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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________________________ 
FORM 10-Q 
__________________________________________________________________
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: October 2, 2021
 
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: 000-19848 
__________________________________________________________________ 
FOSL-20211002_G1.GIF
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) 
__________________________________________________________________ 
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, par value $0.01 per share FOSL The Nasdaq Stock Market LLC
7.00% Senior Notes due 2026 FOSLL The Nasdaq Stock Market LLC
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  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  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 (check one):
Large accelerated filer   Accelerated filer
     
Non-accelerated filer   Smaller reporting company
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 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No 

The number of shares of the registrant’s common stock outstanding as of November 4, 2021: 52,145,738



FOSSIL GROUP, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 2, 2021
INDEX
    Page
4
4
5
6
8
9





PART I—FINANCIAL INFORMATION

Item 1. Financial Statements
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
IN THOUSANDS
October 2, 2021 January 2, 2021
Assets    
Current assets:    
Cash and cash equivalents $ 181,782  $ 315,965 
Accounts receivable - net of allowances for doubtful accounts of $16,447 and $20,774, respectively
251,496  229,847 
Inventories 398,324  295,296 
Prepaid expenses and other current assets 155,848  149,367 
Total current assets 987,450  990,475 
Property, plant and equipment - net of accumulated depreciation of $453,178 and $467,174, respectively
92,771  114,026 
Operating lease right-of-use assets 187,952  226,815 
Intangible and other assets-net 87,788  147,189 
Total long-term assets 368,511  488,030 
Total assets $ 1,355,961  $ 1,478,505 
Liabilities and Stockholders’ Equity    
Current liabilities:    
Accounts payable $ 246,325  $ 178,212 
Short-term and current portion of long-term debt 41,205  41,561 
Accrued expenses:    
Current operating lease liabilities 57,361  64,851 
Compensation 59,385  78,085 
Royalties 31,429  27,554 
Customer liabilities 34,752  50,941 
Transaction taxes 15,903  21,271 
Other 48,609  62,846 
Income taxes payable 34,412  33,205 
Total current liabilities 569,381  558,526 
Long-term income taxes payable 20,000  19,840 
Deferred income tax liabilities 487  495 
Long-term debt 97,426  185,852 
Long-term operating lease liabilities 184,304  230,635 
Other long-term liabilities 41,463  43,125 
Total long-term liabilities 343,680  479,947 
Commitments and contingencies (Note 13)
Stockholders’ equity:    
Common stock, 52,143 and 51,474 shares issued and outstanding at October 2, 2021 and January 2, 2021, respectively
521  515 
Additional paid-in capital 298,505  293,777 
Retained earnings 209,486  203,698 
Accumulated other comprehensive income (loss) (67,586) (58,900)
Total Fossil Group, Inc. stockholders’ equity 440,926  439,090 
Noncontrolling interests 1,974  942 
Total stockholders’ equity 442,900  440,032 
Total liabilities and stockholders’ equity $ 1,355,961  $ 1,478,505 
 
See notes to the unaudited condensed consolidated financial statements.
4


FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
UNAUDITED
IN THOUSANDS, EXCEPT PER SHARE DATA
 
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020 For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Net sales $ 491,827  $ 435,492  $ 1,265,808  $ 1,085,218 
Cost of sales 232,305  205,726  601,857  574,496 
Gross profit 259,522  229,766  663,951  510,722 
Operating expenses:    
Selling, general and administrative expenses 205,718  201,987  593,522  611,210 
Trade name impairments —  —  —  2,464 
Other long-lived asset impairments 551  4,555  6,314  25,063 
Restructuring charges 5,447  5,713  18,716  25,620 
Total operating expenses 211,716  212,255  618,552  664,357 
Operating income (loss) 47,806  17,511  45,399  (153,635)
Interest expense 6,422  8,047  20,284  23,385 
Other income (expense) - net (482) —  882  (6,411)
Income (loss) before income taxes 40,902  9,464  25,997  (183,431)
Provision for income taxes 8,978  (6,759) 19,177  (91,250)
Net income (loss) 31,924  16,223  6,820  (92,181)
Less: Net income (loss) attributable to noncontrolling interests 504  236  1,032  (44)
Net income (loss) attributable to Fossil Group, Inc. $ 31,420  $ 15,987  $ 5,788  $ (92,137)
Other comprehensive income (loss), net of taxes:    
Currency translation adjustment $ (3,237) $ 11,240  $ (12,293) $ 6,544 
Cash flow hedges - net change 2,085  (3,636) 3,607  (3,092)
Total other comprehensive income (loss) (1,152) 7,604  (8,686) 3,452 
Total comprehensive income (loss) 30,772  23,827  (1,866) (88,729)
Less: Comprehensive income (loss) attributable to noncontrolling interests 504  236  1,032  (44)
Comprehensive income (loss) attributable to Fossil Group, Inc. $ 30,268  $ 23,591  $ (2,898) $ (88,685)
Earnings (loss) per share:    
Basic $ 0.60  $ 0.31  $ 0.11  $ (1.81)
Diluted $ 0.60  $ 0.31  $ 0.11  $ (1.81)
Weighted average common shares outstanding:    
Basic 52,141  51,299  51,900  51,007 
Diluted 52,766  51,754  52,738  51,007 
`
 
See notes to the unaudited condensed consolidated financial statements.
5


FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
IN THOUSANDS

For the 13 Weeks Ended October 2, 2021
  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, July 3, 2021 52,127  $ 521  $ 295,704  $ —  $ 178,066  $ (66,434) $ 407,857  $ 1,470  $ 409,327 
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units 21  —  —  —  —  —  —  —  — 
Acquisition of common stock for employee tax withholding —  —  —  (56) —  —  (56) —  (56)
Retirement of common stock (5) —  (56) 56  —  —  —  —  — 
Stock-based compensation —  —  2,857  —  —  —  2,857  —  2,857 
Net income (loss) —  —  —  —  31,420  —  31,420  504  31,924 
Other comprehensive income (loss) —  —  —  —  —  (1,152) (1,152) —  (1,152)
Balance, October 2, 2021 52,143  $ 521  $ 298,505  $ —  $ 209,486  $ (67,586) $ 440,926  $ 1,974  $ 442,900 

For the 13 Weeks Ended October 3, 2020
  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, July 4, 2020 51,293  $ 513  $ 288,641  $ —  $ 191,669  $ (84,767) $ 396,056  $ 507  $ 396,563 
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units —  —  —  —  —  —  —  — 
Acquisition of common stock for employee tax withholding —  —  —  (13) —  —  (13) —  (13)
Retirement of common stock (3) —  (13) 13  —  —  —  —  — 
Stock-based compensation —  —  3,174  —  —  —  3,174  —  3,174 
Net income (loss) —  —  —  —  15,987  —  15,987  236  16,223 
Other comprehensive income (loss) —  —  —  —  —  7,604  7,604  —  7,604 
Balance, October 3, 2020 51,299  $ 513  $ 291,802  $ —  $ 207,656  $ (77,163) $ 422,808  $ 743  $ 423,551 
For the 39 Weeks Ended October 2, 2021
  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 2, 2021 51,474  $ 515  $ 293,777  $ —  $ 203,698  $ (58,900) $ 439,090  $ 942  $ 440,032 
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units 857  (8) —  —  —  —  —  — 
Acquisition of common stock for employee tax withholding —  —  —  (2,405) —  —  (2,405) —  (2,405)
Retirement of common stock (188) (2) (2,403) 2,405  —  —  —  —  — 
Stock-based compensation —  —  7,139  —  —  —  7,139  —  7,139 
Net income (loss) —  —  —  —  5,788  —  5,788  1,032  6,820 
Other comprehensive income (loss) —  —  —  —  —  (8,686) (8,686) —  (8,686)
Balance, October 2, 2021 52,143  $ 521  $ 298,505  $ —  $ 209,486  $ (67,586) $ 440,926  $ 1,974  $ 442,900 


6


For the 40 Weeks Ended October 3, 2020
  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, December 28, 2019 50,516  $ 505  $ 283,371  $ —  $ 299,793  $ (80,615) $ 503,054  $ 787  $ 503,841 
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units 949  (9) —  —  —  —  —  — 
Acquisition of common stock for employee tax withholding —  —  —  (712) —  —  (712) —  (712)
Retirement of common stock (166) (1) (711) 712  —  —  —  —  — 
Stock-based compensation —  —  9,151  —  —  —  9,151  —  9,151 
Net income (loss) —  —  —  —  (92,137) —  (92,137) (44) (92,181)
Other comprehensive income (loss) —  —  —  —  —  3,452  3,452  —  3,452 
Balance, October 3, 2020 51,299  $ 513  $ 291,802  $ —  $ 207,656  $ (77,163) $ 422,808  $ 743  $ 423,551 

See notes to the unaudited condensed consolidated financial statements.
7



FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
IN THOUSANDS
For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Operating Activities:    
Net income (loss) $ 6,820  $ (92,181)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation, amortization and accretion 23,410  33,123 
Non-cash lease expense 68,920  83,565 
Stock-based compensation 7,139  9,152 
Decrease in allowance for returns and markdowns (11,838) (40,426)
Gain on disposal of assets (5,169) (1,456)
Property, plant and equipment and other long-lived asset impairment losses 6,322  24,890 
Trade name impairment losses —  2,464 
Non-cash restructuring charges 1,747  1,921 
Bad debt expense 961  6,956 
Other non-cash items 10,975  3,982 
Changes in operating assets and liabilities:    
Accounts receivable (25,571) 101,934 
Inventories (111,673) 94,389 
Prepaid expenses and other current assets 31,732  (17,120)
Accounts payable 70,156  40,767 
Accrued expenses (30,007) 7,540 
Income taxes 2,523  (66,919)
Operating lease liabilities (83,443) (96,722)
Net cash (used in) provided by operating activities (36,996) 95,859 
Investing Activities:    
Additions to property, plant and equipment (6,739) (7,097)
Decrease (increase) in intangible and other assets 6,903  (2,149)
Proceeds from the sale of property, plant and equipment and other 11,360  76 
Net cash provided by (used in) investing activities 11,524  (9,170)
Financing Activities:    
Acquisition of common stock for employee tax withholdings (2,405) (712)
Debt borrowings 85,182  315,224 
Debt payments (179,997) (278,845)
Debt issuance costs and other (232) (10,000)
Net cash (used in) provided by financing activities (97,452) 25,667 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (5,564) 10,981 
Net (decrease) increase in cash, cash equivalents, and restricted cash (128,488) 123,337 
Cash, cash equivalents, and restricted cash:    
Beginning of period 324,246  207,749 
End of period $ 195,758  $ 331,086 

See notes to the unaudited condensed consolidated financial statements.
8


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 Company’s fiscal year periodically results in a 53-week year instead of a normal 52-week year. The fiscal year ended January 2, 2021 was a 53-week year, with the additional week being included in the first quarter. The information presented herein includes the thirteen-week periods ended October 2, 2021 ("Third Quarter") and October 3, 2020 ("Prior Year Quarter"), respectively, and the thirty-nine week period ended October 2, 2021 ("Year To Date Period") as compared to the forty week period ended October 3, 2020 ("Prior Year YTD Period"). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of October 2, 2021, and the results of operations for the Third Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period. All adjustments are of a normal, recurring nature.
Effective during fiscal year 2021, the Company made a change to the presentation of reportable segments to include all information technology costs within its Corporate cost area. The Company's historical segment disclosures have been recast to be consistent with its 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/A filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the fiscal year ended January 2, 2021 (the “2020 Form 10-K/A”). Operating results for the Third Quarter are not necessarily indicative of the results to be achieved for the full fiscal year.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. We base our estimates on the information available at the time and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of the coronavirus (“COVID-19”) pandemic. Actual results could differ from those estimates, including the impact of the COVID-19 pandemic. The Company has not made any changes in its significant accounting policies from those disclosed in the 2020 Form 10-K/A.
Business. The Company is a global design, marketing and distribution company that specializes in consumer fashion accessories. Its principal offerings include an extensive line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts and sunglasses. In the watch and jewelry product categories, the Company has a diverse portfolio of globally recognized owned and licensed brand names under which its products are marketed. The Company's products are distributed globally through various distribution channels, including wholesale in countries where it has a physical presence, direct to the consumer through its retail stores and commercial websites and through third-party distributors in countries where the Company does not maintain a physical presence. The Company's products are offered at varying price points to meet the needs of its customers, whether they are value-conscious or luxury oriented. Based on its extensive range of accessory products, brands, distribution channels and price points, the Company is able to target style-conscious consumers across a wide age spectrum on a global basis.
Operating Expenses. Operating expenses include selling, general and administrative expenses (“SG&A”), trade name impairments, other long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of the Company’s retail stores, point-of-sale expenses, advertising expenses and art, 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 as well as store closure expenses.
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.
9


The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS (in thousands, except per share data):
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020 For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Numerator:    
Net income (loss) attributable to Fossil Group, Inc. $ 31,420  $ 15,987  $ 5,788  $ (92,137)
Denominator:      
Basic EPS computation:    
Basic weighted average common shares outstanding 52,141  51,299  51,900  51,007 
Basic EPS $ 0.60  $ 0.31  $ 0.11  $ (1.81)
Diluted EPS computation:    
Basic weighted average common shares outstanding 52,141  51,299  51,900  51,007 
Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units 625  455  838  — 
Diluted weighted average common shares outstanding 52,766  51,754  52,738  51,007 
Diluted EPS $ 0.60  $ 0.31  $ 0.11  $ (1.81)

At the end of the Third Quarter and Year To Date Period, approximately 0.3 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 12,900 weighted average performance-based shares at the end of the Third Quarter and Year To Date Period.
At the end of the Prior Year Quarter and Prior Year YTD Period, approximately 1.1 million and 2.5 million weighted average shares issuable under stock-based awards, respectively, were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 0.1 million and 0.3 million weighted average performance-based shares at the end of the Prior Year Quarter and Prior Year YTD Period, respectively. Additionally, 0.1 million weighted average performance-based shares were not included in the diluted EPS calculation at the end of the Prior Year Third Quarter because performance targets were not met.
Cash, Cash Equivalents and Restricted Cash. Restricted cash was comprised primarily of restricted cash balances for tax assessment amounts included in escrow and 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 October 2, 2021 and October 3, 2020 that are presented in the condensed consolidated statement of cash flows (in thousands):
October 2, 2021 October 3, 2020
Cash and cash equivalents $ 181,782  $ 323,560 
Restricted cash included in prepaid expenses and other current assets 118  118 
Restricted cash included in intangible and other assets-net 13,858  7,408 
Cash, cash equivalents and restricted cash $ 195,758  $ 331,086 

Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") and subsequent guidance that clarified the scope and application of its original guidance. ASU 2020-04 provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company will adopt this standard when LIBOR is discontinued and does not expect it to have a material impact on its condensed consolidated financial statements or related disclosures.
10


Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 at the beginning of the first quarter of fiscal year 2021, and it did not have a material effect on the Company's condensed consolidated financial statements.

2. REVENUE
Disaggregation of Revenue. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):
For the 13 Weeks Ended October 2, 2021
Americas Europe Asia Corporate Total
Product type
Watches $ 150,181  $ 129,797  $ 113,717  $ $ 393,703 
Leathers 23,389  7,231  5,770  —  36,390 
Jewelry 18,297  25,602  8,572  —  52,471 
Other 1,895  3,257  1,435  2,676  9,263 
Consolidated $ 193,762  $ 165,887  $ 129,494  $ 2,684  $ 491,827 
Timing of revenue recognition
Revenue recognized at a point in time $ 193,367  $ 165,598  $ 129,313  $ 1,004  $ 489,282 
Revenue recognized over time 395  289  181  1,680  2,545 
Consolidated $ 193,762  $ 165,887  $ 129,494  $ 2,684  $ 491,827 

For the 13 Weeks Ended October 3, 2020
Americas Europe Asia Corporate Total
Product type
Watches $ 142,881  $ 105,159  $ 108,503  $ 21  $ 356,564 
Leathers 22,290  8,094  7,332  —  37,716 
Jewelry 8,013  18,560  2,310  —  28,883 
Other 1,902  3,479  1,603  5,345  12,329 
Consolidated $ 175,086  $ 135,292  $ 119,748  $ 5,366  $ 435,492 
Timing of revenue recognition
Revenue recognized at a point in time $ 174,539  $ 134,976  $ 119,585  $ 3,263  $ 432,363 
Revenue recognized over time 547  316  163  2,103  3,129 
Consolidated $ 175,086  $ 135,292  $ 119,748  $ 5,366  $ 435,492 


11


For the 39 Weeks Ended October 2, 2021
Americas Europe Asia Corporate Total
Product type
Watches $ 413,368  $ 309,526  $ 290,753  $ 1,077  $ 1,014,724 
Leathers 63,851  19,933  20,057  —  103,841 
Jewelry 40,470  62,041  16,700  —  119,211 
Other 5,294  8,019  4,115  10,604  28,032 
Consolidated $ 522,983  $ 399,519  $ 331,625  $ 11,681  $ 1,265,808 
Timing of revenue recognition
Revenue recognized at a point in time $ 521,702  $ 398,533  $ 331,180  $ 6,490  $ 1,257,905 
Revenue recognized over time 1,281  986  445  5,191  7,903 
Consolidated $ 522,983  $ 399,519  $ 331,625  $ 11,681  $ 1,265,808 
For the 40 Weeks Ended October 3, 2020
Americas Europe Asia Corporate Total
Product type
Watches $ 346,629  $ 265,245  $ 264,078  $ 37  $ 875,989 
Leathers 67,661  22,551  21,365  —  111,577 
Jewelry 14,706  47,462  5,137  —  67,305 
Other 4,755  7,829  4,603  13,160  30,347 
Consolidated $ 433,751  $ 343,087  $ 295,183  $ 13,197  $ 1,085,218 
Timing of revenue recognition
Revenue recognized at a point in time $ 431,980  $ 342,113  $ 294,658  $ 7,118  $ 1,075,869 
Revenue recognized over time 1,771  974  525  6,079  9,349 
Consolidated $ 433,751  $ 343,087  $ 295,183  $ 13,197  $ 1,085,218 
Contract Balances. As of October 2, 2021, the Company had no material contract assets on the Company's condensed consolidated balance sheets and no deferred contract costs. The Company had contract liabilities of (i) $9.2 million and $9.9 million as of October 2, 2021 and January 2, 2021, respectively, related to remaining performance obligations on licensing income, (ii) $3.0 million and $4.6 million as of October 2, 2021 and January 2, 2021, respectively, primarily related to remaining performance obligations on wearable technology products and (iii) $3.6 million and $4.2 million as of October 2, 2021 and January 2, 2021, respectively, related to gift cards issued.


3. INVENTORIES
Inventories consisted of the following (in thousands):
October 2, 2021 January 2, 2021
Components and parts $ 24,727  $ 25,016 
Work-in-process 18  7,913 
Finished goods 373,579  262,367 
Inventories $ 398,324  $ 295,296 

12


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 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Beginning balance $ 21,916  $ 23,095 
Settlements in cash or kind (8,096) (10,386)
Warranties issued and adjustments to preexisting warranties (1)
5,296  9,361 
Ending balance $ 19,116  $ 22,070 
_______________________________________________

(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 (benefit) expense and related effective rates were as follows (in thousands, except percentage data):
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020 For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Income tax (benefit) expense $ 8,978  $ (6,759) $ 19,177  $ (91,250)
Effective tax rate 22.0  % (71.4) % 73.8  % 49.7  %
The effective tax rate in the Third Quarter was unfavorable as compared to the Prior Year Quarter since no tax benefit was accrued on the U.S. net operating loss ("NOL"), unlike in the Prior Year Quarter. The Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act requires the inclusion of certain foreign income in the tax return which will absorb most of the U.S. NOL. Foreign income taxes are also paid on this same foreign income, resulting in double taxation. The remaining U.S. NOL is offset with a valuation allowance since there is no certainty of any future tax benefit. The Prior Year Quarter tax rate benefited from the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. The CARES Act provided many beneficial income tax changes including a provision allowing net operating losses arising in tax years 2018, 2019 and 2020 to be carried back to prior years when the U.S. tax rate was 35%, which accounts for most of the Prior Year Quarter benefit.
The Year To Date Period effective tax rate was unfavorable to the Prior Year YTD Period due to the changes from the CARES Act allowing NOL carrybacks in the Prior Year YTD Period.
The effective tax rate can vary from quarter-to-quarter due to changes in the Company's global mix of earnings, the resolution of income tax audits and changes in tax law.
As of October 2, 2021, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $29.4 million, of which $24.3 million would favorably impact the effective tax rate in future periods, if recognized. The Company is subject to examinations in various state and foreign jurisdictions for its 2012-2020 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 settled within twelve months of the condensed consolidated balance sheet date. As of October 2, 2021, the Company had recorded $14.1 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. At October 2, 2021, the total amount of accrued income tax-related interest included in the condensed consolidated balance sheets was $7.7 million and no penalties have been accrued. For the Third Quarter, the Company accrued income tax related interest benefit of $0.1 million.
13



6. STOCKHOLDERS’ EQUITY
Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 52,143,431 and 51,474,034 shares issued and outstanding at October 2, 2021 and January 2, 2021, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding at October 2, 2021 or January 2, 2021. 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. At October 2, 2021 and January 2, 2021, all treasury stock had been effectively retired. As of October 2, 2021, the Company had $30.0 million of repurchase authorizations remaining under its repurchase program. The Company did not repurchase any common stock under its authorized stock repurchase plan during the Third Quarter, Prior Year Quarter, Year To Date Period or Prior Year YTD Period.


7. EMPLOYEE BENEFIT PLANS
Stock-Based Compensation Plans. The following table summarizes stock options and stock appreciation rights activity during the Third Quarter:
Stock Options and Stock Appreciation Rights Shares Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
  (in Thousands)   (in Years) (in Thousands)
Outstanding at July 3, 2021 283  $ 72.58  2.0 $ — 
Forfeited or expired (1) 127.84 
Outstanding at October 2, 2021 282  72.34  1.7 — 
Exercisable at October 2, 2021 282  $ 72.34  1.7 $ — 
 
The exercise price exceeded the stock price for all stock options and stock appreciation rights shown in the table above, resulting in no aggregate intrinsic value for outstanding and exercisable options/rights at October 2, 2021.
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 October 2, 2021:
Stock Options Outstanding Stock Options Exercisable
Range of
Exercise Prices
Number of
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Number of
Shares
Weighted-
Average
Exercise
Price
  (in Thousands)   (in Years) (in Thousands)  
$101.37 - $131.46
57  $ 128.14  0.5 57  $ 128.14 
Total 57  $ 128.14  0.5 57  $ 128.14 

Stock Appreciation Rights Outstanding Stock Appreciation Rights Exercisable
Range of
Exercise Prices
Number of
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Number of
Shares
Weighted-
Average
Exercise
Price
  (in Thousands)   (in Years) (in Thousands)  
$29.49 - $47.99
146  $ 40.92  2.5 146  $ 40.92 
$55.04 - $82.55
48  77.43  1.5 48  77.43 
$101.37 - $113.04
31  110.68  0.5 31  110.68 
Total 225  $ 58.28  2.0 225  $ 58.28 
 
14


Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock unit and performance restricted stock unit activity during the Third Quarter:
Restricted Stock Units
and Performance Restricted Stock Units
Number of Shares Weighted-Average
Grant Date Fair
Value Per Share
  (in Thousands)  
Nonvested at July 3, 2021 1,826  $ 9.78 
Granted 28  12.45
Vested (21) $ 6.62 
Forfeited (41) 9.95 
Nonvested at October 2, 2021 1,792  $ 9.85 
 
The total fair value of restricted stock units vested during the Third Quarter was approximately $0.3 million. Vesting of performance restricted stock units is based on achievement of operating margin growth and achievement of sales growth and operating margin targets in relation to the performance of a certain identified peer group.
Long-Term Incentive Plans. On the date of the Company’s annual stockholders meeting, each non-employee director automatically receives a grant of restricted stock units with a fair market value of approximately $130,000, which 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. Beginning with the grant in fiscal year 2021, non-employee directors may elect to defer receipt of all or a portion of the restricted stock units settled in common stock of the Company upon the vesting date. In addition, beginning in fiscal year 2021, non-employee directors may defer the cash portion of their annual fees. Each participant may also elect to have the cash portion of his or her annual fees for each calendar year treated as if invested in units of common stock of the Company.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables disclose changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):
  For the 13 Weeks Ended October 2, 2021
  Currency
Translation
Adjustments
Cash Flow Hedges    
  Forward
Contracts
Pension
Plan
Total
Beginning balance $ (70,234) $ 2,372  $ 1,428  $ (66,434)
Other comprehensive income (loss) before reclassifications (3,237) 3,320  —  83 
Tax (expense) benefit —  (29) —  (29)
Amounts reclassed from accumulated other comprehensive income (loss) —  1,263  —  1,263 
Tax (expense) benefit —  (57) —  (57)
Total other comprehensive income (loss) (3,237) 2,085  —  (1,152)
Ending balance $ (73,471) $ 4,457  $ 1,428  $ (67,586)


15


  For the 13 Weeks Ended October 3, 2020
  Currency
Translation
Adjustments
Cash Flow Hedges    
  Forward
Contracts
Pension
Plan
Total
Beginning balance $ (85,170) $ 3,527  $ (3,124) $ (84,767)
Other comprehensive income (loss) before reclassifications 11,240  (4,306) —  6,934 
Tax (expense) benefit —  656  —  656 
Amounts reclassed from accumulated other comprehensive income (loss) —  26  —  26 
Tax (expense) benefit —  (40) —  (40)
Total other comprehensive income (loss) 11,240  (3,636) —  7,604 
Ending balance $ (73,930) $ (109) $ (3,124) $ (77,163)


  For the 39 Weeks Ended October 2, 2021
  Currency
Translation
Adjustments
Cash Flow Hedges    
  Forward
Contracts
Pension
Plan
Total
Beginning balance $ (61,178) $ 850  $ 1,428  $ (58,900)
Other comprehensive income (loss) before reclassifications (12,293) 3,934  —  (8,359)
Tax (expense) benefit —  (247) —  (247)
Amounts reclassed from accumulated other comprehensive income —  210  —  210 
Tax (expense) benefit —  (130) —  (130)
Total other comprehensive income (loss) (12,293) 3,607  —  (8,686)
Ending balance $ (73,471) $ 4,457  $ 1,428  $ (67,586)
  For the 40 Weeks Ended October 3, 2020
  Currency
Translation
Adjustments
Cash Flow Hedges    
  Forward
Contracts
Pension
Plan
Total
Beginning balance $ (80,474) $ 2,983  $ (3,124) $ (80,615)
Other comprehensive income (loss) before reclassifications 6,544  2,872  —  9,416 
Tax (expense) benefit —  (578) —  (578)
Amounts reclassed from accumulated other comprehensive income (loss) —  6,307  —  6,307 
Tax (expense) benefit —  (921) —  (921)
Total other comprehensive income (loss) 6,544  (3,092) —  3,452 
Ending balance $ (73,930) $ (109) $ (3,124) $ (77,163)

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
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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.
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.
Due to changes in the Company’s reportable segments as discussed in Note 1 to the Condensed Consolidated Financial Statements, segment results for the Prior Year Quarter and Prior Year YTD Period have been recast to present results on a comparable basis. These changes had no impact on the consolidated net sales or operating income (loss). Summary information by operating segment was as follows (in thousands):
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020
  Net Sales Operating Income (Loss) Net Sales Operating Income (Loss)
Americas $ 193,762  $ 46,589  $ 175,086  $ 45,051 
Europe 165,887  40,549  135,292  12,344 
Asia 129,494  23,996  119,748  25,724 
Corporate 2,684  (63,328) 5,366  (65,608)
Consolidated $ 491,827  $ 47,806  $ 435,492  $ 17,511 

For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
  Net Sales Operating Income (Loss) Net Sales Operating Income (Loss)
Americas $ 522,983  $ 109,172  $ 433,751  $ 12,728 
Europe 399,519  67,616  343,087  2,154 
Asia 331,625  50,553  295,183  44,787 
Corporate 11,681  (181,942) 13,197  (213,304)
Consolidated $ 1,265,808  $ 45,399  $ 1,085,218  $ (153,635)


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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 October 2, 2021 For the 13 Weeks Ended October 3, 2020
  Net Sales Percentage of Total Net Sales Percentage of Total
Watches $ 393,703  80.0  % $ 356,564  81.9  %
Leathers 36,390  7.4  37,716  8.7 
Jewelry 52,471  10.7  28,883  6.6 
Other 9,263  1.9  12,329  2.8 
Total $ 491,827  100.0  % $ 435,492  100.0  %


For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
  Net Sales Percentage of Total Net Sales Percentage of Total
Watches $ 1,014,724  80.2  % $ 875,989  80.7  %
Leathers 103,841  8.2  111,577  10.3 
Jewelry 119,211  9.4  67,305  6.2 
Other 28,032  2.2  30,347  2.8 
Total $ 1,265,808  100.0  % $ 1,085,218  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 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. Additionally, the Company enters 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 accumulated 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 October 2, 2021, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge future payments of inventory transactions (in millions):
Functional Currency Contract Currency
Type Amount Type Amount
Euro 68.3  U.S. dollar 82.7 
Canadian dollar 14.3  U.S. dollar 11.4 
Japanese yen 1,047.1  U.S. dollar 9.7 
British pound 5.6  U.S. dollar 7.7 
Australian dollar 5.6  U.S. dollar 4.2 
Mexican peso 81.1  U.S. dollar 4.0 
U.S. dollar 8.4  Japanese yen 925.0 
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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 October 2, 2021, the Company had non-designated forward contracts of $1.4 million on 20.4 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 gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes are set forth below (in thousands):
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020
Cash flow hedges:    
Forward contracts $ 3,292  $ (3,650)
Total gain (loss) recognized in other comprehensive income (loss), net of taxes $ 3,292  $ (3,650)

For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Cash flow hedges:    
Forward contracts $ 3,687  $ 2,293 
Total gain (loss) recognized in other comprehensive income (loss), net of taxes $ 3,687  $ 2,293 
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The following tables disclose the gains and losses on derivative instruments recorded in accumulated 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 (in thousands):
Derivative Instruments Condensed Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
Effect of Derivative
Instruments
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020
Forward contracts designated as cash flow hedging instruments Cost of sales Total gain (loss) reclassified from accumulated other comprehensive income (loss) $ 689  $ (27)
Forward contracts designated as cash flow hedging instruments Other income (expense)-net Total gain (loss) reclassified from accumulated other comprehensive income (loss) $ 518  $ 13 
Forward contracts not designated as hedging instruments Other income (expense)-net Total gain (loss) recognized in income $ 61  $ (63)



Derivative Instruments Condensed Consolidated
Statements of Income (Loss)
and Comprehensive
Income (Loss) Location
Effect of Derivative
Instruments
For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
Forward contracts designated as cash flow hedging instruments Cost of sales Total gain (loss) reclassified from accumulated other comprehensive income (loss) $ 938  $ 5,285 
Forward contracts designated as cash flow hedging instruments Other income (expense)-net Total gain (loss) reclassified from accumulated other comprehensive income (loss) $ (858) $ 101 
Forward contracts not designated as hedging instruments Other income (expense)-net Total gain (loss) recognized in income $ (12) $ 30 

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
  October 2, 2021 January 2, 2021 October 2, 2021 January 2, 2021
Derivative Instruments Condensed
Consolidated
Balance Sheets
Location
Fair
Value
Condensed
Consolidated
Balance Sheets
Location
Fair
Value
Condensed
Consolidated
Balance Sheets
Location
Fair
Value
Condensed
Consolidated
Balance Sheets
Location
Fair
Value
Forward contracts designated as cash flow hedging instruments Prepaid expenses and other current assets $ 3,732  Prepaid expenses and other current assets $ 345  Accrued expenses-other $ 80  Accrued expenses-other $ 2,178 
Forward contracts not designated as cash flow hedging instruments Prepaid expenses and other current assets 35  Prepaid expenses and other current assets —  Accrued expenses-other —  Accrued expenses-other 86 
Forward contracts designated as cash flow hedging instruments Intangible and other assets-net 320  Intangible and other assets-net 48  Other long-term liabilities —  Other long-term liabilities 35 
Total   $ 4,087    $ 393    $ 80    $ 2,299 

 

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The following tables summarize the effects of the Company's derivative instruments on earnings (in thousands):
Effect of Derivative Instruments
For the 13 Weeks Ended October 2, 2021 For the 13 Weeks Ended October 3, 2020
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 condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded $ 232,305  $ (482) $ 205,726  $ — 
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)
$ 689  $ 518  $ (27) $ 13 
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income $ —  $ 61  $ —  $ (63)

Effect of Derivative Instruments
For the 39 Weeks Ended October 2, 2021 For the 40 Weeks Ended October 3, 2020
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 condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded $ 601,857  $ 882  $ 574,496  $ (6,411)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)
$ 938  $ (858) $ 5,285  $ 101 
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income