Fossil Group, Inc.FOSL
Fossil Group, Inc. Income Taxes Disclosure
Taxes
Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the consolidated deferred tax assets and liabilities were (in thousands):
| Fiscal Year | 2025 | 2024 | |||||||||
| Deferred income tax assets: | |||||||||||
| Inventory | $ | 1,098 | $ | 1,610 | |||||||
| Compensation | 7,016 | 6,494 | |||||||||
| Property, plant and equipment | 5,129 | 3,836 | |||||||||
| Trade names and customer lists | 43 | 1,320 | |||||||||
| Goodwill | 2,459 | 4,586 | |||||||||
| Foreign accruals | 7,436 | 5,619 | |||||||||
| Loss carryforwards | 190,014 | 165,623 | |||||||||
| Tax credit carryforwards | 19,418 | 19,417 | |||||||||
| Capitalized research and development | 5,008 | 6,077 | |||||||||
| Interest disallowance | 20,473 | 17,920 | |||||||||
| Lease liabilities | 31,225 | 32,444 | |||||||||
| Original issue discount | 13,114 | — | |||||||||
| Other | 15,124 | 11,732 | |||||||||
| Deferred income tax assets total | $ | 317,557 | $ | 276,678 | |||||||
| Deferred income tax liabilities: | |||||||||||
| Right-of-use assets | (26,547) | (27,072) | |||||||||
| Other | (306) | (298) | |||||||||
| Deferred income tax liabilities total | $ | (26,853) | $ | (27,370) | |||||||
| Valuation allowance | (273,188) | (226,484) | |||||||||
| Net deferred income tax assets | $ | 17,516 | $ | 22,824 | |||||||
| Deferred income tax assets - net | $ | 18,123 | $ | 23,857 | |||||||
| Deferred income tax liabilities - net | (607) | (1,033) | |||||||||
| Net deferred income tax assets | $ | 17,516 | $ | 22,824 | |||||||
Operating Loss Carryforwards. At January 3, 2026, the consolidated balance sheets included $79.9 million of deferred tax assets for net operating losses of foreign subsidiaries. The amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
| Expires 2026 through 2030 | $ | 82,763 | |||
| Expires 2031 through 2035 | 38,301 | ||||
| Expires 2036 through 2040 | 79,042 | ||||
| Expires 2041 through 2045 | 53,463 | ||||
| Indefinite | 89,350 | ||||
| Total loss carryforwards | $ | 342,919 | |||
At January 3, 2026, the consolidated balance sheets included $22.0 million of deferred tax assets for state income tax net operating losses. The state apportioned amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
| Expires 2026 through 2030 | $ | 15,090 | |||
| Expires 2031 through 2035 | 42,942 | ||||
| Expires 2036 through 2040 | 104,488 | ||||
| Expires 2041 through 2045 | 123,628 | ||||
| Indefinite | 97,965 | ||||
| Total loss carryforwards | $ | 384,113 | |||
At January 3, 2026, the consolidated balance sheets included $88.1 million of deferred tax assets for federal income tax net operating losses. In the U.S., federal income tax net operating losses can be carried forward indefinitely, but are limited to 80% of taxable income.
The following table identifies income (loss) before income taxes for the Company's U.S. and non-U.S. based operations for the fiscal years indicated (in thousands):
| Fiscal Year | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. | $ | (127,065) | $ | (148,038) | $ | (130,620) | |||||||||||
| Non-U.S. | 77,311 | 29,975 | (25,517) | ||||||||||||||
| Total | $ | (49,754) | $ | (118,063) | $ | (156,137) | |||||||||||
The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):
| Fiscal Year | 2025 | 2024 | 2023 | ||||||||||||||
| Current provision: | |||||||||||||||||
| U.S. federal | $ | — | $ | (24,079) | $ | (3,798) | |||||||||||
| Non-U.S. | 21,102 | 14,651 | 8,315 | ||||||||||||||
| State and local | 135 | 95 | (120) | ||||||||||||||
| Total current | 21,237 | (9,333) | 4,397 | ||||||||||||||
| Deferred provision (benefit): | |||||||||||||||||
| Non-U.S. | 6,846 | (2,454) | (3,875) | ||||||||||||||
| Total deferred | 6,846 | (2,454) | (3,875) | ||||||||||||||
| Provision for income taxes | $ | 28,083 | $ | (11,787) | $ | 522 | |||||||||||
A reconciliation of the Company's income tax rate by percentage and amount paid is as follows (dollars in thousands):
| Fiscal Year 2025 | |||||||||||
| Amount | Percentage | ||||||||||
| Federal Statutory Tax Rate | $ | (10,448) | 21.0 | % | |||||||
| State and Local Income Taxes | 88 | (0.2) | |||||||||
| Foreign Tax Effects: | |||||||||||
| Australia | |||||||||||
| Change in valuation allowance | 1,699 | (3.4) | |||||||||
| Statutory tax rate difference | (836) | 1.7 | |||||||||
| Other | (34) | 0.1 | |||||||||
| Canada | |||||||||||
| Change in valuation allowance | 1,258 | (2.5) | |||||||||
| Statutory tax rate difference | (232) | 0.5 | |||||||||
| Other | 172 | (0.4) | |||||||||
| China | |||||||||||
| Change in valuation allowance | 2,706 | (5.4) | |||||||||
| Statutory tax rate difference | (300) | 0.6 | |||||||||
| Other | 76 | (0.2) | |||||||||
| Germany | |||||||||||
| Statutory tax rate difference | 1,400 | (2.8) | |||||||||
| Other | 230 | (0.5) | |||||||||
| Gibraltar | |||||||||||
| Statutory tax rate difference | (627) | 1.3 | |||||||||
| Tax credits | (1,193) | 2.4 | |||||||||
| Withholding tax | 775 | (1.6) | |||||||||
| Other | 222 | (0.5) | |||||||||
| Hong Kong | |||||||||||
| Statutory tax rate difference | 453 | (0.9) | |||||||||
| Withholding tax | 1,581 | (3.2) | |||||||||
| Other | 214 | (0.4) | |||||||||
| India | |||||||||||
| Statutory tax rate difference | 977 | (2.0) | |||||||||
| Withholding tax | 1,461 | (2.9) | |||||||||
| Other | 175 | (0.4) | |||||||||
| Japan | |||||||||||
| Change in valuation allowance | 1,668 | (3.4) | |||||||||
| Statutory tax rate difference | (710) | 1.4 | |||||||||
| Other | 92 | (0.2) | |||||||||
| Netherlands | |||||||||||
| Statutory tax rate difference | (187) | 0.4 | |||||||||
| Other | (103) | 0.2 | |||||||||
| Singapore | |||||||||||
| Change in valuation allowance | 420 | (0.8) | |||||||||
| Statutory tax rate difference | (453) | 0.9 | |||||||||
| Other | 103 | (0.2) | |||||||||
| Switzerland | |||||||||||
| Change in valuation allowance | 1,763 | (3.5) | |||||||||
| Net operating loss | 1,036 | (2.1) | |||||||||
| Statutory tax rate difference | (3,492) | 7.0 | |||||||||
| Other | 326 | (0.7) | |||||||||
| Other Jurisdictions | 1,071 | (2.2) | |||||||||
| Valuation Allowances | 28,964 | (58.2) | |||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Cancellation of debt income | 9,508 | (19.1) | |||||||||
| Officer compensation | 1,219 | (2.5) | |||||||||
| Other | (199) | 0.4 | |||||||||
| Effect of cross-border tax laws | |||||||||||
| Subpart F income | (527) | 1.1 | |||||||||
| OID basis difference | (11,998) | 24.1 | |||||||||
| Other Adjustments | (236) | 0.5 | |||||||||
| Total | $ | 28,083 | (56.5) | % | |||||||
The fiscal year 2025 effective tax rate was unfavorably impacted by tax on income from certain foreign jurisdiction, cancellation of debt income and increased valuation allowances on deferred tax assets. Income taxes paid by the Company was as follows (in thousands):
| Fiscal Year 2025 | |||||
State(1) | $ | 111 | |||
| Foreign | |||||
| France | 1,386 | ||||
| India | 11,659 | ||||
| Other | 3,989 | ||||
| Total | $ | 17,145 | |||
(1) Texas comprises more than 50% of State income taxes
A reconciliation of the fiscal year 2024 and fiscal year 2023 U.S. federal statutory income tax rates to the Company's effective tax rate is as follows:
| Fiscal Year | 2024 | 2023 | ||||||||||||
| Tax at statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| Permanent differences | 0.3 | 0.1 | ||||||||||||
| State, net of federal tax benefit | 3.4 | 2.3 | ||||||||||||
| Foreign rate differential | 0.6 | 1.8 | ||||||||||||
| Withholding taxes | (3.0) | (2.0) | ||||||||||||
| U.S. tax on foreign income-net of foreign tax credits | (0.7) | 0.3 | ||||||||||||
| Income tax contingencies | 19.3 | 0.4 | ||||||||||||
| Federal Interest on IRS Refund | 0.7 | 2.5 | ||||||||||||
| Valuation allowances | (35.3) | (32.5) | ||||||||||||
| R&D/Foreign tax credits | 7.0 | 3.5 | ||||||||||||
| Deficiencies (benefits) on employee stock awards | (0.7) | (0.6) | ||||||||||||
| APB23 assertion | — | (0.1) | ||||||||||||
| Return to provision true-up | (1.9) | 2.7 | ||||||||||||
| Non deductible foreign equity awards | (0.1) | (0.2) | ||||||||||||
| Non deductible officer compensation | (0.3) | (0.1) | ||||||||||||
| Foreign currency hedges | (0.1) | — | ||||||||||||
| Adjustments related to intercompany | — | — | ||||||||||||
| Other | (0.2) | 0.6 | ||||||||||||
| Provision for income taxes | 10.0 | % | (0.3) | % | ||||||||||
The Company records a valuation allowance against its deferred tax assets when recovery of those amounts on a jurisdictional basis is not more likely than not. The Company's U.S. valuation allowance analysis was increased by $32.1 million and the foreign valuation allowance on NOL's and deferred tax assets increased by $14.6 million as compared to December 28, 2024. The total valuation allowance of $273.2 million at January 3, 2026 was comprised of $181.8 million and $91.4 million attributable to the U.S. and foreign operations, respectively.
The Company will not indefinitely reinvest $155.3 million of previously taxed and undistributed earnings and profits of its foreign subsidiaries as of January 3, 2026. Since there will be no additional federal income tax when these amounts are repatriated, the Company has only accrued tax on foreign exchange gains with an offsetting valuation allowance. Deferred U.S. federal and state income taxes and foreign taxes are not recorded on the remaining $285.0 million of undistributed earnings and profits of foreign subsidiaries where management plans to continue reinvesting these earnings outside the U.S. As the majority of these earnings have previously been taxed in the U.S., the distribution of the earnings considered indefinitely reinvested would generally be subject only to local country withholding and U.S. state income taxes when distributed, the amount of which is not material.
The total amount of unrecognized tax benefits, excluding interest and penalties that would favorably impact the effective tax rate in future periods if recognized, was $6.8 million, $6.8 million and $23.6 million for fiscal years 2025, 2024 and 2023, respectively. Fiscal years 2022-2024 remain open for federal income tax examination. The Company is also subject to examinations in various state and foreign jurisdictions for its 2014-2024 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax audit settlements are subject to significant uncertainty.
The Company has classified uncertain tax positions as long-term income taxes payable, unless such amounts are expected to be paid within twelve months from January 3, 2026. As of January 3, 2026, the Company had recorded $2.1 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled or not assessed within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable, respectively. The
total amount of accrued income tax-related interest expense in the Company's consolidated balance sheets was $1.6 million compared to $0.5 million of interest expense at December 28, 2024. The Company accrued no income tax-related penalties in the Company's consolidated balance sheets at January 3, 2026. The Company accrued income tax-related interest expense (income) of $0.3 million, $(8.5) million and $(4.0) million in fiscal years 2025, 2024 and 2023, respectively.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):
| Fiscal Year | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at beginning of year | $ | 6,846 | $ | 23,639 | $ | 23,998 | |||||||||||
| Gross increases—tax positions in prior years | — | — | 214 | ||||||||||||||
| Gross decreases—tax positions in prior years | — | (17,917) | — | ||||||||||||||
| Gross increases—tax positions in current year | 912 | 1,222 | 1,006 | ||||||||||||||
| Settlements | — | — | (1,583) | ||||||||||||||
| Lapse in statute of limitations | (1,053) | — | (173) | ||||||||||||||
| Change due to currency revaluation | 112 | (98) | 177 | ||||||||||||||
| Balance at end of year | $ | 6,817 | $ | 6,846 | $ | 23,639 | |||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 12, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 9, 2023 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.