UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-19848
FOSSIL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2018505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2280 N. Greenville, Richardson, Texas 75082
(Address of principal executive offices)
(Zip Code)
(972) 234-2525
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Registrant's common stock, outstanding as of
November 13, 2000: 30,633,895.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, January 1,
2000 2000
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 63,266 $ 90,908
Short-term marketable investments 5,004 10,870
Accounts receivable - net 67,875 51,399
Inventories 104,657 63,029
Deferred income tax benefits 7,656 6,769
Prepaid expenses and other current assets 10,928 7,832
--------- ---------
Total current assets 259,386 230,807
Investment in joint ventures 6,042 3,849
Property, plant and equipment - net 35,865 28,603
Intangible and other assets - net 6,787 6,105
--------- ---------
$ 308,080 $ 269,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,759 $ 5,043
Accounts payable 27,685 11,870
Accrued expenses:
Co-op advertising 10,988 15,191
Compensation 5,664 4,617
Other 25,745 21,493
Income taxes payable 20,224 17,395
--------- ---------
Total current liabilities 95,065 75,609
Minority interest in subsidiaries 3,657 2,558
Stockholders' equity:
Common stock, shares issued and outstanding
30,623,290 and 32,107,270 respectively 306 321
Additional paid-in capital 21,611 41,774
Retained earnings 190,600 153,569
Accumulated other comprehensive income (3,159) (3,259)
Treasury stock at cost, 59,572 shares at January 1, 2000 - (1,208)
--------- ---------
Total stockholders' equity 209,358 191,197
--------- ---------
$ 308,080 $ 269,364
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands, except per share amounts)
For the 13 Weeks For the 13 For the 39 For the 39
Ended Weeks Ended Weeks Ended Weeks Ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 128,064 $ 104,831 $ 345,026 $ 278,379
Cost of sales 64,373 52,193 171,116 138,319
--------- --------- --------- ---------
Gross profit 63,691 52,638 173,910 140,060
Operating expenses:
Selling and distribution 31,210 22,649 82,722 61,825
General and administrative 10,092 7,675 27,188 21,285
--------- --------- --------- ---------
Total operating expenses 41,302 30,324 109,910 83,110
========= ========= ========= =========
Operating income 22,389 22,314 64,000 56,950
Interest expense 63 27 108 76
Other income (expense) - net 519 (31) 607 (215)
--------- --------- --------- ---------
Income before income taxes 22,845 22,256 64,499 56,659
Provision for income taxes 9,367 9,125 26,445 23,231
--------- --------- --------- ---------
Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428
Other comprehensive income:
Currency translation adjustment 1,139 978 (47) (852)
Unrealized gain (loss) on short-term 103 (135) 147 (328)
--------- --------- --------- ---------
Investments
Total comprehensive income $ 14,720 $ 13,974 $ 38,154 $ 32,248
========= ========= ========= =========
Earnings per share:
Basic $ 0.42 $ 0.41 $ 1.19 $ 1.05
========= ========= ========= =========
Diluted $ 0.41 $ 0.39 $ 1.15 $ 1.00
========= ========= ========= =========
Weighted average common shares outstanding:
Basic 32,015 31,978 32,077 31,785
========= ========= ========= ======
Diluted 32,929 33,513 33,151 33,409
========= ========= ========= ======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
For the 39 Weeks For the 39 Weeks
Ended Ended
September 30, October 2,
2000 1999
---- ----
<S> <C> <C>
Operating activities:
Net income $ 38,054 $ 33,428
Noncash items affecting net income:
Minority interest in subsidiaries 1,592 1,531
Equity in losses of affiliates 273 -
Loss on disposal of fixed assets 385 -
Depreciation and amortization 4,546 4,042
Increase in allowance for doubtful accounts 1,295 362
Increase in allowance for returns -
net of related inventory in transit 619 1,015
Deferred income tax benefits (887) (1,035)
Changes in assets and liabilities:
Accounts receivable (19,781) (11,074)
Inventories (40,381) (18,089)
Prepaid expenses and other current assets (3,191) (4,095)
Accounts payable 16,865 3,520
Accrued expenses (6,176) 333
Income taxes payable 3,168 8,220
--------- ---------
Net cash (used in) from operating activities (3,619) 18,158
Investing activities:
Additions to property, plant and equipment (12,050) (7,283)
Acquisition of distributor assets - (2,732)
Sale of marketable investments 5,866 -
Investment in affiliates (2,196) (3,947)
Increase in intangible and other assets (942) (702)
--------- ---------
Net cash used in investing activities (9,322) (14,664)
Financing activities:
Issuance of common or treasury stock for stock option exercises 603 3,880
Purchase and retirement of common stock (13,647) -
Distribution of minority interest earnings (493) (790)
Repayments of notes payable-banks (284) 362
--------- ---------
Net cash (used in) from financing activities (13,821) 3,452
Effect of exchange rate changes on cash and cash equivalents (880) (213)
--------- ---------
Net (decrease) increase in cash and cash equivalents (27,642) 6,733
Cash and cash equivalents:
Beginning of period 90,908 57,263
--------- ---------
End of period $ 63,266 $ 63,996
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENT POLICIES
Basis of Presentation. The condensed consolidated financial statements include
the accounts of Fossil, Inc., a Delaware corporation, and its majority-owned
subsidiaries (the "Company"). The condensed consolidated financial statements
reflect all adjustments that are, in the opinion of management, necessary to
present a fair statement of the Company's financial position as of September 30,
2000, and the results of operations for the thirteen-week and thirty-nine week
periods ended September 30, 2000 and October 2, 1999. All adjustments are of a
normal, recurring nature.
These interim financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in Form 10-K filed
by the Company pursuant to the Securities Exchange Act of 1934 for the year
ended January 1, 2000. Operating results for the thirteen-week period ended
September 30, 2000, are not necessarily indicative of the results to be achieved
for the full year.
Business. The Company 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, sunglasses and FOSSIL brand apparel. The
Company's products are sold in department stores and specialty retail stores in
over 85 countries around the world.
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
September 30, January 1,
(In thousands) 2000 2000
---- ----
<S> <C> <C> <C>
Components and parts $ 8,385 $ 5,568
Work-in-process 3,737 2,755
Finished merchandise on hand 69,927 38,595
Merchandise at Company stores 11,188 7,481
Merchandise in-transit from estimated
customer returns 11,420 8,630
-------- -------
$104,657 $63,029
======== =======
</TABLE>
The Company periodically enters into forward contracts principally to hedge the
payment of intercompany inventory transactions with its non-U.S. subsidiaries.
Currency exchange gains or losses resulting from the translation of the related
accounts, along with the offsetting gains or losses from the hedge, are deferred
until the inventory is sold or the forward contract is completed. At September
30, 2000, the Company had hedge contracts to sell 29.8 million Euro Currency for
approximately $27.6 million, expiring through April 2001; 1.6 million British
Pound Sterling for approximately $2.4 million, expiring through January 2001;
and 82 million Japanese Yen for approximately $0.8 million, expiring through
December 2000.
4
<PAGE>
<TABLE>
<CAPTION>
3. GEOGRAPHIC INFORMATION
(In thousands)
For the 13 Weeks Ended For the 13 Weeks Ended
September 30, 2000 October 2, 1999
------------------ ---------------
Operating Operating
Net Sales Income Net Sales Income
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S.- exclusive of Company Stores:
External customers $ 78,012 $13,522 $ 65,900 $12,921
Intergeographic 23,119 - 7,193 -
Far East and Export:
External customers 10,686 10,306 6,618 6,575
Intergeographic 50,526 - 33,809 -
Stores 13,147 (1,692) 10,804 454
Europe 25,014 818 19,960 2,363
Japan 1,205 (565) 1,549 1
Intergeographic items (73,645) - (41,002) -
-------- ------- -------- -------
Consolidated $128,064 $22,389 $104,831 $22,314
======== ======= ======== =======
For the 39 Weeks Ended For the 39 Weeks Ended
September 30, 2000 October 2, 1999
------------------ ---------------
Operating Operating
Net Sales Income Net Sales Income
--------- --------- --------- ---------
U.S.- exclusive of Company Stores:
External customers $206,022 $34,766 $166,100 $25,758
Intergeographic 53,536 - 9,452 -
Far East and Export:
External customers 35,258 27,699 27,919 21,750
Intergeographic 148,013 - 116,902 -
Stores 31,390 (2,486) 22,951 167
Europe 67,943 4,843 56,348 9,848
Japan 4,413 (822) 5,061 (573)
Intergeographic items (201,549) - (126,354) -
-------- ------- -------- -------
Consolidated $345,026 $64,000 $278,379 $56,950
======== ======= ======== =======
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE
The following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
For the 13 For the 13 For the 39 For the 39
(In thousands, except per share data) Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic EPS computation:
Numerator:
Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428
-------- -------- -------- --------
Denominator:
Weighted average common
shares outstanding 32,015 32,136 32,077 31,816
Treasury stock - (158) - (31)
-------- -------- -------- --------
32,015 31,978 32,077 31,785
-------- -------- -------- --------
Basic EPS $ 0.42 $ 0.41 $ 1.19 $ 1.05
======== ======== ======== ========
Diluted EPS computation:
Numerator:
Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428
-------- -------- -------- --------
Denominator:
Weighted average common
shares outstanding 32,015 31,978 32,077 31,785
Stock option conversion 914 1,535 1,074 1,624
-------- -------- -------- --------
32,929 33,513 33,151 33,409
-------- -------- -------- --------
Diluted EPS $ 0.41 $ 0.39 $ 1.15 $ 1.00
======== ======== ======== ========
</TABLE>
5. INVESTMENT IN JOINT VENTURE
Effective August 31, 2000, the Company sold 50% of the equity of its former
wholly-owned subsidiary in Spain pursuant to a joint venture agreement with
Sucesores de A. Cadarso ("Cadarso") for the marketing, distribution and sale of
the Company's products in Spain. The Company accounted for this investment based
upon the equity method from the effective date of the transaction. The Company
does not expect this change in accounting to materially affect the results of
operations for the remainder of its fiscal year.
6. STOCKHOLDERS' EQUITY
During the Third Quarter, the Company acquired approximately 1.5 million shares
of its common stock for approximately $20.6 million and immediately retired
these shares. The shares were repurchased in conjunction with a 2.5 million
share buyback authorized by the Company's board of directors on September 18,
2000.
6
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of Fossil, Inc. and its majority owned subsidiaries (the "Company")
for the thirteen and thirty-nine week periods ended September 30, 2000 (the
"Third Quarter" and "Year-to-Date Period," respectively), as compared to the
thirteen and thirty-nine week periods ended October 2, 1999 (the "Prior Year
Quarter" and "Prior Year YTD Period," respectively). This discussion should be
read in conjunction with the Condensed Consolidated Financial Statements and the
related Notes attached hereto.
General
The Company is a leader in the design, development, marketing and distribution
of contemporary, high quality fashion watches and accessories. 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 85 countries worldwide through Company-owned foreign sales
subsidiaries and through a network of approximately 52 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 and in independently-owned, authorized FOSSIL
retail stores and kiosks located in several major airports, on cruise ships and
in certain international markets. 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.
Third Quarter and Company Highlights
o DKNY licensed watch line sales surpassed $20 million since the launch in
February.
o The Company launched the Diesel licensed watch line.
o Retail store expansion continued as the Company opened ten new apparel
concept stores.
o The Company entered into a joint venture agreement for marketing and
distribution of FOSSIL products in Spain.
o The Company acquired 1.5 million shares of its common stock.
7
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
The following table sets forth, for the periods indicated, (i) the percentages
of the Company's net sales represented by certain line items from the Company's
condensed consolidated statements of income and (ii) the percentage changes in
these line items between the current period and the comparable period of the
prior year.
Percentage of Percentage Percentage of Percentage
Net Sales Change Net Sales Change
For the 13 For the 13 For the 39 For the 39
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
----------- ----------- ----------- -----------
September 30, October 2, September 30, September 30, October 2, September 30,
2000 1999 2000 2000 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 22.2% 100.0% 100.0% 23.9%
Cost of sales 50.3 49.8 23.3 49.6 49.7 23.7
----- ----- ----- -----
Gross profit margin 49.7 50.2 21.0 50.4 50.3 24.2
Selling and distribution
expenses 24.4 21.6 37.8 24.0 22.2 33.8
General and administrative
expenses 7.9 7.3 31.5 7.9 7.6 27.7
----- ----- ----- -----
Operating income 17.4 21.3 0.3 18.5 20.5 12.4
Interest expense 0.0 0.0 - 0.0 0.0 -
Other income
(expense)- net 0.4 (0.1) 1,815.0 0.2 (0.1) 383.9
----- ----- ----- -----
Income before income taxes 17.8 21.2 2.6 18.7 20.4 13.8
Income taxes 7.3 8.7 2.6 7.7 8.4 13.8
----- ----- ----- -----
Net income 10.5% 12.5% 2.6% 11.0% 12.0% 13.8%
===== ===== ===== =====
</TABLE>
8
<PAGE>
Net Sales. 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 periods indicated (in millions, except percentage
data):
<TABLE>
<CAPTION>
Amounts % of Total
For the 13 Weeks Ended For the 13 Weeks Ended
---------------------- ----------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
International:
Europe $ 25.1 $ 20.0 20% 19%
Other 11.9 8.1 9 8
------ ------ --- ---
Total International 37.0 28.1 29 27
------ ------ --- ---
Domestic:
Watch products 52.7 46.4 41 44
Other products 25.3 19.5 20 19
------ ------ --- ---
Total 78.0 65.9 61 63
Stores 13.1 10.8 10 10
------ ------ --- ---
Total Domestic 91.1 76.7 71 73
------ ------ --- ---
Total Net Sales $128.1 $104.8 100% 100%
====== ====== === ===
Amounts % of Total
For the 39 Weeks Ended For the 39 Weeks Ended
---------------------- ----------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---- ---- ---- ----
International:
Europe $ 67.9 $ 56.4 20% 20%
Other 39.7 33.0 11 12
------ ------ --- ---
Total International 107.6 89.4 31 32
------ ------ --- ---
Domestic:
Watch products 137.8 118.6 40 43
Other products 68.2 47.5 20 17
------ ------ --- ---
Total 206.0 166.1 60 60
Stores 31.4 22.9 9 8
------ ------ --- ---
Total Domestic 237.4 189.0 69 68
------ ------ --- ---
Total Net Sales $345.0 $278.4 100% 100%
====== ====== === ===
</TABLE>
Net sales growth in the Third Quarter was led by an $8.9 million increase from
the Company's international operations. This increase represented a 31.6%
increase over the Prior Year Quarter despite the weakness of the EURO. At Prior
Year Quarter EURO rates, the overall net sales increase from international
operations would have exceeded 40%. The Company's domestic watch products
increased $6.3 million over the Prior Year Quarter. Impacting the growth in this
category was the market performance of the DKNY licensed watch brand, that was
launched during the first quarter, and an increase in sales of the Company's
RELIC brand watch. Domestic leather product sales also contributed to the net
sales growth during the Third Quarter, primarily as a result of the continued
success of the Company's handbag and women's small leather products.
Additionally, retail store expansion, including the opening of ten new apparel
concept stores, contributed to the Third Quarter net sales increase. Net sales
for the Year-To-Date Period were favorably impacted from the same geographic
regions and product lines that contributed to the Third Quarter sales increases.
Leading this Year-To-Date increase was other domestic products, that consists of
leather goods and sunglasses; international operations, again despite the
weakness in the EURO; domestic watches, led by a $10.6 million contribution from
DKNY watch sales; and the Company's retail stores as a result of expansion and
same store sales growth.
9
<PAGE>
Management currently anticipates the Company's fourth quarter net sales to
display double digit growth and year-over-year growth to increase over 20%.
Gross Profit. Gross profit margins for the Third Quarter decreased by 50 basis
points to 49.7% compared to 50.2% in the Prior Year Quarter. This decrease was
the result of the weakness of the EURO against the U.S. Dollar. Since the
Company's European-based operations primarily purchase products from the United
States and Hong Kong, the weakness in the EURO with no comparable increase in
the Company's wholesale sales prices caused product costs to escalate
approximately 10% during the Third Quarter. Additionally, the gross profit
margin decrease in the Third Quarter was impacted by a higher mix of leather
product versus watch sales as the Company's leather products historically
generate gross profit margins below the Company's consolidated margin. On a
year-to-date basis, gross profit margins increased slightly to 50.4% compared to
50.3% in the prior year. A higher sales mix of licensed designer brand watches
and sales from Company-owned stores positively impacted gross margins throughout
the Year-To-Date Period but were somewhat offset by the increasing product costs
in the Company's European-based operations as well as the higher mix of leather
product versus watch sales.
Operating Expenses. Operating expenses, as a percentage of net sales, increased
to 32.3% in the Third Quarter compared to 28.9% in the Prior Year Quarter. For
the Year-To-Date Period, operating expenses increased to 31.9% compared to
29.8%. Operating expenses, in the aggregate, increased over the Prior Year
Quarter and Prior Year-To-Date Period to support increased net sales volumes.
Moreover, in order to promote continued sales growth both near-term and
long-term, the Company continued to expand and enhance its infrastructure and
promote its products and image by increasing brand advertising primarily through
internet portal relationships. Increased infrastructure cost included additional
payroll and personnel related expenses as well as expansion of the Company's
distribution facilities. In addition to increased infrastructure cost and brand
advertising, operating expenses increased as a result of cost associated with
the DKNY licensed watch line launch, increased display cost associated with new
leather fixtures to enhance the Company's positioning of these products within
the retail environment and costs associated with the opening of ten new apparel
concept stores. Management anticipates that infrastructure cost will continue to
increase that may result in operating income margins decreasing to the 17% range
during the next fifteen months.
Other Income (Expense). Other income (expense) increased favorably by $550,000
during the Third Quarter as compared to the Prior Year Quarter and by $822,000
during the Year-To-Date Period as compared to the Prior Year YTD Period. These
increases were the result of increased interest income earned as a result of
higher invested cash balances and increased royalty income generated from
licensing certain FOSSIL brand products. These increases more than offset
minority expense from profits generated by the Company's assembly facilities and
losses associated with joint ventures.
Liquidity and Capital Resources
The Company's general business operations historically have not required
substantial cash needs during the first several months of its fiscal year.
Generally, starting in the second quarter the Company's cash needs begin to
increase and typically reach their peak in the September-November time frame.
The additional cash needs have generally been to finance the accumulation of
inventory and the build-up in accounts receivable. At the end of the Third
Quarter, the Company's inventories increased by $28 million, or 31.7%, compared
to inventory balances at the end of the Prior Year Quarter. This increase, in
comparison to the 22% increase in net sales, is due to unusually low inventory
levels at the end of the Prior Year Quarter combined with current year increases
in leather product inventories due to longer delivery lead times for leather
goods. Increased apparel inventory levels to support the ten new apparel concept
stores opened during the Third Quarter also impacted the overall inventory
increase. Annualized
10
<PAGE>
inventory turns, however, remained relatively consistent with prior period
results. As a result of the increase in inventories, accounts payable increased
to $27.7 million compared to $20.2 million and $11.9 million at the end of the
Prior Year Quarter and fiscal 1999 year-end, respectively.
In addition to cash needs to support inventory levels and build-up in accounts
receivable, during the Third Quarter the Company acquired 1.5 million shares of
its common stock through open market purchases at an aggregate cost of
approximately $20 million. This share buyback was in conjunction with a 2.5
million share buyback authorization approved by the Company's board of directors
on September 18, 2000. As these shares were acquired at the end of the Third
Quarter, actual cash expended to cover these trades amounted to approximately
$13 million during the Third Quarter. The Company ended the Third Quarter with
$68 million in cash, cash equivalents and short-term investments. At the end of
the Third Quarter, the Company had working capital of $164 million compared to
working capital of $139 million and $155 million at the end of the Prior Year
Quarter and fiscal 1999 year-end, respectively. The Company had outstanding
borrowings of only $4.8 million against its $43 million bank credit facility at
the end of the Third Quarter. Management believes that cash flow from operations
combined with existing cash on hand will be sufficient to satisfy its working
capital requirements through the end of the Company's 2001 fiscal year as well
as any additional cash requirements resulting from the Company's stock buyback
program.
Forward-Looking Statements
Included within management's discussion of the Company's operating results,
"forward-looking statements" were made within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding expectations for 2000. The
actual results may differ materially from those expressed by these
forward-looking statements. Significant factors that could cause the Company's
2000 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 European
Union's Euro 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a multinational enterprise, the Company is exposed to changes in foreign
currency exchange rates. The Company employs a variety of practices to manage
this market risk, including its operating and financing activities and, where
deemed appropriate, the use of derivative financial instruments. Forward
contracts have been utilized by the Company to mitigate foreign currency risk.
The Company's most significant foreign currency risks relate to the Euro and the
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 exposures during the Third Quarter and management does not
anticipate any significant changes in such exposures or in the strategies it
employs to manage such exposures in the near future.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Bylaws of Fossil, Inc.
10.1 Joint Venture Agreement by and between Sucesores de
A. Cadarso and Fossil Europe B.V, dated as of July
27, 2000 (without exhibits).
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this Report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOSSIL, INC.
Date: November 13, 2000 /s/ Mike L. Kovar
---------------------------
Mike L. Kovar
Senior Vice President and
Chief Financial Officer
(Principal financial and
accounting officer duly
authorized to sign on
behalf of Registrant)
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
3.1 Amended and Restated Bylaws of Fossil, Inc.
10.1 Joint Venture Agreement by and between Sucesores de A. Cadarso
and Fossil Europe B.V, dated as of July 27, 2000 (without
exhibits).
27 Financial Data Schedule
