FOSSIL INC, 10-K, 2000-03-31

FOSSIL INC
10-K, 2000-03-31
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 1, 2000

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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 AVENUE
RICHARDSON, TEXAS 75082
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (972) 234-2525

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.01 PAR VALUE
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required 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
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____

The aggregate market value of Common Stock held by nonaffiliates of
the registrant, based on the sale trade price of the Common Stock as reported
by the Nasdaq National Market on March 29, 2000, was $410,652,945. For
purposes of this computation, all officers, directors and 10% beneficial
owners of the registrant are deemed to be affiliates. Such determination
should not be deemed an admission that such officers, directors or 10%
beneficial owners are, in fact, affiliates of the registrant. As of March 29,
2000, 32,100,646 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of Stockholders to be held May 24, 2000, to be filed with the Commission
pursuant to Regulation 14A, and the Company's Annual Report to Stockholders are
incorporated by reference into Part III of this report.

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PART I

ITEM 1. BUSINESS

GENERAL

Fossil, Inc. (the "Company") is a leader in the design, development,
marketing and distribution of contemporary, high quality fashion watches and
accessories. The Company developed the FOSSIL-Registered Trademark- brand
name 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 diversified company
offering an extensive line of fashion watches, small leather goods, belts,
handbags and sunglasses under the FOSSIL and RELIC-Registered Trademark-
brands. In addition to developing its own brands, the Company leverages its
development and production expertise by designing and manufacturing private
label products for some of the most prestigious companies in the world,
including national retailers, entertainment companies and theme restaurants.
The Company's successful expansion of its product lines has contributed to
its increasing net sales and operating profits.

The Company has capitalized on the increasing awareness of the FOSSIL
brand by entering into various license agreements for other categories of
fashion accessories. The Company has entered into various license agreements to
design, manufacture, distribute and market watches under the brands of other
companies, including EMPORIO ARMANI-Registered Trademark- , DKNY-Registered
Trademark- and DIESEL-Registered Trademark-.

The Company's products are sold 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 Europe, South and Central
America, the Caribbean, Canada, the Far East, Australia and the Middle East. In
addition, the Company's products are offered at retail locations in major
airports in the United States, on cruise ships and in independently-owned,
authorized FOSSIL retail stores and kiosks in certain international markets.

The Company is a Delaware corporation formed in 1991 and is the
successor to a Texas corporation formed in 1984. In 1993, the Company completed
an initial public offering of 2,760,000 shares of common stock, par value $.01
(the "Common Stock"). The Company conducts substantially all of its operations
in the United States through Fossil Partners, L.P., a Texas limited partnership
formed in 1994 of which the Company is the sole general partner. The Company
also conducts operations in the United States and certain international markets
through various directly and indirectly owned subsidiaries. The Company's
operations in Hong Kong relating to the procurement of watches from various
manufacturing sources are conducted by Fossil (East) Limited ("Fossil East"), a
wholly owned subsidiary of the Company acquired in 1992. The Company's principal
executive offices are located at 2280 N. Greenville Avenue, Richardson, Texas
75082, and its telephone number at such address is (972) 234-2525.

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FORWARD-LOOKING INFORMATION

The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in this "Item 1. Business" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in the Annual Report could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: general economic conditions, competition,
government regulation and possible future litigation, as well as the risks and
uncertainties discussed in this Annual Report, including, without limitation,
the portions referenced above, and the risks and uncertainties set forth on the
Company's Current Report on Form 8-K dated March 30, 1999.

INDUSTRY OVERVIEW

WATCH PRODUCTS

The Company believes that the current market for watches in the United
States can be divided into four segments. One segment of the market consists of
fine watches characterized by internationally known brand names such as Concord,
Piaget and Rolex. Watches offered in this segment are usually made of precious
metals or stainless steel and may be set with precious gems. These watches are
often manufactured in Switzerland and are sold by trade jewelers and in the fine
jewelry departments of better department stores and other purveyors of luxury
goods at retail prices ranging from $1,500 to in excess of $20,000. A second
segment of the market consists of fine premium branded and designer watches
manufactured in Switzerland and the Far East such as Gucci, Rado, Raymond Weil,
Seiko and Swiss Army. These watches are sold at retail prices generally ranging
from $150 to $1,500. The Company's EMPORIO ARMANI line generally competes in
this market segment. A third segment of the market consists of watches sold by
mass marketers, which include certain watches sold under the Timex brand name as
well as certain watches sold by Armitron under various brand names and labels.
Retail prices in this segment range from $5 to $40.

The fourth segment of the market consists of moderately priced watches
characterized by contemporary fashion and well known brand names. Moderately
priced watches are typically manufactured in Japan or Hong Kong and are sold by
department stores and specialty stores at retail prices ranging from $40 to
$150. This market segment is targeted by the Company and its principal
competitors, including the companies that market watches under the Guess?, Anne
Klein II, Kenneth Cole and Swatch brand names, whose products attempt to reflect
emerging fashion trends in accessories and apparel. The Company's DKNY line
generally competes in this segment as well. Some of the watches in this sector
are manufactured under license agreements with companies that market watches
under various brand names, including Guess?, Anne Klein II and Kenneth Cole. The
Company believes that one reason for the growth of this sector has been that
fashion-conscious consumers have increasingly come to regard branded fashion
watches not only as time pieces but also as fashion accessories. This trend has
resulted in consumers owning multiple watches that may differ significantly in
terms of style, features and cost.

FASHION ACCESSORIES

The Company believes that the fashion accessories market in the United
States includes products such as small leather goods, handbags, belts, eyewear,
neckwear, underwear, lounge wear, costume jewelry, gloves, hats, hosiery and
socks. The Company believes that one reason for the growth in this line of
business

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is that consumers are becoming more aware of accessories as fashion statements,
and as a result, are purchasing brand name, quality items that complement other
fashion items. These fashion accessory products are generally marketed through
mass merchandisers, department stores and specialty shops, depending upon price
and quality. Higher price point items include products offered by Coach, Dooney
& Burke, Ralph Lauren and Donna Karan.

Moderately priced fashion accessories are typically marketed in
department stores and are characterized by contemporary fashion and well known
brand names at reasonable price points, such as FOSSIL and RELIC. The Company
currently offers small leather goods, handbags, belts, eyewear for both men and
women through department stores and specialty retailers in the moderate to
upper-moderate price range. Companies such as Calvin Klein, Tommy Hilfiger,
Guess?, Nine West, Kenneth Cole and Liz Claiborne currently operate in this
market.

BUSINESS STRATEGY

The Company's long-term goal is to capitalize on the strength of its
growing consumer brand recognition and capture an increasing share of a growing
number of markets by providing consumers with fashionable, high quality,
value-driven products. In pursuit of this goal, the Company has adopted
operating and growth strategies that provide the framework for the Company's
future growth, while maintaining the consistency and integrity of its brands.

OPERATING STRATEGY

- - FASHION ORIENTATION AND DESIGN INNOVATION. The Company is able to
market its products to consumers with differing tastes and lifestyles
by offering a wide range of brands and product categories at a variety
of price points. The Company attempts to stay abreast of emerging
fashion and lifestyle trends affecting accessories and apparel and it
responds to these trends by making adjustments in its product lines
several times each year. The Company differentiates its products from
those of its competitors principally through innovations in fashion
details, including variations in the treatment of dials, crystals,
cases, straps and bracelets for the Company's watches and innovative
treatments and details in its other accessories.

- - COORDINATED PRODUCT PROMOTION. The Company coordinates in-house 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. For example, many of the
Company's FOSSIL brand products and certain of its accessory products
are packaged in metal tins decorated with designs consistent with the
Company's marketing strategy and product image. In addition, the
Company generally markets its fashion accessory lines through the same
distribution channels as its watch lines, using similar in-store
presentations, graphics and packaging.

- - PRODUCT VALUE. The Company's products provide value to the consumer by
offering fashionable, high quality components and features at suggested
retail prices generally below those of competitive products of
comparable quality. The Company is able to offer its watches at a
reasonable price point by manufacturing them principally in the Far
East at lower cost than comparable quality watches manufactured in
Switzerland. In addition, the Company is able to offer its accessories
at reasonable prices because of its close relationships with
manufacturers in the Far East. Unlike certain of its principal
competitors, the Company does not pay royalties on most of its
products, which the

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Company believes allows it to enjoy certain cost advantages that
enhance its ability to achieve attractive profit margins.

- - CAPTIVE SUPPLIERS. The Company owns a majority interest in a number of
watch assemblers with locations in Hong Kong and China. In addition,
the Company maintains close relationships with accessory manufacturers
in the Far East. The Company believes these relationships create a
significant competitive advantage, as they allow the Company to produce
quality products, reduce the delivery time to market and improve
overall operating margins.

- - ACTIVELY MANAGE RETAIL SALES. The Company manages the retail sales
process by monitoring customer sales and inventory levels by product
category and style, primarily through EDI, and by assisting retailers
in the conception, development and implementation of their marketing
programs. As a result, the Company believes it enjoys close
relationships with its principal retailers, often allowing it to
influence the mix, quantity and timing of customer purchasing
decisions.

- - CENTRALIZED DISTRIBUTION. The Company distributes substantially all of
its products sold in the United States and certain of its products sold
in international markets from its warehouse and distribution center in
Richardson, Texas. The Company also distributes its products to
international markets from warehouse and distribution centers located
in Germany, Italy, Hong Kong, the United Kingdom, Spain and Japan. The
Company believes its centralized distribution capabilities enable it
to reduce inventory risk, increase flexibility in meeting the delivery
requirements of its customers and maintain significant cost advantages
as compared to its competitors.

GROWTH STRATEGY

- - INTRODUCE NEW PRODUCTS AND BRANDS. The Company continually introduces
new products within its existing brands and through license agreements
and brand extensions to attract a wide range of consumers with
differing tastes and lifestyles. For example, the Company currently
offers a full line of watch and accessory products under its FOSSIL and
RELIC brands, as well as watches under the EMPORIO ARMANI and DKNY
brand names pursuant to license agreements. The Company will also
introduce a line of watches under the DIESEL brand in 2000. The Company
also leverages its brand recognition and its design and marketing
expertise to expand the scope of its product offerings through the
selective licensing of new product categories that complement its
existing products. For example, the Company entered into a license
agreement with Safilo Group to offer FOSSIL optical frames in the
United States and Canada and optical frames and sunglasses in Italy.

- - EXPAND INTERNATIONAL BUSINESS. The Company increased its efforts to
align its FOSSIL brand watches sold internationally with its successful
domestic assortments. The Company believes these efforts will increase
its global brand recognition and allow it to leverage this recognition
to successfully market the Company's accessory lines in international
markets. The Company has recently introduced RELIC brand watches and
accessories in selected international markets and believes these
efforts will similarly increase the global recognition of this brand.

- - EXPAND RETAIL LOCATIONS. The Company is currently expanding its
Company-owned FOSSIL retail and outlet locations to further strengthen
its brand image. The Company currently operates 50 retail and outlet
stores and plans to open an additional 12 retail stores and two outlet
stores in 2000. In 2000, the Company will beginning offering FOSSIL
brand apparel products at selected Company-owned FOSSIL retail stores
in the United States. The Company intends to continue to

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offer its watch and accessory products through additional
independently-owned, authorized FOSSIL retail stores in airports, on
cruise ships and in international markets.

- - LEVERAGE INFRASTRUCTURE. The Company believes it has the design,
marketing, manufacturing and distribution infrastructure in place to
allow it to manage and grow its businesses. The Company continues to
develop additional products and brands and seeks additional businesses
and products to complement its existing business and allow it to
leverage its existing infrastructure.

PRODUCTS

The Company designs, develops, markets and distributes fashion watches
and accessories, including sunglasses, small leather goods, belts and handbags,
principally under the FOSSIL and RELIC brand names and watches bearing the brand
names of certain internationally known fashion designers pursuant to license
agreements.

WATCH PRODUCTS

The Company introduced FOSSIL watches, its flagship product, in 1986
and RELIC watches in 1990. Since 1986, the Company has also contracted with
retailers and other customers for the manufacture of watches primarily for sale
under private labels. Sales of the Company's watches for fiscal years 1999, 1998
and 1997 accounted for approximately 76.5%, 75.5% and 72.4%, respectively, of
the Company's gross sales.

The following table sets forth certain information with respect to the
Company's FOSSIL and RELIC watches:

<TABLE>
<CAPTION>
SUGGESTED PRICE DISTRIBUTION
WATCH BRAND PRODUCT CATEGORIES POINT RANGE AVERAGE PRICE CHANNELS
----------- ------------------ ----------- ------------- --------

<S> <C> <C> <C> <C>
FOSSIL FOSSIL BLUE, F2, FOSSIL $45 - 100 $72 Major dept. stores (Dayton
Steel, BIG TIC, FOSSIL Hudson Corp., Dillard's,
Sterling, BLUE TEQ, Federated/Macy's, May Dept.
DEFENDER, ARKITEKT, Limited Stores, Nordstrom, Inc. and
Edition and Vintage Saks)

RELIC RELIC Wet, RELIC $45 - 75 $58 Major retailers (Stage Dept.
Adjust-A-Link, RELIC Stores, JCPenney, Kohl's
Stainless Steel, Metal, Department Stores, Inc.,
Sport, Novelty, Pendant and Montgomery Ward & Co. and
Pocket Sears)
</TABLE>

The Company has entered into multi-year, worldwide license agreements
for the manufacture, distribution and sale of watches bearing the brand names of
certain internationally known fashion designers. The following table sets forth
certain information with respect to the Company's licensed watch products:

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<TABLE>
<CAPTION>
SUGGESTED PRICE AVERAGE DISTRIBUTION
BRAND(S) PRODUCTS POINT RANGE PRICE TERRITORY CHANNEL(S)
------- -------- ----------- ----- --------- ----------

<S> <C> <C> <C> <C> <C>
EMPORIO ARMANI Wrist watches and $125 - 500 $214 Worldwide Major department
bands, pocket stores, specialty
watches retailers, jewelry
stores and Armani
Boutiques

DKNY, DKNY Active, Men's, women's $85 - 250 $106 Worldwide Better department
DKNY Jeans & DONNA and children's stores, specialty
KARAN NEW YORK watches stores, and Donna
Karan Retail Stores
</TABLE>

PRIVATE LABEL, PREMIUM AND LICENSED PRODUCTS. The Company designs,
markets and arranges for the manufacture of watches on behalf of certain
retailers, entertainment companies, theme restaurants and other corporate
customers such as Eddie Bauer, Warner Bros. and Disney, as private label
products or as premium and incentive items for use in various corporate
events. Under this arrangement, the Company performs design and product
development functions as well as acts as a sourcing agent for its customers
by contracting for the manufacture of watches, managing the manufacturing
process, inspecting the finished watches, purchasing the watches and arranging
for their shipment to the United States. Participation in the private label
and premium businesses provide the Company with certain advantages, including
increased manufacturing volume, which may reduce the costs of manufacturing
the Company's other watch products, and the strengthening of business
relationships with its manufacturing sources. These lines provide income to
the Company with reduced inventory risks and certain other carrying costs.
The Company has also entered into a number of license agreements for the sale of
collectible watches. Under these agreements, the Company designs, manufactures
and markets the goods bearing the trademarks, trade names and logos of various
entities through major department stores within the Company's channels of
distribution, including Pink Panther, Toy Story and Ford.

FASHION ACCESSORIES

In order to leverage the Company's design and marketing expertise and
its close relationships with its principal retail customers, the Company has
developed a line of fashion accessories, including handbags, sunglasses for men
and women, men's and women's belts and small leather goods. The Company's
handbags are made of a variety of fine leathers and other materials that
emphasize classic styles and incorporate a variety of creative designs. The
sunglass line features optical quality lenses in both plastic and metal frames,
with classic and fashion styling similar to other FOSSIL products. The Company's
small leather goods are made of fine leathers and include items such as
mini-bags, coin purses, key chains and wallets. The Company currently sells its
fashion accessories through a number of its existing major department store and
specialty retail store customers. The Company generally markets its fashion
accessory lines through the same distribution channels as its watch business,
using similar in-store presentations, graphics and packaging. These fashion
accessories are typically sold in locations adjacent to watch departments, which
may lead to purchases by persons who are familiar with the Company's watches.
Sales of the Company's accessory lines for fiscal years 1999, 1998 and 1997
accounted for approximately 22.5%, 23.5% and 26.4%, respectively of the
Company's gross sales.

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The following table sets forth certain information with respect to the
Company's fashion accessories:

<TABLE>
<CAPTION>
SUGGESTED PRICE
BRAND ACCESSORY CATEGORY POINT RANGE AVERAGE PRICE DISTRIBUTION CHANNEL
- ----- ------------------ ----------- ------------- --------------------
<S> <C> <C> <C> <C>
FOSSIL Sunglasses $28 - 75 $40 Major dept. stores
(Dayton Hudson Corp.,
Handbags $35 - 150 $78 Dillard's,
Federated/Macy's,
Men's and Women's Small $15 - 70 $29 May Dept. Stores,
Leather Goods Nordstrom, Inc. and
Saks)
Men's and Women's Belts $20 - 40 $28

RELIC Sunglasses $20 - 25 $21 Major retailers
(Sears, Fred Meyer,
Handbags $20 - 42 $28 JCPenney, Kohl's
Department Stores,
Men's and Women's Small $14 - 42 $17 Inc., Montgomery Ward
Leather Goods & Co.)

Men's and Women's Belts $14 - 20 $18
</TABLE>

OTHER PRODUCTS

LICENSED PRODUCTS. In order to complement the Company's existing line
of products and to increase consumer awareness of the FOSSIL brand, the Company
has entered into license agreements for other categories of fashion accessories.
These license agreements provide for royalty income to the Company based on a
percentage of net sales and are subject to certain guaranteed minimum royalties.
In 1999 the Company entered into a multi-year license agreement with the Safilo
Group for the manufacture, marketing and sale of optical frames under the FOSSIL
brand in the United States and Canada and optical frames and sunglasses in
Italy. The Company also entered into a multi-year license agreement for the
manufacture, marketing and sale of certain handbags, backpacks and sports bags
in Germany, Austria and Switzerland under the FOSSIL brand.

FUTURE PRODUCTS. The Company continually evaluates opportunities to
expand its product offerings in the future to include other accessory or apparel
lines that would complement its existing product.

DESIGN AND DEVELOPMENT

The Company's products are created and developed by its in-house design
staff in cooperation with various outside sources, including its manufacturing
sources and component suppliers. Product design ideas are drawn from various
sources and are reviewed and modified by the design staff to ensure consistency
with the Company's existing product offerings and the themes and images that it
associates with its products. Senior management is actively involved in the
design process.

In order to respond effectively to changing consumer preferences, the
Company attempts to stay abreast of emerging lifestyle and fashion trends
affecting accessories and apparel. In addition, the Company attempts to take
advantage of the constant flow of information from the Company's customers
regarding the

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retail performance of its products. The design staff reviews weekly sales
reports provided by a substantial number of the Company's customers containing
information with respect to sales and inventories by product category and style.
Once a trend in the retail performance of a product category or style has been
identified, the design and marketing staffs review their product design
decisions to ensure that key features of successful products are incorporated
into future designs. Other factors having an influence on the design process
include the availability of components, the capabilities of the factories that
will manufacture the products and the anticipated retail prices of and profit
margins for the products.

The Company differentiates its products from those of its competitors
principally by incorporating into its product designs innovations in fashion
details, including variations in the treatment of dials, crystals, cases and
straps for the Company's watches and details and treatments of its other
accessories. In certain instances, the Company believes that such innovations
have allowed it to achieve significant improvements in consumer acceptance of
its product offerings with only nominal increases in manufacturing costs. The
Company believes that the substantial experience of its design staff will assist
it in maintaining its current leadership position in watch design and in
expanding the scope of its product offerings.

MARKETING AND PROMOTION

The Company's current FOSSIL brand advertising themes aim at evoking
nostalgia for the simpler values and more optimistic outlook of the 1950s
through the use of images of cars, trains, airliners and consumer products that
reflect the classic American tastes of the period. These images are carefully
coordinated in order to convey the flair for fun, fashion and humor that the
Company associates with its products. The Company's nostalgic "America in the
1950s" tin packaging concept for many of its watch products and certain of its
accessories is an example of these marketing themes. The tins have become a
signature piece to the FOSSIL image and have become popular with collectors.

The Company participates in cooperative advertising programs with its
major retail customers, whereby it shares the cost of certain of their
advertising and promotional expenses. An important aspect of the marketing
process involves the use of in-store visual support and other merchandising
materials, including packages, signs, posters and fixtures. Through the use of
these materials, the Company attempts to differentiate the space used to sell
its products from other areas of its customers' stores. In addition, the Company
frequently offers promotional gifts, such as T-shirts and caps, to consumers who
purchase its products. The Company also provides its customers with a large
number of preprinted, customized advertising inserts and from time to time
stages promotional events designed to focus public attention on its products.

The Company's in-house advertising department designs, develops and
implements all aspects of the packaging, advertising, marketing and sales
promotion of the Company's products. The advertising staff uses computer-aided
design techniques to generate the images presented on product packaging and
other advertising materials. The Company believes that the use of computers
encourages greater creativity and reduces the time and cost required to
incorporate new themes and ideas into effective product packaging and other
advertising materials. Senior management is involved in monitoring the Company's
advertising and promotional activities to ensure that themes and ideas are
communicated in a cohesive manner to the Company's target audience.

The Company advertises, markets and promotes its products to potential
consumers through a variety of media, including catalog inserts, billboards and
print media. The Company has advertised from time to time with billboards and
other outdoor advertisements including bus panels in major metropolitan areas.
The Company periodically advertises the FOSSIL brand in certain national fashion
and consumer

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magazines such as SEVENTEEN, TEEN PEOPLE, DETAILS, JANE, POV and MEN'S HEALTH,
and the RELIC brand in MADEMOISELLE, TEEN, ENTERTAINMENT WEEKLY, PEOPLE and
ROLLING STONE. The Company also periodically advertises in trade publications
such as WOMEN'S WEAR DAILY and DAILY NEWS RECORD.

SALES AND CUSTOMERS

The Company sells its products in approximately 17,000 retail locations
in the United States through a diversified distribution network that includes
approximately 5,000 department store doors, such as Federated/Macy's, May
Department Stores and Dillard's for its FOSSIL brand and JCPenney and Sears for
its RELIC brand, as well as approximately 12,000 specialty retail locations. The
Company also sells its product at Company-owned FOSSIL retail stores located at
retail sites in the United States and sells certain of its products at
Company-owned FOSSIL outlet stores located at major outlet malls throughout the
United States. The Company also sells its products at retail locations in major
airports in the United States, on cruise ships and in independently-owned,
authorized FOSSIL retail stores and kiosks in certain international markets. The
Company generally does not have long-term contracts with any of its retail
customers. All transactions between the Company and its retail customers are
conducted on the basis of purchase orders, which generally require payment of
amounts due to the Company on a net 30-day basis.

DEPARTMENT STORES. For fiscal years 1999, 1998 and 1997, domestic
department stores accounted for approximately 58.8%, 60.8% and 49.0% of the
Company's net sales, respectively. In addition, in the same periods, the
Company's 10 largest customers represented approximately 41%, 47% and 45% of net
sales, respectively. No customer accounted for more than 10% of the Company's
net sales in fiscal years 1999, 1998 and 1997. Certain of the Company's
customers are under common ownership. Sales to the department store group under
common ownership by Federated Department Stores accounted for approximately
9.0%, 10.0% and 10.8% of the Company's net sales in fiscal years 1999, 1998 and
1997, respectively. No other customer, when considered as a group under common
ownership, accounted for more than 10% of the Company's net sales in fiscal
years 1999, 1998 and 1997.

INTERNATIONAL SALES. The Company's products are sold 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 Europe, South and Central America, the Caribbean, Canada, the Far East,
Australia and the Middle East. Foreign distributors generally purchase products
at uniform prices established by the Company for all international sales and
resell them to department stores and specialty retail stores. The Company
generally receives payment from its foreign distributors in United States
currency. During the fiscal years 1999, 1998 and 1997, international and export
sales accounted for approximately 31%, 29% and 31% of net sales, respectively.

COMPANY-OWNED FOSSIL STORES. In 1995, the Company commenced operations
of FOSSIL outlet stores at selected major outlet malls throughout the United
States. The Company operated 33 outlet stores at the end of fiscal year 1999.
These stores, which operate under the FOSSIL name, enable the Company to
liquidate excess inventory and increase brand awareness. The Company's products
in such stores are generally sold at discounts from 25% to 50% off the suggested
retail price. The Company intends to open three additional outlet stores in
2000.

In 1996, the Company commenced operations of full priced FOSSIL retail
stores at some of the most prestigious retail malls in the United States in
order to broaden the recognition of the FOSSIL brand name. The Company currently
operates 17 retail stores in leading malls and retail location throughout the
United States. These stores, which operate under the FOSSIL name, carry a full
assortment of FOSSIL

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merchandise which is generally sold at the suggested retail price. In 2000, the
Company will beginning offering FOSSIL brand apparel products at approximately
12 FOSSIL retail stores in the United States. The Company intends to open one
additional retail store in 2000 offering accessories only. During the fiscal
years 1999, 1998 and 1997, Company Store sales accounted for approximately 9%,
9% and 8% of net sales, respectively.

INTERNET SALES. In November 1996, the Company established a website at
www.FOSSIL.com. In September 1999, the Company's website was redesigned with a
stronger emphasis on retail sales and order fulfillment. The Company offers
selected FOSSIL brand watches, sunglassses, leather goods and other related
products. These products are also available to consumers through a "storefront"
on America Online that is connected to the Company's website. In addition to
offering selected FOSSIL products, the Company also provides Company news and
information on the website. During 2000, the Company plans to launch a
business-to-business site that will allow the Company's specialty retail
accounts access to real-time inventory, account information and automated order
processing.

SALES PERSONNEL. The Company utilizes an in-house sales staff and, to a
lesser extent, independent sales representatives to promote the sale of the
Company's products to retail accounts. As of the end of fiscal year 1999, the
Company had 80 in-house sales and customer service employees and 17 independent
sales representatives. The Company's in-house sales personnel receive a salary
and, in some cases, a commission based on a percentage of gross sales
attributable to specified accounts. Independent sales representatives generally
do not sell competing product lines and are under contracts with the Company
that are generally terminable by either party upon 30 days' prior notice. These
independent contractors are compensated on a commission basis.

CUSTOMER SERVICE. During the past several years, the retail industry
has undergone significant consolidation. As a result of these developments,
department stores and other major retailers have generally become more dependent
on the resources and market expertise of their suppliers. The Company believes
that this dependence has created opportunities for suppliers that provide
superior service to their retail customers and are able to manage the retail
sales process effectively. In order to take advantage of the opportunities
presented by this increasing dependence, the Company has developed an approach
to managing the retail sales process that involves monitoring its customers'
sales and inventories by product category and style, primarily through EDI, and
assisting in the conception, development and implementation of their marketing
programs. For example, the Company reviews weekly selling reports prepared by
certain of its principal customers and has established an active EDI program
with certain of its customers. The Company also places significant emphasis on
the establishment of cooperative advertising programs with its major retail
customers. The Company believes that its management of the retail sales process
has resulted in close relationships with its principal customers, often allowing
it to influence the mix, quantity and timing of their purchasing decisions.

The Company believes that its sales approach achieves high retail
turnover in its products, which can result in attractive profit margins for its
retail customers. The Company believes that the resulting profit margins for its
retail customers encourage them to devote greater selling space to its products
within their stores and enable the Company to work closely with buyers in
determining the mix of products any store should carry. In addition, the Company
believes that the buyers' familiarity with the Company's sales approach should
facilitate the introduction of new products through its existing distribution
network.

The Company permits the return of damaged or defective products. In
addition, although it has no obligation to do so, the Company accepts limited
amounts of product returns from its customers in certain other instances.
Accordingly, the Company provides allowances for the estimated amount of product

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<PAGE>

returns. The allowances for product returns as of the end of fiscal years 1999,
1998 and 1997 were $17.7 million, $14.0 million and $10.6 million respectively.
Since 1990, the Company has not experienced any returns in excess of the
aggregate allowances therefor.

BACKLOG

It is the practice of a substantial number of the Company's customers
not to confirm orders by delivering a formal purchase order until a relatively
short time prior to the shipment of goods. As a result, the amount of unfilled
customer orders includes confirmed orders and orders that the Company believes
will be confirmed by delivery of a formal purchase order. A majority of such
amounts represent orders that have been confirmed. The remainder of such amounts
represent orders that the Company believes, based on industry practice and prior
experience, will be confirmed in the ordinary course of business. The Company's
backlog at a particular time is affected by a number of factors, including
seasonality and the scheduling of the manufacture and shipment of products.
Accordingly, a comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments. For fiscal
year 1999, the Company had unfilled customer orders of approximately $41.4
million compared to $22.2 million and $16.2 million for fiscal years 1998 and
1997, respectively.

MANUFACTURING

The Company's products are manufactured to its specifications by
independent contractors and by companies in which the Company holds a majority
interest. Substantially all of the Company's watches are manufactured by
approximately 38 factories located primarily in Hong Kong and China, and to a
lesser extent in Japan. The Company believes that its policy of outsourcing
products allows it to achieve increased production flexibility while avoiding
significant capital expenditures, build-ups of work-in-process inventory and the
costs of managing a substantial production work force.

The principal components used in the manufacture of the Company's
watches are cases, crystals, dials, movements and straps. These components are
obtained by the Company's manufacturing sources from a large number of suppliers
located principally in Hong Kong, Japan, China, Taiwan, Italy and Korea. The
Company estimates that the majority of the movements used in the manufacture of
the Company's watches are supplied by two principal vendors. No other single
component supplier accounted for more than 10% of component supplies in 1999.
Although the Company does not normally engage in direct transactions with
component suppliers, in some cases it actively reviews the performance of such
suppliers and makes recommendations to its manufacturing sources regarding the
sourcing of components. The Company does not believe that its business is
materially dependent on any single component supplier.

The Company believes that it has established and maintains close
relationships with a number of watch manufacturers located in Hong Kong and
Japan. In 1999, three separate watch manufacturers in which the Company holds a
majority interest, each accounted for 10% or more of the Company's watch
supplies. The loss of any one of these manufacturers could temporarily disrupt
shipments of certain of the Company's watches. However, as a result of the
number of suppliers from which the Company purchases its watches, the Company
believes that it could arrange for the shipment of goods from alternative
sources within approximately 30 days on terms that are not materially different
from those currently available to the Company. Accordingly, the Company does not
believe that the loss of any single supplier would have a material adverse
effect on the Company's business. In general, however, the future success of the
Company will depend upon its ability to maintain close relationships with its
current suppliers and to develop long-term relationships with other suppliers
that satisfy the Company's requirements for price and production flexibility.

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<PAGE>

The Company's products are manufactured according to plans that reflect
management's estimates of product performance based on recent sales results,
current economic conditions and prior experience with manufacturing sources. The
average lead time from the commitment to purchase products through the
production and shipment thereof ranges from two to three months in the case of
watches, from three to six months in the case of sunglasses and from three to
four months in the case of leather goods. The Company believes that the close
relationships that it has established and maintains with its principal
manufacturing sources constitute a significant competitive advantage and allow
it to quickly and efficiently introduce innovative product designs and alter
production in response to the retail performance of its products.

QUALITY CONTROL

The Company's quality control program attempts to ensure that its
products meet the standards established by its design staff. Samples of products
are inspected by the Company prior to the placement of orders with manufacturing
sources to ensure compliance with its specifications. The operations of the
Company's manufacturing sources located in Hong Kong are monitored on a periodic
basis by Fossil (East). Substantially all of the Company's watches and certain
of its other accessories are inspected by personnel of Fossil East or by the
manufacturer prior to shipment to the Company. In addition, the Company performs
quality control checks on its products upon receipt at the Company's facility.

DISTRIBUTION

Upon completion of manufacturing, the Company's products are shipped to
its warehousing and distribution centers in Richardson, Texas, Italy, Japan,
Hong Kong, the United Kingdom and Germany from which they are shipped to
customers in selected markets. Since July 1997, the Company has owned and
operated a warehouse and distribution facility in Richardson, Texas, adjacent to
the Company's headquarters, to maximize the Company's inventory management and
distribution capabilities.

The Company's warehouse and distribution facility in Richardson, Texas
is operated in a special purpose subzone established by the United States
Department of Commerce Foreign Trade Zone Board. As a result of the
establishment of the subzone, the Company enjoys certain economic and
operational advantages: (i) the Company may not have to pay duty on imported
merchandise until it leaves the subzone and enters the United States market,
(ii) the Company does not pay any United States duty on merchandise if the
imported merchandise is subsequently re-exported, and (iii) the Company does not
pay local property tax on inventory located within the subzone.

MANAGEMENT INFORMATION SYSTEMS

INVENTORY CONTROL. The Company maintains inventory control systems at
its facilities that enable it to track each item of merchandise from receipt
from its manufacturing sources, through shipment to its customers. To facilitate
this tracking, a significant number of products sold by the Company are
pre-ticketed and bar coded prior to shipment to its retail customers. The
Company's inventory control systems report shipping, sales and individual SKU
level inventory information. The Company manages the retail sales process by
monitoring customer sales and inventory levels by product category and style,
primarily through EDI. The Company believes that its distribution capabilities
enable it to reduce inventory risk and increase flexibility in responding to the
delivery requirements of its customers. The Company's management believes that
its EDI efforts will continue to grow in the future as customers focus further
on increasing operating efficiencies. In addition, the Company maintains systems
that are designed to track inventory movement

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<PAGE>

through the FOSSIL retail and outlet stores. Detailed sales transaction records
are accumulated on each store's point-of-sale system and polled nightly by the
Company.

WARRANTY AND REPAIR

The Company's FOSSIL watch products are covered by a limited warranty
against defects in materials or workmanship for a period of 11 years from the
date of purchase. The Company's RELIC watch products are covered by a comparable
12 year warranty. The Company's licensed watch products generally are covered by
one (1) year limited warranty. The Company's sunglass line is covered by a one
year limited warranty against defects in materials or workmanship. Defective
products returned by consumers are processed at the Company's warehousing and
distribution centers. In most cases, defective products under warranty are
repaired by the Company's personnel. Products under warranty that cannot be
repaired in a cost-effective manner are replaced by the Company at no cost to
the customer. The Company also performs watch repair services on behalf of
certain of its private label customers.

GOVERNMENTAL REGULATIONS

IMPORTS AND IMPORT RESTRICTIONS. Most of the Company's products are
manufactured overseas. As a result, the United States and the countries in which
the Company's products are manufactured or sold may from time to time modify
existing or impose new quotas, duties, tariffs or other restrictions in a manner
that adversely affects the Company. For example, the Company's products imported
to the United States are subject to United States customs duties and, in the
ordinary course of its business, the Company may from time to time be subject to
claims by the United States Customs Service for duties and other charges.
Factors which may influence the modification or imposition of these restrictions
include the determination by the United States Trade Representative that a
country has denied adequate intellectual property rights or fair and equitable
market access to United States firms that rely on intellectual property, trade
disputes between the United States and a country that leads to withdrawal of
"most favored nation" status for that country and economic and political changes
within a country that are viewed unfavorably by the government of the United
States. The Company cannot predict the effect, if any, these events would have
on its operations, especially in light of the concentration of its manufacturing
operations in Hong Kong and China.

GENERAL. The Company's sunglass products are subject to regulation by
the United States Food and Drug Administration as medical devices. The Company
does not believe that compliance with such regulations is material to its
operations. In addition, the Company is subject to various state and federal
regulations generally applicable to similar businesses.

INTELLECTUAL PROPERTY

TRADEMARKS: The Company has registered the FOSSIL and RELIC trademarks
for use on the Company's watches, leather goods and other fashion accessories.
The Company has also registered or applied for the registration of certain other
marks used by the Company in conjunction with the sale and marketing of its
products and services. In addition, the Company has registered certain of its
trademarks, including FOSSIL and RELIC, in certain foreign countries, including
a number of countries located in Europe, the Far East, the Middle East, South
America and Central America. The Company also has certain trade dress rights in,
and has applied for registration of, the distinctive rectangular tins in which
the Company packages the majority of its FOSSIL watch products.

-13-
<PAGE>

PATENTS: The Company has been granted, and has pending, various United
States and international design and utility patents related to its BIG TIC watch
line. The Company also has been granted, and has pending, various United States
patents related to certain of its other products.

The Company regards its trademarks, trade dress and patents as valuable
assets and believes that they have significant value in the marketing of its
products. The Company intends to protect its intellectual property rights
vigorously against infringement.

COMPETITION

There is intense competition in each of the businesses in which the
Company competes. The Company's watch business competes with a number of
established manufacturers, importers and distributors such as Guess? Anne Klein
II, Kenneth Cole and Swatch. In addition, the Company's leather goods and
sunglass businesses compete with a large number of established companies that
have significantly greater experience than the Company in designing, developing,
marketing and distributing such products. In all of its businesses, the Company
competes with numerous manufacturers, importers and distributors who have
significantly greater financial, distribution, advertising and marketing
resources than the Company. The Company's competitors include distributors that
import watches and accessories from abroad, domestic companies that have
established foreign manufacturing relationships and companies that produce
accessories domestically.

The Company competes primarily on the basis of style, price, value,
quality, brand name, advertising, marketing and distribution. In addition, the
Company believes that its ability to identify and respond to changing fashion
trends and consumer preferences, to maintain existing relationships and develop
new relationships with manufacturing sources, to deliver quality merchandise in
a timely manner and to manage the retail sales process are important factors in
its ability to compete.

The Company considers that the risk of significant new competitors is
mitigated to some extent by barriers to entry such as high startup costs and the
development of long-term relationships with customers and manufacturing sources.
During the past few years, it has been the Company's experience that better
department stores and other major retailers have been increasingly unwilling to
source products from suppliers who are not well capitalized or do not have a
demonstrated ability to deliver quality merchandise in a timely manner. There
can be no assurance, however, that significant new competitors will not emerge
in the future.

EMPLOYEES

As the end of fiscal year 1999, the Company (excluding the Company's
foreign subsidiaries) had 1,217 full-time employees, including 110 in executive
or managerial positions and the balance in design, advertising, sales, quality
control, distribution, clerical and other office positions. As of the end of
fiscal year 1999, the Company's foreign operating subsidiaries had 280 full-time
employees, including 36 in managerial positions.

The Company has not entered into any collective bargaining agreements
with its employees. The Company believes that its relations with its employees
are generally good.

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<PAGE>

ITEM 2. PROPERTIES

COMPANY FACILITIES: As of the end of fiscal year 1999, the Company
owned or leased the following facilities in connection with its domestic and
international operations:

<TABLE>
<CAPTION>
LOCATION USE SQUARE FOOTAGE OWNED / LEASED
- -------- --- -------------- --------------
<S> <C> <C> <C>
Richardson, Texas Corporate headquarters 177,000 Owned
Richardson, Texas Warehouse, distribution and general 138,000 Owned
office
Hong Kong Office, warehouse and assembly factory 37,600 Lease expiring in 2001
Erlstatt, Germany Office, warehouse and distribution 12,000 Lease expiring in 2002
Milton Keynes, England Office, warehouse and distribution 8,250 Lease expiring in 2002
Tokyo, Japan Office, warehouse and distribution 2,800 Lease expiring in 2002
Vicenza, Italy Office 3,100 Lease expiring in 2004
New York, New York General office and showroom 13,596 Lease expiring in 2006
Atlanta, Georgia General office and showroom 1,380 Lease expiring in 2000
Chicago, Illinois General office and showroom 2,980 Lease expiring in 2001
Los Angeles, California General office and showroom 1,675 Lease expiring in 2000
</TABLE>

The Company's Richardson, Texas facilities are located on approximately
20 acres of land. The Company owns both facilities and the land on which each is
located.

RETAIL STORE FACILITIES: As of the end of fiscal year 1999, the Company
had entered into 20 lease agreements for retail space at prime locations in the
United States for the sale of its full assortment of products. The leases,
including renewal options, expire at various times from 2004 to 2010 and provide
for minimum annual rentals above specified net sales amounts and for the payment
of additional rent based on a percentage of sales ranging from 4% to 9%. The
Company is also required to pay its pro rata share of the common area
maintenance costs at each retail mall, including, real estate taxes, insurance,
maintenance expenses and utilities.

OUTLET STORE FACILITIES: The Company also leases retail space at
selected outlet centers throughout the United States for the sale of its
products. As of the end of fiscal year 1999, the Company had entered into 37
such leases. The leases, including renewal options, expire at various times from
2000 to 2013, and provide for minimum annual rentals and for the payment of
additional rent based on a percentage of sales above specified net sales amounts
ranging from 3% to 7%. The Company is also required to pay its pro rata share of
the common area maintenance costs at each outlet center, including, real estate
taxes, insurance, maintenance expenses and utilities.

The Company believes that its existing facilities are well maintained,
in good operating condition and adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings to which the Company is a party or to
which its properties are subject, other than routine litigation incident to the
Company's business which is not material to the Company's consolidated financial
condition or results of operations.

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<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year 1999.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is listed on the Nasdaq National Market
under the symbol "FOSL." Quotation of the Company's Common Stock began on the
Nasdaq National Market on April 8, 1993.

The following table sets forth the range of quarterly high and low
sales prices per share of the Company's Common Stock on the Nasdaq National
Market for the fiscal years ended January 1, 2000 and January 2, 1999. Such
prices have been adjusted to reflect a three-for-two stock split (the "3 for 2
Stock Split") of the Company's Common Stock effected as a fifty percent (50%)
stock dividend declared on July 21, 1999, paid on August 17, 1999 to all
stockholders of record on August 3, 1999.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year beginning January 2, 1999:

First Quarter $23.667 $17.833
Second Quarter 33.583 17.250
Third Quarter 36.583 26.333
Fourth Quarter 30.625 18.750

Fiscal year beginning January 3, 1998:

First Quarter $14.444 $ 9.667
Second Quarter 18.250 11.917
Third Quarter 18.000 8.667
Fourth Quarter 20.417 8.667
</TABLE>

As of March 29, 2000, the Company estimates that there were
approximately 4,250 beneficial owners of the Company's Common Stock, represented
by approximately 133 holders of record.

DIVIDEND POLICY. The Company expects that it will retain all available
earnings generated by its operations for the development and growth of its
business and does not anticipate paying any cash dividends in the foreseeable
future. Any future determination as to dividend policy will be made in the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including the future earnings, capital requirements, financial
condition and future prospects of the Company and such other factors as the
Board of Directors may deem relevant.

The Company declared a three-for-two stock on July 21, 1999, effected
as a fifty percent (50%) stock dividend paid on August 17, 1999 to all
stockholders of record on August 3, 1999.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under "Financial Highlights" beginning on
page 5 of the Fossil, Inc. 1999 Annual Report is incorporated herein by
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information appearing under "Management's Discussion and Analysis"
beginning on page 11 of the Fossil, Inc. 1999 Annual Report is incorporated
herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information appearing under "Management's Discussion and Analysis"
and "Financial Information" beginning on pages 11 and 26, respectively, of the
Fossil, Inc. 1999 Annual Report is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information appearing under "Financial Information" beginning on
page 26 of the Fossil, Inc. 1999 Annual Report is incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

The Company has had no disagreements with its accountants to report
under this item.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required in response to this Item is incorporated
herein by reference to the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of Report.

1. FINANCIAL STATEMENTS:

The Financial Statements appearing under "Financial Information"
beginning on page 26 of the Fossil, Inc. 1999 Annual Report are incorporated
herein by reference.

2. FINANCIAL STATEMENT SCHEDULE:

The following Financial Statement Schedule and related Auditor's Report
are contained herein on pages S-1 and S-2 of this Report.

Schedule II - Valuation and Qualifying Accounts

3. EXHIBITS:

3.1 Amended and Restated Certificate of Incorporation of Fossil, Inc.
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, registration no.33-45357, filed with the
Securities and Exchange Commission).

3.2 Amended and Restated Bylaws of Fossil, Inc.(incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement on Form S-1,
registration no. 33-45357, filed with the Securities and Exchange
Commission).

3.3 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1
of the Company's Report on Form 10-Q for the quarterly period ended
June 30, 1995).

3.4 Second Amended and Restated Certificate of Incorporation of Fossil,
Inc. (incorporated by reference to Exhibit 3.1 of the Company's Report
on Form 10-Q for the quarterly period ended July 4, 1998).

10.1(2) Fossil, Inc. 1993 Nonemployee Director Stock Option Plan (incorporated
herein by reference to Exhibit 10.1 of the Company's Registration
Statement of Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

10.2(2) Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.2 of the Company's Registration Statement of
Form S-1, registration no. 33-45357, filed with the Securities and
Exchange Commission).

10.3(2) Fossil, Inc. 1993 Savings and Retirement Plan (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration Statement of
Form S-1, registration no. 33-45357, filed with the Securities and
Exchange Commission).

10.4(2) Description of Bonus Program (incorporated herein by reference to
Exhibit 10.4 of the Company's Registration Statement of Form S-1,
registration no. 33-45357, filed with the Securities and Exchange
Commission).

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<PAGE>

10.5 Non-Competition Agreement dated December 31, 1992 between Fossil, Inc.
and Mr. Jal S. Shroff (incorporated herein by reference to Exhibit
10.12 of the Company's Registration Statement of Form S-1, registration
no. 33-45357, filed with the Securities and Exchange Commission).

10.6 Amended and Restated Buying Agent Agreement dated March 21, 1992
between Fossil, Inc. and Fossil East Ltd. (incorporated by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).

10.7 Commercial/Real Estate Note dated as of August 31, 1994, in the
principal amount of $5,000,000 executed by Fossil Partners, L.P. and
payable to the order of First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.6 of the Company's Report on
Form 10-Q for the quarterly period ended September 30, 1994).

10.8 Subordination Agreement of Fossil Trust for the benefit of First
Interstate Bank of Texas, N.A. dated as of August 31, 1994
(incorporated by reference to Exhibit 10.7 of the Company's Report on
Form 10-Q for the quarterly period ended September 30, 1994).

10.9 Indemnity Agreement dated as of August 31, 1994 from Fossil Partners,
L.P. and Fossil, Inc. to First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.8 of the Company's Report on
Form 10-Q for the quarterly period ended September 30, 1994).

10.10 Master Licensing Agreement dated as of August 30, 1994, by and between
Fossil, Inc. and Fossil Partners, L.P. (incorporated by reference to
Exhibit 10.12 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1994).

10.11 Agreement of Limited Partnership of Fossil Partners, L.P. (incorporated
by reference to Exhibit 10.13 of the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1994).

10.12 Overhead Allocation Agreement by and between Fossil Partners, L.P. and
Fossil New York, Inc. dated October 1, 1994 (incorporated by reference
to Exhibit 10.33 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).

10.13 Services and Operations Agreement by and between Fossil Partners, L.P.
and Fossil New York, Inc. dated October 1, 1994 (incorporated by
reference to Exhibit 10.34 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).

10.14 Overhead Allocation Agreement by and between Fossil Partners, L.P. and
Fossil Stores I, Inc. dated December 1, 1994 (incorporated by reference
to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).

10.15 Second Amended and Restated Loan Agreement entered into on May 2, 1995
by and between First Interstate Bank of Texas, N.A., Fossil Partners,
L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil New
York, Inc. and Fossil Stores I, Inc. (without exhibits) (incorporated
by reference to Exhibit 10.1 of the Company's Report on Form 10-Q for
the quarterly period ended June 30, 1995).

10.16 Stock Pledge Agreement entered into on May 2, 1995 by and between
Fossil, Inc. and First Interstate Bank of Texas, N.A. (incorporated by
reference to Exhibit 10.3 of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1995).

10.17 Joint Development Agreement entered into on December 25, 1995 by and
between Fossil, Inc., Seiko Instruments, Inc, and Time Tech, Inc.
(incorporated by reference to Exhibit 10.43 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).

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<PAGE>

10.18 Joint Venture Agreement entered into on December 22, 1994 by and
between Fossil, Inc., Fossil Europe B.V., Enrico Margaritelli, Zuglia,
S.r.l. and Bluewhale Holding, S.a. (without exhibits) (incorporated by
reference to Exhibit 10.44 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).

10.19 Amendment No. 1 to Joint Venture Agreement entered into on January 18,
1995 by and between Fossil, Inc., Fossil Europe B.V., Enrico
Margaritelli, Zuglia, S.r.l. and Bluewhale Holding, S.a. (incorporated
by reference to Exhibit 10.45 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996).

10.20(2) Letter Agreement dated October 4, 1995 between Fossil, Inc. and Mark D.
Quick (incorporated by reference to Exhibit 10.32 of the Company's
Annual Report on Form 10-K for the year-ended December 31, 1996).

10.21 Stock Purchase Agreement dated February 1, 1997, by and between
Bluewhale Holding S.a., and Fossil Europe B.V. (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the
transition period from January 1, 1997 to April 5, 1997).

10.22(2) First Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.23(2) Second Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.24(2) Amendment to the Fossil, Inc. 1993 Non-Employee Director Stock Option
Plan (incoporated by reference to Exhibit 10.24 of the Company's Report
on Form 10-K for the year-ended January 2, 1999).

10.25(2) Fossil, Inc. and Affiliates Deferred Compensation Plan (incoporated by
reference to Exhibit 10.25 of the Company's Report on Form 10-K for the
year-ended January 2, 1999).

10.26 Third Amended and Restated Loan Agreement dated June 29, 1998, by and
among Wells Fargo Bank (Texas), National Association, a national
banking association formerly known as First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc., and Fossil
Stores II, Inc. (without exhibits) (incorporated by reference to
Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended July 4, 1998).

10.27 Fourth Amended and Restated Loan Agreement by and among Wells Fargo
Bank (Texas), National Association, Fossil Partners, L.P., Fossil,
Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil Stores I, Inc.
and Fossil Stores II, Inc. dated as of June 28, 1999 (without exhibits)
(incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 3, 1999)

10.28 Joint Venture Agreement between Fossil, Inc. and Seiko Instruments
America, Inc. dated June 1, 1999 (without exhibits) (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the
quarterly period ended October 2, 1999)

10.29 Service Agreement between SII Marketing International, Inc. and Fossil
Partners, L.P. dated August 9, 1999 (incorporated by reference to
Exhibit 10.2 of the Company's Report on Form 10-Q for the quarterly
period ended October 2, 1999).

10.30 Asset Purchase Agreement by and between Junghans UK Limited and Fossil
(UK) Ltd. dated August 1999 (without schedules) (incorporated by
reference to Exhibit 10.3 of the Company's Report on Form 10-Q for the
quarterly period ended October 2, 1999)

13(1) Fossil, Inc. 1999 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

-20-
<PAGE>

23.1(1) Consent of Independent Auditors.

27 (1) Financial Data Schedule.

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

The Company did not file any report on Form 8-K during the last quarter
of the period covered by this Report.

-21-
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Richardson, State of Texas, on March 30, 2000.

FOSSIL, INC.

/s/ Tom Kartsotis
---------------------------------------
TOM KARTSOTIS, CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE

<S> <C> <C>
/s/ Tom Kartsotis
- -------------------------------------------- Chairman of the Board, Chief Executive March 30, 2000
TOM KARTSOTIS Officer and Director
(Principal Executive Officer)

/s/ Kosta N. Kartsotis
- -------------------------------------------- President and Chief Operating Officer March 30, 2000
KOSTA N. KARTSOTIS and Director

/s/ Randy S. Kercho
- -------------------------------------------- Executive Vice President, Chief Financial March 30, 2000
RANDY S. KERCHO Officer and Treasurer
(Principal Financial and Accounting Officer)

/s/ Michael W. Barnes
- -------------------------------------------- Executive Vice President and Director March 30, 2000
MICHAEL W. BARNES

/s/ Jal S. Shroff
- -------------------------------------------- Director March 30, 2000
JAL S. SHROFF

/s/ Kenneth W. Anderson
- -------------------------------------------- Director March 30, 2000
KENNETH W. ANDERSON

/s/ Alan J. Gold
- -------------------------------------------- Director March 30, 2000
ALAN J. GOLD

/s/ Michael Steinberg
- -------------------------------------------- Director March 30, 2000
MICHAEL STEINBERG

/s/ Donald J. Stone
- -------------------------------------------- Director March 30, 2000
DONALD J. STONE
</TABLE>

-22-
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Directors of Fossil, Inc.:

We have audited the consolidated financial statements of Fossil, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999 and for each of the three
years in the period ended January 1, 2000, and have issued our report thereon
dated February 18, 2000, which report expressed an unqualified opinion; such
consolidated financial statements and report are included in your 1999 Annual
Report to Stockholders and are incorporated herein by reference. Our audit also
included the consolidated financial statement schedule of Fossil, Inc. and
subsidiaries listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP
Dallas, Texas
February 18, 2000

S-1
<PAGE>

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years 1997, 1998, and 1999
(in thousands)

<TABLE>
<CAPTION>
ADDITIONS
---------
CHARGED DEDUCTIONS
BALANCE AT (CREDITED) TO --------------
BEGINNING OF COSTS AND ACTUAL RETURNS BALANCE AT END OF
CLASSIFICATION PERIOD EXPENSES OR WRITEOFFS PERIOD
- -------------- ------ -------- ------------- ------

<S> <C> <C> <C> <C>
Fiscal Year 1997:

Accounts receivable allowances:

Sales returns 8,854 17,399 (15,677) 10,576

Bad debts 4,292 2,025 (1,617) 4,700

Cash discounts 214 205 (230) 189

Inventory in transit for estimated
customer returns (4,464) (9,716) 8,485 (5,695)

Fiscal Year 1998:

Accounts receivable allowances:

Sales returns 10,576 22,967 (19,577) 13,966

Bad debts 4,700 4,005 (1,841) 6,864

Cash discounts 189 249 (210) 228

Inventory in transit for estimated
customer returns (5,695) (12,595) 10,805 (7,485)

Fiscal Year 1999:

Accounts receivable allowances:

Sales returns 13,966 23,667 (19,933) 17,700

Bad debts 6,864 2,573 (1,480) 7,957

Cash discounts 228 219 (274) 173

Inventory in transit for estimated
customer returns (7,485) (10,732) 8,754 (9,463)
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

3.1 Amended and Restated Certificate of Incorporation of Fossil, Inc.
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

3.5 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1
of the Company's Report on Form 10-Q for the quarterly period ended
June 30, 1995).

3.6 Second Amended and Restated Certificate of Incorporation of Fossil,
Inc. (incorporated by reference to Exhibit 3.1 of the Company's Report
on Form 10-Q for the quarterly period ended July 4, 1998).

<PAGE>

10.11 Agreement of Limited Partnership of Fossil Partners, L.P. (incorporated
by reference to Exhibit 10.13 of the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1994).

<PAGE>

10.22 Stock Purchase Agreement dated February 1, 1997, by and between
Bluewhale Holding S.a., and Fossil Europe B.V. (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the
transition period from January 1, 1997 to April 5, 1997).

10.22(2) First Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.25(2) Fossil, Inc. and Affiliates Deferred Compensation Plan (incoporated by
reference to Exhibit 10.25 of the Company's Report on Form 10-K for the
year-ended January 2, 1999).

10.27 Third Amended and Restated Loan Agreement dated June 29, 1998, by and
among Wells Fargo Bank (Texas), National Association, a national
banking association formerly known as First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc., and Fossil
Stores II, Inc. (without exhibits) (incorporated by reference to
Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended July 4, 1998).

13(1) Fossil, Inc. 1999 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27 (1) Financial Data Schedule.

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

<PAGE>

FOSSIL 1999 ANNUAL REPORT

<PAGE>

COMPANY PROFILE ...................................................4
FINANCIAL HIGHLIGHTS...............................................5
LETTER TO THE STOCKHOLDERS.........................................6
COMPANY OVERVIEW...................................................8
MANAGEMENT'S DISCUSSION
AND ANALYSIS......................................................11
FINANCIAL INFORMATION.............................................26
CORPORATE INFORMATION.............................................44

<PAGE>

[Graphic Images]

<PAGE>

[Graphic Images]

<PAGE>

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 85 countries around the world, in
addition to the Company's e-commerce website at www.Fossil.com.

The Company differentiates its products from those of its competitors
principally through innovations in fashion details, including 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 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.

OPERATING
NET SALES [GRAPH] INCOME [GRAPH]
(in Millions of Dollars) (in Millions of Dollars)

NET INCOME [GRAPH] STOCKHOLDERS'
EQUITY [GRAPH]
(in Millions of Dollars) (in Millions of Dollars)

4
<PAGE>

FINANCIAL HIGHLIGHTS

FISCAL YEAR 1999 1998 1997 1996 1995
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net sales ........................................... $418,762 $304,743 $244,798 $ 205,899 $ 181,114
Gross profit ........................................ 212,887 150,504 117,528 98,038 82,900
Operating income .................................... 87,449 55,370 34,610 24,373 20,463
Income before income taxes .......................... 87,841 54,729 32,151 23,040 20,142
Net income .......................................... 51,826 32,161 18,942 13,591 12,057
Basic earnings per share (1) ........................ 1.63 1.04 0.63 0.46 0.41
Diluted earnings per share (1) ...................... 1.55 0.99 0.61 0.45 0.40

Weighted average common shares outstanding:
Basic shares (1) ................................ 31,900 31,054 30,203 29,675 29,642
Diluted shares (1) .............................. 33,428 32,586 31,250 30,101 29,910

Working capital ..................................... $155,198 $109,040 $ 70,603 $ 59,861 $ 49,251
Total assets ........................................ 269,364 194,078 139,570 118,978 96,994
Long-term debt ...................................... -- -- -- 4,350 4,811
Stockholders' equity ................................ 191,197 134,919 95,263 74,568 61,269
Return on average stockholders' equity .............. 32.2% 29.3% 23.1% 20.3% 22.0%
</TABLE>

(1) All share and per share data has been adjusted to reflect a three-for-two
stock split effected in the form of a stock dividend paid August 17,1999.

STOCK INFORMATION

Fossil'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 splits effected in the form of a
stock dividend paid on April 8, 1998 and August 17, 1999. Stock prices have been
adjusted in certain cases to the nearest traded amount.

<TABLE>
<CAPTION>
1999 1998
High Low High Low
<S> <C> <C> <C> <C>
First quarter....... $ 23.667 $ 17.833 $ 14.444 $ 9.667
Second quarter...... 33.583 17.250 18.250 11.917
Third quarter....... 36.583 26.333 18.000 8.667
Fourth quarter...... 30.625 18.750 20.417 8.667
</TABLE>

5
<PAGE>

LETTER TO THE STOCKHOLDERS

FOSSIL management is pleased to have delivered a solid financial performance in
1999 having once again achieved record levels of sales and earnings.

Now our focus is squarely on the future and how the Company is positioned to
address the challenges ahead. Our focus for the future includes:

- - Capitalizing on the fact that markets are becoming increasingly global.
- - Continuing to expand within existing distribution channels.
- - Maximizing both commercial and operating benefits brought on by the
advancement of the Internet.
- - Positioning our brands to attract an increasingly influential younger
consumer while still appealing to a wider customer base.
- - Building and retaining a strong management team that will enable us to
effectively respond to these challenges.

The following more specifically outlines each of the above mentioned focuses.

GLOBAL MARKETS

FOSSIL has continued to impact international markets by establishing sales and
distribution points throughout the world. Our global infrastructure includes
wholly owned subsidiaries, joint venture partnerships and third party
distribution relationships that cover more than 85 countries. Our global
business is profitable and has a tremendous opportunity for further expansion.

CHANNELS OF DISTRIBUTION

Our Company has the advantage of operating across several unique distribution
channels that can grow independently of each other.

Domestically, the FOSSIL brand has established itself as a leading brand name in
the accessory departments of major department stores. The power of the FOSSIL
brand and our ability to attract a young, hip customer has also enabled us to
increase our market presence within specialty stores and watch-specific
retailers. In addition, our expansion of company-owned FOSSIL Stores will
continue to serve as showcases for our brand and products while at the same
time, continuing to drive revenue and earnings.

Sales of RELIC brand watches grew in excess of 80% last year. There is
tremendous room for future growth as RELIC watches continue to turn faster at
retail than competitors in the national and chain department store channel of
distribution. Retailers are expanding the importance of RELIC within their watch
assortments and are open to the expansion of the brand into other non-watch
categories.

The mass-market channel of distribution also represents an opportunity for the
Company through a strategic alliance with Seiko Instruments America, Inc.

INTERNET

The Company's product lines are a natural fit for commerce over the Internet. We
established FOSSIL.COM five years ago and were one of the first retailers
selling product over AOL's shopping channel. Today our presence on the web has
grown to include alliances with several portals and affiliate sites drawing
three million unique visitors to our site during 1999. This year we are also
launching our own business-to-business site that will offer broader and more
timely service to smaller specialty stores that do not yet have all the
electronic capabilities of their department store counterparts. Our next
challenge is to develop communication lines utilizing the web to tie our
suppliers into our Company in order to reduce inventory lead times and dollars
invested in inventory at any point in time.

6
<PAGE>

TARGET AUDIENCE

Today's young consumers are influencing the marketplace to a magnitude that has
not been experienced previously. Many companies rush to market with products
that appeal to these consumers only to discover that what is "in" today is "out"
tomorrow. Our Company has been successful in attracting this younger
consumer--while still managing to appeal to a much wider customer base, both
male and female. We have accomplished this by becoming a true "Left Brain/Right
Brain" company. We believe our creative design and product development groups
(Left Brain) are unparalleled in our industry. We have also developed
sophisticated internal systems that enable us to rapidly track and adjust to
changes in consumer preferences (Right Brain). This combination of art and
science creates a strategic advantage that keeps our products in the mainstream
of consumer preferences and our inventory levels (plus markdown exposure) under
control.

MANAGEMENT TEAM

The majority of our management team has a retail background. They have lived
through and adapted to the constant change inherent in retail businesses. Over
the past seven years as a public company, our management team has demonstrated a
consistent ability to respond to the demands of a dynamic marketplace. This team
has implemented systems and built a Company that has grown stronger each
quarter, both financially and from an infrastructure perspective. They have
developed Company-owned brands that have consistently increased in recognition
and have significant momentum as we enter the new decade. It is important to
remember that FOSSIL's growth has come almost entirely through internal growth
as opposed to growth by acquisition.

In closing, we'd like to thank our dedicated employees all over the world for
the hard work and ingenuity that they demonstrate every day in building this
Company. We hope that you, as our stockholders, are pleased with the financial
performance that has been delivered in 1999 and are as excited as we are about
the significant opportunities that lie ahead for this Company.

Sincerely,

/s/ Tom Kartsotis /s/ Kosta Kartsotis

Tom Kartsotis Kosta Kartsotis
Chairman of the Board President

7
<PAGE>

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 1999, while continuing to gain momentum in sales
of non-watch products and increase brand presence globally.

FOSSIL PRODUCTS
WATCHES: The FOSSIL brand continued to build market share in department stores
in 1999. New product introductions under the Company's three core watch lines,
FOSSIL BLUE, FOSSIL STEEL and F2, represented the majority of the Company's
FOSSIL brand watch sales. The introduction of FOSSIL BIG TIC in the fall of 1998
was highly successful and contributed positively to sales growth throughout
1999. The Company recently introduced new products featuring titanium and
aluminum, as well as watches incorporating digital technology.

LEATHERS: The leather division continued to exhibit strong sales and earnings
growth in 1999 with significant increases in sales across nearly all of the
FOSSIL brand leather product lines. Handbags continued to increase market share
in 1999 further enhancing the visibility and sales of other accessory
categories. Strong growth should continue in the leather product category during
2000.

SUNGLASSES/OPTICAL FRAMES/LICENSED PRODUCTS: FOSSIL sunwear continued to show
double-digit growth in 1999 as a result of the wider breadth of price points and
design changes introduced in 1997. The overall success of the division was
spurred by significant growth in optical and specialty stores such as
Lenscrafters and Sunglass Hut. The Company also introduced FOSSIL brand optical
frames to optical stores in the United States during 1999 under a license
agreement with the Safilo Group. The Company continues to test new products
bearing the FOSSIL mark by utilizing license agreements with select partners.
The Company is careful to limit the size and penetration of these product
categories to be sure that the products are consistent with the brand image and
desirable to end consumers. The Company will continue to evaluate additional
license arrangements as a mechanism for product expansion as suitable products
and partners are identified.

APPAREL: In 2000, the Company announced plans to introduce a line of FOSSIL
brand apparel products. The apparel line will consist of casual wear and jeans
wear and will be available at approximately 12 new FOSSIL retail stores opening
in the third quarter of 2000.

8
<PAGE>

RELIC PRODUCTS: RELIC brand watches continued to gain momentum in leading
national and regional chain department stores nearly doubling its sales volumes
over 1998. New RELIC visual presentations, fixtures and logo designs first
introduced in 1998 have assisted in increasing brand name recognition allowing
the Company to begin extending the RELIC brand to other accessory categories,
including handbags, small leather goods and men's and women's belts.

INTERNATIONAL SALES: Increasing demand for FOSSIL products worldwide, coupled
with the expansion of the EMPORIO ARMANI licensed line of watches, helped
broaden the Company's business tremendously across the globe. The FOSSIL brand
is available in over 85 countries around the world through the Company's
subsidiary operations, joint ventures and network of approximately 52
independent distributors. International distribution will continue to offer
excellent growth opportunities for the Company in 2000.

LICENSED BRANDS: The Company has a worldwide, multi-year licensing agreement
with Giorgio Armani for EMPORIO ARMANI OROLOGI, a line of watches featuring
distinctive interpretations of retro and modern design. Available in Emporio
Armani Boutiques, better department stores, specialty stores and select jewelry
stores, the line continues to grow in sales and distribution worldwide. The
Company also entered into worldwide, multi-year licensing agreements in 1999 to
manufacture, market and distribute fashion watches under the DKNY and DIESEL
brand names. The DKNY watch line was introduced in early 2000, with the DIESEL
launch scheduled for mid-year 2000.

FOSSIL STORES: The Company operated 17 retail stores at the end of 1999, adding
eight new locations during the year, including the Company's first retail store
in New York City. The FOSSIL stores continue to provide an exciting and
profitable format in which to display the Company's increasing product
assortments and to convey the FOSSIL brand image. The Company plans on opening
approximately 12 larger format retail stores in 2000 to accommodate the launch
of FOSSIL brand apparel. The Company also operated 33 outlet stores
coast-to-coast at the end of 1999. These stores allow the Company to control the
timely liquidation of discontinued styles while maintaining the integrity of the
FOSSIL brand.

PRIVATE LABEL AND PREMIUMS: In addition to building its own brand, 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 eyewear. The Company's premium/incentive division utilizes
its sourcing, design, and development expertise to translate many corporate
themes, events, or promotions into a comprehensive custom product program.

<PAGE>

[Graphics of Fossil Retail Store]

10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

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. The Company's current product offerings include an
extensive line of fashion watches sold under its FOSSIL and RELIC brands as
well as complementary lines of small leather goods, belts, handbags and
sunglasses. 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 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 and
leveraging of its infrastructure has contributed to its increasing net
sales and operating profits.

COMPANY HIGHLIGHTS

OVERALL

- - Net sales and operating income have grown at an average compounded growth
rate of in excess of 30% and 58%, respectively, for the last two fiscal
years and 21% and 27%, respectively, over the last five fiscal years.
- - For the past 14 consecutive fiscal quarters ended January 1, 2000, the
Company has achieved increases in net income of not less than 26% and
averaging 55% in comparison to the previous year's comparable period.
- - The Company declared a three-for-two stock split of the Company's $0.01
par-value common stock ("Common Stock") effected in the form of a 50% stock
dividend during each of the past two fiscal years.
- - A secondary offering of 2,302,500 shares of the Company's Common Stock was
completed mid-year 1998, in which the Company sold 215,000 shares.
- - The Company's Common Stock was added to the Standard & Poor's Small Cap 600
Index during June 1999.
- - Effective September 1999, the Company acquired certain assets of its
distributor in the United Kingdom, leaving the Company as the sole
distributor of its products in that region.
- - In 1997, the Company acquired the remaining 40% of the capital stock of its
distribution company covering Italy and the remaining 35% of the capital
stock of one of the Company's three main watch assembly factories.

PRODUCTS

- - The Company continued to introduce new products under its three principal
watch lines consisting of FOSSIL BLUE (a line of mainly metal-bracelet,
water resistant sport watches), FOSSIL STEEL (a line of stainless steel
watches) and F2 (ladies metal-bracelet watches). These three watch lines
continue to represent the majority of FOSSIL brand watch sales.
- - FOSSIL BIG TIC, a revolutionary part analog, part digital watch that
highlights the seconds on a backlite digital display was introduced on a
test basis late in 1998. This line was extremely well received at retail
and contributed positively to sales growth throughout 1999.
- - The Company has continued to design and introduce new watch products
utilizing various technologies and metal treatments to stay abreast of
fashions trends. These introductions have included various watches
utilizing digital technology as well as watches incorporating titanium and
aluminum.

11
<PAGE>

- - RELIC brand watches, the Company-owned brand sold in leading national and
regional chain department stores and specialty stores, continued to gain
momentum in 1999 almost doubling its sales volume over the prior fiscal
year. The increasing brand name recognition of RELIC allowed the Company to
begin extending the RELC brand into various leather accessory categories in
late 1998.
- - Net Sales of the Company's Leather products category increased over 40% in
1999 compared to 1998 fueled by significant increases in sales in nearly
all of the FOSSIL branded product lines as well as growth stemming from the
continued roll-out of RELIC brand goods.
- - Sales of FOSSIL brand sunglasses continued to show double-digit growth the
past two fiscal years, reflecting positively on the wider breadth of price
points and designs the Company introduced into the line during 1997.
- - In order to complement the Company's existing line of products and to
increase consumer awareness of the FOSSIL brand, the Company has entered
into license agreements for other categories of fashion accessories and
apparel.

RETAIL LOCATION EXPANSION
- - The Company operated 17 FOSSIL retail stores at the end of 1999, selling
principally FOSSIL brand products. The retail stores, generally located in
high volume, international destination-type malls, allow the Company to
test new product introductions and enhance the FOSSIL brand name. The
Company opened eight and three retail stores in 1999 and 1998,
respectively.
- - The Company has announced plans to open approximately 12 larger format
retail stores during the Company's fiscal 2000 third quarter to accommodate
the launch of FOSSIL branded apparel. These stores will average 3,500
square feet compared to a current average of 2,300 square feet. The apparel
line will consist of casual wear and jeans wear.
- - The Company operated 33 FOSSIL outlet stores at the end of 1999. The
Company opened an additional five outlet stores in 1999 and one store in
1998.

LEVERAGING INFRASTRUCTURE
- - The Company has entered into various worldwide, multi-year licensing
agreements to design, produce and market certain designer brand watches.
These agreements include licenses for the EMPORIO ARMANI, DKNY, DONNA KARAN
NEW YORK and DIESEL brands. The Company launched EMPORIO ARMANI brand
watches in September 1997, and will launch DKNY and DIESEL brand watches
worldwide in 2000.
- - The Company entered into a joint venture agreement with Seiko Instruments
America, Inc. in August 1999, in which the Company acquired a 20% equity
interest. The joint venture company ("SMI") is responsible for designing,
manufacturing, marketing and distributing watches principally to the
mass-market distribution channel. The Company performs product design
services for SMI for which it will receive additional revenues through a
design services agreement.
- - The Company signed a five-year agreement with Eddie Bauer, Inc. appointing
the Company as the exclusive supplier of Eddie Bauer watches effective
January 1998.

12
<PAGE>

[Graphic of FOSSIL products and images]

13
<PAGE>

RESULTS OF OPERATIONS

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
consolidated statements of income and (ii) the percentage changes in these line
items between the years indicated.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
CHANGE CHANGE
FROM FROM
FISCAL YEAR 1999 1998 1998 1997 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales ....................... 100.0% 37.4% 100.0% 24.5% 100.0%
Cost of sales ................... 49.2 33.5 50.6 21.2 52.0
------ ------ ------
Gross profit .................... 50.8 41.4 49.4 28.1 48.0
Operating expenses .............. 29.9 31.9 31.2 14.7 33.9
------ ------ ------
Operating income ................ 20.9 57.9 18.2 60.0 14.1
Interest expense ................ -- (44.5) 0.1 (78.0) 0.4
Other income (expense)--net ..... 0.1 218.5 (0.1) 71.4 (0.6)
------ ------ ------
Income before income taxes ...... 21.0 60.5 18.0 70.2 13.1
Income taxes .................... 8.6 59.6 7.4 70.9 5.4
------ ------ ------
Net income ...................... 12.4% 61.1% 10.6% 69.8% 7.7%
------ ------ ------
</TABLE>

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 years indicated:

<TABLE>
<CAPTION>
Amount in millions Percent of total
-------------------- ------------------
FISCAL YEAR 1999 1998 1997 1999 1998 1997
------- ------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
International:
Europe .......................... $ 86.7 $ 62.7 $ 45.2 20.7% 20.6% 18.4%
Other ........................... 41.6 26.9 30.8 9.9 8.8 12.6
------- ------- -------- ------ ------- -------
Total international ............. 128.3 89.6 76.0 30.6 29.4 31.0

Domestic:
Watch products .................. 180.7 137.0 101.2 43.2% 45.0% 41.3%
Other products .................. 72.1 52.0 47.6 17.2 17.0 19.5
------- ------- -------- ------ ------- -------
Total ....................... 252.8 189.0 148.8 60.4 62.0 60.8
Stores .......................... 37.7 26.1 20.0 9.0 8.6 8.2
------- ------- -------- ------ ------- -------
Total domestic .................. 290.5 215.1 168.8 69.4 70.6 69.0
------- ------- -------- ------ ------- -------

Total net sales ................. $ 418.8 $ 304.7 $ 244.8 100.0% 100.0% 100.0%
------- ------- -------- ------ ------- -------
</TABLE>

14
<PAGE>

[Graphic of various FOSSIL watches]

15
<PAGE>

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. Management anticipates continued sales volume growth during 2000 from
nearly all product lines and geographic areas from both existing products and
new product lines scheduled to be launched during the year.

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. Management believes gross
profit margins during fiscal 2000 will exceed 1999 levels slightly based on an
anticipated higher sales mix of licensed designer brand watch and Company-owned
store sales.

16
<PAGE>

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. Management anticipates operating expenses, as a percentage of
net sales, in fiscal 2000 to approximate 1999 levels. Management intends to
spend any additional earnings that would have generally resulted from leveraging
operating expenses against projected higher sales volumes on the long-term
growth of the Company. These initiatives include increased brand advertising,
web site development and advertising, new business development and the continued
investment in the Company's operational infrastructure.

OTHER INCOME (EXPENSE). Other income (expense)-net typically reflects interest
income from cash investments and the minority interests in the profit/loss of
the Company's majority-owned operations. The change in other income/expense was
favorable in 1999 as increases in interest income and royalty revenues from
licensing the FOSSIL brand offset increases in the minority interest share of
profits and additional foreign currency losses, due mainly to the strength of
the U.S. dollar.

17
<PAGE>

FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Sales volume increases of FOSSIL branded watches accounted for the
majority of net sales growth worldwide fueled by the continued growth in the
Company's FOSSIL BLUE and F2 watch lines. In addition, FOSSIL STEEL, a watch
line introduced in mid-1997, positively impacted sales volume growth as the line
developed into a core offering. Internationally, the process of aligning the
Company's watch collection offered in Europe with the Company's best selling
styles in the U.S., which the Company began mid-1997, resulted in significant
increases in the European sales momentum. "International Other" sales as denoted
in the above table, were negatively impacted in 1998 as a result of declining
sales in the Company's Asian-based operations, due primarily to the region's
economic problems, and an approximate $6 million sale during 1997 of non-branded
watches used as a premium incentive. Worldwide sales generated from the
continued roll-out of the Company's Emporio Armani licensed brand watches also
positively impacted watch sales during 1998. Leather and sunglass product sales,
which comprise the majority of the "Domestic Other" sales line in the above
table, each contributed double-digit growth to overall net sales increases in
1998. Continued expansion of Company-owned stores, as well as increases in same
store sales, has also added to sales volume growth.

GROSS PROFIT. Gross profit margin increases are primarily attributable to the
increased strength of the U.S. dollar over the Japanese Yen, an increased mix of
the Company's watch products supplied by its majority-owned assembly facilities
and increased sales through Company-owned retail locations. The Company's cost
of certain watch components declined as the U.S. dollar strengthened in relation
to the Japanese Yen.

OPERATING EXPENSE. Operating expense increases were due primarily to costs
necessary to support increased sales volumes, new ventures and new Company-owned
stores. As a percentage of net sales, total selling, general and administrative
expenses decreased as a result of leveraging expenses against higher sales
volumes.

OTHER INCOME (EXPENSE). The change in other income/expense was favorable in 1998
primarily due to an increase in interest income from investing a higher level of
cash holdings and the non-recurrence of $0.7 million in legal settlements
incurred in 1997. These favorable changes were mitigated by an increase in the
minority interests in the profit/loss of the Company's majority-owned
operations.

EFFECTS OF INFLATION

Management does not believe that inflation has had a material impact on results
of operations for the periods presented. Substantial increases in costs,
however, could have an impact on the Company and the industry. Management
believes that, to the extent inflation affects its costs in the future, the
Company could generally offset inflation by increasing prices if competitive
conditions permit.

18
<PAGE>

FOREIGN CURRENCY RISK

As a multinational enterprise, the Company is exposed to changes in foreign
currency exchange rates. The Company employs a variety of practices to manage
this market risk, including its operating and financing activities and, where
deemed appropriate, the use of derivative financial instruments. Forward
contracts have been utilized by the Company to mitigate foreign currency risk.
The Company's most significant foreign currency risk relates to the Euro 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 exposures during 1999 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 liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements. Generally, starting in
the second quarter of each fiscal year, the Company's cash needs begin to
increase to finance the accumulation of inventory and the build-up of accounts
receivable. The Company's cash requirements typically peak in the
September-November time frame. Operating cash flow has generally funded the
Company's cash requirements and capital expenditures over the past few years.
The Company's primary capital requirements are for working capital, investing
activities associated with the expansion of its office and distribution
facilities, international growth, systems development and Company-owned store
development. During 1997, capital expenditures included the construction of a
138,000 square foot warehouse and distribution facility. The construction costs
of the facility were approximately $4.4 million. Long-term financing of $5.0
million was obtained in 1994 to cover building projects of which approximately
$4.4 million was outstanding at 1997 year-end. During January 1998, the Company
paid this long-term credit facility in full with available cash. Capital
expenditures during 1998 and 1999 were influenced by expenditures on computer
system hardware and software to address the potential Year 2000 issues, the
construction costs for additional Company-owned stores and the construction of
additional office space.

During 1998, the Company completed a secondary offering of 2,302,500 shares of
Common Stock in order to increase the liquidity of its Common Stock and to fund
working capital needs. Based on the Company's adequate cash levels on hand at
the time, only a small portion of the offering related to new Common Stock
issued by the Company from which it received approximately $3.6 million in cash
proceeds for working capital needs. The Company's Board of Directors during
1998, authorized management to repurchase up to 500,000 shares of Common Stock
in open market purchases and in privately negotiated transactions. During fiscal
1998 and 1999, the Company repurchased 188,500 and 90,500 shares of Common
Stock, respectively, at a cost of approximately $2.6 million and $2.0 million,
respectively.

19
<PAGE>

[Graphic of RELIC brand products and images]

20
<PAGE>

Management believes the Company's financial position remains extremely strong.
Working capital of $155.2 million and net cash balances (defined as cash and
cash equivalents plus short-term investments less current notes payable) of
$96.7 million existed at the end of fiscal 1999 compared to working capital of
$109.0 million and net cash balances of $52.7 million as of year-end 1998.
During fiscal year 2000, management believes capital expenditures may exceed
1999 levels to support the Company's planned opening of approximately 15 store
locations and further improvements of certain sales and distribution facilities.
As of fiscal year-end 1999, the Company had less than $1 million in capital
expenditure commitments. Short-term credit facilities totaling $43.0 million are
available to the Company for general working capital needs of which $5.0 million
was outstanding at the end of 1999. Management believes that cash flow from
operations and existing credit facilities will be sufficient to satisfy its
capital expenditure requirements.

FORWARD-LOOKING STATEMENTS

Included within management's discussion and analysis of the Company's operating
results and this annual report, "forward-looking statements" were made within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
expectations for fiscal 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 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.

SELECTED QUARTERLY FINANCIAL DATA

The table below sets forth selected quarterly financial information. The
information is derived from 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.

<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
Net sales ........................................ $83,277 $90,271 $104,831 $140,383
Gross profit ..................................... 42,672 44,750 52,638 72,827
Operating expenses ............................... 24,795 27,991 30,324 42,328
Operating income ................................. 17,877 16,759 22,314 30,499
Income before income taxes ....................... 17,711 16,692 22,256 31,182
Provision for income taxes ....................... 7,280 6,826 9,125 12,784
Net income ....................................... 10,431 9,866 13,131 18,398
Basic earnings per share ......................... 0.34 0.31 0.41 0.57
Diluted earnings per share ....................... 0.32 0.29 0.39 0.55
Gross profit as a percentage of net sales ........ 51.2% 49.6% 50.2% 51.9%
Operating expenses as a percentage of net sales .. 29.8% 31.0% 28.9% 30.2%
Operating income as a percentage of net sales .... 21.5% 18.6% 21.3% 21.7%

FISCAL YEAR 1998
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Net sales ........................................ $56,885 $64,363 $82,393 $101,102
Gross profit ..................................... 27,901 31,905 40,433 50,265
Operating expenses ............................... 20,051 22,019 24,828 28,236
Operating income ................................. 7,850 9,886 15,605 22,029
Income before income taxes ....................... 7,882 9,697 15,456 21,694
Provision for income taxes ....................... 3,216 3,993 6,400 8,959
Net income ....................................... 4,666 5,704 9,056 12,735
Basic earnings per share ......................... 0.15 0.19 0.29 0.41
Diluted earnings per share ....................... 0.15 0.17 0.28 0.39
Gross profit as a percentage of net sales ........ 49.0% 49.6% 49.1% 49.7%
Operating expenses as a percentage of net sales .. 35.2% 34.2% 30.1% 27.9%
Operating income as a percentage of net sales .... 13.8% 15.4% 18.9% 21.8%
</TABLE>

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 35% 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 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
effect on 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 as of the
end of 1999 were below targeted levels, and therefore could result in higher
order levels in the first quarter of fiscal 2000. Management believes the
imbalance in inventory levels may be slightly less significant than it was at
the end of fiscal 1998.

As the Company increases the number of Company-owned outlet and retail stores,
it would generally amplify the Company's seasonality by decreasing the Company's
operating income in the first quarter and increasing the operating income in the
fourth quarter. In addition, new product line launches would generally augment
the sales levels in the quarter the product line 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 the products sold by the Company.

During the fourth quarter of 1999, operating expenses, as a percentage of net
sales, increased over the prior year comparable period. This increase was
primarily a result of increased levels of brand advertising, web development and
advertising and the continued investment in the Company's infrastructure.

22
<PAGE>

[Graphic of Various Licensed Brands]

23
<PAGE>

[Graphic of Fossil watches and images]

24
<PAGE>

[Graphic of Fossil watches and images]

25
<PAGE>

FINANCIAL INFORMATION

INDEPENDENT AUDITORS' REPORT

TO THE DIRECTORS AND STOCKHOLDERS OF FOSSIL, INC.:
We have audited the accompanying consolidated balance sheets of Fossil, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999 and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended January 1, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fossil, Inc. and subsidiaries at
January 1, 2000 and January 2, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 1,
2000, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Dallas, Texas
February 18, 2000

REPORT OF MANAGEMENT

The accompanying consolidated financial statements and other information
contained in this Annual Report have been prepared by management. The financial
statements have been prepared in accordance with generally accepted accounting
principles and include amounts that are based upon our best estimates and
judgements.

To help assure that financial information is reliable and that assets are
safeguarded, management maintains a system of internal controls and procedures
which it believes is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.

The consolidated financial statements and related notes thereto have been
audited by Deloitte & Touche LLP, independent auditors. The accompanying
auditors' report expresses an independent professional opinion on the fairness
of presentation of management's financial statements.

The Audit Committee of the Board of Directors is composed of the Company's
outside directors, and is responsible for selecting the independent auditing
firm to be retained for the coming year. The Audit Committee meets periodically
with the independent auditors, as well as with management, to review internal
accounting controls and financial reporting matters. The independent auditors
also meet privately on occasion with the Audit Committee, to discuss the scope
and results of their audits and any recommendations regarding the system of
internal accounting controls.

/s/ Tom Kartsotis /s/ Randy S. Kercho

Tom Kartsotis Randy S. Kercho
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer

26
<PAGE>

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
DOLLARS IN THOUSANDS
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................ $ 90,908 $ 57,263
Short-term marketable investments .................................... 10,870 --
Accounts receivable-net .............................................. 51,399 42,582
Inventories .......................................................... 63,029 57,295
Deferred income tax benefits ......................................... 6,769 5,655
Prepaid expenses and other current assets ............................ 7,832 3,538
---------------------------
Total current assets .............................................. 230,807 166,333

Investment in joint venture .............................................. 3,849 --
Property, plant and equipment-net ........................................ 28,603 23,117
Intangible and other assets .............................................. 6,105 4, 628
---------------------------
Total assets ...................................................... $ 269,364 $194,078
---------------------------

Liabilities and Stockholders' Equity
Current liabilities:
Notes payable ........................................................ $ 5,043 $ 4,537
Accounts payable ..................................................... 11,870 14,512
Accrued expenses:
Co-op advertising ................................................. 15,191 13,311
Compensation ...................................................... 4,617 3,246
Other ............................................................. 21,493 11,201
Income taxes payable ................................................. 17,395 10,487
---------------------------
Total current liabilities ......................................... 75,609 57,294
---------------------------
Commitments (Note 10)
Minority interest in subsidiaries ........................................ 2,558 1,865
Stockholders' equity:
Common stock, 32,107,270 and 20,932,091
shares issued, respectively ....................................... 321 209
Additional paid-in capital ........................................... 41,774 34,345
Retained earnings .................................................... 153,569 102,858
Accumulated other comprehensive income ............................... (3,259) (1,037)
Treasury stock at cost, 59,572 and 103,679 shares, respectively ...... (1,208) (1,456)
---------------------------
Total stockholders' equity ........................................ 191,197 134,919
---------------------------
Total liabilities and stockholders' equity ........................ $ 269,364 $194,078
---------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

27
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Net sales ........................................... $ 418,762 $ 304,743 $ 244,798
Cost of sales ....................................... 205,875 154,239 127,270
--------------------------------------------
Gross profit ........................................ 212,887 150,504 117,528
Operating expenses:
Selling and distribution ........................ 95,349 71,720 65,101
General and administrative ...................... 30,089 23,414 17,817
--------------------------------------------
Total operating expenses ..................... 125,438 95,134 82,918
--------------------------------------------
Operating income .................................... 87,449 55,370 34,610
--------------------------------------------
Interest expense .................................... 117 211 956
Other income (expense)--net ......................... 509 (430) (1,503)
--------------------------------------------
Income before income taxes .......................... 87,841 54,729 32,151
Provision for income taxes .......................... 36,015 22,568 13,209
--------------------------------------------
Net income ...................................... $ 51,826 $ 32,161 $ 18,942
--------------------------------------------
Other comprehensive income:
Currency translation adjustment ................. (1,658) 1,181 (1,572)
Unrealized loss on marketable investments ....... (564) -- --
--------------------------------------------
Total comprehensive income ................... $ 49,604 $ 33,342 $ 17,370
--------------------------------------------
Earnings per share:
Basic ........................................... $ 1.63 $ 1.04 $ 0.63
--------------------------------------------
Diluted ......................................... $ 1.55 $ 0.99 $ 0.61
--------------------------------------------
Weighted average common shares outstanding:
Basic ........................................... 31,900,024 31,054,041 30,203,310
--------------------------------------------
Diluted ......................................... 33,428,153 32,586,096 31,250,147
--------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

28
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>

COMMON STOCK
ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996......... 13,242,994 $ 132 $22,766 $ 52,315

Common stock issued upon
exercise of stock options...... 167,899 2 1,623 --
Tax benefit derived from
exercise of stock options...... -- -- 464 --
Common stock issued for
purchase of additional
Italy ownership................ 128,109 1 1,236 --
Three-for-two split................ 6,769,501 68 (68) --
Net income......................... -- -- -- 18,942
Currency translation
adjustment..................... -- -- -- --
---------------------------------------------------------------

Balance, January 3, 1998........... 20,308,503 203 26,021 71,257

Common stock issued upon
exercise of stock options...... 408,588 4 2,877 --
Tax benefit derived from
exercise of stock options...... -- -- 1,495 --
Secondary offering,
net of offering costs.......... 215,000 2 3,611 --
Purchase of treasury shares........ -- -- -- --
Reissuance of treasury stock
upon exercise of stock options. -- -- -- (560)
Net income......................... -- -- -- 32,161
Currency translation adjustment.... -- -- -- --
Other.............................. -- -- 341 --
---------------------------------------------------------------

Balance, January 2, 1999........... 20,932,091 209 34,345 102,858

Common stock issued upon
exercise of stock options...... 709,133 7 3,632 --
Tax benefit derived from
exercise of stock options...... -- -- 3,902 --
Purchase of treasury shares........ -- -- -- --
Reissuance of treasury stock
upon exercise of stock options. -- -- -- (1,115)
Three-for-two-stock split.......... 10,466,046 105 (105) --
Net income......................... -- -- -- 51,826
Unrealized loss on
marketable investments......... -- -- -- --
Currency translation adjustment.... -- -- -- --

---------------------------------------------------------------
Balance, January 1, 2000........... 32,107,270 $ 321 $41,774 $153,569
---------------------------------------------------------------

ACCUMULATED OTHER
COMPREHENSIVE INCOME TREASURY STOCK
CUMULATIVE UNREALIZED LOSS TOTAL
TRANSLATION ON MARKETABLE SHARE STOCKHOLDERS'
ADJUSTMENT INVESTMENTS SHARES COST EQUITY
------------ ------------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,1996 ......... $ (646) $ -- -- $ -- $ 74,567

Common stock issued upon
exercise of stock options ..... -- -- -- -- 1,625
Tax benefit derived from
exercise of stock options ..... -- -- -- -- 464
Common stock issued for
purchase of additional
Italy ownership ............... -- -- -- -- 1,237
Three-for-two split ............... -- -- -- -- --
Net income ........................ -- -- -- -- 18,942
Currency translation
adjustment .................... (1,572) -- -- -- (1,572)
------------------------------------------------------------------------

Balance, January 3, 1998 .......... (2,218) -- -- -- 95,263

Common stock issued upon
exercise of stock options ..... -- -- -- -- 2,881
Tax benefit derived from
exercise of stock options ..... -- -- -- -- 1,495
Secondary offering,
net of offering costs ......... -- -- -- -- 3,613
Purchase of treasury shares ....... -- -- (188,500) (2,647) (2,647)
Reissuance of treasury stock
upon exercise of stock options -- -- 84,821 1,191 631
Net income ........................ -- -- -- -- 32,161
Currency translation adjustment ... 1,181 -- -- -- 1,181
Other ............................. -- -- -- -- 341
------------------------------------------------------------------------

Balance, January 2, 1999 .......... (1,037) -- (103,679) (1,456) 134,919

Common stock issued upon
exercise of stock options ..... -- -- -- -- 3,639
Tax benefit derived from
exercise of stock options ..... -- -- -- -- 3,902
Purchase of treasury shares ....... -- -- (90,500) (1,994) (1,994)
Reissuance of treasury stock
upon exercise of stock options -- -- 134,607 2,242 1,127
Three-for-two-stock split ......... -- -- -- -- --
Net income ........................ -- -- -- -- 51,826
Unrealized loss on
marketable investments ........ -- (564) -- -- (564)
Currency translation adjustment ... (1,658) -- -- -- (1,658)

------------------------------------------------------------------------
Balance, January 1, 2000 .......... $ (2,695) $ (564) (59,572) $(1,208) $191,197
------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Operating Activities:
Net income ............................................ $ 51,826 $ 32,161 $ 18,942
Noncash items affecting net income:
Minority interest in subsidiaries ................. 1,635 1,004 344
Depreciation and amortization ..................... 5,889 4,395 3,047
Increase in allowance for doubtful accounts ....... 1,044 2,165 408
Increase in allowance for returns-net of related
inventory in transit ........................... 2,098 2,053 784
Deferred income tax benefits ...................... (1,114) (1,151) (837)
Changes in assets and liabilities:
Accounts receivable ............................... (11,355) (13,899) (6,114)
Inventories ....................................... (3,014) (4,575) (662)
Prepaid expenses and other current assets ......... (4,733) (1,106) (489)
Accounts payable .................................. (5,056) 5,831 1,393
Accrued expenses .................................. 13,544 7,675 2,135
Income taxes payable .............................. 10,811 6,478 4,130
--------------------------------------------
Net cash from operating activities ................ 61,575 41,031 23,081

Investing Activities:
Net assets acquired in business combination ....... (2,732) -- (385)
Additions to property, plant and equipment ........ (10,568) (6,307) (7,363)
Purchase of marketable investments ................ (10,870) -- --
Investment in joint venture ....................... (4,000) -- --
Sale of property and equipment .................... 78 264 --
Decrease (increase) in intangible and other assets. (1,505) (70) 272
--------------------------------------------
Net cash used in investing activities ............. (29,597) (6,113) (7,476)

Financing Activities:
Issuance of common or treasury stock:
Exercise of stock options ...................... 4,766 3,512 1, 624
Secondary offering ............................. -- 3,613 --
Net purchase of treasury stock .................... (1,994) (2,647) --
Distribution of minority interest earnings ........ (790) (390) (499)
Repayment of notes payable-affiliates ............. -- -- (1,001)
Increase (repayments) of notes payable-banks ...... 505 (3,325) (5,992)
Other ............................................. -- 341 --
--------------------------------------------
Net cash from (used in) financing activities ...... 2,487 1,104 (5,868)

Effect of exchange rate changes on cash
and cash equivalents .............................. (820) 137 (614)
--------------------------------------------
Net increase in cash and cash equivalents ............. 33,645 36,159 9,123
Cash and cash equivalents:
Beginning of year ................................. 57,263 21,104 11,981
--------------------------------------------
End of year ....................................... $ 90,908 $ 57,263 $ 21,104
--------------------------------------------
</TABLE>

30 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Fossil, Inc., a
Delaware corporation, and its subsidiaries (the "Company"). The Company reports
on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week
calendar quarters). The Company changed to the retail-based calendar effective
January 1, 1997. Due to this change, the first quarter of fiscal 1997 contained
an additional one-half week for the transition period. This change had an
immaterial impact on comparability. Significant intercompany balances and
transactions are eliminated in consolidation. The Company is primarily engaged
in the design, development and distribution of fashion watches and other
accessories, principally under the "FOSSIL" and "RELIC" brand names. 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 generally accepted
accounting principles 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 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. At January 1,
2000, securities of $4.7 million are classified as available for sale and stated
at fair value, with unrealized gains and losses included in accumulated other
comprehensive income/loss as a component of stockholders' equity, and securities
of $6.2 million are classified as held-to-maturity and are stated at amortized
cost.

ACCOUNTS RECEIVABLE are stated net of allowances of approximately $17.7 million
and $14.0 million for estimated customer returns and approximately $8.0 million
and $6.9 million for doubtful accounts at the close of fiscal year 1999 and
1998, 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.

CUMULATIVE TRANSLATION ADJUSTMENT is included in accumulated other compensive
income/loss as a component of stockholders' equity and reflects the unrealized
adjustments resulting from translating the financial statements of foreign
subsidiaries. The functional currency of the Company's foreign subsidiaries is
the local currency of the country. Accordingly, assets and liabilities of the
foreign subsidiaries are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average rates prevailing during
the year. Changes in exchange rates that affect cash flows and the related
receivables or payables are recognized as transaction gains and losses in the
determination of net income. The Company incurred net foreign currency
transaction losses of approximately $1.2 million, $0.4 million and $0.7 million
for fiscal years 1999, 1998 and 1997, respectively, which have been included in
other income (expense).

31
<PAGE>

FORWARD CONTACTS are entered into by the Company principally to hedge the
payment of intercompany inventory transactions with its non-U.S. subsidiaries.
Currency exchange gains or losses resulting from the translation of the related
accounts, along with the offsetting gains or losses from the hedge, are deferred
until the inventory is sold or the forward contract is completed. At January 1,
2000, the Company had hedge contracts to sell (i) 177,000,000 Japanese Yen for
approximately $1.8 million, expiring through December 2000, and (ii)
1,753,415,017 Italian Lira for approximately $0.9 million, expiring through
March 2000.

REVENUES are recognized as sales when merchandise is shipped and title transfers
to the customer. The Company permits the return of damaged or defective products
and accepts limited amounts of product returns in certain other instances.
Accordingly, the Company provides allowances for the estimated amounts of these
returns at the time of revenue recognition.

ADVERTISING COSTS for in-store and media advertising as well as co-op
advertising and promotional allowances are expensed as incurred. Advertising
expenses for fiscal years 1999, 1998 and 1997 were approximately $27.1 million,
$17.0 million and $14.3 million, respectively.

NEW ACCOUNTING STANDARDS. In June 1998, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was issued which establishes new accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of all derivatives as either assets or liabilities in the
statement of financial position and the measurement of those instruments at fair
value. This pronouncement will require such reporting effective beginning in
fiscal year 2001. The Company is currently analyzing the effect of the standard
and does not expect it to have a material effect on the Company's consolidated
financial statements.

MINORITY INTEREST IN SUBSIDIARIES, included within other income/expense
represents the minority stockholders' share of the net income/loss of various
consolidated subsidiaries and investments in affiliated companies. The minority
interest in the consolidated balance sheets reflects the proportionate interest
in the equity of the various consolidated subsidiaries.

EARNINGS PER SHARE ("EPS"). Basic EPS is based on the weighted average number of
common shares outstanding during each period. Diluted EPS includes the effects
of dilutive stock options outstanding during each period using the treasury
stock method.

32
<PAGE>

The following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 1998 1997
<S> <C> <C> <C>
Numerator:
Net income ......................................... $ 51,826,000 $ 32,161,000 $ 18,942,000
---------------------------------------------------
Denominator:
Basic EPS computation:
Weighted average common shares outstanding ......... 21,462,121 20,747,242 13,423,693
Three-for-two stock split effected April 1998 ...... -- -- 6,711,847
Three-for-two stock split effected August 1999 ..... 10,466,046 10,351,347 10,067,770
Treasury stock purchases, net ...................... (28,143) (44, 548) --
---------------------------------------------------
31,900,024 31,054,041 30,203,310
---------------------------------------------------
Basic EPS $ 1.63 $ 1.04 $ 0.63
---------------------------------------------------

Diluted EPS computation:
Weighted average common shares outstanding ......... 21,462,121 20,747,242 13,423,693
Stock option conversion ............................ 1,528,129 1,021,370 465,261
Three-for-two stock split effected April 1998 ...... -- -- 6,944,477
Three-for-two stock split effected August 1999 ..... 10,466,046 10,862,032 10,416,716
Treasury stock purchases, net ...................... (28,143) (44,548) --
---------------------------------------------------
33,428,153 32,586,096 31,250,147
---------------------------------------------------
Diluted EPS $ 1.55 $ 0.99 $ 0.61
---------------------------------------------------
</TABLE>

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 1997 and 1998 amounts have been made to conform to
the 1999 presentation.

2. ACQUISITIONS

Effective April 1997, Fossil (East) Limited acquired the remaining 35% of
capital stock of Amazing Time, Ltd. from its minority stockholder in exchange
for approximately $0.4 million in cash. The acquisition of this Hong Kong-based
watch assembly factory has been accounted for as a purchase and, in connection
therewith, the Company recorded goodwill of approximately $0.2 million. In
February 1997, Fossil Europe B.V. ("Fossil B.V.") acquired the remaining 40% of
Fossil Italia, S.r.l.'s outstanding common stock from minority stockholders for
288,246 shares of the Company's $0.01 par value common stock ("Common Stock"),
of which approximately $0.3 million was recorded as goodwill.

Effective September 1999, Fossil U.K., Ltd. acquired certain assets of Junghans
U.K., Ltd. ("Junghans UK") for approximately $2.7 million in cash. Junghans UK
was the Company's primary distributor in the United Kingdom and Ireland. The
acquisition was accounted for as a purchase and, in connection therewith, the
Company recorded goodwill of approximately $0.6 million.

The results of these acquired operations are included in the accompanying
consolidated financial statements since the dates of their acquisition. The
proforma effects as if these acquisitions had occurred at the beginning of the
years presented are not significant.

<PAGE>

3. INVESTMENT IN JOINT VENTURE

During August 1999, the Company invested $4.0 million in cash to acquire a 20%
interest in SII Marketing International, Inc. ("SMI"). SMI, a joint venture
between the Company and Seiko Instruments America, Inc, was formed to design,
market and distribute watches in the mass-market distribution channel. The
investment 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 to the fiscal year end is included in other income/expenses. 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.

4. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 1998
IN THOUSANDS
<S> <C> <C>
Components and parts ................................................. $ 5,568 $ 3,402
Work-in-process ...................................................... 2,755 1,445
Finished merchandise on hand ......................................... 38,595 40,344
Merchandise at Company stores ........................................ 7,481 5,340
Merchandise in-transit from customer returns ......................... 8,630 6,764
------------------------------
$ 63,029 $ 57,295
------------------------------

</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 1998
IN THOUSANDS
<S> <C> <C>
Land ................................................................. $ 2,535 $ 2,535
Building ............................................................. 11,459 9,913
Furniture and fixtures ............................................... 16,843 11,292
Equipment ............................................................ 6,434 5,486
Computer software .................................................... 3,087 2,518
Leasehold improvements ............................................... 6,755 5,035
------------------------------
47,113 36,779
Less accumulated depreciation and amortization ....................... 18,510 13,662
------------------------------
$ 28,603 $23,117
------------------------------

</TABLE>

6. INTANGIBLE AND OTHER ASSETS

Intangibles and other assets consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 1998
IN THOUSANDS
<S> <C> <C>
Costs in excess of tangible net assets acquired ...................... $ 5,200 $ 4,545
Noncompete agreement ................................................. 475 475
Trademarks ........................................................... 946 555
Deposits ............................................................. 844 479
Cash surrender value of life insurance ............................... 714 --
Other ................................................................ 250 218
------------------------------
8,429 6,272
Less accumulated amortization ........................................ 2,324 1,644
------------------------------
$ 6,105 $ 4,628
------------------------------
</TABLE>

34
<PAGE>

7. DEBT

BANK: U.S.-BASED. In May 1997, the Company extended the maturity date of its
Short-term Revolving credit facility with its primary bank ("U.S. Short-term
Revolver"). In June 1997, the Company renewed the U.S. Short-term Revolver and
amended it to increase the funds available under the facility to $40 million, an
increase of $10 million over the previous facility, not subject to any borrowing
base calculation. The facility was also amended to eliminate Japanese Yen
currency borrowings and replace them with a stand-by letter of credit for 540
million Japanese Yen (approximately $5.0 million) as collateral for Company
borrowings from any Japan-based bank. In both June 1998 and 1999, the Company
renewed the U.S. Short-term Revolver for one year and 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
1.25% and 1.00% prior to June 29, 1998 and 1999 respectively). The U.S.
Short-term Revolver is unsecured and requires the maintenance of net worth,
quarterly income, working capital and financial ratios. There were no borrowings
under the U.S. Short-term Revolver as of fiscal year end 1999 or 1998.

In August 1994, the Company signed a $5.0 million financing agreement with its
primary bank ("Long-term Revolver") to partially finance the Company's
facilities construction costs and for other general corporate purposes. The
financing agreement was for a ten-year revolving term loan with quarterly
payments equal to 1% of the stated principal amount of the facility. The
interest rate was the lender's prime rate (8.5% at January 3, 1998) and was
payable quarterly with an unused fee of 0.5% per annum. The financing agreement
additionally allowed for interest to be calculated at LIBOR (5.82 % at January
3, 1998), plus 1.25%. The amount outstanding under this facility was $4.35
million at the end of fiscal year 1997. The Company paid the Long-term Revolver
in full in January 1998. Interest expense under these credit facilities was
$5,630 and approximately $0.8 million for fiscal years 1998 and 1997,
respectively, and none for 1999. At fiscal year-end 1999, 1998 and 1997, the
Company had outstanding letters of credit of approximately $4.7 million, $3.2
million and $1.2 million, respectively, to vendors for the purchase of
merchandise.

BANKS: FOREIGN BASED. Fossil GmbH has short-term credit facilities with two
Germany-based banks with combined borrowing capacity of 5,000,000 deutsche marks
(approximately $2.5 million as of fiscal year-end 1999). No borrowings were
outstanding under the combined credit facilities at the end of fiscal year 1999
or 1998. Outstanding borrowings under the facilities bear interest at
approximately 6% and are collateralized by substantially all of Fossil GmbH's
assets. During August 1997, Fossil Japan restructured its short-term credit
facility with a Japan-based bank allowing borrowings of up to 540 million
Japanese Yen. All outstanding borrowings under the facility bore interest at the
Euroyen rate plus 1.8%. In connection with the financing agreement, Fossil Japan
agreed to pay an origination fee equal to 0.12% of the amount available under
the facility and an unused fee of 0.5% per annum.

In September 1999, Fossil Japan restructured its short-term credit facility with
a Japan-based bank allowing borrowings of up to 600 million Japanese Yen
(approximately $5.6 million as of fiscal year 1999). All outstanding borrowings
under the facility bore interest at the Euroyen rate (0.23% at January 1, 2000)
plus 1%. In connection with the financing agreement, Fossil Japan agreed to pay
a quarterly fee of 0.5% per annum on any undrawn portion of the loan. The
facility is collateralized by a stand-by letter of credit issued by the
Company's primary U.S. bank. Japan-based borrowings, in U.S. dollars, under the
facilities were approximately $5.0 million and $4.5 million as of fiscal
year-end 1999 and 1998, respectively. Interest expense under these credit
facilities was $0.1 million in both 1999 and 1998, and $21,000 in 1997.

<PAGE>

8. OTHER INCOME (EXPENSE) - NET

Other income (expense)-net consists of the following:

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
IN THOUSANDS
<S> <C> <C> <C>
Interest income ................................. $ 2,650 $ 1,160 $ 336
Minority interest in subsidiaries and affiliates (1,635) (1,004) (344)
Currency loss ................................... (1,181) (427) (733)
Legal settlements ............................... (16) (267) (661)
Non-taxable investment income ................... 221 -- --
Royalty income .................................. 353 45 106
Insurance proceeds above book value ............. 52 93 --
Loss on sale of fixed assets .................... (19) (84) --
Other income (expense) .......................... 84 54 (207)
-------------------------------------------------
$ 509 $ (430) $ (1,503)
-------------------------------------------------
</TABLE>

9. INCOME TAXES

Deferred income tax benefits reflect the net tax effects of deductible temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax benefits, consist
of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 1998
IN THOUSANDS
<S> <C> <C>
Deferred tax assets:
Bad debt allowance ................................................ $ 2,534 $ 2,193
Returns allowance ................................................. 5,646 4,283
263(A) capitalization of inventory ................................ 504 503
Miscellaneous tax asset items ..................................... 1,178 1,006
Deferred tax liabilities:
In-transit returns inventory ...................................... (3,093) (2,330)
---------------------------
Net current deferred tax benefits .................................... $ 6,769 $ 5,655
---------------------------
</TABLE>

Management believes that no valuation allowance against net deferred tax
benefits is necessary. The resulting provision for income taxes consists of the
following:

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
IN THOUSANDS
<S> <C> <C> <C>
Current provision:
United States .................................. $ 18,448 $ 10,278 $ 8,562
Foreign ........................................ 14,779 11,946 5,020
Deferred provision - United States ................ (1,114) (1,151) (837)
Tax equivalent related to exercise of stock options
(credited to additional paid-in capital) ....... 3,902 1,495 464
---------------------------------------------
Provision for income taxes ........................ $ 36,015 $ 22,568 $ 13,209
---------------------------------------------
</TABLE>

36
<PAGE>

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:

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
IN THOUSANDS
<S> <C> <C> <C>
Tax at statutory rate ........................... $ 30,744 $ 19,155 $ 11,253
State, net of federal tax benefit ............... 975 364 378
Other ........................................... 4,296 3,049 1,578
-------------------------------------------
Provision for income taxes ...................... $ 36,015 $ 22,568 $ 13,209
-------------------------------------------
</TABLE>

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.

10. COMMITMENTS

LICENSE AGREEMENTS. The Company has various license agreements to market watches
bearing certain trademarks owned by various entities. In accordance with these
agreements, the Company incurred royalty expense of approximately $3.8 million,
$3.5 million and $1.7 million in fiscal years 1999, 1998 and 1997, 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 1999
which expire on various dates from March 2000 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 1999 are
as follows (amounts in thousands):

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 $6.8 million, $5.1 million, and $4.4 million for fiscal years
1999, 1998 and 1997, 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 1999, are as follows (amounts in
thousands):

<TABLE>
<S> <C>
2000 .................................................... $ 6,801
2001 .................................................... 6,779
2002 .................................................... 4,746
2003 .................................................... 5,424
2004 .................................................... 4,959
Thereafter .............................................. 18,211
-----------
$ 46,920
-----------
</TABLE>

37
<PAGE>

11. STOCKHOLDERS' EQUITY AND BENEFIT PLANS

COMMON AND PREFERRED STOCK. On March 4, 1998, the Board of Directors declared a
3-for-2 stock split ("1998 Stock Split") of the Company's Common Stock which was
effected in the form of a stock dividend payable on April 8,1998 to stockholders
of record on March 25, 1998. On July 21, 1999, the Board of Directors of the
Company declared a 3-for-2 stock split ("1999 Stock Split") of the Company's
Common Stock which was effected in the form of a stock dividend which was paid
on August 17, 1999 to stockholders of record on August 3, 1999. Retroactive
effect has been given to these stock splits in all share and per share data in
these notes to financial statements.

The Company has 50,000,000 shares of authorized Common Stock, with 32,107,270
and 31,398,137 shares issued and outstanding at the close of fiscal year 1999
and 1998, 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.

TREASURY STOCK. On September 18, 1998, the Company's Board of Directors
authorized management to repurchase up to 500,000 shares of the Company's Common
Stock in the open market or privately negotiated transactions (the "Repurchase
Program"). During fiscal year 1999 and 1998, the Company repurchased 90,500
shares of treasury stock and 188,500 shares of treasury stock (282,750 shares
after giving effect to the 1999 stock split) respectively, under the Repurchase
Program at a cost of approximately $2.0 million and $2.6 million, respectively.
During fiscal year 1999 and 1998, 134,607 shares of treasury stock and 84,821
shares of treasury stock (127,232 shares after giving effect to the 1999 stock
split) were reissued, respectively, in connection with the Company's 1993
Long-Term Incentive Stock Option Plan ("Incentive Plan").

DEFERRED COMPENSATION AND SAVINGS PLANS. The Company has a savings plan in the
form of a defined contribution plan (the "401(k) plan") for substantially all
full-time employees of the Company. Employees are eligible to participate in the
401(k) plan after one year of service. The Company matches 50% of employee
contributions up to 3% of their compensation and 25% of the employee
contributions between 3% and 6% of their compensation. The Company also has the
right to make certain additional matching contributions not to exceed 15% of
employee compensation. The Company's Common Stock is one of several investment
alternatives available under the 401(k) plan. Matching contributions made by the
Company to the 401(k) plan totaled approximately $0.2 million for each of the
fiscal years 1999, 1998 and 1997.

In December 1998, the Company adopted the Fossil, Inc. and Affiliates Deferred
Compensation Plan (the "Deferred Plan"). Eligible participant 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. During 1999, the Company
charged $0.5 million to expense for the Deferred Plan. No expense was charged in
either 1998 or 1997.

38
<PAGE>

LONG-TERM INCENTIVE PLAN. An aggregate of 2,587,500 shares of Common Stock were
reserved for issuance pursuant to the Incentive Plan, adopted April 1993. An
additional 1,350,000 shares were reserved in each of 1995 and 1998 for issuance
under the Incentive Plan. Designated employees of the Company, including
officers and directors, are eligible to receive (i) stock options, (ii) stock
appreciation rights, (iii) restricted or non-restricted stock awards, (iv) cash
awards or (v) any combination of the foregoing. The Incentive Plan is
administered by the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee"). Each option issued under the Incentive Plan
terminates at the time designated by the Compensation Committee, not to exceed
ten years. The current options outstanding predominately vest over a period
ranging from three to five years and were priced at not less than the fair
market value of the Company's Common Stock at the date of grant. The weighted
average fair value of the stock options granted during fiscal years 1999, 1998
and 1997 was $12.01, $6.27 and $3.57, 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 was 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 1999, 1998 and 1997 was $14.25, $11.93
and $5.30, respectively.

39
<PAGE>

The fair value of options granted under the Company's stock option plans during
fiscal years 1999, 1998 and 1997 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
65%, 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

<TABLE>
<CAPTION>
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
---------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, Fiscal 1996 ............... $ 2.945 -$11.445 $ 4.347 2,185,351 $ 4.635 927,571 1,600,286
Granted ........................ $ 5.556 -$11.195 $ 5.767 759,881 -- -- (759,881)
Exercised ...................... $ 2.945 -$ 7.945 $ 4.229 (365,956) -- -- --
Canceled ....................... $ 2.945 -$ 9.833 $ 5.228 (82,136) -- -- 82,136
Exercisable .................... $ 2.945 -$12.667 -- -- -- 386,699 --
----------- -------------------------
Balance, Fiscal 1997 ............... $ 2.945 -$12.667 $ 4.782 2,497,140 $ 4.650 1,314,270 922,541
Granted ........................ $ 8.667 -$19.833 $ 10.078 633,461 -- -- (633,461)
Shares designated for grant
through the plan ............ -- -- -- -- -- 1,350,000
Exercised ...................... $ 2.945 -$ 8.611 $ 4.701 (740,114) -- -- --
Canceled ....................... $ 2.945 -$14.833 $ 7.509 (76,699) -- -- 76,699
Exercisable .................... $ 2.945 -$12.667 -- -- -- (173,819) --
----------- -------------------------

Balance, Fiscal 1998 ............... $ 2.945 -$19.833 $ 6.187 2,313,788 $ 4.767 1,140,451 1,715,779
Granted ........................ $ 17.875 -$33.187 $ 19.483 542,671 -- -- (542,671)
Exercised ...................... $ 2.945 -$18.167 $ 5.319 (895,580) -- -- --
Canceled ....................... $ 3.528 -$29.875 $ 13.176 (53,426) -- -- 53,426
Exercisable .................... $ 2.945 -$19.833 -- -- -- (199,643) --

----------- -------------------------
Balance, Fiscal 1999 ............... $ 2.945 -$33.187 $ 10.193 1,907,453 $ 5.831 940,808 1,226,534
----------- -------------------------
</TABLE>

40
<PAGE>

NONEMPLOYEE DIRECTOR PLAN

<TABLE>
<CAPTION>
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE EXERCISE PRICE EXERCISE PRICE AVAILABLE
PER SHARE PER SHARE OUTSTANDING PER SHARE EXERCISABLE FOR GRANT
------------ ----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, Fiscal 1996 .......... $ 3.333 -$ 8.445 $ 5.225 112,500 $ 5.297 64,687 112,500
Granted ................... $ 6.000 -$11.111 $ 8.555 40,500 -- -- (40,500)
Exercised ................. $ 3.722 -$ 7.611 $ 6.500 (11,813) -- --
Canceled .................. $ 3.722 -$ 7.611 $ 5.490 (6,187) -- -- 6,187
Exercisable ............... $ 3.333 -$ 8.445 -- -- -- 34,875 --
----------- ---------------------------
Balance, Fiscal 1997 .......... $ 3.333 -$11.111 $ 6.100 135,000 $ 5.212 99,562 78,187
Granted ................... $ 19.167 $ 19.167 13,500 -- -- (13,500)
Exercised ................. $ -- $ -- -- -- -- --
Canceled .................. $ -- $ -- -- -- -- --
Exercisable ............... $ 3.333 -$11.111 -- -- -- 20,250 --
----------- ---------------------------

Balance, Fiscal 1998 .......... $ 3.333 -$19.167 $ 7.288 $148,500 $ 5.681 119,812 64,687
Granted ................... $ 23.125 $ 23.125 9,000 -- -- (9,000)
Exercised ................. $ -- $ -- -- -- -- --
Canceled .................. $ -- $ -- -- -- -- --
Exercisable ............... $ 3.333 -$19.167 -- -- -- 16,874 --
----------- ---------------------------
Balance, Fiscal 1999 .......... $ 3.333 -$23.125 $ 8.193 157,500 $ 6.560 136,686 55,687
----------- ---------------------------
</TABLE>

Additional weighted average information for options outstanding and exercisable
as of fiscal year end 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE AVERAGE EXERCISE
EXERCISE NUMBER OF PRICE REMAINING NUMBER OF PRICE
OFFICE SHARES PER SHARE CONTRACTUAL LIFE SHARES PER SHARE
---------- --------- ----------- ---------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Incentive Plan: ................ $ 2.945 -$ 6.000 866,124 $ 4.881 6.2 years 718,853 $ 4.743
$ 6.010 -$18.000 516,170 $ 9.663 7.7 years 220,343 $ 9.289
$ 18.010 -$33.187 525,159 $ 19.476 9.2 years 1,612 $ 18.554
--------- --------
1,907,453 940,808 $ 5.831
--------- --------
Nonemployee
Director Plan: ................. $ 3.333 -$ 6.000 94,500 $ 4.524 5.0 years 94,500 $ 4.524
$ 6.010 -$18.000 40,500 $ 9.778 6.0 years 35,436 $ 9.587
$ 18.010 -$23.125 22,500 $ 20.750 9.4 years 6,750 $ 19.167
--------- --------
157,500 136,686 $ 6.560
--------- --------
</TABLE>

41
<PAGE>

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 1999, 1998 and 1997 are presented below.

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Net income:
As reported ................................. $ 51,826 $ 32,161 $ 18,942
Proforma .................................... $ 49,707 $ 30,048 $ 17,178
Basic earnings per share:
As reported ................................. $ 1.63 $ 1.04 $ 0.63
Proforma .................................... $ 1.56 $ 0.97 $ 0.57
Diluted earnings per share:
As reported ................................. $ 1.55 $ 0.99 $ 0.61
Proforma .................................... $ 1.49 $ 0.92 $ 0.55
</TABLE>

12. SUPPLEMENTAL CASH FLOW INFORMATION

The following is provided as supplemental information to the consolidated
statements of cash flows:

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
IN THOUSANDS
<S> <C> <C> <C>
Cash paid during the year for:
Interest ...................................... $ 402 $ 82 $ 924
Income taxes .................................. 27,532 18,388 10,642
Acquisition of minority interest in subsidiary
in exchange for common stock .................. -- -- 1,237
Reduction in income tax payable resulting
from exercise of employee stock options ....... 3,902 1,495 464
</TABLE>

13. MAJOR CUSTOMER, SEGMENT AND GEOGRAPHIC INFORMATION

Customers of the Company consist principally of major department stores and
specialty retailers located throughout the United States. The most significant
customers, individually or considered as a group under common ownership, which
accounted for over 10% of net sales for the periods presented, were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR 1999 1998 1997
<S> <C> <C> <C>
Customer A ............................................ 9% 10% 11%
</TABLE>

The Company's majority owned facilities operate primarily in four geographic
regions. The Company operates in a single industry, as a designer, developer,
marketer and distributor of fashion watches and other accessories, except in the
United States where the Company has an additional reportable segment: Stores.
Stores consist of the Company's outlet and mall-based retail stores selling the
Company's product directly to the consumer. Specific information related 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. These intercompany sales primarily
consist of product sales from the Far East into the U.S. and European operations
which are priced at cost plus a 5%-8% trade agent commission.

42
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR END 1999 NET SALES OPERATING INCOME LONG-LIVED ASSETS TOTAL ASSETS
IN THOUSANDS
<S> <C> <C> <C> <C>
United States--exclusive of Stores: $ 24,554 $ 144,465
External customers ..................... $ 252,816 $ 36,020 -- --
Intergeographic ........................ 34,700 -- -- --
Stores .................................... 37,797 4,361 8,294 24,818
Europe: 2,745 23,099
External customers ..................... 86,714 17,793 -- --
Intergeographic ........................ 500 -- -- --
Far East: 2,687 74,469
External customers ..................... 34,091 29,662 -- --
Intergeographic ........................ 140,800 -- -- --
Japan ..................................... 7,516 (387) 277 2,513
Intergeographic items ..................... (176,172) -- -- --
--------------------------------------------------------------------------------

Consolidated $ 418,762 $ 87, 449 $ 38,557 $ 269,364
--------------------------------------------------------------------------------

FISCAL YEAR END 1998
United States--exclusive of Stores: $ 17,851 $ 124,133
External customers ..................... $ 188,959 $ 22,278 -- --
Intergeographic ........................ 25,000 -- -- --
Stores .................................... 26,117 2,658 5,359 14,941
Europe: 2,028 31,756
External customers ..................... 62,668 10,149 -- --
Intergeographic ........................ -- -- -- --
Far East: 2,361 18,245
External customers ..................... 19,192 21,032 -- --
Intergeographic ........................ 107,100 -- -- --
Japan ..................................... 7,667 (747) 146 5,003
Intergeographic items ..................... (131,960) -- -- --
--------------------------------------------------------------------------------
Consolidated $ 304,743 $ 55,370 $ 27,745 $ 194,078
--------------------------------------------------------------------------------

FISCAL YEAR END 1997
United States--exclusive of Stores: $ 16,837 $ 81,817
External customers ..................... $ 148,854 $ 18,844 -- --
Intergeographic ........................ 20,700 -- -- --
Stores .................................... 20,036 1,558 4,722 13,941
Europe: 1,965 24,744
External customers ..................... 45,233 2,553 -- --
Intergeographic ........................ 800 -- -- --
Far East: 2,261 14,333
External customers ..................... 21,214 12,370 -- --
Intergeographic ........................ 68,000 -- -- --
Japan ..................................... 9,613 (715) 126 4,735
Intergeographic items ......................... (89,652) -- -- --
--------------------------------------------------------------------------------
Consolidated $ 244,798 $ 34,610 $ 25,911 $ 139,570
--------------------------------------------------------------------------------
</TABLE>

43
<PAGE>

CORPORATE INFORMATION

EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
Tom Kartsotis Randy S. Kercho Kenneth W. Anderson
Chairman of the Board and Executive Vice President Director
Chief Executive Officer and Chief Financial Officer

Kosta N. Kartsotis Mark D. Quick Alan J. Gold
President, Executive Vice President Director
Chief Operating Officer
and Director

Michael W. Barnes T. R. Tunnell Michael Steinberg
Executive Vice President Senior Vice President, Development Director
and Director Chief Legal Officer and Secretary

Richard H. Gundy Jal S. Shroff Donald J. Stone
Executive Vice President Managing Director- Director
Fossil East and Director

CORPORATE INFORMATION

Transfer Agent and Registrar Independent Auditors Corporate Counsel
Chase Mellon Shareholder Services LLC Deloitte & Touche LLP Jenkens & Gilchrist
Overpeck Centre 2200 Ross Avenue 1445 Ross Avenue
85 Challenger Road Dallas, TX 75201 Dallas, TX 75202
Ridgefield Park, NJ 07760
</TABLE>

INTERNET WEB SITE

The Company maintains a web site at the worldwide internet address of
www.FOSSIL.com. Certain product, event, press release and collector club
information concerning the Company is available at the site.

STOCKHOLDER INFORMATION

Annual Meeting
The Annual Meeting of Stockholders will be held on Wednesday, May 24, 2000, at
4:00 pm at the Company's headquarters, 2280 N. Greenville Ave., Richardson,
Texas.