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Watch maker Fossil Inc announces Q2 results

09 Aug '05
9 min read

Second Quarter other income (expense) increased unfavorably by approximately $3.4 million when compared to the prior year quarter. This unfavorable increase is related to approximately $1.7 million of currency losses as the U.S. dollar strengthened compared to the Company's other major balance sheet related currencies since the end of the Company's 2005 first quarter. During the same period of 2004, the Company recorded exchange gains of approximately $1.0 million.

Additionally, minority interest expense and equity in the losses of a joint venture increased approximately $600,000 over the prior year quarter. For the first six months of the year, other expense increased by approximately $7.0 million, with this increase primarily attributable to the impact of currency losses in the current year versus currency gains in the prior year.

The Company's effective income tax rate for the Second Quarter decreased to 30.5 percent compared to 37.0 percent in the prior year quarter. The reduced effective tax rate is primarily related to further reduction of tax expense for subsidiary earnings not considered indefinitely invested. This reduction resulted from published guidance from the Internal Revenue Service that resolved previous ambiguities concerning the calculation of tax under the dividend repatriation provisions of the American Jobs Creation Act of 2004 ("the Act").

The Company's effective income tax rate for the first six months of the year decreased to 6.3 percent compared to 37.0 percent in the prior year period. During the first quarter of 2005, pursuant to the Act, the Company commenced its repatriation plan of subsidiary earnings and expects, at a minimum, to repatriate approximately $150 million throughout fiscal 2005. As a result of this plan, during the first six months of the year the Company recorded a tax benefit as a result of a reduction in previously recorded deferred tax liabilities. In comparison to the Company's prior year effective tax rate, this tax benefit resulted in an additional $0.14 diluted earnings per share during the first six months of the year.

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