Edgar Filing: Fossil Group, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 4, 2015

o 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: 000-19848

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)

(972) 234-2525

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock outstanding as of August 6, 2015: 48,146,973

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

IN THOUSANDS

	July 4,			January 3,
	2015			2015
Assets
Current assets:
Cash and cash equivalents	$	249,864		$	276,261
Accounts receivable - net of allowances of $61,773 and $80,047, respectively	254,517			430,498
Inventories	669,334			597,281
Deferred income tax assets-net	34,833			34,084
Prepaid expenses and other current assets	157,791			151,730
Total current assets	1,366,339			1,489,854

Property, plant and equipment - net of accumulated depreciation of $377,782 and $360,191, respectively	329,160			345,606
Goodwill	197,741			197,728
Intangible and other assets-net	166,201			174,364
Total long-term assets	693,102			717,698
Total assets	$	2,059,441		$	2,207,552

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	161,380		$	159,267
Short-term and current portion of long-term debt	20,288			16,646
Accrued expenses:
Compensation	59,593			50,776
Royalties	21,224			54,013
Co-op advertising	17,504			28,591
Transaction taxes	15,552			35,301
Other	71,068			75,609
Income taxes payable	15,301			26,626
Total current liabilities	381,910			446,829

Long-term income taxes payable	13,540			16,610
Deferred income tax liabilities	87,395			87,860
Long-term debt	674,445			613,659
Other long-term liabilities	57,749			58,793
Total long-term liabilities	833,129			776,922

Commitments and contingencies (Note 13)

Stockholders’ equity:
Common stock, 48,291 and 50,771 shares issued and outstanding at July 4, 2015 and January 3, 2015, respectively	483			508
Additional paid-in capital	178,633			171,669
Retained earnings	698,372			822,093
Accumulated other comprehensive income (loss)	(44,542		)	(16,410		)
Total Fossil Group, Inc. stockholders’ equity	832,946			977,860
Noncontrolling interest	11,456			5,941
Total stockholders’ equity	844,402			983,801
Total liabilities and stockholders’ equity	$	2,059,441		$	2,207,552

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

UNAUDITED

IN THOUSANDS, EXCEPT PER SHARE DATA

	For the 13			For the 13			For the 26			For the 27
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	July 4, 2015			July 5, 2014			July 4, 2015			July 5, 2014
Net sales	$	739,975		$	773,820		$	1,465,060		$	1,550,365
Cost of sales	330,510			329,218			654,870			662,542
Gross profit	409,465			444,602			810,190			887,823
Operating expenses:
Selling, general and administrative expenses	332,560			359,844			665,042			698,366
Restructuring charges	6,471			0			18,559			0
Total operating expenses	339,031			359,844			683,601			698,366
Operating income	70,434			84,758			126,589			189,457
Interest expense	5,014			3,887			9,193			7,593
Other income (expense) - net	14,294			(1,097		)	21,479			(1,448		)
Income before income taxes	79,714			79,774			138,875			180,416
Provision for income taxes	22,894			24,875			41,417			56,355
Net income	56,820			54,899			97,458			124,061
Less: Net income attributable to noncontrolling interest	2,172			2,382			4,740			5,201
Net income attributable to Fossil Group, Inc.	$	54,648		$	52,517		$	92,718		$	118,860
Other comprehensive income (loss), net of taxes:
Currency translation adjustment	$	5,559		$	1,524		$	(27,947	)	$	399
Derivative instruments-net change	(246		)	(651		)	(185		)	(412		)
Pension plan activity	0			(3,293		)	0			(3,293		)
Total other comprehensive income (loss)	5,313			(2,420		)	(28,132		)	(3,306		)
Total comprehensive income	62,133			52,479			69,326			120,755
Less: Comprehensive income attributable to noncontrolling interest	2,172			2,382			4,740			5,201
Comprehensive income attributable to Fossil Group, Inc.	$	59,961		$	50,097		$	64,586		$	115,554
Earnings per share:
Basic	$	1.12		$	0.98		$	1.87		$	2.21
Diluted	$	1.12		$	0.98		$	1.87		$	2.20
Weighted average common shares outstanding:
Basic	48,634			53,494			49,464			53,821
Diluted	48,744			53,678			49,615			54,028

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

IN THOUSANDS

	For the 26			For the 27
	Weeks Ended			Weeks Ended
	July 4, 2015			July 5, 2014
Operating Activities:
Net income	$	97,458		$	124,061
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	43,650			48,978
Stock-based compensation	9,276			9,637
Decrease in allowance for returns-net of inventory in transit	(8,438		)	(3,685		)
Loss on disposal of assets	2,519			423
Impairment losses	6,602			5,501
Decrease in allowance for doubtful accounts	(2,006		)	(887		)
Excess tax benefits from stock-based compensation	(170		)	(950		)
Deferred income taxes and other	6,804			(973		)

Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	183,993			158,595
Inventories	(91,020		)	(95,426		)
Prepaid expenses and other current assets	(19,666		)	(36,280		)
Accounts payable	(1,040		)	9,377
Accrued expenses	(50,563		)	(60,033		)
Income taxes payable	(14,898		)	(2,842		)
Net cash provided by operating activities	162,501			155,496

Investing Activities:
Additions to property, plant and equipment	(32,464		)	(43,440		)
Increase in intangible and other assets	(1,400		)	(6,598		)
Skagen Designs arbitration settlement	5,968			0
Business acquisitions-net of cash acquired	(4,820		)	0
Net investment hedge settlement	0			410
Net cash used in investing activities	(32,716		)	(49,628		)

Financing Activities:
Acquisition of common stock	(218,659		)	(187,158		)
Distribution of noncontrolling interest earnings and other	(5,056		)	(5,392		)
Excess tax benefits from stock-based compensation	170			950
Debt borrowings	1,482,165			401,800
Debt payments	(1,419,161		)	(363,694		)
Proceeds from exercise of stock options	582			1,508
Net cash used in financing activities	(159,959		)	(151,986		)

Effect of exchange rate changes on cash and cash equivalents	3,777			(1,719		)

Net decrease in cash and cash equivalents	(26,397		)	(47,837		)
Cash and cash equivalents:
Beginning of period	276,261			320,479
End of period	$	249,864		$	272,642

See notes to the condensed consolidated financial statements.

FOSSIL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. FINANCIAL STATEMENT POLICIES

Basis of Presentation. The condensed consolidated financial statements include the accounts of Fossil Group, Inc., a Delaware corporation, and its wholly and majority-owned subsidiaries (the “Company”).

The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of July 4, 2015, and the results of operations for the thirteen-week periods ended July 4, 2015 (“Second Quarter”) and July 5, 2014 (“Prior Year Quarter”), respectively, and the twenty-six week period ended July 4, 2015 (“Year To Date Period”) and the twenty-seven week period ended July 5, 2014 (“Prior Year YTD Period”). All adjustments are of a normal, recurring nature. The Company’s fiscal year periodically results in a 53-week year instead of a normal 52-week year. The prior fiscal year ended January 3, 2015 was a 53-week year, with the additional week included in the first quarter of the fiscal year. Accordingly, the information presented herein includes twenty-six weeks of operations for the Year To Date Period as compared to twenty-seven weeks included in the Prior Year YTD Period.

Effective during the first quarter of the current fiscal year, the Company made changes to the presentation of its reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. The Company has realigned its operating structure. Strategic and brand directions are set centrally and regional management is now fully empowered and responsible to drive those strategies and brand directions across all brands and channels within their regions. As part of the new operating structure, the regional teams manage both the wholesale and retail businesses within their regions whereas previously the retail business was managed globally. Additionally, with the implementation of new reporting systems, the Company has the ability to extract discrete financial information that aligns with its operating structure and is consistent with how management now evaluates the business performance. The Company’s reportable segments now consist of the following: (i) Americas, (ii) Europe and (iii) Asia. Prior to the Company’s first quarter fiscal 2015 Form 10-Q, as reported in the 2014 Form 10-K (as defined below), the Company’s reportable segments consisted of the following: (i) North America wholesale, (ii) Europe wholesale, (iii) Asia Pacific wholesale and (iv) Direct to consumer.

These changes to the Company’s reportable segments include the following:

(1) Reclassification of the Company’s retail, e-commerce and catalog activities, all of which were previously recorded within the Company’s Direct to consumer segment, to the Americas, Europe and Asia segments based on the geographic location of the activities.

(2) The Company’s wholesale operations in North America, Europe and Asia Pacific previously recorded within the North America wholesale, Europe wholesale and Asia Pacific wholesale segments, respectively, have been reclassified to the Americas, Europe and Asia segments, respectively.

(3) Intercompany profit attributable to the Company’s factory operations was previously included in the Asia Pacific wholesale and Europe wholesale segments in accordance with the geographic location of the factories, and is now eliminated from all reporting segments.

(4) Certain corporate costs are not allocated to the various segments because they are managed at the corporate level for internal purposes. Prior to the change in reporting segments, these expenses included, and after the change in reporting segments, continue to include, general corporate expenses, including certain administrative, legal, accounting, technology support costs, equity compensation costs and payroll costs attributable to executive management. Additionally, certain brand management, product development, art, creative/product design, marketing and back office supply chain expenses which were previously included in North America wholesale, Europe wholesale, Asia Pacific wholesale and Direct to consumer segments prior to the change in reporting segments are now reported in corporate. Conversely, certain back office costs reported in corporate prior to the change in reporting segments are now included in the various reporting segments in which they are now managed.

The Company’s historical segment disclosures have been recast to be consistent with the current presentation.

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the fiscal year ended January 3, 2015 (the “2014 Form 10-K”). Operating results for the Second Quarter and Year To Date Period are not necessarily indicative of the results to be achieved for the full fiscal year.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 2014 Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

Business. The Company is a global design, marketing and distribution company that specializes in consumer fashion accessories. Its principal offerings include an extensive line of men’s and women’s fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, soft accessories and select apparel. In the watch and jewelry product categories, the Company has a diverse portfolio of globally recognized owned and licensed brand names under which its products are marketed. The Company’s products are distributed globally through various distribution channels, including wholesale in countries where it has a physical presence, direct to the consumer through its retail stores and commercial websites and through third-party distributors in countries where the Company does not maintain a physical presence. The Company’s products are offered at varying price points to meet the needs of its customers, whether they are value-conscious or luxury oriented. Based on its extensive range of accessory products, brands, distribution channels and price points, the Company is able to target style-conscious consumers across a wide age spectrum on a global basis.

Hedging Instruments. The Company is exposed to certain market risks relating to foreign exchange rates and interest rates. The Company actively monitors and attempts to manage these exposures using derivative instruments including foreign currency forward contracts and interest rate swaps. The Company’s foreign subsidiaries periodically enter into foreign exchange forward contracts to hedge the future payment of intercompany inventory transactions denominated in U.S. dollars. If the Company was to settle its euro, British pound, Canadian dollar, Japanese yen, Australian dollar and Mexican peso forward contracts as of July 4, 2015, the net result would have been a net gain of approximately $14.6 million, net of taxes. To help protect against adverse existing and forecasted fluctuations in interest rates, the Company has entered into interest rate swap agreements to effectively convert portions of its existing and forecasted variable rate debt obligations to fixed rates. To reduce exposure to changes in currency exchange rates adversely affecting the Company’s investment in a euro-denominated subsidiary, the Company entered into a forward contract designated as a net investment hedge that was settled during the Prior Year Quarter. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. See “Note 10—Derivatives and Risk Management” for additional disclosures about the Company’s use of derivatives.

Operating expenses. Operating expenses include selling, general and administrative expenses (“SG&A”) 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 “back office” or 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 the Company’s infrastructure and store closures. See “Note 15—Restructuring” for additional information on the Company’s restructuring plan.

Earnings Per Share (“EPS”). Basic EPS is based on the weighted average number of common shares outstanding during each period. Diluted EPS adjusts basic EPS for the effects of dilutive common stock equivalents outstanding during each period using the treasury stock method.

The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS (in thousands, except per share data):

	For the 13		For the 13		For the 26		For the 27
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	July 4, 2015		July 5, 2014		July 4, 2015		July 5, 2014

Numerator:
Net income attributable to Fossil Group, Inc	$	54,648	$	52,517	$	92,718	$	118,860

Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	48,634		53,494		49,464		53,821
Basic EPS	$	1.12	$	0.98	$	1.87	$	2.21

Diluted EPS computation:
Basic weighted average common shares outstanding	48,634		53,494		49,464		53,821
Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units	110		184		151		207
Diluted weighted average common shares outstanding	48,744		53,678		49,615		54,028
Diluted EPS	$	1.12	$	0.98	$	1.87	$	2.20

Approximately 569,000, 400,000, 334,000 and 302,000 weighted average common shares issuable under stock-based awards were not included in the diluted EPS calculation at the end of the Second Quarter, Year To Date Period, Prior Year Quarter and Prior Year YTD Period, respectively, because they were antidilutive.

Recently Issued Accounting Standards. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In April 2015, FASB issued ASU 2015-04, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets (“ASU 2015-04”). ASU 2015-04 provides an entity with a fiscal year-end that does not coincide with a month-end a practical expedient that allows the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. If an entity has a significant event in an interim period that requires the remeasurement of defined benefit plan assets and obligations such as a partial settlement, ASU 2015-04 also provides a practical expedient that permits the entity to remeasure defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event and adjust for any effects of the significant event not captured in the month-end measurement. If an entity applies the practical expedient and a contribution is made between the month-end date used for measurement and the entity’s fiscal year-end, the entity should disclose the amount of the contribution to allow reconciliation of the fair value of plan assets in the fair value hierarchy to the ending balance of the fair value of plan assets. ASU 2015-04 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In April 2015, FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In January 2015, FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), to provide guidance on management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or financial position.

In June 2014, FASB issued ASU 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires that a performance target, that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the effect of adopting ASU 2014-12, but does not expect that adoption will have a material impact on the Company’s consolidated results of operations or financial position.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, FASB deferred the effective date of ASU 2014-09. The new revenue standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and allows either a full retrospective adoption to all periods presented or a modified retrospective adoption approach with the cumulative effect of initial application of the revised guidance recognized at the date of initial application. Early adoption is permitted for periods beginning after December 15, 2016. The Company is evaluating the effect of adopting ASU 2014-09, but does not expect that adoption will have a material impact on the Company’s consolidated results of operations or financial position.

Recently Adopted Accounting Standards. In accordance with U.S. GAAP, the following provision, which had no material impact on the Company’s financial position, results of operations or cash flows, was adopted effective the first quarter of fiscal year 2015: ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

2. ACQUISITION AND GOODWILL

Fossil Accessories South Africa Acquisition. On February 1, 2015, the Company closed a share purchase agreement with S. Keren Watch Group (“SKWG”), pursuant to which the Company acquired 51% ownership in the Cape Town, South Africa-based distributor for approximately $4.8 million in cash, net of cash acquired and including working capital adjustments (the “SKWG Acquisition”). SKWG had been a distribution partner for the Company for over 23 years, representing all Fossil brands and most of the Company’s licensed brands in South Africa. Upon closing of the share purchase, SKWG was renamed Fossil Accessories South Africa Pty, Ltd. The Company recorded $4.5 million of goodwill related to the acquisition.

Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The changes in the carrying amount of goodwill, which is not subject to amortization, were as follows (in thousands):

	Americas			Europe			Asia		Total
Balance at January 3, 2015	$	119,438		$	66,433		$	11,857	$	197,728
Acquisitions	0			4,487			0		4,487
Foreign currency changes	(102		)	(4,413		)	41		(4,474		)
Balance at July 4, 2015	$	119,336		$	66,507		$	11,898	$	197,741

3. INVENTORIES

Inventories consisted of the following (in thousands):

	July 4,		January 3,
	2015		2015

Components and parts	$	58,942	$	48,797
Work-in-process	9,352		13,719
Finished goods	601,040		534,765
Inventories	$	669,334	$	597,281

4. WARRANTY LIABILITIES

The Company’s warranty liability is recorded in accrued expenses-other in the Company’s condensed consolidated balance sheets. Warranty liability activity consisted of the following (in thousands):

	For the 26			For the 27
	Weeks Ended			Weeks Ended
	July 4, 2015			July 5, 2014
Beginning balance	$	13,500		$	15,658
Settlements in cash or kind	(4,019		)	(5,576		)
Warranties issued and adjustments to preexisting warranties (1)	4,038			5,925
Liabilities assumed in acquisition	44			0
Ending balance	$	13,563		$	16,007

(1) Changes in cost estimates related to preexisting warranties are aggregated with accruals for new standard warranties issued and foreign currency changes.

5. INCOME TAXES

The Company’s income tax expense and related effective rate were as follows (in thousands, except percentage data):

	For the 13			For the 13			For the 26			For the 27
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	July 4, 2015			July 5, 2014			July 4, 2015			July 5, 2014
Income tax expense	$	22,894		$	24,875		$	41,417		$	56,355
Income tax rate	28.7		%	31.2		%	29.8		%	31.2		%

The lower effective tax rates in the Second Quarter and the Year to Date Period, as compared to the Prior Year Quarter and Prior Year YTD Period, respectively, was primarily attributable to the recognition of income tax benefits due to the settlement of audits.

As of July 4, 2015, the total amount of unrecognized tax benefits, excluding interest and penalties, was $13.1 million, of which $10.3 million would favorably impact the effective tax rate in future periods, if recognized. During the Second Quarter, the U.S. Internal Revenue Service closed its examination of the Company’s 2010-2012 federal income tax returns, and the Company expects a refund of $2.2 million, which is recorded in prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. The Company is subject to examinations in various state and foreign jurisdictions for its 2007-2013 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 of the condensed consolidated balance sheet date. As of July 4, 2015, the Company had recorded $1.7 million of unrecognized tax benefits, excluding interest and penalties, for positions that are expected to be settled 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 and penalties included in the condensed consolidated balance sheets at July 4, 2015 was $1.7 million and $0.4 million, respectively. For the Second Quarter and Year To Date Period, the Company accrued income tax-related interest expense of $0.2 million and $0.4 million, respectively.

6. STOCKHOLDERS’ EQUITY

Common Stock Repurchase Programs. Purchases of the Company’s common stock are 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. The Company may terminate or limit its stock repurchase program at any time. In the event the repurchased shares are cancelled, 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 are conducted pursuant to Rule 10b-18 of the Securities Exchange Act of 1934.

During the Year To Date Period, the Company effectively retired 2.5 million shares of common stock repurchased under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by approximately $25,500, additional paid-in capital by $0.6 million, retained earnings by $216.4 million and treasury stock by $217.0 million. At January 3, 2015 and July 4, 2015, all treasury stock had been effectively retired. As of July 4, 2015, the Company had $841.7 million of repurchase authorizations remaining under its combined repurchase programs.

The following tables reflect the Company’s common stock repurchase activity for the periods indicated (in millions):

				For the 13 Weeks Ended			For the 13 Weeks Ended
				July 4, 2015			July 5, 2014
Fiscal Year Authorized	Dollar Value Authorized		Termination Date	Number of Shares Repurchased	Dollar Value Repurchased		Number of Shares Repurchased	Dollar Value Repurchased
2014	$	1,000.0	December 2018	1.3	$	102.5	0.0	$	0.0
2012	$	1,000.0	December 2016 (1)	0.0	$	0.0	0.6	$	67.3
2010	$	30.0	None	0.0	$	0.0	0.0	$	0.0

				For the 26 Weeks Ended			For the 27 Weeks Ended
				July 4, 2015			July 5, 2014
Fiscal Year Authorized	Dollar Value Authorized		Termination Date	Number of Shares Repurchased	Dollar Value Repurchased		Number of Shares Repurchased	Dollar Value Repurchased
2014	$	1,000.0	December 2018	2.2	$	188.2	0.0	$	0.0
2012	$	1,000.0	December 2016 (1)	0.3	$	28.8	1.6	$	184.6
2010	$	30.0	None	0.0	$	0.0	0.0	$	0.0

(1) In the first quarter of fiscal year 2015, the Company completed this repurchase plan.

Controlling and Noncontrolling Interest. The following tables summarize the changes in equity attributable to controlling and noncontrolling interest (in thousands):

	Fossil Group, Inc.						Total
	Stockholders’			Noncontrolling			Stockholders’
	Equity			Interest			Equity
Balance at January 3, 2015	$	977,860		$	5,941		$	983,801
Net income	92,718			4,740			97,458
Currency translation adjustment	(27,947		)	0			(27,947		)
Derivative instruments-net change	(185		)	0			(185		)
Common stock issued upon exercise of stock options	582			0			582
Tax expense derived from stock-based compensation	(699		)	0			(699		)
Distribution of noncontrolling interest earnings	0			(5,056		)	(5,056		)
Business acquisition	0			5,831			5,831
Acquisition of common stock	(218,659		)	0			(218,659		)
Stock-based compensation expense	9,276			0			9,276
Balance at July 4, 2015	$	832,946		$	11,456		$	844,402

	Fossil Group, Inc.						Total
	Stockholders’			Noncontrolling			Stockholders’
	Equity			Interest			Equity
Balance at December 28, 2013	$	1,068,677		$	6,690		$	1,075,367
Net income	118,860			5,201			124,061
Currency translation adjustment	399			0			399
Derivative instruments-net change	(412		)	0			(412		)
Common stock issued upon exercise of stock options	1,508			0			1,508
Tax benefit derived from stock-based compensation	950			0			950
Distribution of noncontrolling interest earnings and other.	0			(5,392		)	(5,392		)
Pension plan activity	(3,293		)	0			(3,293		)
Acquisition of common stock	(187,158		)	0			(187,158		)
Stock-based compensation expense	9,637			0			9,637
Balance at July 5, 2014	$	1,009,168		$	6,499		$	1,015,667

7. EMPLOYEE BENEFIT PLANS

Stock-Based Compensation Plans. The following table summarizes stock options and stock appreciation rights activity during the Second Quarter:

					Weighted-
					Average
			Weighted-		Remaining	Aggregate
			Average		Contractual	Intrinsic
Stock Options and Stock Appreciation Rights	Shares		Exercise Price		Term	Value
	(in Thousands)				(in Years)	(in Thousands)

Outstanding at April 4, 2015	775		$	84.93	5.8	$	10,714
Granted	0
Exercised	(7	)	41.30			244
Forfeited or expired	(24	)	98.15
Outstanding at July 4, 2015	744		84.94		5.5	7,667
Exercisable at July 4, 2015	540		$	83.20	4.8	$	7,664

The aggregate intrinsic value shown in the table above is before income taxes and is based on (i) the exercise price for outstanding and exercisable options/rights at July 4, 2015 and (ii) the fair market value of the Company’s common stock on the exercise date for options/rights that were exercised during the Second Quarter.

Stock Options and Stock Appreciation Rights Outstanding and Exercisable. The following tables summarize information with respect to stock options and stock appreciation rights outstanding and exercisable at July 4, 2015:

Stock Options Outstanding					Stock Options Exercisable
				Weighted-
		Weighted-		Average		Weighted-
		Average		Remaining		Average
Range of	Number of	Exercise		Contractual	Number of	Exercise
Exercise Prices	Shares	Price		Term	Shares	Price
	(in Thousands)			(in Years)	(in Thousands)

$13.65 - $21.51	51	$	15.13	3.0	51	$	15.13
$30.71 - $67.10	93	36.32		3.5	93	36.32
$69.53 - $106.40	96	80.86		5.6	94	80.79
$106.89 - $131.46	165	128.10		6.2	165	128.10
Total	405	$	81.56	5.0	403	$	81.55

Stock Appreciation Rights Outstanding					Stock Appreciation Rights Exercisable
				Weighted-
		Weighted-		Average		Weighted-
		Average		Remaining		Average
Range of	Number of	Exercise		Contractual	Number of	Exercise
Exercise Prices	Shares	Price		Term	Shares	Price
	(in Thousands)			(in Years)	(in Thousands)

$13.65 - $21.51	17	$	13.65	1.7	17	$	13.65
$30.71 - $67.10	17	40.16		2.4	17	38.71
$69.53 - $106.40	197	84.25		6.9	43	90.35
$106.89 - $131.46	108	117.73		6.0	60	121.69
Total	339	$	88.98	6.1	137	$	88.08

Restricted Stock, Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock, restricted stock unit and performance restricted stock unit activity during the Second Quarter:

			Weighted-Average
Restricted Stock, Restricted Stock Units			Grant Date Fair
and Performance Restricted Stock Units	Number of Shares		Value
	(in Thousands)

Nonvested at April 4, 2015	446		$	90.39
Granted	23		79.23
Vested	(16	)	103.84
Forfeited	(16	)	92.96
Nonvested at July 4, 2015	437		$	89.22

The total fair value of restricted stock and restricted stock units vested during the Second Quarter was approximately $1.3 million. Vesting of performance restricted stock units is based on achievement of sales growth and operating margin targets in relation to the performance of a certain identified peer group.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables illustrate changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):

	For the 13 Weeks Ended July 4, 2015
	Currency			Cash Flow Hedges
	Translation			Forward			Interest			Pension
	Adjustments			Contracts			Rate Swaps			Plan			Total
Beginning balance	$	(60,747	)	$	19,315		$	(4,776	)	$	(3,647	)	$	(49,855	)
Other comprehensive income (loss) before reclassifications	5,559			2,701			10,460			0			18,720
Tax (expense) benefit	0			253			(3,812		)	0			(3,559		)
Amounts reclassed from accumulated other comprehensive income	0			10,555			4,604			0			15,159
Tax (expense) benefit	0			(3,634		)	(1,677		)	0			(5,311		)
Total other comprehensive income (loss)	5,559			(3,967		)	3,721			0			5,313
Ending balance	$	(55,188	)	$	15,348		$	(1,055	)	$	(3,647	)	$	(44,542	)

	For the 13 Weeks Ended July 5, 2014
	Currency		Cash Flow Hedges									Net
	Translation Adjustments		Forward Contracts			Interest Rate Swap			Pension Plan			Investment Hedges			Total
Beginning balance	$	37,027	$	(1,941	)	$	(179	)	$	736		$	162		$	35,805
Other comprehensive income (loss) before reclassifications	1,524		(1,834		)	(912		)	(2,946		)	155			(4,013		)
Tax (expense) benefit	0		195			333			(347		)	(60		)	121
Amounts reclassed from accumulated other comprehensive income	0		(1,570		)	(691		)	0			0			(2,261		)
Tax (expense) benefit	0		537			252			0			0			789
Total other comprehensive income (loss)	1,524		(606		)	(140		)	(3,293		)	95			(2,420		)
Ending balance	$	38,551	$	(2,547	)	$	(319	)	$	(2,557	)	$	257		$	33,385

	For the 26 Weeks Ended July 4, 2015
	Currency			Cash Flow Hedges
	Translation Adjustments			Forward Contracts			Interest Rate Swaps			Pension Plan			Total
Beginning balance	$	(27,241	)	$	14,980		$	(502	)	$	(3,647	)	$	(16,410	)
Other comprehensive income (loss) before reclassifications	(27,947		)	21,462			3,054			0			(3,431		)
Tax (expense) benefit	0			(5,965		)	(1,113		)	0			(7,078		)
Amounts reclassed from accumulated other comprehensive income	0			22,993			3,923			0			26,916
Tax (expense) benefit	0			(7,864		)	(1,429		)	0			(9,293		)
Total other comprehensive income (loss)	(27,947		)	368			(553		)	0			(28,132		)
Ending balance	$	(55,188	)	$	15,348		$	(1,055	)	$	(3,647	)	$	(44,542	)

	For the 27 Weeks Ended July 5, 2014
	Currency		Cash Flow Hedges									Net
	Translation Adjustments		Forward Contracts			Interest Rate Swap			Pension Plan			Investment Hedges			Total
Beginning balance	$	38,152	$	(2,091	)	$	(106	)	$	736		$	0		$	36,691
Other comprehensive income (loss) before reclassifications	399		(2,100		)	(1,760		)	(2,946		)	410			(5,997		)
Tax (expense) benefit	0		113			643			(347		)	(153		)	256
Amounts reclassed from accumulated other comprehensive income	0		(2,399		)	(1,424		)	0			0			(3,823		)
Tax (expense) benefit	0		868			520			0			0			1,388
Total other comprehensive income (loss)	399		(456		)	(213		)	(3,293		)	257			(3,306		)
Ending balance	$	38,551	$	(2,547	)	$	(319	)	$	(2,557	)	$	257		$	33,385

See “Note 10—Derivatives and Risk Management” for additional disclosures about the Company’s use of derivatives.

9. SEGMENT INFORMATION

The Company reports 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.

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, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan 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. Net sales for geographic segments are based on the location of the selling entity. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. 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 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.

Certain reclassifications have been made to prior year amounts to conform with current year presentation. Due to changes in the Company’s reportable segments as discussed in Note 1 to the condensed consolidated financial statements, segment results for fiscal year 2014 have been recast to present results on a comparable basis.

Summary information by operating segment was as follows (in thousands):

	For the 13 Weeks Ended					For the 13 Weeks Ended
	July 4, 2015					July 5, 2014
	Net Sales		Operating Income			Net Sales		Operating Income

Americas	$	386,088	$	86,033		$	380,699	$	88,786
Europe	227,923		41,814			258,987		46,770
Asia	125,964		20,555			134,134		27,172
Corporate			(77,968		)			(77,970		)
Consolidated	$	739,975	$	70,434		$	773,820	$	84,758

	For the 26 Weeks Ended					For the 27 Weeks Ended
	July 4, 2015					July 5, 2014
	Net Sales		Operating Income			Net Sales		Operating Income

Americas	$	752,684	$	162,533		$	763,360	$	187,856
Europe	462,179		79,152			519,340		99,278
Asia	250,197		41,051			267,665		58,070
Corporate			(156,147		)			(155,747		)
Consolidated	$	1,465,060	$	126,589		$	1,550,365	$	189,457

	July 4, 2015				January 3, 2015
	Long-Term Assets		Total Assets		Long-Term Assets		Total Assets

Americas	$	262,507	$	772,618	$	263,324	$	809,548
Europe	202,586		488,965		220,742		561,486
Asia	54,993		213,381		57,508		233,881
Corporate	173,016		584,477		176,124		602,637
Total	$	693,102	$	2,059,441	$	717,698	$	2,207,552

The following tables reflect net sales for each class of similar products in the periods presented (in thousands, except percentage data):

	For the 13 Weeks Ended				For the 13 Weeks Ended
	July 4, 2015				July 5, 2014
	Net Sales		Percentage of Total		Net Sales		Percentage of Total

Watches	$	575,804	77.8	%	$	611,208	79.0	%
Leathers	89,380		12.1		87,325		11.3
Jewelry	55,780		7.5		56,183		7.2
Other	19,011		2.6		19,104		2.5
Total	$	739,975	100.0	%	$	773,820	100.0	%

	For the 26 Weeks Ended				For the 27 Weeks Ended
	July 4, 2015				July 5, 2014
	Net Sales		Percentage of Total		Net Sales		Percentage of Total

Watches	$	1,127,661	77.0	%	$	1,212,596	78.2	%
Leathers	182,306		12.4		187,047		12.1
Jewelry	118,767		8.1		112,701		7.3
Other	36,326		2.5		38,021		2.4
Total	$	1,465,060	100.0	%	$	1,550,365	100.0	%

10. 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 enters into foreign currency forward contracts (“forward contracts”) generally for up to 85% of the forecasted purchases to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. 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 intercompany 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.

These forward contracts meet the criteria for hedge accounting, which requires that they represent foreign-currency-denominated forecasted inter-entity transactions in which (i) the operating unit that has the foreign currency exposure is a party to the hedging instrument and (ii) the hedged transaction is denominated in a currency other than the hedging unit’s functional currency.

At the inception of each forward contract designated as a cash flow hedge, the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk. The Company assesses hedge effectiveness under the critical terms matched method at inception and at least quarterly throughout the life of the hedging relationship. If the critical terms (i.e., amounts, currencies and settlement dates) of the forward contract match the terms of the forecasted transaction, the Company concludes that the hedge is effective.

For a derivative instrument that is designated and qualifies as a cash flow hedge, the effective portion of 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. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, the Company’s hedges resulted in no ineffectiveness in the condensed consolidated statements of income and comprehensive income, and there were no components excluded from the assessment of hedge effectiveness for the Second Quarter, Prior Year Quarter, Year To Date Period or Prior Year YTD Period.

All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets. Derivatives designated as cash flow hedges are recorded at fair value at each balance sheet date and the change in fair value is recorded to accumulated other comprehensive income (loss) within the equity section of the Company’s condensed consolidated balance sheet until such derivative’s gains or losses become realized or the cash flow hedge relationship is terminated. If the cash flow hedge relationship is terminated, the derivative’s gains or losses that are recorded in accumulated other comprehensive income (loss) will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, the derivative’s gains or losses are immediately recognized in earnings. There were no gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges in the Second Quarter, Prior Year Quarter, Year To Date Period or Prior Year YTD Period. Hedge accounting is discontinued if it is determined that the derivative is not highly effective. The Company records all forward contract hedge assets and liabilities on a gross basis as they do not meet the balance sheet netting criteria because the Company does not have master netting agreements established with the derivative counterparties that would allow for net settlement.

As of July 4, 2015, 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	209.3	U.S. dollar	250.2
British pound	41.9	U.S. dollar	65.9
Canadian dollar	51.5	U.S. dollar	42.9
Japanese yen	3,788.1	U.S. dollar	32.7
Mexican peso	306.6	U.S. dollar	19.9
Australian dollar	19.0	U.S. dollar	14.7

The Company is also exposed to interest rate risk related to its outstanding debt. To manage the interest rate risk related to its $231.3 million U.S.-based term loan, as amended and restated on March 9, 2015 (“Term Loan”), the Company entered into an interest rate swap agreement on July 26, 2013 with a term of approximately five years. The objective of this hedge is to offset the variability of future payments associated with interest rates on the Term Loan. The interest rate swap agreement hedges the 1-month London Interbank Offer Rate (“LIBOR”) based variable rate debt obligations under the Term Loan. Under the terms of the swap, the Company pays a fixed interest rate of 1.288% per annum to the swap counterparty plus the LIBOR rate applicable margin (which varies based upon the Company’s consolidated leverage ratio (the “Ratio”) from 1.25% if the Ratio is less than 1.00 to 1.00, to 2.00% if the Ratio is greater than or equal to 2.00 to 1.00). The notional amount will amortize over the remaining life of the Term Loan to coincide with the amortization of the underlying loan. The Company will receive interest from the swap counterparty at a variable rate based on 1-month LIBOR. This hedge is designated as a cash flow hedge. Additionally, to manage interest rate risk related to forecasted debt issuances, the Company entered into a forward starting interest rate swap agreement on March 20, 2015 with a term of approximately 10 years. The objective of this hedge was to offset the variability of future interest payments associated with forecasted debt issuances. The forecasted debt issuances did not occur, and in May 2015, the Company entered into an agreement to offset and unwind the forward starting interest rate swap. As a result of this transaction, a gain of $3.3 million net of taxes was reclassed out of accumulated other comprehensive income (loss) to other income (expense).

Net Investment Hedge. The Company is also exposed to risk that adverse changes in foreign currency exchange rates could impact its net investment in foreign operations. To manage this risk, during the first quarter of fiscal year 2014, the Company entered into a forward contract designated as a net investment hedge to reduce exposure to changes in currency exchange rates on €25.0 million of its total investment in a wholly-owned euro-denominated foreign subsidiary. The hedge was settled in the Prior Year Quarter. The effective portion of derivatives designated as net investment hedges are recorded at fair value at each balance sheet date and the change in fair value is recorded as a component of other comprehensive income (loss) in the Company’s condensed consolidated statements of income and comprehensive income. The Company uses the hypothetical derivative method to assess the ineffectiveness of net investment hedges. Should any portion of a net investment hedge become ineffective, the ineffective portion will be reclassified to other income-net on the Company’s condensed consolidated statements of income and comprehensive income. Gains and losses reported in accumulated other comprehensive income (loss) will not be reclassified into earnings until the Company’s underlying investment is liquidated or dissolved.

Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain non-inventory intercompany transactions and to which the Company does not elect hedge treatment. As of July 4, 2015, the Company had approximately $0.1 million in assets of outstanding forward exchange contracts acquired as part of the SKWG Acquisition, for which the Company did not elect hedge treatment. As of January 3, 2015, all of the Company’s outstanding forward contracts were designated as hedging instruments. 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 derivative instruments that were recognized in other comprehensive income (loss), net of taxes during the Second Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period are set forth below (in thousands):

	For the 13		For the 13
	Weeks Ended		Weeks Ended
	July 4, 2015		July 5, 2014
Cash flow hedges:
Forward contracts	$	2,954	$	(1,639	)
Interest rate swaps	6,648		(579		)
Net investment hedge:
Forward contract	0		95
Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	9,602	$	(2,123	)

	For the 26		For the 27
	Weeks Ended		Weeks Ended
	July 4, 2015		July 5, 2014
Cash flow hedges:
Forward contracts	$	15,497	$	(1,987	)
Interest rate swaps	1,941		(1,117		)
Net investment hedge:
Forward contract	0		257
Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	17,438	$	(2,847	)

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 the Second Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period (in thousands):

	Condensed Consolidated
	Statements of Income		For the 13			For the 13
	and Comprehensive	Effect of Derivative	Weeks Ended			Weeks Ended
Derivative Instruments	Income Location	Instruments	July 4, 2015			July 5, 2014

Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from other comprehensive income (loss)	$	6,921		$	(1,033	)

Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	(9	)	0

Interest rate swap designated as a cash flow hedging instrument	Interest expense	Total gain (loss) reclassified from other comprehensive income (loss)	$	(404	)	$	(439	)

Interest rate swap designated as a cash flow hedging instrument	Other income (expense)-net	Total gain (loss) reclassified from other comprehensive income (loss)	$	3,331		0

	Condensed Consolidated
	Statements of Income		For the 26			For the 27
	and Comprehensive	Effect of Derivative	Weeks Ended			Weeks Ended
Derivative Instruments	Income Location	Instruments	July 4, 2015			July 5, 2014

Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from other comprehensive income (loss)	$	15,129		$	(1,531	)

Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	80		$	(148	)

Interest rate swap designated as a cash flow hedging instrument	Interest expense	Total gain (loss) reclassified from other comprehensive income (loss)	$	(837	)	$	(904	)

Interest rate swap designated as a cash flow hedging instrument	Other income (expense)-net	Total gain (loss) reclassified from other comprehensive income (loss)	$	3,331		0

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 condensed consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included (in thousands):

Asset Derivatives

Liability Derivatives

July 4, 2015

January 3, 2015

July 4, 2015

January 3, 2015

Condensed

Consolidated

Balance Sheets

Fair

Balance Sheets

Fair

Balance Sheets

Fair

Balance Sheets

Fair

Derivative Instruments

Location

Value

Location

Value

Location

Value

Location

Value

Forward contracts designated as cash flow hedging instruments