TABLE OF CONTENTS
page
COMPANY PROFILE
What kind of company is Fossil?
What kind of products does Fossil make?
FINANCIAL HIGHLIGHTS
Numbers and more Numbers.
LETTER TO STOCKHOLDERS
Highlights from 2000.
COMPANY OVERVIEW
FOSSIL products, Other products...
MANAGEMENT DISCUSSION AND ANALYSIS
The whole Fossil SHABANG!!!
FINANCIAL INFORMATION
The numbers you have been wanting to see all year.
CORPORATE INFORMATION
Who’s Who?
FOSSIL...
bringing you
information
to KNOW
3
COMPANY PROFILE
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.
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.
The Company differentiates its products
from those of its competitors principally
through innovations in fashion details.
Net Sales
In Millions
of Dollars
Net Income
In Millions
of Dollars
6 0 0
5 0 0
4 0 0
3 0 0
2 0 0
1 0 0
0
6 0
5 0
4 0
3 0
2 0
1 0
0
Operating (cid:13)
Income
In Millions
of Dollars
1 0 8
9 0
7 2
5 4
3 6
1 8
0
9 6
9 7
9 8
9 9
0 0
9 6
9 7
9 8
9 9
0 0
Stockholders(cid:213)(cid:13)
Equity
In Millions
of Dollars
2 4 0
2 0 0
1 6 0
1 2 0
8 0
4 0
0
4
FOSSIL ANNUAL REPORT 2000
9 6
9 7
9 8
9 9
0 0
9 6
9 7
9 8
9 9
0 0
FINANCIAL HIGHLIGHTS
Fiscal Year
IN THOUSANDS, EXCEPT PER SHARE DATA
2000
1999
1998
1997
1996
Net sales . . . . . . . . . . . . . . . . . . . . . . . .
$
504,285
$
418,762
$
304,743
$
244,798
$
205,899
Gross profit . . . . . . . . . . . . . . . . . . . . . .
255,746
Operating income . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share (1) . . . . . . . . . .
Diluted earnings per share (1) . . . . . . . . .
93,821
94,717
55,883
1.76
1.71
Weighted average common shares outstanding:
Basic shares (1) . . . . . . . . . . . . . . . .
Diluted shares (1) . . . . . . . . . . . . . .
31,689
32,675
212,887
87,449
87,841
51,826
1.63
1.55
31,900
33,428
150,504
55,370
54,729
32, 161
1.04
0.99
31,054
32,586
Working capital . . . . . . . . . . . . . . . . . . .
$
169,792
$
155,198
$ 109,040
$
Total assets . . . . . . . . . . . . . . . . . . . . . .
307,591
Long-term debt . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . .
Return on average stockholders’ equity . .
—
220,699
26 .9%
269,364
—
191,197
32.2%
194,078
—
134,919
29.3%
117,528
34,610
32,151
18,942
0.63
0.61
30,203
31,250
70,603
139,570
—
95,263
23.1%
98,038
24,373
23,040
13,591
0.46
0.45
29,675
30, 101
$
59, 861
118,978
4,350
74,568
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.
S T O C K I N F O R M AT I O N
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
High
First quarter . . . . . $ 26.750
Second quarter . . . .
Third quarter . . . . .
Fourth quarter . . . .
25.125
20.500
16.438
Low
$ 15.813
16.625
11.563
10.500
High
$ 23.667
33.583
36.583
30.625
1999
Low
$ 17.833
17.250
26.333
18.750
FOSSIL ANNUAL REPORT 2000
5
6
LETTER TO THE STOCKHOLDERS
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.
In 2000, FOSSIL brand products continued to appeal to
youthful-minded consumers who shop in upscale
specialty and
department,
the
jewelry stores around
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 brand-
ing
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.
strategies
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, demon-
strating 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.
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,
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.
licensors
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,
Tom Kartsotis
Chairman of the Board
Kosta Kartsotis
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.
Watc hes :
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
further
BLUE and F2 collection,
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.
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
FOSSIL ANNUAL REPORT 2000
RELI C Pr od u cts :
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 cat-
egories of fashion accessories including
handbags, small leather goods and belts.
I nt ernat i ona l Sa les :
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.
Fo s si l 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.
Li cen s ed Bra nd s :
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.
Pri vat e L abel
a nd Premi um s :
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
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 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, author-
ized 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.
• 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.
in
• RELIC brand watches, the Company-owned brand
leading national and regional chain
sold
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.
C O M PA N Y H I G H L I G H T S
O v e r a l l
• 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.
FOSSIL ANNUAL REPORT 2000
The Company is a leader in the design, development,
marketing and distribution of contemporary, high
quality fashion watches, accessories and apparel.
continued on next page
11
R e t a i l L o c a t i o n E x p a n s i o n
• 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 locat-
ed 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.
R E S U LT S O F O P E R AT I O N S
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.
Fiscal Year
2000
Percentage
change
from
1999
Percentage
change
from
1998
1999
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
20.4%
100.0%
37.4%
100.0%
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) – net . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49.3
50.7
32.1
18.6
—
0.2
18.8
7.7
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1%
20.7
20.1
29.1
7.3
9.4
101.2
7.8
7.8
7.8%
49.2
50.8
29.9
20.9
—
0.1
21.0
8.6
12.4%
33.5
41.4
31.9
57.9
(44.5)
218.5
60.5
59.6
61.1%
50.6
49.4
31.2
18.2
0.1
(0.1)
18.0
7.4
10.6%
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:
Fiscal Year
2000
1999
1998
2000
1999
1998
Amount in millions
Percent of total
International:
Europe
. . . . . . . . . . . . . . . . . $
Other
. . . . . . . . . . . . . . . . .
99.5
53.3
Total international . . . . . . .
152.8
$
86.7
41.6
128.3
$
62.7
26.9
89.6
19.7%
10.6
30.3
20.7%
9.9
30.6
20.6%
8.8
29.4
Domestic:
Watch products . . . . . . . . . . . .
Other products . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . .
Stores
. . . . . . . . . . . . . . . . .
Total domestic . . . . . . . . . .
202.7
99.0
301.7
49.8
351.5
180.7
72.1
252.8
37.7
290.5
137.0
52.0
189.0
26.1
215.1
40.2%
43.2%
45.0%
19.6
59.8
9.9
69.7
17.2
60.4
9.0
69.4
17.0
62.0
8.6
70.6
Total net sales . . . . . . . . . . $ 504.3
$ 418.8
$ 304.7
100.0%
100.0%
100.0%
12
continued on page fifteen
13
F i s c a l 2 0 0 0 C o m p a re d t o F i s c a l 1 9 9 9
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.
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.
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) pri-
marily 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.
continued on next page
15
interest
Other Income (expense). Other income (expense) –
net typically reflects
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 in the Company’s
majority-owned operations.
E F F E C T S O F I N F L AT I O N
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.
F O R E I G N C U R R E N C Y R I S K
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 require-
ments 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 author-
ization 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.
obligations
associated with
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
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
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.
is scheduled
facility
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.
F O R WA R D - L O O K I N G S TA T E M E N T S
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.
continued on next page
S E L E C T E D Q U A R T E R LY
F I N A N C I A L D A TA
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
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,569
$ 113,393
$ 128,064
$ 159,259
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,659
32,500
21,159
21,405
8,777
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,628
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit as a percentage of net sales . . . . . . . . . . . . . . . . . .
Operating expenses as a percentage of net sales . . . . . . . . . . . . .
Operating income as a percentage of net sales . . . . . . . . . . . . . .
0.39
0.38
51.8%
31.4%
20.4%
56,560
36,108
20,452
20,249
8,301
11,948
0.37
0.36
49.9%
31.9%
18.0%
63,691
41,302
22,389
22,845
9,367
13,478
0.42
0.41
49.7%
32.2%
17.5%
81,836
52,015
29,821
30,218
12,389
17,829
0.59
0.57
51.4%
32.7%
18.7%
Fiscal Year 1999
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,277
$ 90,271
$ 104,831
$ 140,383
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,672
24,795
17,877
17,711
7,280
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,431
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit as a percentage of net sales . . . . . . . . . . . . . . . . . .
Operating expenses as a percentage of net sales . . . . . . . . . . . . .
Operating income as a percentage of net sales . . . . . . . . . . . . . .
0.34
0.32
51.2%
29.8%
21.5%
44,750
27,991
16,759
16,692
6,826
9,866
0.31
0.29
49.6%
31.0%
18.6%
52,638
30,324
22,314
22,256
9,125
13,131
0.41
0.39
50.2%
28.9%
21.3%
72,827
42,328
30,499
31,182
12,784
18,398
0.57
0.55
51.9%
30.2%
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 •
F O S S I L A RT G A L L E RY
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
22
FINANCIAL INFORMATION
I N D E P E N D E N T A U D I T O R S ’ R E P O RT
R E P O RT O F M A N A G E M E N T
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
the period ended
three years
December 30, 2000. These financial
statements are the responsibility of the
Company’s management. Our responsi-
bility is to express an opinion on these
financial statements based on our audits.
in
auditing
We conducted our audits in accordance
standards generally
with
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
free of material
statements
are
The accompanying consolidated financial
statements
information
and other
contained in this Annual Report have
been prepared by management. The
been
financial
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.
statements
have
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
audit
includes
misstatement. An
examining, on a test basis, evidence
supporting the amounts and disclosures
in the financial statements. An audit also
the accounting
includes assessing
principles used and significant estimates
made by management, as well as evalu-
ating 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.
Deloitte & Touche LLP
Dallas, Texas
February 19, 2001
management’s authorization.
The consolidated financial statements and
related notes thereto have been audited by
Deloitte & Touche LLP, independent audi-
tors. The accompanying auditors’ report
expresses an independent professional
opinion on the fairness of presentation of
management’s financial statements.
the
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 com-
ing year. The Audit Committee meets
independent
periodically with
auditors, as well as with management, to
review internal accounting controls and
financial
The
independent auditors also meet privately
on occasion with the Audit Committee,
to discuss the scope and results of their
recommendations
audits and any
internal
regarding
accounting controls.
reporting matters.
system of
the
Kosta Kartsotis
President and
Chief Executive Officer
Mike Kovar
Senior Vice President,
Chief Financial Officer
and Treasurer
24
FOSSIL ANNUAL REPORT 2000
C O N S O L I D AT E D B A L A N C E S H E E T S
DOLLARS IN THOUSANDS
Assets
Current assets:
December 30,
2000
January 1,
2000
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,501
$ 90,908
Short-term marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable–net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,312
62,876
81,118
7,779
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,245
10,870
51,399
63,029
6,769
7,832
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252,831
230,807
Investments in joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,935
Property, plant and equipment–net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,252
Intangible and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,573
3,849
28,603
6,105
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 307,591
$ 269,364
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,107
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,325
Accrued expenses:
Co-op advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,320
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,179
19,145
19,964
83,040
$
5,043
11,870
15,191
4,617
21,493
17,395
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
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,214
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208,429
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,245)
Treasury stock at cost, none and 59,572 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
220,699
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 307,591
321
41,774
153,569
(3,259)
(1,208)
191,197
$ 269,364
See notes to consolidated financial statements
26
C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E A N D C O M P R E H E N S I V E I N C O M E
Fiscal Year
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
2000
1999
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 504,285
$ 418,762
$ 304,743
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
248,539
255,746
Operating expenses:
Selling and distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123,407
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,518
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161,925
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,821
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128
1,024
94,717
38,834
205,875
212,887
95,349
30,089
125,438
87,449
117
509
87,841
36,015
154,239
150,504
71,720
23,414
95,134
55,370
211
(430)
54,729
22,568
Net income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,883
$ 51,826
$ 32,161
Other comprehensive income (loss):
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
827
187
(1,658)
(564)
1,181
—
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,897
$ 49,604
$ 33,342
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.76
1.71
$
$
1.63
1.55
$
$
1.04
0.99
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,689,036
Diluted
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,674,604
31,900,024
33,428,153
31,054,041
32,586,096
See notes to consolidated financial statements
27
C O N S O L I D AT E D S TAT E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y
DOLLARS IN THOUSANDS
common stock
shares
par
value
additional
paid-in
capital
retained
earnings
accumulated other
comprehensive income (loss)
cumulative
translation
adjustment
unrealized loss
on marketable
investments
treasury stock
shares
share
cost
total
stockholders’
equity
Balance, January 3, 1998 . . . . . . . . . . . .
20,308,503
$
203
$ 26,021
$ 71,257
$ (2,218)
$
—
—
$
—
$ 95,263
Common stock issued upon
exercise of stock options . . . . . . . . .
408,588
Tax benefit derived from
exercise of stock options . . . . . . . . .
—
Secondary offering,
net of offering costs . . . . . . . . . . . .
215,000
Purchase of treasury shares . . . . . . . . . .
Reissuance of treasury stock
upon exercise of stock options . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
4
—
2
—
—
—
—
—
2,877
1,495
3,611
—
—
—
—
341
—
—
—
—
(560)
32,161
—
—
—
—
—
—
—
—
1,181
—
Balance, January 2, 1999 . . . . . . . . . . . .
20,932,091
209
34,345
102,858
(1,037)
Common stock issued upon
exercise of stock options . . . . . . . . .
709,133
Tax benefit derived from
exercise of stock options . . . . . . . . .
Purchase of treasury shares . . . . . . . . . .
Reissuance of treasury stock
upon exercise of stock options . . . .
—
—
—
Three-for-two-stock split . . . . . . . . . . . .
10,466,046
Net income . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on
marketable investments . . . . . . . . . .
Currency translation adjustment . . . . . .
—
—
—
Balance, January 1, 2000 . . . . . . . . . . . .
32,107,270
Common stock issued upon
exercise of stock options . . . . . . . . .
56,154
Tax benefit derived from
exercise of stock options . . . . . . . . .
Purchase of treasury shares . . . . . . . . . .
Reissuance of treasury stock
upon exercise of stock options . . . .
Repurchase and retirement
—
—
—
of common stock . . . . . . . . . . . . . .
(2,026,600)
Net income . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on
marketable investments . . . . . . . . . .
Currency translation adjustment . . . . . .
—
—
—
7
—
—
—
105
—
—
—
321
—
—
—
—
(20)
—
—
—
3,632
3,902
—
—
(105)
—
—
—
—
—
—
(1,115)
—
51,826
—
—
—
—
—
—
—
—
—
(1,658)
384
470
—
—
(28,414)
—
—
—
—
—
—
(1,023)
—
55,883
—
—
—
—
—
—
—
—
—
827
—
—
—
—
—
—
187
—
Balance, December 30, 2000 . . . . . . . . .
30,136,824
$
301
$ 14,214
$ 208,429
$ (1,868)
$
(377)
28
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(564)
—
—
—
—
—
—
—
(188,500)
(2,647)
84,821
1,191
—
—
—
—
—
—
2,881
1,495
3,613
(2,647)
631
32,161
1,181
341
(103,679)
(1,456)
134,919
—
—
—
—
(90,500)
(1,994)
134,607
2,242
—
—
—
—
—
—
—
—
3,639
3,902
(1,994)
1,127
—
51,826
(564)
(1,658)
—
—
(12,800)
72,372
—
—
—
—
—
—
—
(268)
1,476
—
—
—
—
—
$
384
470
(268)
453
(28,434)
55,883
187
827
$ 220,699
See notes to consolidated financial statements
41,774
153,569
(2,695)
(564)
(59,572)
(1,208)
191,197
C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S
Fiscal Year
DOLLARS IN THOUSANDS
Operating Activities:
2000
1999
1998
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,883
$ 51,826
$ 32,161
Noncash items affecting net income:
Minority interest in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in losses of joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit derived from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,786
381
6,436
470
420
Increase in allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,523
Increase in allowance for returns–net of related
inventory in transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
742
Deferred income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,010)
1,484
151
5,889
3,902
19
1,044
2,098
(1,114)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,983)
(11,355)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,993)
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,509)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,842
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,274)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,574
40,288
Investing Activities:
Net assets acquired in business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,341)
Purchase of marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(442)
Investments in joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,196)
Increase in intangible and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(818)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,797)
Financing Activities:
Issuance of common or treasury stock:
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secondary offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
838
—
(268)
Acquisition and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,806)
Distribution of minority interest earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(492)
Increase (repayments) of notes payable–banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
—
Net cash (used in) from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,664)
(3,014)
(4,733)
(5,056)
13,544
6,909
61,594
(2,732)
(10,568)
(10,870)
(4,000)
(1,505)
(29,675)
4,766
—
(1,994)
—
(790)
505
—
2,487
1,004
—
4,395
1,495
84
2,165
2,053
(1,151)
(13,899)
(4,575)
(1,106)
5,831
7,675
4,983
41,115
—
(6,307)
—
—
(70 )
(6,377)
3,512
3,613
(2,647)
—
(390)
(3,325)
341
1,104
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(234)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
( 11,407)
(761)
33,645
317
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
N O T E S T O C O N S O L I D AT E D
F I N A N C I A L S T A T E M E N T S
1. Significant Accounting Policies
Significant
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).
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 princi-
ples 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,
which are amortized using the straight-
line method over the estimated useful
lives of generally twenty, three and five
years, respectively.
31
assets
Cumulative Translation Adjustment
is included in accumulated other com-
prehensive income (loss) as a component
of stockholders’ equity and reflects the
unrealized adjustments resulting from
translating the financial statements of
functional
foreign subsidiaries. The
currency of the Company’s
foreign
subsidiaries is the local currency of the
country. Accordingly,
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.
to hedge
intercompany
Forward Contacts are entered into by the
Company principally
the
payment of
inventory
transactions with its non-U.S. subsidiaries.
Currency exchange gains or losses result-
ing 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 approxi-
mately $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
the
other
instances. Accordingly,
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.
standards
(“SFAS 133”) was
New Accounting Standards.
In June
1998, SFAS No. 133 “Accounting for
Derivative Instruments and Hedging
issued
Activities”
which establishes new accounting and
reporting
for derivative
instruments, including certain derivative
instruments
other
embedded
contracts, and for hedging activities. It
requires the recognition of all derivatives
as either assets or liabilities in the state-
ment of
financial position and the
measurement of those instruments at fair
value. This pronouncement requires such
reporting effective beginning in fiscal year
in
impact on
2001. The Company adopted SFAS 133
effective December 31, 2000. The
adoption of SFAS 133 did not have a
material
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.
the
other
in Subsidiaries,
Minority
Interest
included within
income
(expense) – net represents the minority
stockholders’ share of the net income
(loss) of various consolidated sub-
sidiaries 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.
The following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
Fiscal Year
Numerator:
2000
1999
1998
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,883,000
$51,826,000
$32,161,000
Denominator:
Basic EPS computation:
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,177,358
Three-for-two stock split effected August 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
21,462,121
10,466,046
20,747,242
10,351,347
Repurchase of common shares, net of treasury shares reissued . . . . . . . . . . . . . . . . . . . . .
(488,322)
(28,143)
(44,548)
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.76
$
1.63
$
1.04
31,689,036
31,900,024
31,054,041
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)
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.71
$
1.55
$
0.99
32,674,604
33,428,153
32,586,096
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.
33
2 . A c q u i s i t i o n s
in
In January 2000, Fossil (East) Limited,
acquired 51% of the capital stock of
Design Time, Ltd from its minority
stockholder in exchange for approxi-
mately $153,000
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.
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 good-
will of approximately $0.6 million.
(“Junghans UK”)
in
included
The results of these acquired operations
are
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
interest
During 1999, the Company acquired a
20%
SII Marketing
in
International, Inc. (“SMI”), and since
that time has invested $6.0 million in
joint venture
this venture. SMI, a
the Company and Seiko
between
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.
4 . I n v e n t o r i e s
Inventories consist of the following:
Fiscal Year End
IN THOUSANDS
Components and parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished merchandise on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise at Company stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise in-transit from customer returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000
1999
6,258
1,182
48,113
13,296
12,269
$
5,568
2,755
38,595
7,481
8,630
5 . P ro p e r t y, P l a n t a n d E q u i p m e n t
Property, plant and equipment consist of the following:
Fiscal Year End
IN THOUSANDS
$ 81,118
$ 63,029
2000
1999
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,535
$
2,535
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 . I n t a n g i b l e a n d O t h e r A s s e t s
Intangibles and other assets consist of the following:
Fiscal Year End
IN THOUSANDS
11,132
26,794
11,883
13,494
65,838
23,586
11,459
16,843
9,521
6,755
47,113
18,510
$ 42,252
$ 28,603
2000
1999
Costs in excess of tangible net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,200
$
5,200
Noncompete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash surrender value of life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
475
1,030
1,458
783
290
9,236
2,663
$
6,573
$
475
946
844
714
250
8,429
2,324
6,105
35
7 . D e b t
bank
(“U.S.
Bank: U.S.-based.
In June 1997, the
its Short-term
Company
renewed
its
Revolving Credit Facility with
primary
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 respec-
tively). 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, 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.
agreement, Fossil
Fossil Japan has a short-term credit
facility with a Japan-based bank allow-
ing 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
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 . O t h e r I n c o m e ( E x p e n s e ) – N e t
Other income (expense) – net consists of the following:
Fiscal Year
IN THOUSANDS
2000
1999
1998
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,480
$
2,650
$
1,160
Minority interest in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,786)
Equity in losses of joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance proceeds above book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(381)
(412)
770
—
(647)
(1,484)
(151)
(1,181)
353
52
270
(1,004)
—
(427)
45
93
(297)
$
1,024
$
509
$
(430)
36
9 . I n c o m e Ta x e s
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
IN THOUSANDS
Deferred tax assets:
2000
1999
Bad debt allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Returns allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
263(A) capitalization of inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous tax asset items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,162
6,537
704
1,060
$
2,534
5,646
504
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
IN THOUSANDS
Current provision:
2000
1999
1998
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,229
$ 18,448
$ 10,278
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,145
Deferred provision–United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,010)
14,779
(1,114)
11,946
(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
IN THOUSANDS
2000
1999
1998
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,151
$ 30,744
$ 19,155
State, net of federal tax benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes
736
4,947
975
4,296
364
3,049
$ 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
1 0 . C o m m i t m e n t s
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,427
9,701
4,236
4,577
—
$
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,134
12,492
12,416
12,706
12,067
53,273
$
116,088
38
1 1 . S t o c k h o l d e r s ’ E q u i t y a n d
B e n e f i t P l a n s
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 stockhold-
ers 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.
repurchase up
Common Stock Repurchase Programs.
On September 18, 2000, and on
September 18, 1998, the Company’s
authorized
Directors
Board
of
management
to
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,
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
the Company
(“Incentive Plan”). In October 2000 the
Company retired 2,026,600 shares of its
Common Stock that remained in treasury.
to 3% of
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
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 contri-
butions 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 contribu-
tions to the Deferred Plan during the
fiscal year 2000, while $0.5 million was
contributed during the fiscal year 1999.
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
is
foregoing. The
the Compensation
administered by
Incentive Plan
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
price
per share
weighted average
exercise price
per share
outstanding
weighted average
exercise price
per share
exercisable
Balance, Fiscal 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 12.667
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.667 – $ 19.833
$
4.782
$ 10.078
2,497,140
633,461
Shares designated for grant
through the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 8.611
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 14.833
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 12.667
Balance, Fiscal 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 19.833
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17.875 – $ 33.187
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 18.167
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.528 – $ 29.875
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 19.833
Balance, Fiscal 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 33.187
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11.187 – $ 25.000
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 20.000
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5.167 – $ 32.209
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 33.187
$
4.650
1,314,270
—
—
—
—
—
—
—
—
—
(173,819)
available
for grant
922,541
(633,461)
1,350,000
—
76,699
—
—
4.701
7.509
—
—
(740,114)
(76,699)
—
$
$
$
$
6.187
2,313,788
$
4.767
1,140,451
1,715,779
$ 19.483
$
5.319
$ 13.176
$
—
$ 10.193
$ 15.169
$
7.204
$ 16.812
$
—
542,671
(895,580)
(53,426)
—
—
—
—
—
—
—
—
(199,643)
1,907,453
$
5.831
940,808
789,000
(106,870)
(94,494)
—
—
—
—
—
—
—
—
300,027
(542,671)
—
53,426
—
1,226,534
(789,000)
—
94,494
—
Balance, Fiscal 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.945 – $ 33.187
$ 11.639
2,495,089
$
7.344
1,240,835
532,028
40
Nonemployee Director Plan
exercise
price
per share
weighted average
exercise price
per share
Balance, Fiscal 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.333 – $ 11.111
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19.167
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, Fiscal 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.333 – $ 11.111
3.333 – $ 19.167
$
6.100
$ 19.167
$
$
$
$
—
—
—
7.288
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23.125
$ 23.125
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, Fiscal 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.333 – $ 19.167
3.333 – $ 23.125
$
$
$
$
—
—
—
8.193
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14.375 – $ 19.625
$ 17.000
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.333
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, Fiscal 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.333 – $ 23.125
3.333 – $ 23.125
$
$
$
$
3.333
—
—
outstanding
135,000
13,500
—
—
—
148,500
9,000
—
—
—
157,500
10,000
(22,500)
—
—
weighted average
exercise price
per share
exercisable
$
5.212
99,562
—
—
—
—
—
—
—
20,250
$
5.681
119,812
—
—
—
—
—
—
—
16,874
$
6.560
136,686
—
—
—
—
—
—
—
(22,500)
available
for grant
78,187
(13,500)
—
—
—
64,687
(9,000)
—
—
—
55,687
(10,000)
—
—
—
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:
Long-Term
Incentive Plan: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonemployee
Director Plan: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
range of
exercise
price
$
$
2.945 – $ 5.950
5.960 – $ 15.900
$ 15.910 – $ 33.187
$
$
3.333 – $ 5.950
5.960 – $ 15.900
$ 15.910 – $ 23.125
number of
shares
804,689
668,680
1,021 ,720
2, 495,089
51,750
65,750
27,500
145,000
options outstanding
options exercisable
weighted
average
exercise
price
per share
weighted
average
remaining
contractual life
$
4.880
$ 10.124
$ 17.952
5.2 years
7.6 years
8.6 years
$
$
4.464
8.964
$ 20.546
4.0 years
5.7 years
8.6 years
weighted
average
exercise
price
per share
$
$
4.880
9.406
$ 19.412
$
$
$
7.344
4.464
8.283
$ 19.167
$
7.195
number of
shares
804,689
327,848
108,298
1,240,835
51,750
55,686
6,750
114,186
41
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
IN THOUSANDS, EXCEPT PER SHARE DATA
Net income:
2000
1999
1998
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,883
Proforma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,018
$ 51,826
$ 49,707
$ 32,161
$ 30,048
Basic earnings per share:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Proforma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Proforma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.76
1.67
1.71
1.62
$
$
$
$
1.63
1.56
1.55
1.49
$
$
$
$
1.04
0.97
0.99
0.92
1 2 . S u p p l e m e n t a l C a s h F l o w I n f o r m a t i o n
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
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,106
$
402
$ 27,532
$
82
$ 18,388
1 3 . M a j o r C u s t o m e r, S e g m e n t a n d G e o g r a p h i c I n f o r m a t i o n
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
Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000
8%
1999
9%
1998
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
IN THOUSANDS
Operating
Long-lived
Net Sales
Income (Loss)
Assets
Total Assets
United States–exclusive of Stores: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,269
$ 138,796
External customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 301,767
$ 55,811
Intergeographic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Far East: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,270
49,803
99,439
External customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,152
Intergeographic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189,651
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,124
Intergeographic items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(262,921)
—
(7,215)
6,442
39,910
—
(1,127)
—
—
—
18,135
5,132
3,052
—
—
172
—
—
—
39,978
21,138
106,375
—
—
1,304
—
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,700
37,797
External customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,714
Intergeographic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
—
4,361
17,793
—
Far East: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,091
29,662
Intergeographic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140,800
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,516
Intergeographic items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(176,172)
—
(387)
—
—
—
8,294
2,745
—
—
2,687
—
—
277
—
—
—
24,818
23,099
—
—
74,469
—
—
2,513
—
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Far East: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,000
26,117
62,668
—
2,658
10,149
External customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,192
21,032
Intergeographic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107,100
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,667
Intergeographic items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(131,960)
—
(747)
—
—
—
5,359
2,028
2,361
—
—
146
—
—
—
14,941
31,756
18,245
—
—
5,003
—
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 304,743
$ 55,370
$ 27,745
$ 194,078
43
CORPORATE INFORMATION
E X E C U T I V E O F F I C E R S A N D D I R E C T O R S
Tom Kartsotis
Chairman of the Board
Kosta N. Kartsotis
President,
Chief Executive Officer
and Director
Michael W. Barnes
President, International and
Special Markets Division
and Director
Richard H. Gundy
President, FOSSIL Watches
and Stores Division
and Director
Jal S. Shroff
Managing Director –
Fossil East and Director
Randy S. Kercho
Executive Vice President
Kenneth W. Anderson
Director
Mike L. Kovar
Senior Vice President,
Chief Financial Officer
and Treasurer
Mark D. Quick
President,
Fashion Accessories Division
Alan J. Gold
Director
Junichi Hattori
Director
T. R. Tunnell
Executive Vice President,
Chief Legal Officer and Secretary
Michael Steinberg
Director
Donald J. Stone
Director
Corporate Counsel
Jenkens & Gilchrist
1445 Ross Avenue
Dallas, TX 75202
C O R P O R AT E I N F O R M AT I O N
Transfer Agent and Registrar
Chase Mellon Shareholder Services LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07760
Independent Auditors
Deloitte & Touche LLP
2200 Ross Avenue
Dallas, TX 75201
I N T E R N E T W E B S I T E
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.
A N N U A L M E E T I N G
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.
C O M PA N Y I N F O R M AT I O N
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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FOSSIL ANNUAL REPORT 2000