Exhibit 13
APRIL 16, 2001 ANNUAL REPORT #8
FOSSIL
ANNUAL REPORT 2000
[ILLUSTRATION]
MANAGEMENT
DISCUSSION & ANALYSIS ... FOSSIL COMPANY OVERVIEW
- - Understanding the Fossil Brand. - A brief synopsis of all the products.
- - What's in store for the Company? - Fossil's long-term goal.
- ----- LOOK INSIDE FOR MORE! ----
[ILLUSTRATION]
*** SETTING THE STANDARD ***
[ILLUSTRATION]
A WATCH FOR EVERY OCCASION
DON'T MISS IT!
[ILLUSTRATION]
2
................... TABLE OF CONTENTS .....................
PAGE 4 ........... COMPANY PROFILE
What kind of company is FOSSIL?
What kind of products does FOSSIL make?
5 ........... FINANCIAL HIGHLIGHTS
Numbers and more Numbers.
7 ........... LETTER TO STOCKHOLDERS
Highlights from 2000
8 ........... COMPANY OVERVIEW
Fossil Products, Other Products
11 .......... MANAGEMENT DISCUSSION AND ANALYSIS
The whole FOSSIL SHABANG!!!
24 .......... FINANCIAL INFORMATION
The numbers you have been wanting to see all year.
44 .......... CORPORATE INFORMATION
Who's Who?
3
COMPANY PROFILE
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FOSSIL IS A DESIGN, DEVELOPMENT, MARKETING AND DISTRIBUTION COMPANY THAT
SPECIALIZES IN CONSUMER PRODUCTS PREDICATED ON FASHION AND VALUE.
The Company's principle offerings include an extensive line of fashion watches
sold under the FOSSIL and RELIC brands as well as complementary lines of small
leather goods, belts, handbags and sunglasses. The Company's products are sold
in department stores and specialty retail stores in over 80 countries around the
world, in addition to the Company's e-commerce website at www.fossil.com. The
Company also offers a line of FOSSIL brand apparel and jeans at 14 Company-owned
retail stores and over the Company's website.
[ILLUSTRATION]
THE COMPANY DIFFERENTIATES ITS PRODUCTS
FROM THOSE OF ITS COMPETITORS PRINCIPALLY
THROUGH INNOVATIONS IN FASHION DETAILS.
The Company differentiates its products from those of its competitors
principally through innovations in fashion details. These innovations include
variations in the treatment of watch dials, crystals, cases, straps and
bracelets for the Company's watches and innovative treatments and details in its
other accessories. An in-house creative services team coordinates product
design, packaging, advertising and in-store presentations to more effectively
and cohesively communicate to its target markets the themes and images
associated with its brands. Brand name development is further enhanced through
Company-owned stores as well as the Company's website.
Utilizing several wholly and majority-owned watch assembly facilities and
centralized distribution points enables the Company to reduce its inventory
risk, increase flexibility in meeting the delivery requirements of its customers
and maintain significant cost advantages compared to its competitors. To further
leverage the Company's infrastructure, including design, development and
production expertise, the Company has entered into license agreements to
manufacture, market and sell watches bearing internationally recognized brands
of other companies as well as design and develop private label products for some
of the most distinguished companies in the world.
[GRAPH - NET SALES] [GRAPH - OPERATING INCOME]
[GRAPH - NET INCOME] [GRAPH - STOCKHOLDERS' EQUITY]
4 FOSSIL ANNUAL REPORT 2000
FINANCIAL HIGHLIGHTS
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FISCAL YEAR 2000 1999 1998 1997 1996
IN THOUSANDS, EXCEPT PER SHARE DATA ---- ---- ---- ---- ----
Net sales .............................. $504,285 $418,762 $304,743 $244,798 $205,899
Gross profit ........................... 255,746 212,887 150,504 117,528 98,038
Operating income ....................... 93,821 87,449 55,370 34,610 24,373
Income before income taxes ............. 94,717 87,841 54,729 32,151 23,040
Net income ............................. 55,883 51,826 32,161 18,942 13,591
Basic earnings per share (1) ........... 1.76 1.63 1.04 0.63 0.46
Diluted earnings per share (1) ......... 1.71 1.55 0.99 0.61 0.45
Weighted average common shares
outstanding:
Basic shares (1) ................... 31,689 31,900 31,054 30,203 29,675
Diluted shares (1) ................. 32,675 33,428 32,586 31,250 30,101
Working capital ........................ $169,792 $155,198 $109,040 $ 70,603 $ 59,861
Total assets ........................... 307,591 269,364 194,078 139,570 118,978
Long-term debt ......................... -- -- -- -- 4,350
Stockholders' equity ................... 220,699 191,197 134,919 95,263 74,568
Return on average stockholders' equity.. 26.9% 32.2% 29.3% 23.1% 20.3%
(1) All share and per share data has been adjusted to reflect three-for-two
stock splits effected in the form of a stock dividend paid August,17 1999 and
April 8, 1998.
STOCK INFORMATION
The Company's common stock prices are published daily in The Wall Street Journal
and other publications under the Nasdaq National Market Listing. The stock is
traded under the ticker symbol "FOSL." The following are the high and low sale
prices of the Company's stock per the Nasdaq National Market. All share data has
been adjusted to reflect the three-for-two stock split effected in the form of a
stock dividend paid on August 17, 1999. Stock prices have been adjusted in
certain cases to the nearest traded amount.
2000 1999
---- ----
HIGH LOW HIGH LOW
First quarter $ 26.750 $ 15.813 $ 23.667 $ 17.833
Second quarter 25.125 16.625 33.583 17.250
Third quarter 20.500 11.563 36.583 26.333
Fourth quarter 16.438 10.500 30.625 18.750
[ILLUSTRATION]
FOSSIL ANNUAL REPORT 2000 5
[ILLUSTRATION]
The Company's principle offerings include an extensive line of fashion watches
sold under the FOSSIL and RELIC brands as well as complementary lines of small
leather goods, belts, handbags and sunglasses. The Company's products are sold
in department stores and specialty retail stores in over 80 countries around the
world, in addition to the Company's e-commerce website at www.fossil.com. The
Company also offers a line of FOSSIL brand apparel and jeans at 14 Company-owned
retail stores and over the Company's website.
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LETTER TO THE STOCKHOLDERS
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Dear Stockholders,
We are pleased to report that FOSSIL continued to deliver record setting
financial performance in 2000. While achieving one-half billion dollars in sales
at an enviable operating margin was satisfying, we view our mission as having
only just begun.
[ILLUSTRATION]
In 2000, FOSSIL brand products continued to appeal to youthful-minded consumers
who shop in upscale department, specialty and jewelry stores around the world.
During the year, we experienced nice growth and geographic diversification in an
already large FOSSIL watch business. We also were excited to see our less mature
FOSSIL branded accessories businesses grow rapidly. This growth reinforces our
belief that the business practices and branding strategies that were developed
for watches work well with other product classifications. In fact, it was a
tremendous year for the expansion of the FOSSIL brand around the world.
Some other highlights from 2000 include:
- - Our retail customers enjoyed increased business in FOSSIL products as
evidenced by their more rapid inventory turnover rate.
- - Our retail businesses expanded by leaps and bounds led by nice increases in
FOSSIL handbags and other leather goods.
- - We expanded our international business with additional distribution of FOSSIL
products, new joint venture relationships and increased sales of EMPORIO
ARMANI and DKNY licensed watches.
- - RELIC continued to further establish itself as a leading watch brand in
national department stores, demonstrating the potential for further growth,
both within watches and other product categories.
- - Our launch of DKNY and DIESEL watches further expanded our ability to capture
market share of watch businesses both domestically and internationally.
- - We introduced FOSSIL branded apparel in Company-owned stores and over our
website capitalizing on the strength of the FOSSIL brand.
- - We dramatically improved our capacity to handle further growth by investing
heavily in operating systems, management, web technology and a wide array of
other tools that will be necessary in the future.
- - We continued to improve our website, adding additional portals and achieving
nice internet sales growth in watches, accessories and apparel.
- - We successfully tested a number of new initiatives, including FOSSIL branded
jewelry in Germany, enabling us to continue pursuing new avenues for growth.
- - Our Special Markets group continued to expand as we increased our sales and
added to our base of associated distributors.
- - Our joint venture company, SII Marketing International, made great strides
during its first year establishing key relationships with mass market and
chain department store customers offering both licensed and owned-brand
watches.
[ILLUSTRATION]
The profitability, diversification and overall strength of our Company are
attributable to many things. Obviously, at the top of this list are the
incredible people from all over the world who have dedicated their professional
lives to this Company. Without their wellspring of energy, immense talent and
strong sense of teamwork, our quest for the next half billion dollars in sales
might seem daunting. Our ability to create and grow effective partnerships with
world class retailers, suppliers, licensors and other third parties continues
to contribute to the strength of our Company. For all these reasons, we believe
our Company is uniquely positioned to capture increased market share, earnings
per share and mind-share of a generation of consumers who have embraced, and
should continue to embrace, our brands and our products.
As always, we will do our best to deliver continued sales and earnings growth to
our stockholders while, at the same time, strategically building the necessary
infrastructure and pursuing new ideas that will provide future growth with a
level of profitability that is worthy of your investment in FOSSIL.
Sincerely,
/s/ Tom Kartsotis /s/ Kosta Kartsotis
Tom Kartsotis Kosta Kartsotis
Chairman of the Board President & Chief
Executive Officer
FOSSIL ANNUAL REPORT 2000 7
COMPANY OVERVIEW
THE COMPANY'S LONG-TERM GOAL IS TO CAPITALIZE ON THE STRENGTH OF THE GROWING
CONSUMER RECOGNITION OF THE FOSSIL AND RELIC BRANDS AND TO CAPTURE AN INCREASING
SHARE OF A GROWING NUMBER OF MARKETS BY PROVIDING CONSUMERS WITH FASHIONABLE,
HIGH QUALITY, VALUE-DRIVEN PRODUCTS. THE FOSSIL BRAND CONTINUED TO BE ONE OF THE
LEADING FASHION WATCH BRANDS IN 2000, WHILE CONTINUING TO GAIN MOMENTUM IN SALES
OF NON-WATCH PRODUCTS AND INCREASED BRAND PRESENCE GLOBALLY.
FOSSIL
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- PRODUCTS -
WATCHES:
The FOSSIL watch brand continued to build market share in department stores and
specialty stores in 2000, with FOSSIL BLUE, ARKITEKT (formerly STEEL) and F2
representing the core product offerings. The Company also launched the FOREVER
line under the F2 umbrella that is targeted at a younger female demographic.
During 2000, the Company began utilizing stainless steel cases and bracelets in
the FOSSIL BLUE and F2 collection, further enhancing the quality of the
line.
LEATHER GOODS AND SUNWEAR:
The leather division continued to exhibit strong sales growth in 2000 with sales
increases of over 40% for the second consecutive year. Handbags continued to be
the driver in this product category, gaining market share at retail and further
enhancing the visibility and sales of the other accessory categories. Sales were
also enhanced by the growth of the Company's RELIC brand leather goods. The
Company also offers an extensive line of FOSSIL brand sunwear. In 1999, the
Company introduced a line of FOSSIL optical frames.
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[LOGO]
APPAREL:
In 2000, the Company introduced a line of FOSSIL brand apparel products. The
line consists of casual wear and jeans and is available at 14 FOSSIL retail
stores and over the Company's website at www.fossil.com.8
8 FOSSIL ANNUAL REPORT 2000
OTHER PRODUCTS
RELIC PRODUCTS:
RELIC brand watches continued to gain market share in the leading national and
regional chain department stores and specialty stores in 2000 with sales growth
of over 30%. The success of RELIC watches and the increased brand recognition
has provided the opportunity to extend the RELIC brand to other categories of
fashion accessories including handbags, small leather goods and belts.
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INTERNATIONAL SALES:
Increasing demand for FOSSIL products worldwide, coupled with the expansion of
the EMPORIO ARMANI licensed line and the introduction of DKNY, helped broaden
the Company's business around the world. The Company also introduced a line of
FOSSIL brand jewelry in Germany in 2000 that received a very favorable response
at retail. The FOSSIL brand is available in over 80 countries around the world
through the Company's subsidiary operations, joint ventures and a network of 47
independent distributors. International distribution continues to offer an
excellent growth opportunity for the Company in 2001.
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LICENSED BRANDS:
The Company's licensed watch business continued to gain momentum with the
highly successful launch of the DKNY line in the spring of 2000 with sales
exceeding $32 million worldwide. Sales and distribution of EMPORIO ARMANI
OROLOGI, a line of watches featuring distinctive interpretations and retro and
modern designs, continued to grow worldwide. In 2000, the Company also
introduced a line of DIESEL brand watches pursuant to a worldwide license
agreement.
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FOSSIL STORES:
The Company operated 18 accessory stores in the U.S. at the end of 2000 and
plans to add 2 new locations during 2001. The FOSSIL retail stores continue to
provide an exciting format in which to display the Company's increasing product
assortment and to convey the FOSSIL brand image. During 2000, the Company
opened two retail stores in the United Kingdom at Bluewater Mall and in Covent
Garden. In the third quarter, the Company opened the first of 14 jeans wear
stores and plans to add 5 new locations during 2001. These stores offer a line
of FOSSIL casual wear and jeans in addition to the Company's watches and
fashion accessories. The Company also operated 39 outlet stores coast-to-coast
at the end of 2000 and plans to add 4 new locations during 2001. The outlet
stores allow the Company to control the timely liquidation of discontinued
styles while maintaining the integrity of the FOSSIL brand.
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PRIVATE LABEL AND PREMIUMS:
In addition to building its own brands, the Company also designs and
manufactures private label products for some of the most prestigious companies
in the world, including national retailers, entertainment companies and theme
restaurants. The Company continues to expand its core private label watch
business as well as integrate other product categories such as leather goods
and sunglasses. The Company utilizes its sourcing, design and development
expertise to support these comprehensive incentive programs. In addition, the
Company has established a joint venture company that is responsible for the
sales, marketing and distribution of watches to mass market retailers and chain
department stores offering both licensed and owned-brand watches.
9
[ILLUSTRATION]
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
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THE COMPANY'S SUCCESSFUL EXPANSION OF ITS PRODUCT LINES WORLDWIDE AND
LEVERAGING OF ITS INFRASTRUCTURE HAVE CONTRIBUTED TO ITS INCREASING NET SALES
AND OPERATING PROFITS.
THE COMPANY IS A LEADER IN THE DESIGN, DEVELOPMENT, MARKETING AND DISTRIBUTION
OF CONTEMPORARY, HIGH QUALITY FASHION WATCHES, ACCESSORIES AND APPAREL.
The FOSSIL brand name was developed by the Company to convey a distinctive
fashion, quality and value message and a brand image reminiscent of "America in
the 1950s" that suggests a time of fun, fashion and humor.
Since its inception in 1984, the Company has grown from its original flagship
FOSSIL watch product into a Company offering a diversified range of accessories
and apparel. The Company's current product offerings include an extensive line
of fashion watches sold under the FOSSIL and RELIC brands, complementary lines
of small leather goods, belts, handbags, sunglasses and FOSSIL brand apparel.
In addition to developing its own brands, the Company leverages its development
and production expertise by designing and manufacturing private label and
licensed products for some of the most prestigious companies in the world,
including national retailers, entertainment companies and fashion designers.
The Company's products are sold primarily to department stores and specialty
retail stores in over 80 countries worldwide through Company-owned foreign
sales subsidiaries and through a network of 47 independent distributors. The
Company's foreign operations include a presence in Asia, Australia, Canada, the
Caribbean, Europe, Central and South America and the Middle East. In addition,
the Company's products are offered at Company-owned retail locations throughout
the United States, in Company-owned and independently-owned, authorized FOSSIL
retail stores in certain international markets and at retail locations in major
airports and on cruise ships. The Company's successful expansion of its product
lines worldwide and leveraging of its infrastructure have contributed to its
increasing net sales and operating profits.
COMPANY HIGHLIGHTS
OVERALL
- - For the past 18 consecutive quarters ended December 30, 2000, the Company has
achieved increased earnings per share in comparison to the previous year's
comparable periods.
- - Fiscal year 2000 marked the third consecutive year in which the Company's net
sales increased at a rate in excess of 20% over the comparable year.
- - The Company's international operations continued to grow as a result of the
acquisition of the Company's former U.K. distributor in September of 1999,
continued strong market penetration in Germany and further expansion of its
export business.
- - Net sales from the Company's international operations increased just under
20% over 1999. If not for the impact of a strong U.S. dollar against the
Euro, this increase would have been in excess of 30%.
- - During fiscal year 2000, the Company utilized approximately $29 million of
its cash balances to acquire over 2 million shares of its common stock
through open market purchases.
PRODUCTS
- - The Company's FOSSIL BLUE, ARKITEK (formerly STEEL) and F2 watch lines
continue to represent the majority of FOSSIL brand watch sales. With
significant decreases in the FOSSIL BIG TIC category during 2000, FOSSIL
BLUE, ARKITEK and F2 were the catalyst for continued net sales increases of
FOSSIL branded watches.
- - The Company introduced its FOREVER line of watches, an extension of its F2
line, that targets a younger female demographic. Additionally, the Company
will be further expanding its F2 line by introducing more contemporary styles
during 2001.
- - The Company continued to enhance its licensed product business with the
introduction and launch of its DKNY and DIESEL watch lines during 2000. DKNY,
launched in the spring, became one of the Company's most successful licensed
brand launches in terms of net sales, exceeding $32 million worldwide in its
first year.
- - RELIC brand watches, the Company-owned brand sold in leading national and
regional chain department stores and specialty stores, continued to gain
market share with net sales growing over 30% in 2000. The success of RELIC
watches and increasing brand name recognition continues to provide avenues of
growth for RELIC leather accessories as well.
- - During the fourth quarter, the Company announced the test of a line of FOSSIL
brand jewelry in Germany. This line was successfully tested in 230 doors over
the 2000 holiday season and is expected to rollout to several hundred
additional doors in the spring of 2001.
- - The Company continued to position itself as a leader in leather products,
with net sales of the Company's leather product category increasing over 40%
for the second consecutive year. Increases occurred across all product
categories and were further enhanced by the growth in RELIC branded products.
- - The Company believes its ability to continue to introduce new watch products
utilizing various technologies and metal treatments allows it to stay abreast
of fashion trends developing within the market. During 2000, the Company
began utilizing stainless steel cases and bracelets within its FOSSIL BLUE
and F2 lines that historically have incorporated brass componentry and
anticipates that by the end of 2001, most watches will incorporate stainless
steel componentry.
CONTINUED ON NEXT PAGE
FOSSIL ANNUAL REPORT 2000 11
RETAIL LOCATION EXPANSION
- - The Company operated 20 FOSSIL retail accessory stores at the end of 2000
including two new stores that were opened in the U.K. during the fourth
quarter of 2000. The accessory stores, generally located in high volume,
international destination-type malls, allow the Company to test new product
introductions and enhance the FOSSIL brand name. The Company opened four and
eight accessory stores in 2000 and 1999, respectively.
- - During the second half of 2000, the Company launched FOSSIL brand apparel by
opening 14 new retail jeans wear stores. These stores are approximately twice
the size of the Company's accessory stores and combine the traditional
accessory offerings with casual wear and jeans wear.
- - The Company operated 39 FOSSIL outlet stores at the end of 2000. The Company
opened an additional six outlet stores in 2000 and five stores in 1999.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated: (i) the percentage of
the Company's net sales represented by certain line items from the Company's
consolidated statements of income and (ii) the percentage changes in these line
items between the years indicated.
PERCENTAGE PERCENTAGE
CHANGE CHANGE
FROM FROM
FISCAL YEAR 2000 1999 1999 1998 1998
---- ---- ---- ---- ----
Net sales............................. 100.0% 20.4% 100.0% 37.4% 100.0%
Cost of sales......................... 49.3 20.7 49.2 33.5 50.6
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Gross profit.......................... 50.7 20.1 50.8 41.4 49.4
Operating expenses.................... 32.1 29.1 29.9 31.9 31.2
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Operating income...................... 18.6 7.3 20.9 57.9 18.2
Interest expense...................... -- 9.4 -- (44.5) 0.1
Other income (expense)--net........... 0.2 101.2 0.1 218.5 (0.1)
----- ----- -----
Income before income taxes............ 18.8 7.8 21.0 60.5 18.0
Income taxes.......................... 7.7 7.8 8.6 59.6 7.4
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Net income............................ 11.1% 7.8% 12.4% 61.1% 10.6%
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The following table sets forth certain components of the Company's consolidated
net sales and the percentage relationship of the components to consolidated net
sales for the fiscal year indicated:
AMOUNT IN MILLIONS PERCENT OF TOTAL
---------------------------------- ---------------------------------
Fiscal Year 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
International:
Europe.................. $ 99.5 $ 86.7 $ 62.7 19.7% 20.7% 20.6%
Other................... 53.3 41.6 26.9 10.6 9.9 8.8
----- ----- ----- ----- ----- -----
Total international... 152.8 128.3 89.6 30.3 30.6 29.4
Domestic:
Watch products.......... 202.7 180.7 137.0 40.2% 43.2% 45.0%
Other products.......... 99.0 72.1 52.0 19.6 17.2 17.0
----- ----- ----- ----- ----- -----
Total................. 301.7 252.8 189.0 59.8 60.4 62.0
Stores.................. 49.8 37.7 26.1 9.9 9.0 8.6
----- ----- ----- ----- ----- -----
Total domestic........ 351.5 290.5 215.1 69.7 69.4 70.6
----- ----- ----- ----- ----- -----
Total net sales....... $ 504.3 $ 418.8 $ 304.7 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----
12 CONTINUED ON PAGE FIFTEEN
[ILLUSTRATION]
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[ILLUSTRATION]
14
THE MARCH 2000 LAUNCH AND CONTINUED ROLLOUT OF THE COMPANY'S LICENSED BRAND
LINE OF DKNY WATCHES, DOUBLE-DIGIT GROWTH OF THE COMPANY'S FOSSIL WATCH BRAND
AND CONTINUED MARKET PENETRATION OF THE COMPANY'S RELIC WATCH BRAND FUELED
WATCH SALES DURING THE YEAR. FISCAL 1999 COMPARED TO FISCAL 1998
FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES. Net sales increases were primarily impacted by volume increases from
the Company's international and domestic watch sales, domestic leather product
sales and from an increase in the number of Company-owned retail stores over
the prior year. The March 2000 launch and continued rollout of the Company's
licensed brand line of DKNY watches, double-digit growth of the Company's
FOSSIL watch brand and continued market penetration of the Company's RELIC
watch brand fueled watch sales during the year. Increased sales volumes in the
Company's leather product offerings were led by continued growth in handbags,
women's small leather goods and men's belts. Additionally, continued expansion
of RELIC leather products contributed to the overall growth in the Company's
leather group. Expansion in both Company-owned retail and outlet stores,
including the opening of 14 jeans wear retail stores during the second half of
the year, and increases in same store sales in the Company's accessory stores
also positively impacted sales. Management believes that sales volume growth
will continue in 2001 with nearly all product lines and geographic regions
contributing as a result of continued expansion from new and existing product
lines.
GROSS PROFIT. Gross profit margins remained relatively stable at 50.7% for 2000
compared to 50.8% in 1999. Adversely effecting the Company's gross margins
throughout the year were foreign currency valuation changes relating to a
strong U.S. dollar against the Euro. The average Euro rate declined
approximately 13% from 1999 levels resulting in overall gross profit margins
being lower by slightly less than one percent. Gross profit margins were also
adversely effected by an increase in sales mix related to the Company's leather
products that generally carry lower gross profit margins than the Company's
consolidated average. Positively impacting gross profit margins were a higher
sales mix of licensed watches and retail sales from Company-owned stores as
well as internet sales, all of which generally carry higher gross profit
margins than the Company's consolidated average. Management anticipates 2001
gross profit margins to be equal to or slightly less than the levels achieved
in 2000.
OPERATING EXPENSE. Operating expense increases were a result of variable
expenses associated with increased sales volumes, costs associated with
expanding the Company's operating infrastructure and increased advertising
expenditures. As a percentage of net sales, operating expenses increased over
1999 levels by 2%. The infrastructure costs included higher payroll and
personnel-related expenses, store opening and operating expenses and warehouse
and distribution related expenses. Increased advertising expenditures were
primarily related to expansion of the Company's leather handbag fixturing
program at department stores, web-based advertising and additional internet
stores sights. As a majority of the infrastructure costs discussed above were
added in the second half of 2000, management believes operating expenses, as a
percentage of net sales, will increase during the first half of 2001 while
leveling off toward the back half of the year. As a result management expects
operating income as a percentage of net sales to decrease from the level
experienced in 2000.
OTHER INCOME (EXPENSE). Other income (expense) primarily reflects interest
income from cash investments, royalty income, minority interests in the
earnings (loss) of the Company's majority-owned subsidiaries and equity in the
earnings (loss) of its non-consolidated joint ventures. During 2000, other
income (expense) increased favorably as interest and royalty income earned
exceeded minority interest expense and equity in the losses of the Company's
joint ventures.
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales growth resulted from sales volume increases across nearly
all the Company's product lines and worldwide sales regions. Watch sales were
fueled by increased market penetration in department and specialty stores of
the Company's three core FOSSIL brand assortments in addition to sales from its
Big Tic watch line. Watch sales were also slightly amplified during the first
half of 1999 from (a) refilling of certain retailer's watch inventories after a
very successful 1998 holiday season and (b) a $7.2 million international-based
sale of non-branded premium incentive watches. Increased sales volumes in the
Company's leather and eyewear product offerings were generated through market
share increases in existing locations as well as through new points of sale.
Company-owned retail store expansion in both the Company's retail and outlet
stores, as well as increases in same store sales, also positively impacted
sales.
GROSS PROFIT. Gross profit margins increased during 1999 primarily as a result
of an increase in the Company's sales mix of FOSSIL brand watches,
European-based sales, licensed designer brand watch sales and Company-owned
store sales. These sales categories generally result in higher gross profit
margins than the Company's consolidated average.
OPERATING EXPENSE. Operating expense increases were primarily to support
increased sales volumes. As a percentage of net sales, total selling, general
and administrative expenses decreased as a result of leveraging expenses
against higher net sales.
INCREASED SALES VOLUMES IN THE COMPANY'S LEATHER PRODUCT OFFERINGS WERE LED BY
CONTINUED GROWTH IN HANDBAGS, WOMEN'S SMALL LEATHER GOODS AND MEN'S
BELTS.
[ILLUSTRATION]
CONTINUED ON NEXT PAGE 15
[ILLUSTRATION]
OTHER INCOME (EXPENSE). Other income (expense)-net typically reflects interest
income from cash investments and the minority interests in the profit (loss) of
the Company's majority-owned operations. The change in other income (expense)
was favorable in 1999 as increases in interest income and royalty revenues from
licensing the FOSSIL brand offset increases in the minority interest share of
profits and additional foreign currency losses, due mainly to the strength of
the U.S. dollar. These favorable changes were mitigated by an increase in the
minority interests of the Company's majority-owned operations.
EFFECTS OF INFLATION
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 the Company and the industry. Management
believes that, to the extent inflation affects its costs in the future, the
Company could generally offset inflation by increasing prices if competitive
conditions permit.
FOREIGN CURRENCY RISK
As a multinational enterprise, the Company is exposed to changes in foreign
currency exchange rates. The Company employs a variety of practices to manage
this market risk, including its operating and financing activities, and where
deemed appropriate, the use of derivative financial instruments. Forward
contracts have been utilized by the Company to mitigate foreign currency risk.
The Company's most significant foreign currency risk relates to the Euro,
British Pound and Japanese Yen. The Company uses derivative financial
instruments only for risk management purposes and does not use them for
speculation or for trading. There were no significant changes in how the
Company managed foreign currency transactional exposure during 2000 and
management does not anticipate any significant changes in such exposures or in
the strategies it employs to manage such exposure in the near future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business operations historically have not required substantial
cash needs during the first several months of its fiscal year. Generally,
starting in the second quarter the Company's cash needs begin to increase and
typically reach their peak in the September-November time frame. Cash flow
generated by the Company's operating activities has generally funded the
Company's cash requirements and capital expenditures. Cash generated from
operating activities exceeded $40 million and $61 million during 2000 and 1999,
respectively. Historically, the Company's primary capital requirements have
been for working capital, investing activities associated with the expansion of
its office and distribution facilities, international growth, systems
development and expansion of Company-owned stores.
During 2000, the Board of Directors authorized the Company to repurchase up to
2,500,000 shares of its common stock on the open market. Under this
authorization and a previous authorization, the Company purchased 2,039,400
shares at an aggregate cost of approximately $28.7 million. As of December 30,
2000 the Company had availability to repurchase up to approximately 700,000
additional shares pursuant to previous authorizations.
THE COMPANY'S FINANCIAL POSITION REMAINS EXTREMELY STRONG WITH WORKING CAPITAL
OF $169.8 MILLION AT THE END OF 2000.
16
In addition to cash used for working capital purposes and the share buyback,
significant cash expenditures were utilized for investing activities, including
the cost associated with the construction of 23 Company-owned stores.
Management anticipates capital expenditure obligations associated with its
Company-owned stores to decrease during 2001 as fewer stores are planned to be
opened during the year. During 1999, cash used for investing activities were
primarily related to enhancements to the Company's computer systems to address
potential Year 2000 issues, the construction costs for additional Company-owned
stores and the construction of additional office space. Management believes
cash used for investing activities for 2001 may exceed 2000 levels as the
Company is planning to acquire a 500,000 square foot warehouse and distribution
facility that will allow it to centralize three facilities currently being
utilized for such purposes. The facility is scheduled for completion in late
2001 or early 2002 and the total cost for this facility and related equipment
and systems is expected to be approximately $25 million.
The Company's financial position remains extremely strong with working capital
of $169.8 million at the end of 2000 compared with $155.2 million at the end of
1999. The Company has net cash balances (defined as cash and cash equivalents
plus short-term investments less current notes payable) of $85.7 million at the
end of 2000 compared to $96.7 million at the end of 1999. If not for the $28.7
million used to acquire the Company's common stock during the year, net cash
balances would have grown to $114.4 million, an 18% increase above 1999 levels.
Short-term credit facilities totaling $43 million are available to the Company
for working capital needs and other general corporate purposes of which $5.1
million was outstanding at the end of 2000. The Company believes that
internally generated funds from operations, existing cash balances and its
short-term credit facility will be sufficient to satisfy its cash requirements.
FORWARD-LOOKING STATEMENTS
Included within management's discussion and analysis of the Company's operating
results and this annual report, "forward-looking statements" were made within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
expectations for fiscal 2001. The actual results may differ materially from
those expressed by these forward-looking statements. Significant factors that
could cause the Company's 2001 operating results to differ materially from
management's current expectations include, among other items, significant
changes in consumer spending patterns or preferences, competition in the
Company's product areas, international in comparison to domestic sales mix,
changes in foreign currency valuations in relation to the United States dollar,
principally the Euro, British Pound and Japanese Yen, an inability of
management to control operating expenses in relation to net sales without
damaging the long-term direction of the Company and the risks and uncertainties
set forth in the Company's current report on Form 8-K dated March 30, 1999.
[ILLUSTRATION]
17
SELECTED QUARTERLY
FINANCIAL DATA
The table below sets forth selected quarterly financial information. The
information is derived from the unaudited consolidated financial statements of
the Company 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 2000 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales........................................ $103,569 $113,393 $128,064 $159,259
Gross profit..................................... 53,659 56,560 63,691 81,836
Operating expenses............................... 32,500 36,108 41,302 52,015
Operating income................................. 21,159 20,452 22,389 29,821
Income before income taxes....................... 21,405 20,249 22,845 30,218
Provision for income taxes....................... 8,777 8,301 9,367 12,389
Net income....................................... 12,628 11,948 13,478 17,829
Basic earnings per share......................... 0.39 0.37 0.42 0.59
Diluted earnings per share....................... 0.38 0.36 0.41 0.57
Gross profit as a percentage of net sales........ 51.8% 49.9% 49.7% 51.4%
Operating expenses as a percentage of net sales.. 31.4% 31.9% 32.2% 32.7%
Operating income as a percentage of net sales.... 20.4% 18.0% 17.5% 18.7%
FISCAL YEAR 1999 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales....................................... $83,277 $90,271 $104,831 $140,383
Gross profit.................................... 42,672 44,750 52,638 72,827
Operating expenses.............................. 24,795 27,991 30,324 42,328
Operating income................................ 17,877 16,759 22,314 30,499
Income before income taxes...................... 17,711 16,692 22,256 31,182
Provision for income taxes...................... 7,280 6,826 9,125 12,784
Net income...................................... 10,431 9,866 13,131 18,398
Basic earnings per share........................ 0.34 0.31 0.41 0.57
Diluted earnings per share...................... 0.32 0.29 0.39 0.55
Gross profit as a percentage of net sales....... 51.2% 49.6% 50.2% 51.9%
Operating expenses as a percentage of net sales. 29.8% 31.0% 28.9% 30.2%
Operating income as a percentage of net sales... 21.5% 18.6% 21.3% 21.7%
While the majority of the Company's products are not seasonal in nature, a
significant portion of the Company's net sales and operating income are
generally derived in the second half of the year. The Company's fourth quarter,
which includes the Christmas season, on average generates in excess of 30% of
the Company's annual operating income. 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 the Company's control. In
general, lower levels of inventory at the end of the Christmas season may have
a positive impact on the Company's net sales and operating income in the first
quarter as a result of higher levels of restocking orders placed by retailers.
Management currently believes that the Company's inventory levels at its major
customers at the end of the 2000 were not substantially above or below targeted
levels and therefore should not significantly impact retailers restocking
orders in the first quarter of 2001.
As the Company increases the number of Company-owned stores, it would generally
amplify the Company's seasonality by decreasing the Company's operating income
in the first half of the year while increasing operating income during the
second half of the year. In addition, new product line launches would generally
augment the sales 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 the Company.
18 END OF MANAGEMENT DISCUSSION & ANALYSIS SECTION
[CLASSIFIED PAGE]
19
[ILLUSTRATION]
FOSSIL ART GALLERY
The extraordinary talent pool in Fossil's in-house design studio has created
the FOSSIL Annual Report since our first Annual Report in 1994. From the
first designer hired in 1988 until today, nearly one hundred professionals
have designed the watches, photographed the product, dreamed up the tins,
printed the posters, painted the murals and scanned the images; staying up
all night with tireless passion. Our award-winning studio is recognized
worldwide as one of the finest anywhere. This wealth of talent is at the
heart of FOSSIL.
20
[ILLUSTRATION]
21
[ILLUSTRATION]
22
[ILLUSTRATION]
23
FINANCIAL INFORMATION [LOGO]
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS AND STOCKHOLDERS OF FOSSIL, INC.:
We have audited the accompanying consolidated balance sheets of Fossil, Inc.
and subsidiaries as of December 30, 2000 and January 1, 2000 and the related
consolidated statements of income and comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended
December 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fossil, Inc. and subsidiaries at
December 30, 2000 and January 1, 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dallas, Texas
February 19, 2001
REPORT OF MANAGEMENT
The accompanying consolidated financial statements and other information
contained in this Annual Report have been prepared by management. The
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include
amounts that are based upon our best estimates and judgements.
To help assure that financial information is reliable and that assets are
safeguarded, management maintains a system of internal controls and
procedures which it believes is effective in accomplishing these objectives.
These controls and procedures are designed to provide reasonable assurance,
at appropriate costs, that transactions are executed and recorded in
accordance with management's authorization. The consolidated financial
statements and related notes thereto have been audited by Deloitte & Touche
LLP, independent auditors. The accompanying auditors' report expresses an
independent professional opinion on the fairness of presentation of
management's financial statements.
The Audit Committee of the Board of Directors is composed of certain of the
Company's outside directors, and is responsible for selecting the independent
auditing firm to be retained for the coming year. The Audit Committee meets
periodically with the independent auditors, as well as with management, to
review internal accounting controls and financial reporting matters. The
independent auditors also meet privately on occasion with the Audit
Committee, to discuss the scope and results of their audits and any
recommendations regarding the system of internal accounting controls.
/s/ Kosta Kartsotis
Kosta Kartsotis
President and
Chief Executive Officer
/s/ Mike Kovar
Mike Kovar
Senior Vice President,
Chief Financial Officer and Treasurer
24 FOSSIL ANNUAL REPORT 2000
[ILLUSTRATION]
25
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, JANUARY 1,
2000 2000
---- ----
DOLLARS IN THOUSANDS
Assets
Current assets:
Cash and cash equivalents .................................. $ 79,501 $ 90,908
Short-term marketable investments .......................... 11,312 10,870
Accounts receivable-net .................................... 62,876 51,399
Inventories ................................................ 81,118 63,029
Deferred income tax benefits ............................... 7,779 6,769
Prepaid expenses and other current assets .................. 10,245 7,832
--------------------------
Total current assets .................................... 252,831 230,807
Investments in joint ventures .................................. 5,935 3,849
Property, plant and equipment-net .............................. 42,252 28,603
Intangible and other assets .................................... 6,573 6,105
--------------------------
Total assets ............................................ $ 307,591 $ 269,364
--------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable .............................................. $ 5,107 $ 5,043
Accounts payable ........................................... 18,325 11,870
Accrued expenses:
Co-op advertising ....................................... 14,320 15,191
Compensation ............................................ 6,179 4,617
Other ................................................... 19,145 21,493
Income taxes payable ....................................... 19,964 17,395
--------------------------
Total current liabilities ............................... 83,040 75,609
--------------------------
Commitments (Note 10)
Minority interest in subsidiaries .............................. 3,852 2,558
Stockholders' equity:
Common stock, 30,136,824 and 32,107,270
shares issued, respectively ............................. 301 321
Additional paid-in capital ................................. 14,214 41,774
Retained earnings .......................................... 208,429 153,569
Accumulated other comprehensive loss ....................... (2,245) (3,259)
Treasury stock at cost, none and 59,572 shares, respectively -- (1,208)
--------------------------
Total stockholders' equity .............................. 220,699 191,197
--------------------------
Total liabilities and stockholders' equity .............. $ 307,591 $ 269,364
--------------------------
See notes to consolidated financial statements
[ILLUSTRATION]
26
[LOGO]
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FISCAL YEAR 2000 1999 1998
---- ---- ----
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales .......................................................... $504,285 $418,762 $304,743
Cost of sales ...................................................... 248,539 205,875 154,239
-----------------------------------------------------
Gross profit ....................................................... 255,746 212,887 150,504
Operating expenses:
Selling and distribution ....................................... 123,407 95,349 71,720
General and administrative ..................................... 38,518 30,089 23,414
-----------------------------------------------------
Total operating expenses .................................... 161,925 125,438 95,134
-----------------------------------------------------
Operating income ................................................... 93,821 87,449 55,370
Interest expense ................................................... 128 117 211
Other income (expense)--net ........................................ 1,024 509 (430)
-----------------------------------------------------
Income before income taxes ......................................... 94,717 87,841 54,729
Provision for income taxes ......................................... 38,834 36,015 22,568
-----------------------------------------------------
Net income ..................................................... $ 55,883 $ 51,826 $ 32,161
-----------------------------------------------------
Other comprehensive income (loss):
Currency translation adjustment ................................ 827 (1,658) 1,181
Unrealized gain (loss) on marketable investments ............... 187 (564) --
-----------------------------------------------------
Total comprehensive income .................................. $ 56,897 $ 49,604 $ 33,342
-----------------------------------------------------
Earnings per share:
Basic .......................................................... $ 1.76 $ 1.63 $ 1.04
-----------------------------------------------------
Diluted ........................................................ $ 1.71 $ 1.55 $ 0.99
-----------------------------------------------------
Weighted average common shares outstanding:
Basic .......................................................... 31,689,036 31,900,024 31,054,041
-----------------------------------------------------
Diluted ........................................................ 32,674,604 33,428,153 32,586,096
-----------------------------------------------------
See notes to consolidated financial statements
[ILLUSTRATION]
27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOLLARS IN THOUSANDS
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
COMMON STOCK ------------------------------
--------------------- ADDITIONAL CUMULATIVE UNREALIZED LOSS
PAR PAID-IN RETAINED TRANSLATION ON MARKETABLE
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENTS
---------- ------- -------- ---------- ---------- ---------------
Balance, January 3, 1998 ........... 20,308,503 $ 203 $ 26,021 $ 71,257 $ (2,218) --
Common stock issued upon
exercise of stock options ...... 408,588 4 2,877 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 1,495 -- -- --
Secondary offering,
net of offering costs .......... 215,000 2 3,611 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (560) -- --
Net income ......................... -- -- -- 32,161 -- --
Currency translation adjustment..... -- -- -- -- 1,181 --
Other .............................. -- -- 341 -- -- --
-------------------------------------------------------------------------
Balance, January 2, 1999 ........... 20,932,091 209 34,345 102,858 (1,037) --
Common stock issued upon
exercise of stock options ...... 709,133 7 3,632 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 3,902 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (1,115) -- --
Three-for-two-stock split .......... 10,466,046 105 (105) -- -- --
Net income ......................... -- -- -- 51,826 -- --
Unrealized loss on
marketable investments ......... -- -- -- -- -- (564)
Currency translation adjustment .... -- -- -- -- (1,658) --
-------------------------------------------------------------------------
Balance, January 1, 2000 ........... 32,107,270 321 41,774 153,569 (2,695) (564)
Common stock issued upon
exercise of stock options ...... 56,154 -- 384 -- -- --
Tax benefit derived from
exercise of stock options ...... -- -- 470 -- -- --
Purchase of treasury shares ........ -- -- -- -- -- --
Reissuance of treasury stock
upon exercise of stock options.. -- -- -- (1,023) -- --
Repurchase and retirement
of common stock ................ (2,026,600) (20) (28,414) -- -- --
Net income ......................... -- -- -- 55,883 -- --
Unrealized gain on
marketable investments ......... -- -- -- -- -- 187
Currency translation adjustment .... -- -- -- -- 827 --
-------------------------------------------------------------------------
Balance, December 30, 2000 ......... 30,136,824 $ 301 $ 14,214 $208,429 $ (1,868) $ (377)
-------------------------------------------------------------------------
TREASURY STOCK
----------------------- TOTAL
SHARE STOCKHOLDERS'
SHARES COST EQUITY
---------- --------- -------------
Balance, January 3, 1998 ........... -- $ -- $ 95,263
Common stock issued upon
exercise of stock options ...... -- -- 2,881
Tax benefit derived from
exercise of stock options ...... -- -- 1,495
Secondary offering,
net of offering costs .......... -- -- 3,613
Purchase of treasury shares ........ (188,500) (2,647) (2,647)
Reissuance of treasury stock
upon exercise of stock options.. 84,821 1,191 631
Net income ......................... -- -- 32,161
Currency translation adjustment..... -- -- 1,181
Other .............................. -- -- 341
---------------------------------------
Balance, January 2, 1999 ........... (103,679) (1,456) 134,919
Common stock issued upon
exercise of stock options ...... -- -- 3,639
Tax benefit derived from
exercise of stock options ...... -- -- 3,902
Purchase of treasury shares ........ (90,500) (1,994) (1,994)
Reissuance of treasury stock
upon exercise of stock options.. 134,607 2,242 1,127
Three-for-two-stock split .......... -- -- --
Net income ......................... -- -- 51,826
Unrealized loss on
marketable investments ......... -- -- (564)
Currency translation adjustment .... -- -- (1,658)
---------------------------------------
Balance, January 1, 2000 ........... (59,572) (1,208) 191,197
Common stock issued upon
exercise of stock options ...... -- -- 384
Tax benefit derived from
exercise of stock options ...... -- -- 470
Purchase of treasury shares ........ (12,800) (268) (268)
Reissuance of treasury stock
upon exercise of stock options.. 72,372 1,476 453
Repurchase and retirement
of common stock ................ -- -- (28,434)
Net income ......................... -- -- 55,883
Unrealized gain on
marketable investments ......... -- -- 187
Currency translation adjustment .... -- -- 827
---------------------------------------
Balance, December 30, 2000 ......... $ -- -- $ 220,699
---------------------------------------
See notes to consolidated financial statements
28
[ILLUSTRATION]
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR 2000 1999 1998
---------- ---------- ----------
DOLLARS IN THOUSANDS
Operating Activities:
Net income ............................................. $ 55,883 $ 51,826 $ 32,161
Noncash items affecting net income:
Minority interest in subsidiaries .................. 1,786 1,484 1,004
Equity in losses of joint ventures ................. 381 151 --
Depreciation and amortization ...................... 6,436 5,889 4,395
Tax benefit derived from exercise of stock options.. 470 3,902 1,495
Loss on sale of fixed assets ....................... 420 19 84
Increase in allowance for doubtful accounts ........ 1,523 1,044 2,165
Increase in allowance for returns-net of related
inventory in transit ............................ 742 2,098 2,053
Deferred income tax benefits ....................... (1,010) (1,114) (1,151)
Changes in operating assets and liabilities:
Accounts receivable ................................ (15,983) (11,355) (13,899)
Inventories ........................................ (15,993) (3,014) (4,575)
Prepaid expenses and other current assets .......... (2,509) (4,733) (1,106)
Accounts payable ................................... 7,842 (5,056) 5,831
Accrued expenses ................................... (2,274) 13,544 7,675
Income taxes payable ............................... 2,574 6,909 4,983
---------- ---------- ----------
Net cash from operating activities ................. 40,288 61,594 41,115
Investing Activities:
Net assets acquired in business combination ........ -- (2,732) --
Additions to property, plant and equipment ......... (20,341) (10,568) (6,307)
Purchase of marketable investments ................. (442) (10,870) --
Investments in joint ventures ...................... (2,196) (4,000) --
Increase in intangible and other assets ............ (818) (1,505) (70)
---------- ---------- ----------
Net cash used in investing activities .............. (23,797) (29,675) (6,377)
Financing Activities:
Issuance of common or treasury stock:
Exercise of stock options ....................... 838 4,766 3,512
Secondary offering .............................. -- -- 3,613
Net purchase of treasury stock ..................... (268) (1,994) (2,647)
Acquisition and retirement of common stock ......... (27,806) -- --
Distribution of minority interest earnings ......... (492) (790) (390)
Increase (repayments) of notes payable-banks ....... 64 505 (3,325)
Other .............................................. -- -- 341
---------- ---------- ----------
Net cash (used in) from financing activities ....... (27,664) 2,487 1,104
Effect of exchange rate changes on cash
and cash equivalents ............................... (234) (761) 317
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents.... (11,407) 33,645 36,159
Cash and cash equivalents:
Beginning of year .................................. 90,908 57,263 21,104
---------- ---------- ----------
End of year ........................................ $ 79,501 $ 90,908 $ 57, 263
========== ========== ==========
See notes to consolidated financial statements
30
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Fossil, Inc., a
Delaware corporation, and its subsidiaries (the "Company"). The Company reports
on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week
calendar quarters). Significant intercompany balances and transactions are
eliminated in consolidation. The Company is a leader in the design, development,
marketing and distribution of contemporary, high quality fashion watches,
accessories and apparel. The Company's products are sold primarily through
department stores and other major retailers, both domestically and
internationally.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires 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. Actual results could differ from those estimates.
CASH EQUIVALENTS are considered all highly liquid investments with original
maturities at date of purchase of three months or less.
SHORT-TERM MARKETABLE INVESTMENTS consist of liquid investments with original
maturities exceeding three months and mutual fund investments. By policy, the
Company invests primarily in high-grade marketable securities. Securities of
$5.1 million and $4.7 million for fiscal year 2000 and 1999, respectively, are
classified as available for sale and stated at fair value, with unrealized
holding gains (losses) included in accumulated other comprehensive income (loss)
as a component of stockholders' equity. Securities of $6.2 million for both
fiscal years 2000 and 1999 are classified as held-to-maturity and are stated at
amortized cost.
ACCOUNTS RECEIVABLE are stated net of allowances of approximately $21.2 million
and $17.7 million for estimated customer returns and approximately $9.5 million
and $8.0 million for doubtful accounts at the close of fiscal year 2000 and
1999, respectively.
INVENTORIES are stated at the lower of average cost, including any applicable
duty and freight charges, or market.
PROPERTY, PLANT AND EQUIPMENT are stated at cost less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets of three to ten years for equipment and
thirty years for buildings. Leasehold improvements are amortized over the
shorter of the lease term or the asset's useful life.
INTANGIBLE AND OTHER ASSETS include the cost in excess of tangible assets
acquired, noncompete agreements and trademarks,
31
which are amortized using the straight-line method over the estimated useful
lives of generally twenty, three and five years, respectively.
CUMULATIVE TRANSLATION ADJUSTMENT is included in accumulated other comprehensive
income (loss) as a component of stockholders' equity and reflects the unrealized
adjustments resulting from translating the financial statements of foreign
subsidiaries. The functional currency of the Company's foreign subsidiaries is
the local currency of the country. Accordingly, assets and liabilities of the
foreign subsidiaries are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average rates prevailing during
the year. Changes in exchange rates that affect cash flows and the related
receivables or payables are recognized as transaction gains and losses in the
determination of net income. The Company incurred net foreign currency
transaction losses of approximately $0.4 million, $1.2 million and $0.4 million
for fiscal years 2000, 1999 and 1998, respectively, which have been included in
other income (expense) - net.
FORWARD CONTACTS are entered into by the Company principally to hedge the
payment of intercompany inventory transactions with its non-U.S. subsidiaries.
Currency exchange gains or losses resulting from the translation of the related
accounts, along with the offsetting gains or losses from the hedge, are deferred
until the inventory is sold or the forward contract is completed. At December
30, 2000, the Company had hedge contracts to sell (i) $18.8 million Euro for
approximately $16.9 million, expiring through May 2001, and (ii) approximately
$0.3 million British Pounds for approximately $0.4 million, expiring through
January 2001. If the Company were to settle its Euro based contracts at fiscal
year-end 2000, the net result would be a loss of approximately $600,000.
REVENUES are recognized as sales when merchandise is shipped and title transfers
to the customer. The Company permits the return of damaged or defective products
and accepts limited amounts of product returns in certain other instances.
Accordingly, the Company provides allowances for the estimated amounts of these
returns at the time of revenue recognition.
ADVERTISING COSTS for in-store and media advertising as well as co-op
advertising, internet portal costs and promotional allowances are expensed as
incurred. Advertising expenses for fiscal years 2000, 1999 and 1998 were
approximately $32.3 million, $27.1 million and $17.0 million, respectively.
NEW ACCOUNTING STANDARDS. In June 1998, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133")was issued which establishes new
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires the recognition of all derivatives as either assets or liabilities
in the statement of financial position and the measurement of those instruments
at fair value. This pronouncement requires such reporting effective beginning in
fiscal year 2001. The Company adopted SFAS 133 effective December 31, 2000. The
adoption of SFAS 133 did not have a significant impact on the financial
position, results of operations, or cash flows of the Company, because the
Company has limited its use of derivative instruments to the forward contracts
previously mentioned.
MINORITY INTEREST IN SUBSIDIARIES, included within other income (expense) - net
represents the minority stockholders' share of the net income (loss) of various
consolidated subsidiaries and investments in affiliated companies. The minority
interest in the consolidated balance sheets reflects the proportionate interest
in the equity of the various consolidated subsidiaries.
EARNINGS PER SHARE ("EPS"). Basic EPS is based on the weighted average number of
common shares outstanding during each period. Diluted EPS includes the effects
of dilutive stock options outstanding during each period using the treasury
stock method.
[ILLUSTRATION]
32
The following table reconciles the numerators and
denominators used in the computations of both basic and diluted EPS:
FISCAL YEAR 2000 1999 1998
------------ ------------ ------------
Numerator:
Net income ...................................................... $ 55,883,000 $ 51,826,000 $ 32,161,000
------------ ------------ ------------
Denominator:
Basic EPS computation:
Weighted average common shares outstanding ...................... 32,177,358 21,462,121 20,747, 242
Three-for-two stock split effected August 1999 .................. -- 10,466,046 10,351, 347
Repurchase of common shares, net of treasury shares reissued .... (488,322) (28,143) (44,548)
------------ ------------ ------------
31,689,036 31,900,024 31,054,041
------------ ------------ ------------
Basic EPS .................................................... $ 1.76 $ 1.63 $ 1.04
------------ ------------ ------------
Diluted EPS computation:
Weighted average common shares outstanding ...................... 32,177,358 21,462,121 20,747,242
Stock option conversion ......................................... 985,568 1,528,129 1,021,370
Three-for-two stock split effected August 1999 .................. -- 10,466,046 10,862,032
Repurchase of common shares, net of treasury shares reissued .... (488,322) (28,143) (44,548)
------------ ------------ ------------
32,674,604 33,428,153 32,586,096
------------ ------------ ------------
Diluted EPS .................................................. $ 1.71 $ 1.55 $ 0.99
============ ============ ============
COMMON SHARE AND PER SHARE DATA in these notes to consolidated financial
statements has been presented on a retroactive basis for all stock splits.
DEFERRED INCOME TAXES are provided for under the asset and liability method for
temporary differences in the recognition of certain revenues and expenses for
tax and financial reporting purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS are estimated to approximate the related
book values unless otherwise indicated, based on market information available to
the Company.
RECLASSIFICATION of certain 1998 and 1999 amounts have been made to conform to
the 2000 presentation.
[ILLUSTRATION]
33
[ILLUSTRATION]
2. ACQUISITIONS
In January 2000, Fossil (East) Limited, acquired 51% of the capital stock of
Design Time, Ltd from its minority stockholder in exchange for approximately
$153,000 in cash. This acquisition has been accounted for as a purchase and no
goodwill was recorded. Effective September 1999, Fossil U.K., Ltd. acquired
certain assets of Junghans U.K., Ltd. ("Junghans UK") for approximately $2.7
million in cash. Junghans UK was the Company's primary distributor in the United
Kingdom and Ireland. The acquisition was accounted for as a purchase and, in
connection therewith, the Company recorded goodwill of approximately $0.6
million.
The results of these acquired operations are included in the accompanying
consolidated financial statements since the dates of their acquisition. The
proforma effects as if these acquisitions had occurred at the beginning of the
years presented are not significant.
3. INVESTMENTS IN JOINT VENTURES
During 1999, the Company acquired a 20% interest in SII Marketing International,
Inc. ("SMI"), and since that time has invested $6.0 million in this venture.
SMI, a joint venture between the Company and Seiko Instruments America, Inc, was
formed to design, market and distribute watches in the mass-market distribution
channel. The investment of $5.4 million and $3.8 million at fiscal year end 2000
and 1999, respectively, is carried on the equity basis, which approximates the
Company's equity in SMI's underlying net book value. The Company's equity in
SMI's net loss of $409,000 and $151,000 for fiscal 2000 and 1999, respectively,
is included in other income (expenses)-net. In connection with the formation of
the joint venture, the Company signed a multi-year Service Agreement with SMI to
perform certain marketing, design and merchandising functions. The compensation
the Company receives under the Service Agreement is based on a percentage of
SMI's net sales, subject to certain adjustments.
Effective August 31, 2000, the Company sold 50% of the equity of its former
wholly-owned subsidiary ("Fossil Spain") pursuant to a joint venture agreement
with Sucesores de A. Cadarso for the marketing, distribution and sale of the
Company's products in Spain. The Company has accounted for this investment of
$0.5 million at fiscal year end 2000 based upon the equity method from the
effective date of the transaction. The Company's equity in Fossil Spain's net
income was $28,000 for fiscal 2000 and is included in other income
(expense)-net.
34
4. INVENTORIES
Inventories consist of the following:
FISCAL YEAR END 2000 1999
---- ----
IN THOUSANDS
Components and parts..................................................... $ 6,258 $ 5,568
Work-in-process.......................................................... 1,182 2,755
Finished merchandise on hand............................................. 48,113 38,595
Merchandise at Company stores............................................ 13,296 7,481
Merchandise in-transit from customer returns............................. 12,269 8,630
--------------------
$81,118 $63,029
--------------------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
FISCAL YEAR END 2000 1999
---- ----
IN THOUSANDS
Land..................................................................... $ 2,535 $ 2,535
Buildings................................................................ 11,132 11,459
Furniture and fixtures................................................... 26,794 16,843
Computer equipment and software.......................................... 11,883 9,521
Leasehold improvements................................................... 13,494 6,755
--------------------
65,838 47,113
Less accumulated depreciation and amortization........................... 23,586 18,510
--------------------
$42,252 $28,603
--------------------
6. INTANGIBLE AND OTHER ASSETS
Intangibles and other assets consist of the following:
FISCAL YEAR END 2000 1999
---- ----
IN THOUSANDS
Costs in excess of tangible net assets acquired.......................... $ 5,200 $ 5,200
Noncompete agreement..................................................... 475 475
Trademarks............................................................... 1,030 946
Deposits................................................................. 1,458 844
Cash surrender value of life insurance................................... 783 714
Other................................................................... 290 250
--------------------
9,236 8,429
Less accumulated amortization............................................ 2,663 2,324
--------------------
$ 6,573 $ 6,105
--------------------
[ILLUSTRATION]
35
7. DEBT
BANK: U.S.-BASED. In June 1997, the Company renewed its Short-term Revolving
Credit Facility with its primary bank ("U.S. Short-term Revolver") and amended
it to increase the funds available under the facility to $40 million, an
increase of $10 million over the previous facility, not subject to any borrowing
base calculation. The U.S. Short-term Revolver was also amended to eliminate
Japanese Yen currency borrowings and replace it with a stand-by letter of credit
for 640 million Japanese Yen (approximately $5.6 million) as collateral for
Company borrowings from any Japan-based bank. The Company has renewed the U.S.
Short-term Revolver each year since June 1998 and during 2000 negotiated a
reduction in the interest rate the Company pays on London Interbank Offered Rate
("LIBOR") based borrowings. All borrowings under the U.S. Short-term Revolver
accrue interest at the bank's prime rate less 0.5% or LIBOR plus 0.75% (LIBOR
plus 1.00% prior to June 29, 1999 respectively). The U.S. Short-term Revolver is
unsecured and requires the maintenance of net worth, quarterly income, working
capital and financial ratios. There were no borrowings under the U.S. Short-term
Revolver as of fiscal year end 2000 or 1999.
At fiscal year-end 2000 and 1999, the Company had outstanding letters of
credit of approximately $1.8 million and $4.7 million, respectively, to
vendors for the purchase of merchandise.
Banks: Foreign Based. Fossil GmbH has short-term credit facilities with two
Germany-based banks with combined borrowing capacity of 5,000,000 Deutsche Marks
(approximately $2.5 million as of fiscal year-end 2000). No borrowings were
outstanding under the combined credit facilities at the end of fiscal year 2000
or 1999.
Fossil Japan has a short-term credit facility with a Japan-based bank allowing
borrowings of up to 600 million Japanese Yen (approximately $5.2 million as of
fiscal year 2000). All outstanding borrowings under the facility bore interest
at the Euroyen rate (0.54% at December 29, 2000) plus 1%. In connection with the
financing agreement, Fossil Japan agreed to pay a quarterly fee of 0.5% per
annum on any undrawn portion of the loan. The facility is collateralized by a
stand-by letter of credit issued by the Company's primary U.S. bank. Japan-based
borrowings, in U.S. dollars, under the facilities were approximately $5.1
million and $5.0 million as of fiscal year-end 2000 and 1999, respectively.
Interest expense under these credit facilities was approximately $0.1 million in
each of the fiscal years ended 2000, 1999 and 1998.
8. OTHER INCOME (EXPENSE) - NET
Other income (expense)-net consists of the following:
FISCAL YEAR 2000 1999 1998
---- ---- ----
IN THOUSANDS
Interest income ...................................................................... $ 3,480 $ 2,650 $ 1,160
Minority interest in subsidiaries .................................................... (1,786) (1,484) (1,004)
Equity in losses of joint ventures ................................................... (381) (151) --
Currency loss ........................................................................ (412) (1,181) (427)
Royalty income ....................................................................... 770 353 45
Insurance proceeds above book value .................................................. -- 52 93
Other income (expense) ............................................................... (647) 270 (297)
-------------------------------------
$ 1,024 $ 509 $ (430)
-------------------------------------
[ILLUSTRATION]
36
[ILLUSTRATION]
9. INCOME TAXES
Deferred income tax benefits reflect the net tax effects of deductible temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax benefits, consist
of the following:
FISCAL YEAR END 2000 1999
---- ----
IN THOUSANDS
Deferred tax assets:
Bad debt allowance ..................................... $ 3,162 $ 2,534
Returns allowance ...................................... 6,537 5,646
263(A) capitalization of inventory ..................... 704 504
Miscellaneous tax asset items .......................... 1,060 1,178
Deferred tax liabilities:
In-transit returns inventory ........................... (3,685) (3,093)
-----------------------
Net current deferred tax benefits ........................ $ 7,778 $ 6,769
-----------------------
Management believes that no valuation allowance against net deferred tax
benefits is necessary. The resulting provision for income taxes consists of the
following:
FISCAL YEAR 2000 1999 1998
---- ---- ----
IN THOUSANDS
Current provision:
United States ........................................ $21,229 $18,448 $10,278
Foreign .............................................. 18,145 14,779 11,946
Deferred provision - United States ...................... (1,010) (1,114) (1,151)
Tax equivalent related to exercise of stock options
(credited to additional paid-in capital) ............. 470 3,902 1,495
------------------------------------
Provision for income taxes .............................. $38,834 $36,015 $22,568
------------------------------------
A reconciliation of income tax computed at the U.S. federal statutory income tax
rate of 35% to the provision for income taxes is as follows:
FISCAL YEAR 2000 1999 1998
IN THOUSANDS ---- ---- ----
Tax at statutory rate ................................... $33,151 $30,744 $19,155
State, net of federal tax benefit ....................... 736 975 364
Other ................................................... 4,947 4,296 3,049
------------------------------------
Provision for income taxes .............................. $38,834 $36,015 $22,568
------------------------------------
Deferred U.S. federal income taxes are not provided on certain undistributed
earnings of foreign subsidiaries as management plans to continue reinvesting
these earnings outside the United States. Determination of such tax amounts is
not practical because potential offset by U.S. foreign tax credits would be
available under various assumptions involving the tax calculation.
37
10. COMMITMENTS
LICENSE AGREEMENTS. The Company has various license agreements to market watches
bearing certain trademarks owned by various entities. In accordance with these
agreements, the Company incurred royalty expense of approximately $5.0 million,
$3.8 million and $3.5 million in fiscal years 2000, 1999 and 1998, respectively.
These amounts are included in the Company's cost of sales and selling expenses.
The Company had several agreements in effect at the end of fiscal year 2000
which expire on various dates from March 2001 through December 2004 and require
the Company to pay royalties ranging from 5% to 15.5% of defined net sales.
Future minimum royalty commitments under such license agreements at the close of
fiscal year 2000 are as follows (amounts in thousands):
2001 .............................. $ 8,427
2002 .............................. 9,701
2003 .............................. 4,236
2004 .............................. 4,577
Thereafter ........................ --
-------
$26,941
-------
LEASES. The Company leases its retail and outlet store facilities as well as
certain of its office facilities and equipment under non-cancelable operating
leases. Most of the retail store leases provide for contingent rental based on
operating results and require the payment of taxes, insurance and other costs
applicable to the property. Generally, these leases include renewal options for
various periods at stipulated rates. Rent expense under these agreements was
approximately $10.9 million, $6.8 million, and $5.1 million for fiscal years
2000, 1999 and 1998, respectively. Contingent rent expense has been minimal in
each of the last three fiscal years. Future minimum rental commitments under
such leases at the close of fiscal year 2000, are as follows (amounts in
thousands):
2001 .............................. $ 13,134
2002 .............................. 12,492
2003 .............................. 12,416
2004 .............................. 12,706
2005 .............................. 12,067
Thereafter ........................ 53,273
--------
$116,088
--------
[ILLUSTRATION]
38
[ILLUSTRATION]
11. STOCKHOLDERS' EQUITY AND BENEFIT PLANS
COMMON AND PREFERRED STOCK. On July 21, 1999, the Board of Directors of the
Company declared a 3-for-2 stock split ("1999 Stock Split") of the Company's
Common Stock which was effected in the form of a stock dividend which was paid
on August 17, 1999 to stockholders of record on August 3, 1999. Retroactive
effect has been given to the stock split in all share and per share data in
these notes to financial statements.
The Company has 100,000,000 shares of authorized Common Stock, with 30,136,824
and 32,047,698 shares outstanding at the close of fiscal year 2000 and 1999,
respectively. The Company has 1,000,000 shares of authorized $0.01 par value
preferred stock with none issued or outstanding. Rights, preferences and other
terms of preferred stock will be determined by the Board of Directors at the
time of issuance.
COMMON STOCK REPURCHASE PROGRAMS. On September 18, 2000, and on September 18,
1998, the Company's Board of Directors authorized management to repurchase up to
500,000 shares and 2.5 million shares, respectively, of the Company's Common
Stock in the open market or privately negotiated transactions (the "Repurchase
Programs"). During fiscal year 2000 and 1999, the Company repurchased 2,039,400
and 90,500 shares, respectively, of its common stock under the Repurchase
Programs at a cost of approximately $28.6 million and $2.0 million,
respectively. During fiscal years 2000 and 1999, 73,372 and 134,607 shares
respectively, of common stock repurchased were reissued in connection with the
Company's 1993 Long-Term Incentive Stock Option Plan ("Incentive Plan"). In
October 2000 the Company retired 2,026,600 shares of its Common Stock that
remained in treasury.
DEFERRED COMPENSATION AND SAVINGS PLANS. The Company has a savings plan in the
form of a defined contribution plan (the "401(k) plan") for substantially all
full-time employees of the Company. Employees are eligible to participate in the
401(k) plan after one year of service. The Company matches 50% of employee
contributions up to 3% of their compensation and 25% of the employee
contributions between 3% and 6% of their compensation. The Company also has the
right to make certain additional matching contributions not to exceed 15% of
employee compensation. The Company's Common Stock is one of several investment
alternatives available under the 401(k) plan. Matching contributions made by the
Company to the 401(k) plan totaled approximately $0.2 million for each of the
fiscal years 2000, 1999 and 1998.
In December 1998, the Company adopted the Fossil, Inc. and Affiliates Deferred
Compensation Plan (the "Deferred Plan"). Eligible participants may elect to
defer up to 50% of their salary pursuant to the terms and conditions of the
Deferred Plan. Eligible participants include certain officers and other highly
compensated employees designated by the Deferred Plan's administrative
committee. In addition, the Company may make employer contributions to
participants under the Deferred Plan from time to time. The Company made no
contributions to the Deferred Plan during the fiscal year 2000, while $0.5
million was contributed during the fiscal year 1999.
39
LONG-TERM INCENTIVE PLAN. An aggregate of 2,587,500 shares of Common Stock were
reserved for issuance pursuant to the Incentive Plan, adopted April 1993. An
additional 1,350,000 shares were reserved in each of 1995 and 1998 for issuance
under the Incentive Plan. Designated employees of the Company, including
officers and directors, are eligible to receive (i) stock options, (ii) stock
appreciation rights, (iii) restricted or non-restricted stock awards, (iv) cash
awards or (v) any combination of the foregoing. The Incentive Plan is
administered by the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee"). Each option issued under the Incentive Plan
terminates at the time designated by the Compensation Committee, not to exceed
ten years. The current options outstanding predominately vest over a period
ranging from three to five years and were priced at not less than the fair
market value of the Company's Common Stock at the date of grant. The weighted
average fair value of the stock options granted during fiscal years 2000, 1999
and 1998 was $8.97, $12.01 and $6.27, respectively.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. An aggregate of 225,000 shares of Common
Stock were reserved for issuance pursuant to this nonqualified stock option
plan, adopted April 1993. During the first year an individual is elected as a
nonemployee director of the Company, they received a grant of 5,000 nonqualified
stock options. In addition, on the first day of each subsequent calendar year,
each non-employee director automatically received a grant of an additional 3,000
nonqualified stock options as long as the person is serving as a nonemployee
director. Pursuant to this plan, 50% of the options granted will become
exercisable on the first anniversary of the date of grant and in two additional
installments of 25% on the second and third anniversaries. The exercise prices
of options granted under this plan were not less than the fair market value of
the Common Stock at the date of grant. The weighted average fair value of the
stock options granted during fiscal years 2000, 1999 and 1998 was $10.06, $14.25
and $11.93, respectively.
The fair value of options granted under the Company's stock option plans during
fiscal years 2000, 1999 and 1998 were estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield, expected volatility of approximately 63% to
66%, risk free interest rate of 4.75% to 6.00%, and expected life of 5 to 6
years. The following tables summarize the Company's stock option
activity:
INCENTIVE PLAN
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
--------- --------- ----------- --------- ----------- ---------
Balance, Fiscal 1997 ............ $ 2.945 - $12.667 $ 4.782 2,497,140 $ 4.650 1,314,270 922,541
Granted ..................... $ 8.667 - $19.833 $ 10.078 633,461 -- -- (633,461)
Shares designated for grant
through the plan ......... -- -- -- -- -- 1,350,000
Exercised ................... $ 2.945 - $ 8.611 $ 4.701 (740,114) -- -- --
Canceled .................... $ 2.945 - $14.833 $ 7.509 (76,699) -- -- 76,699
Exercisable ................. $ 2.945 - $12.667 $ -- -- -- (173,819) --
----------- -------------------------
Balance, Fiscal 1998 ............ $ 2.945 - $19.833 $ 6.187 2,313,788 $ 4.767 1,140,451 1,715,779
Granted ..................... $ 17.875 - $33.187 $ 19.483 542,671 -- -- (542,671)
Exercised ................... $ 2.945 - $18.167 $ 5.319 (895,580) -- -- --
Canceled .................... $ 3.528 - $29.875 $ 13.176 (53,426) -- -- 53,426
Exercisable ................. $ 2.945 - $19.833 $ -- -- -- (199,643) --
----------- -------------------------
Balance, Fiscal 1999 ............ $ 2.945 - $33.187 $ 10.193 1,907,453 $ 5.831 940,808 1,226,534
Granted ..................... $ 11.187 - $25.000 $ 15.169 789,000 -- -- (789,000)
Exercised ................... $ 2.945 - $20.000 $ 7.204 (106,870) -- -- --
Canceled .................... $ 5.167 - $32.209 $ 16.812 (94,494) -- -- 94,494
Exercisable ................. $ 2.945 - $33.187 $ -- -- -- 300,027 --
----------- -------------------------
Balance, Fiscal 2000 ............ $ 2.945 - $33.187 $ 11.639 2,495,089 $ 7.344 1,240,835 532,028
----------- -------------------------
40
NONEMPLOYEE DIRECTOR PLAN
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
--------- --------- ----------- --------- ----------- ---------
Balance, Fiscal 1997 ............ $ 3.333 - $11.111 $ 6.100 135,000 $ 5.212 99,562 78,187
Granted ..................... $ 19.167 $ 19.167 13,500 -- -- (13,500)
Exercised ................... $ -- $ -- -- -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $11.111 $ -- -- -- 20,250 --
----------- -------------------------
Balance, Fiscal 1998 ............ $ 3.333 - $19.167 $ 7.288 148,500 $ 5.681 119,812 64,687
Granted ..................... $ 23.125 $ 23.125 9,000 -- -- (9,000)
Exercised ................... $ -- $ -- -- -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $19.167 $ -- -- -- 16,874 --
----------- -------------------------
Balance, Fiscal 1999 ............ $ 3.333 - $23.125 $ 8.193 157,500 $ 6.560 136,686 55,687
Granted ..................... $ 14.375 - $19.625 $ 17.000 10,000 -- -- (10,000)
Exercised ................... $ 3.333 $ 3.333 (22,500) -- -- --
Canceled .................... $ -- $ -- -- -- -- --
Exercisable ................. $ 3.333 - $23.125 $ -- -- -- (22,500) --
----------- -------------------------
Balance, Fiscal 2000 ............ $ 3.333 - $23.125 $ 9.554 145,000 $ 7.195 114,186 45,687
----------- -------------------------
Additional weighted average information
for options outstanding and exercisable as
of fiscal year end 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE AVERAGE EXERCISE
EXERCISE NUMBER OF PRICE REMAINING NUMBER OF PRICE
PRICE SHARES PER SHARE CONTRACTUAL LIFE SHARES PER SHARE
----- ------ --------- ---------------- ------ ---------
Long-Term
Incentive Plan: ................. $ 2.945 - $ 5.950 804,689 $ 4.880 5.2 years 804,689 $ 4.880
$ 5.960 - $15.900 668,680 $ 10.124 7.6 years 327,848 $ 9.406
$ 15.910 - $33.187 1,021,720 $ 17.952 8.6 years 108,298 $ 19.412
--------- ---------
2,495,089 1,240,835 $ 7.344
--------- ---------
Nonemployee
Director Plan: .................. $ 3.333 - $ 5.950 51,750 $ 4.464 4.0 years 51,750 $ 4.464
$ 5.960 - $15.900 65,750 $ 8.964 5.7 years 55,686 $ 8.283
$ 15.910 - $23.125 27,500 $ 20.546 8.6 years 6,750 $ 19.167
--------- ---------
145,000 114,186 $7.19541
--------- ---------
[ILLUSTRATION]
41
[ILLUSTRATION]
The Company applies Accounting Principles Board Opinion No.25 and
related Interpretations in accounting for its stock option plans. No
compensation cost has been recognized for the Company's stock option plans
because the quoted market price of the Common Stock at the date of the grant was
not in excess of the amount an employee must pay to acquire the Common Stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," issued by the Financial
Accounting Standards Board in 1995, prescribes a method to record compensation
cost for stock-based employee compensation plans at fair value. Pro forma
disclosures as if the Company had adopted the cost recognition requirements
under SFAS No.123 in fiscal years 2000, 1999 and 1998 are presented below.
FISCAL YEAR 2000 1999 1998
---- ---- ----
IN THOUSANDS, EXCEPT PER SHARE DATA
Net income:
As reported ........................................... $55,883 $51,826 $32,161
Proforma .............................................. $53,018 $49,707 $30,048
Basic earnings per share:
As reported ........................................... $ 1.76 $ 1.63 $ 1.04
Proforma .............................................. $ 1.67 $ 1.56 $ 0.97
Diluted earnings per share:
As reported ........................................... $ 1.71 $ 1.55 $ 0.99
Proforma .............................................. $ 1.62 $ 1.49 $ 0.92
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows:
FISCAL YEAR 2000 1999 1998
---- ---- ----
IN THOUSANDS
Cash paid during the year for:
Interest............................................... $ 62 $ 402 $ 82
Income taxes........................................... $35,106 $27,532 $18,388
13. MAJOR CUSTOMER, SEGMENT AND GEOGRAPHIC INFORMATION
Customers of the Company consist principally of major department stores and
specialty retailers located throughout the United States. The most significant
customers, individually or considered as a group under common ownership, which
accounted for over 10% of net sales for the periods presented, were as follows:
FISCAL YEAR 2000 1999 1998
---- ---- ----
Customer A............................................... 8% 9% 10%
The Company's majority owned facilities operate primarily in four geographic
regions. The Company operates in two distinct distribution channels, wholesale
and retail. In its wholesale operations it designs, develops, markets and
distributes fashion watches and other accessories, to department stores,
specialty shops, and independent retailers throughout the world. The Company's
store operations consist of the Company's outlet and mall-based retail stores
selling the Company's product directly to the consumer. Specific information
related to the Company's reportable segments and geographic areas are contained
in the following table. Intercompany sales of products between geographic areas
are referred to as inter-geographic items.
42
FISCAL YEAR END 2000
OPERATING LONG-LIVED
NET SALES INCOME (LOSS) ASSETS TOTAL ASSETS
--------- ------------- ------ ------------
IN THOUSANDS
United States-exclusive of Stores: ..... $ 28,269 $ 138,796
External customers .................. $ 301,767 $ 55,811 -- --
Intergeographic ..................... 73,270 -- -- --
Stores ................................. 49,803 (7,215) 18,135 39,978
Europe: ................................ 99,439 6,442 5,132 21,138
Far East: .............................. 3,052 106,375
External customers .................. 47,152 39,910 -- --
Intergeographic ..................... 189,651 -- -- --
Japan .................................. 6,124 (1,127) 172 1,304
Intergeographic items .................. (262,921) -- -- --
---------------------------------------------------------------
Consolidated ........................... $ 504,285 $ 93,821 $ 54,760 $ 307,591
---------------------------------------------------------------
FISCAL YEAR END 1999
United States-exclusive of Stores: ..... $ 24,554 $ 144,465
External customers .................. $ 252,816 $ 36,020 -- --
Intergeographic ..................... 34,700 -- -- --
Stores ................................. 37,797 4,361 8,294 24,818
Europe: ................................ 2,745 23,099
External customers .................. 86,714 17,793 -- --
Intergeographic ..................... 500 -- -- --
Far East: .............................. 2,687 74,469
External customers .................. 34,091 29,662 -- --
Intergeographic ..................... 140,800 -- -- --
Japan .................................. 7,516 (387) 277 2,513
Intergeographic items .................. (176,172) -- -- --
---------------------------------------------------------------
Consolidated ........................... $ 418,762 $ 87,449 $ 38,557 $ 269,364
---------------------------------------------------------------
FISCAL YEAR END 1998
United States-exclusive of Stores: ..... $ 17,851 $ 124,133
External customers .................. $ 188,959 $ 22,278 -- --
Intergeographic ..................... 25,000 -- -- --
Stores ................................. 26,117 2,658 5,359 14,941
Europe: ................................ 62,668 10,149 2,028 31,756
Far East: .............................. 2,361 18,245
External customers .................. 19,192 21,032 -- --
Intergeographic ..................... 107,100 -- -- --
Japan .................................. 7,667 (747) 146 5,003
Intergeographic items .................. (131,960) -- -- --
---------------------------------------------------------------
Consolidated ........................... $ 304,743 $ 55,370 $ 27,745 $ 194,078
---------------------------------------------------------------
[ILLUSTRATION]
43
CORPORATE INFORMATION
EXECUTIVE OFFICERS AND DIRECTORS
Tom Kartsotis Randy S. Kercho Kenneth W. Anderson
Chairman of the Board Executive Vice President Director
Kosta N. Kartsotis Mike L. Kovar Alan J. Gold
President, Senior Vice President, Director
Chief Executive Officer Chief Financial Officer
and Director and Treasurer
Michael W. Barnes Mark D. Quick Junichi Hattori
President, International and President, Director
Special Markets Division Fashion Accessories Division
and Director
Richard H. Gundy T. R. Tunnell Michael Steinberg
President, FOSSIL Watches Executive Vice President, Director
and Stores Division Chief Legal Officer and Secretary
and Director
Jal S. Shroff Donald J. Stone
Managing Director- Director
Fossil East and Director
CORPORATE INFORMATION
Transfer Agent and Registrar Independent Auditors Corporate Counsel
Chase Mellon Shareholder Services LLC Deloitte & Touche LLP Jenkens & Gilchrist
Overpeck Centre 2200 Ross Avenue 1445 Ross Avenue
85 Challenger Road Dallas, TX 75201 Dallas, TX 75202
Ridgefield Park, NJ 07760
INTERNET WEBSITE
The Company maintains a website at the worldwide internet address of
www.fossil.com. Certain product, event, investor relations and collector club
information concerning the Company is available at the site.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, May 24, 2001, at
4:00 pm at the Company's headquarters, 2280 N. Greenville Ave., Richardson,
Texas.
COMPANY INFORMATION
A copy of the Company's Annual Report on Form 10-K and the Annual Report to
Stockholders, as filed with the Securities and Exchange Commission, in addition
to other Company information, is available to stockholders without charge upon
written request to Fossil, Investor Relations, 2280 N. Greenville Ave.,
Richardson, Texas 75082-4412.
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