by a borrowing base that is recalculated monthly or, in some
circumstances, more frequently. The borrowing base is a function of, among other things, our eligible accounts receivable, inventory and certain intellectual property. As a result, our
access to credit under the Revolving Facility fluctuates depending on the value of the borrowing base eligible assets as of any measurement date. Because our business is seasonal and
generates higher net sales and accounts receivable in the third and fourth quarters, our borrowing base is also seasonal and is typically lower during our second and third quarters,
which can adversely affect our liquidity during these quarters.
The Revolving Facility provides the administrative agent considerable discretion to impose reserves and to determine that certain assets are not eligible for inclusion in our
borrowing base, which could materially reduce the maximum amount that we are able to borrow at any one time under the Revolving Facility. The administrative agent has imposed
reserves previously, including a $10.0 million restructuring reserve in July 2024, that reduced the amount we were able to borrow under the Revolving Facility. There can be no assurance
that the administrative agent will not impose additional reserves or exclude other assets from our borrowing base. If they do so, such actions could materially reduce our availability
under the Revolving Facility, which could materially and adversely impact our liquidity and our ability to operate our business.
Under the Revolving Facility, if our unused Availability is less than a specified amount, which as of December 28, 2024, was $27.0 million, we must satisfy a fixed charge coverage
ratio of at least 1.00 to 1.00 on certain specified dates. As of December 28, 2024, we would not have been in compliance with that fixed charge coverage ratio requirement if it had been
applicable, so we could not have utilized our Revolving Facility to the extent that the remaining Availability under the Revolving Facility would have been less than $27.0 million. Unless
our fixed charge coverage ratio improves, we will not be able to fully utilize all of the Availability under our Revolving Facility. This may further limit our liquidity and our ability to
operate our business. There can be no assurance that our fixed charge coverage ratio will improve to the level necessary to allow us to fully utilize all of the Availability under our
Revolving Facility.
We may not be able to generate sufficient cash flows to meet our debt service obligations and may be forced to take other actions to satisfy our obligations under our indebtedness,
which may not be successful.
Our ability to make payments on and to refinance our indebtedness and to fund operations and planned capital expenditures and other investments in our business will depend
on our ability to generate cash from our operations in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control.
In the future, our business may not generate sufficient cash flow from operations and future sources of capital under the Revolving Facility or otherwise may not be available to
us in an amount sufficient to enable us to pay our debt service obligations and to fund our other liquidity needs.
If we complete an acquisition, our debt service requirements could increase. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking
additional equity, reducing or delaying inventory purchases or capital expenditures, strategic acquisitions, investments and alliances or restructuring or refinancing our indebtedness.
The Revolving Facility restricts our ability to take such actions, and in some cases imposes limitations on the use of proceeds that we might receive from such actions. We may
not be able to consummate asset sales or other transactions at prices and on terms that we believe are commercially reasonable, or at all, and any proceeds that we do receive may not be
available for, or adequate to meet, any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our debt service obligations.
The maximum amount that we are permitted to borrow at any time under the Revolving Facility is limited by a borrowing base that is recalculated monthly or, in some
circumstances, more frequently. If the borrowing base declines or is reduced by the administrative agent to an amount below the then-outstanding amount of loans under the Revolving
Facility, we are required to prepay the outstanding loans under the Revolving Facility in an amount that will result in the aggregate amount of outstanding loans being less than the
amount of the borrowing base. We may not have sufficient funds to make any such prepayments.
We will need to repay, refinance or restructure all of our debt obligations on or before their respective maturity dates. The maturity date of the Revolving Facility is November 8,
2027, but if the Company has any indebtedness in an amount in
23
Table of Contents
excess of $35.0 million that matures prior to November 8, 2027, the maturity date of the Revolving Facility will be the 91st day prior to the maturity date of such other indebtedness. The
maturity date of the Company’s $150.0 million of Notes is November 30, 2026. If the Notes are not repaid or refinanced to a later maturity date in a manner that reduces the balance due on
November 30, 2026 to $35.0 million or less, the maturity date of the Revolving Facility will be August 31, 2026.
We may not be able to repay, refinance or restructure any of our indebtedness, including the Revolving Facility, on commercially reasonable terms, or at all. Any refinancing of
our debt could be at higher interest rates and may require us to comply with more onerous covenants.
If we cannot meet our debt service obligations or repay, refinance or restructure our debt obligations on or before their respective maturity dates, or are otherwise in default under
our debt agreements, the holders of our debt may accelerate any debt that is not yet due, demand payment of our debt, and, to the extent such debt is secured, foreclose on the assets
securing that debt. In any such event, we may not have sufficient assets to repay all of our debt, and the interests of our equity holders and other stakeholders may be materially
adversely affected.
We may be able to incur significantly more debt, including secured debt. This could intensify already-existing risks related to our indebtedness.
The terms of the Revolving Facility contain restrictions on our ability to incur additional indebtedness. However, this restriction is subject to a number of important qualifications
and exceptions, and the indebtedness incurred in compliance with these exceptions could be substantial. The Notes do not limit our ability to incur additional indebtedness.
Accordingly, we could incur significant additional secured indebtedness in the future under the Revolving Facility and significant additional secured and unsecured indebtedness under
other debt instruments. As of December 28, 2024, the Revolving Facility provided for unused borrowing capacity under the Revolving Facility of up to $53.4 million, and the covenants
under the Revolving Facility and the Notes would have allowed us to incur at least $85.0 million of additional debt outside of the Revolving Facility. If new debt is added to our current
debt levels, the related risks that we now face could intensify.
If we experience liquidity concerns, we could face a downgrade in our debt ratings which could restrict our access to, and negatively impact the terms of, current or future
financings or trade credit.
Our ability to obtain financings and trade credit and the terms of any financings or trade credit is, in part, dependent on the credit ratings assigned to our debt by independent
credit rating agencies. We cannot provide assurance that any of our current ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if, in its judgment, circumstances so warrant. A ratings downgrade could adversely impact our ability to access financings or trade credit and increase our
borrowing costs.
Our indebtedness exposes us to interest rate risk.
Our earnings are exposed to interest rate risk associated with borrowings under the Revolving Facility. The terms of the Revolving Facility provide for interest on borrowings at a
floating rate that is tied to SOFR. SOFR tends to fluctuate based on multiple facts, including general short-term interest rates, rates set by the U.S. Federal Reserve, and other central
banks and general economic conditions. We have not hedged our interest rate exposure with respect to our floating rate debt. During fiscal year 2024, our average interest rate on
borrowings under the Revolving Facility was 6.4%. If interest rates increase, so will our interest costs, which may have a material adverse effect on our results of operations and financial
condition.
The Notes bear interest at a fixed rate of 7.00% per annum. If interest rates decrease, the interest rate on the Notes would not change, and we would not be able to obtain the
benefit of reduced interest rates unless we refinanced the Notes. This could put us at a competitive disadvantage to other companies that have only floating rate debt. We may not be
able to refinance the Notes on commercially reasonable terms, or at all. Any redemption of the Notes prior to November 30, 2025 would trigger a redemption premium. Prior to November
30, 2025, the redemption price would be $25.25 for each $25.00 of Notes. In addition, any refinancing could be at higher interest rates and may require us to comply with more onerous
covenants.
The restrictive covenants in the Revolving Facility are subject to a number of important qualifications, exceptions and limitations, and to amendment.
The restrictive covenants in the Revolving Facility are subject to a number of important qualifications, exceptions and limitations. We may be able to engage in some of the
restricted activities, in limited amounts, or in certain circumstances, in unlimited amounts, notwithstanding the restrictive covenants. For example, subject to the satisfaction of certain
tests specified in the Revolving Facility, we are permitted to make unlimited distributions to our equity holders. Further, the restrictive covenants in the Revolving Facility can be
amended or waived with the consent of the lenders under the Revolving Facility,
24
Table of Contents
who may have interests that are opposed to the interests of our equity holders, the holders of our other debt obligations, and other stakeholders. There can be no assurance that the
restrictive covenants in the Revolving Facility will limit our activities.
Financial Risks
We have a recent history of net losses and negative cash flow and may not achieve consistent profitability or positive cash flow in the future.
We have incurred substantial losses and negative cash flow in recent fiscal years. During fiscal years 2024 and 2023, we generated a net loss attributable to Fossil Group, Inc. of
$102.7 million and $157.1 million, respectively. While our cash flow provided by operating activities was $46.7 million in fiscal year 2024, we used $59.5 million and $110.9 million of cash
in operating activities during fiscal years 2023 and 2022, respectively. We will need to generate and sustain increased net sales levels in future periods and reduce expenses in order to
become profitable and generate consistent positive cash flow, and even if we do, we may not be able to maintain or increase our level of profitability and cash flow. If we cannot become
profitable or generate positive cash flow, our business, results of operations and financial condition could be materially and adversely affected.
A significant portion of our cash, cash equivalents and investments are held by our foreign subsidiaries, which could negatively affect future liquidity needs.
As of December 28, 2024, $92.5 million, or approximately 75% of our cash and cash equivalents were held by our foreign subsidiaries. While we intend to use some of the cash
held outside the U.S. to fund our international operations, when we encounter a significant need for liquidity in the U.S. or other location that we cannot fulfill through other internal or
external sources, our liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries or to the U.S. Some of our subsidiaries are located in
jurisdictions that require foreign government approval before a cash repatriation can occur. If we are unable to transfer existing cash balances in such a situation, our business, results of
operations and financial condition could be materially and adversely affected.
Changes in the mix of product sales demand could negatively impact our gross profit margins.
Our gross profit margins are impacted by our sales mix as follows:
Sales channel mix: sales from our direct retail and e-commerce channels typically provide gross margins in excess of our historical consolidated gross profit margins, while sales
from our distributor, mass market and off-price channels typically provide gross margins below our historical consolidated gross profit margins.
Product mix: watch and jewelry sales typically provide gross margins in excess of historical consolidated gross profit margins, while leather goods and private label products
typically provide gross margins below our historical consolidated gross profit margins.
Geographic mix: international sales typically produce gross margins in excess of our historical consolidated gross profit margins, while domestic sales typically provide gross
margins below our historical consolidated gross profit margins.
If future sales from our higher gross margin businesses do not increase at a faster rate than our lower gross margin businesses, our gross profit margins may grow at a slower
pace, cease to grow, or decrease relative to our historical consolidated gross profit margin.
The global implementation of Pillar Two may adversely affect our business, results of operations, financial condition and cash flow.
Under The Organization for Economic Cooperation and Development ("OECD") Inclusive Framework, 140 countries agreed to enact a two-pillar solution to reform the
international tax rules to address the challenges arising from the globalization and digitalization of the economy. The Pillar Two Global Anti-Base Erosion ("GloBE") Rules provide a
coordinated system to ensure that multinational enterprises with revenues above EUR 750 million pay a minimum effective tax rate of 15% tax on the income arising in each of the
jurisdictions in which they operate. They will be liable to pay a top-up tax for the difference between their GloBE effective tax rate per jurisdiction and the 15% minimum rate. It is the
ultimate parent entity of the multinational enterprise that is primarily liable for the GLoBE top-up tax in its jurisdiction’s territory. Therefore, some countries may engage in domestic tax
policy reforms in anticipation of the GloBE rules becoming effective and enact their own domestic minimum tax rates to avoid "tax leakage”. Notwithstanding any new local minimum tax
regime which may be designed to reduce or eliminate the GloBE top-up tax, additional top-up tax under GLoBE may still be due. This will depend on the local effective tax rate calculation
according to the specific rules set out in the Pillar Two implementation guidance. Certain provisions of Pillar Two are effective for tax years beginning in January 2024 with other
provisions effective for subsequent tax years. The technical aspects of the calculation are still being developed. While the Company does not expect and material
25
Table of Contents
impact for fiscal year 2025, any increase in corporate tax rates or rules regarding the calculation of taxable income for the top-up tax could adversely affect our business, results of
operations, financial condition and cash flow for future tax years.
We have recorded impairment charges in the past and may record impairment charges in the future.
We are required, at least annually, or as facts and circumstances warrant, to test trade names to determine if impairment has occurred. We are also required to test property plant
and equipment and other long lived assets for impairment as facts and circumstances warrant. Impairment may result from any number of factors, including adverse changes in
assumptions used for valuation purposes, such as actual or projected net sales, growth rates, profitability or discount rates, or other variables. If the testing indicates that impairment
has occurred, we are required to record a non-cash impairment charge. Should the value of trade names, property plant and equipment and other long lived assets become impaired, it
could have an adverse effect on our results of operations.
Increased competition from online only retailers and a highly promotional retail environment may increase pressure on our margins.
The continued increase in e-commerce competitors for retail sales and slowing mall traffic has resulted in significant pricing pressure and a highly promotional retail environment,
which was heightened by the impact of COVID-19. These factors may cause us to be more promotional with our sales prices to retailers and consumers, which could cause our gross
margin to decline if we are unable to appropriately manage inventory levels and/or otherwise offset any price reductions with comparable reductions in our costs. If we have to reduce
our sales prices for competitive purposes and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. This could have a material adverse
effect on our business, results of operations, and financial condition.
Our license agreements may require minimum royalty commitments regardless of the level of product sales under these agreements.
Under our license agreements, we have experienced, and could again in the future experience, instances where our minimum royalty commitments exceeded the royalties payable
based upon our sales of the licensed products. Payments of minimum royalties in excess of the royalties based on our sales of the licensed products reduce our margins and could
adversely affect our results of operations.
Foreign currency fluctuations could adversely impact our financial condition.
We generally purchase our products in U.S. dollars. However, we source a significant amount of our products overseas and, as such, the cost of these products may be affected
by changes in the value of the currencies of these countries, including the Australian dollar, British pound, Canadian dollar, Chinese yuan, Danish krone, euro, Hong Kong dollar, Indian
rupee, Japanese yen, South Korean won, Malaysian ringgit, Mexican peso, Norwegian kroner, Singapore dollar, Swedish krona and Swiss franc. Due to our dependence on
manufacturing operations in China, changes in the value of the Chinese yuan may have a material impact on our supply channels and manufacturing costs, including component and
assembly costs.
In addition, changes in currency exchange rates may also affect the prices at which we sell products in foreign markets. For fiscal years 2024, 2023 and 2022, 65.1%, 63.6% and
63.1% of our consolidated net sales were generated outside of the U.S. In general, our overall financial results are affected positively by a weaker U.S. dollar and are affected negatively
by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business. For example, due to a stronger U.S. dollar in fiscal year 2024, the translation of foreign-
based net sales into U.S. dollars decreased our reported net sales by approximately $5.3 million compared to fiscal year 2023. If the value of the U.S. dollar remains at its current levels or
strengthens against foreign currencies, particularly against the euro, Chinese yuan, Indian rupee, Canadian dollar, South Korean won, British pound and Japanese yen, our financial
condition and results of operations could be materially and adversely impacted. As a result, foreign currency fluctuations may have a material adverse impact on our financial condition
and results of operations.
Legal, Compliance and Reputational risks
A data security or privacy breach could damage our reputation, harm our customer relationships, expose us to litigation or government actions, and result in a material adverse
effect to our business, financial condition and results of operations.
We depend on information technology systems, the Internet and cloud and computer networks for a substantial portion of our retail and e-commerce businesses, including credit
card transaction authorization and processing. We also receive and store personal information about our customers and employees, the protection of which is critical to us. In the normal
course of our business, we collect, retain, and transmit certain sensitive and confidential customer information, including credit card information, over public networks. Our customers
have a high expectation that we will adequately protect their personal information. In addition, personal information is highly regulated at the international, federal and state level. While
we and our
26
Table of Contents
third-party service providers have safeguards in place to defend our systems against intrusions and attacks and to protect our data, we cannot be certain that these measures are
sufficient to counter all current and emerging technology threats. Despite the security measures we currently have in place, our facilities and systems and those of our third-party
service providers have been, and will continue to be, vulnerable to theft of physical information, security breaches, hacking attempts, computer viruses and malware, ransomware,
phishing, lost data and programming and/or human errors. To date, none of these risks, intrusions, attacks or human error have resulted in any material liability to us. While we carry
insurance policies that would provide liability coverage for certain of these matters, if we experience a significant security incident, we could be subject to liability or other damages that
exceed our insurance coverage, and we cannot be certain that such insurance policies will continue to be available to us on economically reasonable terms, or at all, or that any insurer
will not deny coverage as to any future claim. Any electronic or physical security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential or
personally identifiable information, including penetration of our network security or those of our third party service providers, could disrupt our business, severely damage our
reputation and our customer relationships, expose us to litigation and liability, subject us to governmental investigations, fines and enforcement actions, result in negative media
coverage and distraction to management and result in a material adverse effect to our business, financial condition, and results of operations. In addition, as a result of security breaches
at a number of prominent retailers and other companies, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment
related thereto has become more uncertain. As a result, we may incur significant costs in complying with new and existing state, federal, and foreign laws regarding protection of, and
unauthorized disclosure of, personal information. A successful ransomware attack on our systems could make them inaccessible for a period of time pending the payment of a ransom to
unlock the systems or our ability to otherwise restore our access to our systems.
We are subject to laws and regulations in the U.S. and the many countries in which we operate. Violations of laws and regulations, or changes to existing laws or regulations,
could have a material adverse effect on our financial condition or results of operations.
Our operations are subject to domestic and international laws and regulations in a number of areas, including, but not limited to, labor, advertising, consumer protection, real
estate, product safety, e-commerce, promotions, intellectual property, tax, import and export, anti-corruption, anti-bribery, foreign exchange controls and cash repatriation, data privacy,
anti-competition, environmental, health and safety. Compliance with these numerous laws and regulations is complicated, time consuming and expensive, and the laws and regulations
may be inconsistent from jurisdiction to jurisdiction, further increasing the difficulty and cost to comply with them. New laws and regulations, or changes to existing laws and
regulations, could individually or in the aggregate make our products more costly to produce, delay the introduction of new products in one or more regions, cause us to change or limit
our business practices, or affect our financial condition and results of operations. We have implemented policies and procedures designed to ensure compliance with the numerous laws
and regulations affecting our business, but there can be no assurance that our employees, contractors, or agents will not violate such laws, regulations or our policies related thereto.
Any such violations could have a material adverse effect on our financial condition or operating results.
Tariffs or other restrictions placed on imports from China and any retaliatory trade measures taken by China could materially harm our revenue and results of operations.
Beginning in July 2018, certain of our products have been subject to additional ad valorem duties imposed by the U.S. government on products of China under Section 301 of the
Trade Act of 1974 and the International Emergency Economic Powers Act ("IEEPA"). These tariffs imposed via: (1) four successive "Lists” were first the result of an April 2018
determination by the Office of the U.S. Trade Representative ("USTR”) that China’s acts, practices, and policies with respect to technology transfer, intellectual property, and innovation
are unreasonable or discriminatory and burden or restrict U.S. commerce; and, (2) two successive IEEPA tariffs amounting to 20% ad valorem imposed in February and March 2025 on
products of China.
In particular, certain of our packaging and handbag products have been subject to an additional 25% ad valorem tariff, based on the first sale export price as imported into the
U.S., since July 2018 ("List 1”). Certain of our handbag and wallet products were subject to an additional 10% ad valorem tariff, based on the first sale export price as imported into the
U.S., beginning in September 2018, a rate that was then raised to 25% ad valorem from June 2019 to present ("List 3”). Finally, smartwatches, certain jewelry products, and several of our
traditional watch products were subject to an additional 15% ad valorem tariff, based on the first sale export price as imported into the U.S., beginning in September 2019, a rate that was
lowered to 7.5% ad valorem from February 2020 to present ("List 4A”). The IEEPA tariffs on products of China, in effect since February and March 2025, have increased the additional
tariffs by 20% ad valorem.
USTR conducted a statutory review of the tariffs imposed under Section 301 of the Trade Act of 1974, which concluded in September 2024, but they remain in place without any
modification for our products originating in China. We continue to monitor tariff developments, including these and the IEEPA tariffs, as well as proposals such as reciprocal tariffs, that
pose potential risks. In this fast-paced international trade environment, we also monitor developments for any negotiated resolutions to offset some of the tariff exposure.
27
Table of Contents
We have joined litigation before the U.S. Court of International Trade challenging the legality of the Section 301 List 3 and List 4A tariffs and seeking refunds of duties paid on
imports that were subject to those tariffs. That litigation is ongoing in appeal stages. However, assuming no further offsets from price increases, sourcing changes, or other changes to
trade policy and regulatory rulings, all of which are currently under review, the estimated gross profit exposure from the Section 301 and IEEPA tariffs is approximately $4.0 million in
fiscal year 2025.
If the tariffs continue or increase, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance. Alternatively, we may
seek to shift production outside of China or otherwise change our sourcing strategy for these products, resulting in significant costs and disruption to our operations. Even if the U.S.
further modifies these tariffs, it is always possible that new products we introduce could be impacted by the changes, or that our business will be impacted by retaliatory trade measures
taken by China or other countries in response to existing or future tariffs, causing us to raise prices or make changes to our operations, any of which could materially harm our revenue
or operating results.
The loss of our intellectual property rights may harm our business.
Our trademarks, patents and other intellectual property rights are important to our success and competitive position. We are devoted to the establishment and protection of our
trademarks, patents and other intellectual property rights in those countries where we believe it is important to our ability to sell our products. However, we cannot be certain that the
actions we have taken will result in enforceable rights, will be adequate to protect our products in every country where we may want to sell our products, will be adequate to prevent
imitation of our products by others or will be adequate to prevent others from seeking to prevent sales of our products as a violation of the trademarks, patents or other intellectual
property rights of others. Additionally, we rely on the patent, trademark and other intellectual property laws of the U.S. and other countries to protect our proprietary rights. Even if we
are successful in obtaining appropriate trademark, patent and other intellectual property rights, we may be unable to prevent third parties from using our intellectual property without our
authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the U.S. Because we sell our products internationally and are dependent
on foreign manufacturing in China, we are significantly dependent on foreign countries to protect our intellectual property rights. The use of our intellectual property or similar
intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm our business. Further, if it became
necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome and costly and we may not prevail. The failure to obtain or
maintain trademark, patent or other intellectual property rights could materially harm our business.
Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling certain of our products.
We cannot be certain that our products do not and will not infringe upon the intellectual property rights of others. The wearable technology space is rapidly developing with new
innovation, resulting in a number of domestic and international patent filings for new technology. As a result, wearable technology companies may be subject to an increasing number of
claims that their products infringe the intellectual property rights of competitors or non-practicing entities. We have been, are and may in the future be subject to legal proceedings
involving claims of alleged infringement of the intellectual property rights of third parties by us and our customers in connection with the marketing and sale of our products. Any such
claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Moreover, should we be found liable for infringement, we may be required to
enter into agreements (if available on acceptable terms or at all) or to pay damages and cease making or selling certain products. Moreover, we may need to redesign or rename some of
our products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling certain of our products.
If an independent manufacturer or license partner of ours fails to use acceptable labor practices or otherwise comply with laws or suffers reputation harm, our business could
suffer.
While we have a code of conduct for our manufacturing partners, any violation of labor or other laws by one of our independent manufacturers, or by one of our license partners,
or the divergence of an independent manufacturer’s or license partner’s labor practices from those generally accepted as ethical in the U.S. or other countries in which the violation or
divergence occurred, could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation. In addition, certain of our license agreements are with named
globally recognized fashion designers. Should one of these fashion designers, or any of our licensor companies, conduct themselves inappropriately or make controversial statements,
the underlying brand, and consequently our business under that brand, could suffer. Any of these, in turn, could have a material adverse effect on our financial condition and results of
operations. As a result, should one of our independent manufacturers or licensors be found in violation of state or international laws or receive negative publicity, we could suffer
financial or other unforeseen consequences.
28
Table of Contents
Risks Relating to our Common Stock
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our securities.
If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take
steps to delist our securities. While we did not receive any delisting notices in 2024, our Common Stock closed below the $1.00 closing bid requirement for Nasdaq on a number of
trading dates in early 2024. Such a delisting would likely have a negative effect on the price of our securities and would impair stockholder’s ability to sell or purchase our securities. In
the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again,
stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-
compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin
Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we
were quoted or listed on Nasdaq or another national securities exchange. Holders of our stock may be unable to sell their securities unless a market can be established or sustained.
Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the trading value of our securities.
Stockholders may, from time to time, engage in proxy solicitations or advance stockholder proposals, or otherwise attempt to effect changes and assert influence on our board of
directors and management. For example, in February 2024, an activist stockholder nominated four directors for election at our 2024 annual meeting of stockholders. We reached an
agreement in March 2024 with the activist stockholder, which resulted in the activist stockholder and the Company each nominating one candidate to the Board at our 2024 annual
meeting. Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our board of directors could have an adverse effect on our
operating results and financial condition. A proxy contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated
costs and require significant time and attention by our board of directors and management, diverting their attention from the pursuit of our business strategy. Any perceived
uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our board of directors or senior management team arising
from a proxy contest could lead to the perception of a change in the direction of our business or instability which may result in the loss of potential business opportunities, make it more
difficult to pursue our strategic initiatives, or limit our ability to attract and retain qualified personnel, any of which could adversely affect our business and operating results. If
individuals are ultimately elected to our board of directors with a specific goal, it may adversely affect our ability to effectively implement our business strategy and create additional
value for our stockholders. We may choose to initiate, or may become subject to, litigation as a result of a proxy contest or matters arising from the proxy contest, which would serve as
a further distraction to our board of directors and management and would require us to incur significant additional costs. In addition, actions such as those described above could cause
significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and
prospects of our business.
We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or
developments by or affecting us. Accordingly, the market price of our common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our
business.
Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or
trading volume of our common stock, including:
•
the impact of any future pandemic;
•
actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our
earnings and liquidity;
•
our decision not to, or our current inability to, pay dividends or other distributions;
•
publication of research reports by analysts or others about us or the specialty retail industry, which may be unfavorable, inaccurate, inconsistent or not disseminated on a
regular basis;
•
changes in market valuations of similar companies;
•
market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders;
•
additions or departures of key personnel;
•
actions by activist and institutional or significant stockholders;
•
short interest in our stock and the market response to such short interest;
29
Table of Contents
•
a dramatic increase in the number of individual holders of our stock and their participation in social media platforms targeted at speculative investing;
•
speculation in the press or investment community about our company or industry;
•
financial results reported or comments or releases by certain of our significant public licensing partners pertaining to the watch category;
•
strategic actions by us or our competitors, such as acquisitions or other investments;
•
legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal Revenue Service ("IRS”);
•
investigations, proceedings, or litigation that involve or affect us;
•
general market and economic conditions;
•
a downgrade in our debt ratings; and
•
the other risks identified herein.
Our organizational documents contain anti-takeover provisions that could discourage a proposal for a takeover.
Our certificate of incorporation and bylaws, as well as the General Corporation Law of the State of Delaware, contain provisions that may have the effect of discouraging a
proposal for a takeover. These include a provision in our certificate of incorporation authorizing the issuance of "blank check" preferred stock and provisions in our bylaws establishing
advance notice procedures with respect to certain stockholder proposals. Our bylaws may be amended by a vote of 80% of the Board of Directors, subject to repeal by a vote of 80% of
the stockholders. In addition, Delaware law limits the ability of a Delaware corporation to engage in certain business combinations with interested stockholders.
Failure to meet our financial guidance or achieve other forward-looking statements we have provided to the public could result in a decline in our stock price.
From time to time, we provide public guidance on our expected financial results or disclose other forward-looking information for future periods. We manage our business to
maximize our growth and profitability and not to achieve financial or operating targets for any particular reporting period. Although we believe that public guidance may provide
investors with a better understanding of our expectations for the future and is useful to our existing and potential stockholders, such guidance is subject to risks, uncertainties and
assumptions. Any such guidance or other forward-looking statements are predictions based on our then-existing expectations and projections about future events that we believe are
reasonable. Actual events or results may differ materially from our expectations, and as such, our actual results may not be in line with guidance we have provided. We are under no
duty to update any of our forward-looking statements to conform to actual results or to changes in our expectations, except as required by federal securities laws. If our financial results
for a particular period do not meet our guidance or the expectations of investors, or if we reduce our guidance for future periods, the market price of our common stock may decline and
stockholders could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk. In addition,
our stock price may also decline if we fail to meet securities research analysts' projections. Similarly, if one or more of the analysts who covers us downgrades our stock or publishes
inaccurate or unfavorable research about our business, our stock price could decline.
General Risks
Any deterioration in the global economic environment, and any resulting declines in consumer confidence and spending, could have an adverse effect on our operating results and
financial condition.
Uncertainty in global markets, slowing economic growth, high levels of unemployment, a pandemic, inflation, rising interest rates and eroding consumer confidence can
negatively impact the level of consumer spending for discretionary items. This can affect our business as it is dependent on consumer demand for our products. Global economic
conditions remain uncertain, and the possibility remains that domestic or global economies, or certain industry sectors of those economies that are key to our sales, may slow or
deteriorate, which could result in a corresponding decrease in demand for our products and negatively impact our results of operations and financial condition.
The effects of economic cycles, terrorism, acts of war and retail industry conditions may adversely affect our business.
Our business is subject to economic cycles and retail industry conditions. Purchases of discretionary fashion accessories, such as our watches, jewelry, handbags, sunglasses
and other products, tend to decline during recessionary periods when disposable income is low and consumers are hesitant to use available credit. In addition, acts of terrorism, acts of
war and military action both in the U.S. and abroad can have a significant effect on economic conditions and may negatively affect our ability to procure our products from
manufacturers for sale to our customers. Any significant declines in general economic
30
Table of Contents
conditions, public safety concerns or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on consumer
purchases of our products.
Risks associated with foreign government regulations and U.S. trade policy may affect our foreign operations and sourcing.
Our businesses are subject to risks generally associated with doing business abroad, such as foreign governmental regulation in the countries in which our manufacturing
sources are located, primarily China. While we have not experienced any material issues with foreign governmental regulations that would impact our arrangements with our foreign
manufacturing sources, we believe that this issue is of particular concern with regard to China due to the less mature nature of the Chinese market economy, the historical involvement of
the Chinese government in the industry and recent trade tensions between China and the United States. If regulations or other factors were to render the conduct of business in a
particular country undesirable or impracticable, or if our current foreign manufacturing sources were for any other reason to cease doing business with us, such a development could
have a material adverse effect on our product sales and on our supply, manufacturing and distribution channels.
Our business is also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or
restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels. Substantially all of our import operations are subject
to customs duties imposed by the governments where our production facilities are located on imported products, including raw materials. We cannot predict whether additional U.S. and
foreign customs quotas, duties (including antidumping or countervailing duties), tariffs, taxes or other charges or restrictions, requirements as to whether raw materials must be
purchased, additional workplace regulations or other restrictions on our imports will be imposed upon the importation of our products in the future or adversely modified, or what effect
such actions would have on our costs of operations. For example, our products imported for distribution in the United States are subject to U.S. customs duties, and in the ordinary
course of our business, we may from time to time be subject to claims by U.S. Customs and Border Protection for duties and other charges. Factors that may influence the modification or
imposition of these restrictions may include determinations by the Office of the U.S. Trade Representative that a country has denied adequate intellectual property rights or fair and
equitable market access to U.S. firms, trade disputes between the United States and another country that leads to withdrawal of "most favored nation” status for that country and
economic and political changes within a country that are viewed unfavorably by the U.S. government, resulting in trade policy changes towards that country. Future quotas, duties, or
tariffs may have a material adverse effect on our business, financial condition and results of operations. Future trade agreements could also provide our competitors with an advantage
over us, or increase our costs, either of which could have a material adverse effect on our business, financial condition and results of operations.
There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. These provisions provide for the identification of material weaknesses
in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America. Our management, including our CEO and Interim Chief Financial Officer ("Interim CFO"), does not expect that
our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit
of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, in our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can
occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts, by collusion of two or more persons, or by management override of the controls.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased
transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
In addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could discourage
certain customers or suppliers from doing business with us, result in higher borrowing costs and affect how our stock trades. This could in turn negatively affect our ability to access
public debt or equity markets for capital.
31
Table of Contents
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer
networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property and data related to our customers,
consumers and employees. Our cybersecurity risk management program leverages the National Institute of Standards and Technology Cyber Security Framework, which organizes
cybersecurity risks into five categories: identify, protect, detect, respond and recover. Our cyber security team regularly reviews enterprise risk management-level cybersecurity risks,
and key cybersecurity risks are incorporated into our Enterprise Risk Management program. In addition, we have a set of Company-wide policies and procedures concerning
cybersecurity matters, which include cyber security guidelines as well as other policies that directly or indirectly relate to cybersecurity, such as policies related to encryption standards,
antivirus protection, remote access, multi factor authentication, confidential information and the use of the Internet, social media, email and wireless devices.
Our Chief Information Security Officer ("CISO"), our information security team, and third-party service providers help identify, assess, and manage our cybersecurity threats and
risks, including through the use of our cybersecurity risk assessment program. Our CISO along with this team, as applicable, identifies and assesses risks from cybersecurity threats by
monitoring and evaluating our threat environment and our risk profile using various methods, including automated and manual tools, third-party threat feeds, internal audits, access
control assessments, and evaluating threats reported to us by various third-party enterprise threat reporting services.
As part of our cybersecurity program, we regularly test our cyber defenses by performing simulations and drills at a technical level, internal user susceptibility testing and reviewing
our operational policies and procedures. Our cyber security team monitors alerts and meets to discuss threat levels, risk ranking, trends and remediation. We conduct security
assessments on additions and changes to our systems and applications including third-party service providers. In addition, our Audit Services group conducts periodic reviews of
cyber security controls, procedures, and applications and monitors remediation activities. Our assessment of risks associated with use of third-party providers is part of our overall
cybersecurity risk management framework.
We face a number of cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of
operations or financial condition, we have experienced threats to our data and systems, including malware and computer virus attacks. For a description of the risks from cybersecurity
threats that may materially affect us and how they may do so, see our risk factors under Part 1. Item 1A. Risk Factors in this Annual Report on Form 10-K, including "Any material
disruption of our information systems could disrupt our business and reduce our sales" and "A data security or privacy breach could damage our reputation, harm our customer
relationships, expose us to litigation or government actions, and result in a material adverse effect to our business, financial condition and results of operations.”
Governance
Our Board of Directors addresses our cybersecurity risk management as part of its general oversight function and has delegated to our Audit Committee responsibility for
overseeing our cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
The CISO is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Audit Committee. Our CISO has a decade
of experience leading cyber security oversight. Members of the security team have cybersecurity experience and certifications, such as the Certified Information Systems Security
Professional certification. We regularly conduct training and/or simulations to ensure employees are aware of current cyber threats. Additionally, periodic tabletop exercises at a
management level incorporate external advisors. All employees are required to complete cybersecurity training annually. We also require employees in certain roles to complete
additional role-based, specialized cybersecurity training.
Our cybersecurity incident response process is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances including our
CISO, our Interim Chief Financial Officer and our Chief Legal Officer. In addition, our incident response process includes reporting to the Audit Committee for certain cybersecurity
incidents.
32
Table of Contents
The Audit Committee receives reports quarterly from our CISO concerning our significant cybersecurity threats and risk and the processes we have implemented to address them.
Our Board of Directors also receives periodic reports from our CISO or Audit Committee regarding our overall cybersecurity program.
Item 2. Properties
Company Facilities
As of the end of fiscal year 2024, we owned or leased the following material facilities in connection with our U.S. and international operations:
Location
Use
Approximate
Square
Footage
Owned / Leased
Eggstätt, Germany
Office, warehouse and distribution
383,000
Owned
Richardson, Texas
Corporate headquarters
383,000
Lease expiring in 2036
Dallas, Texas
Office, warehouse and distribution
518,000
Lease expiring in 2026
Hong Kong SAR
Warehouse and distribution
171,000
Lease expiring in 2027
Hong Kong SAR
Asia headquarters
40,000
Lease expiring in 2026
Basel, Switzerland
Europe headquarters
115,000
Lease expiring in 2036
Bangalore, India
Office
58,000
Lease expiring in 2025
Nalagarh, India
Factory
40,000
Lease expiring in 2025
Retail Store Facilities
As of the end of fiscal year 2024, we had 246 lease agreements for retail space for the sale of our products. The leases, including renewal options, expire at various times through
2036. The leases provide for minimum annual rentals and, in certain cases, for the payment of additional rent when sales exceed specified net sales amounts. We are also generally
required to pay our pro rata share of common area maintenance costs, real estate taxes, insurance, maintenance expenses and utilities.
We believe that our material existing facilities are well maintained, in good operating condition, and are adequate for our needs.
Item 3. Legal Proceedings
Information in response to this item is provided in "Part II - Item 8. Note 14, Commitments and Contingencies” and is incorporated by reference into Part I of this Annual Report.
Item 4. Mine Safety Disclosures
Not applicable.
33
Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
General
Our common stock is listed on the Nasdaq Global Select Market under the symbol "FOSL."
As of March 3, 2025, there were 58 holders of record of our shares of common stock (including nominee holders such as banks and brokerage firms who hold shares for beneficial
owners), although we believe that the number of beneficial owners is much higher.
We have not declared or paid any dividends since our formation and currently do not intend to pay dividends for the foreseeable future. Our current business plan is to retain any
future earnings to finance the growth of our business.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In August 2010, our Board approved a common stock repurchase program pursuant to which up to $30 million could be used to repurchase outstanding shares of our common
stock. The $30 million repurchase program has no termination date. As of December 28, 2024, the Company had $20.0 million of repurchase authorizations remaining under its repurchase
program.
During fiscal 2022, 1.0 million shares of our common stock were repurchased at a cost of $10.0 million. There were no repurchases of common stock during fiscal years 2024 and
2023.
Item 6. [Reserved]
34
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Item 1. Business, Item 1A. Risk Factors and our consolidated financial statements and accompanying notes included
elsewhere in this Annual Report on Form 10-K. Our actual results of operations may differ materially from those discussed in forward-looking statements as a result of various
factors, including but not limited to those included in Item 1A. Risk Factors and other portions of this Annual Report on Form 10-K.
Overview
We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our 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, we have a diverse portfolio of globally
recognized owned and licensed brand names under which our products are marketed.
Our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence, direct to the consumer through
our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence. Our products are offered at varying price
points to meet the needs of our customers, whether they are value-conscious or luxury oriented. Based on our range of accessory products, brands, distribution channels and price
points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.
Known or Anticipated Trends
Based on our recent operating results and current perspectives on our operating environment, we anticipate the following trends will continue to impact our operating results:
Tariffs Exposure: In early 2025, the current U.S. presidential administration announced significant new tariffs on foreign imports into the U.S., including from China, and has
proposed additional new tariffs that may be implemented in the future. The Company is working to determine its tariff cost exposure, and potential mitigation plans, as well as the
associated timing to implement such mitigation plans, if any. The impact to the Company’s results of operations and cash flows from the recently enacted and proposed tariffs cannot be
determined at this time.
Economic Environment Impacting Consumer Spending Ability and Preferences: In 2024, macroeconomic headwinds continued, including persistent inflation and elevated short-
term interest rates in addition to slowing economic conditions in many of our major markets. While the impact of these macroeconomic factors are difficult to quantify, we expect these
conditions to continue to have a negative impact on consumer confidence and consumer demand for discretionary goods in many of our major markets.
Inventory Levels: Slower consumer demand across a wide array of discretionary goods has translated in some cases to excess inventory levels in key accounts and overall
cautious buying patterns across our wholesale customers. With the challenging global macro environment, we expect many customers to continue to manage to leaner inventory levels
than historically across our key categories to reduce inventory carrying risk. We will continue to proactively manage our inventory purchases to mitigate our cash flow and inventory
risks.
World Conflicts: We continuously monitor the direct and indirect impacts from the military conflicts between Russia and Ukraine and in the Middle East. Our operations in Russia
and Israel consist of sales through third-party distributors, and our sales in Russia and Israel are not material to our financial results. We have no other operations, including supply
chain, in Israel, Palestine, Russia or Ukraine. However, the continuation of the current military conflicts or an escalation of the conflicts beyond their current scope may continue to
weaken the global economy, negatively impact consumer confidence, and could result in additional inflationary pressures and supply chain constraints.
Data: We depend on information technology systems, the Internet and computer networks for a substantial portion of our retail and e-commerce businesses, including credit card
transaction authorization and processing. We also receive and store personal information about our customers and employees, the protection of which is critical to us. In the normal
course of our business, we collect, retain, and transmit certain sensitive and confidential customer information, including credit card information, over public networks. Despite the
security measures we currently have in place, our facilities and systems and those of our third party service providers have been, and will continue to be, vulnerable to theft of physical
information, security breaches, hacking attempts, computer viruses and malware, ransomware, phishing, lost data and programming and/or human errors. To date, none of these risks,
intrusions, attacks or human error have resulted in any material liability to us. While we carry insurance policies that would provide liability coverage for certain of these matters, if we
experience a significant security incident, we could be subject to liability or other damages that exceed our insurance coverage. In addition, we cannot
35
Table of Contents
be certain that such insurance policies will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Business Strategies and Outlook: Our goal is to drive shareholder value. We continue to operate in a very challenging business environment for our product offerings.
In March 2024, we announced that we would undertake a strategic review of our current business model and capital structure. This includes a broader set of efforts to optimize our
business model and further reduce structural costs, monetize various assets, and could include additional debt and equity financing options.
In September 2024, we appointed Franco Fogliato Chief Executive Officer and a member of the Board of Directors (the "Board") and moved quickly to implement change and create
a plan to return the Company to profitable growth (the "Turnaround Plan"). Our Turnaround Plan is centered on three key areas: (i) refocusing on our core, (ii) rightsizing our cost
structure, and (iii) strengthening our balance sheet.
As part of refocusing on our core we are building an operating model that is brand-led and consumer focused. We are returning to our core businesses with a renewed emphasis
on traditional watches on our FOSSIL brand platform, as well as our go-to market execution. We are launching a new FOSSIL brand platform, leveraging our major licensed brands,
optimizing our global wholesale footprint and driving channel profitability.
The second key area of our Turnaround Plan is focused on aligning the cost structure to our newly defined strategy. In 2025, we expect to achieve selling, general and
administrative ("SG&A") cost savings of approximately $100 million in fiscal 2025 as compared to fiscal 2024 through a series of initiatives including a strategic reduction in force which
occurred in late February 2025, reduced costs associated with the transition of smaller international markets to a distributor model, and the closing of approximately 50 FOSSIL retail
stores. We also expect to divest certain non-core assets and will seek to identify additional cost-reduction opportunities, which may generate incremental savings in 2025.
Under our third key area, strengthening our balance sheet, we are actively pursuing initiatives to monetize non-core assets, improve working capital and strengthen liquidity. We
are also continuing to work with strategic advisors to address our upcoming debt maturities in the third and fourth quarters of 2026.
In early 2023, we initiated our Transform and Grow plan ("TAG”), which was designed primarily to reduce operating expenses in order to improve operating margins and advance
our path to profitable growth. The initial phase of TAG was designed to deliver $100 million in annualized cost savings by the end of fiscal year 2024.
In August 2023, as a result of a more comprehensive review of our business operations, we expanded the scope of TAG to encompass multiple workstreams. Our goal in expanding
TAG was to put additional emphasis on initiatives aimed at restructuring or optimizing our operations, exiting or minimizing certain product offerings, brands and distribution channels,
strengthening gross margins through improvements in our sourcing and improving our working capital efficiency. Additionally, the Board established a Special Committee to provide
primary Board oversight of our Transformation Office and drive accountability, timeliness and results in TAG (the "Special Committee"). Approximately half of the TAG workstreams
were designed to structurally improve our gross margins. The remaining TAG workstreams were focused on removing costs from our expense structure with the goal of (i) re-calibrating
our operating model for greater efficiency and lower fixed costs, (ii) driving savings in our procurement practices, and (iii) optimizing our direct channel operating costs.
We are concluding our TAG plan as we transition to initiatives under our Turnaround Plan. Under the expanded TAG plan, we achieved annualized operating income benefits of
$125 million in fiscal 2023 and an additional $155 million in fiscal 2024 for a total of $280 million over the two year period. Under the expanded TAG plan, we accelerated organizational
restructuring, exited the smartwatch category, and closed 45 underperforming stores in 2023 and 59 underperforming stores in 2024. In fiscal 2024, SG&A expenses declined 18% as
compared to fiscal year 2023, reflecting savings across headcount, labor and services from our TAG initiatives. We reduced sku complexity across all categories in our assortment and
our TAG workstreams for product sourcing and supply chain generated incremental year-over-year gross margin improvement in the latter part of fiscal year 2024. Our 410 basis point
gross margin rate improvement in fiscal year 2024 versus fiscal year 2023 reflects improved product margins in our core categories and our exit of the smartwatch category.
Aided by these initiatives, we achieved gross margins above 50% for fiscal year 2024. We aim to achieve positive adjusted operating margins as we continue to realize
improvement across the workstreams. A reconciliation of adjusted operating margin, a non-GAAP financial measure, to a corresponding GAAP measure is not available on a forward-
looking basis without unreasonable efforts due to the high variability and low visibility of certain income and expense items that are excluded in calculating adjusted operating margin.
36
Table of Contents
Operating Segments
We operate our business in three segments which are divided into geographies. Net sales for each geographic segment are based on the location of the selling entity and each
reportable segment provides similar products and services.
Americas: The Americas segment is comprised of sales from our operations in the United States, Canada and Latin America. Sales are generated through diversified distribution
channels that include wholesalers, distributors, and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors and e-
commerce channels. In the direct to consumer channel, we had 114 Company-owned stores as of the end of fiscal 2024 and an extensive collection of products available through our
owned websites. As of the end of fiscal 2024, net sales in the Americas segment accounted for 45% of our consolidated revenue.
Europe: The Europe segment is comprised of sales to customers based in European countries, the Middle East and Africa. Sales are generated through diversified distribution
channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-
commerce channels. In the direct to consumer channel, we had 65 Company-owned stores as of the end of fiscal 2024 and an extensive collection of products available through our
owned websites. As of the end of fiscal 2024, net sales in the Europe segment accounted for 31% of our consolidated revenue.
Asia: The Asia segment is comprised of sales to customers based in Australia, China (including Hong Kong SAR, Macau SAR, and Taiwan), India, Indonesia, Japan, Malaysia,
New Zealand, Singapore, South Korea and Thailand. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within
each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 69 Company-owned
stores as of the end of fiscal 2024 and an extensive collection of products available through our owned websites. As of the end of fiscal 2024, net sales in the Asia segment accounted
for 24% of our consolidated revenue.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us 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 consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to product returns, bad debt,
inventories, long-lived asset impairment, impairment of trade names, income taxes, warranty costs and litigation liabilities. We base our estimates and judgments on historical experience
and on various other factors that we believe to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical
accounting subjects require the most significant estimates and judgments.
Product Returns. We monitor customer returns and maintain a provision for estimated returns based upon historical experience, current information and any specific issues
identified. While returns have historically been within our expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that
our products are performing poorly in the retail market and/or we experience product damages or defects at a rate significantly higher than our historical rate, the resulting returns could
have an adverse impact on the operating results for the period or periods in which such returns occur. If our allowance for product returns were to change by 10%, the impact, excluding
taxes, would have been an approximate $1.5 million change to net income (loss).
Inventory. We account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable
value based upon assumptions about forecasted sales demand, market conditions and available liquidation channels. If actual future demand or market conditions are less favorable than
those projected by management, or if liquidation channels are not readily available, additional inventory valuation reductions may be required. We assess our off-price sales on an
ongoing basis and update our estimates accordingly. For every 1% of additional inventory valuation reductions as of fiscal year end 2024, we would have recorded an additional cost of
sales of approximately $0.2 million.
Property, Plant and Equipment and Lease Impairment. We test for asset impairment of property, plant and equipment and lease assets whenever events or conditions indicate
that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset. In evaluating long-lived assets for recoverability, we
calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. When
37
Table of Contents
undiscounted cash flows estimated to be generated through the operations of our Company-owned retail stores are less than the carrying value of the underlying assets, the assets are
impaired. If it is determined that assets are impaired, an impairment loss is recognized for the amount that the asset's book value exceeds its fair value. Should actual results or market
conditions differ from those anticipated, additional losses may be recorded. We recorded impairment losses in long-lived asset impairments of $1.8 million, $1.7 million and $2.1 million in
fiscal years 2024, 2023 and 2022, respectively, related to lease assets. We recorded impairment losses in long-lived asset impairments of $0.4 million, $0.4 million and $0.2 million in fiscal
years 2024, 2023 and 2022, respectively, related to property, plant and equipment. We recorded impairment losses in restructuring charges of $5.4 million in fiscal year 2024, and no
charges in fiscal years 2023 and 2022 related to lease assets. We recorded impairment losses in restructuring charges of $1.2 million, $0.0 million, $0.1 million in fiscal years 2024, 2023 and
2022, respectively, related to property, plant and equipment. In fiscal year 2024, an increase of 100 basis points to the discount rate would not have resulted in an increase to property,
plant and equipment and lease impairment expense. A 10% decrease in future expected cash flows would have increased impairment expense by $0.3 million.
Income Taxes. We record valuation allowances against our deferred tax assets, when necessary, in accordance with ASC 740, Income Taxes ("ASC 740"). Realization of deferred
tax assets is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future
taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period
such determination is made. The valuation allowance for fiscal years 2024, 2023 and 2022 was $226.5 million, $192.6 million and $143.3 million, respectively.
Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. We accrue an amount for our estimate of additional income tax
liability which we believe we are more likely than not to incur as a result of the ultimate resolution of tax audits ("uncertain tax positions"). We review and update the estimates used in
the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities upon completion of tax audits, expiration of statutes of limitation, or
occurrence of other events. The results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits.
The GILTI provisions of the Tax Cuts and Jobs Act of 2017 (the "TCJ Act") requiring the inclusion of certain foreign earnings in U.S. taxable income will continue to have an
adverse impact on our effective tax rate. The GILTI impact will be accounted for as incurred under the period cost method. In addition, our valuation allowance analysis is affected by
various aspects of the TCJ Act, including the limitation on the deductibility of interest expense and the impact of the GILTI.
The OECD and over 140 countries have agreed to enact a two-pillar solution to reform the international tax rules to address the challenges arising from the globalization and
digitalization of the economy. The GloBE Rules provide a coordinated system to ensure that multinational enterprises with revenues above 750 million euro pay a minimum effective tax
rate of 15% tax on the income arising in each of the jurisdictions in which they operate. Many aspects of Pillar Two became effective for tax years beginning in January 2024, with certain
remaining impacts to be effective in 2025. Each country must enact its own legislation to apply the Pillar Two rules. Pillar Two did not have a material impact on the Company's financial
results, including its annual estimated effective tax rate or liquidity in 2024, but will continue to monitor future developments.
Key Measures of Financial Performance and Key Non-GAAP Financial Measures
Constant Currency Financial Information: As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. The translation of the operations of our
foreign-based entities from their local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates and can have a significant impact on our reported financial
results. In general, our overall financial results are affected positively by a weaker U.S. dollar and are affected negatively by a stronger U.S. dollar as compared to the foreign currencies
in which we conduct our business.
As a result, in addition to presenting financial measures in accordance with accounting principles generally accepted in the United States of America ("GAAP”), our discussion
contains references to constant currency financial information, which is a non-GAAP financial measure. To calculate net sales on a constant currency basis, net sales for the current
fiscal year for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average rates during the comparable period of the prior fiscal year. We
present constant currency information to provide investors with a basis to evaluate how our underlying business performed excluding the effects of foreign currency exchange rate
fluctuations. The constant currency financial information presented herein should not be considered a substitute for, or superior to, the measures of financial performance prepared in
accordance with GAAP. Reconciliations between constant currency financial information and the most directly comparable GAAP measure are included where applicable.
Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share: Adjusted EBITDA, Adjusted operating income
(loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are non-GAAP financial measures. We define Adjusted EBITDA as our income (loss) before income taxes, plus
interest
38
Table of Contents
expense, amortization and depreciation, impairment expense, other non-cash charges, stock-based compensation expense, restructuring cost of sales and expense and unamortized debt
issuance costs included in loss on extinguishment of debt minus interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense and
restructuring cost of sales and expense. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income attributable to Fossil Group, Inc. and diluted
earnings per share, respectively, before impairment expense, restructuring cost of sales and expense and unamortized debt issuance costs included in loss on extinguishment of debt.
We have included Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share herein because they are widely used by
investors for valuation and for comparing our financial performance with the performance of our competitors. We also use these non-GAAP financial measures to monitor and compare
the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per
share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted
earnings (loss) per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.
Comparable Retail Sales: Both stores and e-commerce sites are included in comparable retail sales in the thirteenth month of operation. Stores that experience a gross square
footage change of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the
comparable store sales base in the thirteenth month following the expansion and/or relocation. Comparable retail sales exclude the effects of foreign currency fluctuations.
Store Counts: While macro-economic factors have shifted sales away from traditional brick and mortar stores towards digital channels, store counts continue to provide a key
metric for management. Both the size and quality of our store fleet have a direct impact on our sales and profitability. Over time, we have made progress right-sizing our fleet of stores by
focusing on closing our least profitable stores.
Total Liquidity: We define total liquidity as cash and cash equivalents plus available borrowings on our revolving credit facility. We monitor and forecast total liquidity to ensure
we can meet our financial obligations.
Components of Results of Operations
Revenues from sales of our products, including those that are subject to inventory consignment arrangements, are recognized when control of the product is transferred to the
customer and in an amount that reflects the consideration we expect to be entitled in exchange for the product. We accept limited returns from customers. We continually monitor returns
and maintain a provision for estimated returns based upon historical experience and any specific issues identified. Our product returns provision is accounted for as a reduction to
revenue and cost of sales and an increase to customer liabilities and other current assets to the extent the returned product is resalable.
Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs and shipping and handling costs
related to the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations. Additionally, cost of sales
includes customs duties, product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling, inventory shrinkage and damages and
restructuring charges.
Gross Profit and gross profit margin are influenced by our diversified business model that includes, but is not limited to: (i) product categories that we distribute; (ii) the multiple
brands, including both owned and licensed, we offer within several product categories; (iii) the geographical presence of our businesses; and (iv) the different distribution channels we
sell to or through.
The attributes of this diversified business model produce varying ranges of gross profit margin. Generally, on a historical basis, our fashion branded traditional watch and jewelry
offerings produce higher gross profit margins than our smartwatches and leather goods offerings. In addition, in most product categories that we offer, brands with higher retail price
points generally produce higher gross profit margins compared to those of lower retail priced brands. However, smartwatches carry relatively lower margins than our major product
categories. Gross profit margins related to sales in our Europe and Asia businesses are historically higher than our Americas business, primarily due to the following factors: (i)
premiums charged in comparison to retail prices on products sold in the U.S.; (ii) the product sales mix in our international businesses, in comparison to our Americas business, is
comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods; and (iii) the watch sales mix in our Europe and Asia
businesses, in comparison to our Americas business, are comprised more predominantly of higher priced licensed brands.
39
Table of Contents
Operating Expenses include SG&A, 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 our 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 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 our Company’s infrastructure and store closures
under our Turnaround, TAG and New World Fossil initiatives.
Results of Operations
Fiscal Year 2024 Compared to Fiscal Year 2023
Consolidated Net Sales. Net sales decreased $267.4 million, or 18.9% (18.6% in constant currency), for fiscal year 2024, as compared to fiscal year 2023. Sales declined in all three
regions. The sales decrease was largely driven by overall category, consumer and channel softness. Our exit of smartwatches and store closures as part of our TAG initiatives negatively
impacted sales in fiscal year 2024 by $95 million as compared to fiscal year 2023. Wholesale sales declined 15.0% (14.6% in constant currency), reflecting lower purchases by wholesale
accounts due to tighter management of inventories and lower end-consumer demand. Direct to consumer sales decreased 24.4% (24.1% in constant currency), partially due to a smaller
store base. We have reduced our store footprint by 54 stores (17.9%), since the end of fiscal year 2023. Comparable retail sales decreased 14.5% during fiscal year 2024, compared to
fiscal year 2023, with declines in both e-commerce and store sales, as we became less promotional. From a category perspective, traditional watch sales decreased 14.0% (13.6% in
constant currency). Sales of smartwatches declined 69.2% (same in constant currency), as we exited the category. Leathers declined 29.9% (29.6% in constant currency) and jewelry
declined 12.9% (12.4% in constant currency). From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines in FOSSIL,
EMPORIO ARMANI and MICHAEL KORS.
The following table sets forth consolidated net sales by segment and the changes in net sales by segment on both a reported and constant currency basis from period to period
(dollars in millions):
Fiscal Year
2024
2023
Growth (Decline)
Percentage
of Total
Percentage
of Total
Percentage as
Reported
Percentage
Constant Currency
Amounts
Amounts
Dollars
Americas
$
515.2
45.0 % $
640.8
45.4 % $
(125.6)
(19.6) %
(19.1) %
Europe
357.6
31.2
437.4
31.0
(79.8)
(18.2)
(18.7)
Asia
270.1
23.6
328.2
23.2
(58.1)
(17.7)
(16.4)
Corporate
2.1
0.2
6.0
0.4
(3.9)
(65.0)
(65.0)
Total net sales
$
1,145.0
100.0 % $
1,412.4
100.0 % $
(267.4)
(18.9) %
(18.6) %
40
Table of Contents
The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period (dollars in millions):
Fiscal Year
2024
2023
Growth (Decline)
Percentage
of Total
Percentage
of Total
Percentage as
Reported
Percentage
Constant Currency
Amounts
Amounts
Dollars
Watches:
Traditional watches
$
872.6
76.2 % $
1,015.1
71.9 % $
(142.5)
(14.0) %
(13.6) %
Smartwatches
24.9
2.2
80.9
5.7
(56.0)
(69.2)
(69.2)
Total watches
$
897.5
78.4 % $
1,096.0
77.6 % $
(198.5)
(18.1) %
(17.7) %
Leathers
111.1
9.7
158.4
11.2
(47.3)
(29.9)
(29.6)
Jewelry
114.5
10.0
131.4
9.3
(16.9)
(12.9)
(12.4)
Other
21.9
1.9
26.6
1.9
(4.7)
(17.7)
(17.3)
Total net sales
$
1,145.0
100.0 % $
1,412.4
100.0 % $
(267.4)
(18.9) %
(18.6) %
The following table sets forth the number of stores on the dates indicated below:
December 30,
2023
Opened
Closed
December 28,
2024
Americas
143
0
29
114
Europe
86
0
21
65
Asia
73
5
9
69
Total stores
302
5
59
248
Americas Net Sales. Americas net sales decreased $125.6 million or 19.6% (19.1% in constant currency) for fiscal year 2024 as compared to fiscal year 2023. Sales decreased in
almost all brands with the biggest decreases in FOSSIL and MICHAEL KORS. Sales decreased in our wholesale, stores and owned e-commerce channels. Comparable retail sales
declined moderately during fiscal year 2024, with declines in both store and owned e-commerce channels.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Americas
segment (dollars in millions):
Net Sales
Fiscal Year
Growth (Decline)
Percentage as
Reported
Percentage
Constant Currency
2024
2023
Dollars
Watches:
Traditional watches
$
388.8 $
456.7 $
(67.9)
(14.9) %
(14.3) %
Smartwatches
18.7
37.7
(19.0)
(50.4)
(50.7)
Total watches
$
407.5 $
494.4 $
(86.9)
(17.6) %
(17.1) %
Leathers
70.7
104.8
(34.1)
(32.5)
(32.3)
Jewelry
28.8
33.4
(4.6)
(13.8)
(14.1)
Other
8.2
8.2
—
—
—
Total
$
515.2 $
640.8 $
(125.6)
(19.6) %
(19.1) %
Europe Net Sales. During fiscal year 2024, Europe net sales decreased $79.8 million or 18.2% (18.7% in constant currency) in comparison to fiscal year 2023. The greatest sales
decreases were in the FOSSIL and MICHAEL KORS brands. Sales declined in our wholesale, stores and owned e-commerce channels. Comparable retail sales decreased moderately
during fiscal year 2024, with declines in both store and owned e-commerce channels.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Europe
segment (dollars in millions):
41
Table of Contents
Net Sales
Fiscal Year
Growth (Decline)
Percentage as
Reported
Percentage
Constant Currency
2024
2023
Dollars
Watches:
Traditional
watches
$
269.2
$
296.1
$
(26.9)
(9.1)
%
(9.6)
%
Smartwatches
1.7
26.3
(24.6)
(93.5)
(93.5)
Total watches
$
270.9
$
322.4
$
(51.5)
(16.0)
%
(16.4)
%
Leathers
17.0
25.9
(8.9)
(34.4)
(34.7)
Jewelry
60.9
78.9
(18.0)
(22.8)
(23.1)
Other
8.8
10.2
(1.4)
(13.7)
(13.9)
Total
$
357.6
$
437.4
$
(79.8)
(18.2)
%
(18.7)
%
Asia Net Sales. In fiscal year 2024, Asia net sales decreased $58.1 million or 17.7% (16.4% in constant currency) in comparison to fiscal 2023. Sales decreased across the majority of
the region, most notably in greater China, and were partially offset by sales growth in India and Australia. The greatest sales declines were in the EMPORIO ARMANI brand.
Comparable retail sales decreased moderately during fiscal year 2024, with growth in owned e-commerce more than offset by declines in stores sales.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Asia segment
(dollars in millions):
Net Sales
Fiscal Year
Growth (Decline)
Percentage as
Reported
Percentage
Constant Currency
2024
2023
Dollars
Watches:
Traditional
watches
$
214.6
$
260.3
$
(45.7)
(17.5)
%
(16.3)
%
Smartwatches
4.5
17.0
(12.5)
(73.5)
(72.9)
Total watches
$
219.1
$
277.3
$
(58.2)
(21.0)
%
(19.8)
%
Leathers
23.5
27.8
(4.3)
(15.5)
(14.7)
Jewelry
24.7
19.1
5.6
29.3
33.5
Other
2.8
4.0
(1.2)
(30.0)
(29.3)
Total
$
270.1
$
328.2
$
(58.1)
(17.7)
%
(16.4)
%
Gross Profit. Gross profit of $597.2 million in fiscal year 2024 decreased $82.4 million, or 12.1%, in comparison to $679.6 million in fiscal year 2023, driven mainly by the decrease in
sales. The gross profit margin rate increased to 52.2% in fiscal year 2024 compared to 48.1% in fiscal year 2023, primarily due to initiatives under our TAG plan, including improved
product margins in our core categories and our exit from the smartwatch category. These benefits were partially offset by a $7.6 million restructuring charge related to closure of our
Swiss manufacturing operations.
Operating Expenses. For fiscal year 2024, total operating expenses decreased to $701.1 million or 61.2% of net sales, compared to $822.6 million or 58.2% of net sales in fiscal year
2023. SG&A expenses were $638.8 million in fiscal year 2024 compared to $777.2 million in fiscal year 2023. As a percentage of net sales, SG&A expenses increased to 55.8% in fiscal year
2024 as compared to 55.0% in fiscal year 2023, mainly driven by deleveraging on lower sales. During fiscal year 2024, we incurred $59.8 million in restructuring charges as compared to
$43.3 million in fiscal year 2023.
Operating Income (Loss). Operating income (loss) was a loss of $103.9 million in fiscal year 2024, as compared to a loss of $143.0 million in the prior fiscal year. As a percentage of
net sales, operating margin was (9.1)% in fiscal year 2024 as compared to (10.1)% in fiscal year 2023 and was negatively impacted by 10 basis points due to changes in foreign currencies.
42
Table of Contents
Operating income (loss) by operating segment is summarized as follows (dollars in millions):
Fiscal Year
Growth (Decline)
Operating Margin %
2024
2023
Dollars
Percentage
2024
2023
Americas
$
77.0 $
82.7 $
(5.7)
(6.9) %
15.0 %
12.9 %
Europe
64.7
41.0
23.7
57.8
18.1
9.4
Asia
40.0
38.2
1.8
4.7
14.8
11.6
Corporate
(285.6)
(304.9)
19.3
6.3
Total operating income (loss)
$
(103.9) $
(143.0) $
39.1
27.3 %
(9.1)%
(10.1)%
Interest Expense. Interest expense was $19.0 in fiscal year 2024 compared to $21.8 in the prior fiscal year. The decrease was primarily driven by a decreased debt balance in fiscal
year 2024 compared to fiscal year 2023.
Other Income (Expense)—Net. During fiscal year 2024, other income (expense) - net was income of $4.9 million compared to income of $8.7 million in the prior fiscal year. The
change in other income (expense)-net was primarily due to net currency losses in fiscal year 2024 as compared to net currency gains in fiscal year 2023. Net currency losses in fiscal 2024
were more than offset by interest income in fiscal 2024.
Provision for Income Taxes. During fiscal year 2024, there was an income tax benefit of $11.8 million, resulting in an effective tax rate of 10.0%, compared to (0.3)% in fiscal year
2023. The 2024 effective rate was favorably impacted by reduced foreign income taxes, release of reserves for uncertain tax positions and the accrual of interest income on tax
receivables, whereas the 2023 effective rate was unfavorably impacted by the low level of pre-tax earnings and valuation allowances on deferred tax assets.
Net Income (Loss) Attributable to Fossil Group, Inc. In fiscal year 2024, net income (loss) attributable to Fossil Group, Inc. was a net loss of $102.7 million, or $1.94 per diluted
share, in comparison to a net loss of $157.1 million, or $3.00 per diluted share, in the prior fiscal year. During fiscal year 2024, currency fluctuations unfavorably impacted diluted earnings
(loss) per share by $0.04.
Adjusted EBITDA. The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial measure, which is income (loss) before income taxes. Certain
line items presented in the table below, when aggregated, may not foot due to rounding (dollars in millions).
Fiscal Year
2024
2023
Dollars
% of Net Sales
Dollars
% of Net Sales
Income (loss) before income
taxes
$
(118.1)
(10.3)
%
$
(156.1)
(11.1)
%
Plus:
Interest expense
19.0
21.8
Amortization and
depreciation
16.0
19.1
Impairment expense
2.5
2.2
Other non-cash charges
3.3
(0.9)
Stock-based compensation
2.9
5.7
Restructuring expense
59.8
43.3
Restructuring cost of sales
7.3
5.5
Less:
Interest income
4.3
3.2
Adjusted EBITDA
$
(11.6)
(1.0)
%
$
(62.6)
(4.4)
%
43
Table of Contents
Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile Adjusted operating income (loss),
Adjusted net income (loss) and Adjusted earnings (loss) per share to the most directly comparable GAAP financial measures, which are operating income (loss), net income (loss)
attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively. Certain line items presented in the table below, when aggregated, may not foot due to rounding.
Fiscal Year 2024
($ in millions, except per share
data):
As Reported
Restructuring Cost
of Sales
Long-lived Asset
Impairment
Restructuring
Expenses
As Adjusted
Operating income (loss)
$
(103.9)
$
7.3
$
2.5
$
59.8
$
(34.3)
Operating margin (% of net sales)
(9.1)
%
(3.0)
%
Interest expense
19.0
—
—
—
19.0
Other income (expense) - net
4.9
—
—
—
4.9
Income (loss) before income
taxes
(118.1)
7.3
2.5
59.8
(48.5)
Provision for income taxes
(11.8)
1.5
0.5
12.6
2.8
Less: net income attributable
to noncontrolling interest
(3.6)
—
—
—
(3.6)
Net income (loss) attributable to
Fossil Group, Inc.
$
(102.7)
$
5.8
$
2.0
$
47.2
$
(47.7)
Diluted earnings (loss) per share
$
(1.94)
$
0.11
$
0.04
$
0.89
$
(0.90)
Fiscal Year 2023
($ in millions, except per share
data):
As Reported
Restructuring Cost
of Sales
Long-lived Asset
Impairment
Restructuring
Expenses
As Adjusted
Operating income (loss)
$
(143.0)
$
5.5
$
2.2
$
43.3
$
(92.0)
Operating margin (% of net sales)
(10.1)
%
(6.5)
Interest expense
21.8
—
—
—
21.8
Other income (expense) - net
8.7
—
—
—
8.7
Income (loss) before income
taxes
(156.1)
5.5
2.2
43.3
(105.1)
Provision for income taxes
0.5
1.2
0.5
9.1
11.3
Less: net income attributable
to noncontrolling interest
0.4
—
—
—
0.4
Net income (loss) attributable to
Fossil Group, Inc.
$
(157.1)
$
4.3
$
1.7
$
34.2
$
(116.9)
Diluted earnings (loss) per share
$
(3.00)
$
0.08
$
0.03
$
0.65
$
(2.24)
Fiscal Year 2023 Compared to Fiscal Year 2022
For a discussion of our results of operations in fiscal year 2023 compared to fiscal year 2022, please see Item 7 of our Annual Report on Form 10-K for the fiscal year ended
December 30, 2023 filed with the SEC, which is incorporated herein by reference.
44
Table of Contents
Liquidity and Capital Resources
Our cash and cash equivalents balance at the end of fiscal year 2024 was $123.6 million, including $92.5 million held by foreign subsidiaries outside the U.S., in comparison to
$117.2 million at the end of fiscal year 2023, including $104.4 million held by foreign subsidiaries outside the U.S. Generally, starting in the third quarter, our cash needs begin to increase,
typically reaching a peak in the September-November time frame as we increase inventory levels in advance of the holiday season. Our quarterly cash requirements are also impacted by
debt repayments, royalty payments, restructuring charges and capital expenditures.
At the end of fiscal year 2024, we had working capital of $227.9 million compared to working capital of $368.2 million at the end of the prior fiscal year. At the end of fiscal year 2024,
we had $2.2 million of outstanding short-term borrowings and $162.7 million in long-term debt including unamortized issuance costs compared to $0.5 million of short-term borrowings
and $207.0 million in long-term debt including unamortized issuance costs at the end of fiscal year 2023.
Operating Activities. Cash provided by (used in) operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Cash provided
by operating activities of $46.7 million in fiscal year 2024 improved as compared to cash used in operating activities of $59.5 million in fiscal year 2023, primarily due to the receipt of a
U.S. tax refund of $57.3 million during fiscal year 2024, management of other working capital items including inventory and a smaller net loss in fiscal year 2024 as compared to fiscal year
2023.
Investing Activities. Investing cash flows primarily consist of capital expenditures and are offset by proceeds from the sale of property, plant and equipment. Investing cash flows
increased in fiscal year 2024 compared to fiscal year 2023 due to the sale of our building in France in fiscal year 2024, which generated approximately $7.8 million of net proceeds.
Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The increase in cash used in financing initiatives in fiscal year 2024 compared
to fiscal year 2023 primarily resulted from $43.8 million of net debt payments in fiscal year 2024 as compared to $10.8 million of net debt payments in fiscal year 2023.
Material Cash Requirements. We have various payment obligations as part of our ordinary course of business. Our material cash requirements include: (1) operating lease
obligations (see Note 13 Leases within the Consolidated Financial Statements); (2) debt repayments (see Note 10 Debt within the Consolidated Financial Statements); (3) non-cancellable
purchase obligations (see Note 14 Commitments and Contingencies within the Consolidated Financial Statements), (4) minimum royalty payments (see Note 14 Commitments and
Contingencies within the Consolidated Financial Statements); and (5) employee wages, benefits, and incentives. The expected timing of payments of our obligations is estimated based
on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for
some obligations. In addition, some of our purchasing requirements are not current obligations and are therefore not included above. For example, some of these requirements are not
handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons. Moreover, we may be subject to additional material cash
requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions (see Note 12 Taxes within the Consolidated Financial
Statements), pensions (see Note 16 Employee Benefit Plans within the Consolidate Financial Statements) and other matters.
For the fiscal year ending January 2, 2026, we expect total capital expenditures to be approximately $5 million. Our capital expenditure budget is an estimate and is subject to
change.
Sources of Liquidity. We believe cash flows from operations and proceeds from non-core asset sales, combined with existing cash on hand and amounts available under our credit
facilities will be sufficient to fund our cash needs for at least the next twelve months. Although we believe we have adequate sources of liquidity, the success of our operations, in light
of the market volatility and uncertainty, among other factors, could impact our business and liquidity.
The following table shows our sources of liquidity from cash and cash equivalents and Revolving Facility availability (in millions):
Fiscal Year End
2024
2023
Cash and cash equivalents
$
123.6
$
117.2
Revolving Facility availability
53.4
64.0
Total liquidity
$
177.0
$
181.2
45
Table of Contents
We are pursuing initiatives to monetize non-core assets, improve working capital and bolster liquidity. We are also continuing to work with strategic advisors to address our
upcoming debt maturities in the third and fourth quarters of 2026. We are assessing potential sources of supplemental liquidity in light of our operating performance, the timing of the
expected benefits of our restructuring plans and other relevant considerations. In the event our liquidity becomes insufficient, we may be required to limit our spending or sell additional
assets. In addition, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for other debt securities (including additional
secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, or may otherwise seek transactions to
reduce interest expense, extend debt maturities and improve our capital structure. Any of these transactions could impact our financial results, including additional expenses, charges
and cancellation of indebtedness income. We cannot assure you whether any of such transactions will be consummated, whether we will achieve the benefits of any such transaction, or
whether our cost of capital will increase, any of which could have an impact on our future liquidity.
Notes: In November 2021, we sold $150.0 million aggregate principal amount of our 7.00% senior notes due 2026 (the "Notes"), generating net proceeds of approximately $141.7
million.
The Notes are our general unsecured obligations. The Notes bear interest at the rate of 7.00% per annum. Interest on the Notes is payable quarterly in arrears on February 28, May
31, August 31 and November 30 of each year. The Notes mature on November 30, 2026. We may redeem the Notes for cash in whole or in part at any time at our option at the following
prices: (i) prior to November 30, 2025, at a price equal to $25.25 per $25.00 principal amount of Notes and (ii) on or after November 30, 2025, at a price equal to $25.00 per $25.00 principal
amount of Notes, plus (in each case noted above) accrued and unpaid interest, if any, to, but excluding, the date of redemption.
Revolving Facility: On September 26, 2019, we and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH,
Fossil (UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other of our subsidiaries from time to time party thereto designated as borrowers, and certain of our
subsidiaries from time to time party thereto as guarantors, entered into a secured asset-based revolving credit agreement (as amended from time to time, the "Revolving Facility") with
JPMorgan Chase Bank, N.A. as administrative agent (the "ABL Agent"), J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells Fargo
Bank, National Association as joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and each of
the lenders from time to time party thereto (the "ABL Lenders"). On November 8, 2022 we entered into Amendment No. 4 (the "Amendment”) to the Revolving Facility. The Amendment,
among other things, (i) extended the maturity date of the credit facility to November 8, 2027 (provided, that if we have any indebtedness in an amount in excess of $35 million that
matures prior to November 8, 2027, the maturity date of the credit facility shall be the 91st day prior to the maturity date of such other indebtedness) and (ii) changed the calculation
methodology of the borrowing base to include the value of certain of our intellectual property in such methodology and to provide for seasonal increases to certain advance rates.
Because of the springing maturity feature described in the preceding sentence, if the Notes (as defined below) are not repaid or refinanced to a later maturity date in a manner that
reduces the balance due on November 30, 2026 to $35 million or less, the maturity date of the Revolving Facility will be August 31, 2026.
The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the
"Revolving Credit Commitment”), of which up to $125.0 million is available under a U.S. facility, an aggregate of $80.0 million is available under a European facility, $10.0 million is
available under a Hong Kong SAR facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the borrowing
base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the "Letters of Credit”). The
French facility includes a $1.0 million subfacility for swingline loans, and the European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a
line cap equal to the lesser of the total Revolving Credit Commitment and the aggregate borrowing bases under the U.S. facility, the European facility, the Hong Kong SAR facility, the
French facility and the Canadian facility. Loans under the Revolving Facility may be made in U.S. dollars, Canadian dollars, euros, Hong Kong dollars or pounds sterling.
The Revolving Facility is an asset-based facility, in which borrowing availability is subject to a borrowing base equal to: (a) with respect to us, the sum of (i) the lesser of (x) 90% of
the appraised net orderly liquidation value of eligible U.S. finished goods inventory and (y) 65% of the lower of cost or market value of eligible U.S. finished goods inventory, plus (ii)
85% of the eligible U.S. accounts receivable, plus (iii) 90% of eligible U.S. credit card accounts receivable, plus (iv) the lesser of (x) 40% of the appraised net orderly liquidation value of
eligible U.S. intellectual property and (y) $20.0 million, minus (y) the aggregate amount of reserves, if any, established by the ABL Agent; (b) with respect to each non-U.S. borrower
(except for the French Borrower), the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible foreign finished goods inventory of such non-U.S. borrower
and (y) 65% of the lower of cost or market value of eligible foreign finished goods inventory of such non-U.S. borrower, plus (ii) 85% of the eligible foreign accounts receivable of such
non-U.S. borrower,
46
Table of Contents
minus (iii) the aggregate amount of reserves, if any, established by the ABL Agent; and (c) with respect to the French Borrower, (i) 85% of eligible French accounts receivable minus (ii)
the aggregate amount of reserves, if any, established by the ABL Agent. Not more than 60% of the aggregate borrowing base under the Revolving Facility may consist of the non-U.S.
borrowing bases.
The above advance rates (other than the advance rate with respect to intellectual property) are seasonally increased by 5% (e.g. from 90% to 95%) during the period commencing
on the date of delivery of the borrowing base certificate with respect to the second fiscal month of the Company and ending on the last day of the period covered by the borrowing base
certificate delivered with respect to the fifth fiscal month of the Company.
Fiscal Year 2024 Activity: We had payments net of borrowings of $46.1 million under the Revolving Facility during fiscal year 2024 at an average interest rate of 6.4%. As of
December 28, 2024, we had $150.0 million outstanding under the Notes and $15.9 million outstanding under the Revolving Facility. As of December 28, 2024, we had unamortized debt
issuance costs of $3.3 million recorded in long-term debt and $1.9 million recorded in intangible and other assets-net on our consolidated balance sheets. In addition, we had $5.3 million
of outstanding standby letters of credit at December 28, 2024. Amounts available under the Revolving Facility are reduced by any amounts outstanding under standby letters of credit.
As of December 28, 2024, we had $53.4 million available for borrowing under the Revolving Facility. At December 28, 2024, we were in compliance with all debt covenants related to our
debt agreement.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
47
Table of Contents
Item 8. Consolidated Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Fossil Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fossil Group, Inc. and subsidiaries (the "Company") as of December 28, 2024 and December 30, 2023, and the related
consolidated statements of income (loss) and comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2024, and
the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the three years in the
period ended December 28, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial
reporting as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 12, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventories – Valuation —Refer to Notes 1 and 3 of the financial statements
Critical Audit Matter Description
Inventories are stated at the lower of cost and net realizable value, including any applicable duty and freight charges. The Company accounts for estimated obsolescence or
unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable value based upon assumptions about future demand, market
conditions and available liquidation channels through the establishment of an inventory excess and obsolescence valuation adjustment. Changes in these assumptions could have a
significant impact on the inventory excess and obsolescence valuation adjustment.
We identified inventory valuation as a critical audit matter because of the significant judgments made by management to estimate future demand, market conditions, and available
liquidation channels which are used to arrive at the net realizable value. This required a high degree of auditor judgment and an increased extent of effort when performing audit
procedures to evaluate the reasonableness of management’s estimates and assumptions within the inventory excess and obsolescence allowance.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the inventory excess and obsolescence allowance included the following, among others:
48
Table of Contents
•
We tested the effectiveness the Company’s internal control over the inventory excess and obsolescence valuation adjustment.
•
We evaluated management’s ability to estimate net realizable value by taking into account changes in market conditions subsequent to December 28, 2024.
•
We evaluated the method and assumptions used by management to estimate net realizable value by:
–
Testing the underlying data that served as the basis for key assumptions.
–
Evaluating the appropriateness of the inputs to the estimate, including market conditions, and available liquidation channels.
–
Evaluating management's ability to accurately estimate net realizable value and predict market conditions by assessing the year-over-year change in the estimated
inventory allowance by product-line.
–
Performing a trend analysis of net sales, margins, inventory turnover, and period-end inventory balances in order to assess the reasonableness of each product line’s
inclusion or exclusion from the allowance.
•
Tested the completeness of the inventory valuation adjustment by:
–
Identifying slow-moving inventory with low turnover levels and comparing to management’s analysis.
–
Inquiring of brand management and performing corroborative inquiry about returns, inventory that is under-performing, and anticipated trends based on market
reaction and comparing to management’s analysis.
–
Evaluating margins for a sample of sales to liquidators to evaluate the need for potential obsolescence allowance.
–
Testing inventory items by product-line to determine if the inventory excess and obsolescence allowance is reasonable through evaluations of historical margin data
and other qualitative factors for each selection.
•
Tested the mathematical accuracy of the inventory excess and obsolescence allowance by recalculating the net realizable value and comparing our recalculation to the recorded
balance.
•
Tested sales of certain inventory products that are identified as being at risk for obsolescence and evaluated sales margins earned on those transactions.
•
Evaluated and performed inquiries of management about planned sales channels against historical margins at the product level.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 12, 2025
We have served as the Company's auditor since 1988.
49
Table of Contents
FOSSIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
December 28,
2024
December 30,
2023
Assets
Current assets:
Cash and cash equivalents
$
123,598
$
117,197
Accounts receivable-net
162,164
187,942
Inventories
178,576
252,834
Prepaid expenses and other current assets
90,177
152,717
Total current assets
554,515
710,690
Property, plant and equipment-net
41,568
57,244
Operating lease right-of-use assets
121,389
151,000
Intangible and other assets-net
46,095
59,096
Total long-term assets
209,052
267,340
Total assets
$
763,567
$
978,030
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
157,636
$
147,161
Short-term debt
2,170
480
Accrued expenses:
Current operating lease liabilities
37,327
43,565
Compensation
43,426
44,789
Royalties
16,893
15,880
Customer liabilities
29,830
37,584
Transaction taxes
11,315
10,412
Other
20,208
27,811
Income taxes payable
7,765
14,795
Total current liabilities
326,570
342,477
Long-term income taxes payable
5,423
20,409
Deferred income tax liabilities
1,033
698
Long-term debt
162,674
206,983
Long-term operating lease liabilities
113,658
137,644
Other long-term liabilities
17,485
18,081
Total long-term liabilities
300,273
383,815
Commitments and contingencies (Note 14)
Stockholders' equity:
Common stock, 53,254 and 52,487 shares issued and outstanding at December 28, 2024 and December 30, 2023, respectively
533
525
Additional paid-in capital
315,042
311,709
Retained earnings
(84,268)
18,403
Accumulated other comprehensive income (loss)
(82,604)
(76,405)
Total Fossil Group, Inc. stockholders' equity
148,703
254,232
Noncontrolling interest
(11,979)
(2,494)
Total stockholders' equity
136,724
251,738
Total liabilities and stockholders' equity
$
763,567
$
978,030
See notes to the consolidated financial statements.
50
Table of Contents
FOSSIL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
IN THOUSANDS, EXCEPT PER SHARE DATA
Fiscal Year
2024
2023
2022
Net sales
$
1,144,990
$
1,412,384
$
1,682,439
Cost of sales
547,839
732,803
851,760
Gross profit
597,151
679,581
830,679
Operating expenses:
Selling, general and administrative expenses
638,776
777,167
823,689
Long-lived asset impairments
2,541
2,159
2,342
Restructuring expenses
59,781
43,279
6,121
Total operating expenses
701,098
822,605
832,152
Operating income (loss)
(103,947)
(143,024)
(1,473)
Interest expense
18,990
21,778
19,237
Other income (expense) - net
4,874
8,665
(1,416)
Income (loss) before income taxes
(118,063)
(156,137)
(22,126)
Provision for income taxes
(11,787)
522
21,400
Net income (loss)
(106,276)
(156,659)
(43,526)
Less: Net income attributable to noncontrolling interest
(3,605)
429
631
Net income (loss) attributable to Fossil Group, Inc.
$
(102,671)
$
(157,088)
$
(44,157)
Other comprehensive income (loss), net of taxes:
Currency translation adjustment
$
(4,778)
$
6,775
$
(15,080)
Cash flow hedges - net change
124
(709)
(1,947)
Pension plan activity
(1,545)
(6,153)
7,984
Total other comprehensive income (loss)
(6,199)
(87)
(9,043)
Total comprehensive income (loss)
(112,475)
(156,746)
(52,569)
Less: Comprehensive income attributable to noncontrolling interest
(3,605)
429
631
Comprehensive income (loss) attributable to Fossil Group, Inc.
$
(108,870)
$
(157,175)
$
(53,200)
Earnings (loss) per share:
Basic
$
(1.94)
$
(3.00)
$
(0.85)
Diluted
$
(1.94)
$
(3.00)
$
(0.85)
Weighted average common shares outstanding:
Basic
52,958
52,284
51,841
Diluted
52,958
52,284
51,841
See notes to the consolidated financial statements.
51
FOSSIL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AMOUNTS IN THOUSANDS
Common Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Stockholders'
Equity
Attributable
to Fossil
Group, Inc.
Noncontrolling Interest
Total Stockholders'
Equity
Shares
Par
Value
Balance, January 1, 2022
52,146
$
521
$
300,848
$
—
$
229,132
$
(67,275)
$
463,226
$
2,132
$
465,358
Common stock issued upon exercise of stock options and stock appreciation rights and
restricted stock units
906
9
(9)
—
—
—
—
—
—
Acquisition of common stock
—
—
—
(12,447)
—
—
(12,447)
—
(12,447)
Retirement of common stock
(1,216)
(12)
(2,951)
12,447
(9,484)
—
—
—
—
Stock-based compensation
—
—
8,353
—
—
—
8,353
—
8,353
Net income (loss)
—
—
—
—
(44,157)
—
(44,157)
631
(43,526)
Other comprehensive income (loss)
—
—
—
—
—
(9,043)
(9,043)
—
(9,043)
Distribution of noncontrolling interest earnings and other
—
—
—
—
—
—
—
(5,686)
(5,686)
Balance, December 31, 2022
51,836
$
518
$
306,241
$
—
$
175,491
$
(76,318)
$
405,932
$
(2,923)
$
403,009
Common stock issued upon exercise of stock options and stock appreciation rights and
restricted stock units
816
8
(8)
—
—
—
—
—
—
Acquisition of common stock
—
—
—
(530)
—
—
(530)
—
(530)
Retirement of common stock
(165)
(1)
(529)
530
—
—
—
—
—
Stock-based compensation
—
—
6,005
—
—
—
6,005
—
6,005
Net income (loss)
—
—
—
—
(157,088)
—
(157,088)
429
(156,659)
Other comprehensive income (loss)
—
—
—
—
—
(87)
(87)
—
(87)
Balance, December 30, 2023
52,487
$
525
$
311,709
$
—
$
18,403
$
(76,405)
$
254,232
$
(2,494)
$
251,738
Common stock issued upon exercise of stock options and stock appreciation rights and
restricted stock units
894
9
(9)
—
—
—
—
—
—
Acquisition of common stock
—
—
—
(114)
—
—
(114)
—
(114)
Retirement of common stock
(127)
(1)
(113)
114
—
—
—
—
—
Stock-based compensation
—
—
3,455
—
—
—
3,455
—
3,455
Net income (loss)
—
—
—
—
(102,671)
—
(102,671)
(3,605)
(106,276)
Other comprehensive income (loss)
—
—
—
—
—
(6,199)
(6,199)
—
(6,199)
Distribution of noncontrolling interest earnings
—
—
—
—
—
—
—
(5,880)
(5,880)
Balance, December 28, 2024
53,254
$
533
$
315,042
$
—
$
(84,268)
$
(82,604)
$
148,703
$
(11,979)
$
136,724
See notes to consolidated financial statements.
52
FOSSIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS
Fiscal Year
2024
2023
2022
Operating Activities:
Net income (loss)
$
(106,276)
$
(156,659)
$
(43,526)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion
16,000
19,099
23,333
Non-cash lease expense
65,128
74,813
79,274
Stock-based compensation
2,897
5,686
8,060
Decrease in allowance for returns and markdowns
(1,867)
(2,604)
(6,729)
Gain on disposal of assets
(4,329)
(6,398)
(460)
Property, plant and equipment and other long-lived asset impairment losses
2,541
2,159
2,642
Non-cash restructuring charges
14,801
7,563
779
Bad debt expense
6,328
3,535
6,305
Other non cash items
(1,216)
(7,080)
12,456
Loss on extinguishment of debt
—
—
1,060
Contingent consideration remeasurement
(154)
(348)
2,363
Changes in operating assets and liabilities:
Accounts receivable
11,737
19,945
41,621
Inventories
58,638
125,766
(46,031)
Prepaid expenses and other current assets
66,367
18,758
(3,954)
Accounts payable
14,382
(42,889)
(35,422)
Accrued expenses
(4,551)
(24,473)
(55,055)
Income taxes
(22,176)
(9,858)
(4,496)
Operating lease liabilities
(71,570)
(86,474)
(93,076)
Net cash provided by (used in) operating activities
46,680
(59,459)
(110,856)
Investing Activities:
Additions to property, plant and equipment
(6,752)
(8,528)
(13,262)
Decrease (increase) in intangible and other assets
1,410
(1,365)
1,719
Proceeds from the sale of property, plant and equipment and other
9,386
23
2,990
Net cash provided by (used in) investing activities
4,044
(9,870)
(8,553)
Financing Activities:
Acquisition of common stock
(114)
(530)
(12,447)
Distribution of noncontrolling interest earnings
(5,880)
—
(5,686)
Debt borrowings
115,702
172,827
386,067
Debt payments
(159,495)
(183,607)
(314,200)
Payment for shares of Fossil Accessories South Africa Pty. Ltd.
(422)
(2,316)
—
Debt issuance costs and other
—
—
(744)
Net cash (used in) provided by financing activities
(50,209)
(13,626)
52,990
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
4,494
463
5,922
Net increase (decrease) in cash and cash equivalents, and restricted cash
5,009
(82,492)
(60,497)
Cash and cash equivalents, and restricted cash:
Beginning of year
121,583
204,075
264,572
End of year
$
126,592
$
121,583
$
204,075
See notes to the consolidated financial statements.
53
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Consolidated Financial Statements include the accounts of Fossil Group, Inc., a Delaware corporation, and its subsidiaries (the "Company"). The Company is a leader in the
design, development, marketing and distribution of contemporary, high quality fashion accessories on a global basis. The Company's products are sold primarily through department
stores, specialty retailers, Company-owned retail stores and commercial websites worldwide. The Company reports on a fiscal year reflecting the retail-based calendar (containing 4-4-
5 week calendar quarters). References to fiscal years 2024, 2023 and 2022 are for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively. All
intercompany balances and transactions are eliminated in consolidation.
Use of Estimates is required in the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.
Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments,
including those related to product returns, bad debt, inventories, long-lived asset impairment, impairment of trade names, income taxes, warranty costs and litigation liabilities.
Management bases its estimates and judgments on the information available at the time and various other assumptions believed to be reasonable under the circumstances. Management
estimates form the basis for making judgments about the carrying value of the assets and liabilities that are not readily apparent from other sources. Actual results could differ from
those estimates.
Concentration of Risk involves financial instruments that potentially expose the Company to concentration of credit risk and consist primarily of cash investments and accounts
receivable. The Company places its cash investments with high-credit quality financial institutions and currently invests primarily in corporate debt securities and money market funds
with major banks and financial institutions. Accounts receivable are generally diversified due to the number of entities comprising the Company's customer base and their dispersion
across many geographic regions. The Company believes no significant concentration of credit risk exists with respect to these cash investments and accounts receivable.
A significant portion of sales of the Company's products are supplied by manufacturers located outside of the U.S., primarily in Asia. While the Company is not dependent on any
single manufacturer outside the U.S., the Company could be adversely affected by political, economic or other disruptions affecting the business or operations of third-party
manufacturers located outside of the U.S.
The Company has entered into multi-year, worldwide exclusive license agreements for the manufacture, distribution and sale of products bearing the brand names of certain
globally recognized fashion companies. Sales of the Company's licensed products amounted to 44.5%, 44.7% and 46.5% of the consolidated net sales for fiscal years 2024, 2023 and 2022,
respectively, of which MICHAEL KORS product sales accounted for 17.4%, 17.6% and 19.2% of the consolidated net sales for fiscal years 2024, 2023 and 2022, respectively, and
EMPORIO ARMANI product sales accounted for 11.5%, 14.0% and 14.6% of the consolidated net sales for fiscal years 2024, 2023 and 2022, respectively.
Cash Equivalents are considered all highly liquid investments with original maturities of three months or less.
Restricted Cash 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 December 28, 2024, December 30, 2023 and December 31, 2022 that are presented in the consolidated statement of cash
flows (in thousands):
December 28, 2024
December 30, 2023
December 31, 2022
Cash and cash equivalents
$
123,598
$
117,197
$
198,726
Restricted cash included in prepaid expenses and other current assets
540
77
106
Restricted cash included in intangible and other assets-net
2,454
4,309
5,243
Cash, cash equivalents and restricted cash
$
126,592
$
121,583
$
204,075
Accounts Receivable at the end of fiscal years 2024 and 2023 are stated net of doubtful accounts of approximately $14.7 million and $12.6 million, respectively.
®
®
54
Inventories are stated at the lower of cost and net realizable value, including any applicable duty and freight charges. Inventory held at consignment locations is included in the
Company's finished goods inventory, and at the end of fiscal years 2024 and 2023, was $15.1 million and $19.8 million, respectively.
Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These
assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using the Company's incremental borrowing rate, adjusted for
the lease term and lease country, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and are reduced by lease incentives. Some
lease terms include options to extend or terminate the lease and they are included in the measurement of the lease assets and lease liabilities if the Company is reasonably certain that
those options will be exercised. Variable lease payments are expensed as incurred and include certain index-based changes in rent and certain non-lease components such as
maintenance and other services provided by the lessor to the extent the charges are variable. The Company evaluates contractual arrangements at inception to determine if individual
agreements are a lease or contain an identifiable lease component as defined by Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"). When evaluating contracts to
determine appropriate classification and recognition under ASC 842, judgment may be necessary to determine, among other criteria, if an embedded leasing arrangement exists, the
length of the term, classification as either an operating or financing lease and whether renewal or termination options are reasonably certain to be exercised. Leases with an initial term of
12 months or less are not recorded on the balance sheet. Lease agreements with lease and non-lease components are combined as a single lease component for all classes of underlying
assets. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of
exercise.
Lease assets are evaluated for impairment whenever events or conditions indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash
flows related to the asset. Lease impairment losses of $1.8 million, $1.7 million and $2.1 million were recorded in long-lived asset impairments in fiscal years 2024, 2023 and 2022,
respectively. Lease impairment losses of $5.4 million were recorded in restructuring charges in fiscal year 2024. No lease impairment losses were recorded in restructuring charges in fiscal
years 2023 and 2022.
Property, Plant and Equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful
lives of the assets of 30 years for buildings, generally five years for machinery and equipment and furniture and fixtures and two to seven years for computer equipment and software.
Leasehold improvements are amortized over the shorter of the lease term or the asset's estimated useful life.
Property, plant and equipment is evaluated for impairment whenever events or conditions indicate that the carrying value of an asset may not be recoverable based on expected
undiscounted cash flows related to the asset. Property, plant and equipment impairment losses of underperforming Company-owned retail stores of $0.4 million, $0.4 million and $0.2
million were recorded in long-lived asset impairments. We recorded impairment losses in restructuring charges of $1.2 million and $0.1 million in fiscal years 2024 and 2022, respectively
and no charges in fiscal year 2023.
Other Intangible Assets include trademarks, trade names and patents. Trademarks, trade names with finite lives, and patents are amortized using the straight-line method over their
estimated useful lives, which are generally three to 20 years. Indefinite-lived trade names are evaluated for impairment annually as of the end of the fiscal year. Additionally, if events or
conditions were to indicate an intangible asset may not be recoverable, the Company would evaluate the asset for impairment at that time. Impairment testing compares the carrying
amount of an intangible asset with its fair value. When the carrying amount of an intangible asset exceeds its fair value, an impairment charge is recorded.
The fair value of the Company's MICHELE trade name was estimated using the relief from royalty method. No impairment charges were recorded to the MICHELE trade name
during fiscal years 2024, 2023 or 2022. During fiscal years 2024, 2023 and 2022, the SKAGEN trade name was being fully amortized on a straight-line basis over its estimated useful life.
No impairment charges were recorded to the SKAGEN trade name during fiscal years 2024, 2023 or 2022.
During fiscal year 2024, the Company committed to a plan to sell its MICHELE and SKAGEN trade names and is actively marketing the assets in their current condition. The
estimated fair value of these assets less costs to sell exceeds their carrying value, therefore no impairment expense was recognized as a result of this plan. The assets were recorded to
prepaid and other during fiscal year 2024 when the qualifications for assets held for sale were met. Amortization of the SKAGEN trade name ceased when the trade name became
classified as asset held for sale.
®
®
Assets held for sale are assets that the Company has committed to a plan to sell within one year and is actively marketing the assets in their current condition for a price that is
reasonable in comparison to their estimated fair value. Assets held for sale are reported at the lower of carrying amount or fair value less costs to sell. Long-lived assets classified as held
for sale are not subject to depreciation or amortization. The Company had assets held for sale of $17.5 million and $9.4 million at the end of fiscal years 2024 and 2023, respectively,
related to trade names and property held for sale. Assets held for sale are included in prepaid and other in the Company's consolidated balance sheets.
Accrued Expenses includes liabilities relating to employee compensation, operating lease liabilities, royalties, warranties, duty, gift cards, foreign exchange forward contracts
("forward contracts") and other accrued liabilities which are current in nature.
Other Long-Term Liabilities includes obligations relating to asset retirements, forward contracts and defined benefits relating to certain international employees and other
liabilities that are not current in nature.
Cumulative Translation Adjustment is included as a component of accumulated other comprehensive income (loss) and reflects the adjustments resulting from translating the
financial statements of foreign subsidiaries into U.S. dollars. The functional currency of the Company's foreign subsidiaries is the currency of the primary economic environment in
which the entity operates, which is generally the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiaries are translated to U.S. dollars at fiscal year-
end exchange rates. Income and expense items are translated at average monthly exchange rates. Cumulative translation adjustments remain in accumulated other comprehensive income
(loss) and are reclassified into earnings in the event the related foreign subsidiary is sold or liquidated.
Foreign Transaction Gains and Losses are those changes in exchange rates of currencies not considered the functional currency that affects cash flows and the related
receivables or payables. The Company incurred a net foreign currency transaction loss of approximately $1.3 million for fiscal year 2024 and net foreign currency transaction gain of $3.0
million and loss of $0.2 million for fiscal years 2023 and 2022, respectively. These net gains and losses have been included in other income (expense)—net in the Company's consolidated
statements of income (loss) and comprehensive income (loss).
Revenues from sales of the Company's products are recognized when control of the product is transferred to the customer and in an amount that reflects the consideration the
Company expects to be entitled in exchange for the product. The Company accepts limited returns from customers. The Company continually monitors returns and maintains a provision
for estimated returns based upon historical experience and any specific issues identified. Product returns are accounted for as reductions to revenue and cost of sales and increases to
customer liabilities and other current assets to the extent the returned product is resalable. The Company recorded an estimated returns provision of $27.8 million and $33.4 million in
accrued expenses as of the end of fiscal years 2024 and 2023, respectively. Taxes imposed by governmental authorities on the Company's revenue-producing activities with customers,
such as sales taxes and value added taxes, are excluded from net sales. See Note 2—Revenue, for more information regarding the Company's revenue recognition policy.
Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs, shipping and handling costs related to
the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations and restructuring charges. Additionally,
cost of sales includes customs duties, product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling and inventory shrinkage and
damages.
Operating Expenses include selling, general and administrative ("SG&A"), 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, 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 20—Restructuring for additional information on the Company’s restructuring plan. The Company did not receive any significant
government subsidies in fiscal year 2024 and recorded $3.6 million and $4.0 million related to government assistance and subsidies during fiscal years 2023 and 2022, respectively. These
amounts mostly relate to payroll expense and were recorded as a reduction of selling, general and administrative expenses.
Advertising Costs for digital marketing and in-store advertising as well as co-op advertising, product displays, show/exhibit costs, advertising royalties related to the sales of
licensed brands, internet costs associated with affiliation fees and sample costs are expensed as incurred within SG&A. Advertising costs were $123.1 million, $157.3 million and $154.6
million for fiscal years 2024, 2023 and 2022, respectively.
Warranty Costs are included in SG&A. The Company records an estimate for future warranty costs based on historical repair costs and adjusts the liability as required. Warranty
costs have historically been within the Company's expectations and the provisions established. If such costs were to substantially exceed estimates, this could have an adverse effect
on the Company's operating results. See Note 4—Warranty Liabilities, for more information regarding warranties.
Research and Development Costs are incurred primarily through the Company's in-house engineering team as well as third party consulting and labor and consist primarily of
personnel-related expenses, tooling and prototype materials and overhead costs. The Company’s research and development ("R&D") expenses are related to designing and developing
new products and features and improving existing products. The Company's R&D expenses are recorded in SG&A and were $19.4 million and $29.1 million in fiscal years 2023 and 2022,
respectively. There were no significant R&D expenses recorded in fiscal year 2024.
Noncontrolling Interest is recognized as equity in the Company's consolidated balance sheets, is reflected in net income attributable to noncontrolling interest in the consolidated
statements of income (loss) and comprehensive income (loss) and is captured within the summary of changes in equity attributable to controlling and noncontrolling interests.
Noncontrolling interests represent ownership interests in the Company's subsidiaries held by third parties.
Other Comprehensive Income (Loss) which is reported in the consolidated statements of income (loss) and comprehensive income (loss) and consolidated statements of
stockholders' equity, consists of net income and other gains and losses affecting equity that are excluded from net income. The components of other comprehensive income (loss)
primarily consist of foreign currency translation gains and losses and net realized and unrealized gains and losses on the following: (i) derivatives designated as cash flow hedges and
(ii) the Company's defined benefit plans.
Earnings (Loss) Per Share ("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):
Fiscal Year
2024
2023
2022
Numerator:
Net income (loss) attributable to Fossil Group, Inc.
$
(102,671) $
(157,088) $
(44,157)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding
52,958
52,284
51,841
Basic EPS
$
(1.94) $
(3.00) $
(0.85)
Diluted EPS computation:
Basic weighted average common shares outstanding
52,958
52,284
51,841
Diluted weighted average common shares outstanding
52,958
52,284
51,841
Diluted EPS
$
(1.94) $
(3.00) $
(0.85)
Approximately 1.9 million, 2.1 million and 2.1 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation in fiscal years
2024, 2023 and 2022, respectively, because they were anti-dilutive, including approximately 0.2 million, 0.3 million and 0.3 million weighted performance-based shares in fiscal years 2024,
2023 and 2022, respectively.
Income Taxes are provided for under the asset and liability method for temporary differences in assets and liabilities recognized for income tax and financial reporting purposes.
Deferred tax assets are periodically assessed for the likelihood of whether they are more likely than not to be realized. Tax benefits associated with uncertain tax positions are recognized
in the period in which one of the following conditions is satisfied: (i) the more likely than not recognition threshold is satisfied; (ii) the position is ultimately settled through negotiation
or litigation; or (iii) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are
derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.
The Global Intangible Low-Taxed Income ("GILTI”) provisions of the Tax Cuts and Jobs Act (the "Tax Act") requiring the inclusion of certain foreign earnings in U.S. taxable
income first applied in fiscal year 2018. The GILTI tax was accounted for as incurred under the period cost method. The Company's valuation allowance analysis is affected by various
aspects of the Tax Act, including the new limitation on the deductibility of interest expense and the impact of GILTI. Those adjustments may materially impact the provision for income
taxes and the effective tax rate in the period in which the adjustments are made.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"), 2024-03, Income Statement—Reporting Comprehensive
Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires entities to disclose additional information about
specific expense categories in the notes to financial statements at interim and annual reporting periods. This guidance is effective for fiscal years beginning after December 15, 2026, with
early adoption permitted. The adoption of this standard will result in additional disclosure in the notes to the financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of
income tax disclosures through changes to the rate reconciliation and income taxes paid information. This guidance is effective for fiscal years beginning after December 15, 2024, with
early adoption permitted. The Company plans to adopt ASU 2023-09 in the first quarter of fiscal year 2025 on a prospective basis and expects the adoption of the updated guidance to
result in the additional disaggregation of certain tax information within the Company's income tax footnote disclosure.
The Organization for Economic Cooperation and Development ("OECD") and over 140 countries have agreed to enact a two-pillar solution to reform the international tax rules to
address the challenges arising from the globalization and digitalization of the economy. "The Pillar Two Global Anti-Base Erosion (GloBE) Rules" provide a coordinated system to ensure
that multinational enterprises with revenues above 750 million euro pay a minimum effective tax rate of 15% tax on the income arising in each of the jurisdictions in which they operate.
Many aspects of Pillar Two became effective for tax years beginning in January 2024, with certain remaining impacts to be effective in 2025. Each country must enact its own legislation
to apply the Pillar Two rules. Pillar Two did not have a material impact on the Company's financial results, including its annual estimated effective tax rate or liquidity in 2024, but will
continue to monitor future developments in 2025.
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280), to improve reportable segment disclosures, primarily through
enhanced disclosures about significant segment expenses. The amendments in this update require public entities to disclose significant segment expenses that are regularly provided to
the Company's chief operating decision maker and included within segment profit and loss, an amount and description of its composition for other segment items, and expanded interim
disclosures. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption
permitted. The adoption of this standard resulted in additional disclosures of segment expenses within Note 19 - Major Customer, Segment and Geographic Information.
2. Revenue
The Company’s revenue consists of sales of finished products to customers through wholesale and retail channels. Revenue from the sale of products, including those that are
subject to inventory consignment agreements, is recognized when control of the product is transferred to the customer and in an amount that reflects the consideration the Company
expects to be entitled in exchange for the product. The Company generally considers control to transfer either when products ship or when products are delivered depending on the
shipping terms in the agreement or purchase order. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment,
the customer has legal title to the product, the Company has transferred physical possession of the product, and the customer has the significant risks and rewards of the product. Taxes
imposed by governmental authorities on the Company's revenue-producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.
Markdowns. The Company provides markdowns to certain customers in order to facilitate sales of select styles. Markdowns are estimated at the time of sale using historical data
and are recorded as a reduction to revenue. The Company's policy is to record its markdown allowance as a reduction of accounts receivable.
Returns. The Company accepts limited returns from customers. The Company continually monitors returns and maintains a provision for estimated returns based upon historical
experience, any specific issues identified and current information. Product returns are accounted for as reductions to revenue, cost of sales and customer liabilities and an increase to
other current assets to the extent the returned product is resalable.
Cooperative Advertising. The Company participates in cooperative advertising programs with its major retail customers, whereby the Company shares the cost of certain of their
advertising and promotional expenses. Certain advertising expenses which are not considered separate performance obligations are recorded as sales discounts. All other cooperative
advertising expenses are recorded in SG&A.
Multiple Performance Obligations. The Company enters into contracts with customers for its wearable technology that include multiple performance obligations. Each distinct
performance obligation was determined by whether the customer could benefit from the good or service on its own or together with readily available resources. The Company allocates
revenue to each performance obligation based on its relative standalone selling price. The Company's process for determining standalone selling price considers multiple factors
including the Company's internal pricing model and market trends that may vary depending upon the facts and circumstances related to each performance obligation. Revenue allocated
to the hardware and software essential to the functionality of the product represents the majority of the arrangement consideration and is recognized at the time of product delivery,
provided the other conditions for revenue recognition have been met. Revenue allocated to free software services provided through the Company's online dashboard and mobile apps
as well as revenue allocated to the right to receive future unspecified software updates is deferred and recognized on a straight-line basis over the product's estimated usage period of
two years.
Licensing Income. The Company previously had agreements with certain customers to provide smartwatch technology, design, support and procurement, which expired in fiscal
year 2023.
Disaggregation of Revenue. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):
Fiscal Year 2024
Americas
Europe
Asia
Corporate
Total
Product Type
Watches:
Traditional watches
$
388,789
$
269,215
$
214,641
$
—
$
872,645
Smartwatches
18,669
1,743
4,468
—
24,880
Total watches
$
407,458
$
270,958
$
219,109
$
—
$
897,525
Leathers
70,653
16,995
23,476
—
111,124
Jewelry
28,847
60,906
24,697
—
114,450
Other
8,194
8,748
2,793
2,156
21,891
Consolidated
$
515,152
$
357,607
$
270,075
$
2,156
$
1,144,990
Timing of Revenue Recognition
Revenue recognized at a point in time
$
514,779
$
357,041
$
269,615
$
2,156
$
1,143,591
Revenue recognized over time
373
566
460
—
1,399
Consolidated
$
515,152
$
357,607
$
270,075
$
2,156
$
1,144,990
Fiscal Year 2023
Americas
Europe
Asia
Corporate
Total
Product Type
Watches:
Traditional watches
$
456,745
$
296,133
$
260,244
$
1,955
$
1,015,077
Smartwatches
37,660
26,251
17,038
—
80,949
Total watches
$
494,405
$
322,384
$
277,282
$
1,955
$
1,096,026
Leathers
104,760
25,877
27,790
—
158,427
Jewelry
33,367
78,946
19,097
—
131,410
Other
8,247
10,151
4,029
4,094
26,521
Consolidated
$
640,779
$
437,358
$
328,198
$
6,049
$
1,412,384
Timing of Revenue Recognition
Revenue recognized at a point in time
$
640,191
$
436,610
$
327,747
$
4,677
$
1,409,225
Revenue recognized over time
588
748
451
1,372
3,159
Consolidated
$
640,779
$
437,358
$
328,198
$
6,049
$
1,412,384
Fiscal Year 2022
Americas
Europe
Asia
Corporate
Total
Product Type
Watches:
Traditional watches
$
518,995
$
354,799
$
281,550
$
3,545
$
1,158,889
Smartwatches
65,649
53,239
32,712
2
151,602
Total watches
$
584,644
$
408,038
$
314,262
$
3,547
$
1,310,491
Leathers
115,300
29,414
33,828
—
178,542
Jewelry
35,695
93,614
24,796
—
154,105
Other
8,388
10,277
4,714
15,922
39,301
Consolidated
$
744,027
$
541,343
$
377,600
$
19,469
$
1,682,439
Timing of Revenue Recognition
Revenue recognized at a point in time
$
742,436
$
540,465
$
377,107
$
7,350
$
1,667,358
Revenue recognized over time
1,591
878
493
12,119
15,081
Consolidated
$
744,027
$
541,343
$
377,600
$
19,469
$
1,682,439
Contract Balances. As of December 28, 2024, the Company had no material contract assets on the consolidated balance sheets and no deferred contract costs. The Company had
contract liabilities of (i) $0.7 million and $1.7 million as of December 28, 2024 and December 30, 2023, respectively, primarily related to remaining performance obligations on wearable
technology products and (ii) $2.1 million and $2.7 million as of December 28, 2024 and December 30, 2023, respectively, related to gift cards issued.
Shipping and Handling Fees. The Company accounts for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of
assessing such activities as performance obligations.
3. Inventories
Inventories consisted of the following (in thousands):
At Fiscal Year End
2024
2023
Components and parts
$
12,322 $
18,931
Finished goods
166,254
233,903
Inventories
$
178,576 $
252,834
4. Warranty Liabilities
The Company's warranty liabilities are primarily related to watch products and are included in accrued expenses—other in the consolidated balance sheets. The Company's watch
products are covered by limited warranties of various lengths against defects in materials or workmanship. The Company's warranty liability is estimated using historical warranty repair
expense. As changes occur in sales volumes and warranty costs, the warranty accrual is adjusted as necessary. Due to the nature of smartwatch products, their warranty costs are
usually more than traditional products. A shift in product mix from smartwatch to traditional products generally results in a decrease in the Company's warranty liabilities. Warranty
liability activity consisted of the following (in thousands):
Fiscal Year
2024
2023
2022
Beginning balance
$
10,122 $
13,623 $
19,159
Settlements in cash or kind
(4,998)
(6,956)
(8,630)
Warranties issued and adjustments to preexisting warranties
989
3,455
3,094
Ending balance
$
6,113 $
10,122 $
13,623
____________________________________________
Changes in cost estimates related to preexisting warranties are aggregated with accruals for new standard warranties issued and foreign currency changes.
(1)
(1)
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
At Fiscal Year End
2024
2023
Prepaid royalties
$
11,508 $
17,143
Prepaid taxes
29,038
34,917
Current income tax receivable
—
56,491
Inventory returns
7,026
9,757
Assets held for sale
17,546
9,394
Short term deposits
1,574
568
Other
23,485
24,447
Prepaid expenses and other current assets
$
90,177 $
152,717
6. Property, Plant and Equipment
Property, plant and equipment—net consisted of the following (in thousands):
At Fiscal Year End
2024
2023
Land
$
— $
1,004
Buildings
—
7,589
Machinery and equipment
33,085
36,046
Furniture and fixtures
57,131
68,467
Computer equipment and software
170,376
193,604
Leasehold improvements
119,319
131,502
Construction in progress
707
3,720
380,618
441,932
Less accumulated depreciation and amortization
339,050
384,688
Property, plant and equipment-net
$
41,568 $
57,244
7. Intangible and Other Assets
Intangible and other assets-net consisted of the following (in thousands):
2024
2023
At Fiscal Year End
Useful
Lives
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Intangibles-subject to amortization:
Trademarks
10 yrs. $
3,978 $
3,360
$
3,978 $
3,256
Patents
3 - 20 yrs.
850
571
850
546
Trade name
6 yrs.
—
—
4,502
3,189
Other
7 - 20 yrs.
340
275
341
236
Total intangibles-subject to amortization
5,168
4,206
9,671
7,227
Intangibles-not subject to amortization:
Trade names
—
8,919
Other assets:
Other deposits
14,038
16,168
Deferred tax asset-net
23,857
21,426
Restricted cash
2,454
4,309
Debt issuance costs
1,854
2,490
Other
2,930
3,340
Total other assets
45,133
47,733
Total intangible and other assets
$
50,301 $
4,206
$
66,323 $
7,227
Total intangible and other assets-net
$
46,095
$
59,096
Amortization expense for intangible assets was $0.9 million, $0.9 million, and $2.5 million for fiscal years 2024, 2023 and 2022. Estimated aggregate future amortization expense by
fiscal year for intangible assets is as follows (in thousands):
Fiscal Year
Amortization
Expense
2025
$
164
2026
138
2027
120
2028
114
2029
83
Thereafter
343
8. 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 24 months. The Company may enter into forward contracts for up to 85% of its forecasted
purchases to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. Additionally, the Company may enter into
forward contracts to manage fluctuations in Japanese yen exchange rates that will be used to settle future third-party inventory component purchases by a U.S. dollar functional
currency subsidiary. 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 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.
For a derivative instrument that is designated and qualifies as a cash flow hedge, 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.
As of December 28, 2024, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge the future payments of
intercompany inventory transactions (in millions):
Functional Currency
Contract Currency
Type
Amount
Type
Amount
Euro
5.1
U.S. dollar
5.7
Canadian dollar
2.1
U.S. dollar
1.6
British pound
0.5
U.S. dollar
0.6
Japanese yen
39.2
U.S. dollar
0.3
Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain intercompany transactions and for
which the Company does not elect hedge accounting treatment. As of December 28, 2024, the Company had no outstanding non-designated forward contracts associated with a South
African rand-denominated foreign subsidiary. As of December 30, 2023, the Company had non-designated forward contracts of $1.5 million on 27.1 million rand associated with a South
African rand-denominated foreign subsidiary. 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 cash flow hedges that were recognized in other comprehensive income (loss), net of taxes during fiscal years 2024, 2023 and 2022 are
set forth below (in thousands):
Fiscal Year
2024
2023
2022
Cash flow hedges:
Forward contracts
$
1,174 $
(708) $
12,176
Total gain (loss) recognized in other comprehensive income (loss), net of taxes
$
1,174 $
(708) $
12,176
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 fiscal years
2024, 2023 and 2022 (in thousands):
Derivative Instruments
Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
Effect of Derivative
Instruments
Fiscal Year
2024
Fiscal Year
2023
Fiscal Year 2022
Forward contracts designated as cash flow
hedging instruments
Cost of sales
Total gain (loss) reclassified from
accumulated other comprehensive income
(loss)
$
413
$
(1,001) $
10,789
Forward contracts designated as cash flow
hedging instruments
Other income (expense)-net
Total gain (loss) reclassified from
accumulated other comprehensive income
(loss)
$
637
$
1,002 $
3,334
Forward contracts not designated as
hedging instruments
Other income (expense)-net
Total gain (loss) recognized in income
$
38
$
83 $
128
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 consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included
(in thousands):
Asset Derivatives
Liability Derivatives
December 28, 2024
December 30, 2023
December 28, 2024
December 30, 2023
Consolidated
Balance Sheets
Location
Fair Value
Consolidated
Balance Sheets
Location
Fair Value
Consolidated
Balance Sheets
Location
Fair Value
Consolidated
Balance Sheets
Location
Fair Value
Forward contracts
designated as cash flow
hedging instruments
Prepaid expenses and
other current assets
$
580
Prepaid expenses and
other current assets
$
339
Accrued expenses-other
$
—
Accrued expenses-other
$
1,044
Forward contracts not
designated as cash flow
hedging instruments
Prepaid expenses and
other current assets
—
Prepaid expenses and
other current assets
—
Accrued expenses-other
—
Accrued expenses-other
7
Forward contracts
designated as cash flow
hedging instruments
Intangible and other
assets-net
—
Intangible and other
assets-net
20
Other long-term liabilities
—
Other long-term liabilities
28
Total
$
580
$
359
$
—
$
1,079
The following table summarizes the effects of the Company's derivative instruments on earnings (in thousands):
Effect of Derivative Instruments
Fiscal Year 2024
Fiscal Year 2023
Cost of Sales
Other Income
(Expense)-net
Cost of Sales
Other Income
(Expense)-net
Total amounts of income and expense line
items presented in the consolidated statements
of income (loss) and comprehensive income
(loss) in which the effects of cash flow hedges
are recorded
$
547,839
$
4,874
$
732,803
$
8,665
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow
hedging instruments:
Total gain (loss) reclassified from other
comprehensive income (loss)
413
637
(1,001)
1,002
Forward contracts not designated as cash
flow hedging instruments:
Total gain (loss) recognized in income
—
38
—
83
At the end of fiscal year 2024, the Company had forward contracts designated as cash flow hedges with maturities extending through March 2025. As of December 28, 2024, an
estimated net gain of $0.6 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.
9. 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 December 28, 2024 (in thousands):
Fair Value at December 28, 2024
Level 1
Level 2
Level 3
Total
Assets:
Forward contracts
$
—
$
580
$
—
$
580
Total
$
—
$
580
$
—
$
580
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 30, 2023 (in thousands):
Fair Value at December 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Forward contracts
$
—
$
359 $
—
$
359
Total
$
—
$
359 $
—
$
359
Liabilities:
Contingent consideration
$
—
$
— $
586
$
586
Forward contracts
—
1,079
—
1,079
Total
$
—
$
1,079 $
586
$
1,665
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.
As of December 28, 2024, the Company's senior notes (as defined in Note 10— Debt), excluding unamortized debt issuance costs, was recorded at cost and had a carrying value of
$150.0 million and had a fair value of approximately $77.9 million. The fair value of the Company's senior notes was based on Level 1 inputs. The Company's revolving credit agreement
(as defined in Note 10—Debt) was recorded at cost and had a carrying value of $15.9 million and had a fair value of approximately $11.9 million. The fair value of the Company's revolving
credit agreement was based on Level 2 inputs.
Operating lease right-of-use assets with a carrying amount of $12.3 million and property, plant and equipment—net with a carrying amount of $1.9 million related to retail store
leasehold improvements and fixturing were written down to a fair value of $5.0 million and $0.4 million, respectively, resulting in total pre-tax impairment charges of $8.8 million for fiscal
year 2024.
The fair values of operating lease right-of-use ("ROU") assets and fixed assets related to retail stores were determined using Level 3 inputs, including forecasted cash flows and
discount rates. Of the $8.8 million impairment expense, $4.6 million and $2.0 million were recorded in restructuring charges in the Asia and Europe segment, respectively, and $1.0 million,
$0.8 million and $0.4 million were recorded in long-lived asset impairments in the Asia, Europe and Americas segments, respectively.
In fiscal year 2023, operating lease right-of-use assets with a carrying amount of $4.3 million and property, plant and equipment—net with a carrying amount of $1.1 million related
to retail store leasehold improvements, fixturing were written down to a fair value of $2.7 million and $0.5 million, respectively, resulting in total pre-tax impairment charges of $2.2 million.
Of the $2.2 million impairment expense, $1.5 million and $0.7 million were recorded in long-lived asset impairments in the Europe and Americas segments, respectively.
The fair value of trade names are measured on a non-recurring basis using Level 3 inputs, including forecasted cash flows, discounts rates and implied royalty rates. No trade
name impairment was recorded during fiscal years 2024 or 2023.
10. Debt
The Company's debt consisted of the following, excluding finance lease obligations, (in millions):
December 28, 2024
December 30, 2023
Revolving facility
$
15.9
$
62.1
Notes
150.0
150.0
Other international
2.2
0.5
Total debt
$
168.1
$
212.6
Less current portion
2.2
0.5
Long-term debt
$
165.9
$
212.1
___________________________________________
Excludes debt issuance costs of $3.3 million and $5.1 million at December 28, 2024 and December 30, 2023, respectively.
U.S.-Based. On September 26, 2019, the Company and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe)
GmbH, Fossil (UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other subsidiaries of the Company from time to time party thereto designated as borrowers, and
certain subsidiaries of the Company from time to time party thereto as guarantors, entered into a $275.0 million secured asset-based revolving credit agreement (the "Revolving Facility")
with JPMorgan Chase Bank, N.A. as administrative agent (the "ABL Agent"), J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells
Fargo Bank, National Association as joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and
each of the lenders from time to time party thereto (the "ABL Lenders"). On November 8, 2022 the Company entered into Amendment No. 4 (the "Amendment”) to the Revolving Facility.
The Amendment, among other things, (i) extended the maturity date of the credit facility to November 8, 2027 (provided, that if the Company has any indebtedness in an amount in
excess of $35 million that matures prior to November 8, 2027, the maturity date of the credit facility shall be the 91st day prior to the maturity date of such other indebtedness) and (ii)
changed the calculation methodology of the borrowing base to include the value of certain of the Company’s intellectual property in such methodology and to provide for seasonal
increases to certain advance rates. Because of the springing maturity feature described in the preceding sentence, if the Notes (as defined below) are not repaid or refinanced to a later
maturity date in a manner that reduces the balance due on November 30, 2026 to $35 million or less, the maturity date of the Revolving Facility will be August 31, 2026.
In November 2021, the Company sold $150.0 million aggregate principal amount of 7.00% senior notes due 2026 (the "Notes"), generating net proceeds of approximately
$141.7 million. The Notes were issued pursuant to an indenture (the "Base Indenture") and a first supplemental indenture (the "First Supplemental Indenture" and, together with the
Base Indenture, the "Indenture") with The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee").
The Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and
unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The Notes are effectively subordinated to all of the
Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the Notes are
(1)
(1)
structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such
subsidiaries to the Company). The Notes bear interest at the rate of 7.00% per annum. Interest on the Notes is payable quarterly in arrears on February 28, May 31, August 31 and
November 30 of each year. The Notes mature on November 30, 2026.
The Company may redeem the Notes for cash in whole or in part at any time at its option at the following prices: (i) prior to November 30, 2025, at a price equal to $25.25 per $25.00
principal amount of Notes and (ii) on or after November 30, 2025, at a price equal to $25.00 per $25.00 principal amount of Notes, plus (in each case noted above) accrued and unpaid
interest, if any, to, but excluding, the date of redemption.
The Indenture contains customary events of default and cure provisions. If an event of default (other than an event of default of the type described in the following sentence)
occurs and is continuing with respect to the Notes, the Trustee may, and at the direction of the registered holders of at least 25% in aggregate principal amount of the outstanding debt
securities of the Notes shall, declare the principal amount plus accrued and unpaid interest, premium and additional amounts, if any, on the Notes to be due and payable immediately. If
an event of default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the principal amount plus accrued and unpaid interest, and premium, if
any, on the Notes will become immediately due and payable without any action on the part of the Trustee or any holder of the Notes.
The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the
"Revolving Credit Commitment”), of which up to $125.0 million is available under a U.S. facility, an aggregate of $80.0 million is available under a European facility, $10.0 million is
available under a Hong Kong SAR facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the borrowing
base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the "Letters of Credit”). The
French facility includes a $1.0 million subfacility for swingline loans, and the European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a
line cap equal to the lesser of the total Revolving Credit Commitment and the aggregate borrowing bases under the U.S. facility, the European facility, the Hong Kong SAR facility, the
French facility and the Canadian facility. Loans under the Revolving Facility may be made in U.S. dollars, Canadian dollars, euros, Hong Kong dollars or pounds sterling.
The Revolving Facility is an asset-based facility, in which borrowing availability is subject to a borrowing base equal to: (a) with respect to the Company, the sum of (i) the lesser
of (x) 90% of the appraised net orderly liquidation value of eligible U.S. finished goods inventory and (y) 65% of the lower of cost or market value of eligible U.S. finished goods
inventory, plus (ii) 85% of the eligible U.S. accounts receivable, plus (iii) 90% of eligible U.S. credit card accounts receivable, plus (iv) the lesser of (x) 40% of the appraised net orderly
liquidation value of eligible U.S. intellectual property and (y) $20.0 million, minus (iv) the aggregate amount of reserves, if any, established by the ABL Agent; (b) with respect to each
non-U.S. borrower (except for the French Borrower), the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible foreign finished goods inventory of such
non-U.S. borrower and (y) 65% of the lower of cost or market value of eligible foreign finished goods inventory of such non-U.S. borrower, plus (ii) 85% of the eligible foreign accounts
receivable of such non-U.S. borrower, minus (iii) the aggregate amount of reserves, if any, established by the ABL Agent; and (c) with respect to the French Borrower, (i) 85% of eligible
French accounts receivable minus (ii) the aggregate amount of reserves, if any, established by the ABL Agent. Not more than 60% of the aggregate borrowing base under the Revolving
Facility may consist of the non-U.S. borrowing bases. The above advance rates (other than the advance rates with respect to intellectual property) are seasonally increased by 5% (e.g.
from 90% to 95%) during the period commencing on the date of delivery of the borrowing base certificate with respect to the second fiscal month of the Company and ending on the last
day of the period covered by the borrowing base certificate delivered with respect to the fifth fiscal month of the Company.
The Revolving Facility also includes a commitment fee, payable quarterly in arrears, of 0.250% or 0.375% determined by reference to the average daily unused portion of the overall
commitment under the Revolving Facility. The ABL Borrowers will pay the ABL Agent, on the account of the issuing ABL Lenders, an issuance fee of 0.125% for any issued Letters of
Credit.
The ABL Borrowers have the right to request an increase to the commitments under the Revolving Facility or any subfacility in an aggregate principal amount not to exceed
$75.0 million in increments no less than $10.0 million, subject to certain terms and conditions as defined in the Revolving Facility.
The Revolving Facility is secured by guarantees by the Company and certain of its domestic subsidiaries. Additionally, the Company and such subsidiaries have granted liens on
all or substantially all of their assets in order to secure the obligations
under the Revolving Facility. In addition, the Swiss Borrower, the Hong Kong SAR Borrower, the French Borrower, the German Borrower and the Canadian Borrower, and the other non-
U.S. borrowers from time to time party to the Revolving Facility are required to enter into security instruments with respect to all or substantially all of their assets that can be pledged
under applicable local law, and certain of their respective subsidiaries may guarantee the respective non-U.S. obligations under the Revolving Facility.
The Revolving Facility contains customary affirmative and negative covenants and events of default, such as compliance with annual audited and quarterly unaudited financial
statements disclosures. Upon an event of default, the ABL Agent will have the right to declare the revolving loans and other obligations outstanding immediately due and payable and
all commitments immediately terminated or reduced, subject to cure periods and grace periods set forth in the Revolving Facility.
The Company had net payments of $46.1 million under the Revolving Facility during fiscal year 2024. As of December 28, 2024, the Company had available borrowing capacity of
approximately $53.4 million under the Revolving Facility. As of December 28, 2024, the Company had unamortized debt issuance costs of $3.3 million recorded in long-term debt and $1.9
million recorded in intangible and other assets-net on the Company's consolidated balance sheets. The Company incurred $10.4 million and $2.3 million of interest expense related to the
Notes and Revolving Facility, respectively, during fiscal year 2024. The Company incurred approximately $2.4 million of interest expense related to the amortization of debt issuance
costs during fiscal year 2024. At December 28, 2024, the Company was in compliance with all debt covenants related to its credit facilities.
Foreign-Based. Fossil South Africa entered into a 20 million South African rand short-term note with First National Bank (the "Fossil South Africa Note") that is used for working
capital purposes. The Fossil South Africa Note bears interest at the bank's prime rate, which was 11.25% as of year end 2024, plus 0.5%. The Fossil South Africa note is reviewed
annually for renewal. South African rand-based borrowings, in U.S. dollars, under the Fossil South Africa Note were approximately $0.5 million as of December 28, 2024.
Fossil India Private Ltd. entered into a 150 million Indian Rupee receivables buyout facility with Kotak Mihindra Bank (the "Fossil India facility") that is used for working capital
purposes. Indian Rupee borrowings, in U.S. dollars, under the Fossil India facility were approximately $1.6 million as of December 28, 2024.
The Company's debt as of December 28, 2024, excluding finance lease obligations, matures as follows (in millions):
Less than 1 Year
$
2.2
Year 2
165.9
Year 3
—
Year 4
—
Year 5
—
Principal amounts repayable
168.1
Debt issuance costs
(3.3)
Total debt outstanding
$
164.8
11. Other Income (Expense)—Net
Other income (expense)—net consisted of the following (in thousands):
Fiscal Year
2024
2023
2022
Interest income
$
4,386 $
3,184 $
772
Contingent consideration remeasurement
154
348
(2,363)
Extinguishment of debt
—
—
(1,060)
Net currency (losses) gains
(1,310)
3,023
(218)
Other net gains
1,644
2,110
1,453
Other income (expense) - net
$
4,874 $
8,665 $
(1,416)
12. Taxes
Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the consolidated deferred tax assets and liabilities were (in thousands):
Fiscal Year
2024
2023
Deferred income tax assets:
Inventory
$
1,610 $
1,940
Compensation
6,494
6,368
Property, plant and equipment
3,836
4,611
Trade names and customer lists
1,320
2,489
Goodwill
4,586
6,712
Foreign accruals
5,619
6,785
Loss carryforwards
165,623
128,055
Tax credit carryforwards
19,417
11,134
Capitalized research and development
6,077
6,882
Interest disallowance
17,920
15,143
Lease liabilities
32,444
40,633
Other
11,732
15,207
Deferred income tax assets total
$
276,678 $
245,959
Deferred income tax liabilities:
Right-of-use assets
(27,072)
(32,531)
Other
(298)
(97)
Deferred income tax liabilities total
$
(27,370) $
(32,628)
Valuation allowance
(226,484)
(192,603)
Net deferred income tax assets
$
22,824 $
20,728
Deferred income tax assets - net
$
23,857 $
21,426
Deferred income tax liabilities - net
(1,033)
(698)
Net deferred income tax assets
$
22,824 $
20,728
Operating Loss Carryforwards. At December 28, 2024, the consolidated balance sheets included $75.9 million of deferred tax assets for net operating losses of foreign
subsidiaries. The amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
Expires 2025 through 2029
$
59,725
Expires 2030 through 2034
66,146
Expires 2035 through 2039
70,926
Expires 2040 through 2044
64,132
Indefinite
73,868
Total loss carryforwards
$
334,797
At December 28, 2024, the consolidated balance sheets included $20.1 million of deferred tax assets for state income tax net operating losses. The state apportioned amounts and
the fiscal year of expiration of the loss carryforwards are (in thousands):
Expires 2025 through 2029
$
12,533
Expires 2030 through 2034
33,835
Expires 2035 through 2039
69,262
Expires 2040 through 2044
146,562
Indefinite
85,464
Total loss carryforwards
$
347,656
At December 28, 2024, the consolidated balance sheets included $69.6 million of deferred tax assets for federal income tax net operating losses. In the U.S., federal income tax net
operating losses can be carried forward indefinitely, but are limited to 80% of taxable income.
The following table identifies income (loss) before income taxes for the Company's U.S. and non-U.S. based operations for the fiscal years indicated (in thousands):
Fiscal Year
2024
2023
2022
U.S.
$
(148,038) $
(130,620) $
(43,927)
Non-U.S.
29,975
(25,517)
21,801
Total
$
(118,063) $
(156,137) $
(22,126)
The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):
Fiscal Year
2024
2023
2022
Current provision:
U.S. federal
$
(24,079) $
(3,798) $
5,901
Non-U.S.
14,651
8,315
9,944
State and local
95
(120)
(98)
Total current
(9,333)
4,397
15,747
Deferred provision (benefit):
Non-U.S.
(2,454)
(3,875)
5,653
Total deferred
(2,454)
(3,875)
5,653
Provision for income taxes
$
(11,787) $
522 $
21,400
A reconciliation of the U.S. federal statutory income tax rates to the Company's effective tax rate is as follows:
Fiscal Year
2024
2023
2022
Tax at statutory rate
21.0 %
21.0 %
21.0 %
Permanent differences
0.3
0.1
(4.9)
State, net of federal tax benefit
3.4
2.3
8.6
Foreign rate differential
0.6
1.8
21.5
Withholding taxes
(3.0)
(2.0)
(19.3)
U.S. tax on foreign income-net of foreign tax credits
(0.7)
0.3
—
Income tax contingencies
19.3
0.4
(4.8)
Federal Interest on IRS Refund
0.7
2.5
—
Valuation allowances
(35.3)
(32.5)
(110.6)
R&D/Foreign tax credits
7.0
3.5
—
Deficiencies (benefits) on employee stock awards
(0.7)
(0.6)
(2.7)
APB23 assertion
—
(0.1)
0.6
Return to provision true-up
(1.9)
2.7
4.8
Non deductible foreign equity awards
(0.1)
(0.2)
(2.0)
Non deductible officer compensation
(0.3)
(0.1)
(3.4)
Foreign currency hedges
(0.1)
—
1.2
Adjustments related to intercompany
—
—
(5.9)
Other
(0.2)
0.6
(0.8)
Provision for income taxes
10.0 %
(0.3)%
(96.7)%
The fiscal year 2024 effective tax rate was favorably impacted by the release of reserves for uncertain tax positions and the accrual of interest income on tax receivables.
The Company records a valuation allowance against its deferred tax assets when recovery of those amounts on a jurisdictional basis is not more likely than not. The Company's
U.S. valuation allowance analysis was increased by $38.0 million and the foreign valuation allowance on NOL's and deferred tax assets decreased by $4.5 million as compared to
December 30, 2023. The total valuation allowance of $226.5 million at December 28, 2024 was comprised of $149.6 million and $76.8 million attributable to the U.S. and foreign operations,
respectively.
The Company will not indefinitely reinvest $151.3 million of previously taxed and undistributed earnings and profits of its foreign subsidiaries as of December 28, 2024. Since there
will be no additional federal income tax when these amounts are repatriated, the Company has only accrued tax on foreign exchange gains with an offsetting valuation allowance.
Deferred U.S. federal and state income taxes and foreign taxes are not recorded on the remaining $460.5 million of undistributed earnings and profits of foreign subsidiaries where
management plans to continue reinvesting these earnings outside the U.S. As the majority of these earnings have previously been taxed in the U.S., the distribution of the earnings
considered indefinitely reinvested would generally be subject only to local country withholding and U.S. state income taxes when distributed, the amount of which is not material.
The total amount of unrecognized tax benefits, excluding interest and penalties that would favorably impact the effective tax rate in future periods if recognized, was $6.8 million,
$23.6 million and $24.0 million for fiscal years 2024, 2023 and 2022, respectively. The Company filed amended income tax returns for 2014-2017 under the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act”) which included a provision for the carryback of U.S. NOLs. The IRS reviewed the Company’s 2019 and 2020 U.S. tax returns and resulting net
operating losses as well as the tax returns for 2014-2017 which are the carryback years. The IRS issued a no change audit of the carryback years and approved a refund for amended tax
years 2014-2017. The Company has received the income tax refund for the 2019 U.S. tax NOL carryback and received a tax refund of $57.3 million (including interest) for the 2020 U.S. tax
NOL carryback in 2024. Fiscal years 2021-2023 remain open for federal income tax examination. The Company is also subject to examinations in various state and foreign jurisdictions for
its
2014-2023 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 from December 28,
2024. As of December 28, 2024, the Company had recorded $2.1 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled or not assessed
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 in the Company's consolidated balance sheets was $0.5
million, of which $1.3 million is accrued interest expense and $0.8 million is accrued interest income at December 28, 2024; compared to $5.1 million of interest expense at December 30,
2023. The Company accrued no income tax-related penalties in the Company's consolidated balance sheets at December 28, 2024. The Company accrued income tax-related interest
expense/(income) of $(8.5) million, $(4.0) million and $0.9 million in fiscal years 2024, 2023 and 2022, respectively.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):
Fiscal Year
2024
2023
2022
Balance at beginning of year
$
23,639 $
23,998 $
29,833
Gross increases—tax positions in prior years
—
214
1,069
Gross decreases—tax positions in prior years
(17,917)
—
(1,395)
Gross increases—tax positions in current year
1,222
1,006
1,275
Settlements
—
(1,583)
(5,350)
Lapse in statute of limitations
—
(173)
(171)
Change due to currency revaluation
(98)
177
(1,263)
Balance at end of year
$
6,846 $
23,639 $
23,998
13. Leases
The Company's leases consist primarily of retail space, offices, warehouses, distribution centers, equipment and vehicles. The Company determines if an agreement contains a
lease at inception based on the Company's right to the economic benefits of the leased asset and its right to direct the use of the leased asset. Right of use ("ROU") assets represent the
Company's right to use an underlying asset, and ROU liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are
recognized at the lease commencement date based on the present value of the lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company
uses its estimated collateralized incremental borrowing rate, which is based on the yield curve for the respective lease terms and adjusted for each lease country to determine the present
value of the lease payments.
Some leases include one or more options to renew at the Company's discretion, with renewal terms that can extend the lease from one to ten additional years. The renewal options
are not included in the measurement of ROU assets and ROU liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Short-term leases are leases
having a term of twelve months or less at inception. The Company does not record a related lease asset or liability for short-term leases. The Company has certain leases containing
lease and non-lease components which are accounted for as a single lease component. The Company has certain lease agreements where lease payments are based on a percentage of
retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The variable portion of these lease payments is not included in the Company's
lease liabilities. The Company's lease agreements do not contain any significant restrictions or covenants other than those that are customary in such arrangements.
The components of lease expense were as follows (in thousands):
Lease Cost
Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
Fiscal Year 2024
Fiscal Year 2023
Operating lease cost
SG&A
$
63,524
$
72,296
Short-term lease cost
SG&A
$
996
$
1,145
Variable lease cost
SG&A
$
20,948
$
23,181
_______________________________________________
Includes sublease income, which was immaterial.
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
Leases
Consolidated Balance Sheets Location
December 28, 2024
December 30, 2023
Assets
Operating
Operating lease ROU assets
$
121,389
$
151,000
Liabilities
Current:
Operating
Current operating lease liabilities
$
37,327
$
43,565
Noncurrent:
Operating
Long-term operating lease liabilities
$
113,658
$
137,644
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases:
Lease Term and Discount Rate
December 28, 2024
December 30, 2023
Weighted-average remaining lease term:
Operating leases
6.3 years
6.4 years
Weighted-average discount rate:
Operating leases
15.1 %
14.9 %
Future minimum lease payments by year as of December 28, 2024 were as follows (in thousands):
Fiscal Year
Operating Leases
2025
$
57,927
2026
44,135
2027
30,658
2028
18,711
2029
17,399
Thereafter
69,625
Total lease payments
$
238,455
Less: Interest
87,470
Total lease obligations
$
150,985
(1)
(1)
Supplemental cash flow information related to leases was as follows (in thousands):
Fiscal Year 2024
Fiscal Year 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
71,570 $
86,474
Leased assets obtained in exchange for new operating lease liabilities
21,107
41,430
As of December 28, 2024, the Company did not have any material operating or finance leases that have been signed but not commenced.
14. Commitments and Contingencies
License Agreements. The Company has various license agreements to market watches and jewelry bearing certain trademarks or incorporating certain technology owned by
third parties. In accordance with these agreements, the Company incurred royalty expense of $119.1 million, $129.5 million and $140.5 million in fiscal years 2024, 2023 and 2022,
respectively. These amounts are included in the Company's cost of sales or, if advertising-related, in SG&A. These license agreements have expiration dates between fiscal years 2025
and 2029 and require the Company to pay royalties ranging from 5% to 22% of defined net sales. The Company has future minimum royalty commitments through fiscal year 2028 under
these license agreements as follows by fiscal year (in thousands):
Fiscal Year
Minimum Royalty
Commitments
2025
$
95,961
2026
9,948
2027
10,948
2028
1,448
Total
$
118,305
These minimum royalty commitments do not include amounts owed under these license agreements for obligations of the Company to pay the licensors a percentage of net sales
of these licensed products.
Purchase Obligations. As of December 28, 2024, the Company had purchase obligations totaling $169.2 million that consisted primarily of open non-cancelable purchase orders.
Asset Retirement Obligations. ASC 410, Asset Retirement and Environmental Obligations requires (i) that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of fair value can be made and (ii) that the associated asset retirement costs be capitalized as part of the carrying
amount of the long-lived asset. The Company's asset retirement obligations relate to costs associated with the retirement of leasehold improvements under office leases and retail store
leases within the Americas, Europe and Asia segments.
The following table summarizes the changes in the Company's asset retirement obligations (in thousands):
Fiscal Year
2024
2023
Beginning asset retirement obligation
$
11,758 $
11,547
Additions and changes in estimate
559
1,356
Liabilities settled during the period
(1,453)
(1,636)
Accretion expense
304
296
Currency translation
(524)
195
Ending asset retirement obligations
$
10,644 $
11,758
Litigation. The Company is occasionally subject to litigation or other legal proceedings in the normal course of its business. In addition, from time to time, the Company receives
communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company
operates. The Company does not believe 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.
15. Stockholders' Equity
Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 53,253,974 and 52,487,020 shares issued and
outstanding at fiscal year end 2024 and 2023, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding
at fiscal year end 2024 and 2023. Rights, preferences and other terms of preferred stock will be determined by the Board of Directors at the time of issuance.
Common Stock Repurchase Programs. Purchases of the Company's common stock have been 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. In the event the repurchased shares are canceled, 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 have been conducted pursuant to Rule 10b-18 of the Securities Exchange Act of 1934.
In August 2010, the Board of Directors approved a common stock repurchase program pursuant to which up to $30 million could be used to repurchase outstanding shares of our
common stock. The $30 million repurchase program has no termination date. During fiscal year 2022, the Company effectively retired 1.0 million shares of common stock repurchased
under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by $10,000, additional paid-in capital by $0.5 million, retained earnings
by $9.5 million and treasury stock by $10.0 million. At December 28, 2024 and December 30, 2023, all treasury stock had been effectively retired. As of December 28, 2024, the Company
had $20.0 million of repurchase authorizations remaining under its repurchase plan.
16. Employee Benefit Plans
Savings Plans. The Company has a defined contribution savings plan (the "401(k) Plan") for substantially all U.S.-based full-time employees of the Company, which includes a
Roth 401(k) option. The Company's common stock is one of several investment alternatives available under the 401(k) Plan. The Company has a discretionary match for the 401(k) Plan.
Matching contributions made by the Company to the 401(k) Plan totaled approximately $2.1 million, $2.5 million and $2.6 million for fiscal years 2024, 2023 and 2022, respectively. The
Company also has the right to make additional matching contributions not to exceed 15% of employee compensation. The Company did not make any additional matching contributions
during fiscal years 2024, 2023 and 2022.
Stock-Based Compensation Plans. The Company’s grants under its current stock-based compensation plans generally include: (i) stock options, restricted stock units, and
performance restricted stock units for its international employees, (ii) restricted stock units for its nonemployee directors, and (iii) stock appreciation rights, performance stock
appreciation rights, restricted stock, restricted stock units, and performance restricted stock units for its U.S.-based employees. As of December 28, 2024, the Company had
approximately $3.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's stock-based
compensation plans. This cost is expected to be recognized over a weighted-average period of 1.3 years. All time-based or performance-based stock appreciation rights and restricted
stock units are settled in shares of the Company's common stock.
Long-Term Incentive Plans. On April 29, 2024, the Company's Board of Directors adopted the 2024 Long-Term Incentive Plan ("2024 Plan"), which was approved by the
Company’s stockholders at the Company’s Annual Shareholder Meeting on June 21, 2024. The 2024 Plan replaces and supersedes the previously adopted 2016 Long-Term Incentive
Plan. An aggregate of 7,000,000 shares of the Company's common stock were reserved for issuance pursuant to the Company's 2024 Plan.
Under the 2024 Plan, designated employees of the Company, including officers, certain contractors, and non-employee directors of the Company, are eligible to receive (i) stock
options, (ii) stock appreciation rights, (iii) restricted or non-restricted stock awards, (iv) restricted stock units, (v) performance awards, (vi) cash awards, or (vii) any combination of the
foregoing. The 2024 Plan is administered by The Compensation and Talent Management Committee (the "Compensation Committee"). Each award issued under the 2024 Plan terminates
at the time designated by the Compensation Committee, not to exceed ten years. The current outstanding stock options, stock appreciation rights, performance stock appreciation rights,
restricted stock, restricted stock units and performance restricted stock units issued under the 2024 Plan predominantly have original vesting periods of three years. Time-based or
performance-based stock appreciation rights and restricted stock units are predominately settled in shares of the Company's common stock. On the date of the Company’s annual
stockholders meeting, each non-employee director shall be eligible to receive a grant of restricted stock units, in such amount as determined by the Board, in its sole discretion, provided
that such grant shall not exceed more than the number of shares of Common Stock having an aggregate fair market value of $130,000. Any such grant shall vest 100% on the earlier of
one year from the date of grant or the date of the Company's next annual stockholders meeting, provided such director is providing services to the Company or a subsidiary of the
Company on that date.
Inducement Grants. On September 1, 2024, the Company's Board of Directors approved the grant of an employee inducement award consisting of 1,500,000 restricted stock units
to the new Chief Executive Officer, Franco Fogliato. The restricted stock units will vest 50% on October 15, 2025 and 50% on October 15, 2026, subject to Fogliato's continuous
employment with the Company on each vesting date.
Stock Appreciation Rights. The fair value of stock appreciation rights granted under the Company's stock-based compensation plans were estimated on the date of grant using
the Black-Scholes option pricing model.
Expected stock price volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the implied yield available on U.S.
Treasury securities with an equivalent remaining term. The Company did not issue stock options, stock appreciation rights and performance stock appreciation rights in fiscal years
2024, 2023 and 2022.
The following table summarizes stock appreciation rights activity:
Stock Appreciation Rights
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
in thousands
in thousands
Outstanding at January 1, 2022
282
$
72.34
1.5 $
—
Granted
—
—
Exercised
—
—
—
Forfeited or expired
(181)
81.57
Outstanding at December 31, 2022
101
55.31
0.9
—
Granted
—
—
Exercised
—
—
—
Forfeited or expired
(62)
59.92
Outstanding at December 30, 2023
39
47.99
0.2
—
Granted
—
—
Exercised
—
—
—
Forfeited or expired
(39)
47.99
Outstanding at December 28, 2024
—
—
—
—
Exercisable at December 28, 2024
—
$
—
—
$
—
The aggregate intrinsic value in the table above is before income taxes and is based on the exercise price for outstanding and exercisable options/rights at December 28, 2024 and
based on the fair market value of the Company's common stock on the exercise date for options/rights that were exercised during the fiscal year.
Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock, restricted stock unit and performance restricted stock unit
activity:
Restricted Stock Units and Performance Restricted Stock Units
Number of
Shares
Weighted-Average
Grant Date Fair
Value Per Share
in thousands
Nonvested at January 1, 2022
1,840
$
9.93
Granted
1,292
10.52
Vested
(936)
10.16
Forfeited
(229)
10.79
Nonvested at December 31, 2022
1,967
$
10.08
Granted
1,367
3.04
Vested
(845)
8.60
Forfeited
(571)
8.48
Nonvested at December 30, 2023
1,918
$
6.19
Granted
2,637
1.11
Vested
(890)
6.02
Forfeited
(734)
5.09
Nonvested at December 28, 2024
2,931
$
1.93
The total fair value of shares/units vested during fiscal years 2024, 2023 and 2022 was $0.9 million, $2.6 million and $9.4 million, respectively.
Other Retirement Plans. The Company maintains a defined benefit plan for its employees located in Switzerland. The plan is funded through payments to an insurance company.
The payments are determined by periodic actuarial calculations. During fiscal years 2024, 2023 and 2022, the Company recorded pension gains of $1.1 million, $5.5 million and $0.2 million,
respectively, related to this plan. The liability for the Company's defined benefit plan was $5.5 million and $4.8 million at the end of fiscal years 2024 and 2023, respectively. This liability
is recorded in other long-term liabilities on the Company's consolidated balance sheets.
Under French law, the Company is required to maintain a defined benefit plan for its employees located in France, which is referred to as a "retirement indemnity." The amount of
the retirement indemnity is based on the employee's last salary and duration of employment with the Company. The employee's right to receive the retirement indemnity is subject to the
employee remaining with the Company until retirement. During fiscal years 2024, 2023 and 2022, the Company recorded pension gains (expenses) of $0.1 million, $0.1 million, and
($46,000), respectively, for its retirement indemnity obligations. The liability for the Company's retirement indemnity was $0.7 million and $0.9 million at the end of fiscal years 2024 and
2023, respectively. This liability is recorded in other long-term liabilities on the Company's consolidated balance sheets.
Under India's Payment of Gratuity Act, the Company is required to provide a one time gratuity to its employees located in India upon retirement or resignation after continuous
service of at least five years. The gratuity is calculated as 15 days' wages for each completed year of service. The Company's balance for the payment of the gratuity was $0.1 million
recorded in intangible and other assets on the Company's consolidated balance sheets at the end of fiscal year 2024.
17. Supplemental Cash Flow Information
The following table summarizes supplemental cash flow information (in thousands):
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Year
2024
2023
2022
Cash paid during the year for:
Interest
$
23,838 $
27,297 $
17,501
Income taxes, net of refunds
$
(56,117) $
20,162 $
5,836
Supplemental disclosures of non-cash investing and financing activities:
Additions to property, plant and equipment included in accounts payable
$
135 $
943 $
1,039
Additions to property, plant and equipment acquired under finance leases
$
24 $
— $
—
18. Supplemental Disclosure for 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):
December 28, 2024
Cash Flow Hedges
Currency
Translation
Adjustments
Forward
Contracts
Pension
Plan
Total
Beginning balance
$
(83,906)
$
1,688
$
5,813
$
(76,405)
Other comprehensive income (loss) before reclassifications
(4,778)
1,106
(1,747)
(5,419)
Tax (expense) benefit
—
68
202
270
Amounts reclassed from accumulated other comprehensive income (loss)
—
899
—
899
Tax (expense) benefit
—
151
—
151
Total other comprehensive income (loss)
(4,778)
124
(1,545)
(6,199)
Ending balance
$
(88,684)
$
1,812
$
4,268
$
(82,604)
December 30, 2023
Cash Flow Hedges
Currency
Translation
Adjustments
Forward
Contracts
Pension
Plan
Total
Beginning balance
$
(90,681)
$
2,397
$
11,966 $
(76,318)
Other comprehensive income (loss) before reclassifications
6,775
(1,461)
(6,209)
(895)
Tax (expense) benefit
—
753
56
809
Amounts reclassed from accumulated other comprehensive income (loss)
—
(788)
—
(788)
Tax (expense) benefit
—
789
—
789
Total other comprehensive income (loss)
6,775
(709)
(6,153)
(87)
Ending balance
$
(83,906)
$
1,688
$
5,813 $
(76,405)
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2022
Cash Flow Hedges
Currency
Translation
Adjustments
Forward
Contracts
Pension
Plan
Total
Beginning balance
$
(75,601)
$
4,344
$
3,982 $
(67,275)
Other comprehensive income (loss) before reclassifications
(15,080)
11,097
8,050
4,067
Tax (expense) benefit
—
1,079
(66)
1,013
Amounts reclassed from accumulated other comprehensive income (loss)
—
13,145
—
13,145
Tax (expense) benefit
—
978
—
978
Total other comprehensive income (loss)
(15,080)
(1,947)
7,984
(9,043)
Ending balance
$
(90,681)
$
2,397
$
11,966 $
(76,318)
19. Major Customer, Segment and Geographic Information
Major Customer
Wholesale customers of the Company consist principally of major department stores and specialty retail stores located throughout the world. No individual customer accounts for
10% or more of the Company's net sales.
Segment Information
The Company reports segment information based on the "management approach". The management approach designates the internal reporting used by management, specifically
its chief operating decision maker ("CODM") for making decisions and assessing performance as the source of the Company's reportable segments. The Company's CODM is its Chief
Executive Officer.
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 (including Hong Kong SAR,
Macau SAR and Taiwan), India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea 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 (loss). Net sales for geographic segments are based on the location of
the selling entity. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment.
Corporate includes peripheral revenue generating activities from factories and intellectual property and 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 that 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.
The CODM uses net sales and operating income for each segment predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances
on a quarterly basis for both profit measures when making decisions about the allocation of operating and capital resources to each segment. The CODM also uses segment gross profit
for evaluating pricing strategy and segment operating income to assess the performance of each segment by comparing the results of each segment with one another. The CODM does
not review disaggregated assets by segment, therefore it is not presented below.
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary information by operating segment was as follows (in thousands):
Fiscal Year 2024
Americas
Europe
Asia
Corporate
Total
Net sales
$
515,152
$
357,607
$
270,075
$
2,156
$
1,144,990
Cost of sales
252,735
146,212
119,338
29,554
547,839
Gross profit
$
262,417
$
211,395
$
150,737
$
(27,398)
$
597,151
Compensation and benefits
67,930
72,888
35,319
121,042
297,179
Marketing
52,737
29,748
26,104
14,466
123,055
Depreciation and amortization
3,791
3,377
2,347
6,221
15,736
Other segment items
60,917
40,642
46,998
116,571
265,128
Operating income
$
77,042
$
64,740
$
39,969
$
(285,698)
$
(103,947)
Fiscal Year 2023
Americas
Europe
Asia
Corporate
Total
Net sales
$
640,779
$
437,358
$
328,198
$
6,049
$
1,412,384
Cost of sales
342,124
206,887
151,871
31,921
732,803
Gross profit
$
298,655
$
230,471
$
176,327
$
(25,872)
$
679,581
Compensation and benefits
81,682
89,558
45,995
145,052
362,287
Marketing
66,024
43,836
30,784
16,665
157,309
Depreciation and amortization
3,734
4,907
2,508
13,279
24,428
Other segment items
64,469
51,208
58,878
104,026
278,581
Operating income
$
82,746
$
40,962
$
38,162
$
(304,894)
$
(143,024)
Fiscal Year 2022
Americas
Europe
Asia
Corporate
Total
Net sales
$
744,027
$
541,343
$
377,600
$
19,469
$
1,682,439
Cost of sales
414,982
252,048
165,911
18,819
851,760
Gross profit
$
329,045
$
289,295
$
211,689
$
650
$
830,679
Compensation and benefits
80,273
92,235
47,035
140,277
359,820
Marketing
57,146
46,498
37,024
13,883
154,551
Depreciation and amortization
4,834
5,856
3,071
8,870
22,631
Other segment items
70,391
53,619
72,469
98,671
295,150
Operating income
$
116,401
$
91,087
$
52,090
$
(261,051)
$
(1,473)
_______________________________________________________________________________
Other segment items for each reportable segment include long-lived asset impairments, restructuring charges, facility costs, overhead expenses and other operating costs.
(1)
(1)
(1)
(1)
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows revenue for each class of similar products for fiscal years 2024, 2023 and 2022 (in thousands):
Fiscal Year 2024
Fiscal Year 2023
Fiscal Year 2022
Net Sales
Percentage
of Total
Net Sales
Percentage
of Total
Net Sales
Percentage
of Total
Watches:
Traditional watches
$
872,645
76.2 % $
1,015,077
71.9 % $
1,158,889
68.9 %
Smartwatches
24,880
2.2
80,949
5.7
151,602
9.0
Total watches
$
897,525
78.4 % $
1,096,026
77.6 % $
1,310,491
77.9 %
Leathers
111,124
9.7
158,427
11.2
178,542
10.6
Jewelry
114,450
10.0
131,410
9.3
154,105
9.2
Other
21,891
1.9
26,521
1.9
39,301
2.3
Total
$
1,144,990
100.0 % $
1,412,384
100.0 % $
1,682,439
100.0 %
Geographic Information
Net sales and long-term assets related to the Company's operations in the U.S., Europe, Asia and all other international markets were as follows (in thousands):
Fiscal Year 2024
Net Sales
Long-term
Assets
United States
$
399,989
$
80,516
Europe
358,278
68,587
Asia
270,504
44,410
All other international
116,219
15,539
Consolidated
$
1,144,990
$
209,052
Fiscal Year 2023
Net Sales
Long-term
Assets
United States
$
514,666
$
107,085
Europe
438,148
85,575
Asia
330,869
64,211
All other international
128,701
10,469
Consolidated
$
1,412,384
$
267,340
(1)
(2)
(3)
(1)
(2)
(3)
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Year 2022
Net Sales
Long-term
Assets
United States
$
619,981
$
133,100
Europe
543,585
96,365
Asia
381,845
53,050
All other international
137,028
10,313
Consolidated
$
1,682,439
$
292,828
_______________________________________________________________________________
Net sales are based on the location of the selling entity (including exports).
Net sales from Germany (including exports) accounted for more than 10% of the Company's consolidated net sales and were approximately $137.9 million, $173.3 million and $194.1
million in fiscal years 2024, 2023 and 2022, respectively.
Net sales from China (including Hong Kong SAR, Macau SAR and Taiwan and exports) accounted for more than 7% of the Company's consolidated net sales and were approximately
$83.6 million, $140.4 million and $174.2 million in fiscal years 2024, 2023 and 2022, respectively.
20. Restructuring
In fiscal 2024, the Company announced a plan to return to profitable growth (the "Turnaround Plan"). The Turnaround Plan is centered on three key areas: (i) refocusing on the
core, (ii) rightsizing the cost structure, and (iii) strengthening the balance sheet. The Company expects to achieve selling, general and administrative ("SG&A") cost savings of
approximately $100 million in fiscal 2025 as compared to fiscal 2024 through a series of initiatives including a strategic reduction in force which occurred in late February 2025, reduced
costs associated with the transition of smaller international markets to a distributor model, and the closing of approximately 50 FOSSIL retail stores. The Company will seek to identify
additional cost-reduction opportunities, which may generate incremental savings in 2025. The Company estimates approximately $50 million in total charges in connection with the
Turnaround Plan, with approximately $7 million incurred in fiscal 2024 and the remainder expected to be incurred during fiscal 2025.
The following table shows a summary of the Turnaround Plan charges (in thousands):
Fiscal Year
Fiscal Year 2024
Selling, general and administrative expenses
6,553
Consolidated
$
6,553
The following table shows a rollforward of the accrued liability related to the Company’s Turnaround Plan (in thousands):
Fiscal Year 2024
Liabilities
Cash Payments
Non-cash Items
Liabilities
December 30, 2023
Charges
December 28, 2
Stores and facilities closures
$
—
$
6,553
$
—
$
6,553
$
Total
$
—
$
6,553
$
—
$
6,553
$
Turnaround Plan restructuring charges by operating segment were as follows (in thousands):
(1)
(2)
(3)
(1)
(2)
(3)
Table of Contents
FOSSIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Year 2024
Europe
$
1,927
Asia
4,626
Consolidated
$
6,553
In fiscal year 2024, the Company concluded its Transform and Grow plan ("TAG") as it has transitioned to initiatives under the Turnaround Plan. TAG was launched in early 2023
to reduce operating costs, improve operating margins, and advance the Company’s commitment to profitable growth. The Company had expanded the scope and duration of TAG to
focus on a more comprehensive review of its global business operations. The expansion of TAG put greater emphasis on initiatives aimed at restructuring or optimizing operations,
exiting or minimizing certain product offerings, brands and distribution channels, strengthening gross margins through improvements in sourcing and improving working capital
efficiency. Under the expanded TAG plan, the Company achieved annualized operating income benefits of $125 million in fiscal 2023 and an additional $155 million in fiscal 2024, for a
total of $280 million over the two year period.
The following table shows a summary of TAG plan charges (in thousands):
Fiscal Year
Fiscal Year 2024
Fiscal Year 2023
Cost of sales
$
7,314
$
5,537
Selling, general and administrative expenses
53,228
43,279
Consolidated
$
60,542
$
48,816
The following table shows a rollforward of the accrued liability related to the Company’s TAG plan (in thousands):
Fiscal Year 2024
Liabilities
Cash Payments
Non-cash Items
Liabilities
December 30, 2023
Charges
December 28, 2024
Stores and facilities closures
$
—
$
143
$
7
$
135 $
1
Professional services
117
34,959
25,575
—
9,501
Severance and employee-related benefits
8,117
18,126
18,344
558
7,341
Charges related to exits of certain product offerings
$
3,821
$
7,314
$
3,280
$
7,555 $
300
Total
$
12,055
$
60,542
$
47,206
$
8,248 $
17,143
Fiscal Year 2023
Liabilities
Cash Payments
Non-cash Items
Liabilities
December 31, 2022
Charges
December 30, 2023
Stores and facilities closures
$
—
$
7,245
$
—
$
7,245 $
—
Professional services
—
6,648
6,531
—
117
Severance and employee-related benefits
—
29,386
20,951
318
8,117
Charges related to exits of certain product offerings
$
—
$
5,537
$
1,716
$
— $
3,821
Total
$
—
$
48,816
$
29,198
$
7,563 $
12,055
TAG plan restructuring charges by operating segment were as follows (in thousands):
Table of Contents
Fiscal Year 2024
Fiscal Year 2023
Americas
$
4,800
$
4,582
Europe
8,171
9,812
Asia
4,059
12,519
Corporate
43,512
21,903
Consolidated
$
60,542
$
48,816
In fiscal year 2022, the Company completed its New World Fossil 2.0 ("NWF 2.0”) restructuring program it launched in 2019. The following tables show a rollforward of the accrued
liability related to the Company’s NWF 2.0 restructuring plan (in thousands):
Fiscal Year 2023
Liabilities
Cash Payments
Liabilities
December 31, 2022
December 30, 2023
Professional services
74
74
—
Severance and employee-related benefits
2,821
2,821
—
Total
$
2,895
$
2,895
$
—
Fiscal Year 2022
Liabilities
Cash Payments
Non-cash Items
Liabilities
January 1, 2022
Charges
December 31, 2022
Store closures
$
300
$
787
$
612
$
475
$
—
Professional services
643
166
735
—
74
Severance and employee-related benefits
4,388
5,168
6,431
304
2,821
Total
$
5,331
$
6,121
$
7,778
$
779
$
2,895
NWF 2.0 restructuring charges by operating segment were as follows (in thousands):
2022
Americas
$
234
Europe
1,754
Asia
1,610
Corporate
2,523
Consolidated
$
6,121
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our "disclosure controls and procedures" ("Disclosure Controls"), as defined by Rules 13a-15(e) and 15d-15(e) of the
Exchange Act as of December 28, 2024, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and with
the participation of management, including our CEO and Interim CFO. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon this evaluation, our CEO and Interim CFO have concluded that our Disclosure Controls were effective at the reasonable assurance level as of December 28, 2024.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of
internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate over time.
Management, including our CEO and our Interim CFO, assessed the effectiveness of the Company's internal control over financial reporting as of December 28, 2024. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework
(2013). Based on its assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 28, 2024.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements included in this Annual Report on
Form 10-K, has issued an attestation report on the Company's internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 28, 2024 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Fossil Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Fossil Group, Inc. and subsidiaries (the "Company”) as of December 28, 2024, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and
financial statement schedule as of and for the year ended December 28, 2024, of the Company and our report, dated March 12, 2025, expressed an unqualified opinion on those
consolidated financial statements and financial statement schedule.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 12, 2025
Table of Contents
Item 9B. Other Information
None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s quarter
ended December 28, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information under the headings "Directors and Nominees," "Executive Officers," "Delinquent Section 16(a) Reports" and "Board Committees and Meetings" in our proxy
statement to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report, is incorporated herein by reference.
Code of Ethics
We have adopted a code of ethics that applies to all our directors and employees, including the principal executive officer, principal financial officer, principal accounting officer
and controller. The full text of our Code of Conduct and Ethics is published on the Investors section of our website at www.fossilgroup.com. We intend to disclose any future
amendments to certain provisions of the Code of Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on this website within five business
days following the date of any such amendment or waiver.
Insider Trading Arrangements and Policies
We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and
employees, or the Company itself, that we believe are reasonably designed to promote compliance with insider trading laws, rules and regulations, and The Nasdaq Stock Market listing
standards. The forgoing summary of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by reference to the full text of the Company’s insider
trading policy that has been filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required in response to this Item is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required in response to this Item is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required in response to this Item is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.
Item 14. Principal Accountant Fees and Services
The information required in response to this Item is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.
Table of Contents
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules
(a) Documents filed as part of Report.
Page
1.Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
48
Consolidated Balance Sheets
50
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
51
Consolidated Statements of Stockholders' Equity
52
Consolidated Statements of Cash Flows
53
Notes to Consolidated Financial Statements
54
2.Consolidated Financial Statement Schedule: See "Schedule II"
92
3.Exhibits required to be filed by Item 601 of Regulation S-K
93
The exhibits required to be filed by this Item 15 are set forth in the Exhibit Index accompanying this report.
Item 16. Form 10-K Summary
None.
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 12, 2025
FOSSIL GROUP, INC.
/s/ FRANCO FOGLIATO
Franco Fogliato
Chief Executive Officer and Director
________________________________________________________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
Capacity
Date
/s/ FRANCO FOGLIATO
Chief Executive Officer and Director (Principal Executive Officer)
March 12, 2025
Franco Fogliato
/s/ ANDREW SKOBE
Interim Chief Financial Officer (Principal Financial and Accounting Officer)
March 12, 2025
Andrew Skobe
/s/ MARK R. BELGYA
Director
March 12, 2025
Mark R. Belgya
/s/ PAMELA B. CORRIE
Director
March 12, 2025
Pamela B. Corrie
/s/ SUZANNE M. COULTER
Director
March 12, 2025
Suzanne M. Coulter
/s/ EUGENE DAVIS
Director
March 12, 2025
Eugene Davis
/s/ KEVIN MANSELL
Chairman of the Board of Directors
March 12, 2025
Kevin Mansell
/s/ MARC R. Y. REY
Director
March 12, 2025
Marc R. Y. Rey
/s/ GAIL B. TIFFORD
Director
March 12, 2025
Gail B. Tifford
Table of Contents
SCHEDULE II
FOSSIL GROUP, INC. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS
Fiscal Years 2022, 2023 and 2024
(in thousands)
Additions
Deductions
Classification
Balance at
Beginning of
Period
Charged
to
Operations
Charged to Other
Accounts
Actual
Returns or
Writeoffs
Balance at
End of Period
Fiscal Year 2022:
Account receivable allowances:
Bad debts
$
16,388
$
6,305
$
—
$
8,046
$
14,647
Markdowns
$
13,768
$
23,736
$
—
$
29,043
$
8,461
Sales returns
$
40,121
$
90,092
$
—
$
94,393
$
35,820
Deferred tax asset valuation allowance
$
122,953
$
14,794
$
5,599
$
—
$
143,346
Fiscal Year 2023:
Account receivable allowances:
Bad debts
$
14,647
$
3,535
$
—
$
5,566
$
12,616
Markdowns
$
8,461
$
31,325
$
—
$
32,243
$
7,543
Sales returns
$
35,820
$
95,812
$
—
$
98,234
$
33,398
Deferred tax asset valuation allowance
$
143,346
$
50,493
$
1,769
$
3,005
$
192,603
Fiscal Year 2024:
Account receivable allowances:
Bad debts
$
12,616
$
6,328
$
—
$
4,288
$
14,656
Markdowns
$
7,543
$
26,908
$
—
$
26,935
$
7,516
Sales returns
$
33,398
$
57,542
$
—
$
63,095
$
27,845
Deferred tax asset valuation allowance
$
192,603
$
34,100
$
(219)
$
—
$
226,922
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description
3.1
Third Amended and Restated Certificate of Incorporation of Fossil Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed on May 25, 2010).
3.2
Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K filed on May 28, 2013).
3.3
Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K/A filed on June 28, 2023).
3.4
Sixth Amended and Restated Bylaws of Fossil Group, Inc. (incorporated by reference to Exhibit 3.4 of the Company's Quarterly Report on Form 10-Q
filed on November 9, 2023).
4.1
The description of Fossil Group, Inc.’s Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed
on February 27, 2020).
4.2
Indenture, dated as of November 8, 2021, by and between Fossil Group, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee.
4.3
First Supplemental Indenture, dated as of November 8, 2021, by and between Fossil Group, Inc. and The Bank of New York Mellon Trust Company,
N.A., as trustee.
4.4
Form of 7.00% Senior Notes due 2026 (included in Exhibit 4.2).
10.1
Master License Agreement dated as of August 30, 1994, by and between Fossil Group, Inc. and Fossil Partners, L.P. (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K filed on March 2, 2011).
10.2
Agreement of Limited Partnership of Fossil Partners, L.P. (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K
filed on March 2, 2011).
10.3 (2)
Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 8,
2016).
10.4 (2)
Fossil Group, Inc. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K filed on
March 1, 2017).
10.5 (2)
First Amendment to the Fossil Group, Inc. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed August 9, 2018).
10.6
Credit Agreement, dated as of September 26, 2019, by and among Fossil Group, Inc., Fossil Partners, L.P., Fossil Group Europe GmbH, Fossil Asia
Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited, Fossil Canada Inc. and certain lenders party thereto, JPMorgan Chase Bank, N.A., as
administrative agent and an issuing lender, J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells
Fargo Bank, National Association, as joint bookrunners and joint lead arrangers and Citizens Bank, N.A. and Wells Fargo Bank, National
Association, as co-syndication agents (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 1,
2019).
10.7
Amendment No. 2 to the Credit Agreement, dated as of April 24, 2020, by and among Fossil Group, Inc., Fossil Partners, L.P., Fossil Group Europe
GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited, Fossil Canada Inc., Fossil France S.A., the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on
April 27, 2020).
10.8 (2)
Fossil Group, Inc. 2020 Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January
3, 2020).
10.9 (2)
Fossil Group, Inc. 2021 Deferred Plan for Director Fees
10.10
Amendment No. 4, dated as of November 8, 2022, among Fossil Group, Inc., Fossil Partners, L.P., Fossil Intermediate, Inc., Fossil Stores I, Inc., Fossil
Trust, Fossil Group GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited, Fossil Canada Inc., Fossil France SAS, Fossil
Stores France SAS, FAST Europe SARL, and JPMorgan Chase Bank, N.A., as administrative agent, and the other agents and lenders party thereto
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 10, 2022).
10.11 (2)
Performance Restricted Stock Unit Award Under the Fossil Group, Inc. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of
the Company’s Quarterly Report on Form 10-Q filed on May 12, 2022)
Exhibit
Number
Description
10.12 (2)
Restricted Stock Unit Award Under the Fossil Group, Inc. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s
Quarterly Report on Form 10-Q filed on May 12, 2022)
10.13 (2)
Amendment No. 1 to the Fossil Group, Inc. 2020 Cash Incentive Plan (incorporated by reference to Exhibit 10.18 of the Company's Annual Report on
Form 10-K filed on March 9, 2023).
10.14 (2)
Amendment Number Two to the Fossil Group, Inc. 2020 Cash Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q filed on November 9, 2023).
10.15 (2)
Form of Indemnification Agreement signed by directors and executive officers (incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q filed on November 9, 2023).
10.16
Consulting Agreement, dated March 13, 2024, by and between Fossil Group, Inc. and Kosta N. Kartsotis.
10.17 (2)
Fossil Group, Inc. 2024 Long-Term Incentive Plan.
10.18 (2)
Restricted Stock Unit Award for Outside Directors under the Fossil Group, Inc. 2024 Long-Term Incentive Plan.
10.19 (2)
Offer Letter, dated August 10, 2024, by and between Franco Fogliato and the Company.
10.20
Cooperation Agreement, dated as of March 24, 2024, by and among the Company, Buxton Helmsley Active Value Fund, L.P. and Buxton Helmsley
Capital Partners LLC.
10.21 (2)
Restricted Stock Unit Award Agreement
19.1 (1)
Insider Trading Policy
21.1 (1)
Subsidiaries of Fossil Group, Inc.
23.1 (1)
Consent of Independent Registered Public Accounting Firm.
31.1 (1)
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2 (1)
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 (3)
Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 (3)
Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
97
Fossil Group, Inc. Compensation Recovery Policy
101.INS(1)
Inline XBRL Instance Document.
101.SCH(1)
Inline XBRL Taxonomy Extension Schema Document.
101.DEF(1)
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL(1)
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB(1)
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE(1)
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
________________________________________________________________________
(1)
Filed herewith.
(2)
Management contract or compensatory plan or arrangement.
(3)
Furnished herewith.
Exhibit 10.22
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Time Based)
This RESTRICTED STOCK UNIT AWARD AGREEMENT
(this "Agreement”) is entered into by and between Fossil Group, Inc., a Delaware
corporation (the "Company”), and Franco Fogliato (the "Participant”) effective as of October 15, 2024 (the "Date of Grant”). The Awarded Units (as defined
below) are granted solely pursuant to this Agreement and not pursuant to the Fossil Group, Inc. 2024 Long-Term Incentive Plan (the "Plan”) or any other equity
plan of the Company, provided, however, that any capitalized terms not otherwise defined in this Agreement shall have the meanings given to such terms in the Plan.
WHEREAS, the Company desires to grant to the Participant the Awarded Units as an inducement material to the Participant’s entry into employment with
the Company within the meaning of Nasdaq Listing Rule 5635(c)(4), subject to the terms and conditions of this Agreement and the Plan (despite the Awarded Units
not being granted under the Plan);
WHEREAS, the Compensation and Talent Management Committee (the "Committee”) of the Company’s Board of Directors (the "Board”) has
approved this grant of the Awarded Units (as defined below); and
WHEREAS, the Participant desires to have the opportunity to acquire shares of the Company’s common stock, par value $0.01 per share ("Common
Stock”), upon the vesting of the Awarded Units, subject to the terms and conditions of this Agreement and the Plan (despite the Awarded Units not being granted
under the Plan), the terms of which are incorporated by reference herein in their entirety;
NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1.
Grant of Restricted Stock Units. Effective as of the Date of Grant, the Company shall grant to the Participant an award of 1,500,000 Restricted Stock
Units (the "Awarded Units”), which may be converted into the number of shares of Common Stock equal to the number of Restricted Stock Units, subjec
to the terms and conditions provided in the Plan and this Agreement. Each Awarded Unit shall be a notional share of Common Stock, with the value of each
Awarded Unit being equal to the Fair Market Value of a share of Common Stock at any time. In accepting the award of the Awarded Units set forth in this
Agreement, the Participant accepts and agrees to be bound by all the terms and conditions of the Plan and this Agreement.
2.
Definitions. For purposes of this Agreement, the following terms have the meanings indicated below:
(a)
"Cause” has the meaning set forth in the Offer Letter.
(b)
"Good Reason” has the meaning set forth in the Offer Letter.
(c)
"Offer Letter” means that certain Offer Letter, dated as of August 10, 2024, by and between the Company and the Participant.
3.
Vesting; Conversion. Subject to the provisions hereof and the provisions of the Plan, the Awarded Units will vest and become exercisable as follows:
(a)
Generally. Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Awarded
Units shall vest as follows (each a "Vesting Date”): 50% of the Awarded Units shall vest on each of the first, and second anniversaries of the Date
of Grant; provided that the Participant has not incurred a Termination of Service prior to the applicable Vesting Date. If the Participant incurs a
Termination of Service prior to a Vesting Date then, except as otherwise specified in subsections (b) or (c) below, all unvested Awarded Units shall
be forfeited and automatically cancelled for no consideration. Upon such forfeiture, all of the Participant’s rights with respect to the forfeited
unvested Awarded Units shall cease and terminate, without any further obligations on the part of the Company.
(b)
Termination without Cause or by Participant for Good Reason. Notwithstanding Section 3(a), if the Participant incurs a Termination of Service
by the Company without Cause or by the Participant for Good Reason, then all Awarded Units shall immediately become fully vested on the date o
such Termination of Service by the Company without Cause or by the Participant for Good Reason (and such termination date shall be a Vesting
Date for purposes of this Agreement).
(c)
Death. Notwithstanding the vesting conditions set forth in this Section 3, all of the Awarded Units shall vest upon the death of the Participant, and
such date shall be a Vesting Date for purposes of this Award.
Upon each Vesting Date, the Company shall convert each vested Awarded Unit into a share of Common Stock for each vested Awarded Unit, which shall
be electronically registered by the Company in the name of the Participant as promptly as practicable following the applicable Vesting Date.
4.
Termination in Event of Nonemployment. Except as provided in Section 3 of the Agreement, in the event that the Participant ceases to be employed
by the Company or any of its Subsidiaries before a Vesting Date for any reason other than death, by the Company without Cause or by the Participant fo
Good Reason, the unvested Awarded Units granted pursuant to this Agreement shall be forfeited.
5.
Common Stock Issuance. Except as provided in Section 4 of this Agreement, any shares of Common Stock issued upon conversion of Awarded Units
shall be electronically registered in the Participant’s name as of (or as promptly as practicable after) each Vesting Date. No stock certificate or certificates
shall be issued with respect to such shares of Common Stock, unless, the Participant requests delivery of the certificate or certificates by submitting a written
request to the General Counsel requesting deliver of
2
the certificates. Except as otherwise provided herein, the Company shall deliver the certificates requested by the Participant to the Participant as soon as
administratively practicable following the Company’s receipt of such request. Upon registration (or issuance) of any shares hereunder, the Participant may
be required to enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with
applicable securities laws. Notwithstanding the foregoing, to the extent (i) the Participant is deemed as of his or her Termination of Service to be a "specified
employee” under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code”); and (ii) on the Termination of Service the Company is
publicly traded (as defined in Section 409A of the Code), then, to the extent required by Section 409A of the Code, no Awarded Unit shall vest, or be
converted into shares of Common Stock, until the earlier of (x) the first day of the seventh month following the Participant’s Termination of Service or (y)
the date of the Participant’s death following such Termination of Service. Upon the expiration of the applicable deferral period, any Awarded Units which
would have otherwise been converted during that period (whether in a single sum or in installments) shall be converted in accordance with Section 3 above
and issued to the Participant or the Participant’s beneficiary in one lump sum.
6.
Capital Adjustments and Reorganizations. The existence of the Awarded Units shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, engage
in any merger or consolidation, issue any debt or equity securities, dissolve or liquidate, or sell, lease, exchange or otherwise dispose of all or any part of its
assets or business, or engage in any other corporate act or proceeding. The number of Awarded Units shall be subject to adjustment in accordance with
Article 12-14 of the Plan.
7.
No Fractional Shares. All provisions of this Agreement concern whole shares of Common Stock.
8.
Not an Employment Agreement. This Agreement is not an employment or service agreement, and no provision of this Agreement shall be construed or
interpreted to create an employment or service relationship between the Participant and the Company or guarantee the right to continue in the employment
of the Company or a Subsidiary for any specified term or limit the Company’s authority to terminate the Participant’s employment.
9.
Limit of Liability. Under no circumstances will the Company or an Affiliate be liable for any indirect, incidental, consequential, or special damages
(including lost profits or taxes) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim
may be brought, with respect to the Plan, this Agreement, or the Awarded Units.
10.
Notices. Any notice, instruction, authorization, request, or demand required hereunder shall be in writing, and shall be delivered either by personal delivery,
telegram, telex, telecopy, or similar facsimile means, by certified or registered mail, return receipt requested, or by courier or delivery service, addressed to
the Company at the Company’s principal business office address and to the Participant at the Participant’s residential address as shown in the records of
the Company, or at such other address and number as a party shall have previously designated by written notice given to the other party in the manner
hereinabove set forth. Notices shall be deemed given when received, if sent by facsimile means (confirmation of such receipt by confirmed facsimile
transmission being deemed receipt of communications sent by facsimile means); and when delivered (or upon the date of attempted delivery where delivery
is refused), if hand-delivered, sent by
3
express courier or delivery service, or sent by certified or registered mail, return receipt requested.
11.
Amendment. This Agreement may be amended only by a writing executed by the Company and the Participant which specifically states that it is amending
this Agreement. Notwithstanding the foregoing, this Agreement may be amended solely by the Committee by a writing which specifically states that it is
amending this Agreement, so long as a copy of such amendment is delivered to the Participant, and provided that no such amendment adversely affecting
the rights of the Participant hereunder may be made without the Participant’s written consent. Without limiting the foregoing, the Committee reserves the
right to change, by written notice to the Participant, the provisions of the Awarded Units or this Agreement in any way it may deem necessary or advisable
to carry out the purpose of the grant as a result of any change in Applicable Laws or regulations or any future law, regulation, ruling, or judicial decision,
provided that any such change shall be applicable only to Awarded Units which are then subject to restrictions as provided herein.
12.
Recoupment. In accordance with Section 6.13 of the Plan, the Company may recoup all or any portion of any shares or cash paid to the Participant in
connection with this Agreement, in accordance with the requirements of any clawback or recoupment policy of the Company, including, without limitation,
the Compensation Recovery Policy, as may be amended from time to time, as may be in effect at the time of the determination, which policy is incorporated
herein by reference.
13.
Severability. If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be
deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or
revised retroactively to permit this Agreement to be construed so as to first honor the intent of this Agreement and the Plan.
14.
Governing Law. The grant of the Awarded Units and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware,
as provided in the Plan.
15.
Assignability. Until the Awarded Units are vested as provided above, they may not be sold, transferred, pledged, assigned, or otherwise alienated other
than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended. Any attempt to do so contrary to the provisions hereof shall be null and void. No assignment of the
Awarded Units herein granted shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy
of such documents and evidence as the Company may deem necessary to establish the validity of the assignment and the acceptance by the assignee or
assignees of the terms and conditions hereof.
16.
No Stockholder Rights. The Participant shall have no rights as a stockholder of the Company with respect to the Awarded Units unless and until shares of
Common Stock shall have been issued by the Company to the Participant. Until such time, the Participant shall not be entitled to dividends or distributions in
respect of any shares or to vote such shares on any matter submitted to the stockholders of the Company. In addition, except as to adjustments that may
from time to time be made in accordance with the Plan, no adjustment shall be made or required to be made in respect of dividends
4
(ordinary or extraordinary, whether in cash, securities or any other property) or distributions paid or made by the Company or any other rights granted in
respect of any shares for which the record date for such payment, distribution or grant is prior to the date upon which such shares shall have been issued by
the Company.
17.
Notices and Electronic Delivery. Unless otherwise provided herein, any notice or other communication hereunder shall be in writing and shall be given
by registered or certified mail unless the Company, in its sole discretion, decides to deliver any documents relating to the Agreement by electronic means.
The Participant hereby consents to receive such documents by electronic delivery through an on-line or electronic system established and maintained by the
Company or another third party designated by the Company. All notices by the Participant hereunder shall be directed to Fossil Group, Inc., Attention
Secretary, at the Company’s then current address unless the Company, in writing or electronically, directs the Participant otherwise. Any notice given by the
Company to the Participant directed to the Participant at his or her address on file with the Company shall be effective to bind any other person who shal
acquire rights hereunder. The Participant shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any
of the Participant’s rights or privileges hereunder.
18.
General Restrictions. This Agreement is subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law; (b) the consent or
approval of any government regulatory body; or (c) an agreement by the recipient of an award with respect to the disposition of shares of Common Stock,
is necessary or desirable (in connection with any requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in
connection with, the granting of such award or the issuance, purchase or delivery of shares of Common Stock thereunder, such award may not be
consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of
any conditions not acceptable to the Committee.
19.
Miscellaneous. This Agreement is subject to all of the provisions of the Plan (despite the Awarded Units not being granted under the Plan), including
amendments to the Plan, if any.
20.
Section 409A of the Code. This Agreement is intended to be compliant with the requirements of Section 409A of the Code and the parties agree to
interpret this Agreement at all times in accordance with such intent. Without limiting the generality of the foregoing, the term "termination of employment” or
any similar term under the Agreement will be interpreted to mean a "separation from service” within the meaning of Section 409A of the Code to the extent
necessary to comply with Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations, warranties, or guarantees
regarding the tax treatment of this Agreement under Section 409A of the Code or otherwise, and has advised the Participant to obtain his or her own tax
advisor regarding this Agreement.
21.
Tax Withholding. The Participant shall be required to deposit with the Company an amount of cash equal to the amount determined by the Company to
be required with respect to any withholding taxes, FICA contributions, or the like under any federal, state, or local statute, ordinance, rule, or regulation in
connection with the award or settlement of the Awarded Units. Alternatively, the Company may, at its sole election, (i) withhold the required amounts from
the Participant’s pay during the pay periods next following the date on which any such applicable tax liability otherwise arises, or (ii) withhold a number of
shares of Common Stock (or equivalent cash value) otherwise deliverable having a
5
Fair Market Value sufficient to satisfy the statutory minimum of all or part of the Participant’s estimated total federal, state, and local tax obligations
associated with vesting or settlement of the Awarded Units. The Company shall not deliver any of the shares of Common Stock until and unless the
Participant has made the deposit required herein or proper provision for required withholding has been made.
22.
Acceptance. The Participant, by his or her acceptance of the Awarded Units, agrees to be bound by all of the terms and conditions of this Agreement,
including, without limitation, the provisions of the Plan.
23.
Disclaimer of Reliance. Except for the specific representations expressly made by the Company in this Agreement, the Participant specifically disclaims
that the Participant is relying upon or has relied upon any communications, promises, statement, inducements or representation(s) that may have been made,
oral or written regarding the subject matter of this Agreement. The Participant represents that the Participant relied solely and only on the Participant’s own
judgment in making the decision to enter into this Agreement.
[Remainder of Page Intentionally Left Blank;
Signature Page Follows]
6
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement, or have caused this Agreement to be duly executed an
delivered on their behalf.
FOSSIL GROUP, INC.
By: /s/ James Webb
Name: James Webb
Title: Chief People Officer
Date: October 15, 2024
PARTICIPANT
By: /s/ Franco Fogliato
Name: Franco Fogliato
Date: October 15, 2024
Signature Page
to
Restricted Stock Unit Award Agreement
(Time Based)
Exhibit 19.1
FOSSIL GROUP, INC.
INSIDER TRADING POLICY
Introduction
The purchase or sale of securities while aware of material nonpublic information, or the disclosure of material nonpublic information to others who then trade in the
securities of Fossil Group, Inc. (the "Company”), is prohibited by the federal securities laws. Insider trading violations are pursued vigorously by the Financial Industr
Regulatory Authority, the Securities and Exchange Commission (the "SEC”), the U.S. Attorney’s Office and state enforcement authorities and are punished severely
While the regulatory authorities concentrate their efforts on the individuals who trade, or who tip inside information to others who trade, the federal securities laws also
impose potential liability on companies and other "controlling persons” if they fail to take reasonable steps to prevent insider trading by company personnel. Violations of
the insider trading laws may result in the employee having to pay civil fines of up to three times the profit gained or loss avoided by such trading, as well as criminal
fines. The employee also may have to serve a jail sentence. In addition, the Company could be subject to civil and/or criminal fines.
The Company’s Board of Directors has adopted this Insider Trading Policy (the "Policy”) both to satisfy the Company’s obligation to prevent insider trading and to help
Company personnel avoid the severe consequences associated with violations of the insider trading laws. The Policy also is intended to prevent even the appearance of
improper conduct on the part of anyone employed by or associated with the Company (not just so-called insiders).
Company-Imposed Sanctions. An employee’s failure to comply with the Policy may subject the employee to Company-imposed sanctions, including dismissal for
cause, whether or not the employee’s failure to comply results in a violation of law. Needless to say, a violation of law, or even an SEC investigation that does not
result in prosecution, can tarnish one’s reputation and irreparably damage a career.
Persons Subject to the Policy
This Policy applies to all officers, directors and employees of the Company and its subsidiaries. The Company may also determine that other persons should be subject
to this Policy, such as contractors or consultants who have access to material nonpublic information. This Policy also applies to family members, other members of a
person’s household and entities, including trusts, controlled by a person covered by this Policy, as described below.
Transactions Subject to the Policy
This Policy applies to transactions in the Company’s securities (collectively referred to in this Policy as "Company Securities”), including the Company’s common stock
options to purchase common stock, or any other type of securities that the Company may issue, including (but not limited to) notes, preferred stock, convertible
debentures and warrants, as well as derivative
securities that are not issued by the Company, such as exchange-traded put or call options or swaps relating to the Company Securities. This policy further applies to
charitable donations of Company Securities.
Statement of Policy
It is the policy of the Company that no director, officer or other employee of the Company or its subsidiaries (or any other person designated as subject to this Policy)
who is aware of material nonpublic information relating to the Company may, directly or through family members or other persons or entities, (a) buy or sell securities of
the Company (other than pursuant to a pre-approved trading plan that complies with SEC Rule 10b5-1), or engage in any other action to take personal advantage of tha
information, (b) recommend the purchase or sale of any Company Securities, or (c) pass that information on to persons within the Company whose jobs do not require
them to have that information, or to persons outside the Company, including family, friends and business associates. In addition, it is the policy of the Company that no
director, officer or other employee of the Company or its subsidiaries (or any other person designated as subject to this Policy) who, in the course of working for the
Company, learns of material nonpublic information about a competitor or a company with which the Company does business, including a customer or supplier of the
Company, may trade in that company’s securities until the information becomes public or is no longer material.
No "Tipping”
Employees may not convey (whether through traditional forms of communication or social media or otherwise) material nonpublic information about a company to
others or suggest that anyone purchase or sell any company's securities while aware of material nonpublic information about that company. This practice, known as
"tipping," also violates the securities laws and can result in the same civil and criminal penalties that apply if an employee engages in insider trading directly, even if the
employee does not receive any money or derive any benefit from trades made by persons to whom the employee passed material nonpublic information. This policy
against "tipping" applies to information about the Company and its securities, as well as to information about other companies. This Policy does not restrict legitimate
business communications to Company personnel who require the information in order to perform their business duties. Material nonpublic information, however, should
not be disclosed to persons outside the Company unless the employee disclosing the information is specifically authorized to disclose such information and the person
who is to receive the information has agreed, in writing, if appropriate, to keep the information confidential.
Disclosure of Information to Others. The Company is required under Regulation FD of the federal securities laws to avoid the selective disclosure of material
nonpublic information. The Company has established procedures for releasing material nonpublic information in a manner that is designed to achieve broad public
dissemination of the information immediately upon its release. You may not, therefore, disclose material nonpublic information to anyone outside the Company, including
family members and friends, other than in accordance with those procedures. You also may not discuss material nonpublic information about the Company or its
business in an internet "chat room” or similar internet-based forum.
Material Information. Material information is any information that a reasonable investor would consider important in making a decision to buy, hold, or sell securities.
There is no bright-line
standard for assessing materiality; rather, materiality is based on an assessment of all of the facts and circumstances, and is often evaluated by enforcement authorities
with the benefit of hindsight. Any information that could be expected to affect the Company’s stock price, whether it is positive or negative, should be considered
material. Some examples of information that ordinarily would be regarded as material are:
●
Projections of future earnings or losses, or other earnings guidance;
●
Changes to previously announced earnings guidance, or the decision to suspend earnings guidance;
●
Earnings that are inconsistent with the consensus expectations of the investment community;
●
A pending or proposed merger, acquisition or tender offer;
●
A pending or proposed acquisition or disposition of a significant asset;
●
A pending or proposed joint venture;
●
A change in dividend policies or amounts, the declaration of a stock split, or an offering of additional securities;
●
Bank borrowings or other financing transactions out of the ordinary course;
●
The establishment of a new repurchase program for Company Securities;
●
A change in executive management;
●
A change in auditors or notification that the auditor’s reports may no longer be relied upon;
●
Potential or imminent changes in the Company’s credit rating by a rating agency;
●
Any Analyst upgrades or downgrades of Company Securities;
●
Significant changes in accounting treatment, write-offs, or effective tax rate;
●
Any potential proxy contests;
●
Significant discoveries, changes, or developments of a new product or process;
●
Significant discoveries, changes, or developments in supplies or inventory, including but not limited to product recalls, defects, or returns;
●
Significant changes in market strategies, market share, sales volume, or production scheduling;
●
Significant pricing changes or strategies;
●
Denials or approvals of requests for regulatory approval by government agencies regulating those including, but not limited to, products, patents, copyrights, or
trademarks.
●
Actual or threatened major litigation, or the resolution of such litigation;
●
Significant labor negotiations or disputes, including but not limited to potential strikes;
●
Impending bankruptcy or the existence of severe liquidity problems;
●
The gain or loss of a significant customer, contract, finance source, or supplier; or
●
A data breach or any other significant disruption in the company’s operations or loss, potential loss, breach or unauthorized access of its property or assets,
including its facilities and information technology infrastructure ("Cybersecurity Incident”) or risk thereof.
Cybersecurity Incident. The Company may restrict insider trading of Company Securities during the period in which the Company investigates the underlying facts and
assesses the materiality of Cybersecurity Incidents and prior to public disclosure of such incidents.
Twenty-Twenty Hindsight. Remember, anyone scrutinizing your transactions will be doing so after the fact, with the benefit of hindsight. As a practical matter, before
engaging in any transaction, you should carefully consider how enforcement authorities and others might view the transaction in hindsight.
When Information is "Public”. If you are aware of material nonpublic information, you may not trade until the information has been disclosed broadly to the
marketplace (such as by press release or an SEC filing) and the investing public has had time to absorb the information fully. By contrast, information would likely not
be considered widely disseminated if it is available only to the Company’s employees, or if it is only available to a select group of analysts, brokers or institutional
investors. To avoid the appearance of impropriety, as a general rule, information should not be considered fully absorbed by the marketplace until after the second
business day after the information is released. If, for example, the Company were to make an announcement before the securities markets opened on a Tuesday, you
should not trade in Company Securities until Thursday. If an announcement were made before the securities markets opened on a Friday, Tuesday generally would be
the first eligible trading day.
Transactions by Family Members. This Policy also applies to your family members who reside with you (including a spouse, a child, a child away at college,
stepchildren, grandchildren, parents, stepparents, grandparents, siblings and in-laws, including adoptive relationships), anyone else who lives in your household, and any
family members who do not live in your household but whose transactions in Company Securities are directed by you or are subject to your influence or control (such as
parents or children who consult with you before they trade in Company Securities). You are responsible for the transactions of these other persons and therefore should
make them aware of the need to confer with you before they trade in Company Securities. You should treat all such transactions for the purposes of this Policy and
applicable securities laws as if the transactions were for your own account. This Policy does not, however, apply to personal securities transactions of family members
where the purchase or sale decision is made by a third party not controlled by, influenced by or related to you or your family members.
Transactions by Entities that You Influence or Control. This Policy applies to any entities that you influence or control, including any corporations, partnerships or
trusts (collectively referred to as "Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and applicable
securities laws as if they were for your own account.
Transactions Under Company Plans
Stock Option Exercises. The Policy does not apply to a "buy and hold” exercise of an employee stock option, or to the exercise of a tax withholding right pursuant to
which you elect to have the Company withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any sale of stock
as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an
option. Any "stock swap” transaction, where an employee proposes to tender Company stock as payment of all or a portion of the exercise price, must be approved in
advance by the Company’s Chief Legal Officer (or in his or her absence, the Company’s Corporate Counsel responsible for corporate/securities matters.)
Restricted Stock Awards. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding right pursuant to which you elect to have the
Company withhold shares of stock to satisfy tax withholding requirements upon the vesting of any restricted stock. This Policy does apply, however, to any market sale
of restricted stock.
401(k) Plan. The Policy does not apply to purchases of Company stock in the Company’s 401(k) plan resulting from your periodic contribution of money to the plan
pursuant to your payroll deduction election. This Policy does apply, however, to certain elections you may make under the 401(k) plan, including (a) an election to
increase or decrease the percentage of your periodic contributions that will be allocated to the Company stock fund, (b) an election to make an intra-plan transfer of an
existing account balance into or out of the Company stock fund, (c) an election to borrow money against your 401(k) plan account if the loan will result in a liquidation
of some or all of your Company stock fund balance, and (d) your election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the
Company stock fund.
Additional Prohibit Transactions
The Company considers it improper and inappropriate for any director, officer or other employee of the Company to engage in short-term or speculative transactions in
Company Securities. It therefore is the Company’s policy that directors, officers and other employees may not engage in any of the following transactions:
Short Sales. Short sales of Company Securities may evidence an expectation on the part of the seller that the securities will decline in value, and therefore may signal
to the market that the seller lacks confidence in the Company or its short-term prospects. In addition, short sales may reduce the seller’s incentive to improve the
Company’s performance. For these reasons, short sales of Company Securities are prohibited by this Policy. In addition, Section 16(c) of the Exchange Act prohibits
officers and directors from engaging in short sales.
Publicly-Traded Options. A transaction in options is, in effect, a bet on the short-term movement of the Company’s stock and therefore may create the appearance
that the director or employee is trading based on inside information. Transactions in options also may focus the director’s or employee’s attention on short-term
performance at the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative securities, on an exchange or in any
other organized market, are prohibited by this Policy. (Option positions arising from certain types of hedging transactions are governed by the section below captioned
"Hedging Transactions.”)
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow an employee to lock in much
of the value of his or her stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions allow the director or
employee to continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, the director or employee may no longer
have the same objectives as the Company’s other shareholders. Therefore, directors and employees are prohibited from engaging in any such transactions.
Pledging. Pledging of Company Securities may result in unplanned and unapproved sales. Therefore, directors and executive officers may not pledge, hypothecate, or
otherwise encumber Company Securities as collateral for indebtedness. This prohibition includes, but is not limited to, holding such securities in a margin account.
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 plans) create heightened risks for insider trading
violations because there is no control over the timing of purchases or sales that result from standing instructions to a
broker, and as a result the broker could execute a transaction when a director, officer or other employee is in possession of material nonpublic information. The
Company therefore discourages placing standing or limit orders on Company Securities. If a person subject to this Policy determines that they must use a standing orde
or limit order, the order should be limited to short duration and should otherwise comply with the restrictions and procedures outlined in this Policy.
Post-Termination Transactions
The Policy continues to apply to your transactions in Company Securities even after you have terminated employment. If you are in possession of material nonpublic
information when your employment terminates, you may not trade in Company Securities until that information has become public or is no longer material.
Company Assistance
Any person who has a question about this Policy or its application to any proposed transaction may obtain additional guidance from the Company’s Chief Legal Officer
Ultimately, however, the responsibility for adhering to this Policy and avoiding unlawful transactions rests with the individual employee. Each individual is responsible for
making sure that he or she complies with this Policy, and that any family member, household member or Controlled Entity whose transactions are subject to this Policy
also complies with this Policy. In all cases, the responsibility for determining whether an individual is in possession of material nonpublic information rests with that
individual, and any action on the part of the Company, the Company’s Chief Legal Officer or any other employee or director pursuant to this Policy (or otherwise) does
not in any way constitute legal advice or insulate an individual from liability under applicable securities laws.
FOSSIL GROUP, INC.
ADDENDUM TO INSIDER TRADING POLICY FOR DIRECTORS, EXECUTIVE OFFICERS AND DESIGNATED EMPLOYEES
Introduction
To help prevent inadvertent violations of the federal securities laws and to avoid even the appearance of trading on inside information, the Company’s Board of
Directors has adopted this Addendum to Insider Trading Policy (the "Addendum”). This Addendum applies to directors, executive officers subject to Section 16 of the
Securities Exchange Act of 1934, as amended ("executive officers”) and certain designated employees of the Company and its subsidiaries (collectively, "covered
persons”) who have access to material nonpublic information about the Company. This Addendum is in addition to and supplements the Policy.
Pre-clearance procedures
To help prevent inadvertent violations of the federal securities laws and to avoid even the appearance of trading on inside information, covered persons, together with
their family members , may not engage in any transaction involving the Company’s securities (including a stock plan transaction such as an option exercise, gift, loan,
contribution to a trust, or any other transfer) without first obtaining pre-clearance of the transaction from the Chief Legal Officer. A request for pre-clearance should be
submitted to the Chief Legal Officer at least two days in advance of the proposed transaction. The Chief Legal Officer is under no obligation to approve a transactio
submitted for pre-clearance, and may determine not to permit the transaction. In the Chief Legal Officer’s absence, such pre-clearance must be obtained from the
Chief Financial Officer or Assistant General Counsel. The Chief Legal Officer must obtain pre-clearance for any such transactions from the Chief Financial Officer
Pre-cleared transactions must be effected within five business days of receipt of pre-clearance unless an exception is granted. Transactions not effected within the time
limit must be resubmitted for pre-clearance.
When a request for pre-clearance is made, the requestor should carefully consider whether he or she may be aware of any material nonpublic information about the
Company, and should describe fully those circumstances to the Chief Legal Officer. The requestor should also indicate whether he or she has effected any non-exempt
"opposite-way” transactions within the past six months, and should be prepared to report the proposed transaction on an appropriate Form 4 or Form 5. The requestor
should also be prepared to comply with SEC Rule 144 and file Form 144, if necessary, at the time of any sale.
Rule 10b5-1(c) Trading Plans
In light of the restrictions on trading Company securities, as discussed in the Insider Trading Policy and this Addendum, the Company permits covered persons to ente
into a pre-arranged Rule 10b5-1(c) trading plan, provided such plan complies with Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the Company's policy with respect to such plans, as detailed below.
Rule 10b5-1(c) under the 1934 Act provides for an affirmative defense against insider trading liability if trades occur pursuant to a pre-arranged "trading plan" that
meets specified conditions.
A covered person is presumed to have a pecuniary interest in securities held by members of his/her immediate family sharing the same household. Rule 16a-1(e) defines the term "immediate family”
broadly to include "any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall
include adoptive relationships.”
1
1
Under this rule, if a covered person enters into a binding contract, instruction or written plan that specifies the amount, price and date on which securities are to be
purchased or sold, and these arrangements are established at a time when the covered person is not aware of material nonpublic information, that covered person may
claim a defense to insider trading liability if the transactions under the trading plan occur at a time when that covered person is aware of material nonpublic information.
Arrangements under this rule may specify the number of securities to be bought or sold, along with the price and the date, or provide a written formula for determining
this information. Alternatively, a trading plan can delegate investment discretion to an independent third party, such as a broker, who then makes trading decisions
without further input from the person implementing the plan. Trading plans can be established for a single trade or series of trades.
It is important that covered persons properly document the details of a trading plan. Note that, in addition to the requirements described above, there are a number of
additional procedural conditions to Rule 10b5-1(c) that must be satisfied before a covered person can rely on a trading plan as an affirmative defense against an insider
trading charge. These requirements include:
•
directors and officers must represent that at the time of adoption or modification of the trading plan that they are not aware of material non-public information,
•
directors and officers must represent that they are adopting the trading plan in good faith and not as part of a plan to evade the prohibitions of Rule 10b-5,
•
that the covered person does not modify their trading instructions while they are aware of material nonpublic information and
•
that covered persons not enter into or alter a corresponding or hedging transaction or position.
Because this rule is complex, the Company recommends that covered persons work with a broker and be sure they fully understand the limitations and conditions of the
rule before establishing a trading plan. Under SEC rules, the use of a Rule 10b5-1(c) trading plan by directors and officers of the Company will be publicly disclosed in
the Company’s SEC filings.
All Rule 10b5-1(c) trading plans must be approved in advance by the Chief Legal Officer prior to implementing any such plan. In order to receive approval, a proposed
Rule 10b51(c) trading plan must include a cooling-off period from the effective date of the plan before trades may commence under the plan. For directors and officers
of the Company, the cooling-off period must be the later of: (1) 90 days following adoption or modification of the trading plan or (2) two business days following the
filing of the Form 10-Q or Form 10-K covering the fiscal quarter in which the trading plan was adopted or modified (but not to exceed 120 days following the adoption
or modification of the trading plan) before any trading can commence under the trading plan. Employees other than directors or officers must use a cooling-off period of
at least 30 days. In addition, all amendments, modifications and terminations of an existing Rule 10b5-1(c) trading plan must be reviewed and approved in advance by
the Chief Legal Officer.
Blackout Periods
Quarterly Blackout Periods. The Company’s announcement of its quarterly financial results almost always has the potential to have a material effect on the
market for the Company’s securities. Therefore, you can anticipate that, to avoid even the appearance of trading while aware of material nonpublic information, persons
who are or may be expected to be aware of the
Company’s quarterly financial results generally will not be pre-cleared to trade in the Company’s securities during the period beginning on the day that is two weeks
prior to the last day of the Company’s fiscal quarter and ending after the second full business day following the Company’s issuance of its quarterly earnings release.
Persons subject to these quarterly blackout periods include all directors and executive officers and all other persons who are informed by the Chief Legal Officer tha
they are subject to the quarterly blackout periods.
The Company may on occasion issue interim earnings guidance or other potentially material information by means of a press release, SEC filing on Form 8-K or othe
means designed to achieve widespread dissemination of the information. You should anticipate that trades are unlikely to be pre-cleared while the Company is in the
process of assembling the information to be released and until the information has been released and fully absorbed by the market.
Event-specific Blackout Periods. From time to time, an event may occur that is material to the Company and is known by only a few directors, executives or
select employees. So long as the event remains material and nonpublic, directors, executive officers, and such other persons as are designated by the Chief Lega
Officer may not trade in the Company’s securities. The existence of an event-specific blackout will not be announced, other than to those who are aware of the event
giving rise to the blackout. If, however, a person whose trades are subject to pre-clearance requests permission to trade in the Company’s securities during an event-
specific blackout, the Chief Legal Officer will inform the requester of the existence of a blackout period, without disclosing the reason for the blackout. Any person
made aware of the existence of an event-specific blackout should not disclose the existence of the blackout to any other person. The failure of the Chief Legal Officer
to designate a person as being subject to an event-specific blackout will not relieve that person of the obligation not to trade while aware of material nonpublic
information.
Post-Termination Transactions
This Policy will continue to apply to transactions in Company securities after an employee’s employment or service with the Company has terminated in accordance
with the following:
•
If an employee is aware of material nonpublic information at the time of termination, that employee may not trade in the Company’s securities until that
information has been publicly disclosed or is no longer material.
•
If an employee is subject to a special blackout period at the time of termination, that employee may not trade in the Company’s securities until that blackout
period is lifted or the Chief Legal Officer notifies that employee that the employee is permitted to trade (subject to the employee not having any other material nonpublic
information at the time of the lifting of the blackout period).
•
If an employee is subject to the trading window pursuant to the supplement to this Policy and the window is closed at the time of termination, that employee
may not trade in the Company’s securities until the next open window period opens (subject to that employee not having any material nonpublic information at the time
of the opening of the window period).
•
If an employee is designated as a Section 16 officer at the time of termination, that employee will continue to be subject to this Policy for six months from the
date of termination in addition to being subject to each of the bullets above.
Company Assistance
Any person who has a question about this Addendum or its application to any proposed transaction may obtain additional guidance from the Chief Legal Officer.
EXHIBIT 21.1
Subsidiaries of Fossil Group, Inc.
as of December 28, 2024
Name of Subsidiary
Place of
Incorporation
Fossil Intermediate, Inc.
USA
Fossil Stores I, Inc.
USA
Fossil Canada, Inc.
Canada
Fossil Europe B.V.
the Netherlands
Fossil Japan, Inc
Japan
Fossil Holdings, LLC
USA
Fossil (Gibraltar) Ltd.
Gibraltar
Fossil International Holdings, Inc.
USA
Fossil (East) Limited
Hong Kong
Swiss Technology Holding GmbH
Switzerland
Fossil Trust
USA
Fossil Partners, L.P.
Texas
Fossil Mexico, S.A. de C.V.
Mexico
Servicios Fossil Mexico, S.A. de C.V.
Mexico
Fossil Luxembourg Sarl
Luxembourg
Pulse Time Center Company, Ltd.
Hong Kong
Fossil (Hong Kong) Ltd
Hong Kong
Fossil Singapore Pte. Ltd.
Singapore
FDT, Ltd.
Hong Kong
Fossil (Australia) Pty Ltd.
Australia
Fossil Time Malaysia Sdn. Bhd.
Malaysia
Fossil Industries Ltd.
Hong Kong
Fossil Trading (Shanghai) Company Ltd.
China
Fossil (Korea) Limited
Korea
Fossil India Private Ltd.
India
Fossil Asia Pacific Ltd.
Hong Kong
Fossil Commercial (Shanghai) Company Ltd.
China
Fossil Vietnam LLC
Vietnam
Fossil Commercial (Shenzhen) Co. Ltd.
China
Fossil (New Zealand) Limited
New Zealand
Pulse Time Center (Shenzhen) Co. Ltd.
China
Fossil (Macau) Limited
Macau
Fossil Europe GmbH
Germany
Fossil Italia, S.r.l.
Italy
Fossil S.L.U.
Spain
Fossil U.K. Holdings Ltd.
United Kingdom
FESCO GmbH
Germany
Fossil Switzerland GmbH
Switzerland
Fossil (Austria) GmbH
Austria
Fossil Sweden AB
Sweden
Fossil Stores Belgium BVBA
Belgium
Fossil Belgium BVBA
Belgium
Fossil Accessories South Africa Pty Ltd
South Africa
Fossil Poland Spolka ZOO
Poland
Fossil France SAS
France
Fast Europe Sarl
France
Fossil Norway AS
Norway
Fossil Denmark A/S
Denmark
Fossil Stores France SAS
France
Fossil Stores S.r.l.
Italy
Fossil U.K. Ltd.
United Kingdom
Montres Antima SA
Switzerland
In Time-Distribuicao de Relogios, SUL
Portugal
Fossil Group Europe, GmbH
Switzerland
Swiss Technology Production SA
Switzerland
Latin America Services, Ltd
British Virgin Islands
Fossil Shared Services GmbH
Germany
Fossil Services LLC
USA
Fossil Global Services India LLP
India
Katchin GmbH
Switzerland
Katchin Inc
USA
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 33-65980, 333-212293, 333-225667, 333-280773 on Form S-8 and Registration Statement No. 333-259352 on
Form S-3 of our reports dated March 12, 2025, relating to the financial statements of Fossil Group, Inc. and subsidiaries and the effectiveness of Fossil Group, Inc. and subsidiaries’
internal control over financial reporting, appearing in this Annual Report on Form 10-K of Fossil Group, Inc. for the year ended December 28, 2024.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 12, 2025
EXHIBIT 31.1
CERTIFICATION
I, Franco Fogliato, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Fossil Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 12, 2025
/s/ FRANCO FOGLIATO
Franco Fogliato
Chief Executive Officer and Director
QuickLinks
EXHIBIT 31.1
CERTIFICATION
EXHIBIT 31.2
CERTIFICATION
I, Andrew Skobe, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Fossil Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 12, 2025
/s/ ANDREW SKOBE
Andrew Skobe
Interim Chief Financial Officer
EXHIBIT 31.2
CERTIFICATION
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fossil Group, Inc. (the "Company") on Form 10-K for the fiscal year ended December 28, 2024 as filed with the Securities and Exchange
Commission on the date hereof (the "Form 10-K"), I, Franco Fogliato, Chief Executive Officer and Director of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 12, 2025
/s/ FRANCO FOGLIATO
Franco Fogliato
Chief Executive Officer and Director
A signed original of this written statement required by Section 906 has been provided to Fossil Group, Inc. and will be retained by Fossil Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any
general incorporation language in such filing.
QuickLinks
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fossil Group, Inc. (the "Company") on Form 10-K for the fiscal year ended December 28, 2024 as filed with the Securities and Exchange
Commission on the date hereof (the "Form 10-K"), I, Andrew Skobe, Interim Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 12, 2025
/s/ ANDREW SKOBE
Andrew Skobe
Interim Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Fossil Group, Inc. and will be retained by Fossil Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any
general incorporation language in such filing.
QuickLinks
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 97
Fossil Group, Inc.
Compensation Recovery Policy
(As adopted August 29, 2023)
This Compensation Recovery Policy (this "Policy”) of Fossil Group, Inc.(the "Company”) is hereby adopted as of August 29, 2023 to be effective October 2, 2023 (the
"Effective Date”) by the Compensation and Talent Management Committee (the "Committee”) of the Board of Directors of the Company (the "Board”) in
compliance with Section 10D of the Securities Exchange Act of 1934 and Rule 5608 of the Nasdaq Listing Rules. Certain terms shall have the meanings set forth in
"Section 3. Definitions” below.
Section 1. Recovery Requirement
Subject to Section 4 of this Policy, in the event the Company is required to prepare an Accounting Restatement, then the Committee hereby directs the Company, to the
fullest extent permitted by governing law, to recover from each Executive Officer the amount received by an Executive Officer, if any, of Erroneously Awarded
Compensation, with such recovery occurring reasonably promptly after the Restatement Date relating to such Accounting Restatement. An Executive Officer shall be
deemed to have "received” Incentive-Based Compensation in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive
Based Compensation award is attained, even if the payment or grant of the Incentive-Based Compensation occurs after the end of that fiscal period.
The Committee may effect recovery in any manner consistent with applicable law including, but not limited to, (a) seeking reimbursement of all or part of any
Erroneously Awarded Compensation previously received by an Executive Officer and to the extent that the Executive Officer does not reimburse such Erroneously
Awarded Compensation, suing and enforcing recovery against the Executive Officer for repayment of the Erroneously Awarded Compensation, together with any
expenses incurred by the Company in enforcing such recovery, (b) cancelling prior grants of Incentive-Based Compensation, whether vested or unvested, restricted or
deferred, or paid or unpaid, and through the forfeiture of previously vested equity awards, (c) cancelling or setting-off against planned future grants of Incentive-Based
Compensation, (d) deducting all or any portion of such Erroneously Awarded Compensation from any other remuneration payable by the Company to such Executive
Officer, and (e) any other method authorized by applicable law or contract.
The Company’s right to recovery pursuant to this Policy is not dependent on if or when the Accounting Restatement is filed with the Securities and Exchange
Commission.
Section 2. Incentive-Based Compensation Subject to this Policy.
This Policy applies to all Incentive-Based Compensation received by each Executive Officer on or after the Effective Date:
(i) if such Incentive-Based Compensation was received on and after the date such person became an Executive Officer of the Company;
(ii) if such Executive Officer served as an Executive Officer at any time during the performance period for that Incentive-Based Compensation; and
(iii) if such Incentive-Based Compensation was received during the three completed fiscal years immediately preceding the Restatement Date (including any
transition period that results from a change in the Company’s fiscal year that is within or immediately following those three completed fiscal years; provided that a
transition period of nine to 12 months is deemed to be a completed fiscal year).
This Policy shall apply and govern Incentive-Based Compensation received by any Executive Officer, notwithstanding any contrary or supplemental term or condition in
any document, plan or agreement including without limitation any employment contract, indemnification agreement, equity agreement, or equity plan document.
Section 3. Definitions:
For purposes of this Policy, the following terms have the meanings set forth below:
•
"Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement
under the securities laws, including any required accounting restatement to correct an error (i) in previously issued financial statements that is material to the
previously issued financial statements (commonly referred to as a "Big R” restatement) or (ii) that would result in a material misstatement if the error were
corrected in the current period or left uncorrected in the current period (commonly referred to as a "little r” restatement).
•
"Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received that exceeds the amount of Incentive-Based
Compensation that otherwise would have been received by the Executive Officer had it been determined based on the restated amounts in the Accounting
Restatement (computed without regard to any taxes paid). For Incentive-Based Compensation based on stock price or total shareholder return ("TSR”), where
the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the Accounting Restatement the
Company shall: (i) base the calculation of the amount on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon
which the Incentive-Based Compensation received was based; and (ii) retain documentation of the determination of that reasonable estimate and provide such
documentation to the Nasdaq Stock Market or, if a class of securities of the Company is no longer listed on the Nasdaq Stock Market, such other nationa
securities exchange or national securities association on which a class of the Company’s securities is then listed for trading.
•
"Executive Officer” has the meaning set forth in Rule 5608(d) of the Nasdaq Listing Rules.
•
"Financial Reporting Measures” has the meaning set forth in Rule 5608(d) of the Nasdaq Listing Rules.
•
"Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial
Reporting Measure (including, without limitation, stock price or TSR), including, any short-term or long-term incentive awards, cash bonuses, restricted stock
awards or restricted stock unit awards that vest based on achievement of a Financial Reporting Measure. Equity awards that vest exclusively upon completion
of a specified employment period, without any performance condition, and bonus awards that are discretionary or based on subjective goals or goals unrelated
to Financial Reporting Measures, do not constitute Incentive-Based Compensation.
•
"Restatement Date” means the earlier to occur of (i) the date the Board or the Committee (or an officer or officers of the Company authorized to take such
action if Board action is not required) concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement and
(ii) the date a court, regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement.
Section 4. Exceptions to Recovery
Notwithstanding the foregoing, the Company is not required to recover Erroneously Awarded Compensation to the extent that the Committee has made a determination
that recovery would be impracticable and that:
(i) the direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered (provided, that, before concluding that it would
be impracticable to recover based on the expense of enforcement, the Company must make a reasonable attempt to recover such Erroneously Awarded
Compensation and must document such attempts and provide such documentation has to the Nasdaq Stock Market);
(ii) recovery would violate one or more laws of the home country that were adopted prior to November 28, 2022 (provided, that, before concluding that it would be
impracticable to recover based on violation of home country law, the Company must obtain an opinion of home country counsel, acceptable to the Nasdaq Stock
Market, that recovery would result in a such a violation and provide a copy of such opinion to the Nasdaq Stock Market);
(iii) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company and its
subsidiaries, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder; or
(iv) any other exception permitted under Rule 5608 of the Nasdaq Listing Rules.
Section 5. No Right to Indemnification or Insurance
The Company shall not indemnify any Executive Officer against the loss of Erroneously Awarded Compensation or losses arising from any claims relating to the
Company’s enforcement of this Policy. In addition, the Company shall not pay, or reimburse any Executive Officer for, any premiums for a third-party insurance policy
purchased by the Executive Officer or any other party that would fund any of the Executive Officer’s potential recovery obligations under this Policy.
Section 6. Award Agreements and Plan Documents
The Committee further directs the Company to include clawback language in each of the Company’s incentive compensation plans such that each individual who
receives Incentive-Based Compensation under those plans understands and agrees that all or any portion of such Incentive-Based Compensation may be subject to
recovery by the Company, and such individual may be required to repay all or any portion of such Incentive-Based Compensation, if (i) recovery of such Incentive-
Based Compensation is required by this Policy, (ii) such Incentive-Based Compensation is determined to be based on materially inaccurate financial and/or performance
information (which includes, but is not limited to, statements of earnings, revenues or gains); or (iii) repayment of such Incentive-Based Compensation is required by
applicable federal or state securities and/or banking laws.
Section 7. Interpretation and Amendment of this Policy
The Committee, in its discretion, shall have the sole authority to interpret and make any determinations regarding this Policy. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. The determination of the Committee need not be uniform with
respect to one or more officers. The Committee may amend this Policy from time to time in its discretion and shall amend the Policy to comply applicable law or with
any rules or standards adopted by the Nasdaq Stock Market or any national securities exchange on which the Company’s securities are then listed. The Committee
may terminate this Policy at any time.
Section 8. Other Recoupment Rights.
The Company intends that this Policy will be applied to the fullest extent of the law. Any right of recoupment under this Policy is in addition to, and not in lieu of, any
other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award
agreement, or similar agreement and any other remedies available to the Company under applicable law. Without by implication limiting the foregoing, following a
restatement of the Company’s financial statements, the Company also shall be entitled to recover any compensation received by the Chief Executive Officer and Chie
Financial Officer that is required to be recovered by Section 304 of the Sarbanes-Oxley Act of 2002.