AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
| Delaware (State or other jurisdiction of incorporation or organization) | | | 75-2018505 (I.R.S. Employer Identification | |
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| Large accelerated filer ☐ | | | Accelerated filer ☒ | |
| Non-accelerated filer ☐ | | | Smaller reporting company ☐ | |
| | | | Emerging growth company ☐ | |
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Title of each class of securities to be registered | | | | Amount to be registered | | | | Proposed maximum offering price per unit(1)(2) | | | | Proposed maximum aggregate offering price(1)(2) | | | | Amount of registration fee | | ||||||
Debt Securities(2) | | | | $200,000,000 | | | | 100% | | | | | $ | 200,000,000 | | | | | | $ | 21,820 | | |
Title of each class of securities to be registered | Amount to be registered(1) | Proposed maximum offering price per share(2) | Proposed maximum aggregate offering price(2) | Amount of registration fee | ||||||||
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Common stock, par value $.01 per share | 7,503,750 | $ | 22.36 | $ | 167,833,875 | $ | 21,265 | (3) | ||||
any securities previously issued.
Prospectus
6,525,000shares
FOSSIL, INC.
Common Stock
time, in one or more series, our debt securities. Our debt securities may consist of debentures, notes or other types of debt. When we sell securities, we will determine the amounts and types of securities we will sell and the prices and other terms on which we will sell them. The selling stockholders identifiedaggregate offering price of the securities covered by this prospectus will not exceed $200,000,000.
Our common stock is traded on the Nasdaq National Market under the symbol "FOSL." On April 29, 2004, the last reported sale price for our common stock was $24.35.
The selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to 978,750 additional shares.
Investingbefore investing in our common stock involves risks. See "Risk factors" beginning on page 4.securities
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy.
, 2004
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You
No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
This summary highlights material information contained elsewhere in this prospectus. For a more complete understanding of this offering, we encourage you to read this entire document and the documents we refer you to, including documents incorporated by reference herein.information. You should read the following summary together with the more detailed information and financial statementsthis prospectus, any prospectus supplement and the notes to those statements appearing elsewhere andinformation that is incorporated or deemed incorporated by reference in this prospectus. Except as otherwise noted, we present all financialSee “Incorporation of certain information by reference.” The registration statement, including the exhibits and operational datathe documents incorporated or deemed incorporated by reference in this prospectus can be read on a fiscal year and fiscal quarter basis. Our fiscal years 2003, 2002 and 2001 ended January 3, 2004, January 4, 2003 and January 5, 2002, respectively. Our fiscal quarters for 2003 ended April 5, 2003, July 5, 2003, October 4, 2003 and January 3, 2004. Our fiscal quarters for 2002 ended April 6, 2002, July 6, 2002, October 5, 2002 and January 4, 2003.
Fossil, Inc.
We are a leader in the design, development, marketing and distribution of contemporary, high quality fashion watches and accessories. We developedSEC website or at the FOSSIL® brand name to convey a distinctive fashion, quality and value message and a brand image reminiscent of an earlier era that suggests a time of fun, fashion and humor. Since our inception in 1984, we have grown into a diversified company offering fashion watches under our FOSSIL, RELIC® and ZODIAC® brands and, pursuant to license agreements, under some of the most prestigious brands in the world including:
Additionally, we offer a wide range of accessoriesSEC office mentioned under the FOSSILheading “Where you can find additional information.”
We also any applicable free writing prospectus do not constitute an offer jewelryto sell anywhere or to anyone where or to whom we are not permitted to offer to sell securities under applicable law.
We sell our products:
Our products are sold to department stores and specialty retail stores in over 90 countries worldwide through foreign sales subsidiaries owned by us and through a network of approximately 60 independent distributors. Our products can be found in Australia, Canada, the Caribbean, Central and South America, Europe, the Far East, Mexico, the Middle East and South Africa.
Business strategy
Our long-term goal is to capitalizedate on the strengthfront cover of our growing consumer brand recognitionthose documents. Our business, financial condition, results of operations and capture an increasing share of a growing number of markets by providing consumers with fashionable, high quality, value-driven products. prospects may have changed since that date.
Operating strategy
Our operating strategy is based on product development, including design innovation, product promotion and product value,prospectus, “Fossil,” “we,” “us,” “our,” and the effective management of“Company” refer to Fossil Group, Inc. and its subsidiaries, unless otherwise indicated or the context otherwise requires.
Growth strategy
Our growth strategy consists for four key elements. In particular, we aim to:
Recent developments
On March 23, 2004, we entered into an agreement to acquire Tempus International Corp. for approximately $50 million in cash. Tempus, which does business as Michele Watches, is based in Miami, Florida and manufactures, markets and distributes luxury watches under the MW and MW Michele brand labels. Michele Watches distributes its products primarily in the U.S. with a growing presence in Asia. Michele's MW brand, launched as a fine watch brand in the United States in the fall of 2000, with its CSX Diamond Collections, quickly became a leader in the luxury watch category at retailers including Neiman Marcus, Saks Fifth Avenue and better independent retailers. The acquisition was consummated on April 8, 2004.
On April 19, 2004, we entered into a license agreement with Michael Kors (USA), Inc. to design, develop and distribute a line of women's and men's timepieces under the MICHAEL Michael Kors label. The timepieces are set to debut in Fall 2004. Michael Kors is recognized as one of America's pre-eminent designers for luxury sportswear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors Collection, KORS Michael Kors, and soon to
be launched MICHAEL Michael Kors labels, including men's and women's ready to wear, women's accessories and a line of fragrance and beauty products for both women and men.
Corporate information
Our company is a Delaware corporation formed in 1991 and is the successor to a Texas corporation formed in 1984. We conduct a majority of our operations in the United States through Fossil Partners, L.P., a Texas limited partnership formed in 1994 of which our company is the sole general partner. We also conduct operations in the United States and certain international markets through various directly and indirectly owned subsidiaries. Our operations in Hong Kong relating to the procurement of watches from various manufacturing sources are conducted by Fossil (East) Ltd., our wholly owned subsidiary acquired in 1992. Our principal executive offices are located at 2280 N. Greenville Avenue, Richardson, Texas 75082, and our telephone number at that address is (972) 234-2525. Our Internet address is www.fossil.com. The contents of our website are not a part of this prospectus.
The offering
The above information regarding shares outstanding before and after the offering is based on the number of shares of common stock outstanding as of March 15, 2004 adjusted for a three-for-two stock split effected in the form of a stock dividend paid on April 8, 2004.
The number of shares outstanding also excludes: options to purchase 5,873,876 shares of common stock issued under our 1993 Long-Term Incentive Plan, of which 2,247,444 are currently exercisable at an average price of $5.65, and options to purchase 293,250 shares of common stock issued under our Nonemployee Director Plan, of which 270,000 are currently exercisable at an average price of $ 5.60.
You should carefully consider the risks and uncertainties discussed below under “Cautionary statement regarding forward-looking statements” and the risk factors set forth in our Annual Report on Form 10-K/A for the fiscal year ended January 2, 2021, and in the documents and reports that we file with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, after the date of this prospectus that are incorporated by reference into this prospectus, as well as any risks described below before making an investment decision.in any applicable prospectus supplement or free writing prospectus. Additional risks and uncertainties not presentlycurrently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. This could cause a decline in the trading price of our common stock, and you may lose all or part of your investment.
Our success depends upon our ability to anticipate and respond to changing fashion trends.
Our success depends upon our ability to anticipate and respond to changing fashion trends and consumer preferences in a timely manner. Although we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories and apparel, any failure by us to identify and respond to such trends could adversely affect consumer acceptance of our existing brand names and product lines, which in turn could adversely affect sales of our products. If we misjudge the market for our products, we may be faced with a significant amount of unsold finished goods inventory. Additionally, we have recently expanded and intend to further expand the scope of our product offerings, and there can be no assurance that new products introduced by us will achieve consumer acceptance comparable to that of our existing product lines.
The effects of economic cycles, terrorism, acts of war and retail industry conditions may adversely affect our business.
Our business is subject to economic cycles and retail industry conditions. Purchases of discretionary fashion accessories, such as our watches, handbags, sunglasses and other products, tend to decline during recessionary periods when disposable income is low and consumers are hesitant to use available credit. In addition, acts of terrorism, acts of war and military action both in the United States and abroad can have a significant effect on economic conditions. Any significant declines in general economic conditions or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on consumer purchases of our products.
us.
We sell our merchandise primarily to department stores and specialty retail stores in over 90 countries worldwide. We extend credit based on an evaluation of each customer's financial condition, usually without requiring collateral. Should any of our larger customers experience financial difficulties, we could curtail business with such customers or assume more credit risk relating to such customers' receivables. Our inability to collect on our trade accounts receivable relating to such customers could have a material adverse effect on the amount of revenues that we receive.
We do not maintain long-term purchasing contracts with our customers and therefore have no contractual leverage over their purchasing decisions. A decision by a major department store or other significant customer to decrease the amount of merchandise purchased from us or to cease carrying our products could have a material adverse effect on our revenues and operating strategy.
Our ability to continue our sales growth is dependent upon the implementation of our growth strategy, which we may not be able to achieve.
During recent years, we have experienced rapid and substantial growth in sales. Our ability to continue this growth is dependent on the successful implementation of our business strategy.
diversification of our product offerings, expansion of our company-owned Fossil retail and outlet locations and certain strategic acquisitions. There can be no assurance that the expansion of our product offerings will be successful or that new products will be profitable or generate sales comparable to those of our existing businesses. Another element of our business strategy is to place increased emphasis on growth in selected international markets. There can be no assurance that our brand names and products will achieve a high degree of consumer acceptance in these markets.
We also operate stores under the FOSSIL brand and have historically expanded our company-owned FOSSIL retail and outlet locations to further strengthen our brand image. We currently operate approximately 120 stores, with a majority of the stores located in the United States. The costs associated with leasehold improvements to current storesprospectus and the costs associated with opening new stores could materially increase our costs of operation, particularly if we decide to open more stores on a yearly basis than our historical averages.
Finally, as part of our growth strategy, we have made certain acquisitions, domestically and internationally, including acquisitions of FOSSIL stores operated under license agreements, acquisitions of certain watch brands, and acquisitions of independent distributors of our products. There can be no assurance that the integration of acquisitions will be successfuldocuments incorporated by reference in this prospectus, include or that acquisitions will generate sales increases.
Foreign currency fluctuations could adversely impact our financial condition.
We generally purchase our products in U.S. dollars. However, we source a significant amount of our products overseas and, as such, the cost of these products purchasedincorporate by our subsidiaries may be affected by changes in the value of the currencies, including the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Malaysian Ringgit and Singapore Dollar. Changes in the currency exchange rates may also affect the relative prices at which we and our foreign competitors sell products in the same market. Although we utilize forward contracts to mitigate foreign currency risks (mostly relating to the Euro and the British Pound), there can be no assurance that foreign currency fluctuations will not have a material adverse impact on the amount of revenue we are able to generate from our overseas business.
Access to suppliers that are not Fossil subsidiaries is not guaranteed because we do not maintain long-term contracts but instead rely on long-standing business relationships, which may not continue in the future.
A majority of our watch products are currently manufactured to our specifications by company-owned subsidiaries in China and, to a lesser extent, by owned or independent manufacturers in China, Hong Kong and Switzerland. Certain of our other products are currently manufactured to our specifications by independent manufacturers in China, Hong Kong, Italy, Korea, Mexico and Taiwan. We have no long-term contracts with these independent manufacturing sources and compete with other companies for production facilities. All transactions between us and our independent manufacturing sources are conducted on the basis of purchase orders. Although we believe that we have established close relationships with our principal independent manufacturing sources, our future success will depend upon our ability to maintain close relationships with our current suppliers and to develop long-term relationships with other suppliers that satisfy our requirements for price, quality and production flexibility. Further, although we periodically visit and monitor the operations of independent manufacturers and require them to operate in compliance with applicable laws and regulations and promote ethical business practices, we do not control these manufacturers or their labor practices. The violation of labor or other laws by an independent manufacturer, or the divergence of an independent manufacturer's labor practices from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt, the shipment of finished products to us or damage our reputation, each of which could have a material adverse effect on consumer purchases of our products.
Because we are dependent on foreign manufacturing we are vulnerable to changes in economic and social conditions in Asia and disruptions in international travel and shipping.
Because a substantial portion of our watches and certain of our handbags, sunglasses and other products are manufactured in Hong Kong and China, our success will depend to a significant extent upon future economic and social conditions existing in Hong Kong and China. If the manufacturing sources in Hong Kong and China were disrupted for any reason, we would need to arrange for the manufacture and shipment of products by alternative sources. Because the establishment of new manufacturing relationships involves numerous uncertainties, including those relating to payment terms, costs of manufacturing, adequacy of manufacturing capacity, quality control and timeliness of delivery, we are unable to predict whether such relationships would be on terms that we regard as satisfactory. Any significant disruption in our relationships with our manufacturing sources located in Hong Kong and China would have a material adverse effect on our ability to manufacture and distribute our products. Restrictions on travel to and from these and other regions, similar to those imposed during the outbreak of Severe Acute Respiratory Syndrome in 2003, commonly known as SARS, and any delays or cancellations of customer orders or the manufacture or shipment of our products on account of SARS or other syndromes could have a material adverse effect on our ability to meet customer deadlines and timely distribute our products in order to match consumer tastes.
Our competitors are established companies that have greater experience than us in a number of crucial areas, including design and distribution.
There is intense competition in each of the businesses in which we compete. Our moderately priced watch business competes with a number of established manufacturers, importers and distributors such as Guess?, Anne Klein II, Kenneth Cole and Swatch. Our fine premium branded and designer watch business competes with a number of established manufacturers, importers and distributors such as Gucci, Rado, Raymond Weil, Seiko and Swiss Army. In addition, our leather goods, sunglass, jewelry and apparel businesses compete with a large number of established companies that have significantly greater experience than us in designing, developing, marketing and distributing such products. In all of our businesses, we compete with numerous manufacturers, importers and distributors who may have significantly greater financial, distribution, advertising and marketing resources than us. Our competitors include distributors that import watches, accessories and apparel from abroad, domestic companies that have established foreign manufacturing relationships and companies that produce accessories and apparel domestically.
Our implementation of a new enterprise resource planning system could disrupt our computer system and divert management time.
We are currently implementing an enterprise resource planning system from SAP AG. Over the next few years, we intend to replace our existing enterprise resource planning systems and other principal financial systems with software systems provided by SAP AG, a German software company. During 2003, we implemented the new enterprise resource planning system in our U.S. and Canada locations and over the next few years intend to replace our existing enterprise resource planning systems and principal financial systems at our international subsidiaries with software systems provided by SAP AG. Our current expansion plans may place significant strain on our management, working capital, financial and management control systems and staff. The failure to maintain or upgrade financial and management control systems, to recruit additional staff or to respond effectively to difficulties encountered during expansion could have a material adverse effect on our ability to respond to trends in our target markets, market our products and meet customer deadlines. The sustained disruption or failure of our systems due to force majeure or as part of an upgrade, conversion or other systems maintenance could result in the same adverse effects.
We have key facilities in the United States and overseas, the loss of any of which could harm our business.
Our administrative and distribution operations in the United States are conducted primarily from two separate facilities located in the Dallas, Texas area. Our operations internationally are conducted from various administrative, distribution and manufacturing facilities outside of the United States, particularly in Germany and Hong Kong. The complete or temporary loss of use of all or part of these facilities could have a material adverse effect on our business.
Seasonality of our business may adversely affect our net sales and operating income.
Our quarterly results of operations have fluctuated in the past and may continue to fluctuate as a result of a number of factors, including seasonal cycles, the timing of new product introductions, the timing of orders by our customers and the mix of product sales demand. Our business is seasonal by nature. A significant portion of our net sales and operating income are generated during the fourth quarter of our fiscal year, which includes the Christmas season. The amount of net sales and operating income generated during the fourth quarter depends upon the anticipated level of retail sales during the Christmas season, as well as general economic conditions and other factors beyond our control. In addition, the amount of net sales and operating income generated during the first quarter depends in part upon the actual level of retail sales during the Christmas season. There can be no assurance that such factors will not adversely affect our net sales and operating income during the first and fourth quarter of our fiscal year. Also, our gross profit margins are impacted by our sales mix. Both international and licensed watch sales generally provide gross margins in excess of our historical consolidated gross profit margin, while accessory products generally provide gross profit margins below our historical consolidated gross profit margin. There can be no assurance that future sales from our international businesses and licensed watch businesses will increase at a faster rate than our domestic accessory business.
A number of our products are produced under licensing agreement, some of which will expire in the near-term future, that require minimum royalty commitments.
A portion of our growth in sales and net income is, and is expected to continue to be, derived from the sales of products produced under licensing agreements with third parties. Sales of our licensed products amounted to 25% of our sales for fiscal year 2003. Under these license agreements, we generally have the right to produce, market and distribute certain products utilizing the brand names of other companies. Our material license agreements have various expiration dates between 2004 and 2009, with the DIESEL license expiring on December 31, 2004. We expect to sign a new license with DIESELreference forward-looking statements within the next few months. The failure by us to maintain or renew one or moremeaning of our existing material licensing agreements could adversely affect our revenues. In addition, although not material to our business, we have experienced instances where minimum royalty commitments under these agreements exceeded revenues derived from related product sales. We can provide no assurance that we will not experience this again. We incurred royalty expenseSection 27A of approximately $29.8 million, $17.8 million and $11.2 million in fiscal years 2003, 2002 and 2001, respectively. We also have several agreements in effect at the end of fiscal year 2003 which expire on various dates from December 2004 through December 2009 that require us to pay royalties ranging from 7.0% to 20.0% of defined net sales.
Our business may be harmed if we fail to protect our intellectual property.
Our trademarks and other proprietary rights are important to our success and competitive position. We are devoted to the establishment and protection of our trademarks and proprietary rights on a worldwide basis. We have not encountered a serious attempt by our competitors to counterfeit our products or use our trademarks, but nonetheless, we cannot be certain that the actions we have taken will be adequate to prevent imitation of our products by others or to prevent others from seeking to
prevent sales of our products as a violation of the trademarks or proprietary rights of others. In addition, we cannot be certain that others will not assert rights in, or ownership of, our trademarks and other proprietary rights or that we will be able to resolve these types of conflicts to our satisfaction. Because we sell our products internationally and are dependent on foreign manufacturing in Hong Kong and China, we are also dependent on the laws of foreign countries to protect our intellectual property. These laws may not protect proprietary rights to the same extent as the laws of the United States.
Risks associated with foreign government regulations and U.S. trade policy may affect our foreign operations and sourcing.
Our businesses are subject to risks generally associated with doing business abroad, such as foreign governmental regulation in the countries in which our manufacturing sources are located, primarily Hong Kong and other parts of China. While have not experienced any material issues with foreign governmental regulations that would impact our arrangements with our foreign manufacturing sources, we believe that this issue is of particular concern with regard to China due the less mature nature of the Chinese market economy and the historical involvement of the Chinese government in industry. If regulation were to render the conduct of business in a particular country undesirable or impracticable, or if our current foreign manufacturing sources were for any other reason to cease doing business with us, such a development could have a material adverse effect on our product sales and on our supply, manufacturing and distribution channels. Our business is also subject to the risks associated with the imposition of additional United States legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels. We cannot predict whether additional United States customs quotas, duties, tariffs, taxes or other charges or restrictions will be imposed upon the importation of our products in the future, or what effect such actions would have on our costs of operations.
An increase in product returns could negatively impact our operating results.
We recognize revenues as sales when merchandise is shipped and title transfers to the customer. We permit the return of damaged or defective products and accept limited amounts of product returns in certain other instances. Accordingly, we provide allowances for the estimated amounts of these returns at the time of revenue recognition based on historical experience. Any significant increase in product damages or defects and the resulting credit returns could have a material adverse impact on our operating results for the period or periods in which such returns materialize.
Two principal stockholders own a significant amount of our outstanding common stock.
Following this offering, Mr. Kosta Kartsotis, our President and CEO, will own 8,725,389 shares of our common stock and Mr. Tom Kartsotis, the Chairman of our Board of Directors, will own 12,786,585 shares of our common stock (or 12.74% and 18.2%, respectively, based on the number of shares outstanding as of March 15, 2004, as adjusted for our three-for-two stock split). As a result, they are in a position to significantly influence the outcome of elections of our directors, the adoption, amendment or repeal of our bylaws and any other actions requiring the vote or consent of our stockholders.
Our organizational documents contain anti-takeover provisions that could discourage a proposal for a takeover of us.
Our certificate of incorporation and bylaws, as well as the General Corporation Law of the State of Delaware, contain provisions that may have the effect of discouraging a proposal for a takeover of us. These include a provision in our certificate of incorporation authorizing the issuance of "blank check" preferred stock; the division of our Board of Directors into three classes to be elected on a staggered
basis, one class each year; provisions in our bylaws establishing advance notice procedures with respect to certain stockholder proposals; and provisions requiring that action taken to remove a director without cause be approved either by an 80% vote of the Board of Directors or an 80% vote of the stockholders. Our bylaws may be amended by a vote of 80% of the Board of Directors, subject to repeal by a vote of 80% of the stockholders. In addition, Delaware law limits the ability of a Delaware corporation to engage in certain business combinations with interested stockholders. Finally, Messrs. Kartsotis have the ability, by virtue of their stock ownership, to significantly influence a vote regarding a change in control of us.
Future sales of our common stock in the public market could adversely affect our stock price.
The 8,725,389 shares beneficially owned by Mr. Kosta Kartsotis and the 12,786,585 shares beneficially owned by Mr. Tom Kartsotis following this offering may be sold in the open market in the future, subject to any volume restrictions and other limitations under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 144 thereunder. Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include all statements other than statements of historical facts contained in this prospectus and the documents incorporated by reference in this prospectus, including statements regarding our future financial position, business strategy and the plans and objectives of management for future operations. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “should,” “forecast”, “outlook” “could,” “continue,” “would,” “project,” “predict,” “potential” or “will” and variations of these words or similar expressions are intended to identify forward-looking statements.
This prospectus contains certainSuch forward-looking statements that involve substantial risks and uncertainties, including, but not limited to, statements in the sections entitled "Management's discussion and analysis of financial condition and results of operations" and "Business." These forward-looking statements can generally be identified because the context of the statement includes words such asare only predictions, which may except, anticipate, intend, estimate, continue, believe, or other similar words. Similarly, statements that describe our future expectations, objectives and goals or contain projections of our future results of operations or financial condition are also forward-looking statements. Our future results, performance or achievements could differ materially from those expressedactual results or impliedfuture events. Although we believe that our plans, intentions and expectations reflected in thesethe forward-looking statements as a result of certain factors.are reasonable, we cannot be sure that they will be achieved. Among the factors that could cause our actual results to differ materially from those expressed in or implied by the forward-looking statements are: the effect of nationalworldwide economic conditions; the impact of COVID-19; the length and regional economic conditions, loweredseverity of COVID-19; the pace of recovery following COVID-19 and the availability, widespread distribution and use of effective vaccines; significant changes in consumer spending patterns or preferences; interruptions or delays in the supply of key components; acts of war or acts of terrorism; loss of key facilities; data breach or information systems disruptions; changes in foreign currency valuations in relation to the U.S. dollar; lower levels of consumer spending resulting from COVID-19, a general economic downturn or generally reduced shopping activity caused by public safety concerns,(including COVID-19) or consumer confidence concerns; the performance of our products within the prevailing retail environment,environment; customer acceptance of both new designs and newly-introduced product lines, including risks related to the expanded launch of connected accessories; changes in the mix of product sales; our ability to maintain proper inventory levels; financial difficulties encountered by customers and related bankruptcy and collection issues; the effects of vigorous competition in the markets in which we operate,operate; compliance with debt covenants and other contractual provisions; risks related to the integrationsuccess of the organizationsour business strategy and operations of any acquired businesses into our existing organization and operations, the termination or non-renewal of any acquired businesses into our existing organization and operations,restructuring programs; the termination or non-renewal of material licenses, ourlicenses; risks related to foreign operations and manufacturing,manufacturing; changes in the costs of materials, labor and advertising,advertising; government regulation and tariffs; our ability to secure and protect trademarks and other intellectual property rights. Although we believerights; levels of traffic to and management of our retail stores; the expectations reflectedoutcome of current and possible future litigation; and risks and uncertainties described in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
We will not receive any proceeds from the sale of common stock by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol "FOSL."
The following table sets“Risk Factors” set forth reported last sale prices ofin our common stock for the periods indicated. Such prices have been adjusted to reflect a three-for-two stock split of our common stock effected as a fifty percent (50%) stock dividend paid on June 7, 2002. This data has also been adjusted to reflect the three-for-two stock split paid in the form of a stock dividend on April 8, 2004.
| High | Low | |||||
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Fiscal year beginning January 4, 2004: | |||||||
First Quarter | $ | 23.170 | $ | 18.010 | |||
Second Quarter (through April 29, 2004) | 25.840 | 23.510 | |||||
Fiscal year beginning January 5, 2003: | |||||||
First Quarter | $ | 14.360 | $ | 10.633 | |||
Second Quarter | 16.293 | 10.800 | |||||
Third Quarter | 19.333 | 15.833 | |||||
Fourth Quarter | 20.133 | 16.233 | |||||
Fiscal year beginning January 6, 2002: | |||||||
First Quarter | $ | 12.445 | $ | 8.778 | |||
Second Quarter | 15.827 | 11.685 | |||||
Third Quarter | 16.407 | 10.400 | |||||
Fourth Quarter | 15.080 | 9.993 | |||||
Fiscal year beginning December 31, 2000 | |||||||
First Quarter | $ | 9.000 | $ | 6.111 | |||
Second Quarter | 10.378 | 7.338 | |||||
Third Quarter | 9.911 | 6.271 | |||||
Fourth Quarter | 10.045 | 7.178 |
On April 29, 2004, the last reported sale price of our common stock was $24.35. As of March 15, 2004, there were 153 holders of record of our common stock.
We expect that we will retain all available earnings generated by our operations for the developmentperiodic and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination as to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition and future prospects and such other factors as the Board of Directors may deem relevant.
The following information should be read in conjunction with our consolidated financial statements and related notes thereto incorporated by reference in this prospectus and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. The selected statements of operations data for the fiscal years ended January 3, 2004, January 4, 2003 and January 5, 2002 and the balance sheet data as of January 3, 2004 and January 4, 2003 are derived from our audited financial statements and are incorporated by reference in this prospectus. The statements of operations data for the fiscal years ended December 30, 2000 and January 1, 2000 and the balance sheet data as of January 5, 2002, December 30, 2000 and January 1, 2000 are derived from audited financial statements that are neither included nor incorporated by reference in this prospectus.
| Fiscal year | ||||||||||||||||
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�� | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
(dollars in thousands, except per share data) | | | | | | ||||||||||||
Statements of income and comprehensive income: | |||||||||||||||||
Net Sales | $ | 781,175 | $ | 663,338 | $ | 545,541 | $ | 504,285 | $ | 418,762 | |||||||
Gross Profit | 401,377 | 334,085 | 271,850 | 255,746 | 212,887 | ||||||||||||
Operating Income | 109,750 | 95,930 | 76,854 | 93,821 | 87,449 | ||||||||||||
Income before income taxes | 109,471 | 95,979 | 72,804 | 94,717 | 87,841 | ||||||||||||
Net income | 68,335 | 58,907 | 43,683 | (1) | 55,883 | 51,826 | |||||||||||
Earnings per share:(2) | |||||||||||||||||
Basic | 0.98 | 0.85 | 0.64 | (1) | 0.78 | 0.72 | |||||||||||
Diluted | 0.93 | 0.81 | 0.62 | (1) | 0.76 | 0.69 | |||||||||||
Weighted average common shares outstanding:(2) | |||||||||||||||||
Basic | 69,818 | 68,990 | 67,877 | 71,301 | 71,775 | ||||||||||||
Diluted | 73,182 | 72,357 | 70,290 | 73,520 | 75,213 | ||||||||||||
Balance sheet data: | |||||||||||||||||
Cash and equivalents(3) | $ | 164,053 | $ | 117,924 | $ | 72,851 | $ | 90,813 | $ | 101,778 | |||||||
Working capital | 313,561 | 241,177 | 163,280 | 169,792 | 155,198 | ||||||||||||
Total assets | 587,541 | 482,526 | 380,863 | 307,591 | 269,364 | ||||||||||||
Long-term debt | — | — | — | — | — | ||||||||||||
Stockholders' equity | 423,426 | 340,541 | 264,023 | 220,699 | 191,197 | ||||||||||||
Return on average stockholders' equity | 18.4 | % | 19.9 | % | 18.3 | % | 26.9 | % | 32.2 | % | |||||||
Management's discussion and analysis of financial condition and results of operations
The following discussion and analysis should be read in conjunctionreports filed with the "Selected financial data" and our financial statements and the related notes,SEC which are incorporated by reference ininto this prospectus. See “Risk factors” above. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures we make in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. See “Where you can find additional information.”
Our products are sold primarily to department stores and specialty retail stores in over 90 countries worldwide through company-owned foreign sales subsidiaries and through a network of approximately 60 independent distributors. Our foreign operations include wholly or majority-owned subsidiaries in Australia, Canada, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom. In addition, our products are offered at company-owned retail locations, located in the United States and certain international markets, and authorized FOSSIL retail stores and kiosks located in several major airports, on cruise ships and in certain international markets. Our successful expansion of our product lines worldwide and leveraging of our infrastructure have contributed to our increasing net sales and operating profits.
Significant accounting policies and estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management 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 financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to product returns, bad debts, and inventories. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies require the most significant estimates and judgments.
Revenues. Revenues are recognized at the point the goods leave our distribution center for the customer. Because the majority of our customers pay freight and do not have stated rights of inspection, title transfers at the point in time the goods leave our dock. We will accept limited returns and will request that a customer return a product if we feel the customer has an excess of any style that we have identified as being a poor performer for that customer or geographic location. While such returns have historically been within management's expectations and the provisions established, future return rates may differ from those experienced in the past. Any significant increase in product damages or defects and the resulting credit returns could have an adverse impact on the operating results for the period or periods in which such returns materialize.
Accounts Receivable. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by the review of their current credit information. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues identified. While such credit losses have historically been within our expectations and the provisions established, future credit losses may differ from those experienced in the past.
Inventories. Inventories are stated at the lower of average cost, including any applicable duty and freight charges, or market. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Asset Impairment. We are required to test for asset impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from estimated future cash flows. We apply SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in order to determine whether or not an asset is impaired. Our management evaluates the ongoing value of assets primarily leasehold improvements and in-store fixturing, associated with its retail stores that have been open longer than one year. When undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets, impairment losses are recorded in selling and distribution expenses. Should actual results or market conditions differ from those anticipated, additional losses may be recorded.
Goodwill. We adopted SFAS No. 142, Goodwill and Other Intangible Assets, on January 6, 2002. In accordance with SFAS No. 142, our management evaluates goodwill for impairment by comparing the fair value of the reporting unit to the book value. The fair value of our reporting units is estimated using discounted cash flow methodologies and market comparable information. Based on the analysis, if the implied fair value of each reporting unit exceeds the book value of the goodwill, no impairment loss is recognized. In the fourth quarter of fiscal 2003 and 2002, we performed the required annual impairment test and determined that no goodwill impairment existed.
New Accounting Standards. In May 2003, SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" was issued that incorporates additional reporting standards for derivative instruments. While we follow FASB No. 133, the amendment as issued under SFAS No. 149 will not impact our consolidated financial statements.
2003 highlights
Results of operations
The following table sets forth, for the periods indicated, (i) the percentages of our net sales represented by certain line items from our consolidated statements of income and (ii) the percentage changes in these line items between the years indicated.
Fiscal Year | 2003 | Percentage change from 2002 | 2002 | Percentage change from 2001 | 2001 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | 100.0 | % | 17.8 | % | 100.0 | % | 21.6 | % | 100.0 | % | |
Cost of sales | 48.6 | 15.4 | 49.6 | 20.3 | 50.2 | ||||||
Gross profit | 51.4 | 20.1 | 50.4 | 22.9 | 49.8 | ||||||
Operating expenses | 37.3 | 22.5 | 35.9 | 22.1 | 35.7 | ||||||
Operating income | 14.1 | 14.4 | 14.5 | 24.8 | 14.1 | ||||||
Interest expense | — | (42.1 | ) | — | (66.4 | ) | 0.1 | ||||
Other (expense) income—net | — | (239.1 | ) | — | 104.2 | (0.7 | ) | ||||
Income before income taxes | 14.1 | 14.1 | 14.5 | 31.8 | 13.3 | ||||||
Provision for income taxes | 5.3 | 11.0 | 5.6 | 27.3 | 5.3 | ||||||
Net income | 8.8 | % | 16.0 | % | 8.9 | % | 34.9 | % | 8.0 | % | |
The following table sets forth certain components of our consolidated net sales and the percentage relationship of the components to consolidated net sales for the fiscal year indicated:
| Amounts in millions | Percentage of total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year | ||||||||||||||||||
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||
International: | ||||||||||||||||||
Europe | $ | 258.1 | $ | 189.4 | $ | 130.3 | 33.1 | % | 28.6 | % | 23.9 | % | ||||||
Other | 82.0 | 63.6 | 56.1 | 10.5 | 9.6 | 10.3 | ||||||||||||
Total international | 340.1 | 253.0 | 186.4 | 43.6 | 38.2 | 34.2 | ||||||||||||
Domestic: | ||||||||||||||||||
Watch products | 205.7 | 200.9 | 180.6 | 26.3 | 30.3 | 33.1 | ||||||||||||
Other products | 131.3 | 126.3 | 110.3 | 16.8 | 19.0 | 20.2 | ||||||||||||
Total domestic | 337.0 | 327.2 | 290.9 | 43.1 | 49.3 | 53.3 | ||||||||||||
Stores worldwide | 104.1 | 83.1 | 68.2 | 13.3 | 12.5 | 12.5 | ||||||||||||
Total net sales | $ | 781.2 | $ | 663.3 | $ | 545.5 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Fiscal 2003 compared to fiscal 2002
Net sales. The following table is intended to illustrate by factor the total year-over-year percentage change in sales by segment and on a consolidated basis:
Analysis of Percentage Change in Sales Versus Prior Year Attributable to Changes in the Following Factors
| Exchange Rates | Acquisitions | Organic Growth | Total Change | |||||
---|---|---|---|---|---|---|---|---|---|
Europe | 19 | % | 2 | % | 15 | % | 36 | % | |
Other international | 5 | 9 | 15 | 29 | |||||
Domestic wholesale | — | — | 3 | 3 | |||||
Retail Worldwide | 1 | 5 | 19 | 25 | |||||
Total | 6 | % | 2 | % | 10 | % | 18 | % | |
International Net Sales. European sales growth was driven by sales volume increases in FOSSIL, DIESEL and DKNY watches and FOSSIL and EMPORIO ARMANI jewelry. Growth from other international sales, which include our Canada and Far East distribution businesses and export sales from the U.S., was led by sales volume increases in FOSSIL, EMPORIO ARMANI and DIESEL watch businesses. We believe we maintain a competitive advantage as a result of our long-term relationships and strength of our business with our retailers throughout the international marketplace. We further believe our impressive portfolio of global watch brands and our ability to acquire additional brands position us for further penetration internationally as we continue to take shelf space from lesser known local and regional brands. We believe these brands do not have the marketing strength, distribution network or the global brand recognition in comparison to the brands included in our watch portfolio. Additionally, we anticipate that the recent additions of Swiss-made BURBERRY and ZODIAC watches and EMPORIO ARMANI jewelry will further advance our product offering and allow for long-term leverage of our existing distribution infrastructure outside the U.S. further strengthening our competitive advantage. Our management believes our international businesses will continue to contribute significant double-digit sales increases in 2004, assuming the Euro foreign currency rate remains near the 1.25 to 1.0 level relative to the U.S. dollar.
Domestic Net Sales. Domestic watch sales increased 2.4% on sales volume increases primarily as a result of a 5.5% increase in sales of FOSSIL watches and a 17.3% increase in sales of licensed brand watches. The re-emergence of leather strap watches as a popular fashion item and the increased market penetration of Fossil watches that have motion taking place on the dial were the primary factors behind increases in FOSSIL watch sales. These sales gains were partially offset by an 18% decrease in sales of RELIC watches and a 98% decrease in sales of the EDDIE BAUER private label watch line. During 2003, we chose not to renew our watch license for the EDDIE BAUER brand name, due primarily to the financial difficulties experienced by EDDIE BAUER'S parent company. We believe that the decline in sales of RELIC watches is primarily due to increased competition from less expensive fashion watches. Our management believes it can gain additional market share for FOSSIL and our other watch brands in the U.S. market by expanding into both a greater number of locations with our existing retailers as well as adding additional retailers for certain brands that we believe are under-penetrated by utilizing the talent of our broad-based design group and exploiting the speed of our supply chain that allows for quicker response to changes in fashion trends than our competitors. Domestic sales of our accessory and sunglass businesses rose 4.0% resulting from a 34%, 7% and 79% increase in RELIC accessories, FOSSIL men's leather and FOSSIL sunglasses, respectively. Excluding RELIC eyewear, which experienced a 57% decrease in sales volume in 2003 due to the loss of a sizeable portion of a significant customer's business, domestic sales of our accessory and sunglass businesses increased 9.0%. FOSSIL watches and accessories continue to be a leading supplier to U.S. department and specialty retail stores. Moreover, management believes Swiss-made BURBERY and ZODIAC watches and EMPORIO ARMANI jewelry will allow us to expand into additional distribution channels in the U.S., primarily specialty watch and jewelry stores during 2004 and beyond. Management believes sales growth for our domestic wholesale businesses to be in the mid to high single digit range for 2004.
Company-Owned Retail Stores Net Sales. Sales from company-owned retail stores worldwide increased 25.3% during the year as a result of a 14.4% increase in the average number of stores opened during the year and comparable store sales gains of 10.6%. Our management believes our double-digit comparable store growth during the year was attributable to better in-store merchandising and visual presentation and lower quantities of discounted merchandise available in comparison to the prior year, that resulted in higher average selling prices during 2003. We operated 119 stores at the end of the year, consisting of 53 outlet, 26 accessory and 18 jeanswear stores in the United States and 22 accessory stores located outside the United States. This compares to 104 stores at the end of the prior year, 47 outlet, 23 accessory and 18 jeanswear in the United States and 16 accessory stores located outside the United States. We opened 17 new stores during the year, including six stores acquired in Europe, and closed two stores. With the addition of an outlet opened in early 2004, we currently operate 120 stores, consisting of 54 outlet, 26 accessory and 18 jeanswear stores in the United States and 22 accessory stores located outside the United States. Our management expects that 12 to 16 new stores will be opened in 2004 with at least one-half of these new store openings planned to be outlet concepts. Based upon planned new door openings and continued positive comparable store sales growth, management believes retail stores net sales growth will exceed 15% in 2004. A store is included in comparable store sales in the thirteenth month of operation. Stores that experience a gross square footage increase of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.
Operating Expenses. Operating expenses increased approximately $53 million during 2003 and, as a percentage of net sales, increased to 37.3% during 2003 compared to 35.9% for the prior year. Included in 2003 operating expenses is approximately $13 million in additional costs related to the translation impact of stronger foreign currencies into U.S. dollars and approximately $7 million related to operating expenses of businesses acquired in 2002. The remaining $33 million increase in operating expenses during 2003 primarily reflects (i) $9.4 million in additional personnel and other costs associated with new business initiatives primarily related to our Swiss watch, EMPORIO ARMANI jewelry and technology-enhanced watch businesses for which there have been minimal revenue contributions to date, (ii) advertising costs, (iii) depreciation and amortization expense and (iv) additional costs to support sales volume growth. For the year, total advertising expense increased $11.0 million to 7.1% of net sales compared to 6.7% of net sales in 2002. Depreciation and amortization expense increased $4.8 million due to completion of the first phase of our SAP global software implementation in July 2003 as well as other capital additions made during 2003. Our management anticipates 2004 operating expenses, as a percentage of net sales, to decrease slightly from the levels experienced in 2003, assuming increased revenue contributions from the new business initiatives and non-recurrence of certain new product launch costs incurred during 2003. Because our sales are more heavily weighted toward the second half of the year, management expects operating expenses as a percentage of sales to be equal to or slightly greater than the prior year during the first six months of 2004 and slightly less than the prior year in the second six months of the year.
Operating Income. Increased operating expenses, as a percentage of net sales, were partially offset by improved gross profit margins resulting in operating profit margin of 14.1% of net sales compared to 14.5% of net sales in 2002. Operating income for the year included approximately $15 million of additional income as a result of the effects of stronger foreign currencies. Our management believes operating margin for 2004 could expand by 50 to 100 basis points, based on assumptions discussed above. Operating profit margin during the first half of 2004 could be slightly below this range, while operating margin in the second half of the year could approach, or slightly exceed, the high end of the range.
Other Income (Expense). Other income (expense) primarily reflects interest income from cash investments, royalty income, foreign currency transaction gains (losses), minority interest expense of our majority-owned consolidated subsidiaries and equity in the earnings of our non-consolidated joint venture. During 2003, other income (expense) decreased unfavorably by approximately $300,000. The decrease was primarily a result of increased minority interest expense and legal expenses related to enforcing our intellectual property rights offset by foreign currency transaction gains and increased interest income due to higher levels of invested cash balances maintained during 2003.
Income Taxes. Our effective income tax rate decreased to 37.6% during 2003 compared to 38.6% in the prior year. This decrease was primarily related to a higher mix of income generated from countries whose statutory income tax rates are lower than our historical average income tax rate. Our management believes this trend in our mix of income will continue, and as a result, expects our income tax rate to decrease slightly in 2004.
Fiscal 2002 compared to fiscal 2001
Net Sales. Net sales increased 22% for the year (19% excluding currency gains). This increase was led by strong sales volume growth in our international businesses, primarily from Europe which experienced a 45% increase (36% excluding currency gains). We believe our strategy of utilizing our impressive portfolio of watch brands continues to position us for further market penetration in Europe and the Far East. Also, we believe the addition of Swiss-made BURBERRY and ZODIAC watches and EMPORIO ARMANI jewelry will further advance our product offerings and allow for long-term leverage of our existing distribution infrastructure inside and outside the U.S. Businesses acquired in
Switzerland, Canada and Japan contributed approximately $6.7 million to international sales. In the U.S., sales from our domestic wholesale businesses grew 12% as a result of further expansion of RELIC accessories, significant growth in licensed watch sales and solid growth in FOSSIL watches and accessories. Market expansion of RELIC handbags, small leather goods and sunglasses in the national department store channel accelerated beyond the launch of these product categories in 2001. Licensed watch sales growth in 2002 benefited from the launch of the COLUMBIA brand and further market penetration in DIESEL, EMPORIO ARMANI and DKNY. FOSSIL watches grew market share in the U.S. during 2002 and further expanded its leading fashion watch position in department and selected specialty stores.
Gross Profit. Gross profit margin increased to 50.4% compared to 49.8% in the prior year. This increase is attributed to increased sales mix from our international businesses and licensed watches as a percentage of total sales. International sales and licensed watch sales grew to approximately 38% and 21% of total sales during 2002, respectively, as compared to 34% and 17.5% during 2001, respectively. Both international and licensed watch sales generally provide gross margins in excess of our historical consolidated gross profit margin. Additionally, gross profit margin was favorably impacted from a lower sales mix of accessory products that generally provide gross profit margins below our historical consolidated gross profit margin. A stronger Euro during 2002 compared to the prior year slightly benefited gross profit margin.
Operating Expenses. Operating expenses, as a percentage of net sales, increased to 35.9% compared to 35.7% for the prior year. The $43 million increase in operating expenses primarily reflects increased variable costs to support sales growth, as well as higher distribution costs relating to our new distribution facility, increased payroll cost, increased advertising expenditures, operating expenses related to acquired businesses and higher costs in Europe due to the effects of a stronger Euro. The increase in payroll and advertising costs is primarily associated with new business initiatives, including Swiss-made watches, jewelry and new technology products.
Operating Income. Increased sales and improved gross profit margin more than offset increases in operating expenses for the year. As a result, our operating profit margin increased to 14.5% from 14.1% in the prior year.
Other Income (Expense). Other income (expense) primarily reflects interest income from cash investments, royalty income, minority interests in the earnings (loss) of our majority-owned subsidiaries and equity in the earnings (losses) of our non-consolidated joint venture. During 2002, other income (expense) decreased unfavorably by approximately $900,000 primarily as a result of reduced interest income due to lower yields on invested cash balances and the effects of a $500,000 legal settlement received by us in the prior year.
Income Taxes. Our effective income tax rate decreased to 38.6% during 2002 compared to 40% in the prior year. This decrease was primarily related to a higher mix of income generated from countries whose statutory income tax rates are lower than our historical average income tax rate.
Effects of inflation
Our management does not believe that inflation has had a material impact on results of operations for the periods presented. Substantial increases in costs, however, could have an impact on us and the industry. Management believes that, to the extent inflation affects its costs in the future, we could generally offset inflation by increasing prices if competitive conditions permit.
Liquidity and capital resources
Our general business operations historically have not required substantial cash needs during the first several months of its fiscal year. Generally, starting in the second quarter, our cash needs begin to
increase, typically reaching its peak in the September-November time frame. Our cash holdings and short-term marketable securities as of year-end increased to $164 million in comparison to $118 million at the end of the prior year. This $46 million increase in cash flow is primarily derived from $74 million of net cash generated from operating activities offset by $31 million used in investing activities, primarily related to $29 million in additions to property plant and equipment and $7 million used in financing activities, primarily related to amounts associated with repurchases and retirements of common stock, offset by proceeds received by us from the exercise of stock options.
Accounts receivable increased to $122 million at year-end compared to $86 million at January 4, 2003. Day's sales outstanding increased to 43 days for the year compared to 37 days in the prior year. The majority of this increase was attributable to an increase in our collection cycle and currency translation effects. The collection cycle has increased as a result of a larger percentage of international sales, which historically have longer collection periods than those experienced in the U.S. Inventory at year-end was current and in sufficient quantities to meet our near-term needs. It is our goal to experience a percentage increase in our inventory levels that is equal to or less than the percentage increase in consolidated net sales. At year-end, we had $127 million in inventory, representing an increase of 4.1% compared to prior year inventory of $122 million, well below our 18% net sales growth.
At the end of the year, we had working capital of $314 million compared to working capital of $241 million at the end of the prior year. We had approximately $2.8 million of outstanding borrowings at the end of the year. These borrowings are under a short-term facility in Japan bearing interest at the Euroyen rate (approximately 0.7% at year-end), due October 2004. No borrowings under this credit facility were incurred during 2003. Our management believes that cash flow from operations combined with existing cash on hand and amounts available under our credit facility will be sufficient to satisfy the cash requirements of our working capital needs for at least the next 18 months.
During 2004, we anticipate capital expenditures in the range of $20—$25 million to cover principally additional computer software/hardware implementations, leasehold and owned facility improvements and warehouse equipment purchases. In addition, it is our intent to continue our stock repurchase program to partially offset the dilutive effect of stock options granted. This program could add an additional $15—$20 million to our capital requirements in 2004. Management believes that cash flow from operations combined with existing cash on hand will be sufficient to fund our capital needs during 2004. We also have access to approximately $40 million in undrawn credit facilities should additional funds be required.
Contractual obligations and off-balance sheet arrangements
The following table presents, as of January 3, 2004, a summary of our significant cash contractual obligations by payment date. Further discussion of the nature of each obligation is included in note 10 to our consolidated financial statements.
| Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||
---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | | | | | | |||||
Contractual Obligations | ||||||||||
Short-term debt(1) | 2,805 | 2,805 | ||||||||
Minimum royalty payments(2) | 117,835 | 22,092 | 45,613 | 43,302 | 6,828 | |||||
Future minimum rental commitments | 106,476 | 18,760 | 32,719 | 26,382 | 28,615 | |||||
Purchase obligations(3) | 8,865 | 8,865 | ||||||||
Total contractual cash obligations | 227,116 | 43,657 | 78,332 | 69,684 | 35,443 |
A schedule of significant commitments under our license agreements is also set forth under note 10 of our consolidated financial statements. We have no consolidated off-balance sheet arrangements or material purchase obligations.
Quantitative and qualitative disclosures about market risk
As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. Our most significant foreign currency risk relates to the Euro and the British Pound as compared to the U.S. dollar. Due to our vertical nature whereby a significant portion of goods are sourced from our owned facilities, the foreign currency risks relate primarily to the necessary current settlement of intercompany inventory transactions. We employ a variety of practices to manage this market risk, including our operating and financing activities and, where deemed appropriate, the use of foreign currency forward contracts. The use of these instruments allows management to offset exposure to rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. We use derivative instruments only for risk management purposes and do not use them for speculation or for trading. There were no significant changes in how we manage foreign currency transactional exposure in 2003 and management does not anticipate any significant changes in such exposures or in the strategies we employs to manage such exposure in the near future.
At year-end we had outstanding foreign exchange contracts to sell (i) 34.3 million Euro for approximately $40.1 million, expiring through December 2004, and (ii) approximately 3.5 million British Pounds for approximately $5.9 million, expiring through April 2004. If we were to settle our Euro and British Pound based contracts at fiscal year-end 2003, the net result would be a loss of approximately $2.2 million, net of taxes. Exclusive of these outstanding foreign exchange contracts or other operating or financing activities that may be employed by us, a measurement of the unfavorable impact of a 10 percent change in the Euro and British Pound as compared to the U.S. dollar would have on our operating profits and stockholder's equity is presented in the following paragraph.
At fiscal year-end 2003, a 10 percent unfavorable change in the U.S. dollar against the Euro and British Pound involving balance sheet transactional exposures would have resulted in a net pretax loss of less than $100,000. The translation of the balance sheets of our European and United Kingdom-based operations from their local currencies into U.S. dollars is also sensitive to changes in foreign currency exchange rates. At fiscal year-end 2003, a 10 percent unfavorable change in the exchange rate of the U.S. dollar against the Euro and British Pound would have reduced stockholder's equity by approximately $9.0 million. In the view of management, the risks associated with exchange rate changes in other currencies we have exposure to are not material and these hypothetical losses resulting from these assumed changes in foreign currency exchange rates are not material to our consolidated financial position, results of operation or cash flows.
Selected quarterly financial data
The table below sets forth selected quarterly financial information. The information is derived from our unaudited consolidated financial statements and includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair statement of results for such
periods. The operating results for any quarter are not necessarily indicative of results for any future period.
Fiscal Year 2003 | 1st Qtr | 2nd Qtr | 3rd Qtr | 4th Qtr | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(dollars in thousands, except per share data) | | | | | ||||||||||
Net sales | $ | 169,767 | $ | 159,593 | $ | 192,616 | $ | 259,199 | ||||||
Gross profit | 85,616 | 81,868 | 96,976 | 136,917 | ||||||||||
Operating expenses | 65,794 | 65,670 | 69,592 | 90,571 | ||||||||||
Operating income | 19,822 | 16,198 | 27,384 | 46,346 | ||||||||||
Income before income taxes | 19,585 | 16,706 | 27,183 | 45,997 | ||||||||||
Provision for income taxes | 7,442 | 6,317 | 10,383 | 16,994 | ||||||||||
Net income | 12,143 | 10,389 | 16,800 | 29,003 | ||||||||||
Earnings per share: | ||||||||||||||
Basic | 0.17 | 0.15 | 0.24 | 0.41 | ||||||||||
Diluted | 0.17 | 0.14 | 0.23 | 0.39 | ||||||||||
Gross profit as a percentage of net sales | 50.4 | % | 51.3 | % | 50.3 | % | 52.8 | % | ||||||
Operating expenses as a percentage of net sales | 38.8 | % | 41.1 | % | 36.1 | % | 34.9 | % | ||||||
Operating income as a percentage of net sales | 11.7 | % | 10.1 | % | 14.2 | % | 17.9 | % | ||||||
Fiscal Year 2002 | 1st Qtr | 2nd Qtr | 3rd Qtr | 4th Qtr | ||||||||||
(dollars in thousands, except per share data) | | | | | ||||||||||
Net sales | $ | 143,680 | $ | 142,460 | $ | 164,821 | $ | 212,377 | ||||||
Gross profit | 71,492 | 71,475 | 81,579 | 109,539 | ||||||||||
Operating expenses | 52,229 | 55,306 | 58,419 | 72,201 | ||||||||||
Operating income | 19,263 | 16,169 | 23,160 | 37,338 | ||||||||||
Income before income taxes | 19,367 | 15,962 | 23,112 | 37,538 | ||||||||||
Provision for income taxes | 7,552 | 6,224 | 9,015 | 14,281 | ||||||||||
Net income | 11,815 | 9,738 | 14,097 | 23,257 | ||||||||||
Earnings per share: | ||||||||||||||
Basic | 0.17 | 0.14 | 0.21 | 0.33 | ||||||||||
Diluted | 0.17 | 0.13 | 0.19 | 0.32 | ||||||||||
Gross profit as a percentage of net sales | 49.8 | % | 50.2 | % | 49.5 | % | 51.6 | % | ||||||
Operating expenses as a percentage of net sales | 36.4 | % | 38.8 | % | 35.4 | % | 34.0 | % | ||||||
Operating income as a percentage of net sales | 13.4 | % | 11.3 | % | 14.1 | % | 17.6 | % |
While the majority of our products are not seasonal in nature, a significant portion of our net sales and operating income is generally derived in the second half of the year. Our fourth quarter, which includes the Christmas season, generated in excess of 40% of our annual operating income for 2003. The amount of net sales and operating income generated during the first quarter is affected by the levels of inventory held by retailers at the end of the Christmas season, as well as general economic conditions and other factors beyond our control. In general, lower levels of inventory held by retailers at the end of the Christmas season may have a positive impact on our net sales and operating income in the first quarter as a result of higher levels of restocking orders placed by retailers. Our management currently believes that our inventory levels at our major customers at the end of 2003 were at or near retailers' target inventory levels.
Increasing the number of company-owned stores would generally amplify our seasonality by decreasing our operating income in the first half of the year while increasing operating income during the second half of the year. In addition, new product launches would generally augment the sales and operating expense levels in the quarter the product launch takes place. The results of operations for a particular quarter may also vary due to a number of factors, including retail, economic and monetary conditions, timing of orders or holidays and the mix of products sold by us.
General
We are a leader in the design, development, marketing and distribution of contemporary, high quality fashion watches and accessories. We developed the FOSSIL brand name to convey a distinctive fashion, quality and value message and a brand image reminiscent of an earlier era that suggests a time of fun, fashion and humor. Since our inception in 1984, we have grown into a diversified company offering an extensive line of fashion watches under our proprietary FOSSIL, RELIC and ZODIAC brands and, pursuant to license agreements, under some of the most prestigious brands in the world, including BURBERRY, DIESEL, DKNY and EMPORIO ARMANI. Additionally, we offer a wide range of accessories including small leather goods, belts, handbags, and sunglasses under the FOSSIL and RELIC brands, jewelry under the FOSSIL and EMPORIO ARMANI brands and FOSSIL brand apparel. We leverage our centralized design/development and production/sourcing expertise by distributing these products through its global distribution network.
Domestically, we sell our products in approximately 20,500 retail locations in the United States through a diversified distribution network that includes approximately 7,500 department store doors, such as Federated/Macy's, Saks, Nordstroms, May Department Stores, and Dillard's for our FOSSIL brand and certain licensed brands and JCPenney, Kohls and Sears for our RELIC brand, and approximately 13,000 specialty retail locations. We also sell our products in the United States through a network of 98 company-owned stores, with 44 retail stores located in premier retail sites and 54 outlet stores located in major outlet malls. We also offer selected FOSSIL and licensed brand products at our website, www.fossil.com.
Internationally, our products are also sold to department stores and specialty retail stores in over 90 countries worldwide through company-owned foreign sales subsidiaries and through a network of approximately 60 independent distributors. Our products can be found in Australia, Europe, Central and South America, Canada, the Caribbean, the Far East, Mexico, and the Middle East. Our products are offered on cruise ships, on airplanes and in 22 international company-owned FOSSIL retail stores. Additionally, our products are sold through independently-owned FOSSIL retail stores and kiosks in certain international markets.
We are a Delaware corporation formed in 1991 and are the successor to a Texas corporation formed in 1984. In 1993, we completed an initial public offering of 2,760,000 shares of our common stock. We conduct a majority of our operations in the United States through Fossil Partners, L.P., a Texas limited partnership formed in 1994 of which we are sole general partner. We also conduct operations in the United States and certain international markets through various directly and indirectly owned subsidiaries. Our operations in Hong Kong relating to the procurement of watches from various manufacturing sources are conducted by Fossil (East) Ltd., a wholly owned subsidiary of ours acquired in 1992. Our principal executive offices are located at 2280 N. Greenville Avenue,901 S. Central Expressway, Richardson, Texas 75082,75080, and our telephone number at suchthat address is (972) 234-2525.
Industry overview
Watch products
We believe that Our common stock is traded on the current market for watches in the United States can be divided into four segments. One segment of the market consists of fine watches characterized by internationally known brand names such as Concord, Piaget and Rolex. Watches offered in this segment are usually made of precious metals or stainless steel and may be set with precious gems. These watches are often manufactured in Switzerland and are sold by trade jewelers and in the fine jewelry departments of better department stores and other purveyors of luxury goods at retail prices ranging from $1,500 to in excess of $20,000. A second segment of the market consists of fine premium branded and designer
watches manufactured in Switzerland and the Far East such as Gucci, Rado, Raymond Weil, Seiko and Swiss Army. These watches are sold at retail prices generally ranging from $150 to $1,500. Our BURBERRY, EMPORIO ARMANI and ZODIAC lines generally compete in this market segment. A third segment of the market consists of watches sold by mass marketers, which include certain watches soldNASDAQ Global Select Market under the Timex brand name as well as certaintrading symbol “FOSL”. Our products include traditional watches, sold by Armitron under various brand names and labels. Retail prices in this segment range from $5 to $40. We intend to enter this segment in 2004.
The fourth segment of the market consists of moderately priced watches characterized by contemporary fashion and well known brand names. Moderately priced watches are typically manufactured in Japan, China or Hong Kong and are sold by department stores and specialty stores at retail prices ranging from $40 to $150. This market segment is targeted by us with our FOSSIL and RELIC lines and by our principal competitors, including the companies that market watches under the Guess?, Anne Klein II, Kenneth Cole and Swatch brand names, whose products attempt to reflect emerging fashion trends in accessories and apparel. Our DKNY and DIESEL lines generally compete in this segment as well. We believe that consumers have increasingly come to regard branded fashion watches not only as time pieces but also as fashion accessories. This trend has resulted in consumers owning multiple watches that may differ significantly in terms of style, features and cost.
Fashion accessories
We believe that the fashion accessories market in the United States includes products such assmartwatches, jewelry, handbags, small leather goods, handbags, belts, eyewear, neckwear, underwear, lounge wear, jewelry, gloves, hats, hosiery and socks. We believe that consumers are becoming more aware of accessories as fashion statements, and as a result, are purchasing brand name, quality items that complement other fashion items. These fashion accessory products are generally marketed through mass merchandisers, department stores and specialty shops, depending upon price and quality. Higher price point items include products offered by Coach, Dooney & Burke, Ralph Lauren and Donna Karan New York.
Moderately priced fashion accessories are typically marketed in department stores and are characterized by contemporary fashion and well known brand names at reasonable price points, such as FOSSIL and RELIC. We currently offer small leather goods, handbags, belts and eyewear for both men and women through department stores and specialty retailers in the moderate to upper-moderate price range. Companies such as Tommy Hilfiger, Guess?, Nine West, Kenneth Cole and Liz Claiborne currently operate in this market. In addition, we offer fashion jewelry sold under the FOSSIL and EMPORIO ARMANI brands.
Apparel
In 2000, we introduced a line of FOSSIL apparel that is distributed exclusively through company-owned retail stores and our website. Selling through company-owned stores allows us to effectively manage visual presentation, information feedback, inventory levels and operating returns. The apparel line is focused on the casual lifestyle of 16 to 24 year old consumers and consists primarily of jeans, tee shirts, and sweatshirts featuring FOSSIL brand packaging and labeling. The suggested retail selling price of the apparel line is comparable to that of major competitors like American Eagle Outfitters and Gap. We have leveraged our existing graphic and store design infrastructure to create a unique product packaging and store concept that differentiates it from other competitors in order to create higher perceived value for the products.
Business strategy
Our long-term goal is to capitalize on the strength of our growing consumer brand recognition and capture an increasing share of a growing number of markets by providing consumers with fashionable,
high quality, value-driven products. In pursuit of this goal, we have adopted operating and growth strategies that provide the framework for our future growth, while maintaining the consistency and integrity of our brands.
Operating strategy
Switzerland and the United Kingdom. In September 2003, we opened a new 100,000 square foot distribution facility in Germany. This facility will support our current distribution operations in Germany, allow us to consolidate our European distribution sites and further support future growth throughout Europe. We believe our centralized distribution capabilities enable us to reduce inventory risk, increase flexibility in meeting the delivery requirements of our customers and maintain significant cost advantages as compared to our competitors.
Growth strategy
Products
sunglasses. We design, develop, market and distribute fashion watches and accessories, including sunglasses, small leather goods, belts, and handbags principally under the FOSSIL and RELIC brand names, FOSSIL brand apparel and jewelry, and watches bearing the brand names of certain internationally known fashion companies pursuant to license agreements.
Watch products
We offer an extensive line of fashion watches under our proprietaryowned brands FOSSIL
The following table sets forth certain information with respect to our company's owned-brand watches:
We have entered into multi-year, worldwide license agreements for the manufacture, distribution and sale of watches bearing the brand names of certain internationally known fashion companies. The following table sets forth specific information with respect to certain of our licensed watch products:
The continuation of these license agreements is important to the growth of our watch business, especially in Europe and Asia. The license agreements have various expiration dates between 2004 and 2009. Our DIESEL watch license expires on December 31, 2004. We expect to sign a new license with Diesel within the next few months. We have also entered into a number of license agreements forproceeds from the sale of collectible watches. Under these agreements, we design, manufacture and market the goods bearing the trademarks, trade names and logos of various entities through our website and major department stores within our channels of distribution.
Private label and premium products. We design, market and arrangesecurities offered by us for the manufacture of watches on behalf of certain companies and organizations as private label products or as premium and incentive items for use in variousgeneral corporate events. Under this arrangement, we perform design and product development functions as well as act as a sourcing agent for our customers by contracting for the manufacture of watches, managing the manufacturing process, inspecting the finished watches,
purchasing the watches and arranging for their shipment to the United States. Participation in the private label and premium businesses provides us with certain advantages, including increased manufacturing volume,purposes, which may reduce the costs of manufacturing ourinclude, among other watch products,things, capital expenditures, investments and the strengthening of business relationships with its manufacturing sources. These lines provide income to us with reduced inventory risks and certain other carrying costs.
Technology-enhanced products. Pursuant to an agreement with Microsoft, we incorporate Microsoft's SPOT technology into certain watches under our FOSSIL and ABACUS® brands. These watches receive customized information from Microsoft, such as news, weather and instant messages, via FM subcarrier transmissions. To receive the information, users are required to register with Microsoft, which includes a service fee. Receipt of the information is also subject to local FM reception. We also have a license with PalmSource to produce watches that incorporate the Palm OS platform, which we expect to launch by the end of 2004.
Fashion accessories
In order to leverage our design and marketing expertise and our close relationships with our principal retail customers, we have developed a line of fashion accessories, including handbags, men's and women's belts, small leather goods, jewelry and sunglasses. Our handbags are made of a variety of fine leathers and other materials that emphasize classic styles and incorporate a variety of creative designs. The sunglass line features optical quality lenses in both plastic and metal frames, with classic and fashion styling similar to other FOSSIL products. Our small leather goods are typically made of fine leathers and include items such as mini-bags, coin purses, key chains and wallets. Our jewelry lines include earrings, necklaces, rings and bracelets. FOSSIL brand jewelry generally is offered in sterling silverpurchase, repurchase, repayment, redemption, defeasance, satisfaction or stainless steel. EMPORIO ARMANI brand jewelry is generally made of sterling silver, semi-precious stones or 18K gold. We currently sell our fashion accessories through a number of our existing major department store and specialty retail store customers. We generally market our fashion accessory lines through the same distribution channels as our watch business, using similar in-store presentations, graphics and packaging. These fashion accessories are typically sold in locations adjacent to watch departments, which may lead to purchases by persons who are familiar with our watches. Sales of our accessory lines for fiscal years 2003, 2002 and 2001 accounted for approximately 26.5%, 30.3%, and 25.7%, respectively, of our net sales.
The following table sets forth certain information with respect to our fashion accessories:
In July 2000, we introduced a collection of FOSSIL brand apparel. The apparel collection is designed for both men and women. The products' unique retro-Americana packaging captures the energy and spirit of the FOSSIL brand. The FOSSIL apparel collection is offered through approximately 18 company-owned stores located in leading malls and retail locations in the United States. The line is also available at our website.
The following table sets forth certain information with respect to our apparel line:
Other products
Licensed products. In order to complement our existing line of products and to increase consumer awareness of the FOSSIL brand, we have entered into license agreements for other categories of fashion accessories. These license agreements provide for royalty income to us based on a percentage of net sales and are subject to certain guaranteed minimum royalties. In 1999, we entered into a multi-year license agreement with the Safilo Group for the manufacture, marketing and sale of optical frames under the FOSSIL brand in the United States and Canada. We also entered into a multi-year license agreement for the manufacture, marketing and sale of certain handbags, backpacks and sports bags in Austria, Germany, the Netherlands and Switzerland under the FOSSIL brand.
Future products. We continually evaluate opportunities to expand our product offerings in the future to include other lines that would complement our existing product.
Design and development
Our watch, accessory and apparel products are created and developed by our in-house design staff in cooperation with various outside sources, including manufacturing sources and component suppliers. For our licensed brands, we work with the respective licensor's design team. Product design ideas are drawn from various sources and are reviewed and modified by the design staff to ensure consistency with our existing product offerings and the themes and images that it associates with our products. Senior management is actively involved in the design process.
In order to respond effectively to changing consumer preferences, we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories and apparel. In addition, we attempt to take advantage of the constant flow of information from our customers regarding the retail performance of its products. We review weekly sales reports provided by a substantial number of our customers containing information with respect to sales and inventories by product category and style. Once a trend in the retail performance of a product category or style has been identified, the design and marketing staffs review their product design decisions to ensure that key features of successful products are incorporated into future designs. Other factors having an influence on the design process include the availability of components, the capabilities of the factories that will manufacture the products and the anticipated retail prices and profit margins for the products.
We differentiate our products from those of our competitors principally by incorporating into our product designs innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for our watches, and details and treatments in our other accessories. We also own or license proprietary technology for certain of our watch products, including our BIG TIC® and KALEIDO® styles. In certain instances, we believe that such innovations have allowed us to achieve significant improvements in consumer acceptance of our product offerings with only nominal increases in manufacturing costs. We believe that the substantial experience of our design staff will assist us in maintaining its current leadership position in watch design and in expanding the scope of our product offerings.
Marketing and promotion
Our current FOSSIL brand advertising campaign is aimed at communicating the core philosophy of drawing creative inspiration from vintage inspired themes for product and brands that take advantage of current fashion trends. These themes are carefully coordinated in order to convey the flair for fun, fashion and humor that we associate with our products. Our nostalgic tin packaging concept for many of our watch products and certain of our accessories is an example of these marketing themes. The tins have become a signature piece to the FOSSIL image and have become popular with collectors.
We participate in cooperative advertising programs with our major retail customers, whereby we share the cost of certain of their advertising and promotional expenses. An important aspect of the marketing process involves the use of in-store visual support and other merchandising materials, including packages, signs, posters and fixtures. Through the use of these materials, we attempt to differentiate the space used to sell our products from other areas of our customers' stores. We also promote the use of our Shop-in-Shop concept for watches, handbags and small leather goods. The Shop-in-Shop concept involves the use of dedicated space within a customer's store to create a brand "shop" featuring our products and visual displays. We also provide our customers with a large number of preprinted, customized advertising inserts andrefinancing from time to time stages promotional events designed to focus public attentionof all or a portion of any indebtedness or other securities, including our common stock, outstanding at a particular time. We may provide additional information on our products.
Our in-house advertising department designs, develops and implements all aspects of the packaging, advertising, marketing and sales promotion of our products. The advertising staff uses computer-aided design techniques to generate the images presented on product packaging and other advertising materials. We believe that the use of computers encourages greater creativitythe net proceeds from the sale of securities in an applicable prospectus supplement.
We advertise, market and promote our products to consumers through a variety of media, including catalog inserts, billboards, print media, television, cinema“we,” “us,” “our” and the Internet. We“Company” refer solely to Fossil Group, Inc. and not to any of its subsidiaries.
Sales and customers
We sell our products in approximately 20,500 retail locations in existing under the laws of the United States throughof America, any State thereof or the District of Columbia, and any such other surviving Person shall execute and deliver to the trustee a diversified distribution networksupplemental indenture expressly assuming the Company’s obligations under the debt securities and the indenture;
stores located at retail sites worldwide and sell certain of our products at company-owned FOSSIL outlet stores located at major outlet malls throughout the United States. Our apparel products are sold through FOSSIL jeans wear stores and through our website. We also sell our products at retail locations in major airports in the United States, on cruise ships, in airplanes and in independently- owned, authorized FOSSIL retail stores and kiosks in certain international markets. We generally do not have long-term contracts with any of our retail customers. All transactions between us and our retail customers are conducted on the basis of purchase orders, which generally require payment of amounts dueindenture relating to us on a net 30 day basis for most of our U.S. based customers and up to 90 days for certain international customers.
Department stores. For fiscal years 2003, 2002 and 2001, domestic department stores accounted for approximately 43.1%, 49.3%, and 53.3% of our net sales, respectively. In addition, in the same periods, our 10 largest customers represented approximately 20%, 25%, and 39% of net sales, respectively. No customer accounted for more than 10% of our net sales in fiscal years 2003, 2002 and 2001. Certain of our customers are under common ownership. No customer, when considered as a group under common ownership, accounted for more than 10% of our net sales in fiscal years 2003, 2002 and 2001.
International sales. Our products are sold to department stores and specialty retail stores in over 90 countries worldwide through company-owned foreign sales subsidiaries and through a network of approximately 60 independent distributors. Our foreign operations include a presence in Australia, Canada, the Caribbean, Central and South America, Europe, the Far East and the Middle East. Foreign distributors generally purchase products at uniform prices established by us for all international sales and resell them to department stores and specialty retail stores. We generally receive payment from our foreign distributors in United States currency. During the fiscal years 2003, 2002 and 2001, international and export sales accounted for approximately 43.6%, 38.1%, and 34.5%, of net sales, respectively.
Company-owned FOSSIL stores. In 1995, we commenced operations of FOSSIL outlet stores at selected major outlet malls throughout the United States. We operated 53 outlet stores at the end of fiscal year 2003. With the addition of an outlet opened in early 2004, we currently operate 54 outlet stores. These stores, which operate under the FOSSIL name, enable us to liquidate excess inventory and increase brand awareness. Our products in such stores are generally sold at discounts from 25% to 75% off the suggested retail price. We intend to open six to eight additional outlet stores in 2004.
In 1996, we commenced operations of full priced accessory FOSSIL retail stores at some of the most prestigious retail malls and entertainment parks in the United States in order to broaden the recognition of the FOSSIL brand name. We currently operate 26 accessory retail stores in leading malls and retail locations throughout the United States and 22 accessory retail stores in select international markets. These stores, which operate under the FOSSIL name, carry a full assortment of FOSSIL merchandise that is generally sold at the suggested retail price. We intend to open four to five additional accessory retail stores in the United States in 2004. We also operate four multi-brand watch stores in Switzerland.
In 2000, we began offering FOSSIL brand apparel through specially designed company-owned apparel stores. We currently operate 18 FOSSIL jeans wear stores in leading malls and retail locations throughout the United States. Our apparel stores carry the full apparel line along with an assortment of certain FOSSIL watch and accessory products. We intend to open three to four additional apparel stores in 2004.
During the fiscal years 2003, 2002 and 2001, company-owned FOSSIL store sales accounted for approximately 13.3%, 12.5%, and 12.5% of net sales, respectively.
Internet sales. In November 1996, we established a website at www.fossil.com. We offer selected FOSSIL brand watches, certain licensed watch brands, sunglasses, leather goods, apparel, jewelry and
other related products on the website. These products are also available to consumers through "storefronts" on America Online, Microsoft Network, Amazon and Yahoo that are connected to our website. In addition to offering selected FOSSIL and licensed brand products, we also provide company news and information on the website. During 2000, we launched a business-to-business site that allows our specialty retail accounts access to real-time inventory, account information and automated order processing.
Sales personnel. We utilize an in-house sales staff and, to a lesser extent, independent sales representatives to promote the sale of our products to retail accounts. As of the end of fiscal year 2003, we had 146 in-house sales and customer service employees and 44 independent sales representatives. Our in-house sales personnel receive a salary and, in some cases, a commission based on a percentage of gross sales attributable to specified accounts. Independent sales representatives generally do not sell competing product lines and are under contracts with us that are generally terminable by either party upon 30 days' prior notice. These independent contractors are compensated on a commission basis.
Customer service. We have developed an approach to managing the retail sales process that involves monitoring our customers' sales and inventories by product category and style, primarily through electronic data interchange, and assisting in the conception, development and implementation of their marketing programs. For example, we review weekly selling reports prepared by certain of our principal customers and have established an active electronic data interchange program with certain of our customers. We also place significant emphasis on the establishment of cooperative advertising programs with our major retail customers. We believe that our management of the retail sales process has resulted in close relationships with our principal customers, often allowing us to influence the mix, quantity and timing of their purchasing decisions.
We believe that our sales approach achieves high retail turnover in our products, which can result in attractive profit margins for our retail customers. We believe that the resulting profit margins for our retail customers encourage them to devote greater selling space to our products within their stores and enable us to work closely with buyers in determining the mix of products any store should carry. In addition, we believe that the buyers' familiarity with our sales approach has and should continue to facilitate the introduction of new products through our existing distribution network.
We permit the return of damaged or defective products. In addition, although we have no obligation to do so, we accept limited amounts of product returns from our customers in certain other instances. Accordingly, we provide allowances for the estimated amount of product returns. The allowances for product returns as of the end of fiscal years 2003, 2002 and 2001 were $26.6 million, $24.8 million, and $22.5 million respectively. Since 1990, we have not experienced any returns in excess of the aggregate allowances therefor.
Backlog
It is the practice of a substantial number of our customers not to confirm orders by delivering a formal purchase order until a relatively short time prior to the shipment of goods. As a result, the amount of unfilled customer orders includes confirmed orders and orders that we believe will be confirmed by delivery of a formal purchase order. A majority of such amounts represent orders thattransaction have been confirmed. The remainder ofcomplied with.
Manufacturing
Our products are manufactured to our specifications by independent contractors and by companies in which we hold a majority interest. Substantially all of our watches are manufactured by approximately 39 factories located primarily in Hong Kong and China, except for our Swiss watches which are assembled in Switzerland. We believe that our policy of outsourcing products allows us to achieve increased production flexibility while avoiding significant capital expenditures, build-ups of work-in-process inventory and the costs of managing a substantial production work force.
The principal components used in the manufacture of our watches are cases, crystals, dials, movements, bracelets and straps. These components are obtained by our manufacturing sources from a large number of suppliers located principally in China, Hong Kong, Italy, Japan, Korea, Switzerland, Taiwan and Thailand. We estimate that the majority of the movements used in the manufacture of our watches are supplied by four principal vendors. No other single component supplier accounted for more than 10% of component supplies in 2003. Although we do not normally engage in direct transactions with component suppliers, in some cases we actively review the performance of such suppliers and makes recommendations to its manufacturing sources regarding the sourcing of components. We do not believe that our business is materially dependent on any single component supplier.
We believe that we have established and maintain close relationships with a number of watch manufacturers located in Hong Kong and China. In 2003, four separate watch manufacturers in which we hold a majority interest each accounted for 10% or more of our watch supplies. The loss of any one of these manufacturers could temporarily disrupt shipments of certain of our watches. However, as a result of the number of suppliers from which we purchase our watches, we believe that we could arrange for the shipment of goods from alternative sources within approximately 60 days on terms that are not materially different from those currently available to us. Accordingly, we do not believe that the loss of any single supplier would have a material adverse effect on our business. In general, however, our future success will depend upon our ability to maintain close relationships with, or ownership of, our current suppliers and to develop long-term relationships with other suppliers that satisfy our requirements for price and production flexibility.
Our products are manufactured according to plans that reflect management's estimates of product performance based on recent sales results, current economic conditions and prior experience with manufacturing sources. The average lead time from the commitment to purchase products through the production and shipment thereof ranges from two to three monthsshall (except in the case of watches,a lease) be discharged from two to six monthsour obligations under the debt securities and the indenture.
Quality control
Our quality control program attempts to ensure that our products meet the standards established by our design staff. Samples of products are inspected by us prior to the placement of orders with manufacturing sources to ensure compliance with its specifications. The operations of our manufacturing sources located in Hong Kong are monitored on a periodic basis by Fossil (East) Ltd. Substantially all of our watches and certain of our other accessories are inspected by personnel of Fossil (East) Ltd. or by the manufacturer prior to shipment to us. In addition, we perform quality control checks on our products upon receipt at our facility.
Distribution
Upon completion of manufacturing, our products are shipped to our warehousing and distribution centers in Australia, Dallas, France, Germany, Hong Kong, Italy, Japan, Singapore, Switzerland and the United Kingdom from which they are shipped to customers in selected markets. Our warehouse and distribution facility in Dallas, near our headquarters, allows us to maximize our inventory management and distribution capabilities. In 2003, we began distribution from a new 100,000 square foot facility in Germany. This facility supports our current distribution operations in Germany, and will allow us to consolidate our European distribution sites and further support future growth throughout Europe.
Our warehouse and distribution facility in Dallas is operated in a special purpose subzone established by the United States Department of Commerce Foreign Trade Zone Board. As a resultany covenant of the establishment of the subzone, the following economic and operational advantages are available to us: (i) we may not have to pay duty on imported merchandise until it leaves the subzone and enters the United States market, (ii) we may not pay any United States duty on merchandise if the imported merchandise is subsequently re-exported, and (iii) we do not pay local property tax on inventory located within the subzone.
Management information systems
Inventory control. We maintain inventory control systems at our facilities that enable us to track each item of merchandise from receipt from our manufacturing sources, through shipment to our customers. To facilitate this tracking, a significant number of products sold by us are pre-ticketed and bar coded prior to shipment to our retail customers. Our inventory control systems report shipping, sales and individual stock keeping unit level inventory information. We manage the retail sales process by monitoring customer sales and inventory levels by product category and style, primarily through electronic data interchange. We believe that our distribution capabilities enable us to reduce inventory risk and increase flexibility in responding to the delivery requirements of our customers. Our management believes that our electronic data interchange efforts will continue to growCompany in the future as customers focus further on increasing operating efficiencies. In addition, we maintain systemsindenture or the debt securities of that are designed to track inventory movement through the FOSSIL retailseries, and outlet stores. Detailed sales transaction records are accumulated on each store's point-of-sale system and polled nightly by us.
Enterprise resource planning. During 2003, we implemented an enterprise resource planning system from SAP AG in the U.S. and Canada locations. Over the next few years, we intend to replace our other enterprise resource planning systems and other principal financial systems at our international subsidiaries with software systems provided by SAP AG.
Warranty and repair
Our FOSSIL watch products are covered by a limited warranty against defects in materialscontinuance of such default or workmanshipbreach for a period of 11 years from90 days after there has been given to the dateCompany by the trustee or to the Company and the trustee by the holders of purchase, RELIC watch products are coveredat least 25% in principal amount of the outstanding debt securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” under the indenture;
Governmental regulations
ImportsModification and import restrictions.Waiver Most of our products are manufactured overseas. As a result, the United States and the countries in which our products are manufactured or sold may from
General. Our sunglass products are subject to regulation by the United States Food and Drug Administration as medical devices. We do not believe that compliance with such regulations is material to our operations. In addition, we are subject to various state and federal regulations generally applicable to similar businesses.
Intellectual property
Trademarks. We have registered the FOSSIL and RELIC trademarks for use on our watches, leather goods, apparel and other fashion accessories in the United States and in certain foreign countries, including a number of countries located in Central America, Europe, the Far East, the Middle East and South America. We have also registered or applied for registration in the United States and internationally certain other marks used by us in conjunction with the sale and marketing of our products and services, including ZODIAC, AVIA, ABACUS and ANTIMA®. The expiration dates of the United States trademark registrations for our material registered trademarks are as follows, with our other registered foreign and domestic trademarks expiring at various dates through 2014.
Patents. We continue to explore innovations in the design and manufacture of our watch products and are involved in the development of technology enhanced watches. As a result, we have been granted, and have pending, various United States and international design and utility patents related to certain of our watch designs and features. We also have been granted, and have pending, various United States patents related to certain of our other products and technologies. The expiration date of our two material United States patents is April 12, 2019.
License Agreements. A portion of our growth in sales and net income is, and is expected to continue to be, derived from the sales of products produced under licensing agreements with third parties. Under these license agreements, we generally have the right to produce, market and distribute certain
products utilizing the brand names of other companies. Our material license agreements have various expiration dates between 2004 and 2009, with the DIESEL license expiring on December 31, 2004. We expect to sign a new license with DIESEL within the next few months.
We regard our trademarks, trade dress and patents as valuable assets and believe that they have significant value in the marketing of its products. We intend to protect our intellectual property rights vigorously against infringement.
Competition
There is intense competition in each of the businesses in which we compete. Our watch business competes with a number of established manufacturers, importers and distributors such as Guess? Anne Klein II, Kenneth Cole and Swatch. In addition, our leather goods, sunglass, jewelry and apparel businesses compete with a large number of established companies that have significantly greater experience than us in designing, developing, marketing and distributing such products. In all of our businesses, we compete with numerous manufacturers, importers and distributors who have significantly greater financial, distribution, advertising and marketing resources than us. Our competitors include distributors that import watches, accessories and apparel from abroad, domestic companies that have established foreign manufacturing relationships and companies that produce accessories and apparel domestically.
We compete primarily on the basis of style, price, value, quality, brand name, advertising, marketing and distribution. In addition, we believe that our ability to identify and respond to changing fashion trends and consumer preferences, to maintain existing relationships and develop new relationships with manufacturing sources, to deliver quality merchandise in a timely manner and to manage the retail sales process are important factors in our ability to compete.
We consider that the risk of significant new competitors is mitigated to some extent by barriers to entry such as high startup costs and the development of long-term relationships with customers and manufacturing sources. During the past few years, it has been our experience that better department stores and other major retailers have been increasingly unwilling to source products from suppliers who are not well capitalized or do not have a demonstrated ability to deliver quality merchandise in a timely manner. There can be no assurance, however, that significant new competitors will not emerge in the future.
Set forth below is a list of our executive officers and directors, together with brief biographical descriptions:
Tom Kartsotis has served as Chairman of the Board of Directors since December 1991. Mr. Tom Kartsotis founded Fossil, Inc. in 1984 and served as its President until December 1991 and as Chief Executive Officer until October 2000. He has been a director since 1984.
Kosta Kartsotis has served as President and Chief Executive Officer since October 2000 and served as President and Chief Operating Officer from December 1991 until October 2000. Mr. Kosta Kartsotis joined Fossil, Inc. in 1988 and served as Vice President—Marketing until December 1991. He has been a director of since 1990.
Michael W. Barnes has served as President, International and Special Markets Division since October 2000. Mr. Barnes served as Executive Vice President from 1995 until October 2000 and has been a director since his election to the Board of Directors in February 1993.
Stephen Bock has served as President, Luxury Division since September 2003. From February 2001 until September 2003, Mr. Bock served as President of Retail at Avon. From 1997 until February 2001, Mr. Bock served as Executive Vice President for Sephora.
Richard H. Gundy has been a director since March 2001. Mr. Gundy has served as President, Fossil Watch Division since March 2003. Mr. Gundy served as President, FOSSIL Watches and Stores Division from October 2000 to March 2003 and as Executive Vice President from April 1994 until October 2000. Mr. Gundy previously served as Executive Vice President and Director of County Seat Stores, Inc., a national retailer of apparel and fashion accessories.
Mark D. Quick has served as President, Fashion Accessories and Retail Stores Division since October 2000. Mr. Quick served as Executive Vice President from March 1997 until October 2000. Mr. Quick is responsible for our fashion accessory lines including handbags, small leather goods, belts and sunglasses, as well as our accessory and outlet stores. From November 1995 until March 1997, he served as Senior Vice President—Accessories.
Randy S. Kercho has served as Executive Vice President since October 1997. Mr. Kercho is responsibleseries for the financial, information systems and operations divisions. Mr. Kercho served as Executive Vice President and Chief Financial Officer from March 1997 until October 2000. Mr. Kercho served as Senior Vice President and Chief Financial Officer from February 1995 until March 1997 and served as Treasurer from May 1995 until October 2000.
Mike L. Kovar has served as Senior Vice President, Chief Financial Officer and Treasurer since October 2000. Mr. Kovar served as Senior Vice President, Finance from March 2000 until October 2000. From November 1997 until March 2000, Mr. Kovar served as Vice President and Chief Financial Officer for BearCom Group, Inc. and as Controller from July 1996 to November 1997.
T. R. Tunnell has served as Executive Vice President since October 2000 and as Secretary since December 1996. Mr. Tunnell is responsible for the legal, human resources, facilities and administration divisions. Mr. Tunnell served as Senior Vice President, Development, Chief Legal Officer and Secretary from December 1996 until October 2000.
Jal S. Shroff has served as Managing Director of Fossil (East) Ltd. since January 1991 and has been a director since April 1993.
Kenneth W. Anderson has been a director since April 1993. Mr. Anderson was a co-founder of Blockbuster Entertainment Corporation, a video rental company, and served as its President from 1985 until 1987. From 1987 to 1991, Mr. Anderson served in various positions with Amtech Corporation, a remote electronic identification technology company, which he co-founded, including the position of Chairman of its Executive Committee.
Andrea Camerana has been a director since September 2003. Mr. Camerana is Vice President of Marketing and Licensing of the Armani Group based in Milan, Italy. Mr. Camerana joined the Armani Group in 2000. From 1999 to 2000, Mr. Camerana served as a purchaser for Egidio Galbani S.p.A., Danone Group.
Alan J. Gold has been a director since April 1993. Mr. Gold was the founder of Accessory Lady, a women's fashion accessory retail chain, and served as its President until 1992. Mr. Gold has been retired for the last five years but currently serves as President of Goldcor Investments.
Michael Steinberg has been a director since March 2000. Mr. Steinberg served as Chairman and Chief Executive Officer of Macy's West, a Division of Federated Department Stores, Inc., from a date prior to 1996 until his retirement in January 2000.
Donald J. Stone has been a director since April 1993. Mr. Stone served as Vice Chairman of Federated Department Stores until February 1988, at which time he retired.
Principal and selling stockholders
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 16, 2004, and as adjusted to reflect our three-for-two stock split and the sale of common stock offered hereby by:
Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investing power with respect to their shares of common stock, except to the extent such power is shared by spouses under applicable law or described in the footnotes below.
| Shares beneficially owned prior to this offering(1)(2) | | Shares beneficially owned after this offering(1) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Name of beneficial owner | Shares to be sold in this offering | ||||||||||
Number | Percentage | Number | Percentage | ||||||||
Tom Kartsotis | 18,006,585 | (3) | 25.6 | % | 5,220,000 | 12,786,585 | 18.2 | % | |||
Kosta Kartsotis | 10,330,389 | (4) | 14.7 | % | 1,305,000 | 9,025,389 | 12.4 | % | |||
Michael W. Barnes | 165,684 | (5) | * | — | 165,684 | * | |||||
Richard H. Gundy | 170,100 | (6) | * | — | 170,100 | * | |||||
Mark D. Quick | 148,500 | (7) | * | — | 148,500 | * | |||||
Randy S. Kercho | 484,436 | (8) | * | — | 484,436 | * | |||||
Jal S. Shroff | 1,291,575 | (9) | 1.8 | % | — | 1,291,575 | 1.8 | % | |||
Kenneth W. Anderson | 98,813 | (10) | * | — | 98,813 | * | |||||
Andrea Camerana | 0 | * | — | 0 | * | ||||||
Alan J. Gold | 148,388 | (11) | * | — | 148,388 | * | |||||
Michael Steinberg | 25,313 | (12) | * | — | 25,313 | * | |||||
Donald J. Stone | 101,562 | (13) | * | — | 101,562 | * | |||||
FMR Corp | 6,983,001 | (14) | 9.9 | % | — | 6,983,001 | 9.9 | % | |||
All executive officers and directors as a group (14 persons) (3)(4)(5)(6)(7)(9)(10)(11)(12)(13) | 31,122,342 | 43.4 | % | 6,525,000 | 24,597,342 | 34.3 | % |
General
Our authorized capital stock consists of 100,000,000 shares of common stock, of which 46,767,358 shares are outstanding as of March 15, 2004, and 1,000,000 shares of preferred stock, none of which are issued or outstanding. The following statements are brief summaries of our capital stock contained in our certificate of incorporation and bylaws and in the laws of Delaware.
Common Stock
The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders and to receive such dividends as may be declared from time to time by our Board of Directors out of assets legally available therefor. In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities. The holders of our common stock have no preemptive rights and have no subscription, redemption or conversion privileges. Our common stock does not have cumulative voting rights, which means that the holder or holders of more than half of the shares voting for the election of directors can elect all of the directors then being elected. The rights, preferences and privilegesbenefit of the holders of our common stock are subjectsuch debt securities or to surrender any rights we have under the indenture;
Preferred Stock
Our certificateprovide for the acceptance under the indenture by a successor trustee with respect to the debt securities of incorporation authorizes our Board of Directors, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix and determine asadd to or change any series any and all of the relative rights and preferences of shares in that series, including, without limitation, dividend rights, any conversion rights or rights of exchange, voting rights, rights and terms of redemption, liquidation preferences and the number of shares constituting a series and the designation thereof.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Mellon Investor Services LLC.
Change of control provisions
We are subject to the provisions of Section 203the indenture necessary to provide for or facilitate the administration of the Delaware General Corporation Law regulating corporate takeovers. Section 203 prevents certain Delaware corporations, including those whose securities are listed ontrusts under the Nasdaq National Market, from engaging, under certain circumstances, in a "business combination" (which includes a merger or sale ofindenture by more than 10%one trustee.
Material U.S. federal tax considerations fornon-U.S.common stockThe following isat least a general discussionmajority in aggregate principal amount of the material U.S. federal incomethen outstanding debt securities of that series and estate tax consequencesa waiver of the ownership and dispositionpayment default that resulted from such acceleration).common stockoutstanding debt securities of the applicable series will be eligible to take any action under the indenture, such as giving a notice of default, declaring an acceleration, approving any change or waiver or giving the trustee an instruction with respect to debt securities of that series. Also, we will count only outstanding debt securities of that series in determining whether the various percentage requirements for taking action have been met. Any debt securities owned by a beneficial owner that is a "non-U.S. holder" and that does not own, and isus or any of our affiliates or surrendered for cancellation or for payment or redemption of which money has been set aside in trust are not deemed to own,be outstanding for that purpose. Any required approval or waiver must be given by written consent.than 5%series of debt securities and the indenture may be satisfied and discharged when either: (a) all outstanding debt securities of that series have been delivered to the trustee for cancellation or (b) we have deposited with the trustee as trust funds in trust solely for the benefit of the holders of such debt securities, after the debt securities of that series have become due and payable, or will become due and payable within one year by reason of the giving of a notice of redemption or otherwise, any combination of cash in U.S. dollars or non-callable U.S. government obligations sufficient, without
A "Non-U.S. holder" does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.
This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to non-U.S. holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of common stock, including the consequences under the laws of any state, local or foreign jurisdiction.
Dividends
As discussed under "Dividend Policy" above, we do not expect to pay dividends in the foreseeable future. In the event that we do pay dividends, dividends paid to a non-U.S. holder of common stock generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide an Internal Revenue Service Form W-8BEN certifying under penalties of perjury as to its entitlement to benefits under a treaty.
The withholding tax does not apply to dividends paid to a non-U.S. holder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holder's conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. resident. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional "branch profits tax" imposed at a rate of 30% (or a lower treaty rate).
Gain on disposition of common stock
A non-U.S. holder generally will notholders would be subject to U.S. federal income tax on gain realizedthe same amounts, in the same manner and at the same times as would have been the case if the deposit and related defeasance had not occurred. If we elect legal defeasance, that opinion of counsel must be based upon a ruling from the U.S. Internal Revenue Service or a change in law to that effect.
year in which the salepublic either through underwriting syndicates represented by one or disposition occurs. We are not, and do not anticipate becoming, a U.S. real property holding corporation.
Information reporting requirements and backup withholding
Information returns will be filed with the Internal Revenue Service in connection with payments of dividends and the proceeds from a salemore managing underwriters or other disposition of common stock. You may have to comply with certification procedures to establish that you are not a United States person in order to avoid information reporting and backup withholding tax requirements. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements necessary to avoid the backup withholding tax as well. The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and may entitle you to a refund,provided that the required information is furnished to the Internal Revenue Service in a timely manner.
Federal estate tax
An individual non-U.S. holder who is treated as the owner of,directly by one or has made certain lifetime transfers of, an interest in the common stock will be required to include the value of the stock in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
Subject to the terms and conditions contained in the underwriting agreement, the underwriters named below, for whom J.P. Morgan Securities Inc., Jefferies & Company, Inc. and CIBC World Markets Corp. aremore firms acting as representatives, have severally agreed to purchase, and the selling stockholders have severally agreed to sell to each underwriter, the following respective number of shares of common stock set forth opposite the name of each underwriter:
The underwriting agreement provides thatunderwriters. Unless we inform you otherwise in any prospectus supplement, the obligations of the underwriters to purchase the shares included in this offering aresecurities will be subject to certain conditions, customary for offerings of this type including: the accuracy of the selling stockholders' representations and warranties in the underwriting agreement; the absence of any material adverse change in our business; the delivery of a "comfort letter" by our independent auditors and the delivery of legal opinions from the selling stockholders' counsel and counsel to the underwriters. The underwriters arewill be obligated to purchase all the shares, other than those covered by the over-allotment option described below,offered securities if they purchase any of them. The underwriters may change from time to time any public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
underwriters may purchase and sell the securities in the open market. These transactions may include overallotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the offering. The underwriters may also impose a penalty bid, which means that selling stockholders have grantedconcessions allowed to syndicate members or other broker-dealers for the offered securities sold for their account may be reclaimed by the syndicate if the offered securities are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the offered securities, which may be higher than the price that might otherwise prevail in the open market. If commenced, the underwriters may discontinue these activities at any time.
The following table shows the per share and total underwriting discounts and commissionscontracts would be subject only to be paid to the underwriters by the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
The underwriters initially propose to offer part of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and part to certain dealers at the public offering price less a concession not to exceed $ per share. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the public offering price. If all of the shares are not sold at the public offering price, the representatives may change the public offering price and the other selling terms.
We, the selling stockholders and our executive officers and directors have agreed not to sell or transfer any common shares for 90 days after the date of this prospectus without first obtaining the prior written consent of J.P. Morgan Securities Inc. Specifically, we and these other individuals have agreed not to directly or indirectly:
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
The restrictionsthose conditions described in the preceding paragraph do not apply to:
The selling stockholders have agreedunderwriters to indemnify the underwritersthem against certain civil liabilities, including liabilities under the Securities Act, of 1933, or to contribute with respect to payments that the agents, dealers or underwriters may be required to make because of any of those liabilities.
Themake. Certain agents, dealers and underwriters, may make short sales of our common stock in connection with this offering, resulting in the sale by the underwriters of a greater number of shares than they are required to purchase pursuant to the underwriting agreement. The short position resulting from those short sales will be deemed a "covered" short position to the extent that it does not exceed the 978,750 additional shares subject to the underwriters' over-allotment option and will be deemed a "naked" short position to the extent that it exceeds that number. A naked short position is more likely to be created if the underwriters are concerned that theretheir associates and affiliates, may be downward pressure on the trading pricecustomers of, our common stock in the open market that could adversely affect investors who purchase shares in this offering. The underwriters may reduce or close out their covered short position either by exercising the over-allotment option or by purchasing shares in the open market. In determining which of these alternatives to pursue, the underwriters will consider the price at which shares are available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Any "naked" short position will be closed out by purchasing shares in the open market. Similar to the other stabilizing transactions described below, open market purchases made by the underwriters to cover all or a portion of their short position may have the effect of preventing or retarding a decline in the market price of our common stock following this offering. As a result, our common stock may trade at a price that is higher than the price that otherwise might prevail in the open market.
Pursuant to Regulation M under the Securities Act of 1933, the underwriters may engage in transactions including stabilizing bidswith or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the shares of our common stock at a level above that which might otherwise prevailperform services for, us in the open market. A "stabilizing bid" is a bid for or the purchase of shares of our common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of our common stock. A "penalty bid" is an arrangement permitting the underwriters to claim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by that underwriter or syndicate member is purchased by the underwriters in the open market pursuant to a stabilizing bid or to cover all or part of a syndicate short position. The underwriters have advised us that stabilizing bids and open market purchases may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
In connection with this offering, certain underwriters and selling group members, if any, who are qualified market makers on the Nasdaq National Market may engage in passive market making transactions in our common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934. In general a passive market maker must display its bid at a price not in excess of the highest independent bid of such security; if all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded.
The selling stockholders estimate that their total expenses attributable to this offering will be approximately $300,000, excluding underwriting discounts and commissions.
In the ordinary course of their businesses.
Our common stock is traded on the Nasdaq National Market under the symbol "FOSL."
not an active hyperlink to our website.
applicable prospectus supplement.
Where you can find more information
You may request a copy of these filings at no cost, by writing or telephoning us at the following address:
Investor RelationsFossil, Inc.2280 North Greenville AvenueRichardson, Texas 75082(972) 234-2525
JPMorgan
Jefferies & Company, Inc. CIBC World Markets
| | | Amount | | |||
Securities and Exchange Commission registration fee | | | | $ | 21,820 | | |
Legal fees and expenses (including Blue Sky fees and expenses) | | | | | * | | |
Accounting fees and expenses | | | | | * | | |
Trustee fees and expenses | | | | | * | | |
Printing expenses | | | | | * | | |
Rating agencies’ fees | | | | | * | | |
Miscellaneous | | | | | * | | |
Total | | | | $ | * | | |
SEC Registration Fee | $ | 21265 | |
NASD Filing Fee | $ | 17,284 | |
Printing and Engraving Fees and Expenses | $ | 15,000 | |
Legal Fees and Expenses | $ | 40,000 | |
Accounting Fees and Expenses | $ | 45,000 | |
Transfer Agent and Registrar Fees | $ | 5,000 | |
Miscellaneous | $ | 5,000 | |
Total | $ | 148,549 |
prospectus.
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therein, hesuch person shall be indemnified against expenses (including attorneys'attorneys’ fees) actually and reasonably incurred by himsuch person in connection therewith.
Exhibit Number | | | Exhibit Description | |
1.1** | | | Form of Underwriting Agreement. | |
4.1* | | | | |
4.2** | | | Form of Debt Security. | |
5.1* | | | | |
23.1* | | | | |
23.2* | | | | |
24.1* | | | | |
25.1* | | | |
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offers or her heirs, executors and administrators. Our amended and restated Bylaws also contain certain provisions designed to facilitate receipt of such benefits by any such persons.
Item 16. Exhibits
The following documentssales are filed as exhibitsbeing made, a post-effective amendment to this registration statement, including those exhibits incorporated hereinstatement:
Item 17. Undertakings.
(a)Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(b)
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policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(1)undertakes that:
(2)effective.
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September 7, 2021.
| Signature | | | Title | | | Date | |
| /s/ Kosta N. Kartsotis | | | Chairman of the Board of Directors and | ||||
| September 7, 2021 | | ||||||
| /s/ Sunil M. Doshi | | | Senior Vice President, | | September 7, 2021 | | |
| /s/ Mark R. Belgya | | Director | | September 7, 2021 | | ||
| /s/ William B. Chiasson | | Director | | September 7, 2021 | | ||
| /s/ Kim H. Jones | | | Director | | September 7, 2021 | | |
| /s/ Kevin Mansell | | | Director | | September 7, 2021 | | |
| /s/ Diane L. Neal | | | Director | | September 7, 2021 | | |
| /s/ Marc R. Y. Rey | | | Director | | September 7, 2021 | | |
| /s/ Gail B. Tifford | | | Director | | |||
September 7, 2021 |
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